PKP PR's future hinges on new EU transport regulations

By Karol Chlipalski

While European Union policy foresees a growing role for regional railway passenger transport, the only company in Poland that provides such services is facing the possibility that it will be closed down when EU regulations come into force this month.

PKP Przewozy Regionalne (Regional Transport), which carries 200 million passengers a year, should not be allowed to operate because it is not complying with the new transportation law that adheres to the EU's transportation regulations, industry professionals said.

According to the new law, which will come into force on June 1, every company that operates railways connections will be obliged to obtain a license from the president of the Railway Transport Office. Companies will have until the end of January 2004 to obtain the licenses.

"We should not be even allowed to bid for the license," said Małgorzata Kuczewska-Łaska, chief financial officer of PKP Regional Transport, referring to the company's non-compliance with requirements imposed by the new law, which also mandates that a licensed company should be in good financial health.

"Meanwhile, our liabilities are higher than our assets," she said. The total debt of PKP PR exceeded €344 million (zł. 1.5 billion) at the end of 2002. There is no company on the domestic market that could feasibly take over PKP PR's operations. Other operators in EU countries will be able to operate on Polish rails beginning in 2008.

"I cannot even imagine that PKP PR could not get the license," said Henryk Klimkiewicz, head of Tor, a consulting company that specializes in railway transport. "We will have an another example of a law that cannot be applied in practice. The authorities will have to seek a (way) of getting around it."

Kuczewska-Łaska said that PKP PR's collapse would mean the dismissal of 22,000 employees, no transportation for the millions of people who would not be able to get to work each day, problems with cash flow and the possible collapse of the whole PKP group, since the passenger transport company pays €230 million (zł. 1 billion) a year to subsidize the other group companies, including PLK, owner of the railway infrastructure, PKP Cargo, the locomotives operator, and PKP Energetyka.

Klimkiewicz blames PKP PR's financial problems on the government.

"Ministers decide about things which should be decided by the company itself in conformity with its strategy," he said.

PKP PR's restructuring plan envisaged ending around 1,050 of the operator's most unprofitable connections in 2003, but infrastructure minister Marek Pol postponed the decision and has limited the number of terminated routes. His decision has caused losses of about €8 million (zł. 35 million) a month, the company estimates.

PKP PR was created from the former public railway company PKP. Its aim is to operate mostly unprofitable regional short-distance passenger connections, which are heavily subsidized in all other European countries. Passenger-line operators in the EU receive subsidies of 30%-50% of their revenue, whereas PKP PR receives government aid amounting to less than 6% of its revenue.

Kuczewska-Łaska says that the amount of subsidies PKP PR is said to receive varies according to PKP's restructuring law, the rail operator's budget and the actual amount transferred. For 2002, PKP's restructuring law said that PKP PR was to receive €115 million (zł. 500 million). In the budget that year, the finance ministry anticipated €70 million (zł. 300 million) for PKP PR, but in reality PKP PR's books show that only e60 million (zł. 250 million) was transferred. In 2003, those figures amounted to €185 million (zł. 800 million), €70 million (zł. 300 million) and e55 million (zł. 240 million), respectively.

Additionally, the finance ministry has reduced by 30% the subsidies that are to cover the revenue lost through PKP PR's obligation to honor discounts for students and senior citizens. These discounts have cost the company about €40 million (zł. 170 million).

This year's loss will be around €275 million (zł. 1.2 billion), according to Kuczewska-Łaska.

PKP PR is the only company in the country that operates short-distance passenger connections. Even though the level of services provided by PKP PR is low due to its old rail fleet, with the average age of trains being 23 years, no company is willing to compete.

This situation is not likely to change even when the country's rail market opens to competitors in 2008, experts say. They also say that the low level of subsidies causes a lack of interest in developing competitive activities or privatizing the company.

"There will be no competition as long as the subsidies are low and the cost of access to the infrastructure is high and varies from one year to another, so nobody can plan in terms of return on investment," Klimkiewicz said.

Tadeusz Syryjczyk, the former transportation minister who supervised PKP's restructuring law, said that the EU attaches major importance to the development of public railway transport within its borders while it saves costs for its budget in the long term. He added that even greater subsidies in Poland would be a smaller expense for the national budget compared with the expenses that the government has to pay for road construction and maintenance and health care for car-accident victims when a majority of commuters drives to work.