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CD Cargo leaves the nest

27 Nov 2007

THE ESTABLISHMENT of CD Cargo as an independent freight train operator will take effect on December 1, according to Czech Prime Minister Mirek Topolánek.

Separation of Czech Railways' freight business into a wholly-owned subsidiary was finally approved by the government on October 22. The cabinet had approved the plans in principle on July 25, although earlier proposals envisaged vesting dates of April 1 and then July 1. Completing a reform process started in 2005, the split is the most fundamental change in CD's structure since it was restructured as a joint stock company in 2003.

With a share capital of KC8·8bn and annual revenues of around KC650m, CD Cargo will take over 13 000 of CD's current 57 000 employees, plus 700 electric and 850 diesel locomotives and 30 000 wagons. CD's lucrative freight business is the fifth largest in the EU, handling 80 million tonnes a year, giving it a 15% market share, and generating a profit of KC1·5bn a year.

The split is expected to make the railway's finances more transparent and meet EU rules prohibiting the cross-subsidy of loss-making passenger services. CD will focus principally on passenger operations, and CEO Josef Bazala expects the Ministry of Transport to develop a new funding model to support the operation of unremunerative services. A future restructuring of the passenger business would then turn CD into a state-owned holding company.

Another 10 000 employees will shortly transfer to infrastructure owner SZDC, which will take full control of operations, maintenance and renewal of the network from January 1 2008; until now much of this work had been contracted back to CD.

The Czech cabinet is due to discuss this month the introduction of a strategic partner into CD Cargo, raising capital for rolling stock modernisation. Only a minority stake would initially be offered for sale, although the ruling party ODS is striving hard to privatise the freight business outright, which it believes could bring in around KC12bn.

There are suggestions that CD Cargo may be merged with ZSSK Cargo of Slovakia, whose planned privatisation was cancelled in June 2006 (RG 9.06 p 517). According to Czech Minister of Transport Ales Rebícek, the two governments are negotiating preliminary arrangements for a joint venture, which with 130 million tonnes a year would become the third largest freight operator in the EU after Railion and PKP Cargo.