Pakistan Railways

Few in this country know that Pakistan Railways runs 38 hospitals, 23 dispensaries, and 24 colleges/schools, according to the logistics experts group at Pakistan Business Council (PBC). That may well be one of the biggest displays of corporate social responsibility ever in this country's history. Only that the Railways are not a box standard corporation; nor does it have sufficient revenues, let alone profits to support such expenditure.

At its conference last week, the PBC's logistics and connectivity panel focused on railways, and identified a host of pertinent issues that have led to the dismal state of Pakistan Railways today. According to PBC's calculations, Pakistan Railways is one of the largest loss making public sector enterprises. Its accumulated losses since FY10 run to the tune of Rs150 billion whereas capital expenditures, pension and loan liabilities drain another Rs86 billion each year.

From what it appears, the decline of Pakistan Railways began in the 70s with the curtailment of its autonomy and political interference in its affairs, of which political staffing was no small feature. The result is a continuous decline in labour productivity at Railways despite the changes in traffic patterns and technology. Little wonder then labour related costs and pensions alone were 120 per cent of revenue earned in FY11. Railways' systemic erosion across multiple indicators of operational performance is illustrated in the attached table.

PBC highlights that although passenger services are the least profitable, almost 74 percent of Pakistan Railways revenues rely on passenger services. And "like most primarily passenger railways, it has historically tried to cross-subsidize its non-commercial network and passenger services from its freight business," the PBC report said.

Those interested in prospective solutions to fix the Railways are encouraged to look at logistics report released by the PBC, but it must also be kept in mind that Railways isn't the only faulty cog in Pakistan's transport industry. National Logistics Cell (NLC) is another.

What many Pakistanis do not realise that most of NLC's business is proprietary business; that is business which it gets without even bidding. Even worrisome is the fact that government policies are geared at protecting its interests alone, not the transport industry as a whole. "The Finance Minister is the chairman of NLC board. Imagine. NLC does not even need to bid for contracts. If NLC wasn't in between, the industry today would have had large companies who would be serious regional players," Mohsin Khalid CEO of ITC Logistics, told BR Research in an interview in October last year. "NLC's role in destroying the logistics business is the same as Pakistan Steel Mill's role in hampering the steel industry's growth. They destroy the entire industry's economics to protect a single entity," he added.

Another leg of the problem is that the road transport industry is immensely informal. Only 10 percent of the industry is corporate and the remaining 90 percent is semi-formal or informal, which puts the corporate players at a disadvantage, says Khalid.

With e-commerce and retail industry waiting to bloom, logistics industry as a whole not only demands reforms in Railways and road transport but also the officials need to think how to help develop a whole grid of vertically integrated system of warehousing, packaging, customs clearing, and connectivity.