Transport and Aviation Related FAQ

Transport Sector FAQ

1. Why will the Nigerian Railway Corporation be privatized?

The Nigerian railway sector currently managed by the Nigerian Railway Corporation (NRC) is in a very bad condition. The decision to concession the Nigerian railway was borne out of the government’s desire to avoid the worst case scenario, the collapse and eventual shut down of a loss making but socially and economically viable service to the nation.

The future of the railways in Nigeria is therefore dependent on the efficiency and professionalism of the private sector to succeed. The private sector focus will no doubt be on the freight traffic such as the bulk cargo, containerised traffic and imported petrol. Passenger services unfortunately are not profitable globally and the common approach would be for the government to pay subsidies for these services.

2. What is Railway Reform Agenda?

The key aspects of the reform agenda for the rail transport sector are:

The formulation and implementation of a new Transport Policy for Nigeria.
The enactment of a new legal and regulatory environment that will allow private sector participation in the sector.
The establishment of the National Transport Commission an independent economic regulator for the transport sector.
The draft is finalized.

Transport Policy for the sector and now intends to take following steps:

The drafting of a new Railway Bill for the sector.
The establishment of an independent regulator within the framework of the proposed National Transport Commission.
Introduction of private sector participation by granting concessions for both freight and passenger operations.

3. What are the objectives of the Railway Reform?

Focus NRC operations on its core railway business;
Structure government expenditure on rail in a more cost effective manner;
Improve NRC’s ability to provide adequate, safe, reliable and efficient rail service;
Introduce private sector participation in the provision of rail services.

4. What is the new Railway Act aimed at achieving?

The Railway Act 1955 creates an inherent conflict of interest by vesting regulation and the provision of rail services in NRC. The proposed reform of the rail sector will repeal the existing Act, separate policy operation and regulation and create a new industry framework for the sector.

The new Act will create the enabling environment for private sector participation in the provision of rail services, establish an independent regulator within the framework of the National Transport Commission and establish the National Rail Development Authority.

5. What is the Proposed Industry Framework?

The proposed industry framework will consist of the National Rail Development Authority; Rail Regulator framework of the National Transport Commission; concessionaire and NRC Residue.

National Rail Development Authority is responsible for:

Implementing the Rail Policy, 25 Year Strategic Vision and Budget.
Granting concessions and receiving concession fee.
Monitoring concessionaire investment obligations.
Determining Public Service Obligations and payment of subsidies for passenger services.

Rail Regulator is responsible for:

Economic and safety regulation.
Regulating tariffs and fare structure.
Setting and monitoring quality, service and delivery standards.
Arbitrating of disputes between concessionaires.

Concessionaire is responsible for:

Commercial operation of rail services.
Operation, maintenance, renewal, remodelling of existing railway system.
Operation of commercial freight and passenger service.
Operation of passenger service under Public Service Obligation (PSO).
Making railway infrastructure available to third parties for the operation of passenger service.

NRC Residue is responsible for:

Handle labour issues (right–sizing).
Transfer NRC non–core property assets to RPCL.
Outstanding NRC debts and pension liabilities.

6. How will the Nigerian Railway be privatized and what are the steps involved?

The Nigerian Railway will be privatized using the vertically integrated concession model. Under this model, the concessionaire will provide both passenger and freight services, and be responsible for infrastructure upgrade, expansion as well as maintenance.

To promote competition, the Nigerian Railway has been divided into three autonomous railways: Western Railway; Eastern Railway; and Central Railway.

The BPE NRC concession strategy involves:

Ring fencing and concessioning only the rail operational assets.
Granting 25-30 year concessions on the following routes:
- Western Railway: the route covers Lagos to Kaura Namoda and Nguru via Kaduna, including all the branch lines along that route.
- Eastern Railway: the route covers Port Harcourt to Maiduguri via Kafanchan including the Kaduna to Kafanchan link and all branch lines along that route.
- Central Railway: The new route (Ongoing construction) from Itakpe to Warri via Ajaokuta.

7. What is the Pilot Concession?

The Central Rail has been identified by the BPE as the pilot concession. It was originally conceived as a dedicated ore and steel line to serve the Ajaokuta Steel Complex, Nigerian Iron Ore Mining Corporation and the Delta Steel Complex. The 329km rail line starts from Itakpe and should end at the Delta Steel Complex.

The line is however uncompleted and the construction is approximately 22km to the Delta Steel Complex. The BPE in conjunction with Federal Ministry of Transport and NRC is trying to resolve some of the issues related to the completion.

8. What about unpaid liabilities and salaries arrears?

It is being proposed that part of the proceeds that will be realised from the proposed sale will be used the fund pension liabilities of NRC as well as salary arrears of staffs. This is part of addressing the labour concerns of NRC.

9. What assets of NRC are classified as Non–Core?

These are the non–operational Assets of NRC such as:

Railway Hospitals
Printing Press
Railway Publishing Company
Catering Services
Railway Property Company Limited (RPCL)

10. What are the Privatization strategies for the Non-Core Assets?

Except the Railway Property Company Limited, all the other assets would be disposed of through asset sale.

11. What does the Government intend to do with proceeds of the proposed sale of NRC Non Core Assets?

The Proceeds realised from the sale of NRC Non Core Assets will be used to pay some of the liabilities of NRC.

12. What is the timeline for the Rail concession?

The Pilot Concession, the Central Rail should be completed by March 2006. The concession of the Western and Eastern Rail is expected to be granted in June 2006.

13. What is the proposed Labour programme?

The Government’s recent right–sizing of the NRC work force from approximately 12,000 to just over 6,000 staff has resolved a majority of the labour problems associated with concessions. N3.4bn was used to pay the staff a majority of whom opted for voluntary retirement.

Nigerian Unity Line (NUL)

1. What would be the future of NUL after Privatization?

Article 2 of the national shipping Policy Act of 1987, which is based on the recommendations of the United Nations Conference on Trade and Development (UNCTAD), makes it mandatory for indigenous shipping lines under the code cargo sharing formula of 40:40:20, carry at least 40% (forty per cent) of the cargo generated in that country. A majority of the oil producing and exporting countries in the world, either the governments or the producing and marketing organisations of those countries, adopt operational and marketing strategies that exploit the revenues and profit opportunities of all the modal interfaces of the oil marketing chain, including shipping. For example Saudi Arabia through Aramco owns Vela one of the largest tanker owing and chartering companies in the world, and Cameroon owns tankers that lift crude oil as well as other cargoes.

Nigeria Unity line plans to offer the following services in the near future:

Deep sea transportation of net cargo
Ocean transportation of bulk cargo
Coastal tanker services
Storage and Warehousing, etc.

2. How will NUL be privatized?

Government is offering 51% of the company shares for a core investor or a consortium of foreign and/or domestic investor while the remaining shares are sold to the Nigerian public.

Aviation Frequently Asked Questions

Nigeria Airways Subsidiaries

1. What are the main services offered by Skypower Aviation and Handling Company Limited (SAHCOL) as one of the Subsidiary of Nigeria Airways?

SAHCOL provides aviation-handling services in the following three core areas:

Passenger handling services.
Cargo handling services
Aircraft/Ramp handling services.

2. Why will SAHCOL be privatized when it is already an autonomous company?

Although it is an autonomous company the Government through Nigerian Airways owns it 100%. Its operation is therefore still embedded with a lot of bureaucracy.

When the company is privatized it will provide the very best of passenger, ramp and cargo handling services that comply with the international standards.

3. How soon will SAHCOL be privatized?

Privatization of SAHCOL will commence as soon as selection of Advisers is concluded.

Federal Airports Authority of Nigeria (FAAN)

1. What method of privatization would be used to privatize the airports?

International best practise has shown that concession is the best option for the privatization of airports, so the Nigerian Airports would most likely be concession. It is also a better option because the concessionaire would only manage the airports for a specified period, but the Government still retains ownership.

Nigerian Aviation Handling Company (NAHCO)

1. Does Government own 100% of NAHCO?

NAHCO is not 100% owned by the Government, the Government through FAAN owns only 60% of the shares, the remaining 40% is owned by 4 foreign airlines.

2. How will NAHCO be privatized?

Out of the 60% of NAHCO’s shares belong to the Government, 11% percent will be sold to the shareholders, (who currently own 40% of NAHCO’s shares) so as to become the majority shareholders / core investors. The remaining 49% of the Government’s shares will be sold to the Nigerians by way of Public Offer.

SMRT Corporation
Nigerian Road Sector Reform (PDF, 44KB)