Why China is Reducing Its Stake in The Lagos Ibadan Rail Project

Nairametrics| The Chinese Exim Bank which was billed to fund 85% of the Lagos Ibadan Rail Project will now fund just 78% of it. The firm had refused to fund the costs of land acquisition, survey and tax. Minister of Transport, Rotimi Amaechi, recently disclosed this to members of the House of Representatives.

While some may view the move as shifting the goal post after the games have begun, the Chinese have valid reasons for taking this action. Being a national project undertaken in partnership the Chinese Exim Bank, the government should be the party taking up these costs. The state governments involved can also pay the required costs as the projects will be of immense benefit to them. The land through which the rail lines will pass will increase in value. State governments can then make more from land use charges.  Commercial activities will take place along this route as the cost of evacuating goods becomes cheaper.

Surveying the land can be carried out by the federal government which has qualified staff in the Ministry of Works and Housing.  Being Nigerian, they have a better knowledge of the dimensions. Tax waivers can also be obtained from the Federal Inland Revenue Service (FIRS) and state revenue boards, since it is a national project.

Chinese firms prefer to handle labour and equipment costs as they can easily move the excess equipment from China. They also have access to cheap loans regarding equipment from their home country. These loans will not cover the associated costs. The Nigerian government should have done its due diligence before signing the contract.

The additional costs may result to delays in the project. The government will have to look for additional funds, either through loans or a supplementary budget. Both involve approval from the National Assembly, which is putting finishing touches to the 2017 budget. A delay in the project could also lead to an increase as prices of materials go higher because of inflation.

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