Concerns over Eastern line railway contract
The Eastern line is a very integral part of the Muhammadu Buhari-led administration’s rail development initiative. There are, however, concerns about aspects of the project, writes ROBERT EGBE
Minister of Transportation Rotimi Amaechi is passionate about connecting the country through railway. His principal, President Muhammadu Buhari, has also caught the bug and has approved almost everything the minister requires to bring the project to fruition. A regular clean bill from the Bureau of Public Procurement (BPP) has seen the project moving on, but there are concerns that there are irregularities in the handling of the contract for the rehabilitation and reconstruction of the Eastern Railway Line.
What exactly are the issues?
The project development coordinator of the Insight Dynamics Resource Ltd, Musa Ibrahim Kuchi, alleged serious breaches in the contract for the rehabilitation and reconstruction of the Eastern Line Railway project.
“The minister acted in breach of the law in seeking a no-objection certificate to award the contract for the rehabilitation and reconstruction of the Eastern line and that the BPP acted ultra vires in issuing such a certificate. Sections 16 & 40 of the Public Procurement Act 2007 stipulate five years imprisonment without an option of fine for such an infringement. The Federal Executive Council was misled into approving the contract by reliance on a defective certificate issued by the BPP. The Federal Executive Council recently approved the award of a contract to the Chinese contractor, CCECC, for the rehabilitation and reconstruction of the Eastern line for $3.1bn. The papers forwarded to the BPP by the Ministry are irregular in many respects and calls to question the motivation of the minister. Furthermore, the minister wants to take a loan for the project from the Industrial and Commercial Bank of China Ltd ( a private financial institution) to be backstopped by a sovereign guarantee at an interest rate of more than 3% whereas the US Eximbank offers a cheaper interest rate of 1.8% which the ministry spurned,” Kuchi said.
Taking loan from a private bank
Kuchi said it was wrong to ignore government-to-government loan arrangements with lower interest rates such as offered by the United States Eximbank.
“Usually loans such as the Chinese ICBC one are backstopped with a Federal Government sovereign guarantee and one danger of it is, that the sovereign guarantee may be discounted at 75-80% of its face value thereby allowing the contractor to receive money upfront while leaving Nigeria exposed. Is this why the minister has been misleading the government and the public by claiming that there is no alternative to China for funding of the railway projects even after US Eximbank has written over 80 emails to support railway development in Nigeria? Note only Lagos – Ibadan Rail project is being financed by Chinese Eximbank, all other projects are Chinese private commercial bank, and that is wrong especially where Nigeria sovereignty guarantee is involved,” he added.
Kuchi felt the BPP might have succumbed to political pressure and said it appeared that only the CCECC price assessment was used in violation of Section 16 and 40 of the Public Procurement Act.
“The minister foreclosed any opportunity for other companies to bid openly and competitively, therefore there is no transparency in the process. The tender was not advertised. The documents submitted to BPP by the Ministry reveals that the process of deal preparation appears deeply flawed with the contractor/concessionaire appearing to play the role of technical advisor as well which portends a conflict of interest. The contractor should not prepare the feasibility study that forms the basis of the Outline Business Case (OBC). Such items of work should be undertaken by an independent consultant acting as transaction advisor who should also be procured through an open tender. Before an OBC, there should be a scoping study incorporating a condition survey and also include a Bill of Quantities for the tendering contractors to price. Such an independent consultant would also produce an estimate of the scope of work that would form the benchmark for assessing bids. There is no justification or basis for assessing the contractor’s price in the manner used whereas it is a fundamental principle of the Public Procurement Act, that open and competitive tenders provide the best price assessment and value for money. You can’t be a referee and a player in the same game,” Kuchi explained.
He added: “The rehabilitation contracts were awarded on the Eastern line in 2011 for about $500m and by 2018, with about 70% of the contract sums expended/committed, the contracts appear to have been effectively abandoned by the government for no discernible reason. Railway services from the South East that commenced at the end of 2014 to the North had effectively stopped because the contracts were not completed and tracks vandalised.
The question the ministry has to answer is why is it now coming forward to award the same scope of work for over three times the price of the original contracts ($1.84bn) comparatively and when an aggregate of 70% of the original scope of work may have been completed just a few years earlier. They need to explain why the same scope of work is proposed to be awarded to CCECC at $1.8bn or (N650bn) instead of the balance of about N15bn required to complete the existing contracts. The same CCECC that rehabilitated the narrow gauge railway from Lagos to Jebba with N12bn ($80m) or $200,000 per km is now proposing to rehabilitate Port Harcourt –Maiduguri with $1.4m per km. That is a 700% cost inflation!”
Nigeria, he said, is building a standard gauge track between Lagos to Ibadan, Ibadan to Kano, Warri to Abuja and Lagos to Calabar and queried the sense in investing in building a new narrow gauge system that cannot interface seamlessly with the standard gauge system.
“Recently the request from the FMOT to Bureau for Public Procurement (BPP) claimed that this project is “among the railway modernization projects captured in the year 2020 appropriation of the Ministry in the sum of N67bn”. This is not true. All the modernisation projects are standard gauge and there is no narrow gauge railway modernisation project. It is indeed a misnomer for a modernisation project to be a rehabilitation of an old system.
“No US Company or AECOM did not pull out but were frustrated by the Minister of Transport and FMOT officials. Perhaps you will remember about a couple of months ago, the Minister of Transportation, Rotimi Amaechi, challenged the National Assembly to tell him where huge infrastructure loans could be accessed beside China. I met him far back in 2018 with details correspondences from US Eximbank and US Embassy commercial department where they indicated interest to support the ministry about their willingness to discuss Nigeria infrastructure projects for the past three years. But the Ministry of Transportation deliberately deployed every strategy to frustrate us and the American company AECOM even though they admitted in one of their letters to us that they have correspondence from US Eximbank. US Eximbank further expressed perplexity as to why the Nigerian government cannot engage with the US government at a bi-bilateral level for discussions regarding potential support, regardless of whether or not a U.S. exporter has provided affirmative interest.
“I have all documents to shows FMOT did not take US Eximbank opportunity and they don’t want Americans involved in rail projects in Nigeria even though they offer superior work quality, transparency and lower interest rate of less than 2% as against 3.2% Chinese offered us simply because Americans want government-to-government bilateral arrangement,” Kuchi further said.
He said his company met with Minister of Finance on the need to go along with the American deal.
“Yes we met her and she was very surprised, to say the least, and immediately directed her Permanent Secretary to write to FMOT requesting for their funding requirements to enable her to engage foreign affairs ministry on government-to-government bilateral negotiation, but to the best of my knowledge nothing comes out of that, ” he explained.
For a nation that intends to diversify its economy, Kuchi said, contemplating narrow gauge rail alignment is the last thing the ministry should undertake in the 21st Century.
“The narrow-gauge railway does have numerous disadvantages: When transporting goods, the cargo needs to be reloaded at transhipment stations for onward transportation by regular-gauge trains, signals and aerial lines are largely done away with, and elaborate automatic switches and block modes are rarely used. The narrow-gauge railways are also less smooth than normal railways, meaning jolts and vibrations are felt more intensely,” he said.
Kuchi wants the court to direct the ministry to comply with the law and stop backdoor procurement.
“We are not asking the court should jail the minister, Rotimi Ameachi, and DG of BPP but we are bringing it to the court’s attention that the minister acted in breach of the law in seeking a no-objection certificate to award a contract for the rehabilitation and reconstruction of the Eastern line and that the BPP acted ultra vires by issuing such a certificate.
“We want to bring transparency to public procurement especially railway projects where billions of US Dollars are being spent. We are not seeking any kind of compensation but to ensure there’s transparency which will attract more foreign investment into the sector,” he said.