The state of Pakistan Railways — II

Disasters are opportunities in disguise. Almost no public railway organisation in the world has been able to reform itself. This is because there are no incentives for them to do so. They keep getting support from the exchequer to improve ‘efficiencies’ and ‘economies’, which they can actually never really do. To be efficient and economical requires firing people and cutting down loss-making services — all of which public sector organisations are unable to do. So, nearly always, public railways are reformed by outsiders.

Now that Pakistan Railways (PR) is on the radar of the ministry of finance and the State Bank as one of the eight worst public sector enterprises in Pakistan, maybe we have the makings of a reform leadership. PR had managed to ‘hoodwink’ its way out of previous efforts for reform due to the political support they had been able to leverage. The key to reforming PR and liberating the railways sector lies in deciphering PR’s political base; public enterprise, jobs, political favours, unions and collective bargaining agents and, most important of all, their monopoly.

The government should take affirmative action to make railways a central tool for delivering on social integration and economic development. This will create the framework within which a balanced transport policy can not only be formulated but also implemented, with balanced support at both the national and provincial levels for road and rail, and in which support from the rail sector for broad social objectives can be delivered in a much more targeted way.

PR should only retain the core north-south railway fixed infrastructure and the associated rolling stock and other resources and liabilities; and the rest should be devolved to the provinces and major cities. This core Pakistan national railways, so to speak should be improved, consolidated and administratively restructured into two companies: One for owning the public fixed infrastructure required for railways and the other an operating company to run rail services. The right to operate services on this core section should be progressively opened so that the public operating company has to increasingly compete for the demand for rail services. This need not necessarily mean head-to-head competition on all routes but could also include contracting a block of regional services to a new company or encouraging freight operators to supply their own rolling stock and operate on specific routes such as Karachi — Lahore/Peshawar. Such developments provide much greater financial transparency as well as reducing unit costs and improving the level of services for both passengers and freight through a competitive structure. Typically, the policy framework is, for a given level of access charges, for freight services to be run on a commercial basis, for long-distance passenger services to receive relatively small subsidy and for shorter-distance services to receive substantial support.

The provinces should follow suit, albeit tailored to their own financial and social constraints. Should some of these actions have any strategic implication — such as abandoning by the provinces of some defence strategic links — the defence apparatus of the government can directly administer such links and operate them for defence purposes. There is little doubt that devolving responsibility to provinces will ensure that services are much more tailored to local demand as well as improving political accountability. Transferring the associated land should also encourage its development in an integrated manner. For the very same objectives, major cities such as Karachi and Lahore should immediately follow the pattern of the core railway and allow locally-owned urban railway systems to develop. This is common practice in many major cities in the US, Japan and Australia, as well as in South Africa. An intermediate step could be to create a separate company for urban services as a subsidiary of the main railway, as has been done in Jakarta.

Last, but not least, a railway regulatory body should be set up to provide essential but light regulatory oversight for all these railways.

Although the devil is in the details, there is much experience worldwide of these types of arrangements, which together generally improve service levels, increase efficiency and enable more transparent funding by governments — all of which are urgently needed in the Pakistan railway sector.

Published in The Express Tribune, May 6^th, 2011.