Setting right our railways

Since PR restructuring started it has been in serious financial crisis with debt, underinvestment in stock, equipment.

In 1825, when the railway completed its first ever journey between Manchester and Liverpool, there was excitement and admiration for increasing the speed limit from three miles per hour to 12 miles per hour. Apart from strategic and political considerations, the pressure from manufacturers in Manchester on the British government played a key role in building railways in India. This would allow them import of cheap cotton as an alternative to imports from the United States. Starting as private companies in India, the railway was constructed under the state owned system after 1862. The state borrowed directly at the rate of 3.5 per cent and constructed lines which were strategic but unprofitable.

Pakistan Railways (PR) had British origins as both finance and capital were provided by Britain. To overcome the continuing crisis of PR today, many have suggested reform, or outright privatisation. Restructuring started in 1999 with the World Bank’s privatisation project. The reform package showed a profound eagerness to transform PR into a profitable organisation. However, performance in railways means quality of service and access to infrastructure first and financial performance later. At least, this was the lesson learnt from the first ever investment in railways.

Reform is a catchy word and those involved in it are overzealous to transform. Since the restructuring process started, PR has been in a serious financial crisis with mounting debt and underinvestment in rolling stock and equipment. Cost cutting by slashing employment is the easiest route for reformers. It is not surprising that employment has contracted by 14 per cent. Talk about over-employment is not exactly not true. The employment share in engineering, commercial, accounts and transportation has declined from 90 to 84 per cent. There has been an 11 per cent reduction in track, 20 per cent reduction in passengers, 33 per cent reduction in freight and 17 per cent in locomotives. Expenses grew by 4.7 percent, while earnings lagged behind at 3.02 per cent. What else can one expect? The railways has no financial autonomy. Its net receipts are part of the general revenues of the country. Development funds are annually allocated. This system has barred the railway, from investment and expansion. Gross fixed capital formation has declined in absolute terms — from Rs5,376 million in 2000-01 to Rs1,048 in 2009-10.

Having failed to restructure PR and rendering it dysfunctional in the process, the reformers now want to make a big push into privatisation. The case has been built on the success of the privatisation of British Rail (BR), which is a myth. Formed under the companies system, the BR was nationalised in 1948. The first sign of selling off trains appeared in early 1960s when faced with losses of 87 million pounds. In light of a British government report, railway investment was frozen and closure of many lines was suggested. It will be news to Pakistanis that Mrs Thatcher was instinctively against the privatisation. She only undertook partial privatisation of peripheral businesses such as hotels, rolling stock manufactures and ferry services. It took the conservative government three decades to decide the privatisation of 1990. The early growth of passenger and freight services was due to a buoyant economy, not privatisation. The common perception is that it failed miserably. Passenger fairs and freight rates run ahead of inflation. Major accidents have increased. Competition and profitability have been placed above safety. Worst of all, government subsidies have doubled and bankrupt rail services have had to be bailed out.

In the light of this experience, the recent government decision against privatising PR provides an opportunity to do what needs to be done — autonomous professional management and investment in modernisation. It is not the shrinking of business but expansion which brings more fruit.

Published in The Express Tribune, December 25^th, 2011.