INTRO: In the 10 years after Romania’s December 1989 revolution, the volume of rail traffic slumped to just 35% of its former level. Following the restructuring of SNCFR into five independent companies in October 1998, the slide has been halted, and international loans are funding much-needed modernisation. Chris Jackson asked the key players about the transition, and their prospects for the future

OVER THE NEXT few months, Romania’s Ministry of Public Works, Transport & Housing will be pondering the findings of a review into the structure of access charges for use of the national rail network. Commissioned from US consultants Seneca, the study is expected to lead next year to the first changes to the railway’s management philosophy since a radical reform ordinance was approved in July 1998 (RBR99 p9).

When the restructuring came into effect on October 1 1998, SNCFR was split into five legally independent companies: CFR SA (infrastructure), CFR Calatori (passenger), CFR Marfa (freight), SAAF (disposal of surplus assets) and Administration & Financial Services (which provides support services to the other four).

All five currently remain state-owned, although the aim is to privatise CFR Marfa in the next few years. CFR SA represents the industry at the international level, with its President Mihai Necolaiciuc serving as Vice-President of the UIC and head of its Eastern Europe task force.

Around 1600 locos, 2000 coaches and 50000 wagons were deemed surplus to requirements in 1998 and transferred to SAAF for disposal. At the same time, the total number of people employed on the railway was cut by 30%. This allowed the new companies to start out with only the resources that were strictly relevant. At the same time, all historic debt was written off by the government to give them a clean balance sheet.

Central co-ordination

Regulatory responsibility for the rail sector was transferred to a new office within the Transport Ministry under former SNCFR Vice-President Vasile Olievschi, who was one of the architects of the restructuring process.

The Railways Directorate is responsible for establishing overall strategy and regulations, including the implementation of legal requirements and the government’s strategies for railway development and the growth of intermodal transport. It must also develop the changes necessary to meet European Union directives on railway integration and restructuring, and represents the Romanian government in international agreements on railway policy. The Directorate is also responsible for agreeing annual contracts with CFR SA and CFR Calatori, and helps to identify sources of international finance for major investment projects.

Olievschi explains that the Directorate acts as the State representative on the management boards of all of the state-owned railway companies. He feels that ’the harmonisation of development programmes for the three main companies and their contractual relationships (mainly the track access obligations) is very necessary at this time.’

A separate body, the Romanian Railway Authority (AFER) has responsibilities for safety regulation and inspections, the licensing of railway operators, and the maintenance of the so-called Railways Register.

As Romania moves rapidly to a market-driven economy from 40 years of centralised control, practical experience is making up for the earlier absence of knowledge about market forces.

Olievschi points out that although the Romanian railways lost around 65% in the volume of traffic over the past 10 years, rail’s market share remains around 35 to 40%, and is actually higher in some market sectors than it was a decade ago. He suggests that the industry has done well in retaining market share given the huge transition to the Romanian economy, and is in a better position in market share terms than many other railways in Europe.

The election of a new government at the end of 2000 was followed by the appointment of a new Minister of Transport in January: former road workers’ union leader Miron Mitrea. However, all Romania’s major parties are agreed on the need to move to a market economy, overcome the legacies of the pre-revolution years, and to work towards an application for membership of the European Union in 2007-10.

State financing contract

The restructuring did not signal a wholesale withdrawal by the government from railway policy. Rail still handles a larger share of long-distance transport than its competitors, and a successful rail sector remains critical to the performance of the national economy.

In fact, CFR Calatori Chairman & CEO Valentin Bota emphasises that ’the reorganisation made the state financially involved in the operation of passenger services for the first time.’ CFR Calatori now receives a formal payment each year for the operation of social services under a passenger service contract. ’This establishes rights and obligations on both parties. It specifies minimum levels of service and quality standards, concessionary travel obligations, and fare structures, in exchange for agreed annual payments.’ The current four-year passenger service contract, running to 2004, provides around 50% of CFR Calatori’s US$120m total annual revenues.

Infrastructure operator CFR SA also receives some direct support from the state; last year this accounted for around US$36m out of a total operations and maintenance budget of US$124m. In addition, the government also underwrites the international loan agreements for CFR to finance major investment projects.

According to CFR’s Director for Implementation of Externally-Funded Projects, Orlando Craciun, the infrastructure maintenance and operating costs are primarily funded from access charges. At present 31% is paid by the freight operator and 27·9% by the passenger business.

The core network and related structures defined as the ’public infrastructure’ remain state-owned, but are managed and maintained by CFR under an indefinite concession. CFR also owns outright various non-core businesses such as hotels, tourist resorts and the station catering business. Craciun says there is no intention to sell these off, but to improve their efficiency so that they can generate profits to support the core activities.

CFR and CFR Calatori would both like to see Romania’s regional authorities involved in supporting low-density rural routes, but at present they have no finance available. Meanwhile, Craciun says studies are under way into more economical methods of operation. ’Neither CFR nor the government wants to see any line closures’, he insists, ’but where we have to operate social services we are trying to identify with the passenger and freight operators the scope for savings.’ This may include a return to mixed trains or the introduction of lightweight diesel railcars; savings have already been made by reducing the hours of operation on some lines.

Freight stands alone

In contrast to his colleagues, CFR Marfa Director General Vasile Tulbure is keen to underline that the freight business receives no financial support from the state. ’As a national freight operator, we have our own revenues, and our own budget, and we are free to solve all our problems alone.’ Olievschi points out that under Ordinance 12/1998, ’rail freight tariffs are deregulated, and state approval is not necessary for any changes.’ He notes that CFR Marfa is currently offering volume discounts of up to 30% to selected customers.

Taking into account the complexity of the transition period, and the fact that the state is the only shareholder, Olievschi suggests that it is entirely reasonable for CFR Marfa management ’to inform the Minister about their intentions regarding tariff policy.’ Given that CFR Marfa made ’significant profits’ in 1999 and 2000, Olievschi feels that ’the state is not interfering in the company in a non-commercial manner.’ Last year CFR Marfa made an operating profit of US$3m on revenues of US$425m.

Planning for privatisation

CFR Marfa will be the first of Romania’s railway companies to be transferred to the private sector. Tulbure says that new Transport Minister Miron Mitrea ’is 100% behind the process’, which is now ’moving ahead fast’. The Ministry has commissioned a full audit of the freight business, with the aim of determining what proportion of the shares should be sold.

Asked when the sale is likely to take place, Tulbure confessed that he too ’would like to know’. However, he expects the process to start in the autumn, with the timescale to be determined by the findings of the study. ’Of course, it will be a political decision in the end’, he recognises, ’but from a commercial perspective the company is ready for the change.’

Whilst the privatisation of CFR Marfa is a long-term objective for the government, Olievschi says ’ this is not a goal by itself.’ At the moment, he feels, it is ’not appropriate’ to press ahead with the process, although ’it could happen in the next four or five years’. But before this can take place, he insists, several things need to happen. ’In order to privatise CFR Marfa in the best conditions, we have to address several factors, some of which are not even directly connected with CFR Marfa.’

One of these, he explains, is the need for ’a clear commitment by the state regarding the level of financial contributions to support passenger transport and public infrastructure.’ Related to this is the need for ’a new and more accurate formula for the calculation of access charges, a fair distribution of access charges fee between the passenger and freight companies, and clear contractual relationships between CFR and the various railway operators.’ Olievschi would also like to see a new organisation within CFR Marfa ’based not on territorial regions but on lines of business’.

These changes will hinge on the implementation of CFR’s new information network, together with the modernisation of the joint accounting and financial operations. Later this year will see the implementation of a new cost control system funded by a €5m Phare grant from the EU. Olievschi also expects to see the retraining of staff with ’a more commercially-oriented mentality.’

At present the government has announced no plans to sell any shares in CFR Calatori, and Bota does not expect this position to change in the next few years.

Access debate hots up

The current debate on access charges is intended to refine the structure put in place during the reforms. According to Tulbure, ’the present structure was calculated not very exactly to obtain equilibrium between the three companies, and to balance revenues between CFR SA, CFR Calatori and CFR Marfa.’ He feels that ’the balance is not exactly established yet, and we need a more analytical solution.’

According to Craciun, the precise level of access charges is negotiated each year, and the main purpose of the Seneca study is ’to review the position with the experience of the past three years, and determine what should and what should not be included in the charges’. One of the options under consideration is to move from a fixed price to a range of tariffs depending on line and train categories.

With the report expected at the end of July, Tulbure hopes that the government will be able to move ’to a more commercial structure’, from the beginning of next year.

The licensing and safety regulation of rail operators is the responsibility of AFER. Once their licences have been issued, CFR must accept an operator’s trains, although it does have the right to make physical inspections to ensure the locos and rolling stock meet specifications. CFR Traffic Manager Ion Mihaila says that paths for all operators are negotiated by contract as part of the annual timetable process, which allows CFR to adjust the operators’ requirements to optimise performance. However, if an operator loses its licence, it cannot use any remaining paths even if they have been contracted.

Open access begins

Two independent freight operators were awarded five-year licences last year to operate on the CFR network using their own locos and wagons. Both are subsidiaries of existing firms - one in the petrochemical industry and one a general shipper - and as yet they are only handling traffic for their parent businesses.

SC Sefer SA of Brazi was awarded a licence in January 2000 to operate oil trains from Ploiesti and Brazi to Giurgiu and Bucuresti Cotroceni, using second-hand electric locos and tank wagons acquired from SAAF. SC Unifertrans SA of Bucuresti obtained the second licence in April 2000. It is a subsidiary of the shipping group Unocomtranzit, which moves international freight to Russia, Ukraine, Moldova, Yugoslavia, the Czech Republic, Slovakia, Hungary and Bulgaria.

Tulbure does not see open access as a major threat, suggesting that the two competitors have had a ’negligible impact’ on CFR Marfa. ’Competition is stimulating’, he recognises, pointing out that ’in the transport market, you always have to fight for your share.’

He notes that much of the original loss in traffic reflects the withdrawal of the Ceausescu-era directive that any freight moving more than 60 km had to travel by rail, as abandoned industrial sidings across the country bear mute witness. However, with Romania’s road network still in a poor state, he hopes that the reforms have come in time for the railway to consolidate its position before the other modes become better established.

Craciun says that so far there have been no conflicts between the various operators over pathing requirements. With traffic volumes so much lower than in pre-revolution days, there is ample capacity. The only significant constraint, he suggests, is the maximum permitted speed on the main lines; this will be addressed by CFR’s investment programme.

Management matrix

CFR manages the infrastructure business through a matrix, with headquarters directorates structured on a functional basis and regional offices arranged geographically. Thus within each region there are departments responsible for technical, financial and commercial matters, human resources, traffic & operations, track, signalling & electrification, and communications.

For day-to-day operations each local department reports to its regional management, but technical co-ordination and strategic direction come from the functional directorates at headquarters. Craciun says this provides ’better management of the whole system’, with ’regional freedom and flexibility, whilst retaining a national strategy in terms of technical and commercial development.’

To support this devolved structure, CFR has started a US$30m programme to install modern information technology across the network. Funded by the World Bank, the IRIS (Integrated Railway Information System) project is to be completed by the end of 2002. Hardware and cabling are being installed, and a pilot operation to test the software is under way on the main line between Bucuresti and Brasov. This is due to be completed in March 2002, allowing the debugged software to be rolled out nationally by the end of next year. As a subcontractor to ICL, SchlumbergerSema is supplying track-and-trace software for the operational information system, including VoyagerPlan, TOPS2000 and P2V2. Although IRIS will be operated by CFR SA, it will also be used by the other companies, and Craciun suggests that it ’may become common property’.

Modernisation of the telecommunications network will include the installation of around 3500 route-km of optic fibre cabling, with SDH digital transmission and around 30000 ISDN lines. It is CFR’s intention to seek private finance for this investment, and a feasibility study has been commissioned from the US Trade & Development Agency into the best method. There may be scope to bring in a commercial partner, as other railways have done, or for CFR itself to sell surplus capacity on what will be Romania’s third commercial telecoms network.

Infrastructure priorities

CFR produces an annual infrastructure development strategy, which Craciun says is then ’adjusted’ in consultation with the Ministry of Transport to reflect the funding available from the national budget.

Most of CFR’s big infrastructure investment projects are focused on two of the major European ’Crete corridors’ (p531). The 888 km Romanian section of east-west Corridor IV links the Hungarian border at Curtici and the Black Sea port of Constanta. CFR’s share of the north-south Corridor IX linking Russia and Ukraine to Bulgaria and Greece runs for 585 km from Siret to Giurgiu.

Unlike the current moves in Western Europe to put routine infrastructure maintenance out to contract, this remains under CFR’s direct management. However, Craciun says CFR is watching developments elsewhere with interest. Some reduction in the company’s 48000 staff may be achieved through increased mechanisation of maintenance, with a target of 37500 set for 2005.

Olievschi says that CFR’s present operating and maintenance costs are ’too high, and could be unbearable for some operators.’ He sees outsourcing of support activities as a key to better cost control. This year he expects that ’activities involving about 5500 people will be outsourced’, with the trend continuing over the next few years as ’a priority for the ministry’. Olievschi expects the outsourcing of infrastructure maintenance to be included ’as soon as the market is able to offer eligible choices’, and he says the ministry will be working ’to create the appropriate environment’ for this to occur.

The backlog of heavy repairs inherited from SNCFR includes problems with formation and trackbed, and Track Director Marius Diaconu says CFR is experimenting with geogrids and other new materials. It is also looking at the scope for elastic track fastenings, and other improvements to meet UIC standards, such as higher platforms and wider track spacing. Environmental measures under consideration include the installation of noise barriers.

The passenger and freight operators also have the opportunity to influence network investment strategies. There is provision in the legislation for them to make ’applications’ for specific projects, and to offer financial support to schemes which CFR might not see as commercially viable. Craciun quotes as an example the decision by CFR Marfa to upgrade the overnight lodging accommodation used by its drivers, where CFR owns the buildings but CFR Marfa funded the work.

CAPTION: The bulk of SNCFR’s electric loco fleet was built by Electroputere in the 1970s and early 1980s under licence from ASEA of Sweden

CAPTION: CFR Marfa’s two Black Sea train ferries connect Constanta to ports in Georgia and Turkey

CAPTION: Major structures are needed to carry CFR’s main lines through the Carpathian mountains

’Access charges must cover the full cost of maintaining the infrastructure.’

Orlando Craciun

Director, CFR SA

’We expect a big boost to traffic with the shorter journey times from 160 km/h operation.’

Valentin Bota

Chairman & CEOCFRCalatori

TABLE: CFR SA (infrastructure)

Route-km 11336

Of which electrified 3943

Staff 48000

CFR Calatori (passenger)

Locomotives, electric 361

Locomotives, diesel 456

Coaches 4236

Staff 22500

Passenger-journeys (2000) million 117

Passenger-km (2000) million 11 631

CFR Marfa (freight)

Locomotives, electric 376

Locomotives, diesel 289

Shunting locos, diesel 289

Wagons 63809

Staff 29000

Tonnes carried (2000) million 71·5

Tonne-km (2000) billion 18·0

CFR Administration & Finance

Staff 2709

SAAF (surplus assets)

Locomotives 1600

Coaches 2000

Wagons 50000

Staff 400

’We have our own revenues, and our own budget, and we are free to solve all our problems alone.’

Vasile Tulbure

Director-GeneralCFR Marfa

Apprendre à vivre dans un marché libre

Au cours des 10 années qui ont suivi la révolution de décembre 1989, le trafic ferroviaire de la Roumanie s’est effondré à 35% de son ancien niveau. Après la restructuration de SNCFR en cinq compagnies indépendantes en octobre 1998, la chute a été arretée. Désormais, le trafic croît de nouveau, les opérateurs voyageurs et fret enregistrent des bénéfices, et les prêts internationaux permettent les modernisations nécessaires ainsi que la remise à niveau du matériel. Chris Jackson s’est entretenu des perspectives avec les acteurs principaux de la transition

Lernen, im freien Markt zu leben

Während der 10 Jahre nach der Revolution im Dezember 1989 hat die Bahn in Rumänien einen Verkehrseinsturz erlebt, wobei heute nur noch 35% des damaligen Verkehrs mit der Bahn fährt. Die SNCFR wurde im Oktober 1998 mit fünf unabhängigen Gesellschaften neu organisiert, und der Verkehr ist inzwischen stabiler geworden. Heute steigen die Tonnen-km nochmal, und die neuen Betriebsgesellschaften schreiben schwarze Zahlen. Dank internationaler Darlehen werden dringend ben