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China in Africa: The Real Story

The Real Cost of Chinese Railway Construction in Nigeria

Deborah Brautigam

Train in Lagos, Nigeria (photo: Accelerator, Nigeria)
...
For several years, stories about China Civil Engineering and Construction Corp (CCECC)'s $8.3 billion Lagos-Kano railway modernization contract have circulated in Nigeria and in the international press. The editor of Foreign Policy, Moises Naim, for example, mistakenly claimed in the New York Times that China was giving $9 billion in aid to finance this project. (There was actually no aid offered, although a preferential export credit of $500 million was discussed in connection with the railway).

Nigeria's existing, colonial-era railway between Lagos and Kano is far from adequate for a major transportation artery, antiquated, non-standard (narrow) gauge, and single track. However, I've read that CCECC's price for the new railway was "hugely inflated," that the project was hastily delivered to CCECC without proper tendering, and that there was not an inadequate "front end design" and/or feasibility study before awarding the contract.

I've been doing research in Nigeria off and on since 1987. I know that Nigerians are rightly suspicious of any large infrastructure project proposed for their country. They have bitter experience of money being "eaten", cost overruns, and white elephants. Was the CCECC project, recently scaled back, fated to be another in this long line?

Several weeks ago, Professor Richard Joseph sent me a photocopy of a fascinating full page ad published by CCECC in the Guardian (Lagos) on June 18, 2008, in which CCECC defended their 2006 contract, in particular the claim in the June 15, 2008 Sunday Punch (Lagos) that the contract was "inflated by $5.8bn" and should have cost $2.5bn.

CCECC contends that:
  • An initial feasibility study for the project was produced by the Nigerian branch of the international engineering firm Julius Berger together with an Italian firm, TEAM Consultants, in 2001. CCECC says they also conducted a "detailed feasibility study" before they participated in a limited tender, and an environmental impact assessment after the contract was awarded.
  • They produced 4 possible designs for the railway: (1) Rehabilitation of existing narrow gauge, single track for $1.76 billion; (2) Rehabilitation plus 2nd new narrow gauge, double track for $6.7 billion; (3) New, standard gauge, single track line for $5.81 billion; (4) New standard gauge, double track except Abuja-Kaduna, for $8.3 billion.
  • In April 2006, along with two other (unnamed) "pre-qualified companies", CCECC was invited to submit tender documents, which they did in June 2006 (yes, this does seem hasty).
  • Their costs were very reasonable.
Let's look into the cost issue further.

An important Chatham House report cited an interview with an unnamed World Bank official in Abuja, May 2008, who said that $3.04m per km was "double the cost it should have been." The report noted that a review by the Yar A'dua administration "discovered the costs to be highly inflated" but they didn't question the reports of this review. If the costs were "double" then this implies that the proper cost should have been around $1.52m per km. 

CCECC claimed that their bid for the double-track railway, at US$3.04 million per km, was low compared with the "international average construction cost of US$3.50m per km". (The railway distance is 1315 km. For a double track, this makes 2703 km x $3.04 or $8.22bn.)

As I read all this, I wondered:  what do we know about railway construction costs?  Is there any way to shed light on these various claims? I turned to Google.

I learned that costs per km are affected by a number of things, including materials, the terrain, and so on. But there is actually plenty of information on this online if one wanted to check general ballpark figures for reasonable costs of railway construction.

For example, news reports on a number of projects at the Railway Gazette website give costs, including a project financed in 2009 by the Asian Development Bank in Afghanistan: a 75km project for $170m, or $2.26m per km (single-track).

In 2008, Libya began a railway project, a standard gauge, double-track line awarded to Russian Railways, for a cost of 2.2 bn Euros ($2.8 billion) for 554 km, or $5m per km. Libya later signed a contract in 2009 with China Railway Construction Corporation for $805m for 172 km of railway on the Tripoli-Ras Edjer line ($4.7m per km).

A January 6, 2009 article in the Guardian (Lagos) by Moses Ebosele, "Lack of Policy Trails Nigerian Railway in 2008," quoted from a World Bank study (for Nigeria?) which "estimated capital cost of conversion from the present narrow gauge railway to standard gauge at between $1.5m and $5.0m per route km." Averaging these would give us $3.25m per km. (This doesn't say whether the standard gauge would be single or double-track.)

Here in Washington, DC, I found that our fancy new Dulles Airport Aerotrain cost $1.5 billion for only 3.8 miles (6.12km), or US$245.0m per km! Of course this is an extremely nice train. We're very happy with it.

Clearly without knowing the specifics of the Lagos-Kano line, it's hard to say which estimate is the most reasonable, or even whether the entire project was a good idea or not. But this little survey suggests that the contract costs of $3.04m per km in the CCECC contract do not look out of line. 

Indeed, in November 2009, CCECC and a new Nigerian administration signed a new contract. This contract is for a shorter, 200km stretch of railway between Abuja and Kaduna. This new project is estimated to cost $876 million, or $4.38m per km. The $500 million preferential export credit from China Eximbank will be applied to this project.

Whatever the details of the new contract, it's clear that three years and much negotiation later, the cost per km rose rather than fell. Which is what one would expect, given inflation.
But perhaps Nigerians with access to the inside story will have a different view of all this?