Finance ministry balks at bailing out railways

Railways want Rs15 billion on top of the Rs21 billion rescue they got at the beginning of the year.

ISLAMABAD:

Fearing corruption and incompetence, the federal government is reluctant to give Pakistan Railways the Rs5 billion it needs in order to remain solvent, according to sources familiar with the matter.

The railways and finance ministries are at loggerheads over how to disburse the amount, which both ministries agree is needed to keep the national railway network functioning. Pakistan Railways needs Rs5 billion to buy spare parts and repair hundreds of locomotives that are currently dysfunctional.

Railway management want the money to be given directly to them, but the finance ministry wants to arrange for sovereign credit guarantees at commercial banks which would pay the foreign suppliers directly through letters of credit and obtain the money from the federal government, bypassing Railways management completely.

The railways ministry wants the Rs5 billion as part of a larger Rs15 billion bailout package that would include a Rs10 billion increase in its overdraft limit at the State Bank of Pakistan. The Railways already have a Rs40 billion overdraft line of credit at the central bank that they have used up.

For the current fiscal year, the federal government had allocated Rs21 billion to pay for expected losses at Pakistan Railways. That money was exhausted in January, five months before the end of the fiscal year on June 30, 2011.

Finance ministry officials say they have received an estimated financial loss of Rs29 billion at Pakistan Railways from the railway ministry. The government had initially expected an operating loss of Rs1.7 billion per month, which has surged to Rs2.8 billion a month.

The Railways spend Rs2 billion on salaries and pensions alone. Fuel costs have gone up from the initially anticipated Rs500 million to Rs800 million, partially due to an increase in fuel prices. However, finance ministry officials are reluctant to allow Railways officials to spend money on fuel purchases after receiving complaints that the Railways staff sell off the oil in the black market. Instead, the ministry wants to directly pay Pakistan State Oil, the Railways fuel supplier.

Gross incompetence

It is not just financial misconduct on the part of Railways staff and management that the government fears. There have also been allegations of gross incompetence.

For example, Railways officials buy expired lubricants to save money, but the poor quality of the lubricants results in damage to the locomotive engines, which costs far more to replace than whatever little amount is saved by buying cheaper lubricants.

The Express Tribune has obtained copies of letters that the Chinese manufacturer of the locomotives, Dongfang Electric Corporation, has been writing to the government highlighting this issue. However, they have not yet received any response.

Failure to reform

More than any other issue, the finance ministry is miffed by the fact that Pakistan Railways continues to seek bailouts without making any efforts to reform and address the root causes of the company’s losses.

“The root causes of losses are their irrational use of trains and routes, surplus and ghost labour and an inability to exploit freight routes,” said one finance ministry official. He said that without addressing these issues the Railways can never be revived.

The government has identified at least 100 routes which need to be shut down. Sources say that Finance Minister Abdul Hafeez Shaikh has taken up the issue with Railways Minister Ghulam Bilour but Bilour showed reluctance in addressing the finance ministry’s concerns.

The Railways’ decision to close some routes has been challenged in court but, for unspecified reasons, Railways management is not actively defending its decisions.

Published in The Express Tribune, March 28^th, 2011.