A train passing Tawinda Saway Khan station near Rahim Yar Khan, Pakistan (Image: www.pakrail.com)
In the past two years, Pakistan Railways has shut down as many as 120 trains. For an entity losing Rs3 million every hour, this is perhaps not such a bad strategy although the swarms of commuters who travel by train will decry otherwise.
Earlier estimates of revenue at Rs28 billion and expenditure of Rs50 billion have been revised, and the gap widened. The projected budgetary subsidy of Rs21.9 billion has jumped to almost Rs44 billion with the recent bailout of Rs11.1 billion for repairing and upgrading of locomotives and tracks.
The bailout package, as economists like to put it, is a day late and a dollar short. From 2005-2010, budgetary expenditure on railways was only Rs45.5 billion compared to Rs155 billion on the national highways, while the motorway cost us three times as much as it would have cost to restructure and upgrade the entire rail network.
Bad governance, as prevalent in many other state-owned enterprises, has also plagued the railways. Now with reshuffling of the cabinet, the incoming minister instead of initiating another study must take immediate measures for implementation of recommendations already made to the ministry of railways.
One option, as many experts have advocated, is to privatize it. In 1980’s Japan National Railways had many of the same problems as Pakistan Railways has today. The Japanese government split the country into six operational regions to be run by six separate private passenger-rail companies.
Companies operating in rural areas on less profitable routes were eligible for a yearly operating-deficit subsidy while all companies were responsible for both rail operations and infrastructure management. Since privatization, JNR is in profit with increased passengers, stable fares, and less accidents.
However, when discussing privatization, one must keep in mind that almost all economies with privatized railways play a central role in financing infrastructure investment and continue to subsidize operating deficits. In a developing economy, the railway’s goal is not just provide a transit system to transport commuters and cargo but it also carries a socio-economic responsibility.
It has to connect the country and reduce a sense of distance, provide a cheaper and safer alternative to cars, act as a tool for traffic management, contribute towards reducing carbon emissions and provide concessions to students, senior-citizens, and the handicapped. While private owners might share some of these goals as a means to a sustainable business, their ultimate goal is profit maximization.
The other option is to follow the Indian model of modernization rather than privatization, which turned Indian Railways from bankruptcy to billions in profit, in less than five years, while remaining under government control. Through remarkable management, downsizing, outsourcing, retrenchment, product innovation, an ingenious advertisement approach, and booking of online tickets, Indian Railways has become India’s second most profitable state-run enterprise.
From 2007-2010 it made a whopping Rs346 billion in profits without increasing passenger fares or freight charges. Employing over 1.6 million people, carrying over 20 million passengers, and two million tons of freight every day, IR is a major catalyst for India’s economic growth. In Pakistan, there is no dearth of knowledge, skills, or technical expertise. The only impediment seems to be the lack of political will of the men at the helm of affairs.
Yet another option is to partially privatize or engage in a number of public private partnerships. The whole operational cycle can be broken down into segments and then outsourced to private parties.
Ticket sales, station management, logistics parks, cargo aggregation warehouses, construction, maintenance, and operation by regions or lines can definitely be accomplished by involving private sector enterprise.
In another strategic scenario, the government could lease rights to bidders who can invest, construct, operate, and then eventually transfer the infrastructure to the government. In fact, earlier last year, the Cabinet Committee on Restructuring on Public Sector Enterprises proposed a four-way split into passenger, freight, infrastructure and management businesses under a reform and privatization strategy.
To date, committees are formed, suggestions presented, policy statements are issued but there has never been any tangible outcome which could qualify as an action in the right direction.
If the government shows political will and prudence in turning Pakistan Railways around, the options are many, what is not an option is to thimblerig policy statements without any action.
This text originally appeared in Dawn, the largest newspaper in Pakistan. The author is CIPE’s Pakistan Country Director.
Published Date: March 14, 2011