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A Public-Private Partnership Approach to Rehabilitating Nigeria's Railways

Writer's picture: Prince C. OguguoPrince C. Oguguo

What is the problem?

Nigeria’s 3505Km of rail infrastructure was built and has been operated by the Nigerian Railway Corporation since 1898 when the first railroad in Nigeria was constructed by the British Colonial Government. After the end of colonial rule in 1960, control of the Corporation and its assets were transferred to the Government of Nigeria. Since then, they have fallen from one state of disrepair to another and continue to suffer the consequences of gross mismanagement on all fronts. In 2002, a BBC correspondent described Nigeria as the most underdeveloped railway nation in the world.

Efficient railways can stimulate economic growth by facilitating trade, increasing the accessibility of production sites to regional/international markets and ports, increasing mobility of labour, facilitating regional integration and creating direct jobs.

Two key issues have been identified as having plagued the corporation since independence. They are;

  • Corruption

  • Inept/Poor management

While the government has finally acknowledged the need for reforms within the sector, critical issues that the government needs to address include;

  • Financing: The Director-General (DG) of the Bureau of Public Enterprise (BPE), Benjamin Dikki in 2015 identified funding as one of the key challenges hindering reforms.

  • Corruption: The same corruption that grounded the Corporation in the first place still runs rampant in Nigeria particularly in the public sector. Transparency International ranks the country 136 out of 175 countries or territories.

  • The DG has also acknowledged that the Nigerian public sector lacks the efficiency and professionalism required to carry out the required reforms

Owing to these issues, the Federal Government of Nigeria (FGN) has decided to concession all existing rail infrastructure while also commissioning the construction of 1400km of new rail infrastructure.

What Services will a PPP provide?

In a PPP, the FGN seeks a private sector partner to manage, and maintain current railway infrastructure, and effectively operate regular passenger and freight hauls to all stations.

A feasibility study will clarify the expected costs of the PPP and also determine what the users will be willing to pay to use these services. This will inform whether or not a PPP is even feasible and help to avoid a repeat of the Lekki scenario

Why Would the Private Sector Participate?

From advanced economies such as France and the UK to rapidly developing economies such as Brazil and Peru, there are numerous examples of railway PPPs that are currently being implemented in ways that not only benefit the public, but also the private sector partner. France Manche SA and Ferrocaril Transandino SA are two of such examples.

The attractiveness of rail PPPs stem mainly from the monopolistic power that such companies receive as a natural consequence of the nature of rail infrastructure therefore, excluding substitutes such as air and road, there is no competitor, and so a steady stream of customers is almost guaranteed, thereby reducing the demand-risk borne by the concessionaire. In a country like Nigeria where air and road infrastructure are equally poor, the upside for rail is even bigger.

Furthermore, because such a PPP will be brownfield (based on existing infrastructure), there is minimal risk associated with construction to be borne by the private sector partner.

On the other hand, Nigeria reputation for creeping expropriation following changes in government increases the risk that the private sector partner will have to bear and thus makes the project less attractive. Other systemic issues such as corruption when dealing with government authorities and insecurity may deter the most credible firms from making bids.

To clearly determine the factual nature of these upside and downside risks, a feasibility study must be done. The study will involve an assessment of the nature of the technical, commercial, operational, financial, political and general economic implications of this project. This feasibility study will inform whether or not this project can be structured as a PPP, the nature of the subsequent PPP contract, the financial implications on the budget of the federal government and the prospective bidders and most pressingly, the nature of the bids and the bankability of the project.

Very importantly, the feasibility study will also highlight the current legal realities that may impede the smooth concession or operation of the railways as a PPP and propose amendments to such laws that the government will have to implement before a PPP is possible. There is currently such a bill in the National Assembly, however it is unclear that it is the result of a scientific process (feasibility study).

Also, it must be stressed that a feasibility study should identify the risks that the government will face in structuring and supporting the concession and also highlight risks that may deter the best quality firms from making bids or that may deter lenders from backing the PPP with a view to finding ways to mitigate those risks.

In 2005, the FGN's Bureau of Public Enterprises engaged the services of CPS Transcom to advice on the concession of the railway system. It is widely reported that about 80% of the feasibility study had been completed before the contract was suspended. As this was about a decade ago, any new concession process must begin with a feasibility study done from scratch while reference can of course be made to that 2005 document.

How Will the Risks Be Allocated?

The allocation of risk is extremely important and should be done in such a way that the party best suited to bear the risk at the lowest cost is allocated that risk. Lenders and the Private sector price their services/products based on the risk they have to bear, so allocating the risk to the wrong party can lead to a considerable increase in the cost of the PPP to the public.


Perhaps the most important tool in risk allocation is the PPP contract. The PPP contract should include these features;

  • Specify the duration (preferably 25-35 years as this long duration will incentivise the private sector partner to make long-term investments)

  • Mode of payment of the private sector partner- such as through ticket/tonnage fees

  • Mode of Payment of the Nigerian government partner, typically between 5-10% of PPP revenue

  • Payment for the right of the concession by the private partner to the federal government


    • This can take into consideration the official inflation rate, currency exchange rates, etc.

    • The contract must create room for the concessionaire to renegotiate these prices based on manifest changes to the prevailing commercial realities at any time.

    • The government should also have the right to renegotiate prices at fixed intervals to reflect such changes in reality while also providing some stability to the concessionaire.

Regulate the service fees of the operator to reflect willingness to pay of the users and the right of the concessionaire to make a decent ROI


    • The provision of security for train stations/sensitive or dangerous cargo

Detail other rights and obligations of both parties such as;

  • Specify performance standards and how they will be measured as well as penalties for not meeting these agreed-upon standards

  • Specify the grounds for intervention/termination of the contract and the rights and obligations of each party in such an event.

  • Specify that with the termination of the contract, all rights and responsibilities previously transferred to the concessionaire will return to the federal government.

How is the Private Sector Engaged?

Attracting a private sector partner for a PPP should begin with a market sounding. This is when the government, armed with a feasibility study engages the private to see what their opinions and suggestions are, so that the government can take those into consideration at the earliest stages. Most importantly, it is about identifying the most credible bidders and seeking to understand the factors that may deter them from the bidding process so that they can be addressed.

Armed with a market sounding and the feasibility study, the FGN’s PPP team can then develop a draft contract agreement that will include output specifications and specify the payment mechanism.

Next, a Request for Qualifications (RfQ) is made by the public sector, marking the start of the bidding process. The RfQ documentation should include: the rules of the procurement process, timelines, format of the submissions, a description of the project, and request for verifiable information from the bidders to assess their qualifications.

Following the RfQ, the FGN must then make a Request for Proposal (RfP) from the successful bidders. An RfP contains a detailed background of the project, service requirements, current assets held and other items discussed earlier as part of PPP contracts, although an RfP is itself by no means a contract.

Based on the request (RfP), the private sector will make competitive bids, detailing how they intend to meet the public sector’s demands, what they will charge for it, and how they will be paid. The Bureau of Public Enterprises will then evaluate all the bids taking into consideration their technical components, financing, cost to the public sector, credibility of the bidder, environmental impact, etc.

Finally, a winning bid will be selected, and a PPP contract negotiated and signed.

How Will the Railway PPP Be Governed?

Nigeria’s Bureau of Public Enterprises is the FGN’s PPP unit. The BPE reports directly to the Presidency and is charged with structuring, monitoring and regulating all FGN PPP and privatisation activities.

Naturally, the BPE has been given the responsibility of setting up PPPs to address Nigeria’s railway challenges. As with any good PPP unit, the BPE must incorporate some best practices from around the world if it is to deliver optimal results.

  • A mix of local expertise, familiar with Nigeria’s business, economic and political terrain, and international expertise, familiar with the implementation of similar projects around the world should be involved.

  • Key decision makers, people who have the authority to make approvals should be involved and engaged with the BPE throughout the PPP development phase

  • The BPE must be empowered by law to carry out all duties necessary for the success of the PPP

  • The BPE must recruit the technical expertise required to evaluate the PPP on an ongoing basis and make recommendations. This team can operate under the auspice of a new Nigerian Railway Corporation that reports to the BPE

  • The BPE must have the power to sanction or impose penalties on the private sector partner for non-compliance

Ultimately, most stakeholders agree that a functional railway system is imperative for the social and economic growth of Nigeria. It remains to be seen if and how the new government of the country, sworn in at the end of May 2015, will continue with the concession process initiated by its predecessor to achieve this crucial PPP and deliver badly needed services to the Nigerian people.


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