PROJECT

Corporate Governance
MBA-Weekend

Prepared by:
M. YASIR KHAN (10630)
M. TALHA KHAN (11798)

Submitted to:
Sir aMEER hAMZA
Dated:13 - Oct. - 2018

What is the main

problem of
Pakistan
Railways?

CORPORATE
PROFILE:
There are 200 Freight
Stations on this system with 12,000 personnel dedicated to provide service to the clients.
The Freight Business Unit serves two major Sea Ports, Keamari and Bin Qasim. Some of
the major commodities that are handled include PTA (Chemical for Rayon
Manufacturer): Petroleum Oil and Lubricant (POL), Wheat, Coal, Fertilizer, Rock
Phosphate, Cement, Sugar, Oil seed Containers and Goods for Transit to Afghanistan.

CORPORATE DIRECTION:
The Freight Business Unit is a customer oriented department. Its pricing policy is client
friendly. All possible efforts are made to reduce cost of transportation and increase
revenue through efficiency, innovation and modernization. It proudly serves as the
national flag carrier in times of peace, war and calamity.

PRICING POLICY:
PR moves cargo on rails at a relatively lesser cost in terms of fuel consumption as
compared to road transport and this competitive edge enables the organization to
formulate its pricing policy to the maximum advantage. The pricing policy of PR is such
that all the commodities are charged on differential basis according to the principle of
"What each type of traffic can bear" The rate structure is designed to fix an upper limit
incorporating the basic cost incurred in transport value of commodity, its load-ability,
susceptibility to damage and pilferage along with various other factors. Promotional
reduced rates are quoted to provide incentive to move the commodities by rail or road;
seasonal reduced rates are quoted to attract the commodity.

MANUFACTURING & SERVICES UNIT:

Headed by the General Manager Manufacturing & Services, this unit is composed of:
1. Concrete Sleeper Factories, ( CSF )
2. Carriage Factory. Islamabad, ( CFI )
3. Locomotive Factory, Risalpur
4. Rehabilitation Project, Moghalpura Lahore
5. Medical and Health Service
6. Railway Construction Company ( RAILCOP )
7. Pakistan Railway Advisory & Consultancy Services ( PRACS )
8. Educational Facilities

I guess, I don’t need to go into operational details of Pakistan Railways to establish the
reasons behind the dismal performance of Pakistan Railways.

I am not denying that PR lack competent and honest leadership to pull it out of the
financial and operational crises it has been plagued with. I see the core of the problem in
the corrupt politicians who every 5 years hold government offices, make tall promises of
turning the country around and then leave it in even worse condition. Then the next set of
politicians come, with more or less same kind of claims and it has been happening for last
70 odd years. Nothing has changed for better but for worse for Pakistan.
Be it’s Pakistan Railways virtually every institute is riddled with corruption and no plan
ever gets executed and followed up due to this. Corruption and nepotism is at the highest
level in Pakistan. From the prime minster to the lowest rank Policeman in the country,
everyone is only concerned about filling up their pockets.
Talking about shortage of carriages, engines, stations etc. would be brainless since these
operational resources would never be enough if you have a inapt and corrupt person
running the show. We all know that the appointment of every key person in government
institute is political than on merit and that never stops. This has caused the whole country
to rank lowest in developing and under-developed country and situation does not seem to
get better in near future.
In 2014 the Ministry of Railways launched Pakistan Railways Vision 2026, which seeks
to increase the company's share of the transportation sector from four to 20 percent with
the ₨886.68 billion (US$8.4 billion) China–Pakistan Economic Corridor rail upgrade.
The plan includes new locomotives, development and improvement of current rail
infrastructure, an increase in average train speed, improved on-time performance and
expansion of passenger service. The first phase of the project was completed in 2017, and
the second phase is scheduled for completion by 2021. Pakistan Railways is an active
member of the International Union of Railways.
The government – a major stakeholder in rail, road and air transport – needs to design an
integrated transport policy where goods are enlisted for economical carriage. Pakistan
also desperately requires a transport ministry to regulate and control the industry, similar
to what is being done in the UK, India and other developing countries.
According to a study conducted by the Japan International Cooperation Agency,
transportation of one ton per kilometer by road will cost five times more than if it were
carried by rail.
Despite losses, the rail network provides a comparatively safe, affordable and reliable
mode of transportation to a significant portion of the country’s population. Pakistan
Railways, a legacy of the colonial period, is also one of the largest employers.
The Pakistan Railways network has a total of 945 stations, approximately six kilometers
apart, to meet operational, safety and communication requirements.
Till the 1970s, Pakistan Railways was a self-sustaining organization run by an
autonomous four-member policy forming Railway Board which constituted a Member
Traffic, Member Mechanical, Member Civil and Member Finance. Apart from the
nominee of the finance ministry, the other three were senior railway employees
specializing in their respective fields – the chairman of the Pakistan Railways was also
appointed from one of these three technical specialists at the discretion of federal
government. A vice chairman, the fifth member, was an executive who oversaw daily
administration.
In 1990, the government appointed an officer from the Civil Services of Pakistan
chairman and from then on there has been a rapid decline not only in performance but
also the balance sheet of the organization.
Today, with an allocation of Rs13.63 billion in this year’s federal budget, Pakistan
Railways is in dire financial straits, with scarcity of funds and serviceable locomotives to
keep it on track. Transportation of goods, which previously constituted 40 per cent of its
revenues, has been reduced to between 25 and 30 per cent.
It is presently being run by a non-functional board, one that mainly exists on paper and
operates without any strategic planning mechanism. Furthermore, railway accounts are
not subject to scrutiny by the Auditor General of Pakistan, a key factor for revenue and
procurement pilferage.
A depreciation fund, which was meant for scheduled preventive repair and maintenance
of locomotives, carriages and tracks, has been disbanded.
Till 1990, the carriage factory in Islamabad was exporting freight wagons and coaches to
SriLanka and Bangladesh, in addition to meeting local requirements. Rather than
augmenting this facility, the lure of kickbacks has resulted in its virtual shut down and
orders were placed for import of carriages.
Although Moghaplura has facility to produce High Capacity (HC) wagons, the same were
imported from China. These imported wagons have the handicap that they cannot ply on
branch lines because of axle load limitations. Pakistan Railways had compatible
locomotives from GE, Hitachi and other companies – all with different axle loads but
compatible with the railway tracks. Our main line tracks have the capability of handling a
load of 22 tons per axle, while branch lines can sustain 16.5 tons per axle.
Former president Pervez Musharraf appointed General Javed Ashraf the railway minster,
General Saeed the chairman and General Hamid Butt the general manager of
manufacturing and services, all of whom had no prior experience in railways.

They imported from China ‘Group 1’ locomotives with axle load of 23 Tons per axle,
although the limitation was 22 tons per axle. Similarly, orders were placed for ‘Group 3’
locomotives with loads of 19.3 tons – while the limitation was 17.5 tons per axle.
A special dispensation was issued by the Railways allowing their operation on sections
where it could prove dangerous and this is still in force. This has led to numerous
accidents and loss of precious lives.
Trials conducted on Chinese Group 3 locomotives revealed that while their fuel
consumption was higher the hauling power was much less than the specifications listed
jointly by the manufacturers. Their performance was worse than the existing 30 to 40
year old locomotives.
The 64 Chinese locomotives, based on vintage Russian technology, had an additional
impact for spare parts procurement valued at $15 million annually, making them the most
expensive locomotives ever procured by Railways. Earlier, the annual allocation for
maintenance and repair would never exceed $10 million for the total fleet of 530
locomotives.
More recently, in 2009-2010, an additional order for 75 brand new locomotives has been
placed with the same Chinese middleman Dong Feng Trading House (DFTH) and Mishap
Locomotives Works, the manufacturer.
As if this was not enough, 200 passenger carriages at an exorbitant cost are also being
procured, although the same could be manufactured by the factory in Islamabad with
imported raw material.
Yet another major source of pilferage is the sub-standard manufacturing outsourced to
local contractors – most of these firms owned by front men of senior officers. The
Chemist and Metallurgical Centre, responsible for testing and analyzing raw materials
and spares, boasts obsolete equipment.
Pakistan Railways is not a member of UIC, the international standards regulatory body
and therefore cannot have access to their specifications and drawings, nor has railways
upgraded their own systems, that could facilitate quality control of procurement.
At the end of the day, economics decides the fate of an industry and an integrated policy
would benefit the national economy.

CORRUPTION IN PAKISTAN RAILWAY:

Corruption in Pakistan railway is very common thing. The ratio of corruption is very high
in government institutions . The political leaders, bureaucrats, officials even a vendor is
also corrupted in Pakistan. The railway system of Pakistan is near to destroy due to heavy
corruption in Pakistan. The people from Officers to lower class workers are getting
violated money from Railway Department.
On April 14, the SC ordered the complete audit of Pakistan Railways, as CJP came down hard on
Rafique over a meeting the latter had held with some people a few days ago, leading to speculation
that efforts were being made to influence the judges.
The CJP reprimanded Rafique over his strong statements against state institutions, adding that the days
when courts were disrespected are long gone.
“You know what your body language was at the place where you had gone a few days back,” said the
CJP to which the minister said “I have relatives there. I had gone there for tea. Taking tea with my
relatives is my right.”
Earlier on April 7, the CJP had taken a suomoto notice of over Rs60 million alleged corruption in
Pakistan Railways and summoned Rafique and the secretary concerned.
The court directed the railways’ officials to appear before the court with relevant documents and
apprise the court regarding the reasons for the losses.

DISHONEST POLITICAL LEADERS:

It is the country of full of natural resources. There are countless sources of Pakistan if that
utilized properly Pakistan would become powerful, developed and prosperous country in
the world. However dishonesty of political leaders has been the problem of Pakistan since
its creation. We are lacking from honest and well-wisher leaders that can make Pakistan
emerging country in the world. Pakistan is unable to find front runners like Quid-e-Azam
and Allama Iqbal. The Politician of Pakistan has been relied on 02 parties one is Pakistan
Muslim League N (PMLN) and other is Pakistan People Party (PPP). Both these parties
have been nothing for the welfare for Pakistan and its people. These parties have been
doing government over the year but have produced nothing. The party members are
found to be dishonest, thief and corrupted. Now Pakistan Tehrik-e-Insaf is growing up at
present which is chaired by former Pakistani cricketer Imran Khan. People of Pakistan
are seeking something from Imran Khan. Is he capable to stable the Pakistan? Can he
make Pakistan developed? Can he remove scourge of corruption? Can he bring prosperity
in the county? Can he finish terrorism in Pakistan? These are the questions.
MISSING
TRANSPORT
POLICY:

An overarching deficit
in the planning of PR
Railways has been the
absence of a National
Transport Policy. According to the government officials unfortunately no transport policy has been
devised since the last 63years. Despite the fact that the Railways remained a highly capital-intensive
business and can be exploited as a highly profitable organization the government has never formulated
a holistic policy that would analyze the overall transportation issues and balance investment into road
and rail. Not only should railways policy be devised within the framework of an overall transport
policy, the implementation and impact should be reviewed within this framework and this should be
viewed as a long-term government strategy a mongst the existing political realities and exigencies.

Since a clear vision does not exist and the government failed to articulate a clear direction for PR the
officers of PR are themselves perplexed and concern about the fate and future of the national railways.
Thus a desirable change cannot be expected without a clear vision. The vague sense of vision and
direct ion also pervades the upper echelons of decision -making. In essence it is inevitable to search
out a viable solute ion for rai always in the absence of an overall national transport policy.

OVER
STAFFING &
ASSET ISSUES:

The jobs of more than

90,000 people employed
at PR is highly
vulnerable as a result of the seriously deteriorating condition of PR adding woes to the country’s
already high unemployment rate, which is currently exceeding 9% according to statistics (World
Economic Outlook,). Railways needed Pak Rupees required Rs1.5 billion a month (18 billion annual)
to pay the salaries and pension to its protesting employees but the government has not released enough
money to overcome the deepening financial crisis. Moreover, since the trains are seldom used, most of
the employees sit at home and receive salaries illegitimately. This situation is further aggravated by
the blurred definition of the roles, duties and responsibilities related to job which ultimately results in
redundancy of job duties, wastage of time and other resources and reluctance of employees in
executing their task sincerely. The President in a meeting with railway and finance officials on
October 17th, advised the government to arrange a loan of Rs6 billion exclusively for the purchase
and repair of 300 locomotives. By getting the money all suspended trains would come back on track
within a 3 to 4 month time,

Pakistan Railway Chairman Javed Iqbal on 18th October said that the locomotives would be repaired
till March next year. He said that Shell, Pakistan State Oil, DP World and National Logistics Cell
(NLC) have shown an expression of interest (EoI) for railway operation under public-private
partnership. He said that after the bail out package railway would be in a position to earn Rs22 billion
in 2012-13.
Railway is also not in a position to pay Rs40 billion over draft to State Bank of Pakistan (SBP). The
President directed the Finance Division to solve the matter of outstanding over-draft. The Ministry of
Railways has proposed to the government that the Pakistan Railways over draft of Rs40 billion should
be converted into an investment in the entity or seeks its conversion in a soft loan with reduced mark
up.

Khawaja said that so many initiatives have been taken by the management to improve the situation
including e-ticketing, duplicate ticket, modern computerized inter-locking system at 22 railway
station, adding that 180 residential flats for class three and four employees have also been constructed
in Lahore, Karachi and Narowal which would be completed in December 2017.

“The situation was the worst when we launched revival of the railways in 2013. Some people asked
for privatization and some suggested closing down the department, terming it fruitless. But now
Pakistan Railways is being upgraded with its own income and its income is being increased more than
31 per cent per anum.

The minister said that the past ministers did nothing for the department in 70 years history of Pakistan,
which is regrettable. He said that no department could be developed without elimination of political
interference. But now the issue has been resolved to a large extent and every recruitment was made
purely on merit.

He said that Pakistan Railways has planned to install traffic signals and sirens at railway gates and
with the help of Pakistan Army.

OBSOLETE
TECHNOLOG
Y & POOR
INFRASTRUC
TURE:

The task of developing and maintaining infrastructure becomes more difficult for PR
because of the centralized process of funding approvals. Thus it makes railways less
competitive in response to road carriers that do not have to invest in basic infrastructure
like roads. Following a shift in the priorities of the Government after seventies when the
emphasis shifted towards the road sector, investment fell sharply in the Railway sector
resulting in deterioration of infrastructure and failure to expand or improve PR’s network.
Railway personnel have highlighted aging assets as one of the critical factors causing
poor performance of Pakistan Railways. Normally a locomotive consists of six traction
motors while the Pakistan Railways is operating them with only three or four motors.
This is the major reason of mid-way breakdown. A number of trains lack facility of light
at nights because of the failure of the generators and ill-attitude of workers and
mismanagement of fuel and funds, leading to the increased agony of passengers.
MANAGERIAL INCAPABILITY:
The management of PR has failed to generate revenues through the use of its own assets
as land, locomotive factory, carriage factory etc. The focus of Railway officials is on
getting new locomotives while ignoring the improvement in operations and maintenance
of the existing ones. It has been alleged that the current disarray that engulfs PR is due to
the siphoning off of commissions from deals for needless machinery (Siddiqui, 2011).
Poorly managed time table, numerous unscheduled stops, over staffing and inefficiency
of the workers, lack of a proper accountability system, are all factors that accounted
towards the inefficiency of the railway system and ultimately resulted in its downfall.

DECLINING MARKET SHARE:

The Railway industry of Pakistan was unsuccessful in maintaining its position in the
transport sector. The market share of Pakistan Railways kept on declining with the
passage of time due to persistent deficit since 1975-76. Roads steadily became the
preferred mode of transportation as shippers shifted to trucks due to PR's inefficiency.
PR’s declining market share can be judged from the fact that it is moving only 11% of
total petroleum products and 2% of the total containers (Privatization Commission,
2013). The annual passenger volume carried by Pakistan Railways in late 1970’s was
approx. 145 million which reduced to 59 million in 1992-93, similarly freight business
reduced from 15 million tons to 7 million tons in late 1960’s (Privatization Commission,
2013). It can be said without ambiguity that if PR had been managed professionally it
would have explored the existing immense potential. It is frequently quoted that National
Logistic Cell (NLC) is responsible for the major loss in market share of PR. However at a
macro level it is feasible in the larger interest of the nation that both must follow a win-
win approach whereby benefit is accrued to both and they should complement each other
rather than then to compete and thereby economize the inter-modal movement of goods
to optimize the best rail-road mix for the country.

CONCERNS & CHALLENGES:

PR is the sole railway service provider of Pakistan managed under a strong influence of
bureaucracy. It is obvious that a state owned entity mostly faces numerous inevitable
governments’ intervention that results in serious performance related issues both
qualitatively and qualitatively. The rising level of deterioration in PR can cumulatively be
attributed to various aspects of mismanagement related to funds embezzlements, scams
and scandals. Nevertheless it is the need of the hour to contemplate over the situation of
PR and consider issues objectively and resort to feasible options that may help convert a
non-productive organization into a profitable and productive one. It is well understood
that there always exist room for improvement and perfection. The prerequisite is the
search and positioning of a potential and capable leadership that may lead the
organization in a professional manner allowing for the development and design of an
effective strategy leading to success. The state must play its role in supporting the
strategic initiatives as against showing mere and unjust authority. This undertaking
requires the reshaping and redressing of various concerns and issues which ought to be
resolved that may include:
1. Should privatization either complete or partial be beneficial in uplifting and resolving
the current state of flux of PR? Can the interest of the state still be reserved or served?

2. Will Re-structuring/Re-Engineering lead to performance improvement of PR and help

achieve the objectives? How? If not? Why not? And if yes? What steps to be carried out
or repercussions need to be anticipated?

3. Shall foreign contracts or local negotiations prove sufficient to bring out PR from its
current dilemma?What constraints shall PR face in this regard?

RECOMMENDATIONS:

The best remedy to take out

the Pakistan railways from
prevailing worst conditions
is “Privatization”, but for
the immediate recovery,

 Government should take

the immediate action against the corrupt officials.
 Rectify the over employment by downsizing.
 Focus on the rebuilding and redesigning of Pakistan Railways infrastructure.
 Trained and developed the operational staff.
 Up gradation of locomotives and waiting rooms at railway stations.
 Trains should follow the schedules and schedules boards should also be maintained and updated
accordingly.