Privatization as a concept has wide connotations ranging from the sale of state-owned assets to private investors, the moving of publicly owned services to private service providers, and the deregulation of highly regulated functions into “franchising” or “outsourcing” which previously were in the governmental domain and so on.
Whatever meaning is ascribed to privatization, its ultimate objective is to bring in a higher level of efficiency, improved quality of service delivery and, of course, minimal drain on the public exchequer? However, there is no universal recipe applicable to every industry. Privatization varies from industry to industry and jurisdiction to jurisdiction. What works well in one industry may not produce the desired results in another and the same goes for specific jurisdictions.
Having said that, we will focus on the Railway Industry in our jurisdiction, with cross-references from foreign jurisdictions, to find out whether it is a fact that Pakistan Railway (PR) is incurring billions of operational losses, year on year, and whether privatization is the best remedy for the malady it is suffering from. Historically, PR (formerly known as North Western Railways) is an offshoot of the railway system given by the Raj.
The initial system started with private companies laying rail tracks between different cities as a mode of transport back in the 1850s. it was a patchwork by several private companies which, in the 1880s, was consolidated by the then government as an integrated railway owned by the state. On independence, in 1947, we inherited North Western State Railways.
If Pakistan Railways is privatized in its present form as a vertically integrated entity, the results may be highly atrocious.
Till the 1970s, it remained a preferred mode of transportation for passenger travel as well as for freight movement. It enjoyed a 70% market share in the freight sector and almost 90% that of the passenger market for the long haul. Thereafter, the public sector investment in the rail sector of Pakistan started declining during the seventies since the Road sector got priority in the reckonings of policymakers. PR is a vertically integrated system owning track infrastructure as well as above-track business.
Railways, anywhere in the world, are capital-intensive and inadequate investments lead to the deterioration of assets resulting in low quality of service, reduced efficiency and unreliability coupled with safety hazards. PR being no exception to this principle, lost its market share and started sagging under its weight.
The sequel is known to every railway man – 45 percent to 90 percent of rail are overage in around 2300 – kilometre length of track, an overage of sleepers ranges from 30 percent to 95 percent in nearly 500 kilometers, most of the bridges are 100 years old and the majority of stations and signalling system are obsolete.
Given the situation as described above, hats off to our railway men who are still keeping it as a ‘going concern’. Why I said so will be amply self-explanatory when we have a realistic ground check of Railways’ skewed expense structure and exponential pension growth – of the total expenses 37 percent percentage goes to pension, 32 percent to payroll, 20 percent to fuel six percent to utilities and just five percent is left for repair and maintenance.
The main malaise of Railway is pension which, back in 2010-11, was Rs 8651 Million and jumped to Rs. 43879 Million for the year 2022-2023. However, the pension is not only the Railways’ stumbling block but that of the entire public sector and is poised to grow larger than the total funds reserved for the Public Sector Development Program (PSDP).
The evaluation of Railways’ performance, over the last ten years, is supportive of the fact that it has not been that bad. There has been a steady increase, since 2013-14, in its market share as well as revenues. For the year 2022-23, the total revenues were Rs. 63719.5 Million against revenues of Rs. 22804.6 Million for the year 2013-14. For the current financial year, PR is fully harnessed to achieve the target of Rs. 70000 Million.
The point is that pension is not an operational expense and whatever subsidy is given by the state is on account of pension and for running trains, on un-economic sections being public service obligation. Should the said expense be taken off its shoulders there is no operational loss. As such, PR cannot be compared with either PIA or Steel Mill. As to the privatization of PR, it is a very complex and unique industry and a blindfolded jump onto to ‘bandwagon’ may prove disastrous. We have results, before us, of such experimentations in certain foreign jurisdictions. Since the 1990s, there have been attempts, the world over, for reforms in the industry.
The British Railway was vertically separated and track infrastructure was handed over to Rail-track. The major train crash in October 2000, near Hatfield, revealed that the company had not been making sufficient investment in the upkeep of Track so the government went for quasipublic ownership buyback in the form of Network Rail. Likewise, in Australia and New Zealand, the private companies were given to under-investment in physical assets and the assets were transferred back to the government. Even in Brazil and Argentina service disruptions and financial instability persist. Conversely, Japan has a successful model of Railway privatization.
So, the outcomes are generally shaped by economic, social and political context. Thus, PR has its context and if it is privatized in its present form as a vertically integrated entity, the results may be highly atrocious as to what we will get in return; be that financial gains, level and quality of service and respite to public exchequer.
It is, therefore, suggested that policymakers take stock of the current situation realistically and go immediately for envisaged up-gradation. The cost of up-gradation, viz-a-viz other projects, is not that high. We constructed roads at the cost of around 15 Million dollars per kilometre and are reluctant to upgrade the rail system (1726 Km) at the cost of around 4 Million Dollars per kilometre. Having upgraded ML-1, we may go for vertical separation with PR becoming infrastructure Manager for track and below-track assets and the private sector many chips in for above-track business in the form of Track Access Regime. This model is already under active consideration by Railways Management and the Ministry of Railways.
The writer is former federal secretary (Railways)