Six Policy Reforms that can Strengthen Railways in Central Asia

  Over the past three decades, countries across Central and West Asia have worked together to improve their national railway networks and develop multi-country, long-distance railway corridors.

While changes in regional trade patterns have led to higher demand for long distance railway transport, the railways in the Central Asia Regional Economic Cooperation Program (CAREC) region often struggle to compete with other long distance railway corridors and other modes of transport. Many lack commercial orientation and operate at a loss.

  Railways across the region must consider implementing key reforms that will make them more efficient and financially sustainable. This will increase economic growth and ultimately improve the lives of ordinary people in the region.

  A new study by the Asian Development Bank (ADB) assesses the state of CAREC railways and identifies opportunities for investment, commercialization, and reform. Here are six policy recommendations that can improve the sustainability of railways across the region.

What is CAREC?

The CAREC Program is a partnership for countries in Central Asia and beyond to promote sustainable development through regional cooperation. In 2016, ministers from CAREC’s member countries endorsed the CAREC Railway Strategy 2017-2030 assisting countries to realize opportunities for investment in cross-border freight railways, and address needs for commercialization and reform to improve their railway performance.

1. Modernize commercial accounting systems

Most CAREC railways currently use accounting systems that do not follow internationally recognized commercial standards. These old systems cannot accurately measure the true financial performance of railway entities or separate the financial performance of each business activity.

The region’s railways must develop modern commercial accounting systems that provide reliable and transparent real‑time information about costs, revenues, and financial performance. Strengthening staff expertise in operating the system and using it to analyze railway performance is also crucial.

2. Use of enterprise resource planning

Railways need to introduce enterprise resource planning systems to help them adopt more commercial approaches that would increase productivity and profitability. These systems also help railway planners to maintain an overview of existing railway resources such as staff or rolling stock and determine more efficient ways of using them. They can be used to determine the full cost of operating railway services and routes, which is necessary to optimize tariff levels and understand which routes are most profitable. They are used to monitor and improve productivity and asset utilization, and ultimately increase profitability.

3. Liberalize tariffs

Nearly all CAREC member countries regulate railway freight tariffs. While CAREC railways do not face competition from other railways operating in their domestic market, they compete with road transport and long-distance railway freight services using other railway corridors. For railways to operate in this competitive setting, CAREC countries should consider liberalizing tariff regulations so the railways can adjust their tariffs in line with market conditions. This will help them to attract more customers and optimize revenues.

Table 3.4: Rolling Stock of CAREC Railways

Railway Type Railway Locomotives Freight Wagons Notes
Diesel Electric
Large railways with high traffic levels
China Railway, IMAR and XUAR regions ... ... ... Regional breakdown of rolling stock not published
Kazakh Railways 1,207 548 54,925 A further 75,496 wagons are available from the private sector
Uzbekistan Railways 188 83 20,448 66% of mainline locomotives, 91% of shunting locomotives, 35% of electric locomotives are aged >30 years
Mid-sized railways with moderate traffic
Azerbaijan Railways 116 59 4,193 Following investment in fleet renewal the average age of locomotives and wagons is low
Georgian Railway 65 105 5,001 >50% of wagons aged 35–45 years, >50% of electric locomotives aged 30–40 years, >50% of diesel locomotives aged 25–35 years
Ulaanbaatar Railway (Mongolia)a 128 0 3,319 60% of wagons aged at least 26 years
Turkmen Railway Agency 119 0 10,056 Most locomotives aged <15 years but 65% of wagons aged ≥30 years
Small former branch lines with low traffic
Kyrgyz Railways 26 0 1,080 80% of wagons no longer usable
Tajikistan Railway 42 0 450 Average age of wagons is 37 years
Needing large investments to develop or renew the network
Pakistan Railways 466 0 16,159 23% of locomotives and 24% of wagons are unserviceable
Afghanistan Railway Authority 0 0 0 Railway services currently operated by railways of Uzbekistan and Turkmenistan using their rolling stock

IMAR = Inner Mongolia Autonomous Region, XUAR = Xinjiang Uygur Autonomous Region.
Mongolia’s 100% state-owned railway company, MTZ, has also acquired a small fleet of locomotives and wagons.
Sources: ADB 2021a; 2021b; 2021c; 2021d; 2021e; 2021f; 2021g; 2021h; 2021i; 2021j; 2021k; OSJD 2019.

4. Introduce public service obligations

Most CAREC governments require their railways to continue providing services, especially passenger services, even if they are loss-making. This also leads to more unprofitable passenger traffic and less profitable freight traffic. As a result, some railways cannot generate enough retained earnings to regularly upgrade their assets.

To address this, CAREC governments can consider introducing a public service obligation. This could for example take the form of a contract between the government and the railway operator obliging the latter to offer certain services, while the government reimburses the operator for any losses incurred in running those services. Since accurate information is needed on costs and revenues of particular services, introducing this kind of reimbursement mechanism should go hand in hand with the establishment of modern commercial accounting and enterprise planning systems.

5. Examine non-core activities

CAREC countries need to examine the non-core activities of their railways and progressively separate or privatize them so that operators can focus on running railway services on a commercial basis. Non-core activities may include health services and housing, and various non-railway businesses. Since many non-core activities are loss-making, they are often a significant drain on the railway’s limited financial resources.

6. Boost private sector participation

Including private companies in the operation of freight and passenger services can create competition within the railway market, leading to improved efficiency and service quality. But to establish a fair and transparent basis for competition, most CAREC countries will need to reform their policy and legal frameworks to allow the private sector to perform additional roles in the railway sector.

Many CAREC railways have aged rolling stock fleets that need to be upgraded or expanded to meet demand. Due to their poor financial performance, railways generally lack sufficient funds to finance the needed investments. A possible solution is to invite the private sector to supply rolling stock on a lease or rental basis.

Overall, as markets change over time, railways also face further competition from other modes of transport. Implementation of reforms can lead to railways that are commercially fit and ready to adapt to changing markets.


This page was generated from /news/features/six-policy-reforms-can-strengthen-railways-central-asia on 12 December 2023

Source URL: