Note
We have a second post from Temidayo Alade, who has officially joined the Compedia writing team(!), meaning that you can expect to see more posts from him. In his first post, he discusses competition policy as a crucial part to solving Lagos’ traffic problems from the perspective of BRT buses. And, in a sequel to that, he is now looking at the same issue of Lagos’ infamous traffic, identifying competition initiatives that could be introduced to drive efficiency within the railway sector.
As always, thank you for your support, and we hope you enjoy this week’s article.
Competition law routes to a traffic-free Lagos
Recently, there was a trending story about a woman who frequently visits the Embankment train station in London to listen to her late husband’s voice on the popular London underground announcement “mind the gap between the train and the platform” (listen here). The announcement was recorded in the 1950’s, displaying how far back the London train stations have been running and still most efficient till date.
To be honest, the announcement also got stuck in my head, and sometimes I randomly recite it verbatim whilst on a train commute in London. I guess this announcement like other announcements got stuck in my head even more because I got fascinated with London’s train network and how efficient and frequent it is. You could predict with accuracy the duration of your journey, and also estimate how much time you would spend during a commute. Everyone loves London for the underground and overground trains!
Lagos is one of few megacities in the world without an efficient rail mass transit system. The railway system in Lagos and in Nigeria more generally—when compared with those in advanced countries of the world—plays an insignificant role in urban mass transit and transportation as a whole. The few rail tracks in the Lagos rail system that were inherited from the colonial governments have barely been maintained, and in some cases, left in a state of disrepair.
But it is important to note that there have been a number of government-led initiatives for the construction of a rail transport system, due to be completed in 2025. And, I am indeed looking forward to Lagos’ version of train station announcements. That said, competition policy played a critical role in enhancing the efficiency of London’s train system. So, the question is: what can Lagos learn?
Competition policy and rail systems
Railways are often described as natural monopolies, and in some countries they are run as such. This is the case with the Nigerian Railway Corporation. As explained in my previous post, the natural monopoly features in various countries have led to inefficient transport systems, and consequently, natural monopoly industries are unbundled to introduce competition for efficiency gains.
In the rail transport system, inducing competition is more complicated. The economies of scale for network rail infrastructure makes it impossible for potential competitors to build multiple rail infrastructure tracks for same train routes to create competition amongst competitors in the market. Simply put, it is economically inefficient and will amount to a social wastage for there to be more than one train track for the same train route. So, for there to be competition in the rail sector to service commuters, unhindered access to train tracks by potential competitors is fundamental.
Consequently, the competition structure in the train transport system will not be competition ‘within’ the market (as it is impossible to have multiple trains running at the same time on the same rail), but competition ‘for’ the market.1 Competition for the market is such that competitors compete to service a particular train route, i.e., a market of commuters. In a competition for the market case, competitors compete to be the sole service operator for a particular market for a period of time. The competition takes place prior to market entry, and the competitors compete based on their ideas, service offerings, and innovations at the tender process stage, following which the winning tender is granted an exclusive franchise to operate a train transport line.
The railway franchise model was introduced as a strategy for injection of capital into the British railway network.2 Under this model to induce competition, the rail infrastructure is separated from the operation of services; operators would compete for the right to provide such services, in some but not all cases for the same train traffic flows. The franchise owners do not typically own their rolling stock nor the railway track, track signalling nor major stations.3 The franchise model, in consideration of the public service requirements of the railway transport, restricts the franchise owner in terms of market discretion, and prescribes its market extent in terms of how the railway service is to be run to meet consumer demands. In exchange, the franchise owner retains near monopoly rights for the market for a duration of time in terms of providing the railway service to consumers. Through the franchise, capital to boost the railway infrastructure and services is attracted and also competition is increased for economic efficiency.
There are indeed issues with the franchise system,4 and it will be overly simplistic to assume otherwise. I will not discuss these in this short post. What I would note is that even the UK has begun moving away from the franchise system towards a concession model in the rail transport competition structure.
However, the Nigerian rail system is still in its early stages, and a franchise model is most appropriate to use in the strategic and practical steer of the growing rail transport network by the Nigerian government. The franchise model will allow the government shape the railway infrastructure, structure, and routes, whilst the franchisees obtain a franchise from the government to service particular train routes. The government will simply act as a regulator, whilst competitors drive the injection of capital into the system.
State of competition in the Nigerian rail sector
The Nigerian railway industry is regulated by the federal government and the state government for interstate and intrastate railway transportation, respectively.
At the interstate level, the railway industry is governed by the Nigerian Railway Corporation Act, 1955 which vests exclusive control in relation to construction, acquisition, ownership, administration, and management of the Nigerian railway network in the Nigerian Railway Corporation. Owing to the age of the Act, it is not cognisant of competition issues in the railway industry and vests absolute monopoly in the corporation. Without doubt, the slow reform in the Nigerian railway sector has led to the deficient state of the sector, and its inability to contribute significantly to consumer welfare in interstate travel and economic development of the country.
As it relates to the intrastate railway transport, attention is on the Lagos State government, and in terms of development, the Lagos State rail sector shares the same deficiency concerns with the Federal railway sector.
Although, and worthy of note at this juncture, the transportation challenges experienced by the Lagos State government has prompted deliberate investment in the railway sector. The Lagos Metropolitan Area Transport Authority (LAMATA) has played an active role in this regard as the regulator of the Lagos State railway network,5 and has invested in a number of significant railway projects scheduled to be completed in 2025.6
Based on this state of laws, the Nigerian rail transport system is still in the natural monopoly phase, and it will be a right step in the right direction for policies to be directed at opening the market up to competition using the franchise model.
The UK franchise model enabled the injection of capital and efficiency into the UK rail system. Lagos is a megacity, deserving such levels of efficiency in transportation. The Lagos state government natural monopoly style for the development of the train network will not be able to catch up to the pace of development in Lagos and other megacities. The Lagos train system can indeed learn from the UK competition policy, and in the process, create its unique competition strategy in the transport system that will be mirrored in the applicable transport regulations.
With the prospects of competition driving market efficiencies and economic development, the introduction of competition into the market may be considered as the remedy for deficient railway transport.
After all, Naija no dey carry last, and there is no reason why we should be last in having an efficient train transport system.
Before you go…
…here are some recent developments in the world of competition law:
New rules: Nigeria’s Federal Competition and Consumer Commission has officially released its Cooperation and Assistance Rules. This details how companies being investigated for any anticompetitive practice can cooperate with or assist the Commission with its investigation by providing information and accepting responsibility, in exchange for reduced monetary penalties, among other things. These rules are, however, not to be confused with leniency rules which members of a cartel can use, before an investigation has commenced, to waive liability, in exchange for outing the other cartel members. In other words, what Dangote cement did in Zambia to its competitors, Lafarge and Mpande but 🤫
Mauritius fines: The Competition Commission of Mauritius has fined two suppliers of medical gases Rs 3.59 million (N34.3 million or £63,000) for entering into collusive agreements when supplying the Ministry of Health and Wellness between 2012 and 2020. Specifically, the suppliers were said to have fixed prices, divided markets between themselves and restricted the supply of medical gas to the Ministry on two occasions. Helping government agencies to expose what is commonly referred to as bid-rigging is a viable way for younger competition authorities to obtain much-needed political clout (more on this in a future post).
Energy cartels: The Kenyan government has been called to action to deal with the cartels in the energy sector that are causing an artificial fuel shortage. Specifically, a member of parliament, David Ochieng, called on the Directorate of Criminal Investigations and the Competition Authority of Kenya to save Kenyans from the current crisis. He alleges that these companies are effectively hoarding fuel, despite having enough stock, so that they can increase prices.
R. Baldwin, M. Cave and M. Lodge, Understanding Regulation: Theory, Strategy and Practice (Oxford: OUP, 2nd ed, 2012) 166.
T. Gourvish, British Rail 1974-97: From Integration to Privatisation (Oxford: OUP, 2002) 368-369; K. Irvine, The Right Lines (London: Adam Smith Institute, 1987).
Prosser, Tony, L& Butler, Luke. (2018). Rail Franchises, Competition and Public Service. Modern Law Review, 81(1), p. 28.
State aid and fare subsidisWation costs, duration of the franchise, vagaries of ideologies upon effluxion of a franchise and more.
Section 10(e) of the LAMATA Act.
Oni, S. I and Okanlawon, K. R An Assessment of the Usage of the Lagos Mass Transit Trains Internal Journal of Railway Volume 5, 2012, pp. 29-37.
Awesome and very informative write-up. An effective railway system will no doubt help Lagos alleviate its never ending issue of traffic congestion. Great job Temidayo.
👍🏽