Economic justification for development and operationalization of rail-freight-corridors between hub-seaports and inland container depots in Nigeria

Abstract

The obsolesce and decay of rail transport infrastructure linking major seaports Cities to hinterland cargo origin and destination centers serviced via the seaports and the total lack of rail infrastructure connection between some hub seaports and the hinterland cargo centers in Nigeria induces enormous economic setback. Most rail routes from seaports to the inland container depots (ICDs) in all the geopolitical zones of the Country are currently inoperable. Government’s recent attempt to develop and make operable the rail routes is faced with funding challenges necessitating the need for a Public Private Partnership (PPP) approach in which government provides regulation and enablement while private sector operators fund the projects. This study was aimed at providing economic justification for private sector investment in developing, revitalizing and making operable, the rail-freight-corridors between hub-seaports and inland container depots in Nigeria. It estimated the operator-benefits and profitability potentials of investment in each of the ten rail-freight-corridors consisting of existing but inoperable and proposed rail routes from Lagos, Port-Harcourt/Onne, Warri and Calabar seaports to the Inland container depots in different geopolitical regions of Nigeria. Secondary data on the import and export (cargo generation) capacities of each of the ICD regions to and from the respectively connected hub-seaport were obtained from the Nigerian ports authority statistical report covering a period of two years (2018 – 2019) based upon which the annual expected revenue earnings of the operators (investment) were estimated as a product of the total annual TEU handled by each route and the price of delivering per TEU from the seaport to the ICD region. The cost of investment in developing and operating each rail-freight-corridor as determined in previous studies for the Nigerian Shippers Council for the same period were also obtained. Benefit-Cost-Ratio (BCR) and Net Present Value (NPV) tools were used to estimate the operator-benefits and profitability potentials of each rail route within the period using 10% interest rate. It was found that six of the rail routes have BCR > 1; and NPV>0; implying higher operator-benefits over costs within the period. The rail-routes from Lagos seaport to Gombe and Bauchi; Warri seaport to Aba; and Calabar seaport to Kano have BCR <1; and NPV <0; implying higher operator-costs over benefits and unprofitability of the routes within the first two years of service delivery. It was recommended that the PPP terms for rail freight corridors with BCR <1 and NPV<0, should have a higher contract period than the other routes to enable the private investor have a higher payback period to recoup the cost of investment and earn profit.