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Road map for the revival of rail sector in Pakistan


Road map for the revival of rail sector in Pakistan


Mohammad Hanif Gul




The foremost problem of Pakistan Railways is the quality of human resources at its disposal. Since PR has a monopoly over the rail sector, it was supposed to recruit, train and retain the best human resource. However, for the most part, the human resource of PR is less educated, skill-deficient, low-paid, demotivated, and poorly trained



Another major bottleneck is the poorly maintained infrastructure, rolling stock and locomotives. This leads to frequent failures and at times, fatal accidents. The poor reliability coupled with poor safety record has tarnished the image of the organization



The railway is the premier mode of land transport. It is considered a safe, efficient, sustainable and cost-effective mode of transport. In terms of land intake, fuel efficiency, passenger safety, and heavy and long haulage, it is established through various studies that the railway has a considerable advantage over road transport. High-speed trains have successfully proven their utility over airlines for distances ranging from 500 to 1200 km. On some routes, Railways actually beat maritime transportation both in terms of time and cost.

It is against this backdrop that there have been considerable investments in railways in the late 20th and early 21stcenturies. The sector has been completely revamped in Europe, Japan, and China with entirely different rules of the games and business models. The USA, which ignored the rail sector since World War 2 is displaying renewed commitment to invest in railways in order to create a credible mix of different modes of transportation.

In Pakistan, railways are witnessing a systemic decline since the 1980s. There have been catastrophic accidents since the 1990s, 2000s and 2010s with hundreds of passengers losing their lives. However, even such horrific accidents failed to raise the conscience of those at the helm of affairs. In railways, despite loud talks about reforms and improvements, there was never a serious, well-thought and profound attempt for reforming the sector to make it safe, efficient and reliable.

Why Railways?

Railways are environment-friendlymodes of transport. In terms of land use, it is 4 to 6 times more efficient than roads. In terms of million tons of carbon emissions (mtCO2e) it has decisive advantages. A 2016 study published by the Department of Transport in the UK found that mtCO2e of Railways was 2 milliontonnes compared to 70 million tonnes of road and 35 million tonnes of aviation.

The transport sector consumes 1/3rd of energy demands, 2/3rd of global oil demand and 1/4th of global carbon dioxide emissions. Therefore, it is imperative that the transport mix must be changed to meet the standards of emissions set by the United Nations. Railways have a considerable advantage over other modes of transport in long distances and heavy hauls vis-à-vis climate sustainability.

The railway is by far the safest mode of surface transportation. In terms of billion passenger kilometres for a single fatality, the road is the least safe as there is one fatality every 2.31 billion passenger kilometres (pkms), while in railways this ratio is 6.41 billion pkms. Only aviation beats this by 9.90 billion pkms. The safety of high-speed trains which are competitors of the air industry for medium and long distances (800 to 1200 km) is almost as good as the aviation industry but HSR emits nearly 10 times less CO2 compared to an aircraft.

In Pakistan, Pakistan Railways (PR) enjoyed a monopoly since the partition. The internal thinking of PR has always been in favour of maintaining the existing scenario as it favours their comfort zone. In the process, the rail sector, which was once an integral component of the economy, has been gradually reduced into significance. The horrific safety profile of PR has further eroded public confidence in the capability of PR.

An overview of financially viable railways

In order to learn lessons, it is important to have a look at the railways, which are performing far better in terms of revenue generation to have an idea about the structure of those railways.

Deutsche Bahn ($51.4 billion)

It is a German railway company which employs around 3,10,000 people in 130 countries, operates a network of 33,488 kms, and has 5700 train stations over the system. It has the distinction of carrying 80,000 containers between Germany and China in 2017 on the world’s longest railway route so far. DB is a joint stock company with state of Germany being the single shareholder. The company owns several other subsidiary companies each running the sector in the respective domains such as local passenger business, long-distance passenger business, cargo, infrastructure etc.

The company generate half of its revenue through rail transport directly while the remaining half is generated by logistics and other elaborate services. The company responsible for infrastructure construction, and maintenance is further divided into three divisionsi.e Infrastructure, Stations & Services and Energy divisions.

The professional management board runs the affairs of the company. There is a 20 members supervisory board comprising of shareholders representatives, employees representatives and state representatives.

SNCF ($40.12 billions)

A French state-owned railways company, it employs 2,70,000 people in 120 countries. It operates a network of around 30,000 kms with 2600 km of the high-speed network. SNCF has a fleet of 15000 trains. SNCF is among the top 25 companies of France and is listed in the Global Fortune 500 as well. It has subsidiaries companies to cater for infrastructure, manufacturing, rail transport, tramways, buses etc. It is a state-owned company but is strictly run on the basis of corporate principles.

JSC Russian Railways ($39.04 billion)

It is a very large company, which operates 85,000 kms of the network. It has a workforce of 7,50,000 in 40 countries. It carries over a billion passengers and two billion tonnes of freight every year. It is a state-owned company with fully vertically integrated operations. It maintains infrastructures and manages the operations as well. It was separated from the Ministry of Railways of Russia in 2003.  Later, the Ministry of Railways was dissolved and merged into the Ministry of Transport.

Indian Railways ($ 28.8 billion USD)

India is a state-owned and managed railways comprising of 18 zones and 68 divisions. A General Manager heads the zones while Divisional Railway Manager (DRM) heads a division. A seven-member professional railway board is responsible for the strategic management of railways in India. It is a network of around 95,000 kms, 7321 stations and employs around 1.2 million people.

India is a very large railway. It carries over a billion tones of freight and around 8 billions passenger per annum. Its passenger volume is more than the population of the world. Indian Railways have gradually moved towards corporatization and it is the majority shareholder in 16 publicly listed companies, which carry out different activities relating to core/non-core business of Indian railways.

East Japan Railway Company (JR East) ($ 27.7 billion)

Based in Tokyo, this is a company that deals in the areas of transportation, retail& services, real estate and hotels. This company has successfully diversified its business by applying Railway plus Property (R+P) model.

BNSF Railways ($ 21.38 billion)

Based in Fort Worth, Texas, BNSF is one of the largest transportation companies in North America. It operates a 52,303 km route covering 28 states in the US and three Canadian provinces and runs a total of 25 intermodal facilities. It has an employee base of 41,000 people.

Union Pacific Corporation  ($21.24 billion)

Union Pacific Railroad Company operates 8,573 locomotives on a 51,695km network covering 23 states. Headquartered in Omaha, Nebraska, US, the company serves 10,000 customers with a workforce of 41,992.

Central Japan Railway Company ($17.14 billion)

Based in Nagoya, Japan, JR Central is mainly involved in providing passengers with reliable rail transportation services. The company employed 28,867 people as of March 2018.

The company’s business segments include transport, merchandise, and real estate. It has also employed R+P model to its advantage.

West Japan Railway Company (JR-West) ($14.12bn)

Headquartered in Osaka, Japan, JR-West operates 5,008.7km of rail network covering 16 counties and two provinces. The company runs 6,562 vehicles covering 1,200 stations.

JR-West’s business segments include transportation operations, retail, and real estate. It has successfully adopted R+P model.

CSX Corporation ($11.4bn)

CSD has 33,796km rail network. It operates in 23 states east of the Mississippi River and the District of Columbia, as well as Canada’s Ontario and Quebec provinces. Headquartered in Jacksonville, Florida, the company employs a workforce of approximately 24,000.

Common features of high performing Railways

The review of the highest-yielding railway enterprises would reveal beyond any shadow of a doubt that the structure of management is based on established corporate principles. Even in government-owned enterprises business decisions are made based on the principle of efficiency, business diversity and engagement of sector specialists.

It is also important to note that the capacity of the system is utilized to the optimum level with a high frequency of service and better load management. The corporate-style railways are employing more people with better wage structures.  When we look in the context of PR, it has essentially ignored the developments taking place in the industry and refused to initiate or accept any process of reform/change.

Issues/challenges of Pakistan Railways

The foremost problem of PR is the quality of human resources at its disposal. Since PR has a monopoly over the rail sector, it was supposed to recruit, train and retain the best human resource. However, for the most part, the human resource of PR is less educated, skills deficient, low paid, demotivated, and poorly trained. The present organizational structure, training modules, work specializations, and business processes were designed to meet the needs of 19th-century or early 20th-century railways. The industry has gone through a significant transformation, yet, PR mindset is still stuck in the past. There has been no insightful attempt to reform and upgrade the knowledge base of the workforce.

Another major bottleneck is the poorly maintained infrastructure, rolling stock and locomotives. This leads to frequent failures and occasional fatal accidents. The poor reliability coupled with poor safety record has tarnished the image of the organization. This can be easily gauged from the fact that in 1980, the annual passenger volume in PR was around 140 million when the population was around 80 million. In 2020, when the population is around 220 million, PR is carrying less than 50% of the passenger volume of 1980. We have already lost our business case.

Railway networks all over the world connect important towns. In India, China, and Europe, railways networks are in all places including small towns. However, in Pakistan, the lazy thinking of PR managers has reduced it virtually to a one-corridor railway (Rawalpindi-Karachi). The railway network in all other provinces KP, Sindh and Baluchistan has been reduced considerably. Even in Punjab, many branch lines/tertiary lines have been closed. This reflects very poorly on the organization that flourished on public money for ages, yet, it never bothered to maintain the level of services provided by the colonial government. This reduced network makes the railway market far less relevant for the government as well as the private sector. The shrinking level of service for people undermines the case of railways to claim subsidies from the government.

PR management has never made a deliberate effort to expand the scope of railways to involve the provincial governments, and district governments to elicit necessary political and financial support. This is rooted in the mindset that feels inherently insecure in broadening the base. As a result, PR, for all practical purposes is at the verge of closure. PR never made an attempt to bring professional members in the Board for very simple reasons if AGMs were posted back to the Board, they would have to relocate themselves outside of Lahore. This regressive mindset would blame everyone except them for the failure of railways.

Pakistan Railways Academy, Walton is a nerve centre of PR. PR administration has never made any attempt whatsoever to upgrade PRA’s infrastructure,and quality of faculty, develop new training regimes, introduce a research and development wing, bring in new knowledge and inculcate the specialized skill set needed for a modern railway. The organization was headed by a grade 18 Principal, which was later upgraded to a grade 19 director and then upgraded to a grade 20 Director General and finally again upgraded to a grade 21 for parking the undesirable senior officers. This upgradation has nothing to do with the actual up gradation of the institution.

Similarly, another vital institution of PR, the Federal Government Inspector of Railways has never been reformed. The mandate of the office requires that there should have been more than one FGIRs long ago for infrastructure inspections, safety audits of rolling stock and for accidents and investigations. But since this functional specialization has been ignored, the safety of the organization plunged to the lowest level. Any talk of reform is fiercely resisted, and if that is not possible, slowed down considerably to buy time.

Railway plus property model revolutionized the profitability of the railway industry in Hong Kong and Japan. It has been happening for decades, yet, in PR there has been hardly any initiative to turn our land into a major revenue-generating source. The civil engineering cadre, which has got nothing to do with land management, land development or conceiving business models, has been manning it. The ground reality is that they have made encroachment easy while profitable legal enterprise through JVs almost impossible.

It was imperative for railways to expand their service, help establish provincial/ regional railways, provide assistance in establishing rail-based mass transit systems, to create an environment for expanding the rail industry, getting hold of logistics business in road/maritime and aviation. But this conceptualization required high-quality human resources in engineering, business development, financial analysis, law etc. A serious review of the quality of human resources would reveal that PR does not have the internal capacity to conceive or carry out any reforms. This is a serious impediment. The WB-sponsored reforms in the 1990s failed precisely because they were implemented through the existing HR of Pakistan Railways, which was neither capable nor willing to implement the reforms.

The manufacturing units are another white elephant, which produces little value. PR faces serious constraints in terms of capital, human and technical resources. There is a dire need of making a realistic assessment of the existing situation and carry out interventions to provide breathing stability so that long terms process of reform can be initiated.

There is a tendency to say that PR infrastructure is 150 years old and unless ML1 is built, nothing will change. This argument is faulty and an attempt to conceal the facts. The major portion of ML1 is Karachi –Lahore Corridor. If we look at the investment/upgradation projects of last two decades, this corridor must have been fit for the speed for 120 km/h. It should have been considered safe. The entire projects of Doubling of Track (DOT) and Track Rehabilitation (TR) along with many small projects have been implemented on this corridor. What are the tangible improvements in terms of speed, safety, and reliability? We need an honest appraisal, not to penalize anyone but to get areal picture of what needs to be done. (PR advisors will never let anyone explore this)

Railways are the future- How to build a viable rail sector?

In the initial phase of railway expansion, many private companies financed the construction of railways because rate of return on capital investment was high in those days. As a result, private companies also constructed many lines in the subcontinent. The private companies principally financed the largest railway network in the world built in the USA. However, with the passage of time, the transport market has become very competitive. Rail infrastructure is capital-intensive with relatively low returns, hence private sector backed out and the gap was filled by the public sector in most countries.

In recent times, the largest expansion of railways is taking place in China and India. Both these expansions are financed through public money. However, railways have many advantages in terms of the environment, which makes the case for building railways quite convincing, especially in countries putting premiums on carbon credits. In a country like Pakistan, the option of financing through private sector is far-fetched, building railways through external financing will put extra restraint on balance of payment, and public funding is extremely difficult because of shrinking fiscal space.

In this context, the managers of the rail sector must tailor the industrial structure in a manner that they get resources from all the sources according to their need and use those resources to create profitable or at least sustainable railways. PR has a very precious land resource at prime urban locations throughout the country, which can be developed to solve the crisis of equity in the sector. The structure of the PR must be redefined/changed to fit the role of provincial governments/district governments where full or partial funding for some projects may be obtained from these governments as well. In post 18th amendment scenario, the provincial government has funds for public sector development. These funds can be used for financing the development of railways in their regions. A structure of joint financing can be arranged with each provincial government.

Railways plus property (R+P) model

Hong Kong Railways is one of the best-performing railways in the world. It serves the need of this gigantic metropolitan. The number of commuters using the transit system runs into millions and it generates a profit of around 1.5 billion USD per annum (2015 estimates). This is despite the fact that rail fares are comparatively low compared to other systems. It charges an average of 1 USD per passenger per trip compared to 1.5 USD by Tokyo, 2.75 USD by New York and 4.0 USD by Stockholm rail transit.

The rail company, which is listed in the stock market, is owned by the government (76%) but is run by the corporate sector expert purely on commercial lines. It extensively uses all the assets for revenue generation. The station designs, urban development, and train branding are used to maximize revenue. The company paid around 600 million USD to the government in dividends in 2015-16. It uses the capital to finance the construction of new lines and the development of new urban settlements. The company is not only a transport service provider but it is also central to urban planning, land use and housing development.

PR can use this model for financing rail transit in all provincial capitals. The cash flow based on R+P model will make it a successful venture. If the little gap in financing is left that can be filled jointly by federal and provincial governments. This will essentially require a new HR with a new skill set, entrepreneurship and leadership capacity. The big challenge in this regard is finding the right kind of human resources to conceptualize and implement the model.

Tokyo railway is also a leading example of business diversification and the success of R+P model. Tokyo Corporation is a conglomerate of around 400 companies with 30 thousand workforces. Surprisingly only 1/10th of the employees work in railways. They have developed real estate, retail outlets, and bus companies and relied very little on the far box revenue. Such diversification is badly needed in PR.

Reforms in China’s Rail Industry

China is a global leader in innovation and reform in the rail sector. Chinese started embracing a market-based economic model inthe 1980s and gradually got away with the planned model of the economy. The rail sector was the last remnant of the planned economy model that was disbanded in 2013 and the Ministry of railways was abolished to create an entirely new industrial structure. It was felt that expanding rail sector in China and BRI imperatives are too big for the Ministry of Railways to handle hence a new institutional structure was needed. However, before actually disbanding the Ministry, there was considerable capacity building of the sector to facilitate a smooth transition.

Consequently, in 2013 MOR was split into the National Railway Administration (NRA) and the China Railway Corporation (CRC).

The NRA is the bureau within the Ministry of Transport (MOT) responsible for the management and administration of the rail sector as a whole, including

CRC is a 100 percent state-owned enterprise with its shares held by the Ministry of Finance. It is responsible for the management and safety of almost all the 127,000-kilometer (km) public network, including

Action plan (Immediate interventions for efficiency & profitability)

PR as an organization has lost its credibility withthe public because of abysmally poor safety, huge deficit and low reliability. The organization is too weak, too frail to reform even. It will be a gigantic task to bring in some kind of stability/strength in it for paving the way for long-term reforms. In the prevailing circumstances, it is unlikely for the government to fund PR. Therefore, PR needs to do some critical management interventions to slow down the pace of rapid decline and create some space for corrective actions. Some important steps that can bring some sanity into the organization are listed below:

  1. Restoring the professional railway board with original members like Member Traffic, Member Civil and Member Mechanical. This will require AGMs to be sent back to the board. PR will oppose it tooth and nail for no professional reason but this has to be done. In order to further strengthen the governance regime, the private members of the Board must be taken from leading chartered accountants, lawyers and real estate development specialists.
  2. The CEO of PR must be a dynamic sector specialist with advanced knowledge of railways management and contemporary practices. With a typical PR mindset, nothing will change as most people have neither capacity nor the willingness to bring about much-needed reforms.
  1. PRA, Walton is the brain centre of the rail sector. The best officer from BS 19/20 may be posted there as DG with a team of highly qualified grade 18/19 officers. It must report directly to Ministry. Its budget and staff should be made independent of the CEO. The pay structure of the Academy is to be made at par with NSPP. It must develop technical, managerial and leadership capabilities of existing as well as future leaders of railways. The entire syllabus, examination structures, and instructors need an immediate overhaul. In three years, the entire training regime can be changed in collaboration with FPSC and Establishment Division.
  2. In the land directorate, the existing HR is very poor with no sense of direction. It is important to induct people from MLC, PAS, PMS and PSP to give it a new outlook so that space for further reforms may be created. Finally, PR will have to create a new industrial structure of land management, but before that, a professional management structure is required to be put in place as an interim arrangement because existing management will never let the reform process become a success.
  3. The track infrastructure is in bad shape. After relocating the AGM/I as a member, CEN (Open Line) must be given the task of personally supervising the track maintenance/improvement work on ML1 along with territorial deputy chiefs and field divisional engineers. Based on the safety profile of the last few years, and improvement works carried out in different projects, weak/strong areas can be easily identified for targeted interventions. This must continue for at least one financial year. PR must remove the blind spots, which drain resources but contribute very little towards safety.
  1. The selection of Divisional Superintendents and key Principal officers must be carried out by detailed scrutiny of their resumes and career profile. Only people with leadership, integrity and professional competence are to be posted on these assignments.
  2. The Financial System of PR is archaic. It is important that every cost centre must have one or two accountants for bookkeeping and at higher levels, there should be a team of qualified financial advisors. A half billion USD organization does not require such a large force of accountants. It must change sooner than later.
  3. PR does not need detailed audit formations. Its funds can be audited by AGP or any other firm approved by the government but keeping such a huge formation of audits is counterproductive.

Long term strategic action plan

Short-term interventions are just for attaining temporary stability. The rail sector has to be revamped and built a new one. A completely new governance model and structure of the industry is required in line with international best practices. Pakistan needs to create a new Ministry of Transport just like China and USA. This Ministry shall be responsible for the entire transportation of the country. The regulation, policy-making and safety aspects of railways must be assigned to the Ministry of Transport. The corporate entities of railways can be placed either under the Ministry of Transport or under the Ministry of Finance. The conceptual basis of building a new industrial structures can be borrowed from either Europe or China or a mix of both.

Building new industry structure:

Experience shows an alternative to the archetypal railway can be formed from three main policy building blocks:

Business organization

The degree to which its delivery institutions are to be structured in a business-like or commercial manner including the option of private sector ownership or operation of core railway functions;

Market competition

The degree to which the railway transport services it produces is to be competitive, as between different rail service providers


The degree to which its monolithic nature should be broken down and some of its sub-businesses be separated and decentralized.

Type of business organization

There are three main corporate forms that can help improve the performance of the archetypal railway organization by reducing bureaucratic demands and political pressures: a state-owned enterprise operating under a specific railways law or state-owned enterprise law; a state-owned company under companies law; or a privately-owned company under the companies law. There can of course be more than one entity in any industry structure. In any particular country, different legal challenges might be faced with the different structures regarding asset holding, accounting methods, taxation and transfer of staff to new entities. The choice of the corporate form is therefore complex and mainly dependent upon the environment of a particular country.

Market competition

Railways are generally state-owned monopolies. However, many countries structure their monopoly in a manner that still there is considerable competition within the industry. Competition creates incentives for managers to meet market needs at the lowest cost and encourages service innovations to gain market advantage. The strongest case for competition in the market is for rail freight services. Even in some small railway markets in individual European countries and Australian states, competition in rail freight transport is significant and effective.

By contrast, competition among rail passenger service providers is rare and occurs mainly in EU member countries under three scenarios: (i) between a long-distance national operator and a regional service provider on selected routes (e.g., German Railways Inter-City Express (ICE) Service or regional route concessionaires); (ii) between two operators on parallel or overlapping routes (e.g. 10-20 percent of the UK market); and (iii) using third-party track access rights (a few UK services planned between Cologne and Hamburg in competition with German National Railways).

The competition with other modes like Shipping, Aviation and Road is also very healthy. Optimal mixes of intermodal transport serve the national economies of scale very well. So far, China has been very successful in structuring their transport industry on this model.


How the railway industry structure is divided, referred to as ‘separability’, comprises two primary dimensions, horizontal and vertical. Horizontal separations are sometimes justified by creating better-managed, decentralized, and market-focused units from a monolithic national company. China has structured its rail industry on horizontal separation.  Vertical separation into companies for operations and for infrastructure can help expand private sector participation and competition in train services (EU model of segregation of Infrastructure/Operations).

Restructuring of manufacturing and material supply sector of Railway

Many early railway manufacturing and materials companies were privately owned and independent from the core railway. But the mutual dependence of ‘large buyer/large seller’ led some railways to develop their own manufacturing capability. Moreover, in China, Great Britain, India, and the Russian Federation, railway nationalization and integration led to ministerial or departmental structures with responsibility for both the railway system and the manufacture of capital assets.

Now, most countries have dismantled these structures in all industries, not just railways, because experience has proven that the exclusive relationships of co-owned public industries reduced incentives for efficiency and innovation for both. In the railway transport industry, it produced technologically outmoded locomotives, rolling stock, and other equipment. In railway manufacturing industries, it undermined their potential to be internationally competitive.

Today, the railway supply industry is diverse, global, and competitive. Nearly all capital equipment and materials for railway infrastructure or operations can be procured competitively using domestic or international tendering. Technical ability to specify and monitor railway equipment performance is a core railway competence, particularly for assets that provide a competitive advantage in the transport market. However, preserving significant manufacturing capability within a railway transport organization is difficult to justify because the required competencies do not serve the core business of passenger and freight transport.

Role of the government

In building the new industrial structure, the government must retain the core competencies within its own structures to play the following role:

In the final analysis, there is always a scope for creating a different reality out of ashes. It requires leadership, vision and strong political commitment. The existing capability of PR is not likely to survive for long. If the rail sector is to be retained in the national economy some drastic measures have to be taken to build a new industrial structure independent of ML1. It is important because if China backs out from ML 1 then what is our option? There is a dire need to create teams of dedicated/competent officers in different components of railways with a defined mandate of two to three years. The impetus for national development must come from within.

Note. The suggestions are mainly drawn from World Bank Toolkit for Railway’s Reforms, ideas of practitioners I studied/worked with and practical experience.

-The writer is DS at Pakistan Railways Lahore and has 23 years rich experience in this field. He is a well-reputed, dedicated and honest person.


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