By Joseph Ushigiale
There is a storm brewing over the decision of the President Muhammadu Buhari’s government to build a rail line linking Kano, Dutse, Daura in Nigeria to Maradi in neighbouring Niger Republic.
Although it is no longer news because the project has featured prominently within presidential circles; I had also written about it in this column few months ago, questioning the desirability of this project and its economic importance to Nigeria.
Last Wednesday after the Federal Executive Council (FEC) meeting, the Minister of Transportation, Mr. Rotimi Amaechi, briefed State House correspondents telling them that the Federal Executive Council had approved $1.96billion for the construction of a rail line to link Kano, Dutse, Katsina and Maradi in Niger Republic.
In less that 24 hours, Senior Special Assistant to the President on Media and Publicity, Mallam Garba Shehu, reacted in his Twitter handle @GarShehu denying that Nigeria was building any rail line to link Niger Republic. He said the plan was to construct the rail line up to the border Nigeria shares with the neighbouring country and not into the country itself.
The presidential aide wrote, “Nigeria isn’t building rail line into Niger but, only to the designated border point.
“An agreement between Nigeria and Niger in 2015, coordinated by the Nigeria-Niger Joint Commission for Cooperation has a plan for Kano-Katsina-Maradi Corridor Master Plan, K2M as it is called.
“Going by this, the two nations would each build a rail track to meet at the border town of Maradi.
“Nigerian delegates to that meeting comprised officials from the Ministry of Foreign Affairs, National Boundaries Commission, Federal Ministry of Industry, Trade and Investment, Ministry of Agriculture and Rural Development, Water Resources as well as those of Kano and Katsina states.
“The objective of the rail is the harnessing of raw materials, mineral resources and agricultural produce.
“When completed, it will serve domestic industries and play the role of a viable transportation backbone to the West African sub-region, starting with the neighbouring Niger Republic for their export and import logistic,” Shehu clarified.
But his explanation that were short on details like how many kilometers each country was to build to the border, cost component and desirability of the project by Nigerians, has rather than quelling the anger, drawn more angst and vituperations from a cross section of Nigerian Twitter users who berated the administration for literally ‘not imbibing the spirit of charity beginning from home and denying the stomach to feed the back’.
Nigerians have every reason to be angry. To be sure, it thus appears the Buhari administration had an ulterior motive and agenda in surreptitiously choosing such a project immediately it was inaugurated in the absence of recommendation on the viability of such a project.
While the hurry in commissioning the Kano, Dutse, Daura and Maradi rail project when the former administration of Goodluck Jonathan had completed designs for a multiplicity of rail projects from Lagos, Port Harcourt, Kano, Makurdi, Benin, Abuja, Kaduna, Maiduguri.
Before Buhari took over, the Federal Government already signed a N67 billion contract for the rehabilitation of the 2,119 kilometres three Eastern rail lines. A breakdown of these projects showed that the 463 km rail line will link Port Harcourt to Makurdi; 1,016 km rail line from Makurdi to Kuru, including spur line to Jos and Kafanchan; and 640 km rail line from Kuru to Maiduguri. Available records showed that appreciable progress had been made in the completion of the 1,657km Eastern line from Port Harcourt to Maiduguri.
Apart from these, there were also other rail projects including the 322km Lagos-Benin City line, 500km Benin-Abakiliki line, 673km Benin- Obudu Cattle Ranch line, 615km Lagos-Abuja high speed line, 520km Zaria-Birnin- Koni line, 533km Ega nyi-Otukpo and the Ega nyi-Abuja line littered across the country.
So who approved this additional line to Maradi, was there a FEC approval? How was it to be funded, was it captured by the National Assembly in the 2015/2016 appropriation? With all the other rail projects still on-going, what was the compelling reason for a rail project to Niger in the face of dwindling resources?Besides, is a rail line to Niger a priority?
That brings us to the topic of today’s treatise where we are going to question the veracity of Buhari’s claim that he is borrowing in national interest. In whose national interest? Nigeria’s or Niger’s interest?
Not too long ago, in apparent reaction to critics of his rising debt profile from $10b when he came in to almost $30b today, the President justified his administration’s borrowing, saying the loans were in national interest.
Speaking at a virtual meeting with members of the Presidential Economic Advisory Council (PEAC) at the State House, in Abuja, the President said: “We have so many challenges with infrastructure. We just have to take loans to do roads, rail and power, so that investors will find us attractive and come here to put their money.”
As it has now become his stock in trade, he again blamed past administrations for the failure to provide the infrastructure for effective transportation which he said deprived the country of its well-deserved status as West African hub for air cargo transportation and trans-shipment of goods.
It is shocking if not shameful to hear the President limit his options of infrastructure finance to just borrowing alone describing his lame effort as being in national interest whereas there are several less expensive, tested and proven models of infrastructure financing options which Nigeria would have adopted effortlessly without attracting this huge debt overhang.
Shocking and shameful because Nigerians were sold on the promise during the 2015 presidential campaign of change in the way things were done previously to new ways that would usher in prosperity and good life for but today, all they are getting is lame excuses.
On a personal note, I had believed the Buhari change mantra meant that he was fully abreast of Nigeria’s numerous problems and therefore, all the while he was jostling to become the country’s president, he already had a road map on how to introduce big ideas that would change this country and people overnight. How mistaken we were.
What change has Buhari brought to the table in the last five years that is different from what his predecessors did? Did his predecessors not borrowed money to build power plants, rail system etc in the country? Did they succeed with the model of financing? What then instructed the Buhari administration to pursue its change agenda doing the same old things the same old ways?
The solution to Nigeria’s infrastructure deficits rests solely in the private sector. Past administrations have consistently failed because they refused to let go and drive their respective infrastructure financing through the private sector. It has since been tested and proven through the various outcomes that borrowing to finance infrastructure in this country is a waste of resources, avenue to encourage cronyism and corruption.
For example, had Shiroro, Kainji dams been executed through an alternative Public Private Partnership model, no government after it would been involved in what goes on there and it would have been up to the investor to run it efficiently and profitably to recoup the investment.
The same would have applied in the case of President Olusegun Obasanjo’s National Integrated Power Plant (NIPP) which gulp an estimated $16b to build ten gas thermal stations in strategic locations in the country. Unfortunately, such a laudable project ended up in controversy leading to privatization.
However, it is the Vice President, Yemi Osinbajo who seems to understand what needs to be done to finance infrastructure, yet the administration he is part of, either lacks the political will to do so or is simply turning a blind eye.
In the heat of the controversy over the removal of fuel subsidy and queries as to why the refineries have not worked since the inception of this administration, he opined that “the federal government has no business running refineries in the country.”
The Vice President said the government will rather bank on private investors to invest in refineries, adding that the government will encourage investors to take advantage of the new policy.
Hear him: “If the refinery is left in the hands of the government, it will continue to experience the same problem it is experiencing now. I do not think that it is the business of the government to run the refinery. It should be the business of the private sector, which is why we are trying to focus on assisting the private sector to develop modular refineries.”
If this government knows that the job of building infrastructure is better left in the hands of the private sector, why is Buhari reinventing the wheel, throwing the country into needless and avoidable debts which he describes as being in the national when there are better and cheaper alternatives to what he is doing?
Globally, most countries deliberately shift infrastructure financing to the private sector to drive the process why government play a purely regulatory rule. Which is why airlines, railways, road network, public utilities like electricity supply, potable water, waste management are driven efficiently by the private sector leaving government solely to regulate the process.
There are several options open to the present administration to adopt to support its infrastructure development drive. For the purpose of this topic, let us look at what the experts say about one of the most popular options open to the Buhari administration that has been time tested and proven to stand head above others.
According to an expert Brandon Gaille, the Build-own-operate-transfer (BOOT) is one type of a public-private partnership, or PPP. Under this project model, a private organization will develop a large project under the contract of a public partner. It is a way to create large infrastructure projects for the public, while being able to use private funding for it.
At the end of the contract period, which may be 40+ years in length, ownership of the project transfers from the private enterprise to the public sector.
He went further to list some the advantages and disadvantages of using the BOOT model for development.
List of the Advantages of Build-Own-Operate-Transfer
It minimizes the public cost for infrastructure development.
Using the BOOT model, the public sector is able to take advantage of the efficiencies found in the private sector for a minimal investment. Many PPP relationship using this model will offer an incentive, such as tax breaks, to the private organization to develop the infrastructure. Because the private sector assumes the risk for planning and use, they are given an opportunity to profit from the structure by recruiting tenants for it. Then, after the contracted time, the public sector takes over ownership. There is also a model which has a built in royalty clause in which government still earns throughout the period the investor is recouping his money.
It reduces public debt.
Private companies assume the debts involved in the initial phases of a BOOT relationship. Even in PPP structures where some initial funding may be provided by the public sector, the majority of the initial development cost will be the responsibility of the private organization. This allows the public sector to maintain a balanced budget while reducing its influence in how the new infrastructure is developed. This would have been a perfect fit for Nigeria giving the overbearing influence of our bureaucracy and corruption. Most importantly, it would provide an alternative financing model to the current borrowing and no risk because the risk would be borne by the investor.
It allows for innovation.
The public sector brings in the best private contractors possible when developing infrastructure using the BOOT model. This process encourages innovation, which allows the community to benefit from advanced technologies which would be included with the project. If the project was implemented by the public sector only, this inclusion factor would not always be possible because of the costs involved. It would be an opportunity for Nigerians to gain the necessary skills from these international companies in technology and innovation and take off our jobless youths off the streets.
It provides a chance to bring in expertise.
The public sector is tasked with the need to bring in the best possible private companies to complete the contract. If the necessary expertise is not available locally, then national or international private enterprises might be brought in to create the required infrastructure. This process allows for the companies with the most expertise to be brought in, no matter where in the world they happen to be. It could present an opportunity for Nigerians in The Diasporia with relevant skills to return and work for the country.
It allows each party to focus on their strengths.
In the BOOT model, the private and public sectors are able to both focus on what they do best. That allows projects to be completed faster, often with reduce delays, because the public sector provides structure and cost containment, while the private sector provides efficiencies and resource access. It would afford Nigeria to parade its best in the market place against global best against the current preference for mediocrity.
It keeps public-sector funds where they are most needed.
Because the private sector is managing the funding aspect of the project, the public sector is able to direct resources to other areas of socioeconomic welfare required by the community. This allows the processes of governing to continue unimpeded while the infrastructure requirements can be met at the same time. This would free the country of debt, balance its budget and free up funds to be used to fund such critical areas like education, medicare etc.
It is a process that is fully appraised.
If there is one constant in the world today, it is that the word of a government official or program is not always accurate. By bringing in a private enterprise to develop the project, more trust can be brought into the process to avoid any unrealistic expectations or promises from being released to the community. For once, Nigeria would stop talking politics, tribe and religion, and face the serious business of infrastructure financing and building a country that works for all.
List of the Disadvantages of Build-Own-Operate-Transfer
It can have higher transaction costs.
Although the purpose of a BOOT structure is to limit the cost liabilities to the public sector, this type of transaction cost can be higher than other contract opportunities. The incentive to pursue the build-own-operate-transfer is for the public sector to limit their overall liability with the project. By having the private sector take all the initial risks of ownership and operations, the public sector can avoid most of the risks of a financial loss from the partnership. If Nigeria bears no risk whatsoever and the private sector is ready to spread and recover it risks and investment over a period of time Nigeria would lose nothing. It is estimated that, in the intervening period, the private investor must have built and maintained a structure that would be institutional isles for all time.
It only works for large projects.
The BOOT model is only suitable for large-scale infrastructure projects within a community. It is not a suitable PPP for most of the smaller projects that communities tend to need development help with each year. Think of it like this: if your community has a skyscraper it needs built in the public interest, a BOOT contract would be an option. If what you need is a strip mall, it would not generally be a suitable choice. Nigeria needs roads, energy, medicare, housing, transportation etc in huge volumes.
It requires fund-raising to be successful.
The private sector will not get started on the infrastructure project until there are funds in place to begin the planning phase of the project. If no funds can be raised to complete the project, then it won’t get done. For that reason, the public sector often looks for private entities which already have a funding mechanism in place to complete the proposed project. If no such entities are interested in the project, then it may stall out before it gets a chance to begin. If Nigeria’s Eurobond can be oversubscribed it then means that an investor seeking to invest in infrastructure would have no worries raising the funds in the capital market.
It may require substantial operational revenues to be successful.
For the BOOT model to be successful from a private standpoint, there must be large revenues generated during the operational phase of the contract. That is why BOOT contracts have such a lengthy transfer stipulation. By stretching out the relationship to four decades or more, the private organization has the best possible chance of making their investment back, plus some profits to enjoy, before losing control of what they built. It is better than budgeting every year, the money is spent yet no results.
It requires strong corporate governance.
In this PPP relationship, the public sector must stay involved with the supervision of the project during the ownership phase to ensure it remains successful. One of the most common reasons for the BOOT structure failure is a lack of communication between the private and public entities involved. When the program is being managed poorly on the private side, the public side must be able to step in and change things up for the good of everyone involved. This would be the most important benefit of this model to instil corporate governance where government officials and politicians steal without recourse to any consequence.
It can place the public sector at a disadvantage.
If the public sector has limited expertise in the infrastructure matters being considered, then the private sector can take advantage of that fact. Both sides must have knowledge of the complexity, competitiveness, and risks involved to ensure a balanced relationship is possible. This would present a litmus test to the present administration to line up its first eleven team to drive this model seamlessly.
According to Gaille, these build-own-operate-transfer advantages and disadvantages offer one solution for community development. There are several other solutions available, such as BROT (build-rent-own-transfer) and BLOT (build-lease-operate-transfer) that may be a better option in certain circumstances. Although the private companies take on risk with the BOOT model, they also have the best chance to profit from the contract. That is why it is often a first-choice option.
I strongly disagree with the Mr. President’s decision to limit his infrastructure funding to borrowing without considering several readily available options, and also condemn the current attempt by the government to accumulate debt and use tax payers almost $2b to finance a rail link to Maradi.
No matter the denials, such investment is reprehensible and can only be construed as an attempt to create a pathway for the exodus of more bandits and Fulani herdsmen exiting Mali, Guinea, Central Africa Republic (CAR) and other terrorists infected countries to Nigeria to continue to perpetrate banditry, kidnapping and other heinous crimes.