Faster by Train


Economic News

22 Jul 2010
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In a move that revives the 25-year strategic railway development plan, the federal government announced it would acquire 60 new locomotives, while pursuing the rehabilitation of the old ones before the end of this year.

The timeline for rejuvenating the rail transport system and the resumption of cargo and passenger rail links from Lagos to the northern capital of Kano by January 2010 is certainly ambitious.

The rail network, built in 1895 when Nigeria was under British rule, spans over 3500km but has fallen into disuse due to inadequate maintenance. While the Nigerian Railway Corporation (NRC) used to employ a staff of 45000, this has fallen to 6500 today, with reduced frequency of trains which run at up to only 35km per hour. With road traffic congestion continuing to grow, rail is increasingly seen as a crucial part of the government's development agenda. Road transport accounts for over 90% of land transport and the Yar'Adua administration has sought to jumpstart the rail programme in recent weeks.

Former President Olusegun Obansanjo embarked in October 2006 on a plan to resuscitate the railway by signing a contract with the state-owned Chinese Civil Engineering Construction Corporation (CCECC), a subsidiary of the China Railway Corporation (CRC). Under the terms of the contract, the CCECC would handle the first phase of the railway modernisation and expansion plan, put at $8.3bn, by building 1315km of double-track, standard gauge line from the commercial centre of Lagos in the southwest to Kano in the north - with a branch from Minna (central Nigeria) to Abuja, Nigeria's capital.

The second phase of the plan, expected to cost a further $9bn, was to link Port Harcourt, the main town in the Niger Delta, to Maiduguri in the northeast of Nigeria.

The government's goal is to provide an efficient linkage of the major seaports (Lagos and Port Harcourt) to the hinterland and northern states.

It signed a $2.5bn loan facility with China in October 2006 , a substantial part of which was to be used to finance the refurbishment of the railway system. However, due to financial constraints, Nigeria has reportedly not made funds available for the CCECC to continue with its assignment. The government was once considering the possibility of involving private financial institutions or even raising funds on the capital markets, but the worsening financial climate has ruined the chances of such a plan.

Amid calls from the federal government to embark on a large-scale public works programme to provide a stimulus to the economy amid turbulent economic times, and aware that the economy will grind to a halt soon unless something is done to revitalise the railway service, the ministry of transport announced the resumption of cargo and passenger rail links from Lagos to Kano.

"Considering the importance of Lagos as the nation's economic nerve centre, we hope to commence the first phase of human and haulage transportation from Lagos to Kano in the first instance between December 2009 and January 2010," Minister of Transport Alhaji Ibrahim Isa Bio was reported as saying.

However, Bio has indicated that only the routes with the highest cargo and passenger traffic, namely from Lagos to Kano, would be upgraded, given the pressure on the federal budget resulting from low oil prices.

Meanwhile, insiders have questioned the necessity of building a new standard gauge line while the existing narrow gauge line could be upgraded using Nigerian labour.

In a paper presented at a conference on the revitalisation of railway infrastructure in Abuja, World Bank Country Director Onno Ruhl said studies estimated capital cost of conversion from the present narrow gauge railway to standard gauge at between $1.5m and $5m per route km. For a railway system of about 3500km, this would translate into an investment of between $5.25 and $17.5bn, he said.

However, there are alternative recommendations that seem economically and financially more viable, especially given the funding constraints from both the Nigerian and the Chinese sides.

"The upgrading of the existing rail network would be most cost effective and encourage the use of local content," an insider to the development finance community who wished to be anonymous, told OBG. "The existing rail network could transport about 5m tonnes a year. Our narrow gauge rail network can be competitive, while the relatively slow-moving trains could still transport goods. I calculate we could finance the upgrading of the rail network, including the purchase of locomotives, for less than $1bn."

An upgraded narrow gauge line could handle the projected initial traffic flows, estimated to rise to 4.2m tonnes of freight and 9-10m passengers annually by 2010, according to the World Bank. This would spare the expense of building a new standard gauge network.

Though the initial project has been scaled down, it now looks more realistic. The government has announced that the 100 locomotives owned by NRC will be refitted starting this month and that construction work for the rehabilitation of the existing narrow gauge lines will also begin by the end of the month. Meanwhile, an international tender has already been issued for companies to bid for the supply of the 60 new locomotives. Sourcing high-quality equipment for the narrow-gauge line will attract serious investors, who are already looking at the opportunities very closely. Bio has announced that firms such as General Motors, General Electric and Samsung have already expressed an interest in the project.

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