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ZSR struggles with the yoke of independence

01 Jul 1999

INTRO: Neglect is taking its toll on Slovak Republic Railways, as Murray Hughes found in Bratislava. General Director Andrej Egyed believes KS3·5bn a year needs to be spent to regain lost ground, with corridors for transit freight taking priority for investment

BYLINE: Andrej Egyed

General Director Slovak Republic Railways

LEAVING Bratislava bound for the north there are two single track tunnels on a sharply rising grade. Northbound trains normally use the right-hand bore, but if for any reason they are obliged to use the left-hand track, there is a problem. The train's electric locomotive cannot be used through the tunnel because the 25 kV catenary wires have long been dismantled, and a diesel must bank the train until it is out in the open. There are no wires because so much groundwater pours through the tunnel lining that they cannot be used.

Arriving trains coast down through the tunnel with the pantograph lowered. Needless to say, this operating restriction does nothing to make life easy for the signalling and train control staff in Bratislava. But it does illustrate the difficulties that ZSR is facing.

Clearly, the problem of water gushing into the tunnel should have been dealt with long ago. But it is not easy to put right, and no money is available. ZSR is seriously short of cash, and it has to get by on a make-do-and-mend policy. For example, some locomotives in the Bratislava depot are having to wait up to six months for major repairs, which are carried out by the Zos company in Vrutky.

Legislation must be changed

Since it was established in 1993 after the partition of the former Czechoslovakia, ZSR has wrestled with the problems of standing on its own feet. The railway's legal position is defined in the 1993 founding law, but this law has acted as a brake on development. One clause in particular restricts the organisation's business activities, meaning that it is not able to set up subsidiaries or to undertake capital investment. This so-called blocking clause prevents ZSR from selling any assets, including property sites in Bratislava that would permit investment funding to be raised - or perhaps to pay off some of the debts that it has incurred. Several attempts have been made to alter this desperately unsatisfactory state of affairs, and this year should see the preparation of new legislation which would transform ZSR into a joint stock company owned 100% by the state.

The problems have been compounded by the government changing the remit for the railway's management. The last proposal to transform ZSR to a joint stock company was submitted by the previous management in December 1997 but came to nothing. The present General Director Andrej Egyed hopes to submit his proposals to government in September, as 'we should like to be able to take this step on January 1 2001.'

The issue is critical for ZSR's future, and Egyed widens the argument into the question of the relationship between railway and government, which 'because of the budget difficulties is not perfect'. The most intractable problem is the cost of providing passenger services. Fares are determined solely by government, and Egyed says that they are '500% behind the level of West European countries'.

ZSR is required by government to operate numerous passenger services in the public interest, but the state does not fully reimburse the difference between costs and revenues. The result is that in the first five years of its existence ZSR notched up losses that totalled KS12bn.

This was bad enough, but the railway was also trying to complete outstanding investment projects and keep pace with its growing maintenance needs. In an effort to keep to all its commitments as the Slovak Republic began a transformation towards a market economy, ZSR resorted in many cases to short-term loans to raise funds. This ad hoc policy proved expensive and difficult to manage, and no comprehensive financial strategy existed.

In 1997 the ZSR management started a programme to stabilise the finances by converting these short-term credits into long-term debts.

At the same time efforts were made to market ZSR's freight business more effectively. But despite these efforts freight traffic has continued to fall, down from 59·4 million tonnes in 1997 to 56·6 million in 1998. According to Egyed, this was just half the volume of business carried on Slovak territory before the Iron Curtain fell, but 'it still represents 60% of the market' - a remarkable achievement.

But last year's fall in freight tonnage and continuing problems with the passenger business meant that the accounts closed with a loss of KS5·8bn. Ths brought ZSR's total borrowings to KS30bn. In a notable understatement, Egyed says that 'we have a lot of work to do to be able to pay, or at least postpone, the old obligations and to cover the cost of financial operations.'

Egyed says that permanent speed restrictions have had to be imposed on about one-third of the 3665 route-km network, which is characterised in some parts by steep grades and sinuous routes. Trains can reach the maximum line speed of 120 km/h on just 8% of the network.

Egyed believes that failure to invest is affecting ZSR's ability to compete, and while market share is high, competition from road haulage could soon threaten the railway's dominant position and erode or destroy significant parts of the business.

Corridors are the key

ZSR's strategy is to concentrate on what is potentially the most profitable part of the business - transit freight. East-west flows are strong, with traffic including car components for Volkswagen in Bratislava, and metals for Voest Alpine in Linz, for example. It is on these routes that modernisation and upgrading will bring the highest return.

Egyed's current aim is to persuade funding institutions to support proposals for improvements to three corridors: