Home Uncategorized Nigeria: Operating With A Deficit Of N7-10 Billion, Railways Can’t Repay Loans Without Reforms

Nigeria: Operating With A Deficit Of N7-10 Billion, Railways Can’t Repay Loans Without Reforms

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Amidst fears of debt trap due to railway borrowing, a London-based international strategic railway delivery specialist, Rowland Ocholi Ataguba has faulted the present financial state of the Nigerian Railway Corporation, positing that the railway operation cannot repay the Chinese loans in its present form.

In his reaction to a statement credited to the NRC management on contribution to the repayment of the loan, Ataguba noted that the existing operating deficit of between N7-10b requires that the corporation be run on business costing with economic sustainability as a focus.

We run the full Commentary below: “The NRC management is right that we seem to harp on more about the commercial viability of the railway over its economic impacts. The reason is simply about sustainability as it needs first to be alive to be of benefit to anyone including itself. “So it is about perspectives. Civil servants tend to expect that govt will always fund their discretions no matter what whereas, a private sector operator knows that his enterprise will survive only if it can pay it’s way. Indeed the question to ask here is whether the NRC is a govt company that runs the railways or if it is a railway company owned by govt.

“This difference in perspective is at the heart of the historic underperformance of the NRC. It explains the apparent absence of an incentive to perform, to compete, to survive. “With the bulk of govt revenues now going to debt service, the NRC’s future survival will depend on its ability to generate enough revenues to cover its operations than on handouts from the FMF. “For the last 55 years, the NRC has been unable to cover its cost of operations by itself, even going bust twice, while receiving large amounts of public funds and it is not looking like its about to stop doing so.

It is also still failing to protect its revenues with ticket racketeering continuing unabated. “It is indeed a no brainer to exclude its personnel costs from its operating expenses as this is the most significant component of the opex especially when running passenger services. So saying of Abuja-Kaduna that “the average monthly running cost minus salaries is N100m” is meaningless especially if your total monthly salary bill is around N400m and this is your main operation. It is also unlikely that the aggregate operating deficit on Abuja-Kaduna was N20m a month at any point in time as this would appear a gross underestimate.

“Reserving the salary bill to be met by the FMF in the annual budget round while proposing to make a relatively piddling $1m a year contribution towards repaying a $500m interest bearing debt which has a 20 year tenor is unnecessarily convoluted and doesn’t make sense. This annual appropriation is what the economists would call a subsidy or what railway economists may classify as a public service obligation. A subsidy that govt pays to a railway operator for running unprofitable services because passenger services hardly make money.

“The NRC is a going concern declaring railway revenues of about N3bn per annum but it’s personnel costs alone are currently about N5bn a year. Some of it’s variable operating expenses such as fuel, lube etc may amount to some N2.5bn approx. per annum. That’s a deficit of N4.5bn already! In a few months, the 5 year free maintenance period on the new infrastructure would elapse adding more costs to the opex. This is around the point from which you can expect to start to deal with significant maintenance issues as wear and tear starts to take its toll.

“The older infrastructure, buildings and rolling stock will also contribute to costs in maintenance as will workshop, depot and recovery equipment. “We have also not accounted for other fixed costs such as depreciation of capital assets nor amortized any borrowings, insurance premiums, utilities, taxes, rent etc. Neither have we considered the cost of the Minister’s office and his substa

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