Railways gets bailout, but with strings attached

Of the Rs11 billion about Rs6 billion will be arranged as loans from commercial banks backed by a sovereign guarantee

ISLAMABAD:

Pakistan Railways will finally get its Rs11 billion bailout package after Railway Minister Ghulam Ahmed Bilour finally gave in to one of the finance ministry’s demands and accepted that at least part of the money will be raised through loans from commercial banks, lessening the direct burden on the national exchequer.

(Read: Pakistan Railways loses Rs26 billion in 2010-11)

The bailout was approved by the cabinet committee on restructuring of public sector enterprises, a meeting of which was chaired by Finance Minister Abdul Hafeez Shaikh on Friday.

Of the Rs11 billion, about Rs6.1 billion will be arranged as loans from commercial banks, backed by a sovereign guarantee. The government has agreed to pay the interest on those loans, which will be used to repair the Railways’ locomotives, about 60% of which are currently not working.

The remaining Rs4 billion will be arranged from the Public Sector Development Programme. The government will use funds from the 2012 development budget to improve tracks and rolling stock. The Railways has submitted a detailed plan for that to the Planning Commission.

(Read: State of Pakistan Railways)

In addition, the government also agreed to arrange for an increase in Pakistan Railways’ line of credit at the state-owned Pakistan State Oil, the country’s largest oil marketing company. The line of credit will now be Rs2 billion, up from Rs1 billion, ensuring a smoother supply of fuel to the national carrier.

The deal was made possible after Bilour dropped his earlier demands to get the entirety of the bailout funds from the State Bank of Pakistan or the federal budget.

The Rs11 billion bailout is in addition to the Rs15 billion already allocated to prop up the ailing state-owned company. The cabinet committee decided to address every concern brought forth by the Railways. Yet officials from the railways ministry said it would still take time to rehabilitate the carrier.

“It will still take five to six months to revive the Railways, even after getting the money,” said the railways minister, adding that the finance ministry had assured them that the loans from the banks would be arranged within a month.

The government, meanwhile, appeared to be moving forward with a structural overhaul of the Railways. The board of directors of the company is likely to be restructured, a presidential ordinance for which is expected to be promulgated later this month, according to a railways ministry official present at the cabinet committee meeting. The changes, which are likely to be finalised through legislation, will likely strengthen the board of directors, adding more private sector representatives. In addition, the executive committee of Pakistan Railways will likely be given more independence to make its own decisions and improve management.

No decision, however, appears to have been taken on the finance ministry’s demand that the Railways lay off one-fourth of its workforce. Railways spokesman Anjum Parvez said that the carrier could lay off 4,000 day labourers if the need arose.

The cabinet committee also directed the Railways to restore the passenger and freight services that had been discontinued.

Pakistan Railways, once the largest carrier of freight in the country, has fallen into almost complete disrepair. According to a World Bank study, the Railways will carry as many passengers in 2011 as it did in 1955, when the country’s population was one-seventh of what it is today. However, it will carry less freight in 2011 than it did in 1955.





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