Costing System of Sri Lanka Railway

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Sri Lanka Railway

Sri Lanka Railway

Sri Lanka Railway is a government department that was established in 1858.[1] which was known as Ceylon Government Railway in 1860’s. The railway network was introduced by the British in 1864 [1] with the objective of transporting tea and coffee from the hill country to Colombo. The first railway line in Sri Lanka was constructed between Colombo and Ambepussa. Later in 1867, 1874, 1885, 1894 and 1924 this main railway line was extended to Kandy, Nawalapitiya, Nanu Oya, Bandarawela and Badulla respectively. The other railway lines such as line to Mathale, Coastal Railway Line, Northern Line, Mannar Line, Kelani Valley, Puttalam Line, line to Batticaloa and Trincomalee were constructed in 1880, 1895, 1905, 1914, 1919, 1926, 1928 respectively [1].

Currently, the Sri Lankan Railway possesses a railway network which consists of 1,508 kilometres of broad gauge tracks [1] including the most magnificent and attractive railway routes in the world.



Contribution to the System

The railway has the lowest economical cost with respect to the other modes of transportation so that in most of the developed county’s the main mode of transportation is the railway. Sri Lanka Government Railway transports thousands of commuters daily to the city in the morning and to away from the city in the evening without making a huge traffic jam on the road network. In a way it is a great benefit to the system as a whole.

Sri Lanka Government Railway has contributed with 4,568 million passenger kilometres to the system in 2009[2]. It has also contributed with 118 million freight ton kilometres to the system according to the Central Bank annual report.

The Income of the Railway

“The railway has real estate, rolling stocks and hundreds of kilometres of track, but it has been running at a massive loss,” Peter Harrold, country director for the World Bank, said in Colombo[3]. Sri Lanka Railway has identified as one of the biggest five monsters in Sri Lankan economy. It has made a loss of 4,768 million rupees in 2009. It is a growth of 4.7% of loss with respect to the previous year. At the same time the railway is slowly moving away from the people. With respect to the previous year, there is a reduction of 2.2% in both supplied number of passenger kilometres and the supplied number of freight tons kilometres[2].

With respect to the railway systems in other countries, Sri Lanka railway has fewer facilities. The less comfort and less availability made the people to move away from the railway. The reliability of the Sri Lankan Railway is also not at a satisfactory level at most of the time. As according to the information provided above, currently the Sri Lanka Railway is making a huge loss. The reduction of the demand from the passengers can make the loss more badly in future.

Why Making Losses?

Sri Lanka Railway has increased its revenue to 4,020 million from 3,671 million in 2009 [2]. It is a growth of 9.5% with respect to the previous year. But still the railway is making losses. The loss has nothing to do with the revenue but with respect to the operating cost of the railway the revenue is not sufficient to fulfil the gap between the income and the cost.

The railway fare in Sri Lanka was increased last, a few years ago. Since then the price of the diesel has increased by two and half. The prices of the electricity and the water are also increased by two and half up to now. The salaries have doubled. The passenger pays only 50 rupees per 100 kilometres on average. The fare of the Sri Lanka Railway is extremely low. The amount of revenue is not sufficient to meet the fuel bill even[3]. That is how the Sri Lanka Railway became one of the five monsters in the Sri Lankan economy. The current lower fares for intercity passengers are shown below[4]:

From To Single Journey (Rs.) Double Journey (Rs.)
Colombo Fort Vavuniya A/C 1st

(ord.) 2nd

400.00

200.00

300.00

150.00

Colombo Fort A’pura A/C 1st

(Ord.) 2nd

150.00

120.00

300.00

240.00

Colombo Fort Kandy – Ob./Car

(Ord.) 2nd

122.00

72.00

208.00

108.00

Colombo Fort Gampaha (Ord.) 2nd 20.00 40.00
Gampaha Kandy (Ord.) 2nd 58.00 87.00


In the current pricing system, a normal passenger has to pay only 50 cents per kilometre to travel by train. That means on average the revenue generated per passenger kilometre is 50 cents. At the same time 17,000 of the staffs of the railway have to pay only 3 cents per passenger kilometre[2].

Sri Lanka Railway’s freight transport is mostly used by the multinational companies but it also has a very low fare. A part of the lower fares for freight transport at Sri Lanka Railway is shown below[5]

Distance (km) 0-25 kg 26-30 kg 31-35 kg 36-40 kg 41-45 kg 46-50 kg
0-25 50.00 50.00 50.00 50.00 50.00 50.00
25-40 50.00 50.00 50.00 50.00 50.00 53.00
40-55 50.00 50.00 50.00 50.00 52.00 56.00
55-70 50.00 50.00 50.00 52.00 54.00 59.00
70-85 50.00 50.00 52.00 54.00 56.00 62.00
85-100 50.00 51.00 54.00 56.00 58.00 64.00

(All charges are in rupees)

When considering the above information it is very clear that the Sri Lanka Railway has no any accurate costing system to do the pricing in a proper and profitable way. The current fares have no relationship with the cost of the railway. A proper costing system should be introduced to overcome this situation.

One of the other factors made the railway losses is excess employees. Although Sri Lanka railway is having 17,000 employees at present it has not made any profit since 1943[3].

The other main reason which made the railway to face losses is its less attraction. In Sri Lanka the railway has not been promoted. As a result, 99% of the tourists are using the road transport [3] for travelling.

Costs at Railway

Fixed Cost (Financial)

Fixed cost at railway is extremely high. The amount of money which should be allocated to buy new locomotives and the amount of money which should be allocated to build new tracks is comparatively high with respect to the fixed costs at SLTB.

Sri Lanka railway is currently having 600 coaches. But the real number of coaches it needs to operate estimated is 1000[3].

A cost estimation to construct one kilometre of a railway is shown below. This estimated cost does not include the taxes of Sri Lankan government[6].

Item Unit Quantity Required Unit Rate (US$) Total Amount (US$)
Rails – UIC 54 E2 100 1115 111,500.00
Fishplates (for UIC 54 E2) Pairs 30 15.5 465.00
Flash Bolts and Nuts (do) 120 1.002 120.00
P.S. Concrete Sleepers 1550 61.35 95,092.50
Rubber Pads 3100 0.88 2,728.00
GRN Insulators (Field) 3100 0.46 1,426.00
GRN Insulators (Gauge) 3100 0.45 1,395.00
Elastic clips 6200 0.86 5,332.00
Ballast – Metal (40-60mm) m3 2100 19.05 40,005.00
Aggregate Base Course (ABC) (0.225mx6m) + 15% compaction m3 1640 24.5 40,180.00
Flash Butt Welding Per weld 80 125.33 10,026.40
Thermit welding Per weld 20 80.32 1,606.40
Total 309,876.54

Segment from Mathara to Beliatta

Government has already started to connect Beliatta to the current coastal railway track. A bridge in Nilwala Ganga has already constructed near Mathara railway station with a cost of 250 million rupees as a part of the project. There are twelve new bridges are planned to be constructed in this project. Sri Lanka Railway has already purchased 1,411 plots of lands for the new railway track by paying 710 million rupees to the owners of those lands. It is around sixteen acres of land. The total length of the new railway track is thirty kilometres[7].

Economical Cost / External Cost

In the above segment, the estimated costs are only the financial costs. Government has not estimated the economical cost of this project. People around the new railway track will have to change their life style. They have lost around sixteen acres of their own land[7] due to the construction of the new rail track which they could use to earn money. The natural beauty of the coastal area may also destroy or become low due to the rail track construction. These are indirect costs to the system. These costs should be included in to the total cost function when pricing the railway service.

Periodic and Regular Costs

The operating cost of the Sri Lanka Railway is annually increased. In 2008 it was 8,225 million rupees and in 2009 it increased up to 8,788 million rupees [2]. It is a 6.8% growth. The major periodic costs of the Sri Lanka Railway are track maintenance costs, railway stations maintenance costs and the locomotive repair costs. The regular costs include diesel cost, salary payments to the employees and electricity bills. In the current pricing system, these costs are not managed properly. In order to avoid the railway to face losses a proper calculation method for operating cost and cost cutting strategies should be used. Otherwise a proper pricing system cannot be implemented.

Segment from Colombo to Mathara

This segment includes the railway stations Dehiwela, Mount Lavinia, Ratmalana, Moratuwa, Panadure, Wadduwa, Kalutara, Aluthgama, Bentota, Ambalangoda, Hikkaduwa, Galle, Weligama and Matara. When considering the pricing of a slow passenger service, we have to include all the maintenance costs of the above railway stations. This is a 100 mile long route. The costing system should calculate the maintenance cost of these 100 miles too. This route is served by Ruhunu Kumari and Galu Kumari trains. Therefore the costing system should include the maintenance cost and diesel cost of these trains and they should be added to the total cost in order to implement the new pricing system.

All the above costs are direct financial costs. But the new pricing system will be more realistic if we add the indirect economic cost part too. It should include the carbon emission levels of trains. But with respect to the other modes used in Sri Lanka, the indirect cost of the railway is very low.

By the way, the railway is the most efficient mode of transport under the sun. It can transport thousands of passengers at once and can help to reduce the huge traffic jam on the road. Most of the developed countries are getting the maximum benefit of the railway services today. If we improve our railway system with more attractive features (comfort, reliability, safety, timeliness) and using a proper pricing system which is determined by a accurate costing method as explained above we can make the government railway a profit making business in the near future.



References:

  1. 1.0 1.1 1.2 1.3 Sri lanka railways n.d. Retrieved October 23, 2010, from http://en.wikipedia.org/wiki/Sri_Lanka_Railways.
  2. 2.0 2.1 2.2 2.3 2.4 Sri lanka state railways lose rs4.7bn in 2009 n.d. Retrieved October 23, 2010, from http://www.slrfc.org/2010/04/23/sri-lanka-state-railways-lose-rs4-7bn-in-2009
  3. 3.0 3.1 3.2 3.3 3.4 Sri Sri lanka's railway seeks $200 mln, end to 60 years of losses n.d. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aneVlYpKQLVY&refer=asia
  4. Special services rates n.d. Retrieved October 23, 2010 http://www.railway.gov.lk/special_services.html
  5. Parcel Rates n.d. Retrieved October 23, 2010 http://www.railway.gov.lk/special_services.html
  6. Material cost for 01 km railway track n.d Retrieved October 23, 2010 http://um.fourcornershosting.com/material-cost.html
  7. 7.0 7.1 Kataragama line first phase accelerated n.d Retrieved October 23, 2010 http://www.slrfc.org/2010/07/30/kataragama-line-first-phase-accelerated



--Gishan Chaturanga 22:21, 8 May 2011 (MDT)