Bogusław Liberadzki
Polish State Railways (PKP), the state-owned railway operator, is saddled with debts of nearly zł. 10 billion ($2.44 billion) while Poland's national highway system remains a vision on paper. Meanwhile, the nation's flagship airline, LOT Polish Airlines (LOT) posted zł. 639 million ($156 million) in losses last year as its strategic investor, Swissair, plunged into bankrupty. To address the country's myriad infrastructure problems, the Democratic Left Alliance (SLD) has pledged to be the government that will build a modern motorway system, make PKP profitable and find LOT a new partner. Bogusław Liberadzki, 54, chairman of the Sejm's transport subcommittee and transportation minister under the previous SLD-led government in 1993-1997, talked to the WBJ's Robert Wylot about the feasibility of his government's ambitious infrastructure development plans. The following is an edited version of their conversation.
Q: The government's motorway construction plan assumes that pension funds will contribute financially to the project. But the key obstacle for pension funds is that they have no guarantee of a return on their investment. How would you convince them that the government will guarantee their investment? A: Pension funds must be provided guarantees for a minimum rate of return. So if we have construction, the government has to guarantee a certain percentage of return, even if the state budget has to subsidize or cover possible risks in another form. Risk must be shared. And it's not only the pension funds. Banks can invest in this project. I have received many signals from banks that they are interested.
Q: Infrastructure Minister Marek Pol said that about 200 kilometers of motorways will be built annually over the next four years. Is this possible? A: Yes, it's feasible.
Q: Previous governments projected similar progress, but they weren't successful. A: That was the last government. The process was discontinued after 1997 due to a lack of political will and professionalism. The A2 motorway (Świecko to Warsaw) concession holder convinced the (previous) government that they expected traffic of no more than 8,000 vehicles per day, meaning one vehicle every 20 seconds. We had such traffic in the early 1970s! The government then declared to give further support and extended the concession until 2017, losing time for renegotiations so they simply didn't build anything.
Q: So the process was discontinued because the investor wasn't interested in building? A: Yes. At least in the case of the A2 and the A1 (Gdańsk to the Czech border).
Q: Do you think construction of the A2 will be speeded up now? A: I'm not so sure. I have learned from the infrastructure minister that the modernization of the already existing stretch from Września to Konin should cost almost E7 million per kilometer. That's unbelievable! It's much too much. Q: Pol said he expects to raise some zł. 2 billion ($488 million) annually from the so-called vignettes (highway and expressway access tickets) to finance motorway construction. This proposal has already upset some drivers, who would have to pay some zł. 150 a year for a vignette. Is the expected revenue worth the resentment it is starting to create? A: We questioned the minister about this in our parliamentary committee. Our first question was: On which highways would this fee be required? The answer was: 'We don't know yet.' Our second question was, how much per vehicle? Answer: 'We don't know.' The third question, what is the willingness to pay? The answer: 'We don't know.'
Q: So what do you think of the vignette idea in general? A: I'm very doubtful. The European White Paper, published in September last year, stated very clearly: Vignettes are not a good way of charging for the use of road infrastructure because you have to pay a certain amount of money no matter how much you use the road.
Q: Pol also said he wants to spend some zł. 16 billion ($3.9 billion) on motorways over the next four years. He expects zł. 7.2 billion ($1.8 billion) to come from the European Union's ISPA program and cohesion fund. A: It's unfeasible.
Q: But another zł. 5.5 billion ($1.3 billion) would be raised via loans. A: This would be almost E2 billion ($1.7 billion). This is like going back to (Former Communist Party leader Edward) Gierek's policies.
Q: So you think Poland cannot afford to take any more loans? A: I'm afraid not. Loans always have to be repaid.
Q: There have been a lot of suggestions lately to change the plan and law for restructuring and privatizing PKP. Which amendments to the law do you support? A: We should forget about dividing PKP into dozens of separate companies, because this would generate additional costs. The existing law on PKP's restructuring and privatization has been a total failure because PKP lost 12% of its market share last year and 10% in 2000.
Q: But the idea behind splitting up PKP was to separate the loss-making units from the profitable ones. Do you now advocate consolidating the company again? A: It's necessary. Otherwise it will be a disaster. The European trend is to separate the infrastructure-maintenance operations and to develop a market-oriented company operating rail transport. But you cannot have 20 separate elements of a company and expect all of them to make a profit.
Q: PKP's management projects zł. 1.85 billion ($452 million) in losses this year. Would reconsolidation remedy this problem? A: Yes.
Q: How should the company be reconsolidated? A: We must create a strong cargo sector and we need a strong passenger sector divided into (publicly subsidized transport) and the money-making unit with Euro trains, InterCity trains and Express trains.
Q: So one company would provide passenger transport? A: No, two. At least two.
Q: What about cargo? A: PKP Cargo could be profitable. It could reach 15-20% profitability. Last year it was 0.8%.
Q: What should be done to generate profits of 15-20%? A: Reduce costs and aggressive marketing.
Q: Do you think the rail companies should be privatized? A: Yes. All of them, except the infrastructure company. It's only a matter how to privatize and who could be allowed to buy.
Q: Who should be allowed to buy? A: Someone who wants a friendly, national Polish railroad system.
Q: Any European companies? A: Not necessarily. A railroad system in Poland's interest would deliver goods to Polish seaports. Every railroad in Europe operates in conjunction with its own system, so no European railroad can be a partner in PKP's privatization, because they are all state-owned and each of them is coordinated by a national transport policy. So the sale would just be a trade-off of control from the Polish government to a foreign government.
Q: Which company would be the best choice? A: I don't know such a company, but how about the Warsaw Stock Exchange? Why not take PKP public?
Q: Don't you think that PKP needs a strategic investor rather than just money from the WSE? A: Money is most important. And Poland's national transport strategy is the strategic investor.
Q: PKP doesn't have much to offer investors financially. Its management projects at least zł. 1.85 billion ($452 million) in losses this year. But the restructuring and privatization plan envisioned that the railway would have less than zł. 1 billion ($244 million) in losses this year, and be in the black in 2003. Do you think this is possible? A: No. Not with the present strategy for running the company and not with this board of directors. The company lost almost zł. 2 billion last year and nothing has changed. Every day, another zł. 5 million ($1.2 million) is lost. You can't change it overnight; it's a process, but this process hasn't started yet.
Q: What should be done to make the company profitable? A: PKP needs consolidation and market-oriented management that will look for success in the market and not in the government or Parliament, not by playing political games.
Q: Poland will probably join the EU in 2004 and asked for a transition period before other railroad operators gain access to the Polish market. Do you think PKP will get this transition period? A: In fact, the longer this transition period is the worse it will be for PKP, because the problem is here, at home. We have to clean the house, the house named PKP.
Q: The treasury minister is expected to choose an alliance for LOT Polish Airlines over the next days. Which of the two suitors, Lufthansa or British Airways is a better partner for LOT? A: To me it's obvious. British Airways and its alliance is much more friendly. We should allow traffic at such regional airports as Gdańsk, Poznań, Szczecin, Wrocław, Kraków and Rzeszów to grow. Those airports can feed traffic to the central hub in Warsaw. This will not be the case with Lufthansa, because Lufthansa already has big hubs in Frankfurt and Berlin. SAS, which belongs to Lufthansa, has Stockholm. And Austrian Airlines, also in this alliance, has Vienna. Imagine Kraków operating via Vienna, Wrocław and Poznań via Frankfurt, Szczecin via Berlin and Gdańsk via Stockholm. What would happen to Warsaw? British Airways has different hubs. It has London Heathrow and everything else is spread all over the world. It could allow the Warsaw hub to grow and it can allow for regional air traffic system in Poland to grow.
