Railing against the road
By : Robert Wylot
PKP IC President Andrzej Zurkowski.
Long-suffering passengers of Poland's decrepit railways could be in for a pleasant surprise come Sept. 1 when the new express passenger arm of Polish State Railways (PKP) takes to the rails.
PKP Intercity (PKP IC) promises to offer passengers comfortable high-speed connections within Poland and abroad its only drawback is obtaining new rolling stock and ensuring state subsidies pay for it until profits roll in.
The express passenger company is the only one of the spin-off companies from PKP that will operate independently of the parent and, more importantly, its enormous zl. 7.5 billion ($1.8 billion) debt. For this reason, PKP IC President Andrzej Zurkowski said his company has the best chance of making a profit.
The company was formed last March when the rail monopoly was broken into four core companies, comprising PKP IC, the regular passenger line Przewozy Regionalne (PKP PR), PKP Cargo and the infrastructure branch of Polskie Line Kolejowe (PLK).
"Our business plan envisions a profit in 2003 and we'll be around the break-even point in 2002," Zurkowski said.
But Zurkowski admits his company must first upgrade its rolling stock to combat growing competition from road traffic.
"Over the next few years we'll have to buy or lease modern high-speed trains," Zurkowski said. "We can finance it from our profits and from bank loans. As we're not in debt, banks will provide us with credits because we'll have liquidity."
But Henryk Klimkiewicz, president of transport consultancy company TOR, is skeptical that PKP IC can pull off the massive restructuring needed to make it competitive.
"(This service) is lucrative and the volume is rising," Klimkiewicz said. "But PKP IC will have to invest in its rolling stock if it wants to keep this market."
Klimkiewicz said passengers who have experienced poor-quality travel in low-standard noisy trains are deciding they've had enough and are taking to the road, even if it means longer traveling time.
"There are alternative forms of travel such as car, coach or even air transport, and PKP IC will have to modernize its rolling stock to attract customers," Klimkiewicz said. "PKP IC must now think of (buying) modern high-speed trains like the Pendolino, TGV or ICE type, but they're very expensive."
Klimkiewicz said Zurkowski's investment plans are simply too optimistic "because the profit will be too small to finance modernization. Even with a profit of 5-10%, annual earnings may reach just several dozens of millions (zlotys), and this won't be enough."
Nevertheless, Zurkowski is standing by his theory that the passenger line can and will profit. He said 10 million passengers traveled on PKP's express trains last year and his company doesn't plan to lose any customers.
"Our minimum plan is to maintain this figure, with the average travel distance rising," he said.
Zurkowski also said high-quality express trains are in demand and the fares generate between 25-33% of PKP's entire passenger revenue. This translated into zl. 680 million ($162 million)-zl. 2.27 billion ($540 million) in revenue for PKP in 2000.
With such income, PKP IC hopes to operate without government subsidies in the long term, at least. And to start with, PKP IC's initial assets will include a part of PKP's ticket positions, some 1,300 personnel and, most importantly, a rolling stock of 1,300 carriages. However, under the terms of the PKP breakup, PKP IC will have to lease locomotives from its sister company PKP Cargo.
Such arrangements could seriously affect the success of the venture, according to Klimkiewicz. He said that to survive the firm needs a big investor who can afford to pump money into the railway for some time. "It could be a foreign investor or the state treasury, but the government now has no money," he said.
Meanwhile, even while PKP IC takes to the rails, analysts are warning that road traffic is continuing to stay ahead of the competition. This will also become more acute for PKP IC when Poland completes its motorways during the next 15 years. The national motorway construction program envisions the completion of 1,600 kilometers of motorways in Poland by 2015, of which 360 have already been built.
Although Zurkowski said coach operators can only compete with PKP IC on a few routes, he is aware of the competition road traffic poses to the rail company's future.
"If the motorways are completed, coach travel will become faster than trains," he said. "The key threat to us is competition from road traffic," he said. "That's why we can't stay in a state of bliss and be complacent. We have to invest."
