Could Saad Rafique end up fixing much more than the railways?

It is easy to take something for granted if it has been around longer than even your great-grandfather could remember. In hindsight, perhaps we should not be surprised at the four decades of stunning neglect and mismanagement that Pakistan Railways has been subjected to, even though any fair-minded analysis would tell you that that the modern Pakistani economy would not exist without the railway. Perhaps we should even be grateful that the rot did not set in sooner.

Pakistanis have gotten used to thinking of the railway as a basket case. Trains arriving on time are considered a shock and almost nobody even blinks at the billions of rupees in bailouts (in addition to regular subsidies) that are paid out to the railway every year. But over the last four years, very quietly, the country appears to have been going through something of a railway renaissance, driven in part by slightly better management, and in part due to increased investments in infrastructure that form part of the China-Pakistan Economic Corridor (CPEC).

Of all the CPEC investments being considered, the projects designed to upgrade and perhaps even expand the country’s crumbling railway infrastructure may be the most consequential (in the positive direction). The railway can shrink distances in a manner that no major road or highway can, and with that shrinking of distances comes enormous economic possibility, particularly for some of Pakistan’s smaller cities.

Colonial beginnings

The story of the railway in what is now Pakistan is inextricably linked to the British presence in South Asia. More specifically, the notion of laying railroad tracks in present-day Pakistan was first floated during the tenure of General Sir Charles Napier, the first British governor of Sindh (then spelt Scinde), in 1847. Being a military man, Napier’s vision of the railway imagined turning Karachi into a port of strategic importance for the British that would also allow them to move troops quickly up towards Punjab and what is now Khyber-Pakhtunkhwa, where the British were beginning their Great Game of Central Asia against the Russians.

However, it was not until 1855 – when Sir Henry Bartle Frere (yes, the same one after whom Frere Hall in Karachi is named) became Commissioner of Sindh – that work began in earnest on setting up a railway in this part of South Asia.

The Scinde Railway Company was granted a charter by the British Parliament in July 1855, and construction began on the Karachi to Kotri section of the railway April 1858. On May 13, 1861, the first train left the Karachi railway station for Kotri, a journey of 174 kilometres.

The plan was always to connect the grain-growing areas of Punjab and Upper Sindh and develop Karachi into a major port for exporting that grain to the rest of the British Empire. The Scinde Company ran the railway from Karachi to Kotri. From Kotri to Multan, passengers and cargo would be moved to steamboats navigating the Indus and Chenab rivers, a route run by a company called the Indus Flotilla. From Multan, another train would take both passengers and cargo on to Lahore and Delhi. The line from Multan to Lahore and Amritsar was owned by the Punjab Railway Company, which was also established in 1855 and also began operations shortly after the Scinde Railway Company in 1861.

Why not build a railway track all the way to Lahore, you might ask? Because Karachi is towards the west bank of the Indus River and Lahore is to the east, which means that no matter what route you take up or down the country, at some point, the railway line would have to cross the river. Bridges until the 1860s were typically made of either wood or stone, but those materials have their limits as far as holding their strength over a wide river is concerned. And, by the time it reaches Punjab, the Indus is a very wide river. The technology for building a bridge over a river that wide had simply not been invented yet.

Yet it was about to get assistance from an entrepreneur on the other side of the world who was struggling with a similar problem of how to build a bridge across a wide river. In the early 1860s, Andrew Carnegie wanted to build a bridge across the Mississippi River in the United States at St Louis, which would allow for ease of travel from the eastern part of the US to the western part. His engineers kept insisting that the Mississippi was too wide by the time it reaches St Louis for a bridge to be built. One of his engineers sarcastically said that it might be possible if the whole bridge were made of steel.

Up until that point, steel had only been made in very small quantities, typically for weaponry. Carnegie seized on the idea of mass-producing enough steel to make a whole bridge out of it, pioneering the concept of a mass steel mill and the use of steel in large building structures in one go. The Eads Bridge in St Louis was completed in 1874, and proved that wide rivers could be bridged by using the right materials.

Once the technology of using steel in bridges became widely accepted, it made its way to South Asia, where the British built steel bridges at Attock (which helped create a Lahore to Peshawar railway) and the Lansdowne Bridge that connects Kotri and Sukkur, and was built in 1889 (which helped complete the Karachi to Lahore route). When it was made, the Lansdowne was the longest rigid girder bridge in the world.

Meanwhile, the success of the Scinde and Punjab lines triggered a rail-building frenzy, a trend that was also gripping most of the industrializing powers of the world at the time, including the United States. The Indus Valley State Railway, for instance, was created in 1871 to provide the missing rail link between Kotri and Multan, completed after the Lansdowne Bridge was finished in 1889. The Punjab Northern State Railway started operations in 1876, with the aim of connecting Lahore to Peshawar, which was made possible after the construction of the Attock Bridge in 1883. The Sind-Pishin Railway connected Karachi to Quetta.

All of these company and many others that operated in what is now Pakistan – along with the Delhi Railway – were merged in 1885 to form the North Western State Railway (NWR), the name of the company that remained in effect until Partition.

The effect of these railways cannot be underestimated on the economy of Pakistan. Prior to the construction of the railway, the best way to get from Karachi to Lahore was to take a series of river boats. The journey from Multan to Karachi alone would take around 40 days, and the journey from Lahore to Karachi could take upwards of two months. The idea of trading grain over extended distances made no sense because it would simply cost too much. And so farmers were restricted to producing only as much as they could consume themselves and sell to maybe a few nearby towns.

After the construction of the railway, the journey time was cut down to less than 24 hours and it completely transformed the realm of possibility for agriculture in what is now Pakistan. It is not a coincidence that the Indus River irrigation system, the largest contiguous system in the world, was built after the railways were built. It would make no sense to try to get farmers to produce more than subsistence levels of grain unless they could reach a market that could feasibly afford their products.

It was not until 1886 that the British were able to start building the Punjab Canal Colonies, which were a series of large, previously sparsely inhabited areas in Punjab, that were brought under cultivation through the use of canals that diverted water from the province’s five rivers. Those canals allowed for previously landless and poor farmers to settle in newly cultivable regions, and the railways helped them sell their surplus crop to the rest of the British Empire.

The British would begin building similar infrastructure for Sindh and Balochistan in 1923, with the construction of the Sukkur Barrage.

With the completion of these large rail and irrigation projects, the volume of commerce between Punjab and Sindh, in particular, exploded. On the eve of the First World War in 1914, Karachi had gone from being a small town on the coast of the Arabian Sea to becoming the largest grain port in the British Empire, and Punjab had become its principal bread basket. The port may have made Karachi into a major city, but the port would have been useless without the railway link to the rest of the country.

Contrary to popular perception in Pakistan (also known as the myths and lies our parents and grandparents told us), none of the predecessor companies of the North Western State Railway, nor NWR itself were seen as particularly shining examples of effective corporate management. The system was better managed than it is now, to be sure, but the quality of both trains and stations, as well as the punctuality of trains, was inferior to those of train lines that operate in what is now India.

The early post-independence era

The quasi-competent management of the British era largely continued into the first few decades after independence. The newly renamed Pakistan Railways continued to make improvements upon its infrastructure through the early to mid-1950s, and even expanded some lines (though not by much). Nearly all of the current infrastructure, however, is the same lines in the same locations and routes that the British built and left over 70 years ago (and even the British were mostly done building by the 1920s).

This was, however, the era before motorways, and even though the N-5 highway had been completed by 1952, it was not yet a major thoroughfare for cross country travel. So rail continued to be the most important way to transport both goods and people across Pakistan, and the men (and nearly all of them were men) who ran the Railway lived like kings in palatial mansions on prime land in major urban centers.

However, even in this era, the growth in transportation was already leaking away from the railways. For instance, the total volume of cargo transported by Pakistan Railways grew by 31.4% between 1950 and 1965 (a 1.8% annual average). That number sounds impressive, but considering the fact that the total (inflation-adjusted) size of the Pakistani economy grew by 85% during that time (a 4.3% annual average), it seems logical to assume that a substantial portion of the growth in cargo transportation – more than half, based on our estimates – was being handled by road.

Some of this was inevitable, of course. Rail cannot handle everything, and as more and more smaller towns in Pakistan were connected to the road network, businesses and people there would rely on those highways for their transportation needs. But the key driver for the declining market share of railway – even in this supposed golden age of post-independence Pakistan Railways – was the fact that there was negligible investment in expanding the existing infrastructure.

One of the most glaring omissions? The fact that there are long stretches of the Main Line One (from the Afghan border at Torkham to Karachi), which simply have only one track, including the entire track north of Lahore. That means that only one train can safely run north of Lahore, which significantly slows down speeds, especially on the Lahore to Peshawar stretch.

Rail in Pakistan remained stuck where the British stopped building it in 1920, but the economy was growing at a furious pace in the 1960s, leaving people with no choice but to use the more expensive – and usually slower – mode of transportation: road. Here is a little tidbit that gets left out of most Pakistan Studies textbooks: the administration of President Ayub Khan was almost completely useless when it comes to improving Pakistan’s transportation infrastructure during its tenure.

Yet, for all their flaws in planning for the future, at least the first generation of Pakistani managers did not allow the railway to fall into active disrepair. Indeed, the timing of the collapse of Pakistan Railways appears to coincide roughly with when that first generation of officers – the last of whom interacted with the British builders of the railways, and thus perhaps the last to have been imbued with a sense of romance about trains – began to retire. (Disclosure: the maternal grandfather of one of the authors of this article, Tirmizi, served in Pakistan Railways until 1966.)

The slow-moving decline: 1970-2013

While the total number of passengers carried by Pakistan Railways kept rising well into the late 1970s, the signs of decline on the cargo side of the business were already beginning to show in the later 1960s, when growth in cargo effectively went to zero. Cargo traffic on Pakistan Railways actually started declining in 1970, and effectively kept going down until 2013, the worst year on record for rail carrier. The total volume of cargo carried by Pakistan Railways in 2013 was 95% less than the total volume carried in 1950.

The reason cargo matters is because that is how any rail carrier can make money. “All over the world, the railway makes its dough from freight,” said Railways Minister Saad Rafique, in an interview with Profit.

Passenger traffic tends to be unprofitable across most of the world and is often viewed by governments as a necessary piece of transportation infrastructure to provide citizens with affordable long-distance travel, and often seen as something that is worth subsidising. “The railway is a mixture of both a commercial organisation and a public service obligation,” said Javed Anwar Bubak, the CEO of Pakistan Railways.

One additional reason: passenger trains have to compete with buses, which can offer lower fares, albeit a more uncomfortable ride, but freight trains – despite lacking any subsidies – are much cheaper than trucks, especially over long distances.

To get some idea as to what the cost differential can be between transportation by trucks versus rail, consider the following numbers. “One railway locomotive of 3,000 horsepower can pull up to 70 freight wagons. Each wagon has a 22-ton capacity, which means that each wagon carries the load of three trucks. In short, one locomotive can pull a load equivalent to 210 trucks,” said Ishaq Khakwani, a former Pakistan Railways engineer and former minister of state for railways under the Musharraf administration, and current central vice-president of the Pakistan Tehreek-e-Insaf (PTI).

So how much fuel does a train use versus a truck? Surely, a lot more, right? Yes, but not when one factors in how much more weight a locomotive can pull. The United States Department of Transportation calculates that the average efficient truck (and most Pakistani trucks are far from fuel efficient) is able to travel 25.1 kilometres per litre of fuel. The average locomotive, hauling those 70 wagons (equivalent of 210 trucks)? It will travel 1.4 kilometres on one litre of fuel. In terms of fuel costs alone, shipping cargo by truck costs approximately 11.6 times more than shipping cargo by train. There is, quite simply, no comparison.

While the lack of infrastructure investment helps at least partially explain why there was no growth in the cargo business, it does not explain where there was a precipitous decline that continued virtually unchecked until about four years ago. Ghulam Ahmad Bilour, who has served for eight years in two non-consecutive terms as the federal railway minister, most recently from 2008 to 2013, thinks the answer lies in the creation of a military-backed transportation company.

“The main problem with the railway dates back to the creation of the NLC [National Logistics Cell, in 1978]. In truth, since the NLC was formed, it has been working on and using trucks for freight, which has made railway suffer. Freight is the way that railways earn. So, when NLC was formed, freight moved from rail to trucks and it gave Pakistan Railways a major blow,” said Bilour, who is an Awami National Party (ANP) member of the National Assembly from Peshawar.

But the NLC being an alternative to the railway is an insufficient explanation. After all, an NLC truck is still more expensive than a rail carriage. The only reason it would make sense for businesses to move their cargo shipping needs to the trucks would be if the railway was not available, or not reliable, or both.

On that front, it appears that chronic underinvestment in infrastructure stretched not just to building new infrastructure, but maintaining old parts of it as well. This lack of maintenance shows up in the stunning decline in the number of freight wagons and locomotives owned by Pakistan Railways. The total number of freight wagons owned by PR peaked in 1975 at 37,395 and has steadily declined since then to hit 15,452 in 2015, according to the Railways financial statements. The number of locomotives has also dropped precipitously. The total number peaked in 1970 at 1,071 and stood at 458 in 2015.

“Even the locomotives we have are all dysfunctional,” said Bilour. “They stop working in the middle of their routes.”

How was this abysmal situation allowed to fester in the first place? The answer appears to lie, at least partially, in an accounting trick the government implemented decades ago to make the financial statements of Pakistan Railways look healthier than they really were.

The government has allowed the organisation to omit the depreciation of its assets from its calculations of its operating costs to make the deficit look smaller than it really is, said Ijaz Jaral, an official at the accounts department of Pakistan Railways. Jaral said this move was made decades ago, though he was not specific about precisely when this happened.

The problem with not listing depreciation as an operating cost – aside from being an atrocious accounting practice – is that it means that the organisation is not keeping track of the money it will need to replace them when their usable life expires. In the case of a state-owned enterprise, this means that rather than having replacement equipment – whether it be locomotives or freight wagons – be accounted for in the usual subsidy that the government pays to the Railways to cover its deficit, the railway would need to apply for separate funding every time any piece of equipment went obsolete. Yes, the short-term financial health of Pakistan Railways looks better, but the price paid is the long-term survival of the railway as a going concern.

When asked about this absurd accounting practice, Bubak, the Railways CEO, engaged in an even more absurd case of whataboutism. “The cost of transporting goods on trucks or by air is way higher than the cost of transporting them through rail. But the fact that we provide a service which allows the user to transport goods at a lower price does not show up on our balance sheet, even though the amount runs into billions of rupees and the entire nation benefits from it.”

No, Mr Bubak. That is not how accounting works. (For the uninitiated, the portion of the total economic value of rail transportation that is available to Pakistan Railways is already reflected in the price it is able to charge its customers, and hence in its revenue numbers. The portion of economic value from rail transportation that is accrued to its corporate clients is reflected in their operating profit numbers. If both sides did not gain economic value, the transaction would not take place. It is ludicrous to suggest that the total economic benefit of the transaction should be reflected on one set of financial statements.)

In addition to the accounting troubles, it did not help that since 1991, the position of head of the railways has been held, not by a member of the Railway Group of the Civil Service of Pakistan, but by a member of the powerful District Management Group (now known as the Pakistan Administrative Services).

“Even in India, the practice is that a railway man heads the department and not any officer from another group who has no prior experience of running railways,” said Bubak. “This is a complex, multi-disciplined department and the only person who should run it is someone who has worked for their entire lives in this department, not officers from other groups.”

“In order to mitigate the effects [of this DMG dominance], the government recently created the post of Chief Executive Officer in order to give more power and autonomy to the highest authority in the railway department after the Chairperson,” he said.

CPEC-led recovery?: 2013-onwards

Bubak’s larger point, however, is valid. The railway does accrue tremendous economic value to the country as a whole – more so than roads and highways – and is an institution worth preserving and investing in for the future. On that front, there appears to be some cause for optimism.

The first of these is who got appointed railways minister when Prime Minister Nawaz Sharif returned to office in May 2013. He appointed Khawaja Saad Rafique, an influential member of the ruling Pakistan Muslim League Nawaz (PML-N), to the position. As bureaucrats all over the world know, when it comes to deciding how much in federal resources will get allocated towards your department, it matters a great deal who the minister is in the cabinet meeting, and how much he or she has the prime minister’s ear.

It is not just Rafique’s influence that has counted, however. Bubak says that the minister has been supportive of the railway management and has not engaged in what is common behaviour among Pakistani politicians: forcing the government departments or state-owned enterprises that fall under their purview to hire their own political supporters as payback for helping the politicians win the election.

“He ensured that we allow merit-based promotions and competent, honest officers to take hold of important positions in the department,” the CEO said with reference to the minister.

Rafique came on as minister at what was unquestionably the worst period in the 156-year history of Pakistan Railways. “The situation was so bad that our workshops’ electricity were disconnected. Employees were blocking roads in protest over unpaid salaries. In Karachi, employees had skirmishes with police. Senior pensioners were braving the heat to demonstrate against unpaid pensions,” said Rafique.

The minister got to work in trying to resolve those issues. It is in matters like this that it helps to have the prime minister’s trust, as Rafique was able to get enough federal funds allocated to the railway to pay overdue bills, pensions, and salaries.

In his interview with Profit, Rafique appeared to make it clear that while Pakistan Railways has a higher cost basis than a purely commercial organisation might because of its public service mission, PR’s basic financial problem is not costs, but revenue. And on that front, the core of Rafique and Bubak’s strategy is going after reviving the cargo business.

“In 2013, we sent 182 up-country freight trains from Karachi in a whole year – which meant one train every two to three days. This number has now swelled up to 3,500 in 2017. At the previous fiscal year’s end (June 30, 2017), Pakistan Railways’ revenue has more than doubled, going up to over Rs40 billion from Rs18 billion in fiscal 2013. Only eight locomotives were running freight trains in mid-2013; now there are 102 operational freight locomotives,” said Rafique.

Cargo, however, is not the only place where the current management of the Railways is paying attention. Some of those initiatives include investing in newer and better locomotives, investing in improving tracks to allow for faster train rides (a project financed through CPEC), encouraging public-private partnerships to allow for the creation of a premium passenger train service, recovering the encroached railway-owned land, and hiring the best qualified professionals for all available jobs.

The railway is also investing in newer, more powerful locomotives. Right now, the majority of Pakistan Railways’ locomotives are 2,000 horsepower engines. The government recently purchased 55 new locomotives of 3,000 horsepower each. The advantage of more powerful engines is that they can pull more carriages on the same routes, effectively increasing the railways’ capacity. The new locomotives did not come cheap, though. Each costs Rs500 million.

The government has also tightened requirements for who is allowed to fill positions at Pakistan Railways. “Before this policy, there was not a single qualified lawyer in the legal department and the IT department was manned mainly by high school graduates,” said the minister. The insistence on high standards, however, has come at a price in a country that has a very low quality of human capital: there are currently 20,000 mostly technical jobs at Pakistan Railways that currently remain unfilled.

Another important strategy has been to recover some of the more than 5,600 acres of railway-owned land that is currently being encroached upon by both private citizens as well as other government departments (the most prominent of which is the military). Through a combination of lease agreements and litigation, Pakistan Railways has been able to reclaim 1,055 acres of its encroached land, yielding in a total of Rs6.12 billion in additional revenue over the past four years.

One of the more publicly celebrated recent railway initiatives, first started under the Zardari Administration, is public-private partnerships that allow railway infrastructure to be leased by private companies to run passenger trains. There are currently four trains – Night Coach, Hazara Express, Fareed Express and Shalimar Express – that are being operated by private companies and have yielded an additional Rs2.6 billion in revenues over what Pakistan Railways was earning when it operated them on its own.

But perhaps the biggest, most important initiative being planned by Pakistan Railways right now is the ₨886.68 billion (US$8.4 billion) CPEC-financed upgrade of its Main Line One (Torkham to Karachi), which aims to improve tracks, signals, locomotives, and other infrastructure that would allow trains to increase their average speed up to 160 kilometres an hour for passenger trains and 120 kilometres an hour for cargo trains. Those speeds may not sound very high, but consider the fact that the Khyber Mail currently goes from Karachi to Peshawar at an average speed of less than 54 kilometres an hour, meaning that the journey takes 32 hours. At 160 kilometres an hour, that journey would take 10 hours and 45 minutes in train time alone. Adding in time for stops along the way should still result in an express train being able to do a Karachi to Peshawar journey in close to 12 hours.

It is this shrinking of distance, both in terms of time and transportation costs, that is likely to have the most profound impact on the Pakistani economy – and possibly even Pakistani society – over the next few decades… if we get it right.

Why the Railway matters to Pakistan

Imagine if Pakistan Railways is actually able to pull this off and trains run considerably faster than they do right now. Here is what that will mean.

You can get on a train from Lahore and arrive in Rawalpindi in just two hours, to Peshawar in just three and a half hours, to Multan in just over two hours, and to Faisalabad in just over an hour and 15 minutes. Sukkur would go from being a six-and-a-half hour drive from Karachi to being less than a three-hour train ride away. Imagine what that kind of shrinkage of distance – coupled with the fact that trains are significantly more comfortable than buses while not being significantly more expensive – would mean for the fate of the country.

You might argue that this does not really matter because all of those routes have flights as well. Yes, but flights are typically more expensive than train rides. Besides, consider the Lahore to Rawalpindi trek. Yes, the flight is only 45 minutes, but you also have to get to the airport a little more than an hour before the flight in order to make it on time. Add the wait time at the airport to the flight time, coupled with the fact that train stations tend to be closer to the heart of cities than airports, and one gets a total journey time for some routes that would actually be shorter on a train versus on a plane, and also probably cheaper. (This, by the way, is why rail travel is exceedingly popular in Western Europe and the northeastern part of the United States.)

But the impact of increasing train speeds goes well beyond convenience. To take just one of the examples above, Sukkur’s fate would be completely transformed. Instead of having to locate factories in Karachi to be close to the port, for instance, small businesses could choose to locate in Sukkur instead and use the cheap, quick rail shipping to transport their goods to Karachi. It would fundamentally alter the economic prospects of Sukkur and its one million residents. Now imagine that repeated for every single small city in Pakistan.

It would also alter how Pakistani citizens view their own prospects. Take, for example, the case of a hypothetical (yet very realistic) young native of Multan and fresh graduate of Bahauddin Zakariya University. She may face the choice between a somewhat lower paying job with few prospects in Multan itself, or a higher paying job with better prospects in Lahore. Hundreds of young people no doubt face similar choices every year and no doubt some might chose to move to Lahore, but one suspects that many more would prefer to stay close to family in Multan. But imagine if, instead of a grueling six-hour drive, Lahore were only a two-hour, cheap, convenient, train ride away. How many more people would be willing to move out of their hometowns, knowing that, if need be, they can hop on a train and be back home in a couple of hours?

And what would that do to our social fabric? All of us would have more relatives living in other parts of the country instead of having high levels of geographic concentrations. Would we not be more socially cohesive as a country, less divided along at least ethnic and geographic lines?

This is what is at stake in the revival of Pakistan Railways. You may not have cared about the railway, but its absence has impoverished your life, and its revival could enrich it in more ways than we can measure.