Why Nigerian Nigerian Railway System is Due for Reforms- Dr Oye Abioye

“Deregulation in the form of commercialisation of the rail transport service would encourage more private participants, which would also encourage competition, efficiency, productivity, and eventually lower prices to the benefits of the commuters”…..

Dr. Oye Abioye is a UK based researcher with keen interest in railway transport system and special interest in key performance indicators in transport services. He speaks on Nigerian railway system and imperative of reforms in This chat with Olawale Rasheed, the Publisher , Railway Business Magazine

How will you describe the state of Nigerian railways?

The railway system in Nigeria was previously almost near collapse or comatose despite the colossal sums of money invested in revamping the system by previous governments until the current government came into power in 2015. At first, the Government was unable to support railway deficits, leading to the inability of the Nigerian railways to maintain its assets, which in turn led to the deterioration of services. These problems were then exacerbated because of greater demand for the transport service as an alternative means of moving people, and goods owing varying degrees of the level of insecurity in Nigeria. Changing technology, increasing complexity for financing the infrastructure projects and the budgetary constraints owing to the general poor economic situation equally compounded by the pandemic. This scenario can aptly be described as similar situation where there is an increasing demand induced by population trend and an increase in the level of economic activities, yet an efficient railway transportation system to complement the growing demands was absent. The attendant effect is a reduction in rail transport patronage, deterioration, and poor quality of rail service as it was observed with the quality of services rendered by the Nigerian railway. The inadequate, obsolete, and general poor railway infrastructure has also affected the NRC’s services and has consequently worsened its financial position because of its serious debt burden. This has equally contributed to its infrastructural decay owing to lack of maintenance and deterioration emanating from insufficient budgetary allocation and poor management of limited resources by the NRC management executives (Nigeria Vision 20:2020, 2009). Also, the Federal Government has equally disproportionately invested in the road infrastructure to the detriment of the NRC. This has further worsen its financial fortunes owing to government low enthusiasm or lack of determination and poor approach in addressing the problems confronting the NRC. This has been the situation and pattern of funding of the NRC for the last four decades, which is partly responsible for its near comatose posture and the poor management of the NRC infrastructure.

As a scholar in this field, provide an insight into options for reforms of the Nigerian Railway system?

An empirical research evidence suggested an existence of a strong relationship between NRC privatisation and its performance indicators which includes effectiveness, efficiency, productivity, infrastructural investment, and profitability. As such reform of the Nigerian Railway is a policy decision in the right direction. A deregulation could be the starting point which would allow private participation therefore precipitating market competition and perhaps resulting in service efficiency. Deregulation in the form of commercialisation of the rail transport service would encourage more private participants, which would also encourage competition, efficiency, productivity, and eventually lower prices to the benefits of the commuters. The private sector could be encouraged via taxation allowances, for example, to pool resources for the supply of certain services. This would be most useful for firms located in the same area or those that are forced to depend on the same defective source for their service provision. As such, the market for infrastructure becomes contestable, thus increasing the overall efficiency in service delivery and supply of rail transport services.

If you recommend privatization, what are the arguments for and against such proposal?

With the privatization of the Nigerian Railway, the following are arguments in favour of the proposal:
 Property Rights Theory: This support the notion that property is best managed privately especially where there is a strong belief of a perceived threat and risk of bankruptcy if investments are not well managed. The adoption of ‘private sector-style’ management systems (privatization), employment incentive structures, balance sheet restructuring as well as debt and capital restructuring will positively bear directly on the efficiency of the NRC if privatized.
 Agency Theory: This notion suggests that the principal is more interested in their return on investment, hence, having a vested interest in the company performance. As such it will invoke a market driven, market induced and market led operation which may also enhance efficiency as observed by Adam et el.

 Resource-Based View: This holds a strong view such that procuring and sustaining a state-of-the-art infrastructure will give the enterprise an absolute and competitive advantage. This may force competition as well as encourage the provision of an efficient infrastructure to obtain competitive advantage which is equally supported by the resource-based ideology.

 Contingency Theory: This suggests a cultural background where values and beliefs are upholding as important factors that affect the success of the privatisation programme and, hence, posits that all these factors have bearing and impact on the implementation and success of the policy.

On the other hand, with the desired reforms in the sector, this could result in the adoption of a more business-oriented style which emphasizes more on profits and as such could result in downsizing the company employees to reduce costs. Downsizing could therefore result in separation from long standing and experienced railmen, loss of experienced employees and job losses by implication. This could result in an increase in unemployment and the attendant social impacts. Improving efficiency and deregulation could also result in the removal of subsidies which might also result in passing over the increase in the operating costs to commuters and by extension an increase in rail transport fares.

This argument about railway as a public good and a business, what lesson can we learn from other countries?

Omoleke had observed that most public goods cannot be efficiently provided by the market mechanism and hence government becomes a substitute. This explains why SOEs are relevant as well as the reasons for their establishment. As such, having noted this drawback, it was suggested that because the individuals and firms are motivated by self-interests for example, individuals maximize utility while the firms maximize profits. The neoclassical price-auction model also explains the research theoretical framework particularly the agency theory of profit maximization. The sale of the Nigerian Telecommunication (NITEL) was not successful, however, deregulation of the industry allowing for private participation in the telecommunication industry is a success story of privatization in Nigeria due to an appreciable growth witnessed in the industry soon after the exercise, led to the Nigerian Telecommunication Industry to be dubbed the fasted growing industry in Africa. In the UK, the privatization of the national railways equally failed to accomplish the anticipated and desired result. It was unable to achieve rail transport service efficiency and profitability the first time the rail transport service was deregulated allowing private participants through franchising. It was during the second phase of the privatization with intense public involvement that some improved performances were achieved.

5. Some analysts think Nigerian government has done well in railway sector.

Although the infrastructural deficit and the investment in railway equipment has increased resulting to an improved service delivery considerable, however the lack of strategic direction and meticulous implementation of corporate strategy despite the colossal amount of money spent on NRC infrastructure to date is equally responsible for the current low performance of the NRC. In addition, coupled with its poor funding, there was an increasing operating cost such as the increase in employee salaries and benefits resulting in salary and gratuity arrears for employees, both past and present. As such making the NRC’s activities non-sustainable let alone able to support the increase level of service and infrastructural demands for an efficient service. However, most recently the above narratives changed, but because of lack of synergy and methodical approach, the results of the recent massive investments can hardly be felt while most of the country still left unconnected to the railway network. The new locomotives ordered currently suffers constant breakdowns on the newly inaugurated and commissioned rail lines. In addition, there are also cases of sabotage, vandalism and wilful destruction of the system reported on the Warri-Ajaokuta line. Furthermore, to compound the NRC problems, there is another issue of pricing the rail service. The passenger service is not well priced on the one hand and the method of ticket sales is far inefficient. NRC ticketing is still manual, tickets are not automated while ticket sales are on cash basis. This deficiency increases the risk of fraudulent activities due to weak internal control system owing to lack of ticket sale and cash collection method. This is another factor which will definitely affect the sustainability of the service for a foreseeable future. Particularly in loan repayments performance obligations for all loans obtained to build the rail service, acquisition of new locomotives, carriages and wagons.

Is railway modernisation sustainable without appropriate legal and regulatory framework?

The railway modernisation will not be sustainable without appropriate legal and regulatory framework. As such the following mechanisms identified below are required for a continued efficient and effective railway transport system in Nigeria:

• National Transport Policy: There is an urgent need for an effective national transport policy with respective policy statements for all transport modes. The policy should be robust enough to recognise intermodal transport structure which is very comprehensive and enhance synergy. The national transport policy is expected to adequately support all socio-economic activities of government at all levels as well as support the national economic plan.

• Regulation: There is a need for regulations, legal framework, and legal system for railway transport. It must be sufficiently competent, robust, and expected to help put in place the framework necessary for all contractual arrangements. Currently, Act 1955 which established the NRC needs to be repealed to allow for market participation and enhance competition.

• Monitoring: There must be performance standards and an appropriate monitoring unit to specify a performance regime that will provide the incentives to induce the desired and appropriate behaviour. This will ensure a performance standard, maintenance of standard, and a prescribed sanction for violation.

• Pressure group: A formidable pressure group is another impetus which is considered necessary for the effective operation of the privatised rail system. This group will ensure service charters are maintained in terms of quality, efficiency, safety, pricing, and infrastructure investment.

About the Author

Dr. Oye Abioye is a seasoned educator at post secondary institutions, having taught a good blend of accounting, business, and finance courses spanning over 16 years. He is an astute academic and business expert with cognitive professional experience in the areas of corporate management efficiency. Dr. Abioye is well vast and highly experienced in performance management technics, management planning and control of business operations and functions in service-oriented entities. He is a researcher with keen interest in railway transport system and special interest in key performance indicators in transport services. He is a business professional, mentor and a coach that combines teaching, and humor with learners. Dr. Abioye is also a management consultant with the focus of professional practice in corporate governance, behavioural finance, personal finance, and corporate finance in public service.

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