The restructuring and privatisation of the National Railways of Zimbabwe (NRZ)
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Zimbabwe Amalgamated Railway Workers Union (ZARWU)
After adopting in 1990 the structural adjustment programme, inspired by the World Bank and the International Monetary Fund, Zimbabwe has become a target of the neo-liberal policy of globalisation, which advocated deregulation and privatisation of state-owned companies. Neo-liberals advanced the following as immediate benefits of privatisation:
- Performance enhancement
- Increased competition by reducing monopolies
- Greater participation of the private sector
- Raising revenue for the Treasury by selling the so-called “non-core” assets.
The National Railways of Zimbabwe (NRZ) was one of the first state-owned corporations targeted for privatisation. The government adopted the “Framework for economic reform (1991-1995)” and set up the Privatisation Agency of Zimbabwe (PAZ) as a secretariat to the Inter-ministerial Committee on Commercialisation and Privatisation (IMCCP).
NRZ was established as a railway company under the Railways Act of 1997, to provide freight and passenger services within and outside the borders of Zimbabwe. The company is important for transit rail traffic towards most SADC (Southern African Development Community) countries, and owns a significant real estate, such as offices and accommodation facilities.
NRZ was initially designed to carry 18 million metric tones of cargo and 18 million passengers annually. It has a network stretching for 2,670 km, with 313 km of that being electrified, and employs 7,543 staff.
The history of the NRZ since the 1990s has been characterized by unilateral and partly implemented restructuring efforts and frequently by changing strategies through directives from the government to the management. Consequently, NRZ has gone on a steady slump since the mid- 1990s, reaching its lowest ebb in 2003. The decline in performance is attributable to a number of key reasons:
- Deregulation of the transport sector resulted in rapid growth of road transport, which gained an important share of the market in competition with the railways, whilst NRZ failed to respond by adopting a business culture.
- Lack of clear vision on restructuring policy and on fares/tariffs setting responsibilities.
- Distorsions in the business structure of the NRZ.
- The government’s failure to cover the costs of providing social services and for the rail infrastructure.
- Lack of investment in infrastructure maintenance and rolling stock.
- NRZ was characterized by inefficient operational procedures and systems and failed to adapt to the new business environment.
Early attempts to restructure NRZ were done by the government, without the workers’ involvement. In 1997, the Ministry of Transport and Communications chose the Irish consultant CIE to privatise NRZ through PAZ. CIE Consultants came up with a number of privatisation models, ranging from splitting the company into 21 units on the basis of “core and non-core” activities to vertical and horizontal separation of the main entities (infrastructure, operations, real estate) under a new holding company. NRZ was also advised to shed up to 50 per cent of its workforce and retain only 4,000 employees.
Social dialogue: Tripartite Restructuring Committee
The year 1998 marked the turning point in the history of NRZ, when the management announced its intentions about the company. The union ZARWU resisted the proposed attempts to use consultants and PAZ for rail restructuring. A union delegation sent to the minister of transport outlined labour’s demands for participation in the process and reversal of the models proposed by the consultant. ZARWU also challenged the legitimacy of PAZ, which was not enforced by a parliament act.
Labour’s persistence resulted in a memorandum of understanding signed on 26 February 1998 for setting up the Tripartite Restructuring Committee (TRC), comprising representation from the government, the management and the unions. Management and organised labour were equally represented in TRC. The main role of TRC was to examine the feasibility and implications of NRZ privatisation. The process had to guarantee “full and informed participation by all stakeholders, maximum transparency at all stages and internal transformation that furthers operational efficiency.”
TRC had a number of significant consequences, such as:
- CIE Consultants were dropped and their recommendations abandoned.
- The bidders’ conference on “expression of interest” was cancelled.
- PAZ was granted an advisory role only.
- A stakeholders’ workshop held in December 2001 rejected the idea of privatising NRZ.
- Field visits were made to Mozambique and South Africa, and documentary evidence on British Rail was analysed.
TRC carried out studies and examined cases on railway privatisation between 1998 and 2001. Evidence based on extensive research worldwide showed that most railways were very circumspect about privatisation. Those who have already experienced rail privatisation, such as British Rail, saw their standards declining and the number of accidents rising.
Tripartite Turnaround Committee
When assuming office in 2004, Mr Chris Mushowe, the current Minister of Transport and Communications, outlined his intention to turnaround NRZ “from its failure to effectively play its national role in terms of providing adequate capacity and quality service in various sectors of the economy.” At that time, the railway was operating at less than 43 per cent of the capacity, generating losses in agriculture, mining, energy and industrial production. Financial performance was characterised by huge deficits, cash flow problems and huge debtor and creditor balances.
The new minister renamed TRC as the Tripartite Turnaround Committee (TTC), but kept a similar representation. The Reserve Bank of Zimbabwe (RBZ) added impetus by providing funding through a special programme. The broad objective of TTC was to carry out an internal examination of NRZ in order to identify weaknesses and operational bottlenecks, and to optimise the existing capacities for potential business opportunities. The exercise was called “Stop the bleeding”.
TTC acknowledged that NRZ should remain an integrated entity, whilst the government should assume certain obligations towards the railway in order to avoid cross-subsidies. TTC agreed on the following issues that could stop NRZs decline in performance:
- NRZ is a national institution of strategic importance, hence it must operate as an optimal system.
- All debts towards NRZ should be cleared.
- NRZ should be allowed to charge economically viable transport tariffs and to receive subsidies for the social services provided.
- The government should fulfil its obligations to provide funds for infrastructure maintenance, and to refrain from political interferance in rail business.
- NRZ should be allowed to retain all foreign currencies earned from its operations and use them to buy fuel and equipment.
- Management should be restructured and a solid corporate governance structure implemented.
- A reward system to attract, motivate and retain qualified professionals should be put in place.
- NRZ should be allowed to set up joint ventures with major customers.
In addition, unions went on lobbying missions and made presentations to parliamentary commissions in a concerted effort to advocate the turnaround strategy as the only viable option, as opposed to privatisation.
The government approved the TTC Turnaround document in 2004 and its implementation started by early 2005, with some positive outcomes:
- The government approved a phased restructuring of NRZ, based on the internal “Stop the bleeding” initiatives.
- RBZ injected funds to kick start the process and cleared the debts owed by other state-owned companies towards NRZ.
- NRZ was allowed to retain all its earning from foreign operations to acquire spares and fuel.
- NRZ was free to charge economically viable transport tariffs.
- The government assumed its obligations to pay subsidies for intercity and commuter services.
- Private sector companies (ZSR Corporation Ltd. and Zimbabwe Power Company) entered joint venture agreements with NRZ to provide refurbishment and other dedicated services.
- A new board and a new chief executive officer were appointed.
The aftermath of the above changes marked improvements in NRZ, such as:
- Annual freight tonnage increased from 3.7 million in 2005 to 5.4 million in 2006.
- Rail capacity improved.
- Expansion of train services to new branches (Chinhoyi to Harare, Harare to Bindura) and revival of international trains between Bulawayo and Francistown (Botswana).
- Reliable services and customer satisfaction.
- Reduction of wages to revenue ratio from 110 per cent in 2004 to less than 50 per cent in 2006.
- Salaries were paid regularly.
Expansion in business and prospects of new ventures, such as passenger services to Beitbridge and commuter trains to Norton, required NRZ to boost its human resources base. In 2007, NRZ employed 7,543 staff, but had 2,803 vacancies compared to the number of employees that was budgeted.
TTC defined the key activities (security services, catering, real estate), previously considered as “non-core” by CIE Consultants, as support services and recommended that they should be properly resourced.
Joint Productivity Committee
Having identified the weaknesses and challenges in the current organisational structure, TTC produced remedial plans based on the immediate, medium, and long-term. Fortunately, most of them required only internal reorganisation and minimal financing.
The Joint Productivity Committee (JPC) was set up as the implementation vehicle. JPC has three subcommittees – operations, revenue and technical – with equal representation from management and labour. JPC made recommendations for each challenge and monthly evaluations were carried out.
The rail experience in Zimbabwe showed that the diagnosis of NRZ problems should be fairly done in order to prescribe a requisite remedy. A strait-jacketed privatisation model is a typical neo-liberal stereotype meant to open national companies in developing countries to transnationals. The list of 16 companies that registered for the “expression of interest” conference was a clear testimony – four were from the UK, three from USA, two from South Africa, two from Zimbabwe, and one respectively from Belgium, France, Germany, Kenya and India.
The TRC study revealed that the NRZ problems were due to under-capitalisation, a blotted and bureaucratic management structure, and most importantly, to inadequate legislation and policies that put the railway in a permanent disadvantageous position.
Zimbabwe, unlike other African countries, has no legislation banning or limiting road axle tonnage. A 30 tonne truck of coal can be moved across the country by paying only a nominal annual road tax. When the road is damaged, the government meets the repair costs, while the railway is supposed to run its business, also meet the costs of rolling stock and infrastructure maintenance, and at the same time to compete with road transport companies.
Social dialogue through TRC, TTC and JPC helped to classify NRZ challenges and to expose the vicious nature of all proposed privatisation models. The turnaround model that was implemented identified more than 2,000 vacancies in NRZ. Despite the deteriorating macro-economic environment, NRZ is in a fairly reasonable position to play its pivotal role as the nation’s bulk freight carrier and passenger services provider.
This is the edited version of the report “Structuring and privatisation of the National Railways of Zimbabwe (NRZ)”, presented by Gideon Shoko, General Secretary of Zimbabwe Amalgamated Railway Workers Union (ZARWU), at the ITF Railway Workers’ Section Steering Committee, London, 29-30 May 2008.