PKP substantial 1999 losses put pressure on passenger traffic
Railroad watchers last week said that they expected Polish State Railways (PKP) to pull in even greater 1999 losses than the zl. 1.8 billion ($428.5 million) estimate the state-owned company released last week.
"I believe the losses are in excess of that," said Richard Cottrell, vice president of Rail Polska, a firm formed last November that is interested in PKP's upcoming privatization.
PKP said that losses for the first 10 months of this year came to zl. 1.5 billion ($357 million). Some consultants last week said that such heavy losses could cause PKP to scale back some passenger services next year.
The 1999 estimate represents a 32% nominal increase from PKP's losses last year, which hit zl. 1.37 billion ($391 million). PKP blamed the red ink on falling freight traffic, particularly from the coal industry, as well as losses it incurs from providing passenger services. PKP has raised passenger fares twice this year: 5.65% in April and 19% in November.
PKP had hoped to curb its losses to zl. 624 million ($148.5 million) this year. That figure was adjusted upward in May, to zl. 963 million ($229.28 million), and recently was hiked again to zl. 1.8 billion. The figure is lower, however, than the zl. 2 billion-zl. 2.5 billion ($476 million-$595 million) market watchers had estimated.
Cottrell said that it was difficult to say whether PKP's numbers were accurate, because the railroad does not have adequate financial controls or reporting. "It does not behave in a normal commercial manner," he said.
The ongoing losses may cause PKP to drastically cut back its passenger service next year, said Henryk Klimkiewicz, president of independent consulting company Zespol Doradcow Gospodarczych TOR (ZDGT), which is also working on PKP's privatization.
"There are plans to (cut) passenger transport by up to 12,000 kilometers" in the next year, he said. He said that the total number of passengers could drop to 210 million in 2000, down from 400 million in 1999.
Klimkiewicz also said that PKP has plans to run approximately 60% less passenger trains next year. Although a date has not yet been set, he did not rule out this happening at the beginning of next year.
Robert Kietlinski, chief transportation officer with the World Bank, said that the railroad's continued hemorrhaging makes the planned privatization all the more necessary. He said that the large scale of PKP's losses make intervention by the government, or a strategic investor, crucial.
But change could be in the air for the railroad. Last week, Transportation Minister Tadeusz Syryjczyk said that a draft bill on restructuring, commercializing and privatizing PKP could be passed in early 2000, with implementation likely to come in the first or second quarter of 2000. The bill is currently in the Sejm's transport committee, said Ireneusz Nowak, a member of the Sejm's press department.
Under the bill, in 2000 the railroad will be turned into a holding company that will contain several key entities, infrastructure company Polskie Linie Kolejowe, PKP Cargo and the passenger traffic division.
Several companies have expressed interest in PKP's privatization, including U.S.-based Wisconsin Central, as well as new player Rail Polska, a subsidiary of U.S.-based Rail World, which was formed last November when Cottrell left Wisconsin Central.
While German railroad Deutsche Bahn has also allegedly expressed interest in the privatization, the railroad's officials in Berlin would say little about their current plans. "We are interested in good cooperation, the condition of which will be decided later on," said Peter Gerhardt, chief of Deutsche Bahn's international department.
French rail company SNCF has also been rumored to be interested.
While its core business may be in shambles, PKP is looking to profit from some of its existing infrastructure such as telecom lines and rights of way. The railroad is part of a consortium that last week bid for one of three long-distance licenses. In addition to PKP, the consortium also includes British company National Grid Group, Energis and the Polish Telecom Operators Group.
"PKP has an existing network that will obviously be of use in the future," said Sally Lingard, group communications manager with NGG. "You tend to look for people with existing networks."
While some may question whether PKP has any business delving into a capital intensive sector such as telecoms, Cottrell said that the possible financial gains to be had make it worthwhile. "This is a good thing to do," he said, noting that several other European networks have also moved into telecoms.
PKP operates one of Poland's largest telephone networks, with more than 20,000 kilometers of fiber-optic lines.
"They should generate some profit out of this," Kietlinski said. "In Poland it (telecoms) is very profitable."
