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PKP starts the privatisation process

01 Aug 2001

The restructuring of Polish State Railways reaches a crucial phase on October 1 this year when new companies responsible for regional passenger services, freight, traction power supplies, telecommunications and IT begin trading as wholly-owned subsidiaries of PKP. With various measures planned to reduce the state railway's historic debt, some operations may eventually be privatised

Marek Rabsztyn, Chief Specialist, Strategy Office, PKP SA

THE FIRST STEPS towards opening up Polish State Railways (PKP) to the private sector came after the passage of the Privatisation of State Companies Act in 1990, enabling the creation of joint-stock companies where PKP would retain a 51% stake. A total of 10 companies were created in this way, active in the logistics sector (Trade Trans, Kolsped, Polcont, Chem Trans Logistic), the manufacture and installation of signalling equipment (Adtranz Zwus Signal Katowice, KZL Bydgoszcz, Koltel) and ancillary activities such as publishing and printing.

In 1991-92 some 80 subsidiaries undertaking rolling stock maintenance, component manufacture and civil engineering design and construction were spun off from PKP, reducing the state railway's total workforce by several thousand. Between 1960 and 1990, the average number of PKP employees had stood at 440000.

Further restructuring was to follow, with a stand-alone Traction business sector coming into being on July 1 1997. The following year Passenger, Freight and Infrastructure sectors were created, and in 1999 the Freight sector absorbed Traction, now managed from a combined headquarters in Katowice.

Financial challenges

Further efforts were made to reduce the PKP payroll in 1998, when a special redundancy package equivalent to 60% of final salary was offered to staff. At the end of 1997 PKP had 190000 employees, and in that year it made a net operating loss of 81m zloty. But over the next few years the railway's financial health was to deteriorate sharply, with the loss deepening to 2·52bn zloty in 1999. In 2000 it stood at 2·14bn, and by the end of that year PKP had accumulated a total debt of 7·13bn zloty, having incurred restructuring costs of 350m zloty as it reduced staff numbers to 167000 by December 31 2000.

On the basis of legislation passed in 1995, other non-core activities were vested in joint-stock companies owned entirely by PKP in 2000. The largest of these are Nature-tour Ltd with 750 staff, which manages 42 convalescent homes and other welfare facilities across the country, and PKL Ltd with 170 staff operating a cable car route, two funicular railways and 10 ski lifts in the Tatra and Beskidy mountains.

Legislation to establish PKP as a state-owned holding company came into force on September 8 2000, also setting a six-month deadline for the remainder of PKP's activities to be vested in either limited-liability or joint-stock (SA) subsidiary companies. The act also provided for the financial restructuring of PKP, with payments deferred, interest rates reduced and some government debt written off in exchange for a shareholding in Polskie Linie Kolejowe SA, the future infrastructure company. PKP was also granted perpetual lease rights to the land and property it occupied as of December 5 1990, and was authorised to issue bonds up to a ceiling of 3·9bn zloty.

The structure emerges

The new holding company PKP SA duly came into being on January 1 2001, thus setting June 30 of this year as the deadline for the creation of its joint-stock subsidiaries. Granted 50-year operating concessions by the Ministry of Transport, the first companies came into being on July 1. This tranche covered four companies:

  • PKP LHS Ltd, which operates the 400 km 1520mm gauge route from Slawków Pld to Hrubieszów and the Ukrainian border. This company has a fleet of 58 diesel locomotives for hauling raw materials for the steel industry, and 1165 staff.
  • PKP SKM Ltd, which provides suburban passenger services on the 45 km Gdansk - Gdynia - Wejherowo route electrified at 3 kV DC. The company has 800 staff and a fleet of 70 three-car EMUs.
  • PKP WKD Ltd, operator of the 40 km Warszawa Suburban Railway, electrified at 600V DC and running from the capital to Grodzisk Maz Radonska. This subsidiary has 220 staff and 35 two-car EMUs.
  • Professional Training & Consulting Ltd, based in Warszawa with six regional centres and 200 staff.

The second group of joint-stock companies were formally established before the June 30 deadline, but were due to start trading at a later date. August 1 should see the start-up of Ferpol Ltd with 900 staff, responsible for the provision of rolling stock parts and fuel as well as the sale of surplus materials for scrap, and Farmacja Ltd operating the PKP network of 52 pharmacies with 500 staff.

Inter-city and overnight train operator PKP Intercity Ltd is due to begin operations on September 1, with a 160 km/h fleet of 48 electric locomotives, 1300 coaches and 1500 staff. On the same date, nine infrastructure maintenance subsidiaries are due to begin trading, as are rolling stock maintenance companies Gorzów Wagony Ltd and Wagrem Ltd.

The final stage

The third and the most important group of PKP companies form the final stage of commercialisation and eventual privatisation. On October 1 this year infrastructure company PLK SA will commence operations, together with PKP Regional Passenger Traffic Ltd and PKP Cargo SA. At the same time, three subsidiaries will take responsibility for traction power supplies (10000 staff), telecommunications (4000) and IT (850).

It is not the government's intention to privatise PLK, but in common with the other new companies, it will enjoy financial independence free of accumulated debt. To further relieve this burden, holding company PKP SA is to sell city-centre property in Warszawa, Kraków and Gdansk, expecting to generate 300m zloty in 2001. In addition, the European Bank for Reconstruction & Development provided €100m in December 2000, and in March this year the World Bank announced a credit of €110m.

In the short term, PKP SA's new subsidiaries will be concentrating on transforming themselves into stand-alone companies run on business lines. Under the first phase of restructuring, the total number of staff is due to fall from 169000 to 153000 in the course of 2001. Once this stage is complete in 2003, PKP SA expects through its subsidiaries to employ 145000 people on 18000 route-km of standard and broad gauge and 900route-km of narrow gauge.