Deputy Prime Minister Nikolay Vassilev: Bulgaria Follows a Priority Policy on Railways

The Deputy Prime Minister and Minister of transport and communications, Nikolay Vassilev, is only thirty-five years old. He was born on 28th November 1969 in Varna. He possesses respect-inspiring experience and an impressive career. He graduated from the University for Economic Sciences in Budapest and during his studies there he worked as tax consultant for Coopers & Lybrand. After that he received a second B.Sc. Degree in Business Administration and Finances and Economics at the New York State University, as well as a M.Sc. degree in Brandeis University in Massachusetts. He specialised in tax economics in Keio University in Tokyo and was then employed as assistant on the strategy of Japanese financial markets in SBC Warburg in Tokyo, as analyst of developing European capital markets in SBC Warburg Dillon Read, New York and as analyst for UBS Warburg in London. Later, he became Senior Vice-President and Director of 'Central and Eastern Europe Research' in Lazard Capital Markets, London.

Since July 2001 he is Deputy Prime Minister and Minister of the Economy, and since July 2003, Deputy Prime Minister and Minister of transport and communications in the Government of Simeon Saxe-Coburg.

The Director of Group Actis Bulgaria and Co-publisher of 'Railway Transport', Tzvetina Rousseva, talked to the Deputy Prime Minister Nikolay Vassilev.

- Mr Deputy Prime Minister, how would you assess the role of the railways in the transport system of Bulgaria? Do you consider the railway reform as successful and which are the main problems encountered by the railways?

- Bulgaria is not much different from most of the East-European countries, the main problem of which is the chronic lack of investment over the last 20 years. The average age of rolling stock is about 30 years. Most of the lines need complete reconstruction. Due to outdated technologies and lack of investment, the average speed has been significantly reduced in the last 15 years. In other words, financial investments and better management are the solution.

When I undertook the responsibility for the transport sector in 2003, the railways were a loss-making company to the extent that in a very short time their own capital would melt to nothing, i.e. the liabilities would have exceeded the balance-sheet value of assets. It would be clear to every financier that the situation could no longer evolve in that way. This is why, in continuation of the reforms undertaken by my predecessor, I required the elaboration of the so-called 'Package of measures for railway development', comprising a total of 50 such measures, most of which have been implemented in the last year-and-a-half. These measures include a significant reduction of costs, increase of revenue, transformation of BDZ into a profit-making company, a large-scale overhaul of freight wagons and the procurement of new passenger trains.

- What actions did you undertake for the financial recovery of the railways?

- We successfully issued corporate bonds for a total of EUR30 million, which were bought out mainly by European banks. With this money we started the overhaul of 3,620 freight wagons, which we shall offer back to Bulgarian industry, because of the significant growth of industrial production and construction in the country and the growth of imports and exports. For the first time in the last 15 years there is an increased demand for railway services - both passenger and freight. I expect that 2005 will be the third year running in railway transport growth, which will result in greater revenue from both larger volumes and increased passenger fares and freight charges. As regards the reduction of costs, for the first time in the history of Bulgarian railways it was necessary to close down traffic along 500 km of lines, which was a highly unpopular measure but it helped avoid losses of more than BGN10 million per year.

We also completed the process of staff optimisation and I would not expect much further downsizing. In the last two years the productivity of labour in the railways increased by 20-30%. We reduced the number of regional trains along loss-making routes by 100 per day. This was another unpopular measure, which met fierce criticism in the affected regions. It is an actual fact, though, that by means of this measure, BDZ saved further BGN10 million per year. When at the end of 2004 the company became profitable for the first time in its modern history, we received more support for the reforms because people understood their meaning.

- How do you regard the future relations between the railways and the State? To what extent will the State involve itself in funding for the railways and how will the situation change after private railway operators, including foreign ones, emerge?

- At the present moment, BDZ is 100% state-owned and the company is in the list of companies, which shall not be privatised. For the time being, I consider that after the completion of the reform, which has already proved successful, and the completion of its present stage which is at its end, the next government can discuss the removal of BDZ from this list and its gradual privatisation. I presume that the freight services will largely attract more interest, because they are profit-making and are becoming more and more so. Initially, I would not expect much interest in the passenger services, which are still loss-making, although less so than before. For the first time, in 2004, we issued a license for railway operations to a private company, which is a freight operator along the line Rousse - Kaspichan.

The infrastructure is a public state property and is managed by the National Railway Infrastructure Company. I think that the first reform to be proposed to the 40th National Assembly by the next Transport Minister should be the overall change of railway legislation, allowing for the privatisation or concessions of some railway activities. These could include the privatisation of the operator, the issuing of more licences to private operators, competition to BDZ, concessions of some attractive railway lines.

- Which are the sources of future investment?

- I expect that investment will come from a number of sources. Firstly, if railway lines are put out to concession, the private operator should upgrade his line section, for example Sofia - Plovdiv - Bourgas. Secondly, I expect that we shall manage to justify our projects before the arrival of large European Structure Funds after 2007. The greater portion of this funding would be allocated to transport, and the railway infrastructure in particular. Such is the current project for the Plovdiv - Svilengrad line. This is matter of billions of investments in Euros in the coming 10-20 years. Thirdly, the State budget could be another source, though not a large one in spite of the fact that we increased the funding from 20 million in 2003 to 41.5 million in 2005 plus some additional funding. Although as a whole this has been a serious percentage increase, the current funding amounts to not more than 1% of the overall funding necessary for the railways.

- How does your ministry regulate the competition between rail and road modes, and to what extent is this competition fair?

- The State should remain neutral as regards the development of different transport modes and technologies and to promote their development on an equal basis. The responsibility of the State is to establish the necessary conditions for fair competition between transport modes and between business entities. We should bear in mind those European tendencies, which cannot sidestep Bulgaria. There is more and more congestion on our roads because the number of cars is growing constantly. Apart from congestion and air-pollution, this results in serious accidents and casualties, to considerable wear and tear of our road network, the quality of which is low anyway. Bulgaria urgently needs large-scale construction of a further 1,000 km of highways and further investment in border control points. Unlike road transport, railway services are considerably safer, more environmentally-friendly and have the capacity to carry larger freight volumes and a greater number of passengers. Therefore, in a long term perspective, Bulgaria is following and will continue to follow a priority policy on railways. This causes slight jealousy in road transport, which was largely favoured over the last 15 years and its volumes increased by several times, while railway volumes dropped down considerably. As I already said, in the last two years we have been seeing the opposite tendency and I consider this change to be long-lasting. The new trains will bring passengers back to the railway mode and will attract new customers and with the overhauled freight wagons will satisfy the enormous demand of Bulgarian industry for freight trains.

- Bulgaria is an important transport cross-road - five of the ten Pan-European Corridors cross our country. Our neighbours implement ambitious infrastructure projects, which could shift away some portion of the traffic that currently runs via our territory. What counter measures are being taken?

- Yes, we do feel concern, especially as regards Turkey. Sixty percent of their road traffic no longer runs via Bulgaria but by ferryboats via Greece or Italy. We face competition by the so-called Via Ignatia, which is a parallel Corridor, comprising both a highway and railway line, going via Northern Greece. This does not scare us. On the contrary, it makes us more ambitious for fair competition with our neighbours. I consider that the geographic location of Bulgaria is more favourable than the location of our neighbours and our country is the natural bridge between Europe and Asia, between Turkey, Greece and Europe. Currently, our country invests in infrastructure more than ever since 1990. During his last visit to Bulgaria, my colleague and friend, the Greek Minister of Transport Mihalis Liapis proposed that all East-European countries sign a Memorandum, thus undertaking the commitment that each of them shall invest per year a minimum of 1.5-2 % of their GNP into the transport infrastructure. Bulgaria was the first country to support this proposal because even now we invest 2.5% per year, which is a high level of investment even for Europe. Nevertheless, we face two problems. One of them is that our GNP is too small and the investments in absolute terms are unimpressive. The Czech Republic, for example, invests a small percentage of its GNP but in absolute terms this is an investment of about EUR2 billion. The second problem is that due to a chronic lack of investment in the past we need much more funds now to catch up with other countries. To put it briefly, we should first pass the difficult phase of catching up with the others and only after that can we think of overtaking them. We shall need many years of supplementary investment to make up for omissions between 1990 and 2000. Still, when Bulgaria participates in regional meetings and forums of Ministers of Transport (occurring several times a year) it presents current and fast-evolving projects for amounts of over EUR1 billion, while other countries present projects for tens of millions of Euros, i.e. suddenly we prove to be a greater and more serious player on the market in comparison with many countries in the region. Our ambitions are to proceed quickly in the same direction.

- Undoubtedly, you are an ambitious man. To what extent was this feature of yours reflected in the large-scale transport projects, launched recently by our country?

- By all means this is not only a matter of personal ambitions, but of a very strong team with a new vision for the future of transport in Bulgaria. The investments in the transport sector, the growth in all transport modes - air, waterway, rail and road, as well as the good financial results of the transport companies - show that we have been following in the right direction.

- Recently you met in Sofia your colleagues from the Czech Republic, Armenia and Greece. How would you evaluate the benefit from these meetings?

- We meet each of these ministers several times a year. Transport is a specifically regional sector. In this sector it is impossible to keep out of direct touch with each other, often as a cause of probable force majeure circumstances or border tensions. I hope it would not sound immodest, but Bulgaria naturally has assumed the position of an intellectual leader of the transport sectors in the region because of its geographical location, proactive international positions, stability and successful development. Generally, Bulgaria is the initiator of large regional forums and meetings. It is not by chance that a representative of our country became TRACECA Secretary General. Bulgaria was the only country which managed to come up with a consensus nomination. The Bulgarian Minister of Transport was elected Vice-President of the European Conference of Ministers of Transport. Next year our country will preside over this respected international institution.

With Armenia and Georgia we signed an agreement for the development of multimodal transport. The great role of Russia should be emphasised here. Transit flows from Iran go via Armenia and Georgia by land - mainly by rail or by road - after which they continue by sea from Georgian or Russian ports until they reach Varna and Bourgas whence they continue by all transport modes to Western Europe. This is an exceptionally important corridor, which will play a growing role in the future. Bulgaria has the advantage of being well-accepted by Black Sea countries and in a certain sense it unites them, because it enters in no conflicts with its neighbours or with its neighbours' neighbours.

- How do transport links with Russia develop?

- In principle, the transport links with Russia are difficult. Therefore the establishment of a direct ferryboat services with the Russian ports on the Black Sea, which will be beneficial for the whole Caucasian region, is a real alternative. Competition in transport sector is always a positive fact, i.e. the more corridors compete, the greater is the chance for successful transport at competitive prices.

.:: Home ::.