OWING to inability of the public sector corporations to fulfil their commitments notwithstanding sovereign guarantees, the banking industry including state-owned banks, are imposing stringent conditions for financing them.
Recently the banks agreed to provide around Rs160 billion to the power companies through long-term finance certificates on government guarantee only when the government-owned distribution companies agreed to channel their monthly revenues directly to the banks. The difference would be paid upfront by the government.
In yet another case, a banking consortium led by state-owned National Bank of Pakistan has been resisting to provide Rs6.1 billion to Pakistan Railways’ Advisory and Consultancy Services Limited (PRACS) on TFC papers backed by government guarantee. The banks insist that the ministry of railways make legal provision in its budget over the next five years for payment of instalments.
“Furthermore, the ministry of railways shall provide ministry of finance with irrevocable instructions to pay instalments under the PPTFC on first priority basis from ministry of railways/Pakistan Railways budget over the next five years.”
In addition, the ministry of finance (MoF) shall acknowledge such arrangement and at each repayment date, the MoF shall deposit the shortfall amount of instalment in the debt payment account of PRACS that shall ensure to intimate MoF of such shortfall amount in the next instalment 15 days prior to such repayment date.
On top of that, “the assets as shown in the balance sheet as of December 31, 2011 and any future assets thereof of PRACS will be mortgaged/pledged as security and comprehensive insurance of the same will be required.”
The intrusive demands by the banking industry may not be unreasonable but is a clear manifestation of the fact that dismally poor state of affairs in these corporations is hard to bet upon. The corporations have let their customers down, failed to pay off their commitments to suppliers, exhausted their financing limits and run on central bank’s overdraft.
Even the state that owns them has stopped throwing good money after bad unless they showed responsibility, notwithstanding that it was forced to take care of pensions, salaries and utility bills following public unrest and traffic blockades..
Can these state assets be left at the mercy of lethargic, inefficient, incapable and perhaps corrupt bureaucracy and ministers? In the last four years, the situation has gone from bad to worse, with no apparent bankable solution in sight, except for some half hearted patchwork.
This is happening despite regular monthly meetings presided over by the prime minister himself on each of the eight big losing entities.
A lot has been said and written about the energy sector. Here an official account describes the prevailing situation in Pakistan Railways – presumably the backbone of the country’s strategic and business transportation.
In one of such monthly meetings, the prime minister was informed that out of about 500 locomotives 345 were under, or awaiting repairs.
No less than 121 locomotives have gone out of service during the last 18 months. Due to financial difficulties and non-availability of a full fleet of locomotives, only profitable routes are currently in operation.
In all, 86 trains operated in December 2011 as compared to 204 the same month in 2010 and 234 in 2009. The priority is being given to revenue generating trains, since 20 per cent of them account for 80 per cent of the revenue.
Punctuality was only 12 per cent. For example, 100 hours were lost on December 14, 2011 alone due to failure of four locomotives and on other technical grounds. Around 80 per cent of the railway bridges are in ‘dangerous condition’ and could lead to major accidents anytime.
On the freight side, only the oil train and Wagah freight train were currently in operation, with an occasional freight train for coal transport for cement industry.
Out of the 494 locomotives, just 149 were available in December, of them 84 were being used for passenger trains and four for freight, whereas 152 locomotives were required for full passenger operations. Barely 40 per cent of these locomotives were reliable.
Understandably then, the revenue from freight was just Rs1.2 million per day on average in December compared with Rs21 million the same month the previous year.
Earning in five months stood at Rs5.7 billion compared with Rs7.4 billion a year before. Not surprisingly, the Pakistan Railways had a debt liability of Rs26 billion, overdraft of Rs40 billion with the State Bank of Pakistan and uncovered operational losses stood at Rs6 billion. While there was no possibility in the immediate foreseeable future to retire the overdraft, the corporation could not afford to make payments on account of interest and penal interest.
On top of that 68 per cent of rail track require either replacement or rehabilitation. While a moratorium has been imposed on repayment of interest and penalties to avoid further draw down on cash balance. In many cases, Pakistan Railways’ cheques were dishonoured, forcing even the state-run Pakistan State Oil to suspend fuel supplies.
While a recent launch of a business train may earn some revenues in the short run, it has been started without a clear cut policy that could provide the private sector an opportunity to bid and come up with competitive offers. Another initiative to have long-term maintenance and supply contract with state-run National Logistic Cell, too, would provide a breathing space against future revenues but done without an upfront policy framework could not be termed foolproof and transparent.
While the government is considering to purchase all new locomotives with a maintenance contract, there has to be an adequate level for minimum acceptable standards. Pakistan Railways is among the leading corporations where thousands of workers have been inducted on political grounds.
The Railways request to reorganise human resource through weeding out dead wood, sending ‘inefficient’ officers on forced leave and disciplinary actions have found little support from a government now in election year. It is estimated that short term measures like this could increase revenues from Rs2 billion to Rs23 billion in 2012-13.
If the corporation is to be revived, it would require a complete overhaul of the business operations, work and management culture, improvement in legal framework that offered transparent and equitable opportunities to all and matrix based service delivery and customer service.
This coupled with capital injection through development loans on cheaper rates would help but only when business and politics are separated.