Railway, Port Infrastructure Network Upgrade Needs USD 2.6bln: Ministry Report

Experts at the Ministry of Transport and Logistics estimate the cost of a series of projects aimed at improving logistics infrastructure and upgrading the country’s railway networks at more than USD 2.6 billion.

A Ministry report dubbed ‘Reform Prospects for Ethiopia’s Railway and Surface Transport’ published this week provides an overview of the resources needed for diversifying port outlets in neighboring countries, upgrading the Ethio-Djibouti Railway, introducing railway safety standardization, and other capacity-building works.

The document highlights that operational, legislative, and institutional reform interventions are necessary to reform the country’s lacking railway, port, and trucking infrastructure networks. Investment needs are particularly high for operational level reforms, according to Ministry experts.

Operations interventions for the Addis Ababa-Djibouti Railway, and operations interventions for ports and trucking, will require a whopping cumulative investment capital of over USD 2.6 billion.

Of this, USD 766 million is required for investments in port and terminal infrastructure and terminal standardization. The Ministry estimates investments in trucks, bulk and container vessels, vessel fleet renovation and diversification, diversification of marine transport, and related facilities will cost an additional USD 700 million.

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Ventures in railways connecting to ports and other projects in the national railway network will require a further USD 300 million, according to the report, while equipping existing maintenance centers and ensuring the sustainable supply of spare parts will cost USD 200 million.

Including financing needs for other reform areas like capacity building work at railway institutions as well as surface transport, the Ministry foresees a bill of well over USD 2.6 billion.

The report reveals that in-house feasibility studies have been carried out for the construction of the Dire Dawa-Harar-Jigjiga-Togochale-Berbera and the Aysha-Berbera railway lines. The federal government is looking to solicit offers for further joint feasibility studies, according to the Ministry.

The Modjo-Moyale-Lamu line is also under consideration, while a study has been completed for the construction of the Woldiya-Wereta-Metemma-Gadarif-Port Sudan line, and another one is underway for a line connecting Sebeta with Boma (DRC) via Jimma.

Other options to connect dry ports in Ethiopia with the rail network, with immediate priority given to Kombolcha, Mekelle, and Wereta, are also on the horizon, according to the report.

“Financing for railway projects is now more readily available,” it reads.

The document proposes options such as the renegotiation of loan terms to extend interest rate payment time, loan restructuring, and the sale and lease of existing rolling stock. The partial or full sale of railway assets, including ownership of infrastructure, is also listed as a financing option.

Experts recommend the sale of land assets adjacent to railways to developers as an option.

The report also reveals intentions to split and reorganize railway infrastructure development, freight operations, and passenger operations under three different regulatory and operational bodies. Experts contend this will enable for greater efficiency and provide opportunities for PPP concessions or private sector participation.

The report proposes three options for the overall rail sector management restructuring process. The first is the vertical integration structure wherein infrastructure provision and maintenance and freight and passenger train services operations fall under one organizational entity which may be publicly or privately owned.

The vertical separation method would split railway infrastructure and train operation activities into separate commercial units. The vertical horizontal separation (open access) would enable a combination of different mechanisms.

Experts call for the establishment of a strong advisory unit to implement the ambitious reform, arguing that a Ministry-driven effort would pose problems.

The report also makes note of a variety of outstanding challenges that are preventing the railway and logistics sector from reaching its full potential.

These include conflicts and security threats, the lack of safety and security systems, fencing, level crossing, theft, robbery and vandalism. The report notes these issues are hampering the operation of the Ethio-Djibouti Railway.

The railway sector also suffers from an unsuitable governance structure, characterized by blurred roles among railway institutions, particularly Ethiopian Railway Corporation and Ethio-Djibouti Railway (EDR), according to the report.

Idle wagons, including tank, hopper, center beam, and refrigerated wagons, are procured based on their mix rather than cargo types and station facilities. A lack of freight handling equipment, warehouses, spare parts, OSBP scanners, infrastructure at ports and freight stations and maintenance facilities are also among the problems.

Experts also observe that a lack of a legislative framework and sector-specific legal privileges pose their own challenges. The lack of sector-specific national railway standards for the development of the railway networks, and lack of sector-specific policies to address unique challenges and opportunities of the sector, are also among the legal problems.

Poorly crafted and implemented railway infrastructure safety rules and regulations, and absence of regulatory institutions to regulate and ensure compliance of laws and standards in the sector are also mentioned.

The failure to introduce a railway fund, and scattered and inefficient resources administration, are listed under the financial problems. There is also inadequate capacity building and low technology transfer observed.

The state-owned ERC, the sector’s major player, has been severely impacted by previous debt management practices.

Significant financial challenges due to  high capital requirements, lack of forex for the procurement of spare parts, and the lack of clear cost analyses for infrastructure and operations, are also affecting the sector, according to the document.

The lack of a robust and independent regulatory body and unified governance that oversees the industry’s key stakeholders is also noted as a key issue. The regulatory structure is loosely organized between the Transport Ministry and the Public Enterprises Holding Agency (PEHA).

The absence of domestic manufacturing capabilities for spare parts and components is also a problem.

Different declaration formats between Ethiopia and Djibouti are hindering information exchange, leading to longer cross border processes and higher costs. The poorly commissioned and poorly digitized freight transport system between the two countries is also another issue.

The problems were on the table as Finance Minister Ahmed Shide, Transport Minister Alemu Sime, Ethio Djibouti Railway CEO Takele Uma, and other officials convened at the Sheraton Addis on October 3, 2024, to partake in a workshop on railway and logistics reform.

The solutions put forward during the workshop include restructuring industry-focused governance, developing a comprehensive railway policy, connecting the railway line with ports and cargo centers, interagency coordination, solving port-interface issues, developing a new business plan, developing a performance metric, and establishing a railway and logistics center of excellence, among others.