It took Four Brothers to put Pakistan Railways, or at least one of its trains, back on track. It will, however, require many more than the Four Brothers Group to sustain a vibrant train service in Pakistan.

To say that Pakistan Railways (PR) is haemorrhaging is an understatement.  Years of neglect, inadequate maintenance, corruption, and lack of skilled management brought the Railways literally to a halt earlier this month when its employees refused to let trains run after not being paid their salaries and pensions. Pakistan Railways is one of several similar assets that have become a financial liability instead of being profitable.

At present Pakistan Railways is operating passenger service only on profitable routes. Short-haul service has been suspended for lack of resources. PR had suspended freight service completely and has only recently attempted to restore freight service between the port city of Karachi and the consumer markets in northern parts of Pakistan. The table below suggests that freight transport was down by 13 per cent and passenger transport was down by 8 per cent in 2009-10. While freight service once generated 30 per cent of Railways’ revenue, it is now down to zero.

Pakistan Railways is facing four major challenges. First is the deterioration of infrastructure resulting in the shortage of locomotives. Out of a fleet of nearly 500 locomotives, only 100-odd locomotives are in service. Eighty per cent of PR’s locomotives have broken down and are in need of repair. According to Railways’ engineers, a large number of locomotives are in fact beyond repair. As recently as in 2008, PR owned 280 locomotives. The current rolling stock is around 1,761 cars. The number of freight cars is around 17,698.

Reports suggest that 80-plus per cent of Railway’s bridges are beyond their service life and are no longer in a state of good repair. A Senate delegation recently learnt that fewer than 20 per cent of the machinery in the Mughalpura Workshop in Lahore is operational thus limiting the operational capacity of railway workshops to repair and refurbish rolling stock and locomotives.

The second major challenge deals with the Railways’ inability to purchase fuel from Pakistan State Oil (PSO). Since PR has already exhausted its credit facilities with PSO, it could no longer purchase diesel on credit. The federal government has recently doubled the credit limit for PR, which has resulted in the resumption of fuel supply to Railways’ fuel depots. Thirdly, because of liquidity constraints, Railways could not even pay salaries and pensions to its employees.

The fourth challenge concerns the masses (ghareeb awaam) who never miss an opportunity to destroy the very infrastructure that serves them. Pakistan Railways over the years has been a victim of the misdirected public outrage. The December 2007 riots after Benazir Bhutto’s death delivered a devastating blow to the Railways. Rioters torched 22 locomotives and 140 coaches while protesting the death of Bhutto that resulted in a massive $220 million loss to Railways. The total damage from rioting in December 2007 was estimated at $5 billion.

While the Railways has continued its downward slide, the Four Brothers Group decided to step in and offer Lahore to Karachi business class rail service by operating an express train that would still take 18 hours to traverse 1,250 km. One-way trip on the Business Express train costs 5,000 ($55) rupees whereas round-trip fare averages around $99. Within days the Four Brothers Group realized that the idea for a luxury rail service would not fly. While the train has a capacity of 486 passengers, only 150 boarded the maiden ride from Lahore to Karachi last week. Since then fewer than 150 passengers have been riding the luxury rail service.

Given the lack of demand and resulting loss in expected revenue, the long-term feasibility of the acclaimed public-private partnership between Four Brothers and the thousands of Railways’ unionised brothers is being questioned. According to a news report, the Four Brothers Group is contractually obligated to pay 3.1 million rupees to PR for each round trip between Lahore and Karachi. With 150 passengers on board, the gross revenue from a round trip is hardly 1.5 million Rupees, which is perhaps not sufficient to cover even the operating costs, let alone to pay royalties to PR for using its infrastructure, namely track, stations etc. Even if the luxury train operates at 70 per cent capacity, it will generate a net revenue of 3.4 million rupees for a round-trip between Lahore and Karachi. The train may be profitable at 100 per cent capacity where it will generate approximately 4.86 million in gross revenue of which 3.1 million rupees will be paid as royalties to PR, while the remaining 1.7 million rupees could cover operating costs and generate a profit.

The Four Brothers Group has reacted to the lack of demand by introducing an economy class in the luxury train with a reduced fair of Rs 3,500. The numbers I presented earlier suggest to me that the train service may be able to break even at Rs 5,000. At Rs 3,500, the service is unlikely to be sustainable and the train may soon be heading back to the docks for a long hiatus.

The problems with the Four Brothers train will be better understood when we do a quick comparative analysis of what else is available to travel between Lahore and Karachi. Using the Internet, I obtained fare by bus and other rail service between Lahore and Karachi. Note that if I were a budget traveller, Pakistan Railways’ Awami offers the most competitive one-way fare of Rs. 830. For a 1,250 km journey, the fare comes to Rs. 0.66 per km, which suggests it being a subsidized fare. The budget traveller will not turn to any other mode given the marginal difference in price. The next step up is again Pakistan Railways for a full seat at Rs. 2,270, which is still significantly cheaper than Daewoo bus service. The other two rail options are still significantly cheaper than the Four Brothers Rs. 5,000 ‘luxury ride’.

In travel demand forecasting, a graduate course I have taught over the past 12 years in Canada, students are trained to use econometrics to develop market share forecasts for new transport services. Such forecasting allows the investors to become increasingly aware of the inherent risks in their infrastructure investments. Much of transport planning in Pakistan is devoid of any investment-grade forecasting, which often leaves investors to assume unnecessary risks. The ill-fated bus franchise scheme that introduced a thousand-plus buses on urban routes in Pakistan met the same unfortunate fate as most operators were forced to flee the urban transit market. I wonder why in Pakistan governments and business alike are reluctant to invest in feasibility studies but are ready to pour hundreds of millions in projects whose feasibility is far from certain.

The lack of expertise in transport planning is a primary handicap in Pakistan. The university curricula in transport engineering programs is focused on highway engineering and the planning curricula is focused on soft planning skills. This has created a skill shortage in Pakistan.

In May 2011, I assisted the transport planning department of the government of Punjab in recruiting professional staff for the newly constituted Transport Planning Unit. Of several dozen applicants not a single qualified candidate was available from within Pakistan for transport economist and travel demand forecasting positions. Similarly, there was hardly any skilled talent in transport and logistics management. The shortage of skilled staff is even more acute in the public sector, which has the responsibility to regulate, and in Pakistan’s case even operate, transport infrastructure and services.

While Railways is facing almost insurmountable challenges, its fate is in the hands of unskilled professionals who have not been trained in transport management. The result is a consistent decline in service, quality, and liquidity of Pakistan Railways whose management has done little beyond lobbying the government to raise its debt ceiling. The status quo is certainly not viable for Pakistan Railways where a major rethink is in order.

The current political and executive leadership is highly inept to operate Railways. The conflicting statements made by the Minister of Railways and other senior executives to the Senate and the Supreme Court regarding Railway’s ability to refurbish out-of-commission locomotives suggest that no one is steering Pakistan Railways. Consider that on January 24 Railway Minister Haji Bilour informed the Senate that 12 to 13 locomotives were being refurbished by railways every month. Later on January 31, an official of Pakistan Railways informed Business Recorder that it would take at least six to seven months to repair 25 locomotives. Earlier on December 27, the Secretary of Railway Board Shafiq Ullah advised the Supreme Court that by January 10, 2012, 221 locomotives out of a fleet of 494 would be operational. Meanwhile Secretary Railways advised the prime minister on December 23 that 19 locomotives will be refurbished in December and an additional 15 will be brought to service in January 2012. The Senate or the Supreme Court may want to run an audit of all conflicting claims about refurbishing of locomotives to determine if it at all makes sense to continue with the governance model we have for Pakistan Railways.

I would suggest that privatization should be phased into Pakistan Railways. While privatization is no panacea for a myriad of challenges facing Pakistan Railways, the international experience in privatizing railways has been more positive than otherwise. Pakistan Railways’ bloated workforce continues to draw wages, salaries, and benefits even when the number of operating passengers trains has significantly declined while the freight train service has effectively come to a halt. In the first phase, freight service could be privatized. Given that it will not affect low-income passengers in the immediate future, Pakistan Railways can learn from the privatization of freight service before it expands it to passengers service, which could be privatized on a route-by-route basis, while accounting for the fact that those who will operate service on profitable routes will have to subsidise non-profitable routes.

Also, Pakistan may want to consider enlisting foreign skilled experts to operate Pakistan Railways. Pakistan has entrusted foreign coaches to train its cricket team in the past. The same could be done with Railways where local talent is in short supply.

The views expressed by this blogger and in the following reader comments do not necessarily reflect the views and policies of the Dawn Media Group.