Low freight traffic aggravates state railways' mounting losses
Transport industry executives last week pointed to falling freight traffic as one of the main factors behind Polish State Railways' (PKP) 1999 losses, which rose more than 66% last year to hit a whopping zl. 2.28 billion ($554.8 million).
According to a railroad watcher, who asked not to be identified, a drop in freight traffic accounted for zl. 400 million ($102.5 million) in losses last year. Freight traffic accounts for a large part of PKP's revenue.
One factor contributing to the decline was lower coal production, said Kazimierz Przelomski, a principal banker with the European Bank for Reconstruction and Development (EBRD). He estimated that the coal sector accounted for as much as 50% of PKP's freight business.
PKP did little to react to the falling traffic, though. In the midst of a freight crisis, the railroad actually hiked rates for such services, said Richard Cottrell, vice president of Rail Polska, a company that has expressed interest in becoming involved in PKP's privatization.
But PKP officials said that all European transporters experienced less demand for freight services last year. "In the whole of Europe it is a constant process of downsizing freight," said`Jacek Bukowski, a member of PKP's management board responsible for restructuring and prvatization. He said that shrinking heavy industry has been responsible for the trend.
Another major factor contributing to PKP's declining freight market is that companies have other transportation options. "Our main competitor is trucks," Bukowski said. Przelomski said that trucking companies tend to offer more flexibility, better responsiveness and door-to-door service in addition to lower prices.
To try to stem the losses, Bukowski said that PKP is trying to work in conjunction with freight forwarders. "The management of PKP is doing everything to create good relations with freight forwarders," he said.
Currently, the railroad is in the process of preparing its divisions for privatization. It is expected that PKP's operations will be sold separately to strategic investors.
PKP is caught in a vicious circle. Years of heavy losses has meant that the railroad has little money to modernize or buy more rolling stock, moves that could make it more competitive in the freight business. That lack of funds has even resulted in outright stoppage of work at the railroad. Such was the case in January when rail lines sat still for several hours in the Tarnowskie Gory region because PKP had not paid its electricity bills.
And according to the railroad watcher, by the end of December the railroad's debts had mounted to more than zl. 6.3 billion ($1.65 billion). In December alone, debts grew by about zl. 1 billion ($256.4 million). "This is simply an indication that the catastrophic financial situation is deepening," the watcher said.
According to an official with an international bank, who also asked not to be identified, the government was speaking on the railroad's behalf with banks last fall to try to obtain additional financing, something banks were reluctant to give. "It's difficult to finance anything at the moment in PKP," the source said.
Cottrell warned that if PKP's losses aren't stemmed soon, the company will become an increasing drag on the national economy. But Mateusz Szczurek, an economist with ING Barings, was not overly concerned. "It should not provide a serious problem for budget financing," he said.
At the same time, he did not deny the long-term effects that PKP's losses could have on the country's fiscal health. "If PKP is not restructured, then the pressure will increase."
