Croatia’s accession to the European Union has determined the coming into force of the new railway act which regulates the Croatian railway system and aligns it to the European one. By implementing the new railway legislation, the freight transport market has been opened and, as a result, Croatia’s accession to the EU enables the free access of railway operators to infrastructure under the same conditions.
As regards HZ Cargo, in July the Croatian Government accepted the offer of Grup Feroviar Român (GFR) operator for the acquisition of a 75% stake of the company’s shares. Even if HZ Cargo has two owners, the state and the investor, the company will continue to be interested in all business activities that will contribute to the growth of freight transport. Mr Ivan Leskovic, CEO HZ Cargo speaks in an interview for Railway PRO about the alignment of Croatia’s transport market to the requirements of the European transport system and the implications and challenges of the transport liberalisation process.
RailwayPRO: What does the accession of Croatia to the European Union mean for the railway sector?
Ivan Leskovic: The harmonization with the acquis communautaire started in 2003 with the passing of Railway Act, the application of which started on 1 January 2005. After the 1st of July 2013, when Croatia entered the EU, a new Railway Act came into force, which consistently and integrally regulates the railway system in the Republic of Croatia, to make it harmonised with the European legislation and conditions on the competitive railway services market in the EU. After separating railway operators and infrastructure, the revitalization of the railway traffic was initiated, and so was its organisation on the free market principles, which is a condition for the integration of this market segment into unique EU market. The new Act aims at regulating the market based on new principles of separating legal entities/companies operating in it, and the Railway Safety Agency, an independent regulatory body ensuring equal market competitions for all operators.
RailwayPRO: How does this process reflect within the Croatian railway system from the point of view of legislation, competitiveness and investments?
Ivan Leskovic: Railway Act defines the conditions for railway transport operation, railway infrastructure status, railway services market, railway infrastructure management and the conditions for using the infrastructure, the principles and procedure that apply to introducing and defining fees for railway services and assigning railway infrastructure capacities, the criteria for issuing and cancelling permits to railway operators, the services of railway transport of special interest for the Republic of Croatia which a partly state-funded.
With the new Railway Act the cargo transport market in Croatia has been liberalised. Croatian accession to the EU has enabled free access of foreign railway cargo operators to national railway infrastructure under the same conditions. Although the interest is there, other railway cargo transporters have still not been registered in Croatia, so HŽ Cargo is the only operator in railway cargo transport.
RailwayPRO: What is Croatia’s contribution to the establishment of the Single European Transport Area through the railway freight transport services it delivers? What challenges and opportunities does this objective bring for freight carriers?
Ivan Leskovic: After the new Railway Act came into force in Croatia, the new EP and EC Directive 2012/34/EU of 21 November 2012 on the establishment of a Single European Transport Area was transferred.
With improved and more connected infrastructure, using IT and communication technologies and profiling itself into a logistic, HŽ Cargo will improve the mobility of freight transport. After separation from infrastructure manager, with additional changes to the regulatory framework and applying new regulations, HŽ Cargo will integrate into Single European Transport Area.
RailwayPRO: What can you tell us about the impact of the liberalization process over Croatia’s transport market? What are the challenges met in the market liberalization process and what are the regulations that Croatia needs in order to facilitate this process?
Ivan Leskovic: Transport market liberalization is a challenge for HŽ Cargo, as in the last 20 years the investments in the railway sector have been insufficient, especially in infrastructure and rolling stock modernization. With a non-discriminatory approach to railway infrastructure, the new Railway Act defines a possibility of legal persons that are not railway transporters lease sections of infrastructure. In addition, the access of railway transporters to terminals and sea and river ports has been regulated.
The transporters have the obligation to conduct business in accordance with market principles and apply the principle of the freedom of service providing.
RailwayPRO: What is the situation of railway freight traffic in Croatia, given the fact that in the past years the countries, and the railway companies, have been confronted with problems caused by the economic and financial crisis? What are the perspectives until the end of the year regarding the freight volume carried by HZ Cargo?
Ivan Leskovic: HŽ Cargo business activities in 2012 were marked by significant impact of mainly negative economic trends and road competition on the freight market, as well as the absence of state funds. Given the fact that the transportation of goods in the Republic of Croatia in the 2012 decreased due to reduced economic activity, in the 2012 HZ Cargo transported 11.4 million tons and 2,422 million ton-kilometres, which is a decrease of 5.7% in tons and 3.9% in TKM compared to 2011. Despite these results, in 2012 HZ Cargo saw growth in transport on quarterly basis. HZ Cargo continues to advocate maximum increase of the transport of goods in the circumstances of very strong competition from other forms of transport, including railway companies in the near future. Activities are therefore undertaken to increase transport on X and V Pan-European corridor, to attract goods from IV Pan-European corridor, and activities to reduce the time of transportation of goods. The increase of the terminal and port facilities in the Port of Rijeka will have a great role, as goods from the east intended for the European market come there. All these activities should contribute to an increase in the transport of goods and income.
RailwayPRO: What legislative and financial steps does Croatia need to take (both the authorities and the railway companies) in order to ensure the rail transport competitiveness growth?
Ivan Leskovic: For years, the development of road transport has been a priority to Croatian governments, which caused the decrease in the quality of rail transport. In 2012 Croatian government put the rehabilitation and improvement of rail transport as its priorities, and a Railways Committee was established, as the only Committee in the Republic of Croatia headed by the Prime Minister.
In June 2012 HZ Cargo developed a restructuring plan for the period 2012 – 2016, which was adopted by the Supervisory Board and the general Meeting, which includes the reorganization and rationalization of operations based on the analysis of existing capacities, transport operations, and generated income and expenses on all lines, as well as technological and personnel changes and restructuring of subsidiaries. The restructuring is based on the analysis of the current state of business, optimizing costs and improving liquidity. In order to achieve better liquidity of the company, steps are taken on debt collection, reprogramming the existing credit obligations, rescheduling of existing obligations to creditors, as well as the rationalization of costs which includes the management of redundant workers.
The restructuring process is necessary for the interest of HŽ Cargo, in accordance with market needs, as the aim of the company is to position itself as a freight carrier that offers full service through own engines and carriages.
RailwayPRO: What is the role of terminals in increasing the attractiveness of railway transport?
Ivan Leskovic: Sea (and river) ports have a critical role in increasing rail transport due to the fact that a large part of freight is carried by sea. For example, I can take the port of Rijeka, which is located in an important geographic position whereby its capacities must be well positioned and be recognized on the traffic map of Europe in order to channel large amounts of cargo its terminals.
Given the large amounts that are unloaded from ships, the rail has an advantage over trucking because one train can carry much more quantity of goods, and there is also the factor of manipulation in loading and unloading the boat. Therefore, a port ship traffic indicates a direct positive impact on the transport of goods by rail.
In previous periods, port and transit port import / export occupy a large share of goods transported by HZ Cargo, so in 2012 in the structure of railway transportation transit had a share of 54%, import 9%, and export 16%, while the share of domestic transport was 21%.
RailwayPRO: The privatisation of the railway freight transport division, HZ Cargo, was initiated through the sale of 75% of the shares. What were the criteria which represented the grounds of selling HZ Cargo and what were the decisive criteria in selecting the bidders?
Ivan Leskovic: According to the Decision of the Croatian Government on the collection of binding offer to change the ownership structure of HZ Cargo of 2 May 2013, the Ministry of Maritime Affairs, Transport and Infrastructure invited four potential investors to submit binding offers to purchase up to 75% of shares in the HŽ Cargo. For the purpose of evaluation of bids, the Minister of Maritime Affairs, Transport and Infrastructure established the Commission for conducting the analysis and evaluation of the binding offer to change the ownership structure of the company HZ Cargo. The bidder was required to determine the shares to be purchased and its price, to make statement in connection with government guarantees that had been given to HZ Cargo, to submit a plan of development of HZ Cargo and its positioning, and to provide a plan for the employees.
The evaluation of bids showed that only one complete and valid offer was submitted, that by S.C. GRUP FEROVIAR ROMAN S.A. from Bucharest, Romania. The basic negotiating positions were set through the competition and binding offer, and for each of the negotiating points regarding finances an adequate bank guarantee will be required.
RailwayPRO: As the state still holds a 25% stake in HZ Cargo’s shares, what will be the role of the state in adopting the decisions concerning the activity and investments to be made in the recovery of HZ Cargo?
Ivan Leskovic: The Republic of Croatia will retain a control package, i.e. 25% plus one share, which entitles it that no strategic decision is made without its consent. The control package stipulates that anyone who owns more than a quarter of the value of the company, is entitled to special protection of his interests.
RailwayPRO: What is the value of the investments necessary for the development of the transport company and what projects have to be implemented immediately after the finalization of the sale-purchase process so that the railway transport sector would win back the freight transport market?
Ivan Leskovic: Due to lack of investments in the rail sector, investments required for the development of HZ Cargo are very high. According to the Restructuring Program the total investment in 2013 amount to HRK 182.2 million (cca 24 mil. EUR), of which HRK 127.2 million (cca 17 mil. EUR) is for the modernization of 600 wagons and 18 locomotives, and the remaining funds will be invested in other activities in the transport function (development of logistics centres and industrial gauges, computerization of business processes). In case of the change of ownership, priority projects and strategic projects will be defined by the new owner in cooperation with the Government.
RailwayPRO: What does the sale of HZ Cargo mean for Croatia’s railway market? Will it facilitate the access of other private railway freight transport operators?
Ivan Leskovic: It is difficult to assess what will be the changes after the sale of HZ Cargo. Specifically, based on successful cooperation, in many years of working with Croatian manufacturing companies HZ Cargo signed a number of contracts of carriage. The tendency of business is to enter into multi-year contract of carriage so that the HZ Cargo still takes up to retain existing and attract new customers, which is expected to increase domestic transport further.
As for the entry of other operators on the Croatian market, it cannot be brought into connection with the possible sale of HŽ Cargo since operators will need to comply with the conditions monitored by the Agency for Railway Safety, which issues certificates of safety and other certificates.
RailwayPRO: “Cargo 10” project includes the railway companies from Croatia, Slovenia and Serbia, and in July the three countries announced that are ready to establish Cargo 10 railway transport company where operators will hold a third in the future company. What does this project mean for HZ Cargo in terms of activity extension and development? To what extent is the HZ Cargo operator involved in this project considering the fact that there will be two owners: the state and a private investor? How will the decisions be made within HZ Cargo so that Croatia could fulfil its role within Cargo 10?
Ivan Leskovic: HŽ Cargo is interested in any business activities that would contribute to the increase of freight transport, including the establishment of Cargo 10.
The main objective of Cargo 10 is optimization of business processes in the organization of rail transport and increasing the competitiveness of railways on Corridor X under the conditions of a liberalized market.
The goals are to increase the quality of freight services, increase the volume of transport and carrier competitiveness, transparency requirements of the carrier, increasing customer satisfaction, shorter transport time on Corridor X, accelerate border procedures, the use of a common pool of freight cars and attract freight from Corridor IV. The establishment of Cargo 10 is in line with the EU Directive 913/2010, which allows and encourages regional association of railways, but the company Cargo 10 was not established because not all the requirements needed to ensure all railway administration, i.e. potential companies founders of Cargo 10, were met.
RailwayPRO: Transport infrastructure investments are vital for a performing freight transport. What can you tell us about the railway infrastructure projects implemented by HZ Infrastruktura, which have a positive impact on both the national and the international railway freight traffic? What is Croatia’s contribution within the project and what is HZ Cargo’s contribution?
Ivan Leskovic: HŽ Infrastructura, the infrastructure manager in Croatia, has intensified track reconstruction projects and in 2013 plans to invest HRK 2.1 billion (275 mil. EUR). Priority sections for the reconstruction are the ones that are on corridor routes, namely Vb corridor linking the port of Rijeka with Hungary, and on Corridor X, which connects Croatia with Slovenia and Serbia. Rebuilding corridor routes is mostly co-funded by EU funds, and along with the restoration of local lines, which is financed from the state budget, it will be necessary to build new sections. Due to insufficient investments in rail infrastructure over the past twenty years, after completion of reconstruction of infrastructure the mobility of goods transport will be improved, the speed of freight trains will increase, and thus the competitiveness HZ Cargo.
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