US embassy cable - 05LAGOS1518

C O N F I D E N T I A L LAGOS 001518 
 
SIPDIS 
 
STATE PASS TREASURY FOR ASEVERENS AND 
STATE PASS DOC FOR PHUPER 
 
E.O. 12958: DECL: 09/19/2015 
TAGS: ELTN, ECON, PGOV, PREL, NI, CH, KS, XB 
SUBJECT: CHINESE AND SOUTH KOREAN FIRMS BIDDING FOR RAIL 
LINE PROJECT 
 
 
Classified By: Consul General Brian L. Browne for reasons 1.4(b) 
and (d). 
 
1. (C) Summary.  Nigerian Railway Corporation (NRC) Managing 
Director Abubakar told us competing Chinese and South Korean 
firms were interested in constructing new rail lines and 
upgrading existing lines.  Sometime in October, the NRC would 
chose the group with which it will partner.  By the end of 
October, the Government of Nigeria (GON) would announce the 
bidders for the four existing rail line operating 
concessions, which is separate from the NRC's decision to 
grant Chinese or South Korean investors' the go-ahead to 
develop the rail lines.  So far, 11 firms had expressed 
interest in buying the four concessions, but none were 
Chinese or South Korean.  End Summary. 
 
2. (U) Abubakar claimed five million Nigerian passengers used 
the rail system in 2004.  The NRC recently dismissed 5,980 
workers in an attempt to cut costs, a move Abubakar said 
should have been completed last year.  By this move, the NRC 
effectively halved its workforce, he said. (Comment: 
Abubakar's figures regarding NRC passengers appeared padded, 
and significantly so.  A senior official within the 
corporation provided us a much more conservative and 
plausible estimate of slightly over one million users per 
year. End Comment.) 
 
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Chinese and South Korean Firms 
Vying to Develop Nigeria's Rail System 
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3. (C) Abubakar said he had reviewed rival offers of Chinese 
and South Korean firms interested in developing new rail 
lines and upgrading existing ones.  He had yet to pick 
between the two, and said he would decide by late October. 
While not exceptionally forthcoming, when pressed, Abubakar 
indicated a preference for the Chinese, but mentionend, if 
the Chinese balked, he would go with the South Korean 
investors. 
 
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11 Bidders for 4 Rail Concessions 
15-20 Year Development Project 
--------------------------------- 
 
4. (C) Eleven bidders have expressed interest in acquiring 
the four rail operating concessions, in an all-or-nothing 
package, offered by the NCC:  the Western Line from Lagos to 
Kano to Nguru, the Eastern Line from Port Harcourt to 
Maiduguri, the Central Line from Itakpe to Ajaokuta to Warri, 
and the Southern Line covering metropolitan Lagos.  None of 
these lines is new.  Abubakar would not identify the bidders, 
but said several South African firms and a Canadian firm had 
submitted "expressions of interest."  Total costs for the 
four concessions would be USD three billion, with the bidder 
paying USD two billion and the GON paying USD one billion, 
Abubakar said.  The winning bidder would have to provide this 
capital to upgrade the concessions, before the concessions 
would become profitable.  Abubakar stressed the NRC was not 
planning to fully privatize the rail system, but was looking 
for private companies to manage the concessions for 15-20 
years. 
 
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Comment 
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5. (C) Comment.  The Nigerian rail system is decrepit and 
badly underfunded.  As currently structured, expansion of the 
Nigerian rail system is likely to be unprofitable; the 
Chinese and South Korean investors are likely looking to the 
rail system as an entree into more lucrative areas of 
Nigeria's economy.  End comment. 
BROWNE