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All aboard for African railway projects?

TXF The Week That Was

Rail projects have the capability to change the face of the African continent for both freight and urban passengers. But, argues Jonathan Bell, proper planning of viable rail links is essential if they are to find the right backers and mix of financing.

It has been suggested that the $4 billion Addis Ababa-Djibouti freight railway built by China was poorly executed with planning ‘downrght inadequate’ and costly. Naturally, this also leads to a sharp focus and questions on other Chinese projects across Africa in terms of project planning, costs and overall return and debt repayments for African governments.

Of course, this is certainly not a concern which hasn’t been aired before. What is new though is the urgent need for a proper evaluation of rail transportation for both urban and freight transportation in many African countries. And, given the geography and land-locked nature for many countries some of these discussions ought to be pan-African.

At a Belt and Road Infrastructure (BRI) financing forum in Hong Kong earlier in October, Sinosure chief economist Wang Wen noted that lessons should be drawn from the poorly planned Addis-Djibouti railway that was inaugurated early this year but has already had to restructure its debt because of underuse caused by power shortages.

As recently reported in the South China Morning Post, Wen said the mistakes of that railway project has cost China’s Sinosure close to $1 billion in losses. Sinosure provided payment guarantees on the project. He also is reported to have stated: “Ethiopia’s planning capabilities are lacking, but even with the help of Sinosure and the lending Chinese bank it was still insufficient.”

The 756-km Addis-Djibouti railway, Africa’s first cross-country electric railway, was built by China Railway Engineering and Construction Corporation and the China Railway Group and backed by $3.3 billion of loans from the Export-Import Bank of China (China Exim). The loans are carried by the Ethiopian and Djibouti governments, with 85% of the Ethiopia portion and 70% of the Djibouti portion funded by loans from China Exim.      

The Addis-Djibouti railway fits into the overall BRI map which links trading routes between Asia and Europe and Asia-Africa-Europe. In this case the railway gives landlocked Ethiopia sea access through neighbouring Djibouti. It is perhaps also interesting to note that Djibouti is the site of China’s first military base outside China.

But the financing concerns, and apparently losses, on this railway project are highly indicative of the vital need for proper project planning and preparation, and evaluation for economically viable projects. As part of this makeup, freight rail projects that are most likely to succeed are those linked to natural resource development particularly involving export revenues, and other freight projects where the private sector has a stake. Of course, when it comes to urban rail networks and mass rapid train systems in developing economies this may require some different and often difficult considerations – such as the question of fare concessions or subsidies.

But looking at other major rail projects in Africa where China has been highly instrumental, we do not have to go too far to see another very recent example where the development and delivery of the project has been somewhat controversial.

In Kenya, mid-2017 saw the launch of the Mombasa-Nairobi standard gauge railway (the so-called Madaraka Express). This is another project which fits in with the overall BRI plan. The 483-km long Mombasa-Nairobi line cost around $4 billion, once cost overruns were calculated into the final equation. The line was funded 90% by a loan from China Exim and 10% by the Kenyan government. The financing has come under a considerable amount of criticism largely related to the various cost increases of the project, but also from allegations of corruption on the deal.

The primary contractor of the Mombasa-Nairobi line is the China Road and Bridge Corporation (CRBC) under the China Communications Construction Corporation.

The Madaraka Express is supposed to be part of a much bigger rail plan, whereby it could eventually link Kenya with Tanzania, Uganda, Rwanda, Burundi, and even South Sudan and Ethiopia. But that is estimated to be a $13 billion project. And given the current debate about project costs and increasing government debt, the go-ahead for that project extension seems a very long way off, if not a dream.

For anyone who is a bit of a rail junkie like me, one important element in my book at least, is that both these railways were built using standard gauge track. Why is this important? Well, the truth of the matter is that across Africa the continent is littered with various narrow gauge railway systems which are largely remnants of a colonial past. To carry large volumes of freight, in particular, standard gauge and some form of pan-African standardisation would be preferable.

Further useless information for railway nerds is that some 50 years ago the country with the largest railway network in Africa was……Sudan! Yes indeed, that country had more than 5,000 km of track. Unfortunately, very little of that is left in operation today. There are plans to re-develop the Khartoum-Port Sudan railway, a 782 km link. Both China and South Korea have been in negotiations with the Sudanese government about the project.

One sub-Saharan country crying out for railway network modernisation on a massive scale both with freight and passenger transportation is Nigeria. Demand is massive. Back in 2016 it was estimated that Nigeria needed in the region of $160 billion for immediate road and rail transportation projects. The country’s rail system is also further complicated by the fact that it has various-sized rail gauges, but it is not clear exactly where there will be any rationalisation on this issue. Nigeria desperately needs a modern railroad that will ease movement of freight and passengers across the country.

China of course has already been involved in Nigerian rail projects – most notably with the Abuja-Kaduna rail line, which is the first phase of the Lagos-Kano standard gauge railway. The Abuja-Kaduna segment is already complete and services commenced back in July 2016. The entire project, which was awarded to the China Civil Engineering Construction Corporation (CCECC) way back in 2006, is estimated to cost in the region of $8.3 billion. In 2016 work began on the Lagos-Ibadan segment of the Lagos-Kano line. China Exim is providing a $3.5 billion loan. At what speed this project progresses overall remains to be seen.

The development of the Lagos rail mass rapid transit system is another mega project which will ultimately have a massive impact on this often grid-locked city. The new rail system will comprise of seven lines. This project is part of the Strategic Transport Master Plan which has been proposed to improve infrastructure in this densely populated region. Lagos state government is involved in the financing, but not the national government, by all accounts. CCECC was contracted to build the first line – the Blue Line. The project faced many delays, which included changes on the rolling stock order from the US to China. Funding negotiations for the Red Line apparently took some eight years!

More recently, rail developments in Nigeria have seen other rail companies coming into projects.

In mid-2016 the Nigerian minister of transport, Rotimi Chibuike Amaechi, said that General Electric (GE) would invest $2 billion in the country’s rail projects. He also said that the government was in search of public-private partnership (PPP) funding in the Nigerian transportation sector. At the time, he said: “The company [GE] is going to bring in over $2 billion into the Nigerian railway sector, in which they are going to revive the Lagos-Kano narrow gauge and revive the Port Harcourt-Maiduguri narrow gauge by private investment.”

Amaechi also said: ‘’We are going to invite as many private investors as possible to see how they can assist the country achieve its rail projects. If the government takes the Lagos-Kano and takes the Lagos-Calabar, we expect the others to be PPP funded. We believe that people know how big the Nigerian market is and that once you invest your money, the chances are that you will recoup that money, whether by freight or by passenger transportation.”

In May 2017, the Nigerian government awarded preferred bidder status to an international consortium for a $2.7 billion narrow gauge concession to revive the Port Harcourt-Maiduguri line. The international consortium is made up of General Electric, Sinohydro of China, Transnet of South Africa and APM Terminals of the Netherlands. This is a new approach to rail projects and the funding of those in West Africa, in particular, and will be an interesting development to keep a close eye on.

Given the importance of the development of rail networks in Africa and the overall lack of investment or support so far from Western governments, it is inevitable that China will continue to play the leading role in many, if not most, rail projects. But, there are some changes afoot, and we can expect to see other Western and Asian companies coming in on mass rail transport networks and viable freight routes. Keep watching for that changing African rail map!

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