Ideas to win the war: Sri Lanka’s main line railway

May 4, 2009 (LBO) – “You never want a serious crisis to go to waste.”– President Obama’s Chief of Staff Rahm Emanuel 

Without question, Sri Lanka is in the thrall of multiple crises.  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.

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Figure 1:  Government-owned rail and bus service losses, 1999-2008

Source:  Central Bank, Annual Report 2008

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.