Rail revenue fails to offset mounting debt

…As experts call for efficiency

Nigeria may struggle to repay huge loans sourced for various railway projects despite rising revenues reported by the Nigerian Railway Corporation (NRC).

Experts say while improved passenger and cargo traffic on rail routes indicate positive trends, the significant loans sourced for infrastructure development pose a significant financial burden.

Available data show that in the second quarter (Q2) of 2023, Nigeria had passenger revenue of N1.10 billion, which increased in the third quarter (Q3) by 35.45 percent to N1.49 billion. In the fourth quarter (Q4), it dropped to N1.07 billion but rebounded in the first quarter (Q1) of 2024 to N1.42 billion, representing an increase of 32.84 percent.

The National Bureau of Statistics (NBS) reported that passenger traffic via the rail system grew by 45.4 percent in one year, reaching 689,263 passengers, while cargo transportation surged by 152.5 percent, totaling 143,759 tons.

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Revenue from passengers amounted to N1.69 billion, a 53.14 percent increase from the previous year. Cargo revenue rose by 206.68 percent, reaching N537.36 million. In addition, pipeline cargo transport added further revenue, with N42.08 million generated from goods moved via pipelines.

The federal government has so far accessed several loans to build the railway projects, totaling $1.76 billion, with 20 years tenor, according to the Debt Management Office (DMO).

This includes a $500 million loan for the Nigerian Railway Modernisation Project (Wu-Kaduna section) agreed on December 20, 2010, and another $500 million loan for the Abuja Light Rail Project agreed on November 7, 2012.

Additionally, a loan amounting to $1.27 billion was allocated for the Nigerian Railway Modernisation Project (Lagos-Ibadan section) on August 18, 2017, though only $759.84 million was disbursed, representing just 17.5 percent of the agreed amount.

BusinessDay findings show that railway revenue falls far short of debt repayment obligations as officials figures show.

With an annual repayment obligation of $112.89 million over 20 years at an interest rate of 2.5 percent, the government is expected to pay approximately N169.34 billion annually, based on the exchange rate of 1 USD = 1500 NGN.

However, the railway sector’s total revenue for the past year amounted to just N2.27 billion. This includes N1.69 billion from passenger transport, N537.36 million from cargo, and N42.08 million from pipeline cargo transport, according to data from the NBS.

This shows that on an annual basis, total revenue from the entire rail projects fall short of prorated repayment amount.

The shortfall underscores the growing concern over Nigeria’s ability to meet its railway loan obligations, as the current revenue levels may not sufficiently cover the costs associated with servicing the loans incurred for infrastructure projects.

No sustainability

Chia Kwaghe, an expert in transport economics, highlighted that while rising rail revenue is encouraging, the sustainability of this revenue and the ability to meet loan repayments are in jeopardy without expanding the rail infrastructure and accounting for operational costs.

“The surge in revenue generation can largely be attributed to the rising costs of road transportation due to fuel price increase. This has driven commuters to seek alternative modes, including rail, especially among those who previously may not have considered it.

“For instance, many passengers from areas like Edo and Port Harcourt now prefer to travel by rail to Itakpe and then take a vehicle to Abuja, rather than rely solely on road transport.

“While revenue generation is important, it’s crucial to account for expenditures. If you generate a certain amount of revenue, you need to deduct all operational costs such as salaries and maintenance before considering loan repayments.”

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The problem

Adedotun Eyinade, program director at Nigeria Off-Grid Market Acceleration Program (NoMAP), said the increasing revenue may not be sufficient to cover operational costs and loan repayments.

Eyinade emphasised the need for alternative revenue sources and expanded rail services.

He said, “Proceeds from the sales of tickets are not enough to cover just the operational costs of some of those loans, but also not enough suffice to pay back

“The onus is on them to think of other revenue sources. Some of the stations are still empty, they can let them or sell other things on the train. If there are new routes being opened, more people will be attracted to those new routes as an alternative to driving. If the train lines are more regular, people will ditch their cars, especially now that the cost of fueling those cars are becoming expensive.”

Speaking to BusinessDay, Fidet Okhiria, former managing director, Nigerian Railway Corporation, said the NRC’s primary mandate was to provide reliable rail services at reasonable costs to Nigerians, without the expectations of generating profits to repay government loans taken for infrastructure development.

“That loan is between the Nigerian government and the Chinese government, so NRC does not have to generate the money to pay for that loan. The government would handle that.”