CHINESE AND SOUTH KOREAN FIRMS BIDDING FOR RAIL

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
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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