The privatization of the national railway freight operators in Romania and Bulgaria has made the authorities constantly change their decisions since the announcement of the sale processes of the stakes of the two companies. Regarding the sale of CFR Marfă, the Romanian authorities estimate that the operator will be sold at the middle of the year, but the finalization of the sale process of BDZ Cargo is still uncertain.
While Romania wants to sell CFR Marfă in the next two months, over the last months, Bulgaria has extended the period for the submission of offers for BDZ Cargo several times and it is even possible that the authorities would change their minds and find another rescue plan for the company. In February, the Romanian Government adopted CFR Marfă sale strategy, the only attribution criteria being the price. During the debate in the Parliament Plenum, Deputy Prime Minister Daniel Chiţoiu declared that “the privatization of the operator will be completed by mid-June 2013 with a strategic investor and will have a participation guarantee of EUR 10 Million, representing 17% of the nominal value of state-owned shares”.
The authorities have proposed the sale of a package of 51% shares to a strategic investor or consortium including strategic and financial investors and the selection will be made through methods combined with prequalification criteria for investors, namely negotiation based on preliminary and non-binding offers followed by sealed bid according to the legislation in force.
At the beginning of April, the Ministry of Transport published the announcement “regarding the share sale offer through methods combined with prequalification criteria consisting in negotiation based on preliminary and non-binding offers followed by sealed bid”, document which sets the starting price at RON 797 Million (EUR 180 Million) for the entire package of shares put to sale and the offer is valid 180 days since publication with the possibility to be extended. The payment is to be made in one instalment through bank transfer when the transaction will be completed.
The presentation file of the company could be bought for EUR 10,000 and a letter of intent from the potential buyer is also necessary. The authorities impose to potential investors a series of “prequalification criteria and relevant experience in freight transport, as well as operational and financial skills that will prove the possibility to take over and develop the business”, the document stipulates.
The short list of the investors who will continue CFR Marfă sale process will be elaborated at the end of April. The Privatisation Commission will negotiate with each of the potential buyers included on the shortlist starting with 9 May. On 14 June, the Privatisation Commission will open the envelopes containing the papers only for the bidders that attend the procedure. The check and analysis of the documents will be made during the same day when the winner will be announced.
According to the declarations of Romanian Minister of Transport Relu Fenechiu, Grup Feroviar Român and Transferoviar Grup, two of the largest Romanian railway transport companies, are interested in the privatisation of CFR Marfă. “As far as I know, the two companies have expressed their interest in the sale of CFR Marfă and have discussed with the consultants dealing with the privatisation process”. Apart from the two companies, in an interview for local publication “Bursa”, Zvi Oren, the President of the Manufacturers Association of Israel, declared that there is interest in the state companies to be privatized, including CFR Marfă. “I will ask the Embassy of Israel to send a list with everything that will be privatised and we will find a solution to inform the businessmen in Israel about it. If there is a joint interest, we will study our options”, said Oren.
If the Ministry of Transport is not able to conclude the privatisation contract with the investor, the resumption of the privatisation process will be decided by applying any method of transfer of the right of property on the shares by correspondingly adapting the strategy or by inviting to negotiations according to the classification in the bid of the following shortlisted investors.
CFR Marfă has a rolling stock fleet which includes over 39,000 cars (of which only 23,000 are currently in use) and over 900 locomotives, the volume of assets placing the company in an advantageous position compared to other state-owned operators in Central and South-Eastern Europe. As regards its market share, the operator holds the monopoly compared to the other operators set up after 2001.
Even if these figures place the operator among the largest in Eastern Europe, CFR Marfă has debts of over EUR 405 Million to the state budget and the infrastructure manager and delay penalties and arrears to private investors. Also, in March, CFR Marfă estimated to end the year with losses of EUR 47.7 Million, 2.2 times higher than the negative outcome budgeted for 2012. The transport activity has also recorded drops: according to UIC, in the first 6 months of 2012, CFR Marfă carried 14.8 million tonnes, 15.6% less compared to the same period of 2011, while traffic dropped by 9.4% (from 3.17 billion t-km to 2.8 billion t-km).
BDZ Cargo sale could be cancelled
As in the case of CFR Marfă, for which the authorities declared different dates for the launch of the tender, the initiation of BDZ Cargo sale process was postponed several times. In June 2012, Bulgaria’s Privatisation and Post-Privatisation Agency announced that there were companies interested to buy the operator, and BDZ representatives said they were optimistic that the shares would be sold by the end of 2012 (in November, the Agency was already launching the second procedure). Now we are in 2013 and since the beginning of the year, the authorities have already extended the deadline for the submission of offers three times.
In order to buy the company, the future buyer should invest over EUR 50 Million in the renewal of the rolling stock in the first year. The sale price of BDZ Cargo varies between EUR 60-130 Million, according to BDZ Pre-sident Vladimir Vladimirov, while the Privatisation Agency has priced BDZ’s freight division at BGN 190-250 Million (EUR 97-128 Million). According to the latest declarations of the Minister of Transport, Ivailo Moskovski, the government hopes to get EUR 102.3 Million from selling BDZ Cargo.
7 investors expressed their interest in buying the shares of the operator in December 2012 (6 of them bought the tender papers and one demanded the postponement of the submission deadline), of which only 4 received the approval of the Agency to participate in the next phase of the tender: Grup Feroviar Român (Romania), Cargo Express and Balkan Financial Services (Bulgaria) and Donau-Finanz Transport und Beteiligung (Austria).
At the end of March, the Privatisation Agency announced having extended once again the deadline for submitting binding offers in order to buy BDZ Cargo, the new deadline being set for 29 April. The postponement was made at the demand of the participating companies, the initial deadline being 12 March and the first postponement was for March 28. In case the offers are not complying with the authorities’ expectations, the privatisation process will be postponed once more or even annulled. “If there are no serious offers for BDZ Cargo sale, the Privatisation Agency could cancel de bid. The sale of the freight transport division is just one of the company’s rescue solutions”, said interim Minister of Transport Kristian Krastev. He mentioned that he “revived” the dialogue with the creditors and employees of BDZ to find a way to stabilize and save the company. The interim minister also said that he was against a privatization “at all costs” and that the government was also working on a rescue plan which involved a loan from the World Bank.
BDZ Cargo owns 799 buildings around the country and 1,129,799 square metres of land. It also owns 189 locomotives and 4,859 cars. Several cars will be sold to scrap iron and replaced with 321 cargo wagons and 5 passenger coaches. Moreover, in March the company launched a tender for the repair of 100 tank wagons, with the contract divided in two lots. The contract is estimated at BGN 3.88 Million (EUR 1.98 Million) and offers could be submitted by 20 April. The deadline for the finalization of repair works was set in 6 months.
In the period 2009-2011, the company has only had losses estimated, in 2011, at EUR 8.6 Million. In the first 6 months of 2012, BDZ Cargo carried 5.58 million tonnes of freight, 18% less than during the same period of 2012 (when it carried 6.77 million tonnes of freight) and traffic dropped by 15.7% (from 1.4 billion t-km to 1.2 billion t-km).
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