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Railway Concession, A Welcome Development

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As the federal government plans to concession some railway lines in the country, International strategic railway delivery specialist and Chairman of the Rail Work Group of the Nigerian Economic Summit Group (NESG), Mr Rowland Ataguba, in this interview with EJIKE EJIKE describes the policy thrust as a welcome development.

With the recent inauguration of a steering committee, the FG has commenced the process of concessioning the old railway system to the private sector. How do you react to this?.

It is a most welcome development but we have had many false starts before, so we must proceed with cautious optimism. The BPE has been trying to concession the railways since about 2001 without success but just concessioning the railway is not enough. We must get the model right and also appoint competent concessionaires with capacity rather than cronies of the political class who will asset strip. The NITEL experience comes to mind. So we must be vigilant.

So what concession model would be best for the railway?

The paramount objective must be about the sustainability of the railways. The railways have been failing in the last 50 odd years because we have primarily got the business model wrong. Then of course, we have the other issues of mismanagement and corruption that pervade the public sector. In my view, a product based model would be the most appropriate in the circumstances.

Can you explain the product based model?

Our railways offer two main products, freight and passenger services. Of these, only the freight service is financially viable and will attract private investment. The passenger service won’t, and will require significant subsidies to endure. We also know the state of government finances and the controversies around the subsidy regime in the oil sector. The passenger and freight businesses are also very different businesses. They offer distinctly different products, serve different types of markets and customers, require different types of equipment and different types of organisation for their delivery. Indeed if you look at the other modes of transport, you would hardly find any organisations offering both products for these reasons.

So why not subsidise the unprofitable passenger service with the profitable freight service?

That is cross subsidisation and is what the NRC has been doing all these years. It is not efficient and disincentivises productivity, specialisation and efficiency. This is the fundamental reason why the NRC has been unable to sustain itself. Managers are spending 80 percent of their time on the business that brings in 20 percentof their revenues and only 20 percent of their time on the business that can generate 80% of revenues. Imagine if it spent 100 percent of its time on the business that brings it the most revenue. Remember that each year the NRC spends N5bn and generates only N1bn in revenues which is clearly unsustainable.

So should we jettison the passenger business?

I am saying that we should ring fence the passenger business on the narrow gauge system so that it can be better managed. We should award a freight concession that can sustain the railway without needing government support on an ongoing basis and then award a separate passenger concession that will need support. That way the sick baby does not contaminate the healthy one and lead to a collapse of the entire system, as has been our experience and those of others across the world. The freight concessionaire will be the lead concession and be responsible for maintaining the infrastructure. The passenger concessionaire will enter into access agreements with the freight concessionaire and pay for using the track. This guarantees the long term sustainability of the legacy railway system. Combining the two under a single concession is a no brainer and is guaranteed to fail.

You are Chairman of the technical committee that is reviewing the transport sector reform bills in the National Assembly. When can we expect to have the new laws passed?

The Technical Advisory Committee is reviewing the Railway Bill and the National Transport Commission Bill for the House of Representatives. We are nearly finished and should be reporting to the Committee on Land Transport when they return from recess in a few weeks.

You were also in the technical committee of the Senate. What are the main features of the bills?

A key feature of the Railway Bill is the separation of operation from regulation as well as the liberalisation of railway ownership. States, Local Governments and private entities would now be permitted to own, build and/or operate railways. The National Transport Commission Bill creates an independent regulator for the entire transport sector. That is road, rail, maritime and aviation. This enables a synergy from integration and shared resources. It levels the playing field for the modes to better compete against each other and discourages industry capture. It also rationalises the number of disparate regulatory agencies among others. It is revolutionary as it is controversial as some of the existing agencies understandably have anxieties.

So when will the new laws be passed?

The Railway Bill has been passed by the Senate, while the National Transport Commission Bill has passed second reading there. Both bills have passed second reading in the House of Representatives and given the commitment of the leadership of both houses to the timely passage of these bills. I would hazard that we should see these new laws passed before the end of the year.

You have been leading the investigation into the award and implementation of railway contracts from 2010 to 2014, can you give us an insight into when it will conclude and what to expect?

The investigation is being conducted by the House of Representatives and our role is in providing technical advisory. It is an investigation in progress and you must appreciate that it would be inappropriate for me to discuss the status without the authorisation or direction of my client. All I can say is that the railways have not been immune to the pervasive culture of impunity of our recent past.

 

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