Interview with Dražen Ratković, CEO of HŽ Putnički prijevoz
Croatia’s accession to the European Union is a challenge for all the economic segments and the policies that have been and are still adopted by the authorities. Transportation is one of the most important economic sectors for Europe and, therefore, for Croatia, due to its economic effects and benefits. In this context, the European legislation began to be implemented in the area in 2005 and a new package of laws became effective this year, with the accession of Croatia to the EU. Therefore, the country’s accession grants free access to infrastructure to freight operators, under the same conditions, but in the railway passenger transport market competition will become possible as of 2017. The national railway passenger transport operator, HŽ Putnički prijevoz, has to align the new measures and regulations as soon as possible in order to integrate in the single railway market. Being the only operator in the domestic transport market by 2017, HŽ Putnički prijevoz plans to implement projects to grow transport services so as to develop a sustainable financial system.
The company plans to buy new trains, to upgrade the passenger information system, to modernise the existing charging system and to apply modern solutions aimed at facilitating the acquisition of tickets and the integration of the entire ticketing system. After implementing all the projects set in the strategy, HŽ Putnički prijevoz will be ready for liberalisation.
To find out more about the implications and the challenges imposed by Croatia’s accession to the EU railway system, as well as about the projects for the modernisation of the passenger transport services and the need to allocate investments to the projects for the modernisation of the railway sector, we have asked Mr. Dražen Ratković, CEO of HŽ Putnički prijevoz to give us an interview.
RailwayPRO: As Croatia is the new EU Member State, what can you tell us about the implementation of the European legislation (on railway transport) within Croatia’s railway legislation?
Dražen Ratković: The implementation of the European legislation on railway transport started in 2003, upon adoption of the Railway Act. The application of the Railway Act began on 1 January, 2005. Upon Croatia´s entry into the EU, a new Railway Act came into force. Upon adoption of the new Railway Act, the implementation of the European legislation continued. Upon Croatia´s accession to the EU (Croatia became a full member of the EU), a rail transport revitalization and the organization thereof started, based on free market competition principles, which are a prerequisite to integrating that market segment into a single EU market. The purpose of the new Act is to govern that market according to entirely new rules and regulations on division of business entities on that market resp. railway operators, infrastructure managers as well as autonomous regulatory body, which ensures the pari passu market competition for all operators.
RailwayPRO: What can you tell us about the current situation of the railway passenger transport in Croatia compared to the European legislation on the liberalisation of the sector and how does HŽ Passenger Transport implement the EU liberalisation policies?
Dražen Ratković: Croatia´s entry into the EU provided a free access for foreign freight operators to national rail infrastructure under the same conditions. HŽ Putnički prijevoz can get competition in 2017. Free market implies the positioning of market leaders, bigger competition, a potential decrease in the prices of the services. It is necessary to accommodate the demands of the market more rapidly. Given that rail systems in developed countries are more developed in terms of technique and technology, a state aid (based on investments in rail infrastructure and transport capacities) is required in the next period. Simultaneously, through forthcoming liberalization of rail transport market we are facing a strong competition from road operators and lower fares in air transportation, offered by low-budget airline companies, we are not able to compete with in terms of travel time. We should win over customers, who can orient toward new operators, and meet their demands, which are getting higher and higher, and respect customers´ rights and at the same time financially compensate for service not provided or inadequate service.
RailwayPRO: As new EU Member State, Croatia, as well as the other member states, has to contribute to the establishment of the single European railway market. What are the main elements considered by the authorities and by HŽ Passenger Transport?
Dražen Ratković: In July 2013, a new Railway Act entered into force, which systematically and integrally governs the rail system in Croatia in order to comply with EU legislation and the conditions that prevail in competitive rail service market of the EU. By virtue of the new Railway Act, a Directive of the European Parliament and Council 2012/34/EU of 21 January, 2012 on the establishment of a single European rail sector is implemented into the legal order of the Republic of Croatia.
Likewise, decrees of the European Parliament and Council are implemented into the new Railway Act. The relationships between infrastructure manager and rail carriers are defined more explicitly, providing more details – through arrangement and adoption of timetable as well as through contractual relationships with the objective of an approach to rail infrastructure based on non-discrimination.
Similarly, a possibility is defined for the first time for legal entities, other than rail carriers, to lease lines belonging to railway infrastructure, which ultimately will provide for an increase in traffic volume. A control in terms of approach to rail carriers is being introduced in terminals, seaports and river ports. Carriers and infrastructure manager commit to conducting a business in compliance with market principles. A principle of freedom in providing services is applied. A method of charging for the services through basic and extra packages is defined for infrastructure manager. By the Railway Act mentioned, a legal basis opens up for further improvement of market regulatory authorities in rail transport.
Based on these new circumstances and the adoption of EU legislation, HŽ Putnički prijevoz has to work rapidly on the alignment of application of new business rules and regulations in order to be integrated into a single rail sector.
RailwayPRO: What does the opening of the railway transport market mean for HŽ Passenger Transport and what are the effects generated by this process? What are the challenges you face in opening the market and increasing competitiveness compared to the new entrants?
Dražen Ratković: Rail market libe-ralization entails many challenges for HŽ Putnički prijevoz, particularly due to the fact that investments in fleet modernization and upgrading the level of service in the last 20 years were insufficient. Thus we are falling behind developed countries in that sector. Given that HŽ Putnički prijevoz will be a single operator in domestic transport in the Republic of Croatia by the end of 2017, the forthcoming period is to be deployed for the purpose of modernization in order to provide a quality service to the customers and in order to restore a financially sustainable system. We are already working on it. In mid-2012, we prepared a Restructuring Plan for a medium-term period. We prepared a series of strategic plans. By implementing them, HŽ Putnički prijevoz will be prepared for market liberalization. It concerns plans such as purchase of new trains, modernization of existing distribution channels for ticketing in domestic and international transport and implementation of up-to-date distribution channels, decrease in the number of employees, along with upgrading productivity as well as more rational fleet management by implementing total fleet management. It is also worth noting that the entire modernization in passenger transport is to be accompanied by modernization of Croatian lines as well in order to reduce travel time in local and long-distance transport. Thus rail transport would become faster and more competitive.
RailwayPRO: How do you see the integration of the Croatian railway traffic within the European railway system, especially since transport services become more competitive and every national market meets the challenge of new entrants?
Dražen Ratković: Croatia´s entry into the EU represents both a challenge for HŽ Putnički prijevoz as well as an obligation to conform to new market environment, where HŽ Putnički prijevoz is not the only rail operator, but a transport market is open to all interested rail carriers. HŽ Putnički prijevoz is now more committed than ever to aligning its services to the needs of the customers and to rationalize business operations by cost-cutting – in an effort to realize maximum revenue resp. profit. If we should fulfil all the parameters given in the Restructuring Plan, we believe HŽ Putnički prijevoz will be prepared to handle the competition under conditions of interoperability and market liberalization.
For a number of years, we have been collaborating with foreign rail operators in order to provide passengers with good interlinking through trains between Croatia and other European countries. Croatia is also nowadays in terms of trains linked with Switzerland, Germany, Austria, Slovenia, Hungary, Bosnia and Herzegovina and Serbia. We believe we have an opportunity to interlink Croatia and other European countries in a single European market. It is of great importance because Croatia is a tourism-oriented country and that there is a growing interest of citizens from other countries in visiting our country from year to year.
Likewise, just as foreign operators will be able to operate trains in domestic transport in Croatia, we will also be able to compete for transport in other countries by modernized and refurbished train fleet. Thus we regard a single European rail system as a great opportunity for HŽ Putnički prijevoz as well.
RailwayPRO: What are the elements your company is focused on to establish an efficient service and to launch new projects to encourage railway traffic and the level of competitiveness?
Dražen Ratković: HŽ Putnički prijevoz plans a number of activities oriented towards upgrading the quality of service in the next period. We are planning to mo-dernize fleet by purchasing new transport capacities, characterized by a high level of comfort, modern heating and air-conditioning system for passenger area, information system for passengers, area for transportation of persons with reduced mobility as well as many other features with the objective of upgrading the qua-lity level of services provided and reducing travel time. We are also working on a project on integrated ticketing system, which involves implementation of stable vending machines, ticketing via Internet and smart phones, mobile terminals by means of which train conductors will be sell tickets on the train, implementation of prepaid smart card, by means of which passengers will be able to purchase services, including monthly and annual tickets as well as many other activities, which will provide for a more accessible and better transportation service.
The entire catering service, providing refreshment on longer routes, should become viable this year. Likewise, the plans for the introduction of wireless Internet at the railway stations, stops and on trains are currently being elaborated. Loyalty programmes are being developed, by means thereof regular customers would be awarded and customers´ database would be created. The initiative regarding children´s program by setting up children´s clubs in major railway stations and long-distance trains is being consi-dered.
Investment in employees, who will be prepared to identify changes and to respond to them either by slight or fundamental organizational changes, by expanding the range of services provided, or by modifying the existing services in accordance with the demands of the market, is of vital importance.
RailwayPRO: What are the methods used to increase the attractiveness of railway passenger transport?
Dražen Ratković: Although the share of road transport – in relation to rail transport – has been continuously increasing in the last years, HŽ Putnički prijevoz intends to keep the existing customers as well as attract the new ones. In 2012, 27.7 million passengers were carried. We are all aware of the fact that travelling by train is a unique experience. However, if that journey lasts much longer than, e.g. journey by bus, car or plane, it is necessary to offer a variety of special offers enabling the customers to decide in favour of a journey by train. Hence, HŽ Putnički prijevoz offers a variety of special offers for young people, families and retired persons. Likewise, young people up to 20 years are offered 70% off on regular one-way and return fares tickets for journeys by train between Croatia, Slovenia, Serbia and Austria. Since Croatia´s mainland boasts many spas – public baths, we are interlinked with them as well. The spa visitors are offered transportation at more favourable price.
Each year, dozens of special excursion trains run, by means of which passengers can visit diverse traditional cultural events. The youngest ones can take a train ride on special Christmas and Easter trains – with special program and gifts provided.
We aim to attract new passengers with extra season domestic and international trains as well, which run towards tourist destinations. Those trains run from June to September. We also offer a journey in couchette coaches at a reasonable price as well as car transportation in car-carrying coaches free of charge. Throughout the entire year, particularly during the summer, we offer discounts for journeys to different concerts such as Terraneo, the famous festival, which takes place in Šibenik in the summer. We aim to continuously expand the range of our services in order to satisfy our passengers.
RailwayPRO: This year, HŽ Passenger Transport launched bids to procure rolling stock. What can you tell us about the stage of this project? Are there programme (drafted or submitted to approval) for improving transport services/purchasing rolling stock/or other projects that could be included in the EU multi-annual budget for 2014-2020?
Dražen Ratković: HŽ Putnički prijevoz is planning to purchase 32 electric and 12 diesel and electric multiple-unit sets. The planned purchase value amounts to HRK 1.6 billion. We intend to sign an agreement on the building of trains with the company Končar Električna vozila in the last quarter of 2013.
Technical features are as follows: low-floor trains, operation in both directions, possibility to operate three compositions merged into one train, speed up to 160 km/h (electric multiple-unit sets) or 120 km/h (diesel and electric multiple-unit sets), air-conditioning, broad entrance door, increased number of seats, information system, possibilities of transportation for disabled persons and bicycles, smoother journey and less noise. The trains should be put into operation during the years 2014, 2015 and 2016. The trains will be running on all routes in Croatia.
One of the main strategic objectives of HŽ Putnički prijevoz, defined in the Restructuring Plan as well, is the orientation towards providing services resp. successive abandonment of conventional trains due to higher energy costs, maintenance costs, shunting cost, costs of technical inspection of coaches and employees´ costs. Fleet is over 30 years old on average. Due to the lack of investments in procurement of new fleet in the last years, HŽ Putnički prijevoz is facing an unequal market competition and the impossibility to achieve a sustainable competitive advantage in transport sector. Thus an investment in procurement of new transport capacities is an essential prerequisite for successful business of the company.
The plan is to continue with the procurement of new fleet after 2016. Currently, we are analyzing the possibility to apply for EU funds for this new train contingent.
As far as EU funds are concerned, HŽ Putnički prijevoz is involved in RAIL4SEE project. The purpose of the project is to create explicit guidelines in terms of how to increase the inflow of passengers in multimodal public transport of major railway hubs in South-East Europe and how to strengthen them and interlink them further. This means that for each mentioned hub, including Zagreb hub, the concepts will be created through the project, which will clearly show how to improve public transport that will „feed“ hub with passengers and how to interlink it even further by rail with other hubs. 28 partners participate in this project, that is, local administrations, scientific institutions and associations from Italy, Austria, Slovakia, Hungary, Greece, Slovenia, Romania, Bulgaria, Serbia and Croatia. The implementation started in July 2012. The project is intended to last for 30 months. The total value of the project amounts to EUR 4.5 million. The value of the part of the project referring to HŽ Putnički prijevoz amounts to approx. EUR 250.000, of which EUR 212.500 will be irretrievably co-financed through the instrument for Pre-Accession assistance (IPA).
RailwayPRO: A performing railway transport depends on the quality of the infrastructure; if no investments are made in the quality of the infrastructure, the number of passengers will reduce constantly and the market share of road transport will increase. What can you tell us about the condition of the Croatian railway infrastructure? To what extent does HŽ Passenger Transport involve to determine the authorities to prioritize railway financing?
Dražen Ratković: In the last 20 years, there were slight investments in rail infrastructure. This resulted in low train speeds. The average speed of passenger trains in 2012 was 48.3 km/h. The journey between cities 250km away from each other lasts for 5 hours. Many passengers do not have that much time to spend on a journey. Therefore, they often decide in favour of faster modes of transport. Out of 2,722km lines in Croatia, almost 1,500km of lines requires refurbishment as soon as possible. In order for HŽ Putnički prijevoz to achieve its strategic targets, travel time up to 50km distance should last for 50 minutes, up to 100km 90 minutes, up to 200km 150 minutes, whereas the distance of 400km should be covered by train in 240 minutes. HŽ Infrastruktura, the company managing rail infrastructure in the Republic of Croatia, intensified the projects on the refurbishment of lines. During the year 2013, HŽ Infrastruktura intends to invest HRK 2.1 billion. Priority lines intended for refurbishment are those located on corridor routes, that is, Corridor V B, linking Rijeka with Hungary and Corridor X, which runs from Slovenian to Serbian border via Croatia, that is, from Savski Marof station via Zagreb Glavni kolodvor to Tovarnik station. The refurbishment of corridor routes is mainly co-financed by EU funds. Apart from corridor routes, a number of local lines are to be refurbished as well as new routes built, e.g. to Zagreb and Split airports and the town of Samobor.
RailwayPRO: How do Croatian autho-rities support railway passenger transport and what is the level of implication of the political class in encouraging railway traffic to the detriment of roads?
Dražen Ratković: The development of road transport resp. building of motorways and state roads has been a priority for Croatian governments for years. This is one of the reasons why the quality of rail transport constantly decreased. During the year 2012, the Croatian government has set refurbishment and advancement in rail transport as one of the priorities. In 2012, a Commission for Railway was founded, the only commission in the Republic of Croatia that Prime Minister is the chairman of. There are steps forward present. However, they are very slowly carried out in a complex system such as railway. All Croatian railway companies (HŽ Putnički prijevoz, HŽ Infrastruktura and HŽ Cargo) prepared the Restructuring Plan in 2012, adopted by the Supervisory Board and Minister of Maritime Affairs, Transport and Infrastructure. Strategic objectives until 2016 are specified in those plans. The achievement of those objectives would considerably improve and boost the Croatian railway system. The Commission for Railway is also acquainted with those objectives. The railway companies have a political support in the achievement thereof.
As far as HŽ Putnički prijevoz is concerned, one of the activities of HŽ Putnički prijevoz, a state-owned company, is providing services of public interest, in which the difference between revenue and cost is partly compensated from the state budget. Those compensations exclusively refer to domestic transport, whereas international transport is entirely based on market principles. Likewise, the Croatian government issued state guarantees to railway companies for loan indebtedness for different investments, severance pay to employees as well as current liquidity.
Within Ministry of Maritime Affairs, Transport and Infrastructure, a group was founded dealing with the development of integrated passenger transport. Integrated passenger transport is a passenger transport with various modes of transport, with the objective of higher level of integration, that is, interlink of various elements such as joint terminals, uniform tickets and harmonized timetables. Such integration entails a benefit for carriers, local self-governments and inhabitants in the long run. The involvement of many institutions, carriers and associations guarantees a better transport system planning. The integration of passenger transport was also identified by the European Union, that we are a proud member of. This is one of the objectives we have to aim at in order for the transport system of the Republic of Croatia to be more efficient. It is precisely the railway that should be the backbone of the deve-lopment of transport system in passenger and freight transport.
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