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Friday, 18 September 2020

Time for the private sector?

Last week’s tragic accident at Cairo’s main railway station has underlined the railway network’s need for more investment through public-private partnerships

Hatem Y Ezz Eldin , Wednesday 6 Mar 2019
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Views: 2814

The tragic photographs and videos of burned corpses scattered around Cairo’s main Ramses Railway Station after a train collision last week were truly heart-breaking.

The crash, which left dozens of passengers killed or injured, also recalled several similar deadly incidents and brought to the fore once again the urgent need to upgrade this vital transportation service and improve poor safeguards in the ageing Egyptian railway system.

 Over the last several years, there have been many train accidents that have left thousands injured or killed and have stirred up public anger.

This latest incident has spread more such emotions and has fuelled debates on finding reliable solutions that could save innocent people’s lives.

We must move forward to explore solutions to the problems of Egypt’s railway network. Before we do so, however, we should admit that Egypt’s railway system has a poor safety record, with frequent collisions often blamed on a lack of maintenance and poor management.

The railway system, used by 300 million passengers annually, has not been updated in over 50 years. The cost of renovating the network as a whole is put at some LE80 to LE100 billion.

The current government, like its predecessors, is trying to upgrade the railway network and its services by replacing old equipment with newer.

The state-owned Egyptian Railway Authority (ERA) has been spending money to buy new train carriages with some LE59 billion financed by facilitated loans recently allocated for that purpose until 2022.

Buying new train carriages and signalling systems will indeed support the railway’s infrastructure, but it will not provide a solution to the renovation that the network needs, however.

Vital services like transportation depend on the equipment installed but also on essential factors like safety, speed, competitiveness, cleanliness, food quality, catering, comfort, affordability and maintenance.

The heavily indebted Egyptian public sector cannot afford to keep such factors at a satisfactory level. The old and bureaucratic mentalities that have operated the network for so many years, at both managerial and labour levels, are no longer able to keep up with the rapidly growing concepts and technologies governing the sector today.

At the same time, government ownership is still much needed in essential public services as it ensures the objective of providing proper services for all.

A public-private partnership (PPP) agreement could be a successful option to increase the efficiency of the railway network in Egypt.

Since we have a poor record of successful fully privatised public services or industrial projects in Egypt, only operational services could be transferred to the private sector rather than full ownership and control.

The profit-targeting private sector could provide better salaries for workers in the sector while preserving reasonable pricing services for consumers.

Its marketing campaigns, innovations and competitive nature could ultimately help increase the efficiency of the transportation services as a whole, since private firms are more cost-efficient and effective at delivering such services.

Some people may argue that private firms will suffer if they take the responsibility of operating this vital service. This is true: cost pressures will always be high, and a lot of money needs to be spent on training, research and development just to keep normal and accepted operations running.

But in such cases, a special purpose vehicle (SPV) could be established in the PPP partnership to help private firms contracted to operate the transportation service, taking part of the risk and helping them to get the necessary finance on favourable terms, especially from the state-owned banks.

In most cases, a SPV can be very helpful for private firms as they want to limit their exposure to liabilities.

The PPP partnership could take many forms to include more private firms according to service priorities, population intensity, the number of railway stations, and so on.

But in all cases, the supervision of the government will be required. It can be hard for private firms engaged in a project to keep to the highest levels of competition while preserving people’s right to whole-service integration and mobility.

The nature of such fierce competition could prevent the necessary coordination for a fully satisfactory and free mobility service, something which could eventually even pose a threat to the country’s national security.

The government, on the other hand, will benefit from such a partnership as the railway network will improve in terms of its efficiency and safety. This could be reflected in reducing social discontents among the people, while facilitating living conditions.

When such a partnership starts, the government will reduce fiscal pressures on the state budget by keeping project debt and liabilities off its balance sheet. This will leave more fiscal space for other public obligations.

However, the partnership process must be studied in depth before implementation. Not many railway networks in the world have been privatised, and there is always a role for the control of the government.

More discussion could bring better forms of partnership between the government and the private sector. It would also be useful to study the forms of partnerships used in recent projects, such as in the New Administrative Capital in the housing sector, and to examine if these could be applied to upgrade obsolete public services such as the railway network.

This proposal could be enhanced by better ideas for operation, raising income and satisfying passengers’ demands for safer and more convenient travel. We should think out of the box.

We don’t want any more disasters to come, and we have the capacities needed to protect our people and ensure their safety on railway journeys.

We just need the determination to move forward instead of wasting our time in exchanging accusations or engaging in irrelevant political standoffs.

*The writer is an economic expert based in Riyadh.

*A version of this article appears in print in the 7 March, 2019 edition of Al-Ahram Weekly under the headline: Time for the private sector? 

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