‘Where we go wrong in the railway project’

The construction of the central route from Ajaokuta to Warri has now resumed to a revised scope to make it a passenger/freight line involving additional stations. The rehabilitation of the legacy Lagos-Kano line is also finally underway. The modernization project has been re-scoped and the $8.3bn Lagos-Kano standard gauge line will now be executed in phases. A variation to which is the Abuja-Kaduna line which has also been awarded.

In Abuja, the construction of two light rail lines has resumed and Lagos has awarded the contract for the construction of one of its light rail lines, the Blue line from Okokomaiko to Iddo and on to Marina.

So we are seeing a railway renaissance in Nigeria?

I won’t call it that yet. There are still challenges ahead.

So what can we expect at the end of 2010?

Well, the first batch of new GE locomotives has arrived, and wagons and some old locos are being rehabilitated. The NRC is embarking on organisational reform that will infuse better management practice and new blood into their operations. In truth, this is all coming rather late in the day but is a very critical element in transforming the organisation from a railway operator and regulator to a railway asset manager with a reversionary interest in the operations concessions. CANAC was in fact, carrying out a similar exercise for the NRC in 2004 but the project was truncated when its champion Mohammed Waziri died in the Bellview plane crash. The best approach would be to call CANAC back to come and finish what they started just as they have done with Zeta-Tech in the inspections and scoping.

At the end of 2010 or first quarter of 2011, we should expect to see trains running on the narrow gauge single track Lagos-Kano route. They will travel at about 40km/hr and will more than likely be a NRC operation just like before with its attendant consequences.

You say that the regulation of competition and safety on the railways is unclear. What do you mean as surely, the NRC will continue to regulate the railways?

Well, there is to be a National Transport Agency which will regulate the railways and it will have competition and safety regulatory remits but it is not in place yet. Notwithstanding, competition policy needs an overall framework that will be applied across all sectors. At present, the various sector regulators such as the NCC, NERC, DPR, ICRC, FRSC, CBN etc regulate competition in their sectors but there needs to be an overall competition regulator with concurrent powers with the sector regulators such as the Office of Fair Trading (OFT) in the UK. What it will do is ensure a consistency in the application of competition policy in all sectors.

The bigger question is what exactly is our competition policy and is it enshrined in law? As government increasingly turns over public monopolies into private monopolies, we should be very wary of anti-trust behaviour and abuse of dominant positions. We already see these manifesting in some sectors. The Consumer Protection Council is probably the closest we come to a competition regulator but does it have the capacity? Regulating safety on the railways is crucial as well. The carnage arising from rail operations going wrong is something we must not wish to see. Most safety issues arise from human failure and can be cataclysmic when it is systemic. The Railway Inspectorate within the NRC needs to come out and stand alone until the National Transport Agency is ready.

So where do we go from here?

How long is a piece of string? The railways are not immune from the Nigerian malaise of underdevelopment. We are still trying to see a sector that works well.

Once upon a time, we thought the banking industry was blazing the trail of the Nigerian renaissance but Lamido has now exposed the rot in its underbelly.

The oil sector cannot be said to be a poster boy either. What about telecoms? While the services have improved only fairly, the tariffs are still too high. Competition was to bring about lower charges and why do we still have a substantial fixed line deficit? Is a cartel developing in this sector or is the opportunity cost of business in Nigeria so unbelievably high?

As far as the railways are concerned, there needs to be clarity of strategy. At the moment there are gaps in communication. For instance, who is going to operate the Ajaokuta-Warri line? One personal concern is that we have had an unused railway bridge across the River Niger built over 30 years ago. This is supposed to link the central route to the eastern route at Oturkpo. It is a strategic mineral route to bring the other mineral elements in steel making to Ajaokuta and it traverses Kogi East. Who is championing the cause for bringing this link to fruition? The steel sector is so critical to our national development. See what is happening to it? So in terms of where we go from here on the railways, it starts from the strategic vision. It must be reviewed holistically and a revised plan articulated. We need the railway bill passed into law. That will create the appropriate framework for what will follow.

The plan to concession the railway operations needs to be managed carefully. We should be wary of advisers painting a rosy financial picture of the sector’s prospects to protect their vested interests. Railways, especially passenger services have always required subsidies. I can’t see ours being any different. We need to be careful however that in concessioning, we do not find ourselves in a situation where government is owing on its PSOs and yet expects a concessionaire to live up to its obligations fully.

You seem to have queries with our public procurement system.

I have a quarrels when people know the right things but insist on doing the wrong things. Let us leave that at that.

So, how can we improve our public procurement system?

That is an entirely different debate. We have a procurement law. Are we improving our procurement systems? Yes. Are we anywhere near Uhuru? No. A key challenge is changing the mindset of the Nigerian public officer. Until we all see public money as the commonwealth and corruption as influencing much of the social issues that we face, then we are dealing with symptoms of a problem rather than its root cause.

My key concern is that we are inviting investors to come here but are still conversely making life inhospitable for business to flourish. To procure goods and services is one of the easiest things to do.

We all do it daily in our lives and the interaction between willing sellers and buyers determines what we call a fair market price. Now take a look at our public procurements and tell me if we obtain fair value for money.

The starting point is a complete overhaul of our value system as a nation. Let us learn to question more the source of wealth just as we did before. Public officers should not be seen to own assets well beyond their means without question. The regulatory environment needs to be given teeth and independence.

Nuhu Ribadu started a revolution in Nigeria but ran into a storm when he touched the “big man”. Our history is replete with a lot of such instances. Buhari and Idiagbon faced similar challenges.

Until an anti-corruption campaign endures and produces tangible results, only then can we begin to see the shoots of real improvement in our procurement system. Conflicts of interest appear to be a real challenge for our public officers.

Finally, let us talk about the concessioning model for the railways.

Well, given the state of our network and the lack of significant traffic density, there is good reason to embark on vertical integration as a start. Its shortcomings in economies of scope and lack of competition undermine it as a sustainable model in the longer term.

Across the world, vertical coupled with horizontal separation has been shown to produce tangible improvements in railway operations. These however should come along in the future when we have expanded our network and built capacity and the environment is more friendly to separation.

So how long should the concessions be?

Depends on the terms. If you are expecting the concessionaire to bring in rolling stock, then you should be looking at 30 years minimum. If however, the concessionaire is to inherit and operate the rolling stock of the NRC, then you could be looking at concessions of short tenor of say five years. This will deal with the anti-competition issues.

However, this will not encourage the concessionaire to actively seek to develop new traffic as no sooner as he is settling down, will he again be subject to the risk of losing his franchise in the next bid round.

So how about Access Pricing?

The regulator should determine the charges payable by the concessionaires for access to each other’s network. The objective must be to prevent collusion and price fixing. The more significant issues will be in arriving at an appropriate concession fee and the level of subsidy required.