Daily Trust (Abuja)

26 January 2014

Nigeria: 'The Problem With the Nigerian Railway'

interview

London-based international railway strategic delivery expert, Rowland Ocholi Ataguba speaks with Sunday Trust on recent developments and issues in the Nigerian railways

At the recent Nigerian Railway Corporation Stakeholder's Workshop, you objected the proposed Public-Private Programme for warehouses and loading facilities in particular. Why?

There are a number of issues with the proposed model which suggests that it has not been thought through. The first is the apparent lack of understanding of the psychology of the private investor and how investment decisions are made. No one in the private sector has much faith in the ability of the NRC to operate an effective railway business. Since it is the soundness of the railway business that will underpin the investment decisions, it becomes an exercise in self-delusion. The further big question mark is the conflict with the BPE law.

In what way?

At the moment, the NRC operates just one freight service from Lagos to Kano each week. Would you invest in rehabilitating a warehouse or terminal facilities in, say Zungeru, in the hope that good business will one day materialise based on the NRC track record of derisive train and traffic densities?

The Bureau of Private Enterprise law vests the "privatisation" of the NRC solely in the BPE, which has ring-fenced the assets of the NRC property subsidiary for a sell-off to property investors.

Instead the NRC is now tampering with the assets with all kinds of plans to develop the assets into hotels, housing estates and what have you, whereas its core railway business is not sound.

So the NRC needs to decide whether it is a railway company without a sound railway business or a glorified property developer.

But the NRC expects to increase the number of its services over time. Wouldn't that be a boost?

You can tell that to those who invested in ICDs (inland container depots) concessions in 2002. They are still waiting for the trains to come over after 10 years. If the ICD concessionaires had dared to build terminal facilities and a spur line to link the track network, you can imagine how frenzied their financiers would have become by now.

In truth, any investor who accepts the claims of the NRC on its operations as we know it will have no one to blame. It is now over 12 months since the rehabilitated Lagos-Kano line was commissioned, but any serious railway operator would be running far more trains than the paltry three trains per week that the NRC is currently operating. The NRC just does not have the incentive to perform.

So what is the way forward?

The problem is that the NRC fancies itself as a railway operator and yet everyone it has asked has advised it that it is not good at it. Even the government has long accepted that the NRC should not operate railway services. Indeed, it is an accepted fact that while governments are a good source of investment and as facilitators and regulators of railways, they are terrible as railway operators or businessmen.

Private railway operators have shown us the world over how better disposed they are to running effective railways provided they are properly incentivised. Government-run railways are becoming extinct.

The NRC as a government agency has run budget deficits since 1964 that simply got progressively worse, calling on substantial sums of public money to keep it afloat and keep its staff perpetually indolent until it came crashing to a grinding halt.

Whereas the NRC's traditional focus is on the technical aspects of its business, its costing and pricing techniques to identify profitable and unprofitable operations and markets are still rudimentary. The quality of its services keyed to customer needs is still poor. While active marketing remains a culture alien to a government agency, the NRC does not thoroughly understand its markets.

It still cross-subsidises its unprofitable passenger business with its potentially profitable freight business, thus blurring the identification of unprofitable operations and hampering the development of profitable activities. Indeed, its poor management of customer expectations is indicative of its lack of customer focus.

It is enough of a red flag that NRC managers talk mostly in terms of costs but not in terms of revenues and their application. The lack of clarity in terms of the funding of future asset renewals remains a big issue.

The Ministry of Transport, instead of limiting itself to the formulation of policy and the supervision of the NRC, is also knee-deep in large contracts for railway infrastructure with no clear strategy for who or how it will operate the lines when ready to be put into service.

The way forward is to concession the operations and maintenance of the NRC and restructure the railway environment. You must choose the right concession model too! None of which is new. They are in the 25 year strategic vision. Sadly, we seem to have deviated from the essence of the vision.

But the NRC says it is implementing the 25 year vision...

Perhaps, in name only.

How so?

In many ways, but let's stick with a few. The essential 25-year strategic vision has three components - system transition, system modernisation and system stabilisation. The system modernisation strategy comprises of system conversion and system expansion. System conversion has been junked in effect with the resort to wholesale rehabilitation, instead of the prescribed emergency rehabilitation.

This suggests that we will effectively end up with two railway systems, which deflect from the fundamentals of the 25-year vision of just one gauge type. Second is, where is the revised time-table and do we know what to expect after 25 years? Indeed, 25 years from when? At any rate given the pace of progress, perhaps we should call it "the 50-year vision that only meets the needs of the next 15 years"!! Third, restructuring the railway environment is supposed to be vested in a Railway Restructuring Agency, but where is that?

Fourth, the legislation to underpin reform is not being pursued with vigour, suggesting a certain ambivalence to effective change. The Railway and National Transport Commission bills have been on the table since 2008 and there they have remained. The NRC also continues to regulate itself, plus it has repeatedly claimed that it has developed an Outline Business Case (OBC) for the operations and maintenance (O&M) concessioning. But no one seems to know what that contains nor is there any clear plan towards granting O&M concessions.

Fifth, when the 25-year vision talks about organisational reform, it means culture change not musical chairs. It means moving away from a civil service business-as-usual culture to a commercially driven customer-focused organisation. That's not happening.

Sixth, whereas the vision talks about local sourcing of rail materials, you will wince at the amounts expended in importing rail materials from China for the current rehabilitation and modernisation projects. It is enough to put the medium steel section at Ajaokuta to work and employing thousands of Nigerians. But sadly, these jobs have been shipped abroad for the benefit of the Chinese.

Seventh, one of the objectives of the vision is to progressively reduce the burden on the federal budget. That burden is sadly growing, not reducing. So it is hard to say that the NRC is implementing the same 25-year vision that we know.

Why did you say that wholesale rehabilitation junks system conversion to standard gauge?

First, you don't renew an asset that you wish to replace in the short-term. When you renew a railway asset, it presupposes that you intend to keep the asset for its useful life, or, at least, a significant part of it, given the cost. By renewing the infrastructure through wholesale rehabilitation, the life of that asset has been extended by about 25 years provided it is well maintained. Now who would want to uproot such rehabilitated track after a few years in the name of conversion to standard gauge, especially after expending over N100bn on its rehabilitation?

Don't you have confidence in the new standard gauge lines government is building?

Just one line so far from Lagos to Kano linking Abuja that was awarded by President Obasanjo in 2006 which was to be completed in four years. Now seven years on, it has not achieved 20 per cent completion. Indeed, construction has only commenced in only one of the five phases of that line and we say that we would like to build 10 new lines in 25 years. Does that sound realistic?

The federal government hopes that it can build the rest under the build, operate and transfer scheme. But even then, it has not instigated the appropriate and in-depth feasibility studies required to enthuse private investment. This model also goes against the grain, as the adopted PPP model worldwide for railway is for the government to build the infrastructure while the private sector provides the operations and maintenance. Only mining companies tend to build and operate railway lines.

Notwithstanding, it all suggests that we will end up with two railway systems, which cost a lot more to operate. But don't get me wrong; some countries have more than one gauge type running side-by-side. So I am not even suggesting that running two systems is bad for us. It's just not consistent with the 25-year vision that they say they are implementing.

Are these the "policy flip-flops" that you complained about?

Indeed. Such is the bane of our railways. We spend huge amounts developing lofty plans and then junk them sometimes even before the ink is dry. Then along comes someone who was not in the room when the plans were made and he starts changing the plans without consultation. No explanation, no rationalisation. Not even an updated programme.

Then there is the obsession with secrecy in our public service. It is ridiculous that public institutions could be operating in secrecy from the same public who own them. It just confounds all rationality. The legislature which is supposed to carry out oversight on its appropriation do not seem interested in asking the right questions or obtaining the right answers.

Why is this so?

Perhaps, the conclusion of Arc. Ibrahim Bunu's PPAC that most actions in the public sector are "procurement driven" is instructive. The effect is what we see around us. Abandoned projects, poorly implemented projects or projects that do not deliver the desired impacts, notwithstanding significant sums being expended.

At the last count, there were 12,000 outstanding projects requiring N8 trillion to complete. This is compounded by a poor appreciation of democratic ethos and the fact that those who have something to hide usually tend to find cover under the Official Secrets Act or other civil service rules. But no one is fooled. Whereas the FOI (Freedom of Information) Act will make life more difficult for those who wish to manipulate and distort facts, the NRC continues to conceal information about its poor performance from the general public and perhaps its overseers.

Are you suggesting that the NRC sticks with a course of action even if found to be erroneous?

Far from it. Change is sometimes necessary where it can be shown to be beneficial. But change for its own sake or that is procurement driven and not beneficial to the business must be discouraged. Change must be rationalised. You don't move the goalposts just because you can. You need a good reason for doing so. We still don't know the reasons for the changes because of this culture of impunity.

So what is the way forward?

Well, we are where we are. You can't turn the clock back. We must proceed henceforth with clarity and transparency. We need to understand what we are doing and where we are going. Importantly, we need to explain what we are doing and why. We must be open to questions because we are talking about publicly-owned assets.

In order for the NRC to survive, we must reform it and restructure the railway environment. The patient, however, does not cure itself. It would simply err on the side of the least pain. NEPA couldn't reform itself effectively nor could NITEL because they were too self-interested.

To reform the NRC, we need a task force approach, as we did with power. You also need the BPE at the centre of it all. But it appears it has been side-lined to just drafting transport sector reform bills, which in any case has been on the table since 2008.

But you have been saying these things for long. Is no one listening?

Perhaps they listen, but they don't hear. It is not the political leaders that are the primary problem here but those who provide them with misleading and irresponsible counsel to suit their ends. Remember "procurement driven"? The political leaders can only be accused of amnesia because they sooner forget the promises that were made to them in terms of expected outcomes during budget defence perhaps because they too have a "procurement driven" perspective.

You talked about conflicts with the BPE law. Can you elaborate?

Well, the BPE law is actually known as the Public Enterprises (Privatisation and Commercialisation) Act 1998, as amended, and vests the BPE with the sole authority to privatise and commercialise public enterprises. The NRC is on the list of the enterprises.

Concessioning is a form of privatization, or commercialisation if you like, and the BPE has successfully concessioned port operations in the past. It has also over the years done a lot of work on railway concessioning, learning lessons and building capacity in the process. The national policy on PPP also distinguishes between concessions that create new infrastructure and those that utilise existing infrastructure domiciling the latter with the BPE.

It further recuses ministers from direct participation in the PPP procurement process because of their roles in the FEC as an approving authority. So how can an MDA procure concessions under the circumstances? It is contradictory.

Is concessioning not the responsibility of the Infrastructure Concessioning Regulatory Commission?

No. The ICRC is a regulatory authority on concessions. It regulates the relationship between the grantor (government) and the concessionaire (private sector). It is the government's knowledge centre on PPPs and provides guidance to PPP stakeholders. BPE, on the other hand, is an implementing agency of government. It is the BPE's business to conduct the privatisation of public enterprises.

But what we see here is the NRC trying to usurp the role of the BPE. Not only does the NRC lack the technical capacity to concession its services, it is also too self-interested to be effective. So, instead of concentrating on its core business of delivering effective railways which it has not been able to do well, the NRC is busy distracting itself with planned forays into areas such as hotels, property development, management contracts, etc in the guise of PPP which it could never do effectively or profitably. Of course, there is always the "procurement driven" aspect as per PPAC.

Returning to the Railway Stakeholders workshop, the NRC hailed it as a big success. What was your impression?

I think it was, but that depends what the covert objectives were. It certainly was not a workshop, as most attendees treated it as a stakeholders consultative forum and the NRC got quite an earful. The first half of the day was ceremonial. It was an opportunity for the great and the good in government to backslap and self-congratulate.

The technical session was more interesting because the NRC's transaction advisers who were moderating seemed to lose control of the session and the NRC had to step in, take over and run it. The overt objectives seemed to suggest that delegates were expected to do the work of the transaction advisers for them free of charge, which seemed to upset some of the participants.

Indeed, the stated objectives of the session seemed to have come out of the TOR (terms of reference) of the transaction advisers. Nevertheless, I think it was a useful exercise overall. It offered railway stakeholders an opportunity to network.

Are you suggesting that the NRC's transaction advisers are incompetent?

Not at all. But I have no information that they have ever done railway transaction advisory anywhere in the world - and it shows. It makes you wonder what qualifying criteria was used in the procurement.

Are these the same technical advisers for the rehabilitation?

Yes, and you can make up your mind on the basis of what has not been achieved there. The NRC's rehabilitation has demonstrated what happens when you engage incompetent, under-resourced and inexperienced service providers. We saw the fiasco that Jebba to Kano turned out to be and the eastern line rehabilitation has become one long story after another. Meanwhile, fees for the technical advisers have grown 400 per cent, from an original N500,000 to an augmented N2 billion. Just mind-boggling situations everywhere you look. Meanwhile, the only things not moving well are the things that matter the most - the trains.

Would you agree with the general impression that the federal government is paying excessive consultancy fees for railway projects?

Perhaps, with the rehabilitation programme where there is some opaqueness. But I have heard this said in respect of the contracts for feasibility studies for new standard gauge lines. I am sorry to disappoint those saying these things because if you review the terms of reference for the feasibility studies, you will find that they have definitely been underpriced, not the other way round.

To achieve the objectives of the exercise, in my professional opinion, you would need to spend no less than N2bn on each line rather than the peanuts that people are complaining about. So I won't be surprised to hear that the contract sums have been augmented in the future. Unfortunately, the other bidders would no longer be in contention at that time, which makes it patently unfair.

Railways cost a lot of money to develop. In this environment, costs are about N500 million per kilometre. That is why the modernisation contract for Lagos to Kano is N1.3 trillion and that is just for the infrastructure. It also gets costlier the way we do it because we first engage incompetent contractors who tell us that they can do it for a fraction of the true cost. At the end of the day, we end up spending a lot more as a result. There is also a psychological barrier I find in Nigeria. Clients only want to pay for tangible edifices rather than intellectual content and we have struggled to get our fees paid.

What do the reference terms for feasibility studies require?

First, we must accept that it is always possible to conduct a feasibility study of sorts with practically any budget. But whether it will be fit for the purpose is another matter entirely. The objective of these studies is spelt out in the terms and it is to produce an outline business case (OBC) upon which private investors will be sufficiently informed and attracted to commit to invest in due diligence and further investigations as to the railway business viability so as to bid to build, operate and transfer the new railway lines. It means that you need a compelling and detailed document, not a wishy-washy, namby-pamby white-wash of an OBC.

The scope of work per the TOR comprises a detailed feasibility study as to the technical, economic and financial viability of the new line(s) which will require proposed alignments connecting urban and commercial settlements, detailed surveys and a proposed route alignment; identification of locations for stations, workshops and depots and their integration with the infrastructure design, preliminary and final engineering designs, production of bills of quantities and tender documentation and finally the production of an environmental impact assessment. Unfortunately, the scope of work omits the most important component of railway feasibility which is operations feasibility.

The TOR also provides for some complex field investigations which are usually provided by specialist sub-contractors, such as LIDAR surveys which involve specialised aircraft flying over the proposed route to provide mapping information that would enable technical experts to propose the most appropriate alignment for the new line.

Then you have geo-technical investigations that provide data on the nature of the sub soil strata along the route of the proposed right of way, plus of course environmental impact studies incorporating hydrology.

These field studies will cost no less than $3m for each line. So before even addressing the core railway feasibility issues, one would have already incurred expenses for each line of about N500 million, or if you went for the unnecessarily wider corridor demanded by the TOR, nearly N1 billion.

So what does that mean?

Well, it means that by the time you deploy your technical team of engineers for civils, railway, structural, operations, mechanical and electrical, signalling and telecoms, surveyors, estimators, technicians, railway economists, cost and finance experts, lawyers and project planners and managers including your local engineering support team, logistics and security, you should not expect much change out of N3bn over a period of, at least, 12 months.

Instead we understand that the contracts were awarded at sums below N500m each and for an unrealistic duration of five months. That, sadly, won't do the trick. In fact, a longer line with electrified track from Lagos to Abuja (800km) was awarded at a cost lower than that of a shorter non-electrified track from Abuja to Oturkpo via Ajaokuta (500km). It just boggles the mind!

When you also consider that the proposed procurement strategy for the new railway lines is build, operate and transfer and that a $450m (N72bn) facility made available to the government by the World Bank to help build capacity in PPP was returned unutilised, then you get the feeling that there is no serious appetite in government for a credible partnership with the private sector as the civil servants appear to prefer a retention of the status quo which regretfully the government lacks the capacity to fund all by itself nor implement competently.

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