railway concession in africa: lessons learnt afdb transport forum 26-27 novembre 2015 abidjan...

Railway Concession in Africa: Lessons LearntJoan Miquel VilardellAdvanced Logistics Group, SAU

TABLE OF CONTENTS

• Railway in Africa• Lessons learnt• Recommendations for

improving rail infrastructure financing

1st AfDB Transport Forum26-27 Novembre 2015 Abidjan

3Railway Concession in Africa: Lessons Learnt

Railway in Africa



Railway in Africa is largely dominated by North Africa and RSA despite the concession process undertaken in Sub-Saharan Africa railways

Capital city

Railways ratingGood

Fair

Poor

Not classified

Cairo

Tripoli

TunisAlgiers

Rabat

Nouakchott

Djibouti

Addis Ababa

Nairobi

KhartoumDakarBanjul

Bissau

ConakryFreetown

Monrovia

Libreville

Yaounde

Brazzaville

Kinshasa

Luanda

Windhoek

Gaborone

Antananarivo

Lilongwe

HarareLusaka

Dodoma

PetroriaMaputo

N’DjamenaNiameyBamako

Ouagadougou

Bangui

Kigali

MuqdishoKampala

Bujumbura

Asmara

Nouadhibou M’Haoudat

Abuja

North Africa

East Africa

Central Africa

SouthernAfrica (excl. RSA)

RSA

West Africa

6%10%

34%

18%

11%

22%

0%

10%

20%

30%

40%

GDPAfrica: $ 2.182 bn

(2013)

18%21%

23%

4%

18% 17%

0%

10%

20%

30%

SurfaceAfrica: 30,046 km2

10%

28%

16%

5%

11%

30%

0%

10%

20%

30%

40%

PopulationAfrica: 1,108 m

(2013)

9%

15% 16%

26%

20%

12%

0%

10%

20%

30%

Total railway linesAfrica: 82,000k km

(2007 est.)

0,44% 0,43%

96.5%

0,60%

1,15%

0,92%

0,00%

25,00%

50,00%

75,00%

100,00%

Total passengersAfrica: 500 m

(2007 est.)

3% 2%

26%

63%

6%1%

0%10%20%30%40%50%60%70%

Total freightAfrica: 290 m t

(2007 est.)

African railway network

Source: ALG based on PIDA, , AfDB and railway companies

The overall quality of the infrastructure in SSA is poor, which hinders the correct performance of railway operations

African macro-

economic indicators per region

African railway

indicators per region



Snapshot of railway traffic in Sub-Saharan Africa

79%

9%

12%

RSA North Africa SSA

Source: World Bank and SSATP, based on UIC data

Freight traffic in Africa in 2010 (share in %)Freight traffic in some African railways

2,0

1,8

0,9

3,8

1,3

0,4

3,1

0,2

0,6

0,3

0,7

0,8

0,5

0,0 2,0 4,0 6,0 8,0 10,0 12,0

Botswana Railways

Camrail

Sitarail

Transgabonais

RVR (K)

Madarail

ONCF

CFM

Transnet

TRANSRAIL

TAZARA (T)

TRL

RVR (U)

RSZ

TAZARA (Z)

207.7

36.9

In M Tn(2010) - Zambia

(2010) - Zambia

(2012) - Uganda

(2011) - Tanzania

(2011) - Tanzania

(2011) – Senegal/Mali

(2011) – RSA

(2013) – Mozambique

(2013) – Madagascar

(2012) – Kenya

(2012) – Gabon

(2009) – Côte d’Ivoire

(2012) – Morocco

(2013) – Cameroon

(2009) – Botswana

Data source: Railway companies

Railways require high volumes to be profitable; little volumes found in most SSA



Africa contains large areas potentially suitable for new rail projects, mainly the big metropolis, the landlocked countries and the mining zones…

… but several constraints, including the difficulties to finance the railway infrastructure, are currently hindering the development of these projects

Main drivers for railway development in Africa Areas with potential to host new rail projects

New demand for transportation and better infrastructure

Increase in transport demand due to the African economic growth

Need for better and more integrated logistics

Increase in global supply chains competitiveness

Need to provide new urban mass transport systems

Increase in the number and size of large metropolitan areas in Africa

Need to provide access to the sea with a level of capacity and reliability

New mining developments producing high volumes

Need to build high-capacity infrastructures capable of handling mining bulk volumes

Existence of landlocked countries



Sub-Saharan railways are affected by several issues that undermine their commercial opportunities while keeping private investors away

Rolling stock is inefficient

Railway infrastructure is inadequate for commercial exploitation

Governments have given absolute priority to road investment while neglecting railways

Human resources are not being renewed

Political conflicts and natural disasters have damaged the existing lines

Sub-Saharan Railways need a deep restructuring in order to become a competitive means of transportation



If transportation forecasts for Africa are achieved, extra investments will be necessary to overcome the future infrastructure gaps

513

1.175

1.998

3.630

2009 2020 2030 2040

Forecasted Trade Volume (M Tons)

CAGR+7.8%

CAGR+5.5%

CAGR+6.2%

6 out of 11 ARTIN railways need physical expansion by 2020

All 11 cross-border railways need expansion by 2030 or

2040

Demand in 9 of 11 corridors would exceed in 10 M tons

by 2040

All new ARTIN ports will require rail

connection

SSA concentrates the vast majority of ARTIN

gaps

SSA ARTIN corridor Key year of gap capacity

Dakar – Bamako 2020

Abidjan – Ouagadougou 2030

Djibouti – Addis Ababa 2020

Mombasa – Kapala 2020

… …

x 11 corridors 2030/2040

New and existing railway infrastructure will require large financial resources

Source: PIDA programme



Some of the countries might not be able to cope with the financing gap considering their current budgets and debts

Data source: ALG data

Financing gap. vsNational budget

Financing gap allocatedaccording to CAPEX

Impact of financinggap in debt

$5.96 Bn $4.00 Bn $0.98 Bn

Country 1 Country 2 Country 3

% National budget 33% 89% 41%

Increase of government debt 48%59%28%

Private sector participation should be considered to provide finance, skills and incentives



Lessons learnt



The Consultant has visited 8 African countries from different backgrounds in order to assess current situation, opportunities and constraints

Most visited countries where actively engaged in railways projects and in reforms in the railways sector

Selected countries and their railway companies

1. Concessioned and non-concessioned railway systems

2. Geographical distribution among Africa regions

3. Passenger transport and freight transport involved

4. Coastal countries and landlocked countries

5. Working concessions and cancelled concession

6. Types of stakeholders in concession

7. Single-country concession and multiple country concession

Criteria for the choice of countries

TransrailPTB

GCOSEFICS

Camrail

RSZTAZARA

TRCTAZARA

RVR

MadarailFCE

ONCF

BRC

Morocco

Senegal

Cameroon

Zambia

Kenya

Tanzania

Botswana

Madagascar



The results of the country visits show different approaches to railways but also illustrate some lessons (1/2)1. Underperformance and instability of concessions

• Most concessions have been awarded to holders who have not performed asexpected, have become very instable, or both.

• Need for multiple restructuring and amendments to stay operative.• This could suggest that the approach or the type of targeted operator were ill-

conceived.

2. Underestimation of investment needs• Most concessions have underestimated the amount of investment required and sums

committed have had limited impact on improving railway performance.• Some recent railway packages being discussed are several times bigger than the

initial ones proposed in the late 1990s or early 2000s.• And even these ones may still underestimate the real magnitude of investment

required.

3. The competitive environment of railways has not been adequately addressed

• It happens at planning stage, at implementation or at enforcement level.• Some current road and rail schemes are being promoted simultaneously without full

consideration of competition between both modes.

Country

Length of railway under concession

(Km)

Investment initial package(USD m)

Investment initial

package/route length (USD/Km)

Senegal-Mali(Transrail) 1,287 65 50,500

Senegal(GCO) 115 55 480,000

Cameroon 976 90 92,000

Madagascar(North Line) 685 49 71,500

Kenya (RVR) 2,006 80 39,800

Tanzania(TRL) 2,600 84 32,300

Zambia (RSZ) 1,200 14,8 12,333

Initial investment commitments and financial packages in selected countries



4. Operators burdened with public service obligations and legacies from the past

• Railway concessionaires (most of them freight-driven) have beenburdened with passenger obligations.

• These coexist uncomfortably with their core business and exposethem to major complexities, costs, risks and scrutiny.

• Moreover, they have been obliged to take over a substantial share ofstate railways legacy.

5. Demarcation of responsibilities for infrastructure renewal or maintenance is a source of instability

• Most concessions require operators to be engaged to a greater orlesser degree in infrastructure renewal or maintenance.

• This means that most African concessions involve a hybrid businessmodel between vertically-integrated railways and segregated ones.

• That leaves room for interpretations, disagreements and, eventually,termination.

The results of the country visits show different approaches to railways but also illustrate some lessons (2/2)

6. Widespread acceptance that the concession model has to bereformulated

• Most countries with concessions have reached the conclusion thatinfrastructure assets should be kept and managed by the public sector

• But they are still struggling to define the financial models, and fundingsources for infrastructure maintenance

• Wide acceptance that PPPs should be explored to tap the huge amountsof funding that would be required, but there is an overall lack of newideas on how to proceed

7. Public sector provision still strong in most developed Africancountries

• The public sector provision is not really challenged in some countries,following the corporatization and modernization of their national railways

• Others have lost confidence in the private sector

• Countries with the most articulated public sector still rely on publicprovision

• But there is the risk of politically-endorsed projects with little economicand financial returns.

Countries with a less-powerful public sector are more actively engaged in looking for private investment but there is still little experience and familiarity with railways so as to build robust business models



Adequate financial provisions for maintenance is critical to sustain capacity and service reliability

Lack of maintenance has been one of the main reasons why African railways have lost their original capacity

Loss of capacity on African railways (% loss of original capacity)

75%

50%

95% 90% 87%77%

96% 86%

Ang

ola,

CFM

a

Bot

swan

a,B

R DR

C,

SN

CC

Mal

awi,

CE

AR

/CD

N

Moz

ambi

que,

CFM

-Sou

th

Tanz

ania

,TR

C

Zam

bia,

TAZA

RA

Zim

babw

e,N

RZ

Data source: ALG data



Several countries have cancelled or amended their concessions to bring back infrastructure investment responsibility to governments

However, the second generation concessions have the risk of being instable due to lack of common understanding on the scope of investment and maintenance, added to the lack of compliance from one side

Cancelled and ongoing concessions in Africa Evolution of the concessions in some African countries

Ongoing concession

Cancelled concession

Railway not concessioned

Private mining line

Without railway services

Ongoing concession and cancelled concession

Transrail2003

Sitarail1995

Camrail1999

TransGabonais-SETRAG

2005SNCC

2011

RSZ2002

BBR1999

CCFB2005

CEAR2000

Nacala-CDN2005

TRC2007

Rift Valley RailCorporationKRC-URC2006

CBG

ACG

SBKCTMB

Madarail2003

Cairo

Tripoli

TunisAlgiers

Rabat

Nouakchott

Djibouti

Addis Ababa

Nairobi

KhartoumDakarBanjul

Bissau

ConakryFreetown

Monrovia

Libreville

Yaounde

Brazzaville

Kinshasa

Luanda

Windhoek

Gaborone

Antananarivo

Lilongwe

HarareLusaka

Dodoma

PetroriaMaputo

N’DjamenaNiameyBamako

Ouagadougou

Bangui

Kigali

MuqdishoKampala

Bujumbura

Asmara

Abuja

Concession Year of concession

Current performance Investment responsibility

OPS FIN Infrastructure Rolling Stock

Sitarail (Côte d’Ivoire, Burkina Faso) 1995 A C Public Private

Camrail (Cameroon) 1999 B A Public Private

CEAR (Malawi) 2000 D D Private Private

RSZ (Zambia) 2002 C C Private Private

Madarail (Madagascar) 2003 B C Public Private

Transrail (Senegal, Mali) 2003 C D Private Private

CCFB (Beira) (Mozambique) 2005 C D Private Private

TransGabonais (Gabon) 2005 B C Public Private

Nacala (Mozambique) 2005 C D Private Private

KRC-URC (Kenya-Uganda) 2006 C D Private Private

TRC (Tanzania) 2007 D D Private Private

SNCC (DR Congo) 2011 D D Public Private/Public

Source: SSATP, Framework for Improving Railway Sector Performance in Sub-Saharan

Ongoing Cancelled



Recommendations for improving rail infrastructure financing



12 Recommendations arising from African and world experiences

Railway financing should prioritise projects that focus on identified markets generating high volumes: large mining areas, dense freight corridors, large metropolitan areas

1

Freight railway projects should take into account the whole logistics chain2

A new approach to passenger services is required3

A systematic approach to maintenance is mandatory as the cornerstone of railway performance4

Larger financial packages and long-term involvement by states required for railway projects. Railway funds or other innovative financial sources may contribute to the viability of projects

5

Project Identification and selection

Railway finance

Managing CAPEX is crucial to avoid further increases in viability gap; relaxing specifications, deferring electrification and upgrading of existing lines may reduce the investment needs by more than 25% without affecting the benefits from the line

6



12 Recommendations arising from African and world experiences

Railways’ economic, social and environmental contributions should be monetised, including coordinated policies with road transportation

7

Novel approaches to railway concessions should be explored; private sector participation should be considered to provide finance, skills and incentives

8

Assessment, implementation and monitoring bodies with enhanced technical and business capabilities should be encouraged

Public railway bodies should be corporatized and professionalized

Larger railway markets in Africa should be promoted through increased cross-border cooperation12

Railway finance

(continued)

Railway institutional framework

10

11

It’s crucial to develop and effectively implement policies that shift traffic from road to rail 9



Any passenger services will need to be subsidisedand this should be through separate financing schemes in each country

Source: Asian Development Bank – Private Sector Investment in Railways

4,84

2,25

1,56 1,52 1,52 1,52 1,5 1,49 1,38 1,37 1,35 1,32 1,29 1,29 1,28 1,27 1,13

Most rail passenger operators do not cover their operating expenses from fares

Operating expense / Operating Revenue



Shifting from road to diesel railway may potentially reduce 75% of external costs. Further savings from electrification are relatively minor

External cost compared to road transportation (as % of road transportation)

Source: ALG based on European Commission study on transport external costs. Assumes part of electricity coming from green energy

Road freight Rail Freight Diesel Rail Freight Electric

Air pollution Climate change Noise Up-and downstream Other impacts Accidents

Potentialsaving

86.9%

Potentialsaving

75.4%

100%

13.1%24.6%

11.5%

Difference between diesel and electric railway vs road



Private sector participation has been positive in several railways worldwide, usually under concession schemes

• The Initial Concessioning Model used in Africa and LatinAmerica, with the concessionaire responsible for infrastructureinvestment, has not led to enough investment, especially ininfrastructure

• The Evolved Concessioning Model is:

• Public sector asset company owns the infrastructure -concession landlord

• Specialised civil works contractor builds infrastructure

• Private sector manages freight operations and O&M

• Critical issues to be considered in new PPP approaches:

• Detailed technical studies, increased competitive tensionand strengthening of construction supervision to beconsidered

• How should Infrastructure O&M be managed?• An independent regulator is needed• Implementation of a railway fund to secure the viability gap

financingPrivate sector Public sector

Initial African Concessions

Initial Cameroon,Madagascar,Current Kenya,Senegal

O&MRolling S.

Rolling S. investment

O&MInfrastructure

InfrastructureInvestment

Infrastructureownership

Evolved African ConcessionsInitial Tanzania,Zambia,Amended Cameroonand Madagascar,Proposed model for Senegal

New PPP approach

Joan Miquel Vilardelljmvilardell@alg‐global.comwww.alg‐global.com

Thank you!

railway concession in africa: lessons learnt afdb transport forum 26-27 novembre 2015 abidjan...

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