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Cablegate: Reviving the Nigerian Railway System

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS LAGOS 001279

SIPDIS

E.O. 12958: N/A
TAGS: ELTN ECON NI
SUBJECT: REVIVING THE NIGERIAN RAILWAY SYSTEM

1. (U) Summary: Odu'a Investment and Lemna
Incorporated, a U.S. firm, recently signed a memorandum
of understanding (MOU) to build a $361 million light
rail system. Opponents have charged that the MOU
violates the Nigerian Railway Corporation (NRC) Act
1955. Its proponents seek to amend the law to ensure
private development of the rail system, given the
moribund condition of the state-owned NRC. Should the
law be amended, rail transport could attract huge
investments, as did the telecoms sector. End summary.

--------------------------------------------- --------
Odu'a and Lemna Inc. Sign Memorandum of Understanding
--------------------------------------------- --------

2. (U) Odu'a Investment, a Nigerian conglomerate owned
by the five southwestern states, recently signed a
project memorandum of understanding (MOU) with Lemna
Incorporated, an American firm. The project aims to
restore rail transportation between Lagos and Ibadan by
2006, at a cost of $361 million (N48.7 billion).
According to Remi Omotosho of Odu'a, during peak hours
the `Lifeway light rail' project could move 36,000
passengers an hour both ways, following establishment
of connections at Abeokuta and Sagamu, both in Ogun
State.

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-------------------------------------
Exclusive Legislation Invalidates MOU
--------------------------------------

3. (U) The Odu'a-Lemna MOU endorsed by the governments
of Lagos, Oyo and Ogun States, is being contested. Its
opponents charge that it is invalidated by the Nigerian
Railway Corporation (NRC) Act of 1955, which restricts
the construction or extension of railway lines to the
state-owned NRC. The Act vests authority `for
observance of specific and uniform standards in the
operation of railways' in the NRC, and has been the
source of the Corporation's monopoly status. A
provision of the Act nevertheless permits the Transport
Minister to give consent to `persons other than the
Corporation to construct or operate a railway within
Nigeria'. This provision was basis of the ongoing
construction of the Ovwian/Aladja-Ajaokuta railway at
the Ajaokuta Steel complex.

--------------------------------------
Stakeholders Resolve to Review the Act
--------------------------------------

4. (U) Omotosho claims that the process of amending or
repealing the law will begin in July following a
stakeholders' conference. Whether such action will
occur is arguable. A. Abubakar, NRC Managing Director,
suggested it may not since, he said, Odu'a had not
consulted the Corporation before the MOU was signed or
officially sought the Ministry of Transport's consent.
According to Abubakar, the NRC has forwarded a bill to
Obasanjo to create a Nigerian Railway Commission in
order to regulate the rail transport sub-sector. He
said the bill, which may be sent to the National
Assembly soon, would, if enacted, lay the groundwork
for an imitation of the GON's feat in the telecoms
sector, as private operators would provide the bulk of
rail transportation.

-------
Comment
-------

5. (U) The time is right for the NRC's monopoly to be
broken, given its moribund state. The Corporation has
less than 4,000 km of narrow gauge tracks and a large
fleet of obsolete engines and haulage carriages. The
NRC's upgrade would require billions of dollars to be
fully operational, making it unattractive to
prospective investors. But the GON's political will to
privatize the railway sub-sector may have weakened,
given the failure of Chinese and Indian management
teams at the NRC to turn the corporation around. The
Canadian Consultancy that replaced them does not appear
to have had more success. Besides, much of Nigeria's
freight is transported by trucks and trailers, some of
which are owned by political allies of the ruling
political party; these transporters can be expected to
oppose anything that might mean losing market share to
an efficient rail system. The light rail project might
nonetheless be the best means to turn the sector around
were the NRC to become a regulator. In that event, rail
transport could attract huge investments, as did the
telecoms sector these last three years. End comment.

KRAMER

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