This record is a partial extract of the original cable. The full text of the original cable is not available.

160814Z Aug 05

UNCLAS SECTION 01 OF 04 ABUJA 001514 
 
SIPDIS 
 
STATE PASS DOT FOR SAMPLE 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ELTN NI
SUBJECT: NIGERIAN RAILWAY CORPORATION SEEKS TO PRIVATIZE 
THROUGH 25-YEAR CONCESSIONS, BUT DIFFICULTIES ABOUND 
 
 
¶1. (SBU) Begin summary.  Economic officers met on July 5 
with A.A. Abubakar, managing director of the state-owned 
Nigeria Railway Corporation (NRC).  Abubakar asserted that 
the state of Nigeria's railways was rather good, and 
improving.  He sketched out the NRC's plan, to be introduced 
later in 2005, to improve the national rail network through 
the granting of 25-year concessions to private rail 
operators.  Abubakar, however, glossed over many of the 
NRC's serious problems, including nearly no new track 
construction since 1964; critical shortages of locomotives; 
low numbers of trains, which often also run late and 
unpredictably; and very large arrears - up to eight months 
for employees and more than 20 months for retirees.  The GON 
says Nigeria's railway infrastructure has "deteriorated to a 
point of operational irrelevance."  This "total collapse" of 
the NRC means the railway's concessionization plan will face 
significant difficulties.  End summary. 
 
¶2. (SBU) Two embassy economic officers and a Lagos Consulate 
political/economic officer met in Lagos on July 5 with A.A. 
Abubakar, managing director of the Nigeria Railway 
Corporation (NRC).  The NRC is completely owned by the 
Government of Nigeria (GON).  Abubakar asserted that the 
state of Nigeria's railways was rather good, and improving. 
He said 70 percent of Nigeria's rail network is operational. 
The NRC managing director explained that the non-operational 
portion lies in the country's northeast and is being rebuilt 
following heavy flooding in 2000 that washed away tracks 
and, especially, crucial bridges.  According to Abubakar, 
the NRC finished in June 2005 the first stage of this 
rehabilitation by replacing four major bridges.  He added 
that the next stage will consist of rebuilding operations 
between Bauchi and Gombe States, which also are in the 
northeast.  Abubakar said when this second stage is 
completed, Nigeria's entire rail network can be considered 
operational.  He also noted that if the money is available, 
the GON will pay the cost of building a new standard-gauge 
rail system for fast passenger trains.  (Comment:  The GON's 
building a standard-gauge, fast-rail system for passengers 
does not seem likely or realistic, given the NRC's current 
state.  Such a standard-gauge rail line would be 
incompatible with the vast majority of the NRC's current 
rail network, which consists of smaller, narrow-gauge 
tracks.  End comment.) 
 
¶3. (SBU) According to Abubakar, the NRC operates select 
passenger services during the week.  Every Wednesday, a 
passenger train runs from Port Harcourt to Kano; every 
Friday a passenger train runs from Lagos to Kano; and a 
daily passenger train operates from Kaduna to Minna.  He 
said the Lagos metropolitan area currently has four to eight 
trains operating each morning and each evening to carry 
commuters, and that freight trains depart Lagos to carry 
bulk and agricultural products.  (Comment:  The regular 
train runs Abubakar mentioned are numerically insignificant 
for a country of Nigeria's population - approximately 150 
million people.  An official at the Kaduna Junction Station, 
one of Nigeria's leading rail junctions, told Abuja economic 
officer in June that, excluding oil shipments, not more than 
four trains passed through Kaduna on most days.  Also, even 
if trains complete their scheduled run, they do not 
necessarily do so on time.  The spouse of one U.S. Mission 
employee in mid-June 2005 boarded a passenger train in Lagos 
for a scheduled two-and-a-half-day trip to Kano.  The train 
left Lagos almost 30 hours late, without explanation for the 
delay, and reached Zungeru - slightly more than half the way 
to Kano - in "Twilight Zone" fashion on the fourth night 
following the originally scheduled departure from Lagos. 
End comment.) 
 
¶4. (U) Abubakar said the GON signed a contract in 1995 with 
the China Civil Engineering Construction Corporation (CCECC) 
to rehabilitate Nigeria's railway system and to provide 
rolling stock.  He noted, however, that the Nigerian 
National Assembly has not funded this contract since 2000, 
and thus "nothing has been happening in the last five 
years."  Abubakar emphasized that Nigeria's military regime, 
and not the Obasanjo administration, signed this deal with 
the CCECC. 
 
¶5. (SBU) The NRC managing director said there "hasn't been 
much investment" by the GON in Nigeria's railroads in the 
past 20 to 30 years.  He contended the NRC's recent success 
has been in keeping the railroad running at all, even if at 
a reduced capacity.  Abubakar acknowledged, however, that 
the costs of this reduced rail capacity included overcrowded 
roads, as well as Nigerian highways damaged by heavy traffic 
and excessive loads. 
 
--------------------------------------------- ---- 
The government details its concessionization plan 
--------------------------------------------- ---- 
 
¶6. (U) Abubakar noted that President Obasanjo sponsored in 
2004 a report on concessioning off railway operations for 25 
years.  Under this plan, Abubakar said, both the GON and its 
private-sector partners will provide funds for five years to 
cover the costs of rail network repairs and upgrades. 
Private companies will then operate the NRC, and at the end 
of the concession period, the management of the NRC will 
revert to the GON. 
 
¶7. (U) Abubakar explained that the NRC intends to offer 
three concessions, for three separate rail networks: 1) the 
"Western Railway, which covers Lagos, Kano, and northern 
Nigeria via Kano; 2) the "Eastern Railway," which covers 
Port Harcourt to Maiduguri and the country's north via 
Kafanchan; and 3) the Itakpe-Ajaokuta-Warri route, which 
remains under construction and which will connect the Itakpe 
iron-ore field, the Ajaokuta steel mill, and Aladja port, 
near Warri.  Abubakar said the GON has an unspecified plan 
to connect the Itakpe-Ajaokuta-Warri line, which is standard 
gauge, to the narrow-gauge network covering the remainder of 
Nigeria, and that the GON will bear the cost of this 
linkage. 
 
¶8. (SBU) The railroad official noted some of the NRC's 
difficulties and ascribed these mainly to funding 
shortfalls.  He did not, however, express any expectation 
that the GON would soon improve its financial support to the 
NRC.  Instead, he expressed his interest in having U.S. 
companies compete to win an NRC operating concession. 
Abubakar added there was so far no evidence of 
concessionaires' interest except in operating the Ajoakuta 
line.  The ISPAT Group, an Indian company overseeing the 
operations of the Ajaokuta steel mill, expressed this 
interest. 
 
¶9. (U) Abubakar said concession operators can import their 
own locomotives and rolling stock, and that he is confident 
the GON will not apply import tariffs to these items.  He 
explained that policymakers have not discussed waiving 
tariffs but that the NRC will recommend the government do 
so.  Said Abubakar, "I'm sure the government will be willing 
to do this," because Nigeria earlier granted its Chinese 
partner a waiver for rolling stock it provided. 
 
¶10. (U) According to Abubakar, the NRC will hold three 
public conferences, in Lagos, Kaduna, and Port Harcourt, to 
"sensitize" the Nigerian public to the concession plan and 
provide details about it.  (Begin comment:  The first of 
these conferences, the Bureau of Public Enterprises' (BPE) 
"Workshop on the Reform, Restructuring, and Concessioning of 
the Nigerian Railway Corporation," was held in Kaduna on 
July 11-12, 2005.  End comment.) 
 
¶11. (U) Abubakar noted, however, that the National Assembly 
still must approve funding in the 2005 budget to cover 
termination payments required by planned job cuts in 
preparation for concessionization.  According to a July 
press report, Obasanjo has approved a 50-percent cut in the 
NRC's employees, from 14,000 to 7,000. 
 
¶12. (U) The BPE says the concessionization process will 
begin in August, while press reports note the NRC is 
supposed to offer these concessions by the fourth quarter of 
¶2005.  The BPE also says the NRC will sell some of its non- 
core assets, or non-operational assets, and use these 
proceeds to pay NRC liabilities. 
 
¶13. (SBU) The BPE additionally has publicized a 
"privatization plan" for the Railway Property Company, Ltd. 
(RPCL), an NRC subsidiary that manages the railroad's non- 
operations land and landed property.  This prospectus admits 
the RPCL did not know, as of mid-2005, the number of its 
employees, the level of the organization's "performance" or 
its "current status," or its revenue or debt profiles.  The 
privatization plan says the RPCL either will be offered as a 
concession, or its lands and properties will be sold at 
market value. 
 
------------------------------------ 
An overview of Nigeria's rail system 
------------------------------------ 
 
¶14. (U) Nigeria's railroads employ the narrow-gauge system - 
rails only three feet, six inches wide - as opposed to the 
"standard gauge," as is found in the United States, of four 
feet, eight and one-half inches.  The disadvantages of 
narrow-gauge systems are that they must carry lighter 
cargoes, and that these trains are more likely to derail. 
Nigeria's rail network includes almost no double track, and 
a slow average train speed. 
 
¶15. (U) Nigeria's rail network runs roughly diagonally from 
the country's southwest, starting at Lagos, to Nguru in the 
northeast, and from Port Harcourt in the southeast through 
Kafanchan to Maiduguri, in Nigeria's far northeast. 
According to the NRC, its track network consists of 4,332 
track kilometers.  The two north-south lines - Lagos to 
Kano, and Port Harcourt to Maiduguri - are connected by a 
179-km east-west line running from Kaduna to Kafanchan. 
Apart from the Kafanchan-Maiduguri line, which was built 
between 1954 and 1964, most of Nigeria's other rail lines 
were constructed between 1898 and 1927.  Few new rail lines 
have been built in Nigeria since 1964 except for the 277-km 
line under construction between Itakpe to Warri, via 
Ajoakuta, which is more than 80 percent complete.  Since 
Nigeria's independence in 1960, the country's successive 
governments have invested little in the country's rail 
network. 
 
----------------------------------- 
The NRC has no shortage of problems 
----------------------------------- 
 
¶16. (SBU) A report prepared by a U.S. consulting company in 
2005 for the U.S. Department of Transportation and the U.S. 
Federal Railroad Administration had the following main 
conclusions:  the NRC's major problem is not a deficient 
rail network, but rather its lack of usable and reliable 
locomotives; the railroad's need for additional locomotives 
and railcars is "critical and immediate"; and the NRC's 
track infrastructure is in "relatively good condition." 
This report followed field inspections of the NRC's western 
main line in December 2003 and its eastern main line in 
December 2004. 
 
¶17. (SBU) A press report, however, noted that in March 2004, 
Nigeria had only 35 operational locomotives.  The U.S. DOT 
study, meanwhile, found that only four of 50 Chinese- 
supplied locomotives were available for service in December 
2004, and that as of March 2005, fewer than 10 percent of 
the NRC's freight locomotives were available for freight 
runs. 
 
¶18. (U) Potential NRC concessionaires would have to contend 
with significant operational difficulties.  The BPE says 
Nigeria's "railway infrastructure and other assets have 
deteriorated to a point of operational irrelevance and 
economic unviability," while this "total collapse has badly 
affected the movement of both passengers and freight."  The 
NRC notes the current freight environment in which it 
operates has "virtually collapsed."  As a result, the NRC 
held only a 1.2-percent share of Nigeria's total freight 
transportation market in 2004. 
 
¶19. (SBU) The NRC has experienced a significant downturn in 
its passenger volume.  The national railroad carried 15.5 
million passengers in 1994.  This figure plummeted to 
roughly 2 million passengers by 2001 - in a nation with, at 
that time, a population of approximately 130 million. 
(Begin comment:  The 2005 U.S. DOT study concluded that rail 
passenger service will remain unprofitable for the NRC.  End 
comment.)  Complicating the NRC's movement of passengers and 
freight is the vandalization of its signal communications 
system through the theft of VHF signal masts' solar panels. 
 
¶20. (U) GON officials demonstrated marked candor at the 
public workshop on NRC concessioning held in Kaduna on July 
11-12, 2005.  Benjamin Dikki, BPE director of transport and 
communications, termed the NRC "on the brink of collapse" 
and "unable to maintain any reasonable level of service." 
BPE Director General Irene Chigbue was even more direct, 
citing the NRC's actual "collapse."  She said, "When you add 
the pitiful plight of the railways pensioners to this 
gruesome reality, a more pathetic picture can hardly be 
contemplated." 
 
¶21. (SBU) The BPE says a portion of proceeds from the 
proposed sale of NRC assets will be used to help pay off the 
corporation's significant arrears in salaries and pensions. 
For example, NRC employees at the Kaduna Junction Station 
told Abuja economic officer in June 2005 they had not been 
paid for eight months.  Meanwhile, the Nigerian press 
reported in March 2005 the NRC owed more than 15,000 
retirees a total of roughly 4.5 billion naira (USD 34.35 
million) in pension arrears, dating back to December 2002. 
Another press report, from late July, noted the situation 
was little changed, with arrears to retirees still exceeding 
20 months. 
 
------- 
Comment 
------- 
 
¶22. (SBU) In his comments to economic officers, NRC Managing 
Director A.A. Abubakar downplayed the severity of the 
railroad's problems.  These difficulties, however, could 
deter all but the hardiest would-be concessionaires, who 
almost certainly would have to make substantial investments 
for five years before being permitted to start to recoup 
their capital.  Abubakar demonstrated considerable, and even 
breezy, confidence about the feasibility of the NRC's 
planned "privatization" through concessionization.  He did 
not, however, offer a substantive reply to economic 
officers' questions about the NRC's arrears to employees and 
retirees.  Would-be concessionaires might hesitate to bid on 
a concession before the NRC does a better job of explaining 
its plans to pay these salary and pension arrears - and then 
begins to do so.  Otherwise, the NRC is offering potential 
bidders little more than the opportunity to assume the NRC's 
burden of inadequate maintenance, completely insufficient 
investment, and high personnel costs. 
 
¶23. (SBU) The frankness of BPE officials and of the BPE's 
prospectus for the NRC is impressive.  So is that of the 
NRC's own prospectus, in acknowledging the railroad's 
significant operational difficulties.  Although it is not an 
option, companies with the expertise to operate a concession 
might instead prefer to buy a portion of the NRC's 
operations - rather than have to work intimately with the 
GON for the concession's first five years.  At this point at 
least, the GON's demand that concessionaires contribute what 
likely will be considerable financial resources to 
rebuilding the NRC probably will discourage bids on 
concessions. 
 
¶24. (SBU) While Nigeria's light-industrial sector and 
agricultural sector are not demonstrating evidence of 
reviving in the medium term, they will not be able to do so 
without a functioning rail network.  For this network to be 
effective, it would have to enable these sectors to ship 
their output, in bulk and at relatively low cost, within the 
country, and possibly to ports for export.  Nigeria's weak 
rail network has considerable political implications; it 
aggravates the country's poverty and adds to Nigeria's 
political divide.  This helps keep Nigeria's northern states 
even poorer and more isolated than the rest of the country. 
 
CAMPBELL