Obasanjo’s $8.3b Rail deal unsettles Yar’Adua

No Comments » March 19th, 2008 posted by // Categories: Other Peoples' Essays


Obasanjo’s $8.3b Rail deal unsettles Yar’Adua 20/3/200

By Leke Salaudeen,

Assitant Editor The Presidency is in a fix over the $8.3 billion contract for the modernisation and expansion of rail lines awarded in the dying days of the Obasanjo administration.

A committee set up to review the project submitted a report that did not favour its continuation. So also is the report of the World Bank on the gargantuan project.

The Federal Government had paid $250 million mobilisation fee to China Civil Engineering Construction Company (CCEC), the main contractor of the project which involves the construction of a standard gauge rail covering 1,315 kilometres from Lagos to Kano with a loop from Minna to Abuja. The $2.5billion loan promised by the Chinese government is yet to be consummated.

Shortly after assuming office last year, President Umaru Yar’ Adua stopped the project and set up a committee headed by Finance Minister Shamsudeen Usman to review the funding options already planned for the project.

A source in the Presidency told The Nation that the committee’s report recommended the suspension of the project.

The committee, which also has Minister of Transportation Mrs Diezani Alison-Madueke and her counterpart in National Planning, Senator Sanusi Daggash, as members, cited “procedural errors” in the award of the contract, such as lack of competitive bidding and inflation.

The Usman-led committee advised the government to ask the contractor to stop work for a proper feasibility study to be conducted, renegotiation of the contract sum and loan terms as well as involving the private sector in its funding and execution.

But the President whose seven-point agenda accommodate the revival of the ailing rail system is in dilemma over the committee’s report, which he does not want to set aside, it was learnt.

On one occasion, the President was reported to have emphasised the need to resuscitate the rail system in the shorttest possible time to allow the railway have the desired impact on the on-going economic transformation of the country.

The indecision of the Presidency is not helped by the international politics that has come to bear on the project. A source hinted that some world powers have shown interest in the project as they are getting worried over the growing influence of China in the Nigerian economy.

The source cited the World Bank report which he said had dampened the government’s morale. The bank advised the government to go about the rehabilitation of the railway system systematically by restricting the job for now to the Eastern and Western rail. The report advised that the East–West line connecting Lagos to Enugu/Umuahia (800km) and Calabar to Aba (150km) should be evaluated for financial viability based on projected traffic volume and preferably built on Public Private Partnership (PPP) basis with minimum support from the government to fill the viability gap.

It added that the Ajaokuta -Warri standard gauge line with interchange with narrow gauge system at Baro should be evaluated for financial and economic viability.

According to the report, the narrow gauge connection between Apapa and Tin Can Island (seven km) and between Port-Harcourt and Onne (19km) should be constructed either on PPP basis or funded by the Federal Government after a financial and economic viability evaluation has been carried out.

The Bank noted that by 2010, the threshold traffic density for economic viability would materialise only on parts of the Western and Eastern lines.

The report jointly prepared by the Bank and the Department for International Development (DFID) emphasised that the rail mass transit system in Lagos would be of immense help in reducing the congestion on road. It will provide relief to commerce, said the report.

But the Presidency is not favourably disposed to the Bank’s suggestion. The government prefers a holistic approach to the problem of rail, rather than selected treatment, said the source.

The contractor – CCECC – is set for the project. It has since last year brought in its equipment, which are lying unused at the Nigeria Railway Corporation compound, Ebute-Metta, Lagos Mainland.

The chief co-coordinator of CCECC, Mr. Karl Leo, complained of lack of funds to prosecute the project. Leo said apart from the $250 million mobilization fee paid by government to the Chinese firm in March, last year, it has not received additional funds for the project – the first phase of which was scheduled for completion in 2010.

A spokesman of NRC, David Ndakotsu, told The Nation that the government was being careful in taking a decision on the rail project to ensure that adequate value comes from the fund being sunk into it.

Ndakotsu, an Assistant Director, Public Affairs, said the present administration was learning from history, particularly the “Abacha railway project”, which he said was hastily packaged and hastily implemented.

Three options being considered by the Federal Government include:

•outright revocation of the contract, which entails payment of penalties to the contractor;

•re-negotiation of the contract sum and loan terms with the Chinese firm and government; and

•scaling down the rehabilitation.

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