There are multiple reasons for the poor performance and bad results of any State Owned Enterprises-structural as well as managerial, short term as well as long term. Pakistan Railways being a state enterprise, it is thus impossible rather naïve to point out one or two reasons for its unsatisfactory performance. One can count five main reasons for the present malady affecting the Pakistan Railways namely
- Secular Decline in the earnings
- Increased Operational Costs
- Constant Underinvestment
- Institutional dichotomy
- Governance issues
Secular Decline in Revenue: Continuous fall in the earnings of the Pakistan Railways has been the prime reason for the continuous losses it is suffering. This in turn is due to three major reasons.
- Firstly, reduced train operations either because of shortage of locomotives, goods wagons and passenger bogies or due to dwindling number of passengers who are opting to travel by road because of improved road network is the prime reason for decline in the revenue stream of Pakistan Railways.
- Secondly, almost stagnant tariff structure of Pakistan Railways due to social welfare and political considerations is eroding its revenue growth potential in the face of rising prices.
- Thirdly, leakages and wastages in revenue collection due to structural or managerial inadequacies are the major reason for the revenues falling short of the targets fixed annually
Increased Operational Costs: The second reason for the shortfall between its earnings and expenditure is the increased costs of its operations which are in turn due to three reasons namely inflation, corruption and inefficiency.
- Inflationary pressures are eroding the purchasing power of railway to buy goods and services for running, maintaining and developing the railways operational network. Political compulsions do not allow PR to rationalise its fare in accordance with the increased operational costs either because of increased salaries or oil price increase. Railways cannot increase fares even if the price of oil triples.
- Low efficiency threshold of almost every railway activity is leading to incurrence of extra costs on running of trains and other operations of railway. While the number of employees per kilometre is 22 in India, it is less than 11 in Pakistan Railways. However, the number of employees per train is 286 in Pakistan while it is 124 in India. It means they run more trains thus reducing their workload per train.
- Lastly lack of proper checks and balances create loopholes for corruption even in the presence of best legal framework and institutional mechanism. In 1985, the then railway minister ordered the employment of more than 20,000 people from his constituency in the railway. None objected to this blatant illegality and were employed against non-existent vacancies. Since then every railway minister has been doing the same with the result that by 1999 more than 85,000 employees were working in an organisation which hardly needed more than 50,000 persons. Their only job is to receive salary and overtime allowances. It was as a result of these measures that PR got itself into a debt trap and could not come out of it.
Underinvestment: Before1973, Pakistan Railways were run as a commercial organization, having complete operational autonomy and financial independence. Its budget was formulated separately and presented before the National Assembly one day before the presentation of national budget. 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.
Following a shift in the priorities of the Government after seventies when the emphasis shifted towards the road sector, investment fell sharply in the Railway sector resulting in deterioration of infrastructure and failure to expand or improve PR’s network. Ageing assets are one of the critical factors causing poor performance of Pakistan Railways.
On the other hand, the Government spent three times more on road sector. It was this combination of neglect to railways and preference to the roads, which is the root cause of the present woes of Pakistan Railways. Ministry of Railways, which is responsible for providing funds for the maintenance and development of the the railway network, has no long-term framework for capital support to perform these roles.
The task of developing and maintaining infrastructure becomes more difficult for PR because of the centralized process of funding approvals. Thus it makes railways less competitive in response to road carriers that do not have to invest in basic infrastructure like roads.
On the contrary India invested heavily in railways and less on roads 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. We have not been able to formulate any National Transport Policy which could at least show where railways stand vis a vis other modes of transportation. Overall financial crises of the country have reduced the availability of the resources for routine operations not to speak of replacement and up gradation. Not up to date, even the presen trolling stock can earn profit if cash is injected.
Wrong priority of investment in the railway is another big anomaly. There was no justification for the dualization of railway tack from Karachito Lahore in the initial stages of its development as we could have easily handled the traffic load by lengthening the railways stations loop lines. Similarly up gradation of Monabao track from narrow gauge to broad gauge was just a political expediency without financial or economic cost effectiveness.
Institutional Dichotomy: 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.
Similarly, 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 because of political imperatives. 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 but you cannot do it in Pakistan. In fact, the profit shown by the Indian Railways is the payments made by the government to the Indian Railways under this system.
Governance Issues: Running a commercial organisation with political considerations cannot yield profits, just losses. Tariff rationalisation, operational decisions and developmental budget allocation need commercial considerations not political interference. Posting/ transfers made on political expediency adversely affect the operational efficiency and employee’s morale. Corruption is widespread because those caugh thave long hands reaching the corridors of power. Even train stops are now decided on political basis. Ministry is effectively rule-maker, manager, player and umpire of Pakistan’s ‘railway’ team. Such a combination of conflict in roles with concentration of powers is inimical both to good public policy-making and to effective commercial management of any state-owned enterprise.