Pakistan Railways – Why not on Rails?

Pakistan Railways (PR) is another example of the extent to which poor governance and undue political interference can derail any sector of the economy. The role of railways and infrastructure in growth and development has been widely analyzed and accepted. We now consider these a major catalyst for sustainable development. The countries like America, UK, China, developed an integrated, efficient and coherent railway. During 1970s, Pakistan Railways had the largest passenger carrier share in transportation. Unfortunately, its role as a catalyst for economic development received a setback due to significant under-investment by successive governments who preferred investment in road infrastructure at the cost of railways (Qadir, 2020). Thus in Pakistan, despite a natural railways’ corridor, it still has 19th century architecture struggling with 21^st century challenges.

Aversion to Reforms

This is perhaps the only organization that resisted reforms multiple times. In the 1990s, they suggested an open access policy for freight. This was a good opportunity for the PR to operate in public private partnership mode. The expectation was that the private sector, with its own locomotives and freight, would invest in transport of oil drains, fertilizer, cement and other consumer goods. Nothing happened on ground. In the late 1990s, they put forward the restructuring of PR into a corporation. Again nothing happened. After a decade, the suggested breaking down PR into three subsidiary companies; one each for freight, passengers and infrastructure [Durrani, 2011]. PR did not adhere to any reforms, and neither did it try to revamp its operations. As a result, PR was among the worst performers in loss making SOEs in 2018 and had a deficit of PKR 26.994 billion [Mehtab, 2018].

Visual insight of the sector

Lets see how that happened, by taking a visual insight of the sector.

Passengers Traffic

Majority of passengers are in economy class travelling 500 km or more

Pakistan Railways carried 54 million passengers in 2017-18. In seventy years the number has drastically reduced from 78 million passengers who chose railways for commuting in 1950. Railways now offers variety of classes for travelling like first class, Lower ac, Upper ac, sleepers, upper class railways etc. The bulk of the passengers, since the last forty years, are second class/economy class passengers. Around 94 % of the PR passengers are economy class passengers.

Notably, the PR opted for longer routes by the passengers. Around 84 % of the passenger had to travel 500 km or above in 2017-18. Till 1995, the passenger operations were running in losses and they were unable to meet their operating costs. The passenger traffic was cross subsidize by the commercial freight revenues. This was successful till 2005-06. An analysis of the railways showed that 120 trains were bleeding cash in 2000 but the political interference kept those trains running on uneconomical routes [PIDE Webinar on Pakistan Railways; PIDE You Tube Channel].

Gloomy Freight Operations

Revenue from freight now stands at 38% of total revenue; while it was 53% in 1950s

Freight is another important operation and source of revenue for the PR. PR owns a total of 16 thousand freight wagons right now. Not only the number has shrunk in terms of wagons owned, the freight carried has also reduced in seventy years. The freight largely comprises of coke and coal and the PR’s departmental commodities. Revenue from freight hence stands at 38% of total revenue; it was 53% in 1950s. In the 1990s, oil traffic fell shifted to the pipelines leading to a decline in traffic. Freight nosedived in 2000 because of a severe fuel shortage to run locomotives. During 2011-15, PR itself was the largest user of freight. There was no general freight that carried consumer goods.

Economy class passenger have remained the major source of revenue since 1995

Operational Expenditures

The repair and maintenance leads the list which includes cost of fuel, staff and administration. With labour and fuel heads fixed, they reduce the budget on maintenance whenever there is a deficit. The delayed maintenance clearly states that PR is not on rails [Durrani, 2011]. In 2017-18, almost 37% of revenue was spent on repair and maintenance. This was followed by fuel with a share of around 27%. The administration is the third largest source of expenditures. It accounts for 17% of the expenditures. Salaries consume almost 70% of revenue, whereas the operational budget is only 10%. The inherent technical and productivity inefficiencies are clearly visible in this distribution of resources.

Business Plan

There is no business plan

The ever expanding expenditures and the looming revenues result in a loss making public monopoly. Rather than reforming PR, they adopted stop-gap solutions to cover inefficiencies. The operating ratio, which is the ratio of ordinary working expenses to gross earnings, is consistently greater than 100 since 1995-2000. In addition to the capital expenditure, the exchequer has been sharing the losses incurred by the inefficiencies through subsidies amounting to 45,000 million in 2019-20. Today, the working expenses are twice the revenues and the pensions alone account for 77 percent of the revenues. In fact, pensions are 10% higher than the actual wage bill [Khalid and Faraz 2020].

The absence of business plans raises question about governance. Interestingly, PR follows an almost 40-year-old obsolete governance model that has been abandoned by most other railways. There is a dire need of a modified model, where governments should not interfere in the business management. A clear demarcation between policy making and operational management is a must.

Manpower

The PR has around 9 departments. These include civil engineering department, mechanical engineering department, electrical department, stores department, police and accounts. Out of these the mechanical engineering department employs 30 % of the total employees. The civil engineering department employs 28 % and the transportation department employs 14 %. In the other departments though the employment percentage is low but together they constitute the remaining 28 % of the total employment. Following the transportation is the police department with 8 % of the employees. With enormous mechanical and civil engineering departments, the PR is still spending major chunk of revenues on maintenance and is dependent upon subsidies.

The Future of Rail

The world is now moving towards High Speed Rails, while PR is not on rails. The debate revolves around corruption, political interference, red tapism etc. PR has a long history of seventy years, looking at the previous record and performance it is evident that PR is still cringing to facilitate and generate revenue but still has the capacity to support economic growth of 5 to 6% with huge infrastructure, manpower and rolling stock [PIDE Webinar on Pakistan Railways; PIDE You Tube Channel].