Nigerian Railway Corporation

ADDRESS Nigerian Railway Corporation Railway Compound, P.M.B 1037, Ebute Metta Lagos

LIAISON OFFICE: Yellow House Plot 729, Off Ibrahim Babangida Way Maitama District, P.M.B. 5016, Abuja

HISTORICAL INFORMATION

The Nigerian Railways came into being on October 3, 1912 by the merger of the Lagos Government Railways and the Baro-Kano railway. It however became an autonomous public corporation created by an Act of parliament, the Nigerian Railway Corporation Act (1955), as amended 1990, with the general objectives of “ carriage of passengers and goods in the manner that will offer full value and quality of service, ensure safety of operations and maximum efficiency, meet social responsibility in a manner that will meet the requirements of rail users, trade, commerce and the general public’’.

The Nigerian Railway network runs diagonally from the Southwest (Lagos) to Northeast (Nguru) and from the South-east (Port Harcourt) through Kafanchan to the North-East (Maiduguri). The network consists of 4332 track kilometres characterised by sharp curves and steep gradients in many sections. Apart from the Kafanchan-Maiduguri line that was constructed between 1954 and 1964 most of the network tracks were constructed between 1898 and 1927. Not much has been done in terms of construction of new rail lines since 1964 except the 277- kilometre standard gauge rail line project under construction between Itakpe via Ajaokuta to Warri which is now over 80% completed. There is also the 19-kilometre standard rail extension project from Eleme to Onne deep-sea port, which is only 20% completed.

SERVICES PROVIDED BY NRC

NRC provides the following services:

1. Passenger Services. These include:

• Express trains for long distance travel e.g. Lagos-Kano
• Inter city trains for medium journey travels e.g. Port Harcourt- Enugu
• Mass Transit Trains (MTT) for linking rural and urban areas e.g. Minna- Kaduna-Minna
• Commuters for intra-city movement of workers, traders, students to and from their various places of engagements e.g. Agbado-Iddo- Agbado

2. Freight Services. These include:

• Covered Wagons suitable for loading dry goods such as cement and general merchandise.
• Open Wagons suitable for loading dry goods such as cars, billets, etc.
• Special Wagons, Tank Wagons- for liquid goods
• Baggage Vans suitable for parcels, household items and other courier services
• SBX/CBX for animals/general goods and farm products

3. Workshop Services. These include:

• Maintenance of locomotives and rolling Stock;
• Foundry services-bricks making and carpentry; and
• Other commercial services.

4. Ancillary Services. These include:

• Medical services: Commercialised Ultra Modern Hospital in Ebute – Metta and Clinics in virtually all the districts;
• Advertising Facilities;
• Printing Press;
• Catering; and
• Real Estate

EQUITY STRUCTURE & PROPOSED METHOD OF PRIVATISATION

The Federal Government of Nigeria fully owns the NRC. The proposed method of privatisation for the NRC would be by concessioning. The concessionaire would be expected to provide rail services and maintain the infrastructure. The concessionaire who must be an experienced rail operator must be interested in investing in the Nigerian railways to upgrade the existing infrastructure and possibly participate in other green field development.

Other assets of the Corporation not needed for the concession would be deployed to other uses to generate income for the government.

The objective of privatising NRC is to enable it, through restructuring and concession, substantially increase its operating efficiency, reduce its cost of operations and configure its freight services and tariffs to meet customers’ requirements and expectations and consequently, to increase its share of land transport freight traffic.

Concessioning of the railway is expected to achieve the following;

• Increasing of the respective shares of freight traffic between rail and road modes, leading to the Nigerian economy becoming globally more competitive
• Balancing the respective shares of freight traffic between rail and road modes would result in a significant reduction of traffic on road, particularly the long haul and bulk traffic and therefore a significant reduction in the budget allocation of funds for road maintenance and rehabilitation in Nigeria.
• NRC becoming financially self-sustaining and being in a position to reward its capital providers
• Government’s being able to increase its fiscal revenue through receipts of concession, fees, taxes etc

Before granting concession, a number of reforms would be undertaken. These include:

STAFF RATIONALISATION

Staff rationalisation is a key component of the strategy to improve efficiency and cost effectiveness of public enterprises in general, the Nigerian Railways inclusive. The staff numbers at the NRC have been progressively brought down from about 45,000 in the 1970s to less than 14,000 by natural attrition as well as retrenchment. The optimal level is probably not more than 5,000. The concessionaire will be required to hire from those that are currently employed at NRC.

NEW LEGAL AND REGULATORY FRAMEWORK

The current Railway Act does not create the enabling environment for private sector participation and fails to establish the appropriate legal and regulatory framework for the proposed concessioning of the railway sector. A new Railway Act would be enacted which, among other things, will have provisions for private sector participation in the railways including investments in green field developments. An independent body would also be established to carry out economic, environmental and safety regulation of the sector.

RESTRUCTURING/ WINDING-UP NRC

NRC will hand over the freight and passenger business to concessionaires. The future role of the NRC as an entity would be defined either to continue operating as a down-sized state owned company with responsibility of spinning off the remaining commercial and non-commercial activities, discharging all its liabilities, selling of the remaining assets, and finally winding-up itself or be retained if  (i) no proposals are received for the passenger concession and NRC is required to continue to operate these services, and (ii) NRC is required to serve as a holding company holding infrastructure assets on behalf of the government.

SECTOR INFORMATION

THE MACRO- ENVIRONMENT

Nigeria enjoys relative political stability with improving environment for investment. The private sector investor in the railways would benefit from macroeconomic stability, favourable investment climate with freedom to repatriate profits. The investor is also protected through the Nigerian Investment Promotion Commission Act against the nationalisation or forfeiture of its assets to any Nigerian government.

DEMOGRAPHIC: ITS DYNAMICS VIS-À-VIS THE SECTOR

Nigeria has a population of about 126.64 million people of which more than 45% live in urban areas. Average size of Nigerian cities has been growing at the average of 8% per annum far in excess of the country’s population growth rate of about 3% per annum.  Nigeria’s population is relatively young and mobile and the railways transverse most of the relatively populated areas of the country.  Rail transport is therefore a major potential mode of passenger and freight transport to the populace. It services the need of the following group: industrialists and marketers, rural dwellers in terms of movement of farm produce to markets, rural and urban commuters for affordable and reliable transportation.

TECHNICAL-DEVELOPMENTS IN THE SECTOR IN THE LAST 5 YEARS

Apart from the un-completed Itakpe-Ajaokuta-Warri and the Eleme-Onne lines with a total of  296km, the Nigeria rail network consists of narrow gauge track. It was recently decided that Nigeria will maintain this gauge and that all future developments will also be in narrow gauge.

REGULATORY-INSTITUTIONAL CONTROLS FOR THE OPERATORS IN THE SECTOR

The Railway Act of 1955, as amended in 1990, presently vests regulation of the industry in the NRC. This tends to create some conflicts of interest, as NRC, the industry regulator is also the operator. However, the proposed reform and restructuring proposal for NRC involves drafting a new Act and the establishment of an independent regulator for the sector. Apart from liberalizing the rail sector, the new Railway Act will separate the roles of government, the regulator and the private sector. The independent Regulator would regulate economic safety in the rail sector and facilitate a modern, flexible and efficient regulatory regime that ensures a continuing enhancement of railway operations and promote the harmonization of railway safety regime in Nigeria with those of its neighbours.

PROPOSED LAWS FOR REFORMING THE SECTOR AND ITS OPERATING ENVIRONMENT

The proposed programme for the reform and privatisation of the Railways sector comprises the following steps:

• The formulation and implementation of a new Transport Policy for Nigeria;
• The review of the existing Railways Act of 1955, as amended in 1990 and the drafting of a new Railway Act for the sector;
• The establishment of an independent transport sector regulator; and
• The introduction of private sector participation by granting concessions for both freight and passenger operations.

THE MARKET ENVIRONMENT

THE PASSENGER TRAFFIC MARKET

The Nigerian passenger traffic market is broader than that of freight, because of its population of about 126.64 million constantly on the move.  According to a report in 2001, the estimate for road traffic of passengers’ averages 41.96 million per annum, 2.92 million by air, 2.21 million by rail, and about 1 million by water, results in an annual average of 48.09 million representing about 40% of the population.

Notwithstanding the continuing increases in airfares, as a result of the deregulation of the aviation industry in the late 80’s, the passenger traffic through the domestic airports is virtually in a 3:2 ratio with the railways. Long distance journeys by night traders and business executives on the “luxurious buses” also demonstrate the existing opportunities for the railways if properly resourced and managed. This market segment remains accessible to NRC competition.

(ii) THE FREIGHT TRAFFIC MARKET

The current freight market environment in which the Nigeria Railways Corporation operates has virtually collapsed. Since 1985, it carried less than 1 million m-tons per annum for 15 successive years, except the temporary break in 1998 (Ballast accounted for 92.8% of total freight in 1998, and the balance of regular cargo was less than 110,000 m-tons). Out of the total freight transportation market in Nigeria NRC has a 1.2% market share

NRC contributes little in the transportation of import/export freight to and from Nigeria’s major seaports. Its loss has been the gain of the road transportation mode, though at heavy costs to public expenditure on repair and maintenance of the roads.  As a result of this, its revenue profile has declined.

Despite the potential for passenger rail services due to the country’s large population, the volume of traffic for both passenger and freight has been on the downward trend. The highest number of passengers carried in the last ten years was only 15.5 million in 1994. The traffic has fallen much more in recent times, plummeting to about 2 million passengers in 2001.

(iii) THE NATURE, SCOPE AND STRUCTURE OF COMPETITION (LOCAL AND FOREIGN)

The major competitors of the railway are the road truckers. The railway is greatly under-utilised because of loss of railway traffic to the roads. This is caused by the advantage of direct linkages of the roads to major cities and also because it is more favoured by government in its budget allocations.

ENTERPRISE DATA

THE BUSINESS OPPORTUNITY

THE NEED FOR RAIL SERVICE

Rail transportation is widely accepted as the leader in cheap, affordable, and safe mass transit and bulk movement system. Generally, rail transportation provides the following benefits:

• Bulk movement of goods at a low cost per ton/km
• Uninterrupted movement within and between towns and cities due to right- of way
• Rail service is environmentally friendly
• It is cheap and safe
• It requires relatively less energy and low fuel consumption
• Rail transportation is less susceptible to weather conditions
• It is a very comfortable mode of transportation

CORE AND EXTENDED USERS OF RAIL SERVICES

The major users of rail services are the manufacturing companies producing goods like wheat, flour, cement, beverages, the oil companies moving petroleum products from one part of the country to another and marketing companies. Others are construction companies and importers/exporters.

Scope of demand for Rail service in the past 5 years

Passengers			Freight
Year	NC	Revenue (N)	Tonnes	Revenue (N)	Total Revenue (N)
1999	1, 788,171	88,882,085	484,563	223,328,543	312,210,628
2000	1,525,946	140,225,101	116,837	155,865,908	296,091,009
2001	1,282, 026	110,456,518	132,713	165,256,200	275,712,718
2002	987,088	101,017,010	98,190	132,908,397	233,925,407
2003	1,622,271	156,276,964	58,790	101,129,077	257,406,041

Source: NRC

PERFORMANCE OF THE ENTERPRISE

FACTS, TRENDS AND CONSTRAINTS, FOR PERFORMANCE OF THE RAILWAY

Relating the scope of the objectives of rail transportation to the realities of the Nigerian situation, it stands out clearly that Railway operations are beleaguered with a lot of problems. Most prominent of these problems is that of inadequate financing by the government to cope with the social and economic objectives for which it was established.

Other problems of the railway are inadequate rail network to reach major cities, abandonment of developmental projects, over-aged and inadequate locomotives and rolling stock, low speed and frequent derailments, regular industrial upheavals, maintenance of un-profitable routes, huge wage and pension bills, the track is characterised by worn out rails, steep gradients, and sharp curves. The washed out track at Gombe since 2000 has constituted a drawback for traffic originating or destined to the North-eastern states, which constitute about 33% of NRC’s operations and revenue base.

 

5 YEAR FINANCIAL SUMMARY

1999               2000               2001              2002           2003

Income Statement                              N, 000             N, 000             N, 000             N, 000           N, 000

Fed Govt. Loan                                  866,382            1,923,448        2,616,790           931,626       3,899,374

Gross Working Receipts            664,466             394,097          345,188              338,539         495,810

Other Income                                       –                      –                   35,053                28,169            19,488

Gross Income                   1,530,848    2,317,545    2,997,031            1,298,334    4,414,672

 

Expenditure

Gross Working Expenses (1,341,249)  (2,520,565) (3,088,054)   (2,346,266)     (2,945,598)

Depreciation                   (101,184)    (97,575)            (97,026)       (94,566)        (802,405)

Interest on loans            (583,162)   (586,183)         (576,831)      (597,278)       (635,200)

                 (2,025,595) 3,204,323)    (3,761,911)    (3,038,180)  (4,383,203)                             

Surplus (Deficit)       (494,747)     (851,725)       (771,764)       (1,748,447) 11,981

Difference in Exchange (3,313,335)  (10, 347)      (308,402)       (197,214)    (1,183,675)

Net Deficit             (3,808,082)  (862,072)              (1,080,166)(1,945,661)(1,195,656)

 

Hence, the following clear facts emerge about the performance of the sector:

• Sales and profit continued to decline in size and value
• Although the % of the sector’s growth is insignificant, the growth potential is high
• Competitive ranking of its leadership in transportation also very high
• Being a unique sub-sector, the relative market strength is impressive
• Technological fitness through R&D activities was curtailed by lack of equipment.
• The capital (both fixed and working) funding was dismally poor
• Average Accounts receivable and inventory were low due to low operational activity

The Enterprise’s overall performance has been unimpressive relative to these identified critical success factors

PROSPECTS

SCOPE OF DEMAND FOR RAIL SERVICE FOR THE NEXT 5 YEARS UNDER EXISTING CONDITIONS

Passengers			Freight
Year	NC	Revenue (N)	Tonnes	Revenue (N)	Remarks
2005	2,399,904	236,055,996	110,280	252,721,836
2006	2,375,905	233,695,437	109,177	250,194,618
2007	2,352,146	231,358,483	108,086	247,692,671
2008	2,328,625	229,044,899	107,006	245,215,745
2009	2,305,339	226,754,451	105,936	242,763,587

Fare: N1.52k per passenger Km

Freight Rate: N3.00 per tonnes Km

Note: 1% fall in patronage

Scope of demand for Rail service for the next 5 years under privatisation

Passengers			Freight
Year	NC	Revenue (N)	Tonnes	Revenue (N)	Remarks
2005	5,663,616	571,560,000	579,800	1,151,949,720	At 5% growth rate
2006	5,946,796	600,138,000	608,790	1,209,547,206
2007	6,224,135	630,144,900	639,230	1,270,024,566
2008	6,556,341	661,652,145	671,192	1,33,525,794
2009	6,884,158	694,734,752	704,752	1,400,202,083

BUSINESS FORECAST

AVERAGE OPERATING PROFIT
	2005	2006	2007	2008	2009	2010
INCOME STATEMENT	N’000	N’000	N’000	N’000	N’000	N’000
ProjectedRevenue	279,237	307,161	460,742	829,335	1,658,669	9,434,460
Projected Operating Expenditure	3,321,989	2,989,790	2,391,832	1,913,466	2,200,485	9,906,183
Operating Subsidy	3,042,752	2,682,629	1,931,090	1,084,131	541,816	471,723
Depreciation & Amortization	_	_	_	_	_	_
Interest on Operating Exp loans	-3,042,752	-2,682,629	-1,931,090	-1,084,131	-541,816	-471,723
Net Income	_	851,564	1,460,074	1,617,617	1,550,022	1,476,683

Source: NRC (Final Report of the 25-year Strategic Vision for the Nig Railway System

The completion of the 275 km Ajaokuta-Warri standard gauge line presents excellent opportunities for NRC to transport coal to the complex and to transport the finished product both for domestic use and for exports.

De-regulation/liberalization of the down – stream operations of the petroleum industry will present NRC with opportunities for transporting petroleum products in liquid and semi-liquid forms. The drawbacks of road transport will make Private refinery operators to seek more reliable, safer, consistent, and competitive alternatives to road transport for their products.

The construction of a rail link between Apapa and Tin Can Island Port through the RORO terminal in Apapa will be a great market opportunity for containerised cargo, which is largely shipped through the Tin Can Island Port.

MEDIUM/LONG-TERM PROSPECTS IN THE NIGERIAN /WEST-AFRICAN ECONOMY

In the immediate to short term, there is significant growth potential for both passenger and freight land transport. The rails, if well managed, could capture lost grounds to road transport using NRC’s highly trained and experienced workforce from which the concessionaire could draw.

The connectivity of rail lines to major economic and commercial towns and cities in the country would facilitate distribution of imported and export-oriented goods thereby expanding the distribution network and culminating into enhanced revenue and stabilisation of the Nigerian economy. So also would be the extension of rail services to major seaports and international airports, as well as major commercial and industrial centres. The development of intra-city rail lines in Lagos, Kano, Port Harcourt, Abuja, Ibadan, Enugu, Kaduna and Jos will considerably boost market potential for the rails and reduce congestions on the roads in these cities. There is therefore a great opportunity for investment in the rail sector for the construction of intra city networks and other lines through BOT and other schemes.

In the long term, the proposed interconnection of railway networks in the Economic Community of West African States (ECOWAS) will link our neighbouring landlocked countries by rail to ease the congestion at the seaports and promote international trade.