Speeches

Investment Forum For The Promotion Of The Lagos Rail Mass Transit (LMRT)

Nov 18, 2008 - Ladies and Gentlemen, good morning. It is indeed a pleasure to be in Dubai talking to you all on the Rail project the Lagos State Government (LSG) has decided to embark upon. That many of you have travelled long distances is appreciated and I would like to welcome and thank you all for coming. I am very excited about the calibre of people who have honoured us with their presence today.

Today, the Lagos State Government takes another step forward towards rebuilding Lagos State’s infrastructure. Your presence at this investment forum is an indication of greater things ahead for the State. Your participation in the project will forever make you a part of our history.

Public-Private Partnerships (PPPs) are widely recognised as win-wins. For the private sector, such a partnership would present business opportunities in areas from which you were previously excluded. For the public sector, it represents value for the government and its citizens. I believe that a partnership between government and the private sector is the best way to achieve the infrastructure reforms we intend to execute.

Before discussing the rail project further, I would like to give you a brief overview of the Nigeria and the Lagos State that you will be investing in.

Nigeria is a nation rich in natural and human resources. Its population was estimated as 150 million people in 2007 and it is growing at a rate of 2.9% per annum; making it one of the fastest growing populations in the world and Africa’s most populous nation by far. Nigeria has vast oil and natural gas reserves, mineral deposits and cash crops. It is the 8th largest oil producer and has the 6th largest gas reserves in the world. It has deposits of 34 different solid minerals (such as marble, granite, bauxite, tin ore, gold to name but a few), 44 exportable commodities (cocoa, coffee, rubber, cotton, textiles etc) and huge arable land.

In the last 2 years, over 74 government-owned institutions have been privatised netting the Federal Government almost $3 billion. In 2007, Nigeria’s GDP was $142.4 billion with external debt making up only 5% of the nation’s GDP. External reserves grew from $4 billion in 1999 to over $55 billion today. Foreign direct investment has grown from zero in the nineties to billions per annum today.

Politically, the nation is stable. We recently held our third consecutive national elections in April 2007 and are on course for sustainable democratic development. President Yar’Adua has committed his government to reform, Vision 2020 and his seven point agenda which identifies the development of human capital, economic reforms, transport, power, Rule of law, the Niger Delta and electoral reform as key priorities for his administration.

What is Vision 2020? – The vision for Nigeria to become one of the world’s 20 largest economies by the year 2020. President Yar’Adua’s administration is firmly committed to transparency and sustainable growth. His Vision 2020 objectives have been supported by the likes of Goldman Sachs who predict that Nigeria can achieve a top 20 nation status. And just earlier this month, taking into account the global financial turbulence and effect on different counties, Merrill Lynch ranked Nigeria the least vulnerable country in its country risk rankings of the top 60 economies. There is a close working relationship between the Lagos State Government and the Federal Government of Nigeria.

In the last eight years, Nigeria has made giant strides. The Federal Government’s efforts have yielded results as evidenced by its improved ranking with Transparency International and other surveys, its BB sovereign rating and the fact that Nigeria has been removed from the Financial Action Task Force on Money Laundering list of non-complying nations. The new streamlined due process procedures at the federal level are ensuring that public money cannot be disbursed unless procurement procedures have been respected.

All this suggests a relatively stable and exciting region to invest with high potential returns. Perhaps nowhere, though, is this more evident than in the State of Lagos, the heart of Nigeria’s financial and commercial sectors.

Lagos is the largest metropolitan city area in Sub-Saharan Africa. At a current growth rate of about 8% per annum, the population of Lagos is estimated to reach about 25 million by 2015, when it will become the world’s 3rd largest megacity (after Tokyo and Mumbai). Situated on 3,577 square kilometers, Lagos is also one of the most densely populated States on earth with a density of 4,193 people per square kilometers. This makes Lagos a very attractive area for business.

Lagos is also the economic and financial hub of Nigeria. The State contributes 32% of the Nigeria’s GDP, 60% of the Nigeria’s value added manufacturing, and 50% of the Nigeria’s port revenues. Lagos is home to the headquarters of most major international and local companies, the largest stock exchange in West Africa and 65% of Nigeria’s industrial estates.

Despite the enormous potential of Lagos, a 2005 UN study of the world’s 28 mega-cities ranks Lagos as the city with the lowest Urban Living Standard Score. This unacceptable position must be reversed and amongst others, underscores the enormous task confronting my administration to renewing the public infrastructure (including transportation) needed to cope with the growth of the city and State. The rapidly growing population has strained the existing transport infrastructure, adversely affecting levels of efficiency and productivity over the past three decades. An example of such is the long delay that the people in 126,000 cars that travel across Third Mainland Bridge in Lagos face every day. When it was built over two decades ago, projected use of the bridge was a mere fraction of what it is today.

Due to these infrastructure deficits, a number of major projects are currently being executed. These include:
• Lekki Infrastructure Project – This is a private-sector led PPP to build a 50 kilometre toll-road which is the first of its kind in Africa. This is a $432 million project, and I am proud to say that despite the recent turbulence in the world’s financial markets, this project closed on $390 million of debt financing this month from several Global financial institutions. In demonstrating its commitment to infrastructure projects, the Lagos State Government partnered with the Sponsors of this project and initially provided a guaranty which was later converted to a N5bn ($42m) mezzanine debt facility.
• Lekki Free Trade Zone – a 16,500 hectare industrial and business hub offering international businesses various incentives such as free repatriation of investment capital and profits, one-stop approvals, no import or export licences, tax holidays and duty-free raw material imports. The site will contain, amongst others, a new deep-sea port and Africa’s largest methanol plant. A new international airport will be built adjacent to the zone.
• $5bn Atlantic City Project – Reclamation and conversion of over 8 kilometres of land along Bar Beach into much needed residential and office space. The project is further evidence of public private partnership in progress. 300,000 people are expected to reside in the area and another 200,000 are expected to visit each day.
• $1.5bn 4th Mainland Bridge – 26 kilometre bridge linking Lekki and Ipakado. The road will provide access to Victoria Island from the hinterland and reduce traffic on the Third Mainland Bridge and the other bridges linking the mainland to Lagos Island.
• $2.5bn upgrade of Lagos-Badagry Expressway – a 10 lane highway linking Lagos to neighbouring West African States.
We see a well functioning metro rail network as another piece of the puzzle to fix the infrastructure deficit in Lagos. Although the network requires significant capital investment (which my Government is committed to), it ultimately provides a cheaper, faster, safer, cleaner and more reliable form of transportation. It will significantly decongest our roads, increase work mobility and create new employment opportunities.

Ironically, rail is the oldest of all the contemporary land transport modes in Nigeria. The majority of the nation’s rail tracks were constructed during colonial days - the first rail line was constructed in Lagos by the British colonial government in 1898. Since then the development of our rail tracks spanned a period of over 60 years. The last kilometre of rail was laid from 1958 to 1964 in Northeast Nigeria. Regrettably, the length of railway has stayed constant at 3,505 route-km of narrow gauge as further development of our railway system was abandoned in favour of road transport by successive governments. The Federal Government, however, has been in serious conversations regarding revamping the national rail infrastructure.

Within the State of Lagos, the first serious attempt to implement a metro line system for Lagos was in the early 1980’s. A 28.5km metro line scheme was conceived as a Light Rail Mass Transit (LRMT) system, with 19 train stations at an estimated cost of N600 million (equivalent to approximately $540 million at that time). It is interesting to note that two North African countries (Egypt and Libya), were also considering metro line systems at about the same time. The Libyan Government actually sent a delegation to Lagos to understudy the blueprint for the Lagos metro line project. Today, metro lines in Cairo and Tripoli are running, while the one planned for Lagos was completely abandoned. It was never executed! We have learnt our lessons from previous failures of implementing a metro line system for Lagos and all necessary plans and measures are being put in place to ensure successful implementation of this proposed project.

Lagos State has now developed a strategic Lagos Urban Rail Network, comprising seven (7) LRMT corridors. These lines have been designed to connect the State’s main activity centres to Central Lagos.

This investment forum, distinguished Ladies and Gentlemen, is to inform you of our plans for the first two priority LRMT corridors within Lagos. These are: (i) the 37-kilometer Red Line comprising thirteen stations from Agbado to Marina following an existing Nigerian Railway Corporation corridor. This line mostly runs from the North to the South of the state and includes connections to the domestic and International Airports. (ii) The Blue Line, a 27 kilometre rail road with thirteen stations from Okokomaiko to Marina. The Blue Line will be constructed right in the middle of the Lagos-Badagry Expressway which government intends to expand into a ten-lane international highway. The Blue Line primarily runs East-West.

Two well respected and reputable international consulting firms have been providing PPP transaction advisory services leading to the award of design-build contracts for the railway infrastructure and operation-maintenance concessions for these two priority lines. They are Dar Al-handasah (Red Line) and CPCS Transcom (Blue Line). The LASG will directly finance the design and construction of railway infrastructure for both lines. The private sector will be responsible for the acquisition of rolling stock, and operating and maintaining the rail systems. Concessions will last for 25 years.

An integrated 25 year financial model was used for estimating the project cash flows and returns for the Blue and Red Lines. The LASG will finance the $1.2bn capital cost of infrastructure for the two lines. Provisions have been made within the State’s annual budgets (2008-2011) for funding the rail infrastructure for both priority lines and the State will also float rail infrastructure bonds on the capital markets. The conservative estimate of returns to the concessionaires is 20% over the 25 year period.

The action plan for implementing the Red and Blue Line projects are as follows:
(i) Conceptual Design\Preliminary Engineering for tracks, civil works and stations. (Completed August 2008);
(ii) Design & Construction of tracks and civil works. (Commenced October 2008 and to be completed by September 2011);
(iii) Design & Construction of stations (To commence March 2009 and to be completed by August 2011);
(iv) Operations\Maintenance Concession: advertisement, selection, negotiation and award. (To commence November 2008 and to be completed by October 2009);
(v) Concession preparation. (To commence October 2009 and to be completed by November 2011); and
(vi) Operations commences by December 2011.

Besides creating opportunities for commercial and business activities, the two rail lines would improve access to Central Lagos and act as a catalyst for investment promotion, economic growth and social inclusion. In addition, the benefits of developing both priority rail lines include the following:
i) demand for housing in metropolitan Lagos will reduce, with an increased shift to the suburbs;
ii) improved quality, accessibility and affordability of rail public transport;
iii) Traffic on congested Lagos roads will be reduced by large populations using the faster rail network;
iv) commercial activity will increase along the rail route leading to the creation of sustainable jobs and employment opportunities,
v) Vehicular emissions and air pollution resulting from traffic congestion would be significantly reduced and contribute to a cleaner environment; and
vi) Apart from the capacity to move a greater number of people, rail transport is twice as efficient as road transport. It reduces operational costs and consequently, fares paid by the commuting public. Travel times are much more reliable and are relatively unaffected by weather conditions and accidents. Both rail lines have the potential to carry more than 1.6 million passengers daily.

Reliable mass transportation is one of our most pressing infrastructure challenges and a key factor in the state’s competitiveness. With attendant air pollution and congestion problems, there is a strong emphasis and keenness to move to greener mass transit solutions. In March this year, we launched the BRT, a network of 100 buses to move 60,000 passengers per day. We envisaged that by the end of the year, the system would carry 90,000 passengers per day. However, by October, we were already at 180,000 and current projections are for 250,000 by the middle of next year and 500,000 by 2010. This goes to demonstrate the latent demand for efficient transportation in Lagos.

Distinguished Ladies and Gentlemen, I expect that private sector investors and entrepreneurs, banks and other financial institutions (local and foreign), bilateral and multilateral institutions, and other interested stakeholders, are energized by the expected benefits that will accrue from implementing the Red and Blue Line projects and indeed, the prospects of developing other rail corridors that have been identified for future development. Our domestic financial institutions (banks, insurance companies, pension funds, etc.) have already shown keen interest and I hope international investors and technical and operational experts will show keen interest as well in the PPP rail public transport scheme.

I am very confident that with 1.6 million passengers daily, Rail investors will receive very high returns on their investment – similar to returns achieved in other sectors, for example, telecommunications. In 2000, MTN South Africa’s $270 million investment in a GSM license in Nigeria was viewed with scepticism. In fact, the company’s stock price went down on the Johannesburg Stock Exchange. However, today, those investors must be extremely pleased with their investment as the value per share of their Nigerian investment appreciated from $1 share in 2000 to $25 per share last year. This does not take into account dividends that have been paid out over the years (over $1bn paid out last year alone). Other sectors have also not been left out: AP Moller bid $1bn to manage Apapa ports in Lagos. Petrobas announced spending $7bn in Nigeria through 2012. The list goes on...

Finally, I would like to stress the Federal Government and the Lagos State Government’s commitment to development. It was an electoral promise and I intend to fulfil it. There are certainly challenges, but successful investors have seen them as opportunities. This Government is extremely supportive as evidenced in the PPP law being passed, support (legislation and financial) of other infrastructure projects such as the Lekki Infrastructure Project, the BRT System and numerous others. Lagos, soon-to-be the world’s third largest megacity, is certainly the city of the future and infrastructure is the basis of its future growth. We are 200% committed to delivering and we invite you to share in the opportunities it presents.

Thank you very much for your attention.

God Bless Nigeria.

God Bless Lagos State.

Babatunde Raji Fashola (SAN)
Governor of Lagos State