Tower of power - Simon Griffiths

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infrastructure investor project finance lounge Putting trains back on track The Luxembourg Protocol makes financing rolling stock easier and less risky. Howard Rosen calls for African governments to ratify it to keep railways on the move A new railway line without rolling stock is like a new car without petrol. It looks impressive but it will not get you anywhere anytime soon. The problem is, it can be much easier to raise financing for a fixed railway line than movable rolling stock. It was ever thus. In the 19th century, British railway builders created an excellent rail infrastructure, and then waited in vain for operators to provide the trains. In the end, the owners of the infrastructure had to raise the money themselves to finance the rolling stock. This is partly because big infrastructure projects capture the imagination and focus of governments and donors, and it is easy to forget the true objective of the exercise is to provide rail transportation, not simply to build railways. Second, in Africa, it is difficult for lenders to take security interests in rolling stock that can successfully traverse the continent and all its different legal systems. Why lend money against an asset where your security can be compromised at any moment Securing mobile assets Fortunately a new form of help is at hand and its source is African. In 2001, 58 countries met in Cape Town and, under the auspices of the International Institute for the Unification of Private Law (Unidroit) and with the sponsorship of the South African government, adopted the Cape Town Convention on International Interests in Mobile Equipment. This created a legal framework for financing high-value movable equipment with greater levels of security through private sector capital. A protocol applying the Convention to the aviation industry was adopted in 2001 and is now in operation in more than 20 countries across the world, including parts of Africa. In February 2007, 42 governments met again in Luxembourg and adopted a protocol to the Convention extending the legal regime to all types of railway rolling stock, from trams to TGVs, and from locomotives to flatbed wagons. The Luxembourg Rail Protocol creates an international private law system for recognising priorities of secured parties, usually banks or lessors, financing rolling stock. Registering their security interest at an international registry available 24/7 through the internet, ensures they have priority against other subsequent claimants as a matter of law. At the same time this creates a system for prospective financiers of rolling stock to ascertain whether others have claims on the same item of equipment. Attracting private capital Creating enhanced security will draw more private capital into the African rail industry, at more attractive rates, without the need for state guarantees, thereby reducing dependency on government and donor funding, and facilitating investment on an economic basis, when business conditions dictate, not when there is room in the state budget. So it should be: just because governments finance the building of the roads, that does not mean that they should own or finance the cars running on them. Just as important, the limited second user market in rolling stock will receive a significant boost, as the Protocol makes operating leasing a much more viable business option, thereby lowering barriers to entry into the industry for private sector rail operators, and making existing operators more efficient and competitive. Railways will be the key to successful (and environmentally sustainable) transportation of both people and freight, both across the continent and within local suburban areas; the most efficient method of transporting commodities to ports is by rail. There is no question that a more effective rail network across Africa will be vital to its development. The Luxembourg Protocol has the potential to be the solution to a significant problem in the African railway industry. It will allow governments to focus on infrastructure development and leave financing the equipment and rolling stock to the private sector. It is not yet in force, but has already been signed by one African government and more signatures and ratifications will come soon if the industry asks for them – and it is imperative that it does so. Too many trains have gone on well beyond their useful life or are “retired” without replacement. In future, if the Protocol is adopted, trains will have gone, not to the scrapyard, but to the next station and beyond. It is an opportunity which should not be missed. A Howard Rosen is an English lawyer based in Switzerland, specialising in transportation finance (www.legalease.ch). He also chairs the Rail Working Group (www.railworkinggroup.org) dedicated to the implementation of the Luxembourg Rail Protocol.
sponsored advertorial Master of all trades Jacky Hathiramani, Managing Director of the Dana Group, outlines plans for one of Nigeria’s biggest companies, and hints that Nigerians may be able to share the wealth Dana Group is an industrial and commercial conglomerate with a business portfolio ranging from automobiles, steel, electronics, food packaging, paper, and plastics to chemicals and pharmaceuticals. Since the mid-1980s it has established itself as an integral part of the Nigerian economy, and the Group is now a manufacturing and distribution giant with an estimated turnover of US $540 million in 2007. The Group successfully installed and commissioned a plastic plant in 2000, followed by the establishment of a formulation plant and water bottling facility in 2003. It is also active in the food sector. In 2006 Dana acquired a Steel Rolling Mill in Katsina, northern Nigeria, to produce debars and wire rods. Dana is set to diversify further into oil and gas, energy and aviation: three additional subsidiaries – Dana Airlines, Dana Oil and Gas and Dana Power & Energy will soon become operational. In the automobile sector, the Group incorporated Dana Motors Limited in 2002 and commenced operations as the sole distributor in Nigeria of Kia vehicles, manufactured by South Korea’s Kia Motors Corporation, one of the world’s fastest growing automobile companies. How has Dana Group become a Q household name in Nigeria It was a culmination of sheer hard work, determination and perseverance of my team, despite the difficult business environment and constraints peculiar to Nigeria. But this is just the beginning, and we will do more, as a stakeholder in the economic development and prosperity of this nation, to realise President Yar’Adua’s Vision 2020, which sees Nigeria as one of the world’s top 20 economies. Your Group acquired the Katsina Q steel mill. Was the process of acquiring it free and fair, and how do you plan to revitalise the company As one of Nigeria’s biggest conglomerates, we have invested more than $180m in the Nigerian economy in the last five years as part of the Group’s backward integration and capacity-building plans. We took over the Katsina Steel Rolling Company under the Federal Government’s privatisation programme, following due process, and have given it a new lease of life. We have introduced new capital, technology, professionalism and management strategies that have turned it around. It is now the only privatised mill in Nigeria that is fully functional, and the company has produced more than 50,000 tonnes of steel since its privatisation. We have also initiated an expansion into billet production. Does the Group have any plans Q to invest in the oil and gas or telecoms sectors We are seriously looking at infrastructure and core sectors like oil and gas (both upstream and downstream), including setting up a refinery-cumintegrated petrochemical complex. We already have a major stake in one of the oil blocks that was offered last year, and will be looking to exploit its full potential after all formalities are completed. We are also looking at real estate and property development (residential as well as commercial, including shopping malls and the hospitality/ hotel sector), and the exciting area of IPP (gas/thermal/hydro power generation, distribution and transmission). We are looking for tie-ups with world leaders who possess the expertise and the experience. Do you have any lans to list the Q company on the floor of the Nigerian Stock Exchange We would like to share our progress and prosperity by inviting fellow Nigerians to buy shares in the company. This will also give us an opportunity to realise the common vision we share with the President of Nigeria as our expansions and diversifications will contribute to the general overall economic development and prosperity of the sectors we enter. How have government reforms Q impacted your business Being a predominantly import-driven economy, backed by crude exports, what we as well as the nation require is an economic policy backed by institutional support and a legal framework that is clear, transparent, consistent, balanced, and most importantly offers continuity, so that long-term investments can be planned. The focus should be on providing basic infrastructure that is lacking, for which clear guidelines, rules and regulations for private sector entry are framed. There is a lot of money inside and outside Nigeria to fund its expansion, but there is not yet a path to show how one can go about it. Oil and gas potential should be fully tapped to provide for domestic power, and exports of refined and value-added products and petrochemicals should be the mainstay, not crude oil. Jacky Hathiramani talked to Daniel Omonze september – october 2008 africainvestor | 91
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