Private management, model in the restructuring of state-owned companies

Interview with the Romanian Minister of Transport and Infrastructure, Anca Boagiu

The European Union has recently adopted the latest issue of the White Paper on Transport stressing the importance of railway transport supporting the measures for reducing pollution and climate change.
At the same time, the liberalisation of the railway operation is strongly promoted in the Union seeking among others to build a single European railway market. Thus, Constanţa Seaport, Eastern maritime gateway of the European Union, would be connected to a transport network and a consumption market which exceeds Romania’s borders, thus increasing its importance on the international transport map. Based on these fact, the Romanian Minister of Transport and Infrastructure, Anca Boagiu, talks about the place of railways in Romania’s strategy and the possibility of increasing the importance of this economic sector in the near future.

Railway Pro: The Romanian Ministry of Transport and Infrastructure sets as goal the establishment of a new strategy of transports by elaborating Romania’s General Master Plan for Transport. What is the place of railway transport as related to the national and regional economic development objectives and to the other transport modes?

Anca Boagiu: One of the important objectives of Romania’s General Master Plan for Transport to be elaborated in the next period is rebuilding the railway infrastructure at the same time with road infrastructure, so that at least the heavy goods traffic on railways would once again become attractive.  Moreover, as I have already said several times, Romania needs another vision on the role of railway transport in compliance with the European policies after all stimulants in the past ten years have been primarily directed to roads. I would have to add that it is not enough to articulate the policies that could help us shift traffic from road to railways, it is also necessary to better control the way in which the facilities that road transport enjoys are used and I mostly refer to the fact that road carriers are not observing the law according to which the maximum travel distance admitted is 50 km. We will strengthen controls in this area to make sure that the state money is not thrown out the window and that railway transport is not forced to face situations of disloyal competition. Of course, railway investments are expensive and generate effects on longer periods of time, but they are necessary in a European state with a vision for the future. That is why, by the end of the current year, we will contract the over EUR 2 Billion of non-reimbursable European funds granted to Romania through the Sectoral Operational Programme – Transport 2007-2013. Moreover, in June, we have managed to get approved by the Government an emergency ordinance to create conditions necessary to endorsing the funds necessary to the maintenance activity, apart from the track access charge incomes, from the state budget. We are talking about EUR 95 Million only for this year representing an oxygen bubble for a system that has been neglected for years. At the same time, we will carry out implementing policies that would help us increase the dynamics of the the railway system following the reorganisation and efficiency plans resulted after the discussions with international financial institutions. On medium and long term we plan to establish the short and long-distance passenger railway transport companies which depend on the development of a legislative framework that would balance road and railway transport and determine the position related to the private sector.
Last but not least, we will change the entire management perspective inside railway companies by institutionalizing the private management by the end of this year. All these measures will help increase the railway transport share on the medium term on condition that they are carried on by any other transport minister.

Railway Pro: One of the national and European objectives is ensuring a quality transport infrastructure of Constanţa Seaport with the hinterland. How are the railway investment projects correlated with these objectives and what are the forecast stages in developing the investment projects on Corridor IV?

Anca Boagiu: The Romanian railway infrastructure priority is the modernisation of the pan-European Corridor IV which connects Central Europe to Romania up to Constanţa, the biggest Black Sea port. Romania is very interested in turning into account the existing potential of Constanţa Seaport, in developing new capacities and in attracting as much traffic as possible through Constanţa Seaport. Under the circumstances, the Danube Region wins massive importance and the railway transport will significantly participate in supporting this development. In fact, the finalisation of works for the modernisation of the Bucharest – Constanţa railway is very close after many years of difficulties for the railway freight and passenger transport on this very important route in Romania mainly generated by increasing travel times due to modernisation works. This would permit the traffic of trains on this route at speeds of up to 160 km/h for the traffic of passengers and up to 120 km/h for the traffic of freight in compliance with the AGC and AGTC European agreements. Works are advanced also on Câmpina – Predeal section and are due to completion by the end of this year, thus managing to save the ISPA financing that  was almost lost  in September 2010. For the Frontier – Radna section estimated at EUR 300 Million, the financing demand through the SOP-T Programme, cohesion funds, has been submitted to the European Commission and the tender was launched. By the end of the summer, tenders for the sections Simeria – Coșlariu and Coșlariu – Sighișoara will also be launched. The contract will be signed and works will be initiated this year. Simeria-Coșlariu is estimated at EUR 613 Million and at EUR 868 Million for Coșlariu-Sighișoara.

Railway Pro
: Reaching the second half of the financial period 2007-2013 and with negotiations for the next financial period 2014-2020 near, what are the priority directions to be financed by Romania and the European Union after 2014?

Anca Boagiu: Coşlariu – Simeria and Coşlariu – Sighişoara sections are in a phase of advanced preparations and works will be carried out both in the current financial period 2007-2013, as well as in the next financial  period 2014-2020, when we hope to finalize the other sections of the railway Corridor IV. You probably already know that last month we signed a Memorandum of Understanding in Luxembourg for the implementation of the railway freight transport Corridor 7. It is a European commitment, assumed by Romania as well, for increasing investments in this type of transport which could bring significant benefits to Romania. We didn’t give up the project of the high-speed line Constanța-Bucharest-Hungarian border, a project for which we will allocate resources in the next sectoral operational programme.
We will continue to rehabilitate bridges, culverts and tunnels on the entire railway network and introduce interlocking and other safety systems in line with the current level of European technology.
We will also continue to modernise railway stations to offer passengers an improved quality of the railway transport services. From this point of view, we elaborate policies aimed at turning into account CFR’s patrimony so as to provide more financial resources for the modernisation of the railway infrastructure.

Railway Pro: Since Romania promotes the Danube Strategy, will sections of Corridor IX (Bucharest – Giurgiu) come to the attention of the Ministry as priority objective in parallel with works on the southern branch of Corridor IV?

Anca Boagiu: Procedures for Corridor IX sections could be initiated at the same time with the evolution of works on Corridor IV, both in the context of Romania’s promotion of the Danube Strategy and the development of the general target of railway infrastructure modernisation. We are currently estimating that the European funds we will dispose of in the financial period 2014-2020 will only cover the completion of the railway Corridor 4, including the southern branch. For Corridor 9, we will have to identify other financing sources, mainly based on the state budget. In turn, we have managed to include Grădiștea bridge in this financial period and we will contract execution works with European financing by the end of the year.

Railway Pro
: Various industrial giants announce investments in Romanian production facilities. To what extent does the Romanian Ministry of Transport and Infrastructure encourage the access to railway transport for these production facilities?

Anca Boagiu
: All major companies in the Romanian industry had and still have access to the railway transport on the entire territory of the country. Any economic operator can connect to the public railway infrastructure in Romania by applying to the public rail infrastructure manager, the National Railway Company, CFR SA. The freight railway transport is 100% liberalised and the share of private freight rail operators represents more than 50% of the freight rail market. From this point of view, Romania ranks second in the European Union , after Great Britain, which means that the Romanian Ministry of Transport and Infrastructure encouraged and continues to encourage rail transport access for these new production facilities. In fact, during discussions with Ford and Renault representatives, for example, we have emphasized our implication in helping them rehabilitate road infrastructure, but without neglecting railway and the Danube transport. As regards investments in leasing non-interoperable railway lines, I would like to say that I will approach them in the same way I did with road transport. In other words, these investors will have to observe the strict contractual conditions in order to remain partners.

Railway Pro: In the past months, the Romanian Government has mentioned the importance of the private management for railway companies. What is the Ministry’s vision in the aspect for subordinated companies?

Anca Boagiu: From the very first months of my mandate as minister I have pointed out that we need performing management, and private management is a good example, for state-owned companies. When only the debts of the railway companies amount to 1% of the GDP, it is obvious that not only underfinancing and market contraction, as direct results of the economic downturn, have been the sources of this railway
disaster, but also the poor or even on the fringe of law management. That is why, in all discussions with our partners from the IMF, the European Commission and the World Bank, we have insisted on this solution of privatising the management of state-owned companies, considering, however, its extension to the boards of directors. It is the only way to make sure that a contract of  mandate with clear objectives can be functional and help state-owned companies recover. It is obvious that we need to change the mindset in the system so as to encourage performance and the payment of managers based on their achievements. We have a similar negative example of those managing the EU funds who cannot be motivated by salaries proportional to their responsibilities because the unions are against it, even though additional funds could be covered from European money. In conclusion, after completing and approving the legislative framework at the level of the Romanian Government on the topic of private management for companies, the Minister of Transport and Infrastructure will analyse and apply these measures for subordinated companies in order to make the management process efficient and, as a consequence, the companies’ activities.

Railway Pro: Under the circumstances, is CFR Marfă’s privatisation scheduled to take place in less than 1 year? What is the privatisation procedure considered at the moment?

Anca Boagiu: I will not try to deny the fact that I had not sympathized with the solution of  CFR Marfă’s urgent privatisation in a moment when the entire market was down and any interested buyer would have probably offered a very low price for the freight operator’s assets. Moreover, I personally believe that CFR Marfă has been gradually “led” towards insolvency for the precise reason of being “prepared” for a privatisation at the lowest cost possible. In turn, I have implemented a tough restructuring and efficiency programme and positive signs are already visible at CFR Marfă. We are of course aware of the fact that a company with a critical financial situation evolving towards a completely liberalised market will soon need capital injections to be able to honour its contracts and to carry on investments for increasing competitiveness. That is why we have proposed and agreed with the IMF and the European Commission the solution of a partial privatisation by the end of the current year. I honestly wish that the 20% package of CFR Marfă’s share will be offered through public offer through the Bucharest Stock Exchange. At the same time, we will continue the activity of “cleaning” the company of debts and supporting its recovery.

Railway Pro: For several months, state-owned companies have undergone a major restructuring process. What is the objective of this restructuring?

Anca Boagiu: The objective of restructuring is to permanently improve the activities developed by these companies and the permanent adaptation to the Romanian and international economic and market conditions, since the international market is also influencing Romania, especially the European one. These companies have significant debts to the state budget and suppliers and it is necessary to permanently adapt to new perspectives, some generated especially by the international economic downturn. Therefore, the Government, through the Ministry of Transport, seeks to cover the debts and the losses of 1% of the GDP accumulated from 2001 on, as well as CFR’s access to the free energy market.

Railway Pro: At the beginning of April, the Romanian Ministry of Transport and Infrastructure promoted a law on shutting down almost 1,400 km of railways. What is the objective of such an action, if it is still considered, taking into account the observations of the public opinion?

Anca Boagiu: In conformity with the provisions of art. 14(2) of the Government Decision no.581/1998 on the establishment of the National Railway Company “C.F.R.” – S.A. through the reorganisation of the Romanian National Railway Company, including all subsequent amendments and supplements, the losses resulted from exploiting non-profitable lines are covered by the state budget or local budgets, depending on the situation. Until the moment, a series of railway infrastructure segments are neither attractive for railway transport operators nor useful for the National Railway Company’s own activities. Moreover, non-exploited railway infrastructure segments are most of the time subject to thefts and destruction, which leads to significant additional costs for completing the infrastructure with the elements that have been stolen or destroyed. Important savings could result from re-using the obsolete components of the non-exploited railway infrastructure. This month, the Government approved the decisions that allow us to lease or close more than 2,000 km of railways thus managing to save almost EUR 26 Million. Overall, we will lease or close almost 5,000 km of non-interoperable railways. I want to assure you that it will be mandatory for all those who will lease non-interoperable lines to also take over the CFR staff. All these railway reforms are aimed at saving the system by eliminating black holes and relocating the extremely limited financial resources towards those components which are capable to increase the competitiveness and performance of services, and I refer to modernisation investments. Years on, the railway companies have limited to providing minimal quality services, thinking that if employees received their salaries and people could travel safely on railways, their task would be completed. This approach hinders productivity and brought us to the present disastrous situation. We cannot ask Romanians to tolerate poor quality services or to travel in the 21st century at speeds of 30-40 km/h on railways, while we are boasting about a vast railway infrastructure aligned to European standards, but which we are not capable not even to maintain, let alone to modernise. If we want to have a performing railway system, we have to assume the responsibility of such firm decisions. Moreover, the Romanian railway companies have to abandon the state of numbness and become partners with other railway companies in the European Union, as consequence of an opened market. I am persuaded that this isolation we lingered in until now and the mindset of a mere national development have made us lose markets and traffic and accentuated the natural effects of the international economic downturn.

Railway Pro: It seems that several interesting and important projects for the development of the transport sector in Romania cannot be carried out by the Ministry of Transport and Infrastructure (the railway line Râmnicu Vâlcea-Vâlcele, the railway connection to Otopeni airport, the High-Speed Line project Bucharest-Constanţa), because of the lack of funds. What is your vision and what are the plans for the future for carrying on/launching these projects?

Anca Boagiu: All projects that you have mentioned are in our attention even if some aspects are less known by public. From this point of view, we enjoy the interest you show to the projects we consider, as it helps us include  them in the public agenda and thus make our work know. For example, all that you have mentioned has been included on the TEN-T Network and the latest negotiations with DG Move have even lead to the extension of this network by including new important objectives, as well as the railway line Simeria-Filiași, and not only. Including them in the European network means the implicit commitment of the Romanian Government to finalise these projects and the possibility to finance them using European resources. We have not included them for the sake of having as many routes on the European network as possible, but we have also taken the first steps towards securing a financing source. For example, for the railway network in plan (which was included on the entire section of frontier with Hungary to Constanța, not only Bucharest-Constanța), we have already identified a financing source within the SOP-T and the tender for development of the pre-feasibility study is due by the end of the year. It is an ambitious project, it may seem futuristic for some, but we believe in it and we are already taking steps towards its implementation despite the mistrust we are feeling. As regards the European corridors, as I have already said, by the end of the year we will sign the tender procedures for a major part of the frontier section up to  Sighișoara. We are also considering the southern branch of the corridor for which feasibility studies are under development, so that we could initiate works in the next financing of the operational programme. We are thinking on the long-term and this is the most important, we know what are the next steps to take. No project is left aside, but we have been forced to make a priority list so that we could first prove that we are capable of absorbing European money.

Railway Pro: To conclude, what do you think that Romania’s trump cards are and could be in the future for attracting the freight traffic to Romania?

Anca Boagiu: First of all, Romania is a member state of the European Union and a NATO member, with increased
stability in the region. Secondly, Romania’s economic potential is very high and its geographic position encourages and develops the railway traffic across Romania both in the South-Eastern Europe and as important link between Europe and Asia on this route. I believe this strategic geographic advantage has been little turned into account in the past years although we had projects in this area ever since 1999 when the Romanian President Traian Băsescu was minister of transport and I mostly refer to the ferryboat line project, to projects on container terminals or to the RO-LA transport project. At the same time, the development of the freight corridor 7 will be a strategic opportunity for Romania over the next years. Another important element for attracting freight traffic through Romania is Constanța seaport, whose role in linking Europe to Asia is increasing every day. Last but not least, carrying on investments in the modernisation of the Romanian railway infrastructure will significantly contribute to  attracting freight railway traffic in this area.

[ Recorded by Elena Ilie ]
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