When the PML-N drew up its 2013 manifesto it didn’t reckon on Khawaja Saad Rafique (KSR) being entrusted with the Railways portfolio. Pakistan Railways (PR) was listed as a prime privatisation candidate, along with such other budget-drainers as Pakistan Steel and PIA.
Pakistan Steel faces death of a thousand cuts. PIA, trapped in the political maelstrom, seems to be neither here nor there. But PR is steaming full speed ahead; duly rewarded with Rs 78 billion budgetary allocation.
Is the government dithering or is it enthralled with PR performance on KSR’s watch? Since 2011/12 earnings have doubled, many more locomotives are in service now, number of passengers-carried is up 30%, freight cargo more than tripled, and punctuality rate improved to 70%.
Indeed, most KPIs have exceeded the targets – and, to the chagrin of the Accountant, no one is questioning his numbers. Time, then, for a 21 gun salute to KSR for heralding the miracle of making a state enterprise work, especially one that is frozen in time?
Not yet. The comparables take the gloss off. PR’s Indian counterpart, a much bigger leviathan with 1.3 million employees, has been posting profits; PR makes an annual loss of close to Rs 30 billion. India has electrified almost one third of its some 66,000km-long track; PR is still at the thinking stage.
PR is carrying less than half the passengers it carried in the late 70s. Freight is down from 11 million tons in 1986 to 3.5 million tons. Employees per locomotive are higher than almost any railways in the word, including that of India. The average speed is little better than what it was in 1947. It takes three weeks to deliver cargo upcountry at a distance of 1800km.
From the national economy point of view, it is the freight component that is important. PR’s share in freight traffic has come down to 4%, from a peak of 73%. In most developed countries, Railways has a high share of freight business (40% in the US). Pakistan fares poorly in the World Bank’s Logistics Performance Index.
Seventy one countries of the world (including India) rank higher. It has been estimated that freight sector’s inefficiencies cost the national economy Rs 150 billion annually.
Logistics is critical to Pakistan’s trade competitiveness as well. It is ironic that the Strategic Trade Policy Framework 2015/18 hitches its wagon to that pie in the sky – inland water transport – when the Railways has such a huge potential.
Freight earnings, as a percentage of total earnings, are still far below the 60% share witnessed in the late sixties. Although the length of Indian Railways (IR) is only 9 times that of Pakistan it carries 300 times more freight; it makes a loss on passenger traffic but enough of a profit on freight to keep it in the black on an overall basis.
IR earnings per ton of freight is Rs 110 compared to a startling 2180 for PR. All these numbers are strongly suggestive of the untapped potential of PR to significantly enhance its share of freight traffic – and lower haulage costs.
While one recognises the weaknesses of PR’s infrastructure that has aged and is poorly maintained (maintenance was less than 10% of operating expenditure) it is highly questionable if it is being utilised to optimum capacity.
With only 97 passenger and 15 freight trains per day the almost 8,000km-long track wears a deserted look most hours of the day. Surely, there are ways to leverage the track capacity. Underutilization of capital assets in a situation of high demand is something no entrepreneur, even the State, can live with.
The idea of track utilisation by the private sector is not alien to the Government. Back in 1997 it came up with its Open Access Policy (OAP). The idea was to allow track access to the private sector if it brought in its own locomotives and wagons. OAP workings showed an attractive 20% Return on Investment. Not much happened, though PRACS did manage to run two trains in 2006 in Public-Private Partnership mode. Another policy relapse followed, until March 2010 when the Cabinet Committee on Restructuring dusted it out of the closet and reintroduced the Track Access Charges scheme. Six years later we still see a lot of idle track capacity!
Reportedly, Premier Mercantile Services (PMS), who had partnered the setting up of the Premnagar Dry Port just outside Lahore, entered into an agreement with PR to run two container trains a day between its terminal at Karachi and the dry port, against track access charges of 25 paisas per gross ton kilometer.
On an average basis this could accrue to PR annual revenue of about Rs 5 billion, much more than PR’s last five years’ average freight revenue of Rs 3.6 billion. The current status of this agreement is not known but we won’t be surprised if PR revisits the agreement, or even renege on it.
What could be the possible reasons for a perfectly sound idea not being given a fair chance? Is it just bureaucratic inertia? No, the energetic KSR won’t permit it. Does the PR management feel threatened? It should not really. After all, the genesis of the OAP was in government’s inability to fund the needed wherewithal.
If the private sector comes in, with its own locomotives and wagons, it can hardly make the PR look bad. Could it be that the allied infrastructure (stations, signalling, maintenance issues, etc) is not adequate to support more trains on the existing tracks?
Had that been the case it would have been clearly brought out when the case was submitted to the government for OAP. In the absence of a logical explanation we are afraid PR’s finding one excuse after another to obstruct the private sector smacks of a dog in the manger attitude.
PR has no reason to look upon the private sector as a competitor. It should look upon it as a partner. A sensible partnership will unleash great synergies, augment PR revenues, and generate greater system efficiencies.
PR has to understand that partnership with the private sector is in its best corporate interests. If it doesn’t partner it runs the risk of losing it all. Privatisation may become imminent.