Bulgarian Railways is crossing a difficult period. On the verge of bankruptcy, as the Bulgarian Minister of Transport announced last November, the company is seeing a dramatic drop of passenger transport demand, increasing budget debts and freight traffic fall. The announced restructuring plans have led to major strikes of the railway staff. However, the company tried to negotiate a loan with the World Bank to avoid layoffs and the shutdown of lines.
The freight division of Bulgarian Railways, BDZ Cargo, is firmly heading towards privatisation. What can a company do in such conditions, what are the reform plans and the measures to be adopted to revive the still functional sectors?
We will have the answer to these questions from Mr. Yordan Nedev, the Executive Director of BDZ Holding since June 2011.
Railway PRO: With your appointment as CEO of Holding BDZ last year you announced a complex reform and modernisation process. How is this process going on now, what are the challenges you have met?
Yordan Nedev: The reform is going on full throttle. Hope in the right direction though. The latter is not quite obvious yet since it takes ages to run the necessary procedures and even more so in getting the result. For example, things I meant to finalise in 2011 have not commenced yet…
We have started many reform processes that have been postponed for decades: 1) structural reform aiming to ease the organizational structure, make it less obscure, define clear duties, obligations and responsibilities as well as subordination and control; 2) reduce costs through cutting duplicate staff, combining jobs, increase efficiency through better work processes and accountability, lower theft, and make people actually work; 3) introduce budgeting as a management and control tool; 4) establish independent control functions; 5) implement in an organized manner ma-nagement information systems; 6) spin off non-core activities like security and cleaning; 7) sell non-operational assets, etc.
The biggest challenge is to break the status quo – all people at the railways know perfectly well their rights, few of them are somewhat aware of their obligations. Changing the mentality is the key ongoing task – either through education or replacement. The railways need fresh and unburdened brains. People that have never been into the industry before.
Railway PRO: You said that you support the outsourcing of the activities that can be transferred from BDZ. How is this process going on and what are the measures taken in this respect?
Yordan Nedev: The measure we have undertaken is to actually outsource them. The only thing that is left for outsourcing at the moment is cleaning. The first procedure failed due to fault of the chosen supplier but we do not give up and will take our second chance soon. Outsourcing is a must because in such a large system non-core activities can never be managed pro-perly and are always over costly due to lack of focus.
Railway PRO: What can you tell us about the programmes launched for cutting the costs of the companies both for the passenger and the cargo divisions?
Yordan Nedev: People are by far the largest cost. Sad but true. Staff numbers are quite rigid due to favourable legislation, trade unions, politics. Thus volumes have dropped substantially during time but staff has not gone down at the same pace. People are not like machines that can be switched off but still kept. Unused human resource adds cost everyday by just coming to work. On top, being unoccupied gives them time and space to think and realise alternative income generating schemes, most of them completely unlawful.
From there on, realising the measures mentioned above, all bring the cost down.
Railway PRO: The 100% privatisation of BDZ Cargo is an ambitious programme. When do you think would be the right time to launch the bid for BDZ Holding’s freight division?
Yordan Nedev: As usual we are already late, it seems. We are launching it by the end of May 2012 and expect to conclude the choice of a buyer by the end of the year. I am though quite positive about this scenario. The company is stable on the market, improving the service and the business model to one that suits its assets better, and is on a clear path to profitability thus becoming an attractive shot.
Railway PRO: In your opinion, will the privatisation of BDZ Cargo help increase the quality of the provided services, the company’s competitiveness at European level and the growth of freight volumes?
Yordan Nedev: That is clearly the goal of the privatisation. Every company, especially a big one, needs consistency and stable internal environment with clear long-term goals and adequate business systems installed in order to prosper. In an environment heavily dominated by politics in a southern country still in transition, the Government is by far not the best owner.
The company’s competitiveness is growing as we speak due to the reforms undertaken. The freight volumes too are increasing and most of all, with a stable partner in front, many of the freight forwarders are happily transferring their cargo from the truck to the train. Taking into account the European directives in support of the rail freight transport – last mile, intermodality, lower infrastructure fees – all ties into a lucrative business package.
Railway PRO: After privatisation, what do you think will happen with the current partnerships that BDZ Cargo has with fo-reign companies?
Yordan Nedev: The idea of privatisation is to secure better and more consistent ma-
nagement that serves its clients’ needs. Therefore I reckon that the new owner will be more than happy to take over and develop the current partnerships we have established.
Railway PRO: What are the measures and activities undergone for attracting railway freight transport to Bulgarian Railways?
Yordan Nedev: First of all we started talking to our clients on a regular basis and most of all started hearing them. That produced quite an impact! From there on we focused on improving our business model – do things that we are best at in an efficient manner.
We calculated well our costs per transport, limited the single wagon/group of wagons as well as short distance transports, for some of the big clients organised a few hubs throughout Bulgaria for collecting their freights, put a lot of effort in attracting international/transit transports.
Railway PRO: If the reform initiated last year will meet expectations, how do you envisage the near future of BDZ Cargo within the railway freight transport network pertaining to the Eurasian Platform?
Yordan Nedev: The company has all chances to remain and advance as the single most important Bulgarian railway freight transport partner in the development of the Eurasian Platform. BDZ Cargo has already taken part in most of the programmes that aim to foster international railway transport, thus has the relevant organisation and know-how in place. Which is even more important, we have accepted this development as a strategic issue and apply a consistent approach to it.
Railway PRO: At “Club Feroviar Conference” in Constanţa you talked about the development of freight terminals, which, unfortunately, are not used at full capacity. What are the reasons for that?
Yordan Nedev: The reason is lack of synchronisation between client needs, operator capabilities, and owner’s wishes. Some of the terminals objectively do not attract cargo or at least some proactive marketing approach is needed, others require additional investment in order to become operable.
Railway PRO: What can you tell us about the development plans of water-railway transport on the River Danube?
Yordan Nedev: That is a clear must do. Huge improvement on quality of service and cost could be realised if the two types of freight operators recognise their common benefits, strengths and weaknesses, and combine efforts to provide better service in terms of cost, delivery times and consistency of transport under varied weather conditions.
Railway PRO: What plans do you have for reviving the railway passenger transport sector?
Yordan Nedev: The two crucial things we are dealing with as of now are securing the critical minimum of operable rolling stock to be able to provide reliable country-wide passenger transportation services and improving the timetables, destinations and composition of trains so to provide meaningful service.
The former requires well organised and planned repairing works while the latter is subject to knowing and counting our customers. In both respects we are realising significant advances and are certain that next years’ service will be substantially bettered.
Apart from these two pillars we have launched a few projects aiming to bring the service to a level adequate to the present times – purchase tickets by all electronic and other convenient means (on-line, sms, vending machines); provide internet connection in trains and stations; keep customers informed about the status of their travel; increase the number of sleeping cars available; shorten travel times through investments in infrastructure, etc.
Railway PRO: What is the phase of discussions with the World Bank concerning the loan necessary for reviving Bulgarian Railways?
Yordan Nedev: It is no longer a matter of discussions but actions. We need to sell the freight division in order to both release capa-city towards the private operators on the market as well as secure half of the funds needed by our own. Only then we could rely on WB loan. And we are strictly on this schedule…
Railway PRO: You have also declared, in Constanţa, that you didn’t consider opportune on the long-run to cut freight transport charges. Wouldn’t lower charges be a viable method for reviving the freight transport sector or for developing RO-LA transport?
Yordan Nedev: There is obviously some misunderstanding. On the contrary, firstly freight charges will be lowered in the near future with the exact cause to increase the competitiveness of the sector, which I very much appreciate and believe is a right move towards a much more efficient freight transport as a whole.
Secondly, the infrastructure charges in Bulgaria are high relative to the quality level provided in terms of speed and outages, which is unfair and has to be mended, not to mention the EU directives that imperatively impose the requirement for lower rail infrastructure fees for the rail freight transport. As to the Ro-La, I do not believe in its viability due to the obvious imperfection of paying for non-productive loads. It is the value added cargo that has to be transported not the transportation means themselves.