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Privatization of Railways by Dec 2000

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Privatization Commission's another gimmick to pacify world donors

From Shamim Ahmed Rizvi, Islamabad
Sep 27 - Oct 03, 1999

The Privatization Commission, which could not adhere to any schedule of privatization of various state owned commercial enterprises announced from time to time in the past, has come out with yet another programme of privatizing the Pakistan Railways by December 2000. This announcement has come following the renewed agreement with the World Bank for the release of $200 million for implementing the restructuring of railways.

The restructuring programme was approved by the World Bank authorities but the promised amount of interest free loan was withheld in the aftermath of nuclear blast in May 1998 when the programme had just been initiated. This led to shelving the programme of privatization. The element of uncertainty in privatization plan took its toll in the financial year 1998-99 when the organization suffered alarming losses exceeding billions of rupees. The Pakistan Railways has over the last few years been running into phenomenal losses. Like a number of other government controlled organizations, it has turned into a back breaking burden on the national economy. One of the reasons 'why the organization is suffering losses' is corruption and the other is its extreme over-staffing by political appointments made by succeeding governments to oblige cronies and party workers. Privatization Commission had initially started work on Railways privatization in 1996. The present government took up this work seriously in April 97 with a plan of action to complete privatization by June 98 later extended to December 98.

With the renewed commitment of World Bank the shelved programme has restarted with full zeal. So far, Ministry of Railways and Railways Board have been separated while the Railways Board has been relocated at Lahore with three members from private sector. Pakistan Railways has been unbundled into four business units i.e. Infrastructure, Passenger, Freight and Residual.

As the privatization process goes on , it is the considered view of the Ministry of Railways that the operation of the Pakistan Railways must continue at a reasonable level of safety and efficiency. This involves the induction of new equipment, up-gradation of its assets and services to at least a minimum safety level within the existing financial resources available. This view has been supported by the World Bank as well. They have agreed for emergency rehabilitation of the Infrastructure, Passenger and Freight equipment as per their aide memoir dated June 1998 wherein they had endorsed that investment has to be undertaken to correct the short-term safety and operational shortcomings prior to privatization.

These four business units started operation in Sept. 1998 on parallel run basis. Presently their accounts are being separated for the purpose of separate balance sheets. After completion of balance sheets process, these companies will be registered under Companies Act of 1984 thus exposing Pakistan Railways to the legal and procedural requirement under the Income Tax Act, 1979—a burden which Railways is not in a position to bear for the present or in the near future.

With a view to expedite the process of privatization of Pakistan Railways and to attract local as well as foreign direct investment, the Ministry of Railways has proposed the following package. First, the Railways may be declared as an industry. This will enable local and foreign investment to avail all concessions from financial institutions etc. Secondly, Pakistan Railways after registration under companies Act of 1984 may be exempted from income tax for a period of 10 years. Third, to induce the local/private sector to invest in these four companies they may be allowed 10 per cent customs duty, exemption of sales tax, on the imports of Railways equipment not being manufactured in Pakistan. Fourth the Investment Policy Framework (SRO26(I)/98 dated January 17, l998 allows 10 per cent concessionary duty to passenger and goods carriages, locomotives only. This needs to be amended to include electrical and signalling equipment and its parts for the progressive manufacture of railway equipment. Fifth, imports falling under Chapter 86 pertaining solely and principally to railways, may be allowed at the rate of 10 per cent and free of sales tax under statutory tariff regime. Sixth, the condition of 75 per cent deletion specified in the SR0 N0.501(I)/94 dated 9.6.99 providing concession to the raw material, sub-components and all parts of locomotives may be relaxed. The approval of this package, it is claimed, would make PR attractive to the investors.

It is generally believed that the Pakistan Railways is terminally sick The situation obtaining in the biggest commercial undertaking of the public sector has reached a stage where it cannot be retrieved. Travel by train has become a frustrating and nightmarish experience for the commuters not only because of lack of facilities that go with a comfortable and trouble-free journey but also due to absence of safety of life and property. Owing to increasing inefficiency, the Pakistan Railways has lost freight, its main source of revenue, to road transport even though the latter is a much costlier means of transportation.

The government seems to be hell sent on privatizing Pakistan Railways and since, there is no local investors who can afford to take over this commercial enterprise, the sale of this national asset to a foreign investor seems inevitable.

It revives the memory of the ancient East India Company which after gaining a foothold in the subcontinent as a trading company ultimately established the British hegemony over this part of the world. Will it there be advisable to allow a foreign company to penetrate and dominate a key sector of the national economy, gaining access to some sensitive areas from defence and security point of view. If the Indian railways, seven times the size of Pakistan railways, can run on profitable lines earning twenty times more than us through efficient handling of goods and passenger traffic, why can't we manage our affairs on healthy lines.