0 BRINGING BRINGING BRINGING BRINGING THE THE THE THE NIGERIAN NIGERIAN NIGERIAN NIGERIAN RAILWAYS RAILWAYS RAILWAYS RAILWAYS BACK BACK BACK BACK ON ON ON ON TRACK: TRACK: TRACK: TRACK: CHALLENGES CHALLENGES CHALLENGES CHALLENGES AND AND AND AND OPTIONS OPTIONS OPTIONS OPTIONS BY BY BY BY PROFESSOR PROFESSOR PROFESSOR PROFESSOR ADESOJI ADESOJI ADESOJI ADESOJI ADESANYA ADESANYA ADESANYA ADESANYA HEAD, HEAD, HEAD, HEAD, POLICY POLICY POLICY POLICY ENGAGEMENT ENGAGEMENT ENGAGEMENT ENGAGEMENT DIVISION DIVISION DIVISION DIVISION PAPER PAPER PAPER PAPER PRESENTED PRESENTED PRESENTED PRESENTED AT AT AT AT MONTHLY MONTHLY MONTHLY MONTHLY NISER NISER NISER NISER SEMINAR SEMINAR SEMINAR SEMINAR SERIES, SERIES, SERIES, SERIES, HELD HELD HELD HELD AT AT AT AT THE THE THE THE NISER NISER NISER NISER CONFERENCE CONFERENCE CONFERENCE CONFERENCE ROOM ROOM ROOM ROOM ON ON ON ON NOVEMBER NOVEMBER NOVEMBER NOVEMBER 13, 13, 13, 13, 2010 2010 2010 2010
Rail transport has and continues to play a key role in the movement of goods and passengers inmany countries around the world including Nigeria. However, while rail transport continues to enjoyrelative importance in terms of investment, growth and contribution to the national economy inseveral counties, it has suffered and continues to decline (in terms of modal share contribution) inNigeria and other African countries. At a point in the history of Nigeria, rail transport played a verycrucial and significant role in its contribution to the Nigerian national economy.
According to Robinson et al (1961), Nigerian railway particularly was still playing a very active role inoverland freight movement in the early years after 1960, to the extent that it accounted forapproximately one-third of freight traffic. At some point in time, the Nigerian railways played a keyrole in enhancing colonial administration, by maintaining links between the central seat of colonialgovernment in Lagos and other parts of Nigeria (Elechi, 1998). It also served as a major mode oftransport used in facilitating the opening up of several mineral producing and agricultural areas. Itwas also major mover of freight and passengers across the country, especially where the rail linestraverse.
While the Nigerian economy has expanded over time (with occasional hiccups) and new centres ofactivities have emerged, the Nigerian railways have failed to respond to the potentially viableservices and opportunities that exist. In other words, in the last three decades in particular, notmuch has been achieved in terms of structural transformation of the Nigerian Railways, so as tomeet potential demand for rail services as well as the rapidly emerging challenges of economicgrowth and national development. By 1970s through to the early 1980s, both the volume ofpassengers and goods carried by the Nigerian Railway Corporation (NRC) had started to dropdramatically (Adesanya, 2002). Unfortunately too, the fortunes of the rail transport sub-sector havedeclined so precipitously due to the enormity of the problems and challenges that confront it. Theeffects of the poor performance of the rail transport subsector is already being felt seriously in theform of the undue pressure being mounted on the road transport subsector and the attendant hugedamage to roads and loss of lives among other things.
Suffice it to mention that the Economic Transformation blueprint of Nigeria (Vision 20:2020document) itself has noted that one of the supposedly key drivers of the economy at the bottom endof sectoral activities and which is regarded as practically dead is rail transportation (NPC, 2009:24).Given this situation and the huge opportunities that exist for the Nigerian railways to contributesignificantly to the transformation of the Nigerian economy, it is critical to examine why the Nigerianrailways have not woken up from its slumber despite the various efforts at resuscitating it.Therefore, bringing the Nigerian railways back on track is very important and how this can beachieved will depend on how well we are able to articulate the challenges that confront this mode oftransportation and the options that are feasible and sustainable. This paper is structured into nineparts. The first is the introduction, followed by a general perspective on rail transport and its impacton development. The third section of the paper provides an overview of rail transport and nationaldevelopment in Nigeria. The challenges facing the Nigerian Railways are identified in the fourth
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section, while the fifth highlights some of the key efforts made recently at resuscitating the Nigerianrailways. International experiences with rail reforms are discussed in the sixth section, while theseventh to the ninth parts of the paper focus on policy options for moving the Nigerian Railwaysforward, policy implications and conclusions respectively.
In many countries, rail transport has and continues to play a catalytic role in bringing about socio-economic development. It contributes substantially to the movement of passengers and freight.Indeed, railways can provide the most cost-effective, affordable, energy saving and environmentallyfriendly form of transport, when traffic densities are high. When properly integrated with othermodes of transport, economic levels of traffic can be consolidated to enable the railway to provideefficient services for high density flows of homogenous traffic carried over relatively long distances,including high volumes of containerized cargo or bulk freight such as oil, coal, steel or agriculturalproduce. Railway transport could be energy flexible and energy efficient, when electric traction isused.
Rail transport is also an important mode for passenger transport. Commuter traffic by rail forexample is essential to keep cities accessible. Therefore, many cities, particularly in the developedworld continue to develop various forms of rail transport (metros, Light rail transit, transport) inorder to divert traffic to the rail and partly reduce congestion on city roads and so on. For example,in Europe, in 1998, 290 billion passenger-kilometers were generated (6 percent of all travellers) and241 billion tonne-kilometers of freight (8.4 percent of the total, down from 21 per cent in 1970).Indian Railways (IR) is one of the largest railways in the world. Trains in India carry over 481 billiontonne-kilometres (BTKMs) and 695 billion passenger kilometres (BPKMs) of goods and passengertraffic respectively every year. IR also carries around 40 per cent of freight traffic and 20 per cent ofthe passenger traffic in the country (Government of India, 2009) and plays a key role in the Indianeconomy because it builds and maintains infrastructure assets like track, electric traction, signallingsystems, telecom network, stations/terminals and, interestingly, it manufactures locomotives,coaching stock, wagon and components of rolling stock like wheel & axle. IR runs workshops tomaintain its rolling stock and it is involved in ancillary activities like catering, tourism so on. In orderto appreciate the level of contribution of rail transport to the economies of countries, Table 1 hasbeen presented, in terms passengers carried and goods hauled. Developed countries certainlyperformed better that the developing countries in terms of the indicators shown.Table1: Railway Performance Indicators
Country Rail line (total route km) Passengers Carried (inmillion passenger-km)
United States 153,787 47,717 2,589,340Source: World Development Indicators (World Bank, 2008:330-302)
Railways have made varying degrees of impact on the development of the countries where theyexist (Kolars and Malin, 1970). Rowstow (1960), for example, described railways as 'historically themost powerful single initiators of (economic) take off, being a main force in the widening of marketsand a prerequisite to expanding the export sector’. Hilling (1996) also observed that in many parts ofAfrica, railways provided the really first alternative to human porterage, and brought with themsome economic advantages. In East and Central Africa, early rail lines were critical to thedevelopment of commerce, the expansion of commercial agriculture and the stimulation ofsettlement expansion. The 'line of rail' became the zones of economic activity, and the rail headswere the focal points for the expansion of settlements and economic input and output (O'Connor,1965). Also, in Ghana, the Accra-Kumasi-Takoradi rail line clearly reflects a concentration ofeconomic activities (Hilling, 1996).
In many countries around the world, freight is transported by train. This is largely becausetransporting freight by train is highly economic when freight is being carried in bulk and over longdistances. In the United States, for example, the rail system is used mostly for transporting freight. InRomania and the Commonwealth of Independent States (CIS), a preponderance of rail freight tonne-km, in fact more than 90 per cent, moves by rail. China, United Kingdom and Russia among othersdepend heavily on rail for long distance movement of bulky commodities (Hilling, 1996).
The importance of rail transport in providing the stimulus for administrative control, regional growthand development are well documented. Economic growth, for example, followed the provision ofrail lines into the cocoa belt of Ghana (then Gold Coast) in 1903 and the groundnut belt of NorthernNigeria in 1912 (Mabogunje, 1980). In Ghana, the completion of the first rail line in 1903, from thecoast of Sekondi to the gold mining areas of Tarkwa immediately resulted in a sharp fall in landtransport cost per tonne of imported goods from the mines to about 25.35 pounds to about 3.00pounds (Hilling, 1996). Hogendorn (1968) also observed that within 18 months of reaching Kano, therailway had so stimulated groundnut production to the extent that every available piece of land wasplanted with groundnuts. It was observed that the impact of the railway on the development of theNigerian economy was such that it enhanced the exportation of groundnuts from about 10,000 tonsin 1912 to an average of 40,000 tons per annum for the next decade (Onakomaiya, 1978).
The rail transport sector is also a key employer of labour. According to Galenson and Thompson(1994), China Railways had well over 3 million staff in the early 1990s, while Indian Railwaysemployed up to 1.6 million people. In 1992, the Polish Railways employed 275,000. The JapaneseNational Railways employed 414,000 workers in 1980, and this number was reduced to 280,000prior to its privatization and restructuring in 1987 (Fukui, 1992).
It should be mentioned here that all over the world, rail transport has continued to face stiffcompetition from road transport. Statistics, for instance, show that the relative share of railtransport (modal share) has declined considerably over the last 30 years in the European UnionCountries. In 1970, rail accounted for 10.1 per cent of all the passenger-kilometers, while this figuredropped to 6.1 per cent in 1999. In most African countries, unfortunately too, the railways are notgrowing rapidly because they have not been encouraged or allowed to respond to changes in the
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economies they serve. The railways have become a fiscal drain on the economy already short ofresources, while longer range maintenance and capital needs are neglected, thereby furtherdiminishing railways’ capabilities and the potential contributions to national development (Huff andThompson, 1989). This is in terms of stimulating agricultural and industrial development,encouraging investment and movement of production factors, employment generation in therailway and support activities sectors, promoting national cohesion as well as encouraginginterregional trade and commerce among others.
In spite of its benefits, the weaknesses of railway transport include inflexibility of operation (hence,its inability to provide door-to-door services), vulnerability to level of industrial activity, the image ofinefficiency and unreliability, and it is usually vulnerable to industrial action due to its being a labourintensive and heavily unionized industry (Gubbins, 1988)
Following the laying of the first railway track in 1898, the rail network had expanded from the South-West (Lagos) to the North-East (Maiduguri), and from the South (Port Harcourt) to the North-West(Kaura Namoda). The Nigerian railway consists of 3,505 kilometers of single track route of 1,067mm(narrow) gauge and 277 km of the standard gauge (that is, the Itakpe-Warri line). Railway in Nigeriastill maintains a predominantly North-South orientation which makes a Port Harcourt bound railcommuter from Lagos traverse 1,820km as compared with only about 500km as the crow flies.
The primary reason for constructing the railways in Nigeria was to open up the hinterland for theexploitation of agricultural and mineral resources, as well as to provide leverage for strengtheningcolonial political administration (Jaekel, 1997). In fact, the motive for constructing the railway waspartly administrative, in order to provide a link between the northern and southern parts of Nigeria,and partly economic, so as to enhance the evacuation of mineral resources and agricultural productsfrom the hinterland to the seaports, for onward shipment to overseas markets in Europe (Elechi, andJakpa, 1981). The flow of goods to the hinterland was also facilitated by the railway (Olanrewaju,1986).
The existing Nigerian Railway Corporation (NRC) was created by the enabling Act of 1955 (asamended in 1990), after starting as a Government Department in 1898. The responsibilities of theNRC as spelt out in the Act establishing it include ‘carriage of passengers and goods in a manner thatwill offer full value for money, meet the cost of operations, improve marker share and quality ofservice, ensure safety of operations and maximum efficiency, meet social responsibility in a mannerthat will meet the requirements of rail users, trade, commerce, industry and the general public’.
The Nigerian railways during its heyday, contributed significantly to the export of products such ascotton, groundnut, hides and skin, tin and columbite, coal and so on, and all of the promote growthand development in the areas where they were produced (Onakomaiya, 1978). As a result of the oilboom of the early 1970s, the Nigerian Railway Corporation benefited from the patronage of PeugeotAutomobile of Nigeria, Inland Containers Limited, Steel Rolling Mills, West African Portland Cement(now Lafarge), Flour Mills, Nigerian National Petroleum Corporation and Cattle traders among others(Ayodele, 2000 and Adesanya, 2002). In addition, a sizeable proportion of the goods movement toand from the Nigerian seaports was by rail transport. More significantly, the rail transport sectorcontributed partly to industrial growth as well as interregional trade and commerce. It also
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facilitated passenger movement and generated employment, while also contributing reasonably toNational GDP.
To a considerable extent, the Nigerian railways met some of its responsibilities, in terms of theircontribution to economic growth as well as promoting interregional and international trade,especially in the first half of the twentieth century (Robinson et al, 1961 and Onakomaiya, 1978). Inthe early 1970s, which coincided with the first phase of oil boom in Nigeria, petroleum products andcontainers became important components of rail traffic. In addition, a sizeable proportion of thegoods movement to and from the Nigerian seaports was by rail transport Up the mid-1970s, the railtransport sector did not only stimulate industrial growth as well as interregional trade andcommerce, it plays a key role in passenger movement, in employing people as well as contributingsubstantially to the GDP.
Given limited rail expansion activities, as at today, only a few state capitals are connected by therailways. Besides, only the Apapa and Port Harcourt major seaports are served by the railways(Okanlawon, 2006). In short, just 19 out of the existing 36 states are connected by the railway(Edward, 2001).
The deterioration in the railways has been partly a result of lack of sufficient budgetary provision bythe Federal Government coupled with poor management by the Nigerian Railways Corporation(NRC). The Federal Government has disproportionately invested and allocation funds to this sector,in favour of the road transport sub-sector. This situation is traceable to government’s lip service andlackadaisical approach to addressing the problems facing the NRC (Filani and Adesanya, 2010). Therail transport subsector hardly gets up to one-fifth of the allocation to the transport sector. Indeed,the lack of necessary resources to keep tracks, rolling stocks and maintenance facility in reasonableworking condition is said to have produced a serious deterioration of the railway system. (DraftNational Transport Policy, 2010). In spite of generating relatively small revenue annum, its pensionbills alone, which rose from N577 million in 1991 to N2.4 billion in 2009, has eroded into what isgenerated 9NRC Annual Report, 2009). Between 1995 and 2001 alone, its average operating loss was13 per cent (and as high as 52 per cent in 1995). This proportion rose to 34.2 per cent between 2004and 2008 (Five Year Financial Summary of NRC, 2004-2008).
The rail transport network remained has remained virtually static, with little accretion to thenetwork since the early 1960s. This near stagnation in rail expansion has not allowed rail network tolink principal urban centres or major growth points that have since emerged. Ironically, the Nigerianeconomy has expanded and new growth points have emerged after the completion of the BornoExtension (Kuru to Maiduguri line) in 1964. Unfortunately, rail lines remained as they were until theearly 1990s, which could be referred to as the third phase of rail line expansion, when the Itakpe-
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Ajaokuta-Warri rail line construction project began. It is a 277- kilometre standard gauge (1435mm)rail line. There is also the 19-kilometre standard gauge rail extension project from Eleme to Onnedeep-sea port. (CBN Annual Report and Statement of Accounts, 1998:116).
Rail transport under the NRC suffers from inadequate and poor condition of available locomotivesand rolling stock. In 2004, out of a total of 3,987 wagons available in the system, 57.5 per cent weredefective, while 36.6 per cent were fit and operational. The remainder was beyond economic repairs.Out of available stock of 683 coaches, only 34.6 per cent were fit for use. As for locomotives, about70 per cent of the NRC fleet were have outlived their lifespan and usefulness. Consequently, the NRCis constrained with running just skeletal services. In other words, locomotive and rolling stockbecame grossly inadequate wagons to meet the requirements of clients. In addition, availablerailway communication and signalling systems remains terribly obsolete and inadequate, althoughinconclusive efforts have been made to modernise them. The existing track structure of the Nigerianrailways still affects rail subsector performance. The track structure still consists primarily of jointedrails, whose weights vary from 30 kg/m to 40 kg/m, and the ballast cushion is up to 30 centimetres.The lightweight rails continue to limit the axle loads that they could bear, to about 12.5 tonnes to 20tonnes. Whereas, for any meaningful impact, a more superior track structure with heavy continuouswelded rails of up to 60 kg/m is needed to move heavier train loads (Babatunde, 1988).
The current imbalance in modal share between rail and road transportation emerged after the 1960s.Up until then, the railways carried over 60 per cent of the freight tonnage compared to its currentshare of less than 2 per cent. The highest number of passengers carried was 15.5 million in 1984 andthe highest volume of freight was 2.4 million metric tonnes in 1977, and by 2000/1 traffic had fallento 2 million passengers and less than 300,000 metric tonnes of freight. The railway now accounts forless than one per cent of land transport in the country. Between 2000 and 2010, the rail passengerscarried annually were barely up to 2 million, while the tonnage of the freight or goods conveyed wasnot up to 170,000 tonnes in any year, during the period under examination (Figs 1 and 2). Whereas,in the early 1960s, close to 3 million tonnes of goods were conveyed annually (Table 2). The poorquality of rail service has made the NRC to lose the patronage of some of its principal clients, such asthe Nigerian National Petroleum Corporation (NNPC), Larfarge Cement -Wapco PLC, PeugeotAutomobile of Nigeria (PAN), Flour Mills and so on. In addition, it lost the patronage of passengerstoo.
The rail line is characterised by worn out rails, steep gradients, sharp and in some cases, reversecurves, leading to low speed of train, frequent derailments, poor turn-around time forwagons/coaches and even accidents. Lack of spare parts/equipment to undertake scheduled and/orpreventive maintenance also constitute a key impediment to Nigerian railways productivity andperformance. The effect of this on operations is a reduction in the number of operational trains anddisruption of train services.
Above all, the lack of commitment in implementing and meeting the timelines for plans andprogrammes, including those spelt out, in recent years, in the Master Plan for an IntegratedTransportation Infrastructure and the 25 Year Strategic Vision for Nigerian Railway System is a majorchallenge to the resuscitation and development of the railways to a modern and efficient railwaysystem.
Other problems and challenges facing the Nigerian railways include poor productivity (and itsnegative effect on staff morale), retention and maintenance of unremunerative routes, huge wageand pension bills - despite the reduction in staff strength of the NRC from about 45,000 in the 1970sto about 7,000 at the moment, and poor quality service (Elechi, 1998, Odeleye, 2000 and Adesanya,2005).
In order reverse the spiralling decline of the NRC operations and services, a few measures have beentaken in the recent past. The Rail India Technical and Economic Services (RITES), for instance, werecontracted by the Federal Government for three years (from 1979) to overhaul and manage theservices of the NRC among other things. The gains arising from the improvement of rail servicesafter RITES had left could not be sustained (First National Rolling Plan, 1990 – 92, Vol. 1: 162).
The signing of a sino-Nigerian contract of US$528,697,000 with the China Civil Engineering andConstruction Corporation (CCECC) in December 1995, for 36 months was also a move to rejuvenatethe Nigerian railways (Odeleye 2000, and Adesanya, 2002). More specifically, the CCECC was to carryout necessary track surveys, repair and align rail tracks, eliminate sharp curves and renew existingsleepers with additional ballast. Other things expected of the CCECC included the supply of 50locomotives, 150 coaches and 400 wagons. This particular intervention by the CCECC remainedinconclusive at the expiration of the contract in 1998.
Another noteworthy initiative for restructuring Nigerian railways was suggested in the early 1990s,in which the NRC was to be restructured into four interrelated companies, namely: The NigerianRailway Plc, Nigerian Railway Inspectorate Board, Nigeria Rail Track Authority, and Nigerian RailwayEngineering Plc (FGN, undated). This proposal was not implemented.
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It is important to mention the Federal Government’s plan of rejuvenating and modernising the railtransport sector by preparing the 25 years (2002-2027) strategic vision document for the Nigerianrailways. The vision is geared towards ‘re-establishing the railway as a key driver in the transportsector, by transforming the Nigerian railway system from a non-performing and debt riddencorporation to a dynamic player in the transport sector through strategic investments, new policyinitiatives, and by encouraging investment by the private sector’ (FRN, 2002). The Master Plan for anIntegrated Transportation Infrastructure (MITI) that was prepared in 2002 is also expected to be ablueprint for coordinating and integrating all modes of transport and, by implication, will strengthenthe growth and development of the Nigerian railways.
For proper coordination and overseeing the implementation of the railway reform process amongother things, the National Council on Privatisation (NCP) established the Transport Sector ReformImplementation Committee (TSRC). The TSRC came up with a reform agenda that will culminate intothe concessioning of the NRC through the following steps:
• Formulate and implement a new transport policy for Nigeria
• Enactment of a new Railway Act
• Creating a new legal and regulatory framework within the context of the proposedNational transport Commission
• Restructuring of the NRC
• Divesting NRC non-core assets, and
• Introduction of private participation, by granting concessions for both freight andpassenger operators.
In order to revive the ailing Nigerian railways, concessioning has been suggested (Khalidson, 2005and FMT, 2006). This would involve segmental concessions of routes to two or more concessionaires.Under this arrangement, railway infrastructure will remain the property of the Federal Government,while the concessionaires are expected to lease the rolling stock and/or bring in additional rollingstock for their operations. The concessionaires are also expected to participate in the rehabilitationand maintenance of relevant infrastructure. The concessions were planned to be granted forbetween 25 and 30 years. The planned concessioning in the rail transport subsector is aimed atinjecting private sector investment and expertise to rehabilitate the existing line and also expand therail network to cover other parts of the country in line with the 25-Year Strategic Rail DevelopmentVision In 2005, the Government approved the concessioning of the railways (FMT, 2006).
According to Chigbue (2005), the Nigerian railways would be divided into autonomous railwaysthrough the following concessions:
o Concession 1: Western Railway – comprising of the route from Lagos toKaura Namoda, through Kaduna, including all branch lines along the route.
o Concession 2: Eastern Railway – consisting of the route from Port Harcourtto Maiduguri, including Kaduna to Kafanchan link and all branch lines alongthe route.
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o Concession 3: Central Railway – comprising of the standard gauge routefrom Itakpe to Warri (through Ajaokuta), and
o Concession 4: Lagos Urban Rail Mass Transit.
It also should be mentioned that some form of partnership exists between Nigerian RailwayCorporation and OANDO PLC to transport petroleum products from Lagos to Kano, after aMemorandum of Understanding (MOU) was signed in 2004. This entails rehabilitation of some NRClocomotives, rail tankers and so on, in order to facilitate the movement of OANDO’s petroleumproducts, in particular.
Concerns have been shown on how the improve people’s mobility with modern rail systems, ofwhich light rail transit is one. Indeed, the Federal government intends to develop light rail transitsystem in the urban areas such as Abuja, Kano, Lagos and Port Harcourt. Efforts by the Lagos Stategovernment is worthy of note here. The Lagos Light Rail project is currently being sponsored by theLagos State Government and supervised by the Lagos Metropolitan Area Transport Authority(LAMATA). The project, for which seven lines are being planned (Red, Blue, Green, Yellow, Purple,Brown and Orange), is to be under a concession contract to the private sector (that is, under a PPParrangement). The concessionaire will provide railway equipment including electric power, signalling,rolling stock and fare collection equipment among other things (en.wikipedia.org). LAMATA ispresently focussing on the 27 km Blue Line (Okokomaiko-Marina) and the 30 km Red Line (Agbado-Marina).
In November 2006, the China Civil Engineering and Construction Corporation signed an US$8.3billion contract to build a new standard-gauge rail link between Lagos and Kano in the north. Asecond rail link is also being contemplated between Port Harcourt and Jos in the interior. Altogether,about 8,000 kilometers of standard-gauge rail lines are to be constructed.
Since 2009, the NRC has been rehabilitating the existing narrow gauge railway using conventionalcontracts. It has also purchased 25 new locomotives, in addition to refurbishing a few locomotivesand rolling stock (coaches, vans etc). The signalling and communication system is also beingupgraded at booster control base in the 7 District Centres and along the rail route.
Several countries have introduced several reformatory measures in order to improve the operationof their railways across the globe. For instance, the former national Romanian Railways has beenrestructured recently into four companies:
• Rail Infrastructure Company (CFR)• Passenger Rail Transport Company (Calatori)• Freight Rail Transport Company (Marfa)• The Railway Information Systems (IRIS)
Interestingly, these companies are fully owned by the state. The main income source of the CFR isthe Track Access Charge (TAC) levied on all the operating companies. The passenger companyprovides extensive passenger service at low tariffs, which are supported by the state through PublicService Obligation (PSO). The freight railway company, Marfa, is managed commercially and receives
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no subsidies. Therefore, it has the freedom to set its fess and tariffs. The private operators now have10-15 per cent of the rail freight market.
In the United States, the response to the problems of the railways included the creation of theNational Railroad Passenger Corporation (Amtrak) in 1971 and a shift in focus to rail freight servicesby existing railway companies. Amtrak is wholly owned by the federal government for providingintercity rail passenger service. The Consolidated Rail Corporation (Conrail) was also formed throughthe nationalisation, reorganisation and subsequent privatisation of seven railways in the Northeastregion of the United States. The Staggers Act of 1980, radically changed the ability of railways tomarket their products, in terms of both pricing (through substantial relaxation of rate makingregulation) and quality (for which customers were willing to pay).
The results of the rail transport sector reforms in the United States have been outstanding, in thatrail traffic has remained relatively stable after 1980, customer service levels have increased, labourand physical assets of rail companies have increased dramatically, and the profitability levelsreached have not been seen since the turn of the century (Thompson, 1993 and Coyle et al, 1990).The main lesson to be drawn here is that concrete and well-thought out measures need to be takento deal with inefficient rail operations and policies.
RailRailRailRail ConcessionsConcessionsConcessionsConcessions inininin AfricaAfricaAfricaAfricaWith respect to the railways of Sub-Saharan Africa, many of them are said to be in a particularlyparlous state, having been starved of investment and even basic maintenance funds for years (Huffet al, 1989 and Courier, 1998). In Africa, private financing of railways became a reality in 1995 withthe affermage of the railway operations between Abidjan (Cote d'Ivoire) and Ouagadougou (BurkinaFaso) (Thiam, 1998, and Mitchell and Budin, 1999). This is a type of concession contract in which theoperator leases assets from the public authority, while the latter provides major investments(Guislain, 1997). This transaction has since been followed by a series of railway concessionagreements between the private and public sectors in countries such as Cameroon, Gabon,Madagascar, Zambia, Zimbabwe, Mozambique and Senegal/Mali among others (Table 3).
Source: World Bank Transport Form: Rail Concessioning Since 1990.
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Early results from privatisation transactions in the railway have so far been mixed. Given the weakinvestment and regulatory climate in many African countries, investment flows have beenunderstandably limited in the first place. Additionally, the nature and size of the privatized transportoperations and infrastructure have necessitated the abundant use of a range of incentives (financial,economic, commercial and regulatory) in order to secure private operators’ interest. These practiceshave raised many questions about the actual viability of the completed transactions given the scopeof the ‘financial sweeteners’ granted to private operators to compensate for the weak investmentclimate.
TheTheTheThe BritishBritishBritishBritish RailRailRailRailIn 1992, the British Government privatised the railway, by creating vertically integrated regionalrailway companies. There is a single national network operator, initially referred to as Railtrack.With the reforms, passenger numbers grew, new services were added to the timetable and newrolling stock was placed on order. Along the line, Railtrack ran out of money and administrators wereappointed to take over the company in October, 2002 and renamed it Network Rail. One of its earlydecisions was to bring maintenance back in-house.
The current structure of the British rail is that, at the apex is Government (the rail division of theDepartment for Transport). There is also the infrastructure manager, Network Rail (that replacedRailtrack) and the train operators and their passenger and freight customers. The Office of RailRegulation (ORR) carries out both economic regulation and safety regulation.
Through railway concessioning, the vertically integrated British Rail was unbundled into about 100separate companies. The operations of passenger railways were transferred to 25 Train OperatingCompanies (TOCs) by public auction, for a duration varying between 7 and 15 years. The TOCsoperate designated passenger train services on a franchise basis. In addition, three Rolling StockCompanies (ROSCOs) were created to own and lease rolling stock to TOCs. Network Rail owns thetrack, stations but not the trains or other train operator assets. Network Rail operates the networkand maintains railway assets in accordance with best practice and its income comes mainly frompassenger and freight operators who pay track access charges for access to the network (after trackaccess agreement with Network Rail). TheTheTheThe mostmostmostmost obviousobviousobviousobvious successsuccesssuccesssuccess ofofofof thethethethe railwayrailwayrailwayrailway hashashashas beenbeenbeenbeen passengerpassengerpassengerpassengergrowthgrowthgrowthgrowth andandandand freightfreightfreightfreight growth.growth.growth.growth.
JapaneseJapaneseJapaneseJapanese NationalNationalNationalNational RailRailRailRail (JNR)(JNR)(JNR)(JNR)In Japan, there are more than one hundred private railway companies and the Japanese NationalRailways (JNR), which was by far the largest nationwide operator. The JNR controlled about 80 percent of the 27,000 km of rail lines in Japan in 1980 (Fakui, 1992). However, the huge annual deficit ofthe JNR, which was about US$18 billion in 1985 and an accumulated deficit of US$286 billion,coupled with a drop in JNR's share of passenger transport volume from 55 per cent in 1955 to 23 percent in 1985, and a precipitous decline in freight traffic from 52 per cent to 5 per cent over the sameperiod, forced a change in its ownership and operating structure (Fakui, 1992). The former JNR wasnot only huge, monolithic and production driven, it also had 400,000 employees and five previousrestructuring failures.
The reforms of JNR were undertaken in 1987. In 1949, the Japanese National Railways wasestablished in 1949 as a ‘public enterprise’. In Japan, between 1960 and 1987, the share of
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passenger traffic handled by rail sector went down from 51 per cent to 22 per cent, while that offreight traffic went down from 39 per cent to as low as 5 per cent. Consequently, the financialposition of JNR rapidly deteriorated. After recording a deficit of 30 billion yen in 1964, debtcontinued to accumulate, to the extent that the Japanese government provided subsidies of 600billion to 700 billion yen to JNR every year. By the end of fiscal 1986, the long-term liabilities of JNRhad reached 25 trillion yen. The precarious position of JNR’s financial situation made it bankrupt.Some of the reasons why JNR went bankrupt included its organisational structure as a publiccorporation which was not equipped for competition. JNR was subject to government interferenceon budgets, fares, and personnel affairs. Construction of new lines proceeded without due regard forprofitability and JNR had minimal managerial autonomy.
In 1987, the government of Japan took steps to divide and privatise JNR. Initially, the governmentretained ownership of the companies. By 2006, all of the shares of JR East, JR Central and JR Westhad been offered to the market and they are now publicly traded. The freight service had to survivein a competitive logistics industry. Therefore, by taking the necessary steps to set up a system withclear demarcation of responsibilities, the freight railway was separated from the passenger railwaysas an independent company. Its success factors included dividing the business into appropriate sizesfor each company, creating mutual competitive consciousness between all operators, elimination ofinterference or reduction of government involvement, business diversification for improvedcorporate profits and flexibility in the business activities.
The key lesson from the JNR privatisation is that all the 6 companies have reduced the work force byabout 25 per cent and reduced the long term debt obligations by as much as 40 to 50 percent. Inaddition, the seven JR companies have paid an annual average of about 260 billion yen to thegovernment or municipalities for corporate tax, fixed asset tax, and other fees and charges. Fromthe perspective of national finances, it can certainly be said that the JNR reforms were successful. Inshort, the privatization of JNR is a very good example of how to transform a heavily subsidized, lossmaking company into a profitable modern service provider transporting more passengers than everbefore and competing on cost and service with other modes of transport.
AAAA FailedFailedFailedFailed ExampleExampleExampleExample ofofofof RailRailRailRail PrivatisationPrivatisationPrivatisationPrivatisation (Argentina(Argentina(Argentina(Argentina Rail)Rail)Rail)Rail)Since nationalisation of the railway in 1948, the rail network in Argentina had been operated by thestate-owned company Ferrocarriles Argentinos (FA), made up of six relatively independent divisions.Before privatisation began in 1990, FA ran a national network of about 35,000 km, employed 92,000people and was losing more than US$1.0 billion a year with much of the track and many of thelocomotives and rolling stock in poor condition.
The plan was to break up the network into segments and to grant concessions to private companiesfor their operation through competitive bidding. Freight and passenger services were separated and,since most of the intercity passenger services were not commercially attractive to the private sector,the government offered these to the provinces. The remaining passenger services in the city ofBuenos Aires, including the five lines of the Metro, were potentially more viable and were treatedseparately.
Privatisation began with the granting of long-term concessions (30 years with an optional 10 yearextension) to six companies for the operation of freight services. These companies were responsiblefor all operations and maintenance and for the implementation of the investment programmedetailed in their bid. The fixed assets remained the property of the state and the operators had topay for their use and to rent rolling stock. Freight tariffs were deregulated but were subject to state
15
approval. The concessionaires were expected to hire as many FA employees as were required andredundancies were financed by the government with the help of the World Bank.
In March 1991, the government separated the urban passenger rail services and metro operatingwithin the city of Buenos Aires from the rest of the rail network, and to this end created the holdingcompany ‘Ferrocarriles Metropolitanos S.A’. While the freight concessionaires were expected tomake a profit, it was recognised that the operation of these services would require public subsidy.Concessions were granted to the bidder who would require the lowest subsidy.
The privatisation of Argentina's railways was considered to be a good business deal in the 1990s forthe companies that began to run the train service with subsidies from the state. But a decade later,the private management of the passenger and cargo railway services through concessions had beginto show signs of dismal failure for both passengers and the public sector. The total network ofrailway lines shrank from 35,000 to 8,500 km, and the number of employees from 95,000 to 15,000.The state also did not benefit from the privatisation as it now spends the same amount on subsidiesto the private companies that it used to spend on maintaining the railway lines.
The privatisation of Railways in Argentina has been a big failure and several important lessons can belearnt from the same. The most important lesson being that PPPs do not work where they are notdriven by ‘value for money for the consumer’ philosophy but are used as a resource augmentingstrategy by the Public Sector. Secondly, a holistic view has to be taken while privatizing the Railwaysand a piece meal approach is a recipe for disaster.
Having examine the challenges confronting the Nigerian railways some policy options for movingforward are suggested in this section of the paper.
ImprovedImprovedImprovedImproved Funding:Funding:Funding:Funding: In the short run, the financial situation of the NRC has to be drastically improvedthrough better and sustained funding (through various sources including internally generatedrevenue). Recent but piecemeal efforts at running a few rail services as well as resuscitating theNigerian railways are acknowledged, but improved funding for more locomotives and rolling stock,improved condition of workshops and so on must be provided. Indeed, the planned PPP model ofdevelopment of this mode does not mean that government should totally abdicate itsresponsibilities to the private sector.
There is no doubt that a Railway Act that meets the current reality of the country is long overdue.Unfortunately, the Railways Bill that had been sent to the National Assembly for over five years hasnot been given the expeditious passage that it requires. This situation is considerably preventinginterested stakeholders (apart from the NRC) from participating in running a system that ismoribund and in need a new lease of life by way of additional funds from other stakeholders,including state governments, private investors and concessionaires. This step will make rail transportservices to be modern and more vibrant in Nigeria.
Without any iota of doubt, several plans concerning the rejuvenation and modernisation alreadyexist, but of the will to implement them is extremely weak. This has drawn the rail transport sector
16
back by almost 50 years. Rapid action needs to be taken on them if there is really a genuine interestin revitalising this mode of transport. Nevertheless, there is the need to emphasise the need toextend the existing rail network to connect major seaports and the Inland Container Depots (ICDs)and Container Freight Stations (CFS) when completed (Table4). The East-West rail connection, whichis long overdue, should be given priority attention.
Sources: Nigerian Shippers’ Council (2004), Adams (2006), www.shipperscouncil.com
PromotionPromotionPromotionPromotion ofofofof Intra-UrbanIntra-UrbanIntra-UrbanIntra-Urban railrailrailrail TransportTransportTransportTransport ServicesServicesServicesServicesThis policy option is being made cautiously. First, on the ground that investors (apart from the NRC)can participate in rail services provision. Many cities in Nigeria are not well-served by one form ofrail transport or the other (trams, light rail transit services etc). Unfortunately, several parts ofindividual Nigerian urban centres that the rail lines traverse are not served. To therefore benefitimmensely from rail transport, large urban centres like Kano, Ibadan, Port Harcourt, Kaduna and soon, must begin to plan for the provision of intra-urban rail services. This is partly to ease the problemof severe vehicular traffic congestion that many of them currently face and will also make themhealthy and environmentally friendly (Plates 1 and 2 show some forms of intra-urban rail transportservices in the UK and Egypt).
As already noted, the poor situation of the rail transport sector has brought about a major shift tothe road transport services, in terms of passengers and goods. Many of the trunk roads in Nigeriahave also been destroyed by the heavy goods vehicles that hardly observe axle load limits. It is theresponsibility of the appropriate authorities to monitor and impose severe fines on heavy goodsvehicles that continue to damage Nigerian roads with impunity.
As Nigeria strives to become one of the 20 leading economies by 2020, industrialisation as well asthe development and strengthening of local capacity for the manufacture of relevant locomotiveand rolling stock spare parts become imperative. In the 1970s and 1980s, there were plans by theNRC to establish a rolling stock manufacturing plant in Kaduna, in conjunction with DaewooCorporation of South Korea. The NRC Diesel workshop in Enugu also met the specification for diesellocomotive manufacturing, according to the feasibility studies carried out by General Electric of theUnited States of America (Media Research, 1988). This step would not only create job opportunities,but would help in conserving foreign exchange that would have been used in procuring locomotives,widen the market for sales of train spare parts and in reducing down-time of locomotives and rollingstock.
As it did in its hey days, the rail transport subsector can significantly contribute to thetransformation of the Nigerian economy, as it has done and is still doing in several countries (seeplate 3, which shows a double stacked container train, which can be a feature of modern railtransport in Nigeria). However, more determined steps and stronger political will need to beexhibited. Beyond mere addressing the prevailing 'rail transport problems', rail transport policy inNigeria should be adequately responsive to the existing and future rail transport users' needs, interms of supply and demand for rail transport services, especially in the light of emerging industrialand economic map of Nigeria among others. Furthermore, the attractiveness, extent of utilisationand operating profits, and the weight of railway problems on rail operations and management wouldbe some of the critical factors that would determine the sustainability of the Nigerian railways;hence, the need for their urgent revival and bringing them back on track.
Incidentally, each mode of transport has some comparative advantages over the others, includingthe railways. For rail transport, its advantages lie in its huge loading capability and relatively lowertransport cost, in respect of goods hauled over long distances among others. For these and otherreasons, the dwindling fortunes of the railways need to be turned around quickly, so that thehighways which have suffered considerable deterioration, partly because of the poor state of the railtransport subsector, can also be saved from further deterioration. Also, existing and potential clients,with improved rail services, can save considerable cost on goods haulage, if they are well connectedto the railway network, while job opportunities would also be created through the expansion andgrowth in rail transport-related activities.
Plate 3: Double Stack Container train
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ConclusionConclusionConclusionConclusion
This paper has tried to articulate the challenges that currently face the Nigerian railways. What isclear is that this transport subsector has suffered considerable neglect in the past, despite the hugepotentials and opportunities that are available for turning its fortunes around for good. Indeed, thepast neglect of the sector and its attendant consequences, which are now reverberating in the roadtransport sub-sector in particular (by growing cost of road transport services and unprecedenteddamage to the roadways) can be drastically curtailed if the suggested policy options are rapidlyaddressed. Nigeria must be more determined than ever before to deal with the rail problem head-on,with stronger political will and resolve. More importantly, the Railway Bill must be quickly passedinto law, as a first step towards attracting and widening the space for other stakeholders includingstate governments and private sector investors in contributing to the development of the Nigerianrailways.
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