Subsidies to Public Sector Units Hurt Education in Pakistan

[Riaz Haq]

"...under 1.5% of GDP [is] going to public schools that are on the front line of Pakistan's education emergency, or less than the subsidy for PIA, Pakistan Steel, and Pepco." Pakistan Education Task Force Report 2011

Pakistan has ordered 5 Boeing 777s and 75 train engines for its state-owned companies in a bid to catch up with rising passenger and cargo service demands, according to media reports.

Boeing, the American aerospace giant, has announced the $1.5 billion deal with Pakistan International Airline (PIA) which includes a firm order of five 777-300ER (extended range) jets as well as the purchase rights for an additional five, according to Fox News.

Separately, The News is reporting that Pakistan Railway is purchasing 75 Chinese-made train engines for $105 million.

Highways have now become the most important segment of transport sector in the country, according to the Economic Survey of Pakistan. At the time of Pakistan's independence in 1947, transportation by roads accounted for only 8% of all traffic. Today, it accounts for 92% of national passenger traffic and 96% of freight.

The last decade has seen major competition coming from first-class private bus services now operated on modern motorways in all parts of Pakistan. The best known of these is Daewoo bus service with its comfortable luxury coaches and stewardesses offering meal services. With the construction and expansion of national highways and motorways, the trucking industry has also grown by leaps and bounds in the last few decades.

In mid-90s, Pakistan Railway had 10.45% share of passenger traffic and 5.17% of freight traffic, which has declined to 9.95% and 4.72% respectively by the year 2006-07, according to Economic Survey of Pakistan.

Pakistan Railway has been weighed down by heavy expenses of payroll and rising corruption and incompetence. As a result, a large number of engines are no longer operational and there have been big cuts in service.

After gaining domestic and international traffic market share for several decades after independence, Pakistan International airline has been losing it in recent decades because of serious problems of corruption and mismanagement by the cronies of the ruling politicians. PIA is now losing hundreds of millions of dollars a year while being hit by lean and mean domestic private airlines and international competition from rising Gulf giants like Emirates, Etihad and Qatar Airways.

Today, PIA's employee to aircraft ratio of 450 is more than twice as much as some of its competitors. "Politically motivated inductions have been the major cause of the significant increase in human resource burden in this organization," the State Bank of Pakistan said recently.

Pakistani taxpayers are heavily subsidizing the national airline at the expense of much more crucial public sectors like education. Last year, a Pakistani government commission on education found that public funding for education has been cut from 2.5% of GDP in 2007 to just 1.5% - less than the annual subsidy given to the various PSUs including PIA, the national airline that continues to sustain huge losses.

The latest example of the use of public funds to buy support for the government is Rs 366 million given in "discretionary development funds" as reward to senators for passing the 20th Constitutional Amendment with more than two-third majority, according to Pakistani media reports.

The crux of the issue for the bloated public sector units like PIA, Pakistan Steel Mills and Pakistan Railways is the reprehensible system of political patronage which puts the wrong people in charge of them. The sooner PIA, PR and other PSUs become privatized, the easier it will be to revive them for better service and improved profitability. It will turn them into a source of much needed revenue for the public treasury, just as the denationalization of banks did in the last decade.

From an after-tax loss of Rs. 9.77 billion in 2001 (when MCB, Habib, UBL and Allied were government owned) the earnings of these privatized banks rose to a profit after-tax of Rs. 73.115 billion in 2007. Higher earnings meant increased tax contribution by these banks to the government from Rs 10.8 billion in 2001 to Rs. 33.8 billion in 2007, according to data provided by former State Bank governor Mr. Shahid Kardar.

Even if privatization of the heavily subsidized public sector units does not yield higher tax revenue from them, it will at least free up public funds for more pressing needs like education, health care, energy, water and public infrastructure development.

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[Riaz Haq]

Here's a press release of Daewoo Bus Service in Pakistan published in Business Recorder supplement that gives a flavor of what it does:

Daewoo Pakistan Express Bus Service is a trusted name among people because it has revolutionised concept of road transport in Pakistan.

Journey on luxurious buses of Daewoo Pakistan Express, are secure, memorable and comfortable.

Renowned for punctuality and safety, we are first choice of families who enjoy journey with us as much as the enjoy picnic.

People's trust has not been built overnight.

It has taken a decade plus of professional competency, a teamwork and never ending eagerness to seek continuous improvement.

Patronage by people and extra work by our team has created a legend.

Daewoo Pakistan Express made a humble start in 1998 on Rawalpindi-Lahore Route.

Today, it's truly country wide transport system which serves millions of people, living in 40 cities and 45 destinations.

We operate 266 buses which carry approximately 22,000 people daily.

Our most recent endeavour has been linking Murree with 10 other cities so that families can travel to the most famous hill station in comfort and style.

Similarly a new route Lahore to Dera Ismail Khan via Sargodha, Mianwali has been introduced.

Our other preferred services include Cargo and Lahore City Bus Service, each providing its unique advantages to the customers.

Our Cargo service is preferred choice for fast and secure transportation of documents and goods.

Our Lahore City Bus Service is only Foreign A/C Urban Bus Operator in Urban Transport Sector of Pakistan in the cosmopolitan city of Lahore.

Daewoo Pakistan Express has many futuristic plans which shall contribute towards Pakistan economic development and people's comfort.

Daewoo Pakistan Express is not just a transport company but a concept where we are fully engaged with our partner people.

We have never hesitated to fulfil our corporate social responsibility and have stood shoulder to shoulder with Pakistani nation in time of need.

We made all possible contributions during earth quack of 2005 and recent floods.

Our success is based upon our 400 men/women team which is highly motivated, professional and dedicated.

Each member of our work force is important and their well knit team actions have earned us reputation of best transport company in the country.

http://www.brecorder.com/supplements/88/1158234/

[Riaz Haq]

Here's a Railway Gazette report on privatization of Pakistan Railway (PR):

Prime Minister Yousuf Gilani inaugurated the first privately-managed Business Express service between Lahore and Karachi on February 3.

The train is operated under an agreement between Pakistan Railways and Four Brothers International, which sells the premium-priced tickets aimed at business travellers and provides the onboard services including bedding, catering and entertainment in return for 14% of the revenue.

Four Brothers is investing Rs225m in the venture, refurbishing an initial nine air-conditioned coaches and providing dedicated booking offices and passenger lounges. PR expects to earn Rs1·5bn a year from operating the service.

The Prime Minster told local media the venture would ‘not only introduce the private business to passenger operations on the rails for the very first time but also provide Pakistan Railways with an insight into the dynamics of the private sector’, and thus be instrumental in reviving the troubled rail system.

PR is planning to outsource management of further passenger trains, and the government hopes private companies will import locomotives and wagons to launch their own freight services.

At the end of January PR reinstated Karachi – Lahore freight services which had been suspended since August owing to an acute shortage of operational locomotives and funds to purchase fuel. Karachi – Faisalabad parcels services have also been reinstated. Last month PR was hoping to operate 10 freight trains a day, subject to having 15 serviceable locomotives.

On February 10 the cabinet gave the go-ahead for a long-discussed order for 75 new locomotives, approving a US$105m agreement with Dongfang Electric Corp which was signed in December 2008 but became mired in procurement policy disputes between the government and PR. The deal is to be funded by China, with PR paying in instalments.

http://www.railwaygazette.com/nc/news/single-view/view/pakistan-pin...

[Riaz Haq]

Here's an excerpt of Businessweek piece on the cost of India's system of political patronage:

India’s government, and especially its state governments, have always run large deficits, partly because regular elections are an invitation to profligacy. Corruption has been rampant for decades, though today’s scandals—such as the furor over the nation’s allocation of 2G telecom licenses—are shocking for their brazenness and the sheer sums of money involved. They are in many ways the fruit of India’s rapid prosperity and the brand of robber-baron capitalism it has bred.

Gurcharan Das, an author and former businessman, has written that while China succeeded because of the state, India thrived despite its government. For a while that seemed like a workable formula: Companies bought generators to get around frequent blackouts, hired their own security, and even maintained roads to compensate for the shortcomings of public facilities.

The country’s recent travails, however, have shattered the illusion that the private sector can thrive without a functioning state. Policy and regulatory confusion, and rising social and environmental problems, are all reminders that sustainable growth isn’t possible without an ecology of sound institutions and responsive government. In many ways it is now apparent that the advances of the last couple of decades were built on shallow foundations.

Yet there’s a danger in overstating today’s weaknesses. Given the global financial crisis it was probably unrealistic to expect India’s economy to remain unscathed. At least part of the decline in foreign direct investment is due to a general tightening of credit and a flight to safety around the world. The Indian stock market’s downturn reflects a broader investor wariness of emerging markets.

Investors are also reacting (and arguably overreacting) based on incomplete information. Jessica Seddon, an economist who is writing a book about data and Indian policymaking, argues that a full picture of India’s economic health remains obscured by unreliable and patchy data. For example, an astounding 93 percent of India’s workforce is employed outside the formal economy, which means that unemployment estimates are inevitably inaccurate. Some of the most important statistics on consumption and demographics come out infrequently, often years after the fact. Similarly, poverty measurements are politically charged, contentious affairs; there exist a multitude of competing methodologies and wildly varying figures for the number of poor.

Seddon emphasizes that the bulk of the evidence does suggest India is slowing, but the severity of that slowdown isn’t clear. Analysts of the Indian economy, she adds, are often “grasping at straws.” Pessimists make their case for Indian decline without full information; optimists use the poor quality of information as an excuse to argue that the country is in fact doing far better than suggested by leading indicators. Reality, as is so often the case in India, probably lies somewhere in between.

http://www.businessweek.com/articles/2012-03-01/india-miracle-inter...

[Riaz Haq]

Here's a Khaleej Times story on how Emirates is eating PIA's lunch:

DUBAI -- Emirates, one of the world’s fastest growing airlines, has strengthened its commitment to Pakistan by announcing the addition of a fifth daily flight to and from the city of Karachi. Effective August 1, 2012, the airline will be operating to Jinnah International Airport in Karachi five times a day.

This move reinforces Emirates’ presence in the Pakistani landscape and provides passengers with more flexibility and options when travelling to the country’s commercial hub.

“This is very exciting news for us as Karachi was the inaugural destination of Emirates when the airline began operations in 1985,” said Badr Abbas, Vice President Pakistan & Afghanistan, commenting on the development.

“Today we are proud to have announced a fifth daily flight to Karachi in a move to better serve our Pakistani passengers and strengthen the historic relationship between Pakistan and UAE. We hope to continue on this path by further expanding our services in Pakistan and are grateful to all the relevant government and aviation authorities for making this possible,” he added.

Karachi is known as the financial capital of Pakistan and the additional flight will not only further leisure and business travel but also boost economic activity by providing increased cargo capacity for popular Pakistani exports to many destinations on Emirates’ global network.

The additional frequency will be operated by a Boeing 777-300ER in a two-class configuration.

In the past six months, Emirates has experienced robust growth and increased its presence in Northern Pakistan by starting additional flights to Peshawar, Lahore and Islamabad. Starting August, Emirates will be operating 54 weekly flights to and from four cities in Pakistan - Karachi, Lahore, Islamabad and Peshawar - of which two frequencies are subject to Government approval.

http://www.khaleejtimes.com/DisplayArticle08.asp?xfile=data/theuae/...§ion=theuae

[Riaz Haq]

Here are excerpts of a David Brooks' NY Times column on why political participation is important for idealistic youth:

Often they are bursting with enthusiasm for some social entrepreneurship project: making a cheap water-purification system, starting a company that will empower Rwandan women by selling their crafts in boutiques around the world.

These people are refreshingly uncynical. Their hip service ethos is setting the moral tone for the age. Idealistic and uplifting, their worldview is spread by enlightened advertising campaigns, from Bennetton years ago to everything Apple has ever done.

It’s hard not to feel inspired by all these idealists, but their service religion does have some shortcomings. In the first place, many of these social entrepreneurs think they can evade politics. They have little faith in the political process and believe that real change happens on the ground beneath it.

That’s a delusion. You can cram all the nongovernmental organizations you want into a country, but if there is no rule of law and if the ruling class is predatory then your achievements won’t add up to much.

Furthermore, important issues always spark disagreement. Unless there is a healthy political process to resolve disputes, the ensuing hatred and conflict will destroy everything the altruists are trying to build.

There’s little social progress without political progress. Unfortunately, many of today’s young activists are really good at thinking locally and globally, but not as good at thinking nationally and regionally.

Second, the prevailing service religion underestimates the problem of disorder. Many of the activists talk as if the world can be healed if we could only insert more care, compassion and resources into it.

History is not kind to this assumption. Most poverty and suffering — whether in a country, a family or a person — flows from disorganization. A stable social order is an artificial accomplishment, the result of an accumulation of habits, hectoring, moral stricture and physical coercion. Once order is dissolved, it takes hard measures to restore it.

Yet one rarely hears social entrepreneurs talk about professional policing, honest courts or strict standards of behavior; it’s more uplifting to talk about microloans and sustainable agriculture.

In short, there’s only so much good you can do unless you are willing to confront corruption, venality and disorder head-on. So if I could, presumptuously, recommend a reading list to help these activists fill in the gaps in the prevailing service ethos, I’d start with the novels of Dashiell Hammett or Raymond Chandler, or at least the movies based on them.

The noir heroes like Sam Spade in “The Maltese Falcon” served as models for a generation of Americans, and they put the focus squarely on venality, corruption and disorder and how you should behave in the face of it.

A noir hero is a moral realist. He assumes that everybody is dappled with virtue and vice, especially himself. He makes no social-class distinction and only provisional moral distinctions between the private eyes like himself and the criminals he pursues. The assumption in a Hammett book is that the good guy has a spotty past, does spotty things and that the private eye and the criminal are two sides to the same personality.

He (or she — the women in these stories follow the same code) adopts a layered personality. He hardens himself on the outside in order to protect whatever is left of the finer self within.

http://www.nytimes.com/2012/04/13/opinion/brooks-sam-spade-at-starb...

[Riaz Haq]

Here's an AP report on Pakistan ordering aircraft inspection after a disaster near Islamabad:

The Pakistani government mandated Sunday that all airplanes operated by private airlines must undergo a new inspection to determine whether they are safe to fly, days after a crash near the capital killed 127 people.

The Bhoja Air crash Friday was the second in Pakistan in less than two years involving a private Pakistani airline. In both cases, the planes went down in bad weather as they approached the main airport in Islamabad.

The crashes have raised concerns about the safety of aviation in a country saddled by economic problems.

A passenger jet operated by a third private airline, Shaheen Air, faced potential disaster Sunday when its left tire burst as it touched down, said a spokesman for the Civil Aviation Authority, Pervez George. The pilot applied the emergency break, causing the landing gear to buckle and the left wing to scrape along the ground as the plane came to a halt. None of the more than 170 passengers was injured, Mr. George.

The planes operated by private airlines will be inspected one by one, and any aircraft that fail will be grounded, Pakistani Defense Minister Chaudhry Ahmed Mukhtar told state TV. Planes currently in operation will be allowed to fly as they await inspection, he said.

The largest airline in the country is state-run Pakistan International Airlines, which has suffered from serious operational and financial problems. Pakistan also has a handful of private airlines that fly both domestic and international routes.

The airline involved in Friday's crash, Bhoja Air, only recently received a permit and began flying last month after it lost its license in 2001 because of financial difficulties.

It's still unclear what caused the Boeing 737-200 to crash in wheat farms about five kilometers from Benazir Bhutto International Airport on Friday evening. It was arriving from the southern city of Karachi.

The violent storm that was lashing Islamabad when the plane went down has led some experts to speculate that "wind shear," sudden changes in wind speed or direction that can lift or smash an aircraft into the ground during landing, may have been a factor.

Some in the media and the government have suggested that the age of the aircraft may have been a factor. An industry website indicated the jet was 32 years old, not especially old for an aircraft, according to experts. Also, age by itself is rarely an important factor in crashes, they said.

Pakistan has barred the head of the airline, Farooq Bhoja, from leaving the country and has launched a criminal investigation into the crash, alongside the probe being conducted by aviation authorities.

Bhoja Air has declined to comment and said it would discuss the case after the investigation was complete.

The last major plane crash in the country—and Pakistan's worst—occurred in July 2010, when an Airbus A321 aircraft operated by domestic carrier Airblue crashed into the hills overlooking Islamabad, killing all 152 people aboard. A government investigation blamed the pilot for veering off course in stormy weather.

Dozens of mourners walked through the streets of Karachi on Sunday, carrying coffins holding victims of the Friday crash. One distraught young boy was comforted by a relative as he stood over his brother's wooden coffin, which was draped in a green cloth covered in Islamic prayers. Other mourners stopped to pray in the street during the funeral procession.

http://online.wsj.com/article/SB10001424052702303592404577360033580...

[Riaz Haq]

Here's an ET story on supply chain management in Pakistan: ....According to Agility Logistics Director Commercials Aamir Haroon, the field of supply chain has undergone a drastic transformation in Pakistan during the last 10 years. “We used to have a storekeeper, godown manager and in charge of transport a decade ago. Today, we have a logistics officer, supply chain manager and chief turning officer,” Haroon told the audience.

Stressing the need for outsourcing non-core activities, he urged companies to make their balance sheets leaner by getting rid of unnecessary assets and liabilities. “It’s no more a company versus another company these days. It’s basically one supply chain competing against another supply chain,” Haroon said, adding up to 70% of a typical company’s annual budget was managed by supply chain professionals.

Referring to an internal study carried out by Unilever Pakistan to gauge consumer reaction to an inefficient supply chain, company’s Logistics Director Faheem Khan said most consumers would not go back to a retail outlet if they did not find their desired brand there first time around. “It’s bad for you as a retailer if you’re selling a brand that has a poor supply chain.”

Making a presentation on the role of cold chain in the contemporary world and its implications for Pakistan, Raaziq International CEO Muhammad Nadeem Khan said horticulture formed 12% of the country’s gross domestic product, adding 30% of it was wasted annually because of an inefficient supply chain.

Similarly, he said only 6% of livestock produced in Pakistan was actually sold after value addition. With the global market for frozen food worth about $175 billion, Khan said Pakistan could benefit immensely by improving its supply chain, especially in horticulture and meat segments.

http://tribune.com.pk/story/376043/supply-chain-experts-find-networ...

[Riaz Haq]

Pakistan's Indus Airline to buy Russian passenger jets, reports RIA Novosti: Pakistan’s Air Indus has shown an interest in buying eight Sukhoi Superjet 100 airplanes, the manufacturer said on Wednesday.

“The client is interested in purchasing eight new SSJ-100 planes, and get three of them in 2013,” Sukhoi Civil Aircraft’s Senior Vice President Igor Syrtsov said.

An SSJ-100 carried out two demonstration flights in the Indonesian capital.

United Aircraft Corporation said in February Russia will export 10 SSJ-100 airplanes in 2012. The planes will be delivered to Mexico, Indonesia, and Laos in the second half of the year.

So far, only one plane has been exported and that was to Armenia.

Another 10 SSJ 100s will be delivered to domestic airlines Aeroflot and Armavia.

The Superjet 100 is a medium-haul passenger aircraft developed by Sukhoi in cooperation with U.S. and European aviation corporations, including Boeing, Snecma, Thales, Messier Dowty, Liebherr Aerospace and Honeywell.

The aircraft is capable of carrying up to 100 passengers for up to 4,500 kilometers.

In early February SSJ 100 received the Type Certificate from the European Aviation Safety Agency (EASA).

Sukhoi has received over 200 firm orders for Superjet 100 airliners so far.

http://en.ria.ru/world/20120509/173333447.html

[Riaz Haq]

US to assist in reviving Pakistan Rail system, reports Business Recorder: Consul General William Martin, on behalf of the US Trade and Development Agency, along with Captain Haleem Siddiqui of PMS inked the agreement that will enable the private sector company to help Pakistan's rail system handle the growing volume of cargo between Lahore and Karachi.

The initiative is central to improving the capacity of one of Pakistan's most important trade corridors and promoting continued economic growth.

To remedy a shortage of properly maintained locomotives, Pakistan Railway has agreed to allow PMS to deploy and operate a fleet of locomotives using PR's existing rolling stock and railway infrastructure.

The assistance will also provide PMS with an assessment of future freight volumes, financing requirements for the project, and other technical assistance.

Speaking on the occasion, CG Martin said that the "United States remains committed to partnering with the Pakistani transportation sector," because of its importance in supporting economic growth in the country, while also "increasing and strengthening US-Pakistani commercial ties." The US Trade and Development Agency aims to create sustainable infrastructure and economic growth in partner countries.

Brian McCleary, Commercial Counsellor, US Embassy Islamabad, and Aasim Siddiqui, MD, Marine Group of Companies, were also present on the occasion

http://www.brecorder.com/business-a-economy/189/1189982/

[Riaz Haq]

Here's a News story on steps toward rail privatization in Pakistan:

As many as six factories of Pakistan Railways (PR), namely Locomotive Factory Risalpur, Carriage Factory Islamabad, and four Concrete Sleeper Factories in Kohat, Khanewal, Sukkur and Kotri, are being corporatised for eventual privatisation subject to approval of the government, says the latest Economic Survey.

It said an effective railway system of the country facilitates commerce and trade, reduces transportation cost and promotes rural development and national integration. Pakistan Railways has entered into the Public-Private Partnership business in operating passenger trains, rehabilitation of locomotives and management operation of terminal facilities including dry ports.

The Ministry of Railways has also adopted a “Track Access Policy” for private sector participation to operate freight and passenger trains on Pakistan Railways infrastructure. The Ministry of Railways is also in process of allowing private sector to operate on Pakistan Railways network under Public Private Partnership framework.

The Ministry has also created a “Real Estate Development and Marketing Company” as subsidiary of Ministry of Railways. The company will manage to commercialise the surplus lands of Pakistan Railways in order to overcome its financial challenges, says the survey Restructuring of Pakistan Railways. The Cabinet Committee of Restructuring (CCOR) has approved a restructuring framework for Pakistan Railways. New Board of Directors of PR has been constituted by including academia, management professionals, rail experts and executive functionaries. The process for recruitment of a professional chief executive officer and other technocrats is being undertaken.

Repair of locomotives has been given a priority for restoration of railway services and freight operations are also being prioritised for revenue generation. Financial viability is being ensured through improving revenue and support by GOP. It has been decided that adjustment of fares and freight pricing will be determined according to market conditions and cost of doing business. An asset management company is being established for optimum utilisation of PR’s assets.

After the PPP formed government in 2008, the freight and passenger service has suffered massive set-backs, as indicated by the survey: 74.9 million persons travelled by Pakistan Railways in 2009-2010, but it came down drastically to 64.9 million in 2010-2011, while from July 2011 to February this year, just 25 million availed this mode of transport so far.

The situation of the freight is also alarmingly grim, as freight carried 5.8 million tons in 2009-2010, while in 2010-2011, it was reduced by more than half to 2.6 million tons, whereas till February this year, the Railways freight service recorded a paltry 0.9 million tons.

During the last financial year, 16 kms of track was rehabilitated on the Pakistan Railways network besides doubling of more than 15 kms of track.

Construction of D Class railway station at new Multan city was carried out at a cost of Rs39.8 million which has facilitated the local population to a large extent. Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out at a cost of Rs24.0 million to improve facilities for the passengers, said the survey.

Signalling system of four railway stations damaged during the riots of 2007 was rehabilitated during the period...

http://www.thenews.com.pk/Todays-News-6-112288-Six-factories-of-Pak...