The Luxembourg Rail Protocol (LRP) is on track to play a crucial role in the development of the African Integrated High-Speed Rail Network (AIHSRN). While the AIHSRN is a key tool for developing trade in Africa, it can only succeed if sufficient rolling stock to transport the goods is in place. This is precisely where the LRP comes in. Offering numerous advantages to the rail industry, once fully operational – currently expected at the end of 2023 – the LRP will help operators to more rapidly expand their rolling stock fleets and manage them more efficiently, while delivering numerous macro and microeconomic benefits.

What is the LRP?

As a protocol to the 2001 Cape Town Convention on International Interests in Mobile Equipment, the LRP applies to all railway rolling stock, including passenger and freight locomotives and wagons, and creates a global system of rights and priorities for creditors securing finance on rolling stock.

These rights will be visible on a new international registry operating 24/7 through the internet, supported by the introduction of a pioneering global Unique Rail Vehicle Identification System (URVIS) and UN Model Rules on the permanent marking of rolling stock.

The Protocol will be applicable to secured loans, leases, or conditional sales when the debtor (e.g. rail operator) is located in a state that has ratified the LRP. It will provide various new rights that give enhanced security to creditors (banks, leasing companies, etc.), including easier repossession rights on debtor default or insolvency.

But how exactly will the Protocol generate advantages for the rail industry?

Enhanced security, lower rates, better fleet management

The new rights for creditors reduce lower transaction risk and thus should lead to lower financing rates. The Protocol’s comprehensive framework also encourages new sources of investment, attracting private financing and lowering dependence on government resources, which are often severely limited. Standardized, simplified documentation and legal structures will promote further cost savings.

Export Credit Agencies may discount their risk premiums by 10% when the Aircraft Protocol to the Cape Town Convention, already in force in 26 African states, applies. Similar discounts should also flow from the Rail Protocol once it is in force.

By supporting operating leasing, the LRP will encourage more equipment standardisation leading to higher residual values and lower rentals as well as manufacturing economies of scale. Furthermore, URVIS will facilitate more efficient asset management via location and utilisation tracking, also saving money through better insurance rates and predictive maintenance.

How the LRP supports the AIHSRN

The LRP will play a pivotal role in supporting the AIHSRN, helping to ensure successful delivery of the efficient and robust high-speed rail network that Africa needs to strengthen its development and growth.

As more states adopt the LRP, Africa will benefit from a common security system for private investment, making it easier for investors to provide support for operators in multiple states, and for operators to move rolling stock across national borders. Moreover, by creating a uniform system for identifying rolling stock, the LRP’s introduction of URVIS numbers, combined with the UN Model Rules setting out minimum standards for permanently marking rolling stock with the URVIS number, will play an important role in creating a pan-African regulatory and interoperability framework. Combined with a trend, supported by the LRP, towards more standardised equipment, this in turn will open the way to collaborative multinational procurement and financing of rolling stock and lead to lower costs.

Benefits for the AIHSRN, governments, operators and users

The AIHSRN will require standard-gauge rolling stock (both new and second-user) costing tens of billions of dollars. This represents a huge opportunity for Africa to develop its own manufacturing capability as long as customers can pay for this. The LRP will open the way for the private sector finance that customers will need to buy these products.

Governments will find that the LRP allows them to focus precious resources on the building and maintenance of rail infrastructure. In addition to this, by facilitating the development of African manufacturing expertise, it will deliver new jobs, new skills, and local profits in the rail sector.

When it comes to operators, the shift to asset-based financing should result in more attractive financing rates, lower transaction costs, and cheaper support from Export Credit Agencies and multilateral development banks. Operations will become more efficient and streamlined. Although competition will increase this should be to the benefit of passengers and freight customers. By underwriting operating leases, the LRP will also permit more flexible rolling stock procurement strategies resulting not only in a better service to users but also creating manufacturing economies of scale, which should in turn lead to lower costs and quicker deliveries.

When will the good times roll with the LRP?

There are two conditions for entry into force of the LRP in contracting states: four ratifications, now achieved in Spain, Luxembourg, Sweden and Gabon, plus the EU, and certification by OTIF that the international registry in Luxembourg is ready to operate. The latter is now taking place. In Africa, South Africa and Mozambique have already signed the Rail Protocol, and are expected to ratify soon. In Europe, France, Switzerland, the UK, Italy and Germany have all signed the LRP and are working towards ratification. The LRP will probably go live in late 2023.