Privatising Pakistan Railways

By | on February 12, 2014 | 0 Comment

Pakistan Railways is one of the most discussed, always in negative terms, State Owned Enterprises (SOEs) for incurring recurring annual losses running into billions of rupees and across the board dissatisfaction among the stakeholders regarding its operational efficiency and alleged widespread corruption. This is really unfortunate. Pakistan Railways has been playing a very crucial role in social, economic and political development of Pakistan for the last 150 years. Employing more than 75,000 persons and providing employment indirectly to at least ten times more people, its contributions to the national economy cannot be overemphasised. Being the cheapest mode of transportation of goods and commuting passengers, it has been the pivot of Pakistan’s industrial and commercial development, a symbol of unity of the country and a vehicle of social and political integration.

Rail transport consumes only one sixth of the energy per unit weight-km as compared to road transport, it is less polluting source of traffic—emissions per TKM. Its crucial importance is highlighted during emergencies and disasters. Despite common perception, rail fatalities are much lower than road. Average fatalities per year on roads are more than 10,000 per year as compared to less than 100 in railway system. The geographical contours of Pakistan make it an excellent and most economical mode of transportation for long distance goods haulage.

Keeping in view the above mentioned significance of Pakistan Railways in every field of human activity of the country should force the policy makers to improve its efficiency rather than condemning it day in and day out. After all, improving an institution with decades of heavy capital investment, experience and expertise is more cost effective than establishing a new one.

Pakistan Railways is not in that bad shape as is portrayed in the print and electronic media. Although decades of underinvestment and mis-governance have made a huge dent in its profitability and service delivery, yet it is still capable of turnaround if sufficient capital investment is made in the improvement of its depleting assets and modernisation of its operations. Before 1970s Pakistan Railways had a separate budget and could plough back their profits in its modernisation and provide cross subsidy to loss making train operations.

After 1973 Pakistan Railways’ budget was amalgamated with the national budget with the result that the profit they earned was diverted to other heads, leaving less and less for its maintenance, expansion and improvement. On the other hand, the Government spent three times more on road sector. In the first five year plan railways got 70 % of the resources allocated for the transportation sector while road sector got the remaining 30 %.In eighth five year plan starting in 1993,railway were allocated 18% of resources

reserved for transportation sector while roads got 82 % of five year plan. Situation has not improved since.

It was this combination of neglect to railways and preference to roads, which is the root cause of the present malady of Pakistan Railways. Ministry of Railways, which is responsible for providing funds for the maintenance and development of the railway network, has no long-term framework for capital support to perform these roles.On the contrary India did not construct motorways but invested heavily in railway with the result that Indian railways are far better than their Pakistani counterparts in terms of profitability and customer satisfaction while our road sector is better than Indian one.

Besides amalgamating the two budgets, the government also made Pakistan Railways a government department under the newly created Ministry of Railways with the result that it, instead of a commercial organization, became a bureaucratic organization where rules and procedures count more than end results. Direct interference of bureaucrats in the purely technical issues always leads to ineffective service delivery. Now the anomaly is that we are expecting commercial results from an entity being run as governmental department. Railways cannot increase fares even if the price of oil triples.

Similarly, because of political imperatives, it cannot terminate those services, which are no more needed as better road network, and good bus/truck services are available in the private sector. In India, if the government needs to continue a loss making train service due to strategic reasons, it has to pay to the railways for the loss. It is one of the major sources of profits earned by the Indian Railways but you cannot do it in Pakistan. Even train stops are now decided on political basis.

What should be the future strategy of the PML-N for the privatisation of the Pakistan Railways? I suggest they should not reinvent the wheel and go the same way as the railways are doing all over the world i.e.

1. Running Pakistan Railways as a commercial organisation under professional management as opposed to its being run as a government department. PML-N should reorganize the Railway Board with more induction of personnel from the corporate sector, corporatize PR and establish it as Pakistan Railways Corporation (PRC), consisting of independent subsidiaries/companies grouped together on functional basis and operate it on commercial basis

2. Disinvestment of noncore activities such as running of workshops, sleeper manufacturing factories, locomotive manufacturing factory, Rail Corporation etc. These should be corporatised and then sold to strategic investors with minimum of ownership but total management control

3. Separation of track ownership/maintenance from train operations which should be gradually privatised. In fact this process is already in progress and one

business train is being run by the Lahore chamber of commerce between Lahore and Karachi. Track Access Policy is in operation and several firms are bidding for the rights to operate freight trains. This process should get momentum under the PML-n regime.

4. Induction of private sector even in another core activity i.e. tracks construction, improvement and maintenance. They should grant long lease rights to private sector, mostly foreigners, to build new railway lines and allied infrastructure. Chinese, Korean and Turkish firms are already lining up

5. Everyone talks about the vast tracts of land Pakistan railways own and demand its selling to generate funds for its revamping. I think only those lands should be disposed of by way of long term lease( and not outright sale) to interested parties for property development which ,after thorough analysis ,are in excess of short term needs of Pakistan railways. For this purpose the newly created special purpose vehicle be given maximum autonomy for its early disposal to generate funds

6. Creation of independent regulatory authority which is absolutely essential if we have to run a public utility on commercial lines to safeguard the customers’ rights.

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