In the short-term, the government is almost on the verge of inflicting a decisive military defeat on the LTTE, but is being hamstrung by a looming balance-of-payments crisis. In the medium-term we lack the means to develop the infrastructure and win over the disaffected minorities.
As military operations wind down, the focus must shift to winning the consent, if not the affection, of the Tamil people the LTTE claimed to represent. This is essential if we are to avert the most unpleasant IRA scenario of a continuing low-intensity war funded by the enraged Diaspora.
One way to win consent is to throw money at the potentially separatist region, as was so well demonstrated by Canada in quenching separatist sentiment in Quebec and by Spain in relation to Basque separatism. Yet, do we have the money to throw?
So the challenge addressed here is how we can give some goodies to the people of the North and the East who missed the considerable economic progress of the last thirty years, while at the same time engaging the enraged Diaspora, and hopefully, precluding them from taking the IRA route.
The example is the Main Line railway, which, as those with memories of pre-war Jaffna know, was very close to the hearts of the people of that region. The Yal Devi was the most profitable of the express trains and a key element of the remittance economy that sustained pre-war Jaffna.
It was as much as a cultural symbol of the Jaffna of yesteryear as was the Jaffna Library of our sorrow and shame. The President donated one month’s salary to the fund to restore the Main Line up to Jaffna because he knows the emotional and economic significance of that particular railway link.
Futile monster feeding
But the question is whether this will amount to "gangata ini kepima" (throwing good money after bad)? The President donated his salary not to an efficient service provider, but to the Sri Lanka Railway, one of the “five monsters who suck the blood from the national economic body,” according to his own Deputy Minister of Finance. LINK: http://www.dailynews.lk/2004/08/25/pol03.html
In 2008, railway losses amounted to LKR 4,553 million and state bus transport losses amounted to LKR 3,554 million, giving a total of LKR 8,107 million on state transport. This is not just a one-time phenomenon, but a deeply ingrained systemic trait as can be seen from the figure below.
The total losses from the railway alone since 1999 have been LKR 28,052 million. That means that, on average, the railway lost LKR 234 million every month over the past ten years; or, to make it even more graphic, LKR 7.79 million every single day for the last ten years.
The more services this monster operates, the greater will be losses and the more horrible will be the service. Give it the Main Line and Yal Devi and it will completely bust the budget. It will probably run toilet-less Chinese carriages on the Main Line.
Some say good management and political leadership are needed to turn around state enterprises. The Railway had both. It has a dynamic and knowledgeable General Manager and a Minister who has the ear of the President. The Minister even promised to resign if he cannot turn around the monster in a year. That was more than 12 months ago. He is still there and the Railway continues to bleed red ink.
This one is beyond redemption. New ideas are needed.
Diaspora solution
Take the Main Line from Ragama to Kankesanturai, including the spurs to Batticaloa, Trinco and Mannar, and all associated railway property. Carve it out from the main railway system. Bid it out transparently as a Public-Private Partnership (PPP) Concession. The government keeps ownership of the track and land and prohibits the sale of any land (though rental and lease will be allowed, subject to conditions).
Create a mechanism for private participation that privileges investment by those who previously held Sri Lankan citizenship. Of course, also allow entities with professional expertise in railway management to invest.
The concession contract will have to specify that the government will not intervene in pricing decisions. The existence of alternative modes of transportation, such as long-distance buses and airlines, should suffice to keep the prices from being extortionate.
This is essential to protect the Main Line PPP from the death spiral that has sucked in all our state-owned services. When politicians set prices without regard to costs, the enterprise drags on for little with no capital investments. Without investment, the service deteriorates and the staff get demoralized. Poor quality gets entrenched and customers refuse to pay higher prices. No investments can be made and quality deteriorates even further. Without safeguards from pricing interference, no one will invest. Without that safeguard, no one can do business.
At most, commit LKR 400 million a year (less than one-tenth of the current loss absorbed by Treasury) for a voucher fund to assist war veterans, the disabled, government employees and other deserving groups to use the trains running on the Main Line. If any interest group protests the new arrangement, buy them off with vouchers. The voucher fund should be subject to a ten-year sunset, with the amount being decreased by LKR 40 million every year.
The rest of us will pay with cash; those who can bend the ears of the politicians will pay in cash and vouchers. The train operators will get their money and the Treasury will lose less money than it does with the government running the Main Line. And the reform will get done. This is what is called a win-win solution.
The Main Line PPP can serve as a prototype for the whole country. Who knows, the southerners who have made good in foreign climes may want to invest in the Southern Line PPP, even if they were not too keen on the patriotic bond? And we may get decent trains running to Galle that do not require excessive bladder control.
The other advantage of the proposed PPP is that it will engage the Tamil Diaspora in the day-to-day economic life of this country. It’s less easy to call for sanctions and fund terrorism when one is a part of the economic life of the country.
If someone gets an idea to blow up trains using Diaspora funds, they’ll find that they are blowing up Diaspora-owned and operated trains, in addition to killing civilians. At least they’ll think twice. And we would have set in motion a dynamic where responsible members of the Diaspora exert control on the extremist elements.
This is just one idea for winning the war. Others are welcome.
Lets look at it
For eg the BCC, once a successful enterprise. now the factory that can be run efficiently by just about 400. So with the famous house by the Lake. There are full time "party workers" in its payroll!
Ss is the CGR etc etc. Even CEB. The employees freak out cos they know that they are stuffed material.
IF SOE are managed professionally, free of politics no body would bring in the word private. There are many examples of successful SOEs in the world. Then who gonna bell the cat? Here The private sector itself is corrupt. We don't have capitalists, we have "cronies"!
Say you pay/contribute a sum of X for a service either directly paying or in terms of indirect taxes. By nature, you want the service to be worth more than your contribution. If the everyone (general public) demands more than what they contributed for a service who fills the shortfall ? Naturally, you want the govt. to fill the void.
How the govt. pay for it ? by borrowing, increasing taxes, cutting spending on other govt. programs or by expanding the money supply (printing money). The first three alternatives are deeply unpopular with the politicians (specially the marxists) and the voting public.
So the govt. chooses the last and most destructive alternative - expanding the money supply. The result is perpetual inflation (with your rupee savings are gradually becomings worthless). Since the negative effects of inflation are gradual and takes time to kick in no one seems to pay attention. Bottomline: We all want to 'eat' a free/subsided lunch today and pay later with exorbitant interest. (actually the next generation will bear/pay the costs)
If you are getting poor service, it is because the service infrastructure is badly run (poor and inefficient management by political cronies) or you are not paying enough to get a decent service. In most cases, it is a mixture of both.
The solution is to encourage public private partnership to improve efficiency and productivity with open competition so the consumers will get a better deal for their money. Subsidies may be needed initially to start such reforms, but should be gradually weaned and let the market forces determine the success/failure of such partnerships.
Certainly the govt. has a role to play in regulating the services in a fair manner so the public are not exploited or excessive risk taking is avoided.
Take the ideologically preferred system; present it in ideal form, ignoring how it actually performs in the country in question.
Then take the ideologically hated system; present it in the worst possible light preferably using examples from distant lands. Here, do not make the mistake of presenting the ideal form. Stay focused on the system as actually practiced by the worst kind of people.
Now compare the two. Winning the argument is a cinch. Walk away victorious.
To make sure of absolute victory, ignore everything that has been said previously by those who disagree with you.
See Vinod Moonesinghe comment below for illustration.
The fundamental question to be asked is what is required of a transport service? Is it profit or is it service? In the advanced capitalist countries of Europe, the answer has been that it is service. Hence, the superb state-run transport sector in Switzerland, Italy, France and Germany.
In contrast with this one finds the incredibly bad transport services in the USA and Britain, which are ideologically committed to private transport.
The Sri Lanka experience, too has been that the best service is given by the state. Commuters prefer the CTB to the private buses. The massive overcrowding of private buses, their anti-social behaviour (such as dawdling in some sections and over-speeding in others) and the generally bad service is deplored intensely by commuters.
Commuters would also prefer to travel by train if there were adequate local links to the railway stations and if there were more trains.
So empirically, it is obvious that the state is superior to private capital in managing transport.
As for the railway being a bottomless pit, it is actually woefully under-funded. The permanent way should be completely replaced every 15 years, but this does not happen even in 30. The rolling stock is similarly ancient.
Very basic improvements and solutions, some of them quite inexpensive) are not implemented due to the state's commitment to the private transport sector. One GMR in the 1980s put forward a plan to improve the railway to the then government, which responded that the implementation of the plan would mean that there would be no passengers left for the private buses and hence scrapped it.
Undoubtedly there is corruption, which hampers the state transport services. This is most visible at the lowest level, where private bus operators bribe CTB bus crews to delay so that the private buses can pick up the passengers.
However, the recent revelations about the Ceylinco group and other private organisations indicate that corruption is not the sole prerogative of the state sector.
Once you sort out the mess and operate as a sound business unit then one can look at the options. Looking at globally, a partnership approach with private and public sector would be an ideal solution.
There are only a few railways in the world that are operated fully as a private sector entity. It will always needs subsidy from government but not the way it is currently done putting money into a bottomless pit. After few years of operations as a business unit one would get an idea of the strengths and weaknesses and get a handle on the problems. Then one can come up with a business model. Track should always remain as state control learning from the UK experience, but the trains can be a private enterprise.
Trains cannot be looked at in isolation. It must be part of an overall Reconstruction and Redevelopment Plan with integrated transportation and communication linking up the KKS harbour,Trinco, Mannar, Road transport network etc to promote growth.
What happened to Shell did we benefit. Can a normal man go to a private Hospital.
To me best solution is managed by a Private Public 50% 50% owned management company or a committee or whatever you call and of which is free from political influence.
To me Health, Education, Road network, Transportation, Water resources, Power all should be managed this way without privatising.
Experience with car insurance companies tells us that this is not always the case. None of the companies provide cross cover for third party claims without going to courts, forcing policyholders to claim from their own policies, or come to a private settlement, rather than try to recover claims from third party insurers.
Also, there is always the possibility that private companies may curtails services, or even abandon services altogether, if the are not profitable.
I think most tax payers are aware that they are subsidizing government employees and the unemployed. In country where the majority believe in the Buddhist philosophy of helping the poor and the disabled, subsidizing government servants maybe an extension of that belief.
Most lawmakers , and some other I know, work on the assumption that foreign aid givers will, if it come to a crunch time, write off loans as they have done in Africa.
I would like you to drive your thoughts to practical ways of implementing a sustained operation. If bus transport is given to private, why not rail?
In sri Lanka context, give me an example where state ship succeeded! very unlikely.
Solution is nothing else
1
Give the service away to the private sector: train operation
Keep the infrastructure provision with the state. Simply you sell the tracks to private operators. Operator can be from overseas.Never mind if local private sector worries about it.
With the current bureaucratic department status of railway would never give an uplift to the railway.
It's not reasonable to assume that only a bunch of government functionaries can figure out the right price. If the rail company charges too much, the buses will take the business and rail will learn. If the train isn't fast enough or comfortable enough, the airlines will cream off the top of the market. Why not let this process work itself out, without rushing to regulate tariffs?
I am arguing that intermodal is also competition, and the occasional abuse that may occur will be less than the systemic abuse we will introduce by allowing price regulation by government.
Also, there are the proposed vouchers. Government will have to take some action to prevent voucher-plus pricing, I agree.
On good transport. Railways in Sri Lanka have been more or less out of the freight business for a long time, because they cannot deliver on time. If the Main Line can, they will get the business. But they will have to contend with the prices offered by the other freight carriers. The only area I see problems is when they are dealing with the CPC, for fuel transport. This may require some safeguards.
May I request those who still believe that state solutions would be the best for economic services to look at Sri Lanka;s telecom industry? The government department, over a period of 50 years could not provide more than few hundred thousand connections.
People had to wait half their life time to get a connection. Service was terrible with technology dated back to Graham Bell. The whole industry landscape changed in just few years. Soon we will have more telephones than the population plus the unborn babies.
Anyone can remember the gas monopoly?
PPP's are a practical option for several reasons - (principal-agent)incentives, fiscal constraints and also buy-in from stakeholders who ideologically oppose the term "privatization".
In fact - the CGR has already entered into PPPS at the fringes of the service. Why cite the UK case??? Why not look at how India has developed its public transport infrastructure.
Finally on the issue of service - there is no argument whatsoever on the fact that service ought to be the primary objective of an entity such as the CGR. But for good service we do need funds... with the huge BOP and fiscal crises can the GOSL continue to be the exclusive funder of the CGR???
Also - as any rail commuter would attest to, the services of the CGR today are by no means even close to what a "public service" ought to be.
Its Minister is perhaps the most powerful in its history. Yet, the losses keep climbing and service continues to be bad. This is the best evidence for the failure of government supply. It is from here and now, in our own country and our time, not based on some half-baked analysis of what happened or did not happen in the UK.
I did not propose that the track be maintained by one company and trains be operated by multiple private entities, for example. So clearly I have not proposed the UK model. It is disingenuous to attack me on something something I did not say.
On the question of socializing losses. I wonder what asking taxpayers, many who do not travel by train, to absorb an average of LKR 70 million in losses a day (the amount is increasing by the year) is, if not socialization of losses and privatization of profits by the 17,000 employees and the commission agents, if any?
And lastly, the critics also agree that significant investment is needed. The President has donated his salary as has his Secretary. I am sure my critics will donate their salaries too. But this will still not be enough to bring the railway up to standard.
Where will the money come from? Is it not better to generate capital from outside the government, when the government can barely pay salaries? If we can help the government reduce the losses it incurs on account of transportation services, it will be in a better position to provide basic health care and elementary education, which I would think are higher priorities.
The economics of rail changed later with tarred roads and privately owned mass produced vehicles - Model T Fords etc.
The argument that state should run it - and thereby incur losses - essentially means that some one else picks up the tab though taxes or money printing.
Sri Lanka's rail started with a loan floated in London capital markets as a state run Singapore-style commercial venture by the same type of colonial bureaucracy that both countries had. Someone had written a book on this.
The British trained colonial bureaucrats - who eventually took over Singapore - as well as the people who ran Sri Lanka at the time, charged commercial rates because high taxes were not conducive to keep a colony of natives happy.
Also because of a currency board the government could not print money and push inflation up. Only taxes were available, so grand vote buying 'social service' transport was out of the question and not necessary.
Rail if allowed to continue in private hands in countries where innovations happen ti would have been subject to market forces
a) It may have died a natural death
b) It may have fundamentally re-invented itself.
See what happened with budget airlines when full service airlines were in state hands.
By nationalizing rail it was kept alive in many countries with someone else picking up the tab.
Remember governments cannot do anything without stealing from someone else. If stealing is high there will be high levels of poverty.
The shabby secret of government 'welfare' is this;
a) transparently taking money through taxes - fine
b) printing money and stealing through inflation - very useful tactic as long as the public can be duped into believing that inflation is not caused by the central bank.
c) generational theft through borrowing - a cowardly option where unborn children are forced to bear the price of today's non-profit 'social service' by politicians and welfare statist advocates.
fuss-budget
The PPP concept is probably a sophisticated racket in some cases. However state support from time to time may be preferable to full socialization of losses year after year after year.
There is certainly a case for urban mass transport for rail and may be even very long distance travel.
The fundamental problem is that the economics of rail has changed from when it started and it was a viable private industry.
In Sri Lanka of course rail is a gravy train for 17,000 workers.
The problem with the Sri Lanka Railway is that insufficient investment has been put into it and successive governments have favoured the private bus operators. For example, not even CTB bus services terminate at railway stations, as they do in rational systems - where the bus and train services complement each other - this would mean taking passengers away from the private bus mudalalis.
Transport is about service, not profit. I don't think anybody in their right minds considers the private buses to be better than the CTB - certainly not the commuters!
It certainly would not be an economically meaningful way of transforming the national railway into an engine of economic growth and political reconciliation.
In particular the link between infrastructure growth and "bridging the gaps" between communities (both literally and metaphorically as I see it) Private-Public Partnerships are the way to go...and this was also empirically tested and proven in research I did recently (including the CGR).
The question though (and you and I know this is a perennial conundrum when good governance is absent) is who is is assume readership over implementing these policies? How do we bridge the ideas-policy-implementation gap????
In fact, I strongly believe, If the government built a six lane highway to the North ad East 40 years ago, linking major cities in the north, the vast majority of the problems we face today would not have occurred.
Only the government can build roads, and , as the progress in Pelawatte area after parliament road has shown, once wide roads are in place, private individuals will build businesses, hospitals, schools etc.
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