Govt rejects Rs25b grant for Pakistan Railways

The federal government has turned down a proposal to approve a grant of Rs25 billion for clearing pending liabilities of Pakistan Railways and instead it has given the nod for only Rs2 billion.

To avoid frequent court cases over delay in pensions and enable Pakistan Railways to focus on core operations, the Economic Coordination Committee (ECC) of the cabinet was requested in a recent meeting to approve a grant-in-aid of Rs25 billion to clear pending liabilities, comply with court orders and ensure smooth operation and service delivery.

The Railways Division informed the ECC that Pakistan Railways was the sole rail operator providing passenger and freight services across Pakistan and playing a key role in national economic and social development.

Additionally, Pakistan Railways is an integral part of national defence planning and an attached department of the Railways Division.

Despite being a federal government department, Pakistan Railways is currently the only state unit that is maintaining pensions on its books. Pensions of all other federal government bodies are maintained by the Finance Division, which provides grant-in-aid to the railways to help meet employee-related expenses, including pensions.

In the just-ended financial year 2023-24, the railways had been allocated a grant of Rs55 billion, primarily for pension payments. However, its liabilities pertaining to employee-related expenses such as commutation, gratuity, pensions, PM’s death-in-service package, benevolent fund and general provident fund have been accumulating.

The Ministry of Railways has repeatedly requested additional funds to clear those liabilities, but no extra financing has been provided to date, resulting in piling up of liabilities amounting to Rs25 billion.

The Railways Division informed the ECC that retired employees and the widows of deceased railway employees had filed petitions in courts for the release of pension and PM package dues.

The Attorney General of Pakistan, via letter dated January 10, 2024, once again requested compliance with the order passed by the Sindh High Court for early pension payments.

The railways financial outlook worsened due to the revision in pay scales in June 2022, grant of disparity reduction allowance 2022, ad hoc relief allowance 2023, 17.5% increase in pensions and significant increases in fuel prices and electricity tariffs.

Meanwhile, owing to reforms and improved management, it significantly increased revenue (250%) in the last 10 years, though the organisation had obsolete infrastructure, rolling stock and other assets.

The burden of pay and pensions has significantly increased for Pakistan Railways whereas the grant-in-aid remained stagnant, leading to a surge in employee-related liabilities.

The exponential rise in pension costs now consumes almost all the grant, which severely impacts the railways’ service delivery as a limited fiscal space (5%) is available to maintain and replace the outdated infrastructure and rolling stock.

The Railways Division apprised the meeting that another key challenge was the 2022 floods, when major railway tracks suffered substantial damage in Sindh and Balochistan. To rehabilitate the infrastructure and restore operations, Pakistan Railways did not receive any financial support, which caused a revenue loss of more than Rs7 billion due to the suspension of services. In response to a summary of the Ministry of Railways sent to the ECC, dated January 30, 2024, the Finance Division raised certain observations, mentioning Pakistan Railways as an autonomous entity and requesting for leveraging its assets to meet its financial requirements, establishing a pension fund, etc.

It was countered that the railways was not an autonomous organisation or a corporate body, rather it is a government department created through the statute, which did not confer autonomous/corporate body status.

Moreover, an autonomous organisation cannot be an attached department of the government.

The ECC considered a summary submitted by the Ministry of Railways titled “Request for additional funds in grant-in-aid for Pakistan Railways”, but did not give its approval.

It, however, gave the directive to approve a grant of Rs2 billion in favour of Pakistan Railways and sought the submission of an overall business plan delineating the way forward, as already directed by the Cabinet Committee on State-owned Enterprises (CCOSOEs).