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Railways going private
Published in Al-Ahram Weekly on 28 - 09 - 2017

The government is amending the law regulating Egypt's Railway Authority to allow for private-sector management against the background of discussions of private-sector involvement in the country's railways since a train collision in Alexandria left 42 dead in August.
Huge investment is needed to overhaul the railway system, and the government cannot afford it, Minister of Transport Hisham Arafat has said. When the system was created in the 1950s it carried six million passengers per year. Today, it is carrying 350 million, and Arafat expects passenger and freight demand to increase further after the recent subsidy cuts on fuel prices.
“Time has shown that government management is weak and inefficient,” Ehab Al-Dessouki, head of the Economics Department at the Sadat Academy for Management Sciences, said in approving the government's move to amend the law.
The railway system has been plagued with accidents over the years, he told Al-Ahram Weekly. Not only is the private sector more efficient at management, but the government does not have the resources to provide the finance needed for the revamp of the railways, Al-Dessouki added.
Railway maintenance workshops have not been upgraded since the 1960s, Arafat said, adding that workers are having to use outdated tools. A top priority will be to introduce the private sector into the maintenance of the system to overcome this shortcoming, Arafat added.
“When an engine breaks down, we have to wait for a second one to break down so we can use the spare parts from one for the other,” Ramadan Al-Guindi, former head of the General Syndicate for Railway Workers, told the Weekly.
A second priority for the government, according to Arafat, is the building of new lines to expand the existing network. He spoke of freight lines to connect Sokhna on the Red Sea to Alamein on the Mediterranean. New lines are also needed to serve Upper Egypt, but the cost of a km of rail is LE28 million.
Speedier and more technologically advanced lines, which are what the government wants to build, could cost up to LE45 million per km, he stressed. “The new lines should be high speed and without crossings,” Arafat said.
Egypt's railways also still use mechanical signalling systems depending on the telephone at crossings and being to blame for many past accidents. The system is notorious for the latter, and in 2016 it witnessed around 1,200 accidents, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS).
While private-sector management sounds like the solution, there have been worries that it will lead to hikes in ticket prices. However, Arafat said the government would control these.
Any increase in prices would be met with outrage from passengers, Al-Guindi said. “When the price of the Cairo metro increased, people were up in arms. One can only imagine what would happen if train tickets increased,” he pointed out.
Everything will depend on implementation, Al-Dessouki said, adding that the government should allow more than one private-sector company to operate to create competition in favour of the consumer.
The fact that the private sector is more efficient would mean that it could lower costs, which might not necessitate hikes in ticket prices, he added. However, the government should continue to deliver its existing services to give consumers the choice, he added.
“There will always be those who are willing to pay more for a better service. But the government should always be there for those who cannot pay more,” Al-Dessouki said, adding that competing with the private sector could push the government to improve what it was offering.
He drew a comparison with the telecommunications sector, where various companies are competing and offering competitive prices to consumers.
The government has been keen to stress that the new legislation does not mean that privatisation is in store. Involving the private sector in the delivery of railway services may be new to Egypt, but it has existed elsewhere around the globe for years.
A 1993 World Bank report on “Forms of Private Sector Participation in Railways” said that during the 1980s “the failure of government interventions to achieve improved market performance, along with the large budgetary drain imposed by many railways, led to a shift from concern with potential market failure to concern about actual government failure.”
The study argued that private-sector involvement should not be termed “privatisation” but rather “private-sector development” as its aim is “not so much to sell assets to the private sector as to increase the role of the private sector and promote competition.”
It said that one of the keys to private-sector participation in the railways was the “unbundling” of the activities that together make up the provision of rail transport such as the manufacture of railway equipment, the maintenance of tracks or locomotives, and hotel services.
One of the oldest private-sector involvements in railways has been that of the British railway system, which was privatised between 1994 and 1997. Track and infrastructure passed to Railtrack in 1994, and passenger services were franchised in 25 blocks to private-sector operators.
Freight services were sold outright, according to Network Rail, the owner and infrastructure manager of most of the rail network in England, Scotland and Wales.
However, not everyone has been happy with that experience. We Own It, a non-profit organisation in the UK, says on its website that “the average price of a train journey has increased by 23.5 per cent in real terms” since privatisation and “fares on some routes have increased by 245 per cent.”
It also says that the private sector has avoided investing in the railways in the UK. The average age of trains is higher than it was in 1996, the website says. “Passenger numbers have increased by 60 per cent since 1994-95, but by 2013 there was only a three per cent increase in new carriages,” the group said.

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