Nigeria's rail master plan to connect the country

 

Long-awaited modern rail services in Nigeria have finally begun to pick up momentum since 2016. Construction of a new standard-gauge corridor linking Lagos in the south to Kano in the north is under way, with the first section connecting Abuja and Kaduna opening in July 2016.

The cross-country project represents one step towards offering locals greater transport options and alleviating the considerable logistics bottlenecks that have led to inflated costs and slower growth. Due to the ageing nature of the rail infrastructure, up to 90% of Nigeria’s internal trade relies on road transport. This causes congestion and is also more expensive, given the fragmented nature and limited capacity of the trucking industry.

As a result, the federal government has unveiled plans to expand the rail network, along with the rollout of light rail and commuter rail systems in selected major cities. In both cases, private capital is set to play a central role. However, finalising procurement and concession procedures can present challenges, as evidenced by the restructuring of the deal for Lagos’ first metro line, with the initial concession cancelled due to complications with the project. “You have to phase your projects properly in Nigeria in order to manage the economic and political risks,” Tola Sapara, Nigeria country director for French railway manufacturer Alstom, told OBG.

MASTER PLAN: The plan going forward is to use Nigeria’s existing 3505-km network of narrow-gauge track for commercial freight, and to construct new standard-gauge lines for passenger traffic.

The first section of the Lagos-Kano route, which links the nation’s commercial hub to the country’s most populous city, is a 187-km stretch connecting Abuja to Kaduna, with other sections of the project under construction. The Abuja-Kaduna link had a price tag of $830m, according to the Nigerian Railway Corporation (NRC). The next section of the line to open will run between Lagos and Ibadan, reducing the current three-hour journey to about one hour.

The government is also looking to end the NRC’s monopoly on the industry and incentivise private investment. The state-owned business is both the owner of rail assets and the industry regulator, in charge of operating and maintaining all rail routes.

A step in the right direction came when a major piece of legislative reform, the Nigerian Railway Corporation Bill, was passed by the Senate in 2016. However, it was still being debated by Parliament in mid-2017. If passed, the legislation will improve the government’s ability to sign public-private partnerships (PPPs) for large infrastructure projects.

OVERCOMING OBSTACLES: Encouraging PPPs in the rail sector can prove challenging. A study commissioned by Public Services International identified that between 1985 and 2009, the PPP model had been used 1747 times worldwide to fund projects outside of the energy sector. Of the total, just 153 PPPs were undertaken in the rail sector, while 567 were used for road projects. In 90% of these road and rail projects, costs were higher and usage rates lower than originally projected.

These sorts of hurdles are visible in efforts to attract private investment into Nigeria’s urban rail projects. For example, the light rail project in Abuja had trouble securing investors, while the initial local concessionaire for the seven-line Lagos light rail project was removed following delays.

To help address these concerns, projects are moving forward using more modest forecasts for usage. Projections for Lagos’s first line predict a daily ridership of 450,000 passengers when the line is fully completed; however, negotiations were based on an estimated 400,000 passengers, each paying a $1 fare. Negotiations were ongoing as of May 2017, according to Frederic Oladeinde, head of corporate and investment planning at the Lagos Metropolitan Area Transport Authority. Industry stakeholders have also pushed to ensure that tenders for rolling stock, operations, maintenance and construction are separated. “It should be build and transfer on one contract, operations and maintenance on another,” Sapara told OBG. “The government should be the borrower in order to find suitable financing.”

MOVING FORWARD: In August 2017 Rotimi Amaechi, the minister of transport, announced that the government would be investing billions of dollars in upgrading and expanding the rail network, a move seen as key to plans to boost production in strategic sectors. Headline projects under the expansion plans include construction of two new railways connecting Nigeria’s busiest urban centres and ports.

One project is the 1100-km line between Lagos and Kano, which will be used for both freight and passengers. The standard-gauge corridor will be the second rail link between the cities. The other project is a coastal line that will link all seaports from Lagos to Calabar near the Cameroon border.

Financing for the new lines are expected to cost $20bn in total, and will be provided through a loan from the Export-Import Bank of China. Some $5.9bn had been made available as of September 2017. China will also play the central role in construction of the projects, with the China Civil Engineering and Construction Corporation aiming to complete work by the end of 2019, Amaechi told local media, following the project’s announcement in late August.

Under the initial agreement, 90% of construction workers employed on the projects will be Nigerian, and the works are expected to generate around 7000 new jobs, according to government forecasts. This contract clause is very important, as it will contribute to skills transfer and knowledge sharing.

STRENGTHENING LINKS: The government’s expansion plans also envisage new rail routes linking all 36 regional capitals, in addition to Maradi, a city in neighbouring Niger. While planning for this project is still in its early stages, Amaechi did inform local media that the government was investigating PPP options for funding, and has allocated approximatively $16bn of funds for the project.

The minister also confirmed that the government is prioritising the completion of an ongoing $3bn project to link Abuja, the political capital, to the oil-rich southern city of Warri – expecting the line to finish by mid-2018. A memorandum of understanding for the construction of the Abuja-Warri line was signed between the federal government and the China Railway Construction Corporation in August 2016. During an inspection in August 2017 Amaechi explained that the standard-gauge line will include numerous bridges to avoid contact with people who often cross railroad tracks, saying the train will speed along at 120-150 km per hour.

OPERATIONS & MANAGEMENT: Alongside expansions, the government’s approach to modernising the rail network includes encouraging private investment through PPPs and concessions for the management of the existing network.

According to local media, in May 2017 a $2.2bn concession was granted to a consortium led by US conglomerate General Electric (GE) to rehabilitate and manage the country’s two existing narrow-gauge railways. Spanning 3500 km, the routes run from Lagos to Kano and from Port Harcourt to Maiduguri in the south. The group – which also comprises China’s SinoHydra, Transnet of South Africa and the Netherlands’ APM Terminals – was the sole bidder on the project.

The multinational group is also expected to deliver 20 locomotives and 100 wagons by the end of 2017, in addition to modernising the rail stations and signalling systems along the lines. GE had formally expressed interest in the project in October 2016 when the official procurement process began.

KEY TO ECONOMIC DEVELOPMENT: Historically low investment in the rail system has resulted in a decrease in overall freight-carrying capacity from nearly 3m tonnes per year four decades ago to 15,000 tonnes in 2005. According to the Africa Finance Corporation, a multilateral development institution, the country will need to spend around $3trn on infrastructure over the next 30 years to bring the system up to international standards.

However, the government has identified difficulties that may arise in finding the resources to meet the anticipated infrastructure demand in the coming years. The Nigeria Economic Growth and Recovery Plan (EGRP) 2017-20, which seeks to guide the country’s mid-term economic strategy, forecasts a N7.6trn ($21.2bn) budget deficit through to 2019. In order to mitigate funding shortfalls, the EGRP proposes a number of options that would still allow the government to slowly close the infrastructure gap. These proposals include leveraging private capital in a variety of ways, like through the use of PPPs, investment funds and guarantee arrangements.

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The Report: Nigeria 2017

Transport chapter from The Report: Nigeria 2017