ADB calls for railways policy reforms

Study notes most of regional ones use accounting systems that don’t follow globally recognised standards

Our Correspondent August 12, 2022


The Asian Development Bank (ADB) has identified six policy reforms to strengthen the railway system in Pakistan and across the Central Asian Regional Economic Cooperation (CAREC) region.

It said that railways across the region must consider implementing key reforms that would make them more efficient and financially sustainable.

A new study by the ADB assesses the state of CAREC railways and identifies opportunities for investment, commercialisation, and reform.

By implementing key reforms, railways across the region can help increase economic growth and improve the lives of ordinary people.

According to the study, Pakistan Railways has 466 locomotives and 16,159 freight wagons. Of them, 23% of locomotives and 24% of wagons are unserviceable.

The study read that most of the regional railways currently use accounting systems that do not follow internationally recognised commercial standards.

“These old systems cannot accurately measure the true financial performance of railway entities or separate the financial performance of each business activity,” it added.

The region’s railways must develop modern commercial accounting systems that provide reliable and transparent real-time information about costs, revenues, and financial performance. Strengthening staff expertise in operating the system and using it to analyse railway performance is also crucial.

Furthermore, railways need to introduce enterprise resource planning systems to help them adopt more commercial approaches that would increase productivity and profitability.

“These systems also help railway planners to maintain an overview of existing railway resources such as staff or rolling stock and determine more efficient ways of using them,” the study read.

“They can be used to determine the full cost of operating railway services and routes, which is necessary to optimise tariff levels and understand which routes are most profitable. They are used to monitor and improve productivity and asset utilisation, and ultimately increase profitability,” it added.

Likewise, nearly all CAREC member countries regulate railway freight tariffs. While CAREC railways do not face competition from other railways operating in their domestic market, they compete with road transport and long-distance railway freight services using other railway corridors.

The study suggested that for railways to operate in this competitive setting, CAREC countries should consider liberalising tariff regulations so the railways could adjust their tariffs in line with market conditions.

“This will help them to attract more customers and optimise revenues,” it added.
The study noted that most CAREC governments required their railways to continue providing services, especially passenger ones, even if they are loss-making.

“This also leads to more unprofitable passenger traffic and less profitable freight traffic. As a result, some railways cannot generate enough retained earnings to regularly upgrade their assets,” it observed.

“To address this, CAREC governments can consider introducing a public service obligation. This could for example take the form of a contract between the government and the railway operator obliging the latter to offer certain services, while the government reimburses the operator for any losses incurred in running those services. Since accurate information is needed on costs and revenues of particular services, introducing this kind of reimbursement mechanism should go hand in hand with the establishment of modern commercial accounting and enterprise planning systems,” it suggested.

The ADB study advised that regional countries needed to examine the non-core activities of their railways and progressively separate or privatise them so that operators could focus on running railway services on a commercial basis. “Non-core activities may include health services and housing, and various non-railway businesses. Since many non-core activities are loss-making, they are often a significant drain on the railway’s limited financial resources,” it added.

The study noted that including private companies in the operation of freight and passenger services could create competition within the railway market, leading to improved efficiency and service quality.

“But to establish a fair and transparent basis for competition, most CAREC countries will need to reform their policy and legal frameworks to allow the private sector to perform additional roles in the railway sector,” it cautioned.

The study observed that any CAREC railways had aged rolling stock fleets that needed to be upgraded or expanded to meet demand.

“Due to their poor financial performance, railways generally lack sufficient funds to finance the needed investments. A possible solution is to invite the private sector to supply rolling stock on a lease or rental basis,” it advised.

“Overall, as markets change over time, railways also face further competition from other modes of transport. Implementation of reforms can lead to railways that are commercially fit and ready to adapt to changing markets,” it concluded.
(With input from APP)


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