By Syed Marwan Shah

ISLAMABAD, Aug 17 (INP-WealthPK): The Asian Development Bank (ADB) has advised Pakistan and other countries in the region to adopt a modern commercial accounting system and liberalise tariff regulations to improve the performance of railways and make it a profitable sector, WealthPK reports.

The ADB has suggested six policy reforms to strengthen the railway network in the member countries of the Central Asian Regional Economic Cooperation (CAREC) including Pakistan.

In a new study, the ADB has assessed the state of CAREC railways and examined opportunities for investment, commercialisation and reforms. The implementation of key reforms can help to promote economic growth in the region and improve the living standards of common people.

According to the study, Pakistan Railways has 466 locomotives and 16,159 freight wagons, of which 23 percent of locomotives and 24 percent of wagons are out of order.

The study said that most of the regional railways use accounting systems that do not follow internationally recognised commercial standards. It is not possible to measure the true financial performance of railway entities with these old systems or to separate the financial performance of each business activity using these systems.

The railways in the region should develop modern commercial accounting systems that provide reliable and transparent information about costs, revenues and financial performance. It is also important to enhance staff expertise in operating the system and using it to analyse the performance of the railways.

The study suggested that railways should implement enterprise resource planning systems to help them adopt more commercial approaches that would  increase productivity and profitability. The systems would enable the planners to maintain an overview of existing railway resources, such as staff or rolling stock, and determine more efficient ways to utilise them.

In order to optimise tariff levels and understand which routes are the most profitable, the systems can be used to determine the full cost of operating railway services and routes. The systems are meant to monitor and improve productivity and the utilisation of assets, which will ultimately increase profitability.

Likewise, nearly all the CAREC member countries regulate railway freight tariffs. While CAREC railways do not face competition from other railways operating in their domestic market, they compete with road transport and long-distance railway freight services using other railway corridors.

The CAREC countries should consider liberalising tariff regulations so the railways can adjust their fares in line with market conditions. It will help them to attract more customers and optimise revenues.

Most of CAREC member governments require their railways to continue providing services, especially passenger services, even if they are not making profits. This also leads to more unprofitable passenger traffic and less profitable freight traffic. As a result, some railways cannot generate enough revenue to regularly upgrade their assets.

To address this issue, CAREC member governments can consider introducing a public service obligation. They can ink contracts with the railway operators to offer certain services. The government should reimburse the operator in case of loss.

The regional countries need to examine the non-core activities of their railways and progressively separate or privatise them so that operators can focus on providing railway services to customers on a commercial basis. Non-core activities may include health services and housing and various non-railway businesses. Since many non-core activities are loss-making, they are often a significant drain on the railway’s limited financial resources.

The study said that including private companies in the operation of freight and passenger services can create competition within the railway market, thus improving efficiency and service quality. To establish a fair and transparent base for competition, most of the CAREC countries will need to reform their policy and legal frameworks to allow the private sector to play additional roles in the railway sector.

Many CAREC railways have old rolling stock fleets that need to be upgraded or expanded to meet demand. Due to their poor financial performance, railways generally lack sufficient funds to finance the needed investments. A possible solution is to invite the private sector to supply rolling stock on a lease or rental basis.

“Overall, as markets change over time, railways also face further competition from other modes of transport. Implementation of reforms can enable railways to adapt to changing markets,” said the study, available with WealthPK

Credit: Independent News Pakistan-WealthPk