Pakistan Railways: Challenges and Response

Shahid Hussain Raja
Independent Consultant-Public Policy
May 10,2015

 Introduction
 Importance of Railways
 SWOT Analysis
 What ails the Pakistan Railways
 Causes of decline
 How to fix it ?
 Conclusion

 Pakistan Railways is one of the most discussed state owned
enterprises(SOEs) in the country, blamed for incurring
huge annual losses and unsatisfactory performance
 Keeping in view its social and political significance and its
being the most environmental friendly transportation mode
necessitates necessary measures to improve its efficiency.
 What went wrong and why ? What measures can be taken to
arrest its further decay are some of the questions we are
going to discuss in this presentation
 Its article version is available at my website
www.shahidhussainraja.com

 Pakistan Railways has been playing a very crucial role in
social, economic and political development of Pakistan
for the last 150 years.
 Employing more than 75,000 persons and providing
employment indirectly to al least ten times more, it
contributes significantly to the GDP of the country.
 Being the cheapest mode of transportation of goods and
commuting passengers, it has been the pivot of
Pakistan’s industrial and commercial development.
 With more than 80 million passengers every year from
one corner of the country to other, it is not only a
symbol of unity of the country but also a vehicle of social
and political integration.

 Rail transport consumes only one sixth of the energy per
unit weight-km as compared to road transport, it is less
polluting source of traffic-emissions per TKM
 Despite common perception, rail fatalities are much
lower than road i.e. more than 10,000 per year on roads
as compared to less than 100 in railway system.
 During any disaster or emergency Pakistan Railways has
been the most preferred means of transporting relief
goods in the shortest possible time
 Lastly, keeping in view the geographical contours of
Pakistan, it is an excellent and most economical mode of
transportation for long distance goods haulage.

 From strategic asset to commercial entity
 From monopolistic to competitive
 From public welfare to commercial
 From purely state managed to private
 From all haul to long haul

 Continuous losses
 Consumer dissatisfaction
 Depleting assets
 Demoralized manpower

 Constant fall in earnings of the Pakistan Railways has been the
prime reason for the continuous losses it is suffering. This in
turn is due to three major reasons
1. Reduction in its train operations either because of shortage
of locomotives and goods wagons and passenger bogies or
the dwindling number of passengers who are opting to travel
by road because of improved road network
2. Stagnant tariff structure of Pakistan Railways due to social
welfare and political considerations
3. Leakages and wastages in revenue collection due to
structural or managerial inadequacies are the third major
reason for the revenues falling sort of the targets fixed
annually

 In 2005 Pakistan Railways passenger services covered 85 per
cent of their train-running costs. Since then, passenger
revenue per passenger-km has increased by 50 per cent while
costs have more than trebled due to following reasons
1. Inflation-inflationary pressures are eroding the purchasing
power of railway to buy goods and services for running,
maintaining and developing the railways operational network.
2. Inefficiency-underinvestment has now started yielding results
in the form of low efficiency threshold of almost every railway
activity
3. Corruption-lack of proper checks and balances create
loopholes for corruption even in the presence of best legal
framework and institutional mechanism

 Before condemning Pakistan Railways for incurring huge losses ,we must
know the magnitude of the of loss, its composition ,context and reasons to
arrive at appropriate decisions.
 While calculating the loss suffered by the railways, it is assumed that the
difference between revenue and costs is profit and loss. It is true for
commercial entity, not for an organisation run as a government department as
is the case now with Pakistan railways. Some questions;
1.Salaries and allowances-is it a loss ?
2.Pension payments-really loss ?
3.Securituy expenses-
4.Utilities-inflation
5.loan repayments
6 .External factors responsible for loss-
a. burning of railway stations during riots(loss of revenue)
b. floods (stopping of trains, speed restrictions)
c. security(less passengers, more expenses)
 All the above are public expenditure. If all above are losses then treat other
departments as you would like to treat railways

 Although Pakistan Railways has been successful in
maintaining its passenger traffic mainly due to its cheap
fare policy, number of complaints have been mounting
about its less than satisfactory performance.
 Most of the complaints are about extremely low quality
of services provided, lack of punctuality, disrespectful
attitudes of the employees towards the passengers,
unnecessary secrecy and outright fleecing
 This across the board consumer dissatisfaction has
created a crises of confidence among the very loyal
passenger base of Pakistan Railways

 Although not peculiar to Pakistan railways only, there
is a widespread demoralization among the rank and
file of all railway employees due to continuous losses,
adverse publicity and sense of self-alienation.
 Demoralization and motivation, both are self-
sustaining and self-perpetuating. If there were a turn
around, it would boost self-confidence and vice versa.
 It is not only adversely affecting the efficiency and
effectiveness of service delivery but is also forcing the
most efficient and essential to leave the service.

 Every asset of Pakistan Railways is fast deteriorating as most of
them have outlived their productive lives- infrastructure as well as
its rolling stocks.
 It is adversely impacting upon its operational efficiency, as it
could not be upgraded as per technological developments in
other countries.
 Consequently extensive speed restrictions, engine failures, lack of
proper facilities in trains, railway stations, and engine workshops
which have not been upgraded as per technological developments
 A cursory look at its physical structures and rolling stocks paint a
gloomy picture of an elaborate structure crumbling, finances are
collapsing, with services being suspended, assets deteriorating
and debt spiral

 1.Underinvestment
 2.Institutional dichotomy
 3.Governance issues

 After 1973 Pakistan Railways' budget was amalgamated
with the national budget with the result that the profit
they earned was diverted to other heads, leaving less
and less for its maintenance, expansion and
improvement.
 On the other hand, the Government spent three times
more on road sector. It was this combination of neglect
to railways and preference to roads, which is the root
cause of the present malady of Pakistan Railways.
 Ministry of Railways ,which is responsible for providing
funds for the maintenance and development of the
provision of the railway network has no long-term
framework for capital support to perform these roles.

 On the contrary India invested heavily in railways
and less on roads with the result that our road
sector is better than Indian one.
 Indian railways are far better than their Pakistani
counterparts in terms of profitability and customer
satisfaction because India invested in rail network
 We have not been able to formulate any National
Transport Policy which could at least show where
railways stand vis a vis other modes of
transportation.

 Overall financial crises of the country have reduced the availability
of the resources for routine operations not to speak of
replacement and up gradation. Not up to date, even then present
rolling stock can earn profit if cash is injected
 Wrong priority of investment in the railway is another big
anomaly. There was no justification for the dualization of railway
tack from Karachi to Lahore in the initial stages of its
development as we could have easily handled the traffic load by
lengthening the railways stations loop lines.
 Similarly up gradation of Monabao track from narrow gauge to
broad gauge was just a political expediency without financial or
economic cost effectiveness.

 Besides amalgamating the two budgets, the government
also made Pakistan Railways a government department
under the newly created Ministry of Railways
 Consequently, instead of a commercial organization, it
became a bureaucratic organization where rules and
procedures count more than end results.
 Direct interference of bureaucrats in the purely technical
issues always leads to ineffective service delivery.
 Now the anomaly is that we are expecting commercial
results from an entity being run as governmental
department. Railways cannot increase fares even if the
price of oil triples.

 Similarly, it cannot terminate those services, which are no
more needed as better road network, and good bus/truck
services are available in the private sector because of
political imperatives.
 In India, if the government needs to continue a loss
making train service due to strategic reasons, it has to pay
to the railways for the loss but you can not do it in
Pakistan. Even train stops are now decided on political
basis.
 Ministry is effectively rule-maker, manager, player and
umpire of Pakistan’s ‘railway’ team. Such a combination of
conflict in roles with concentration of powers is inimical
both to good public policy-making and to effective
commercial management of state-owned enterprises.

 Running a commercial organisation with political
considerations cannot yield profits, just losses.
 Tariff rationalisation, operational decisions and
developmental budget allocation need commercial
considerations not political interference
 Posting/ transfers made on political expediency
adversely affects the operational efficiency and
employees morale
 Corruption is widespread because those caught have
long hands reaching the corridors of power

Pakistan Railways: Challenges and Response

 Despite dissatisfaction passenger traffic is constant
 Experienced well trained staff who are still motivated
and serious about improving its performance
 Profitable long haul passenger and freight corridor
with good permanent way despite maintenance
backlog
 Well equipped and well staffed loco and rolling stock
maintenance facilities
 Availability of a modern container terminal

 Rapidly depleting assets ;rolling stock,
telecommunications and signaling networks.
 Despite being a commercial organization, it is being
run as a government department, having public sector
procedures and culture
 Limited number of individual freight customers and
commodities
 Political necessity to operate even those services
which can never cover their costs

 Extensive network, to maintain which cannot be
commercially viable in the face of tough
competition from road
 Overstaffing in certain categories, while
understaffing in critical areas.
 Poor MIS and financial reporting system needed
for a modern, commercial organization
 Poor connectivity with other modes of transport
to make it a part of multi-modal transport
system

 Increasing passenger and freight traffic due to
increasing population and prosperity
 Increased demand for cross border regional
linkages
 Global preference for multi-modal transport in
which rail is becoming dominant
 Growing concerns/awareness about environmental
issues can force policy makers to give more
importance to railways

 Greater cost effectiveness of railways as compared to
other modes of transport
 Improved road network in remote areas-a blessing in
disguise for stopping uneconomical train operations
without much inconvenience for the public.
 Development and commercialization of railway
property not needed for operations
 Growing importance and acceptance of Public Private
Partnership (PPP) along with emergence of strong
private sector can bring the needed financing and
skills and management through out sourcing

 Continued efficiency improvements in road sector
along with improved road network can give tough
competition to railways
 Improved service by road transport firms can be a
challenge
 Premature and ill planned privatization can bring
ruins
 Claims of the provincial governments on its land can
stall any efforts to modernize it by
commercialization of its lands not needed

 1.how to increase the profitability of Pakistan
Railways by improving its operational efficiency and
reducing its costs
 2.how to gain consumer loyalty by offering quality
services at affordable prices without adversely
affecting its profitability
 3.how to modernize Pakistan railways at a speed and
cost which is realistic yet enough to keep it relevant
in the rapidly globalizing world
 4.how to stop attrition of essential staff and attract
the best talent through proper incentives and rewards

Making Pakistan Railways the preferred means
of passenger travel and goods movement for
majority of Pakistani population by providing
them a safe, efficient, reliable, comfortable
and affordable means of transportation by
modernizing its services, rationalizing its
operations and efficiently managing its
resources

 1.Enhancing safety and security of the trains by
training the staff and developing new technologies
 2. Promoting technological innovations by increasing
investment in research and development
 3.Unify social benefits and economic benefits by
putting convenience of the public first and reducing
operational cost
 4.Strengthen energy conservation and environmental
protection by developing eco-friendly technologies


 Helping directly to increase Pakistan's growth rate through
increased and better rail services as well as employment
opportunities
 Helping indirectly to increase Pakistan's growth rate by
providing support services to other sectors of the economy
 Providing safe, modern, convenient and comfortable mode
of transport for the public at affordable prices
 Becoming hub of transport connectivity with rail as pivot
around which other modes are aligned
 National integration by providing the nation a symbol and
a vehicle of national unity

 Pakistan Railways is not the only one in trouble; all over the world railway
systems are facing the same issues-huge losses and consumer
dissatisfaction
 Main causes are also the same-underinvestment, competition from
road/air, rising expectations of the stakeholders
 Similarly road to recovery consists of taking the following steps
1.running it as commercial organisation
2.bringing professional management
3.concentration on core activities
4.disinvestment of peripheral business
5.separation of track ownership/maintenance from train operations
6.outsourcing of maximum core activities
7.Induction of private sector even in track maintenance
8.creation of independent regulatory authority

 1.Institutional Restructuring
 2.Outsourcing of operations
 3.Corporatization of entities
 4.Commercialization of assets
 5.Governance improvement
 6.Rationalization
 7.Indigenization

 Finalize the national transport policy lying in the ministry of
communications for years, setting out aims and objectives
for transport as a whole.
 Every mode of transport should know where they stand in
the overall national transport perspective
 It will not only give the direction to the transport sector but
will also encourage private sector to come forward, in a
mutually consistent and competitively neutral way
 It will also end the unnecessary competition among the four
modes of transportation and force them to go for a national
multi-modal transport network

 After the finalization of a cogent overall national
transport policy, finalize and promulgate new legal
framework for Pakistan Railways
 It should envision an active participation of private
sector in the rail sector
 Establish Railway Regulatory Authority (RRA) so that
the multi-functional role of Ministry as
administrator, operator, regulator is segregated

 Let the Ministry be responsible only for policy
formulation, assisted by a high-powered railway
advisory board
 Chief Executive Officer (CEO), assisted by a
technical committee consisting of senior railway
officers, will look after the operational aspects
 Corporatize PR and establish it as Pakistan Railways
Corporation (PRC) consisting of independent
subsidiaries/companies grouped together on
functional basis and operating on commercial basis
as opposed to Government Department

 Resolve the issue of social obligations of the state vs commercial
expectations from PR.
 If the state wants to run certain loss making train services for
strategic/social considerations, let her compensate the PR for the
loss thus incurred as it used to do in early 1990s.
 In fact the bulk of Indian Railways profit comprises the compensation
paid to it by the government for operating loss making trains
 If Pakistan Railways have to be run as a government department
then it should be treated as such in terms of revenues it earns and
expenditures it incurs.
 Salaries, pension, operational ,maintenance and developmental
expenditure should be considered as public expenditure and not as
loss which is what in normal discourse is being stated. Similarly its
loan liabilities be paid by the state and not be treated as loss

 Pakistan railways needs to be run on purely commercial
considerations with due regard for social welfare aspects
 Across the board subsidy needs to be replaced with
targeted relief to passengers with limited means
 Operational rationalisation- retaining most profitable
railway trains and weeding out the uneconomical ones
 Human resource rationalisation-weed out the unnecessary
staff, retain the essential and recruit the ones cortically
needed after carrying out detailed need assessment in the
wake of new operational requirements
 Functional rationalisation-concentrate on core activities
and outsource peripheral activities, i.e. education, health,
sports etc

 This is an area which can yield quick results because bulk
of the manpower is very technically qualified and proud
of their institution
 Even the present legal framework and institutional
mechanism is robust enough to improve the governance
if applied with commitment and dedication
 Authority with responsibility and proper incentives and
rewards along with strict accountability regime is
essential for effective and efficient service delivery
 Add transparency in procurement and sale,
computerisation of income, expenditure and assets

 Pakistan railways needs massive investments just to arrest the
fast depletion of its rolling stocks and fixed installation as well as
up gradation of its signaling and other electronics
 The Federal cabinet in its meeting held on 29th December, 2010
approved, a bailout package of Rs 11.1 billion for rehabilitation of
locomotives, track maintenance, refurbishment of coaches etc
 Almost five years have passed since the Cabinet’s approval of the
above financial package, but no relief has so far been provided.
 The situation has gone from bad to worse and train operations are
frequently disrupted due to deferred maintenance of rolling stock
and infrastructure.

 We need this investment funds even if we intend to
privatise it. Privatisation doesn’t mean selling of
railways tracks/stations which have to be maintained
by the state to ensure high security standards
 Some of the critical areas which need investment are
purchase of locomotives, replacement of overage
tracks and repairs of bridges, capacity building of the
employees and modernisation of its signaling
 All these funds are not necessarily to be provided by
the state; private sector and foreign investors are
willing to invest if provided with proper legal
framework and adequate guarantees

 One of the quickest and easiest ways to put the Pakistan Railways
back on track is to outsource maximum number of its operations.
There is no need to reinvent the wheel as Pakistan railways have been
doing it in the past and is doing in some areas even now
 For this purpose it should finalize and announce Public Private
Partnership Policy for active participation of private sector in rail
sector on design, finance, built, operate and transfer (DFBOT) basis
or built, operate, transfer (BOT) basis
 It should also introduce the Track Access Charges Mechanism to
become a basis for private sector investment and partnership for
freight & passenger operations of PR
 PR should continue to operate on the routes having either less or nil
commercial value as part of the Public Service Obligation (PSO) ,duly
compensated by the state

 Pakistan Railways have a dozen or so entities which
are the legacies of an era when private sector lacked
engineering capacity needed by the railway. Some of
these are
1.Sleepers manufacturing factories
2.Workshops
3.Locomotives manufacturing unit
4.Railcop
5.PRACS
6.Track Maintenance Corporation
 These need to be corporatised and incorporated as
independent commercial organisation before their
privatisation

 Everyone is after the land owned by the Pakistan
railways and suggests its outright sale to generate
funds for its revamping without realizing that one day
Pakistan railway will be needing these lands for its
expansion.
 Pakistan Railways has assets other than land which
could be successfully commercialized. One such asset
is the railway stations in cities and big towns which
can be converted into shopping malls
 Similarly sale of advertising rights along the tracks,
inside the passenger wagons etc can be gainfully
utilized for earning revenues

 Only those lands should be disposed of through leasing
and not outright sale which ,after thorough analysis ,are in
excess of short term needs of Pakistan railways.
 For this purpose the newly created special purpose vehicle
needs to be given proper directions and maximum
autonomy
 This SPV should immediately carry out the survey of the
lands railways own, its proper record keeping and
computerisation and take steps for the removal of any
encroachments
 It should also scrutinise the contracts awarded/ dining
cars auctioned and revoke all contracts and auctions done
illegally by observing all the legal formalities

 Pakistan’s private sector in the manufacturing and services is robust
enough to cater to most of the maintenance and operational needs
of the Pakistan Railways. Induct the private sector starting with
gradual manufacturing of spare parts, overhauling and finally
complete manufacturing
 Infrastructure maintenance should be upgraded, with greater use of
mechanized maintenance where possible, contracting-out of major
periodic maintenance and retraining the maintenance and operating
staff.
 For signaling and telecoms, even routine maintenance may need to
be contracted to external organizations able to pay market rates and
guarantee an assured supply of spare parts
 Without adequate maintenance the effectiveness of these systems
will otherwise steadily decline, with significant effects on the
efficiency of the remainder of operations

 Keeping in view the strategic and commercial importance of an
efficiently run railways as well as social obligations of the state to
provide affordable and cost effective mode of transportation to the
public, Pakistan railways should be given due importance
 National transportation policy should be finalized as early as
possible so that the funds allocated for transportation sector could
be judiciously distributed among different modes of transportation
 Pakistan railways should be run on purely commercial
considerations and across the board subsidy needs to be replaced
with targeted relief to passengers with limited means,
 Outsourcing of operations, corporatization of its entities with
subsequent privatization and a strict accountability regime are some
of the other essential measures for effective service delivery

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Pakistan Railways: Challenges and Response

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