Pakistan Railways, a drain on exchequer

Pakistan Railways have presented a deficit budget of 62 billion rupees for 2011-12 with earnings forecast at 20 billion rupees and expenditure at a high 82 billion rupees. This was revealed to the National Assembly Standing Committee on Railways.
While any private sector operator would have long shutdown operations given such a bizarre and sustained revenue/expenditure equation, yet there is a general consensus that Pakistan Railways are a pro-poor service as it provides the cheapest form of inter-city travel to a growing number of people witnessing a steady erosion of the purchasing value of each rupee that they earn and hence must be allowed to continue with the service.
As a consequence, the transporter entity has an overdraft of Rs 55 billion from the State Bank of Pakistan. This has implied large annual bailout packages that have done little to improving the performance of the entity. And, Pakistan Railways instead of providing support to the Pakistan economy have the taxpayer supporting this white elephant.
Pakistan Railways losses are stoically dismissed as part of an essential national service. Its apologists maintain that state-operated railways in several other countries of the world, including the developed and the developing, do face high per passenger costs requiring massive budgetary injections. However, what these advocates ignore is that other countries of the world have made a serious attempt to undertake reforms designed to improve the service delivery of railways. Pakistan Railways are well-known for its continued tardy service, and persistent failure to implement economically viable policies. It was not always so.
Under the 1973 Constitution, Railways became a federal subject under Part II of the legislative list. In 1974, the Ministry of Railways was created and the budget shift occurred. Both tariff and expenditures came under Federal scrutiny. And in 1982 the Railways Board was merged with the Ministry of Railways and the Secretary Railways made chairman of Pakistan Railways - effectively handing over a specialist job to the District Management Group. Due to the curtailment of its autonomy, as well as political and bureaucratic interference, Pakistan Railways has been unable to upgrade rolling stock and fixed infrastructure. After 2005-06, due to persistent mismanagement and corruption, it is unable to cover even its operating costs.
What is precisely wrong with the way PR is being managed? The list is quite exhaustive. Theft remains a major source of revenue drain. The Auditor General has unearthed irregularities, mismanagement and theft of around 563 billion rupees in 2010-11 alone. This includes misappropriation of scrap, non-account of high-speed diesel oil provided at loco sheds at Lahore and Kundian, loss due to theft/pilferage of equipment from rolling stock, theft of material, losses due to shortage of scrap from stores, and fraudulent payments. Facilitating misappropriation was the non-observance of internal controls and ineffective supervision irregularities in the sale of scrap of 195 million rupees, minus the account of HSD oil of 155 million rupees, loss due to pilferage of fittings/equipment from rolling stock worth 152 million rupees, loss due to the theft/misappropriation of material of around 58 million rupees.
President Asif Ali Zardari asked the State Bank Governor Shahid Kardar to look into the sorry state of affairs in the Pakistan Railways. A detailed report was presented by him to the Federal Cabinet. It appears that the suggestions from the SBP for reforms have been put in the deep-freeze, due to political exigencies of patronage. The World Bank suggested that Pakistan Railways should only retain north-south railway, fixed infrastructure and the associated rolling stock and other resources and liabilities, be devolved to provinces and major cities. This is a far cry from the SBP proposal to rationalise operations; prioritise freight operations over passenger services; have an independent Board of Directors; corporatize manufacturing units and further financial assistance be linked with measured improvement in performance is a more realistic route. Ministry of Finance needs to press forward the SBP restructuring plan to curtail the subsidy it proviides from the Federal Budget.