By now, the word ‘restructuring’ has reached a stage where it has become common jargon locally, thanks to the Government’s realisation that restructuring is the way to stop pumping taxpayers’ money into State-Owned Enterprises (SOEs) that devour these funds with no meaningful output or growth.
Joining the long line of SOEs that are to be restructured is Sri Lanka Railways. On 25 July, Minister of Transport Bandula Gunawardena stated that the Cabinet of Ministers had advised the President to appoint an expert committee for the purpose of obtaining necessary recommendations for a complete restructure and improvement of Sri Lanka Railways.
Sri Lanka Railways; a historic rail
The history of Sri Lanka’s railway dates back to 1864, when the first track was laid between Colombo and Ambepussa, marking the inauguration of an era that would significantly shape the nation’s transportation landscape. Initially developed during British colonial rule, the railway network served as a vital link connecting various regions and facilitating the movement of goods and people.
Today, Sri Lanka’s railway network extends across nearly 1,500 km, with over 300 railway stations serving millions of passengers annually. The railway system is divided into nine operational divisions, with the Western Province being the most densely connected. The scenic train routes, such as the Kandy to Ella route, have gained international recognition for offering breathtaking views of the island’s landscapes.
Apart from passengers, the railway system handles freight transport as well, contributing to the movement of goods across the country. Due to years of underinvestment, safety concerns and reliability issues have plagued the railway system, affecting passenger confidence. The railway industry has often seen clashes between labour unions and authorities, leading to strikes and disruptions in service.
Over the years, Sri Lanka Railways has faced financial struggles, with operational losses and a lack of investment affecting its efficiency. These issues have forced Sri Lanka Railways to go through the inevitable restructuring.
Report on restructuring in two months
Recent disruptions in railway operations have underscored the urgency of reform. Notably, more than 35 train journeys were cancelled due to a trade union action led by a group of engine drivers protesting new train services proposed by the Railways Department. Additionally, four office trains faced cancellation as driving assistants abstained from duty, as confirmed by the Department of Railways.
Minister of Transport Gunawardena, speaking on this matter, conveyed the Government’s unwavering commitment to safeguarding public convenience. He firmly stated that Cabinet decisions would be resolute in addressing any railway strike that inconvenienced citizens.
However, the Minister clarified that while some demanded the privatisation of the railway service, such a measure was not feasible. Instead, he requested time to transform the department into an authoritative body, thus effectively addressing the railway’s challenges without resorting to privatisation.
Speaking to The Sunday Morning Business, Railways General Manager W.A.D.S. Gunasinghe stated that the need for restructuring was primarily necessitated by the fact that current regulations pertaining to the department were about 158 years old, meaning that they had never been changed since the establishment of the first railway.
“We want to change the structure to suit modern day requirements and mobility. The Cabinet of Ministers approved the decision to restructure and the proposal has now been forwarded to the President’s Secretary,” Gunasinghe stated.
When asked about the kind of restructuring Sri Lanka Railways would undergo and whether its restructuring would also be managed by the SOE Restructuring Unit under the Ministry of Finance, Gunasinghe stated that it was too early to decide or comment on such matters.
However, he stated that the committee that would be appointed soon would have to present a report on the restructuring within the next two months.
In terms of the financial performance of the department, Gunasinghe stated: “There should be a price advantage for passengers when it comes to the railway when compared to other modes of transport; hence, the marginal cost has been higher.”
Trade unions not in favour of restructuring
Railway Trade Union Alliance Convenor S.P. Vithanage told The Sunday Morning Business that the trade union was ‘fully against’ the decision by the Government to restructure and added that the union would never permit such a restructuring.
Vithanage stated that President Ranil Wickremesinghe’s United National Party (UNP) had always been in favour of restructuring the railway. To support his claims, he pointed to the Sri Lanka Railways Authority Act No.60 of 1993, which was, according to him, a push by the UNP.
“The Government is now attempting to establish the Railways Department as an authority. When an authority is formed, its board of directors will be filled with political appointments. We are vehemently against this. The railway is a service and it should not be restructured,” he stressed.
Losses indicate a serious problem
According to the Verité Research-powered PublicFinance.lk website, over the span of the last decade (2010-2020), the Department of Railways has faced a substantial financial challenge, accumulating a staggering loss of Rs. 331 billion. This financial setback surpasses that of any other State-Owned Enterprise, highlighting the gravity of the situation.
To provide context, the revenue streams of the railway, encompassing passenger traffic proceeds (ordinary and season ticket holders), earnings from goods transport, and other sources, have consistently fallen short of covering the sole expenditure of personal emoluments for railway department staff, Verité Research noted.
This category includes salaries, wages, overtime compensation, holiday pay, and other allowances for employees, collectively accounting for an average of merely 24% of the railway’s annual expenses from 2013 to 2020.
Notably, the most significant financial loss occurred in 2020, amounting to a substantial Rs. 45 billion. This decrease in revenue can be largely attributed to the adverse impact of Covid-19-related lockdowns and travel restrictions on passenger traffic revenue throughout the year.
As the time for the first review of Sri Lanka’s Extended Fund Facility (EFF) with the International Monetary Fund (IMF) approaches, the country is compelled to show some progress in its efforts to restructure SOEs. It is just a matter of time before the restructuring process actually commences at the Department of Railways; without this, the country might risk its upcoming tranches with the IMF.