Indebted by almost EUR 10 Billion, Hellenic Railways (OSE) is considered one of the companies guilty of the economic chaos which has lately taken power of Greece. The reasons why the Greek Government has decided to sell 49% of the OSE’s shares are complex and vary from inefficient bureaucratic instruments, investments misdirected to salary funding instead of development projects, unfortunate management and even corruption. The OSE’s evolution is reflected in the condition of other state-owned railway companies in Eastern Europe, which, although greatly indebted, continue to receive budget money or credits from private banks that they invest in a non-performing system or salary increase.
The debts of the Greek public sector are monstrous for a state considered to have a mature market economy such as Greece. According to the latest data published by Hellenic officials, the amount varies between EUR 250 and 300 Billion. This huge debt was largely created by state-owned companies, EUR 10 Billion of which by Hellenic Railways. How did this happen?
Statistics show that two major trends occurred in the company’s budget: one was increasing costs with the employees’ salaries, from EUR 240 Million in 2003 to EUR 450 Million in 2008. The company’s board has been run by many different general managers who, although have thought to reduce the number of employees and salary costs, have only managed to perpetuate the problem.
The second trend consisted in the increase in investment budget, as well as misdirection of funds to inefficient and extremely ambitious projects. Under the investment strategy signed with the European Union, Greece should have financed investments by at least 50%. Instead of allocating Greek funds, the Government has chosen to use bank loans for investments, hoping to stimulate the private business and guarantee for those loans. Under the circumstances, banks have competed in granting loans, having no doubt of recovering them with interest, but when they have realised that Greece was no longer capable to pay its debts, they have decided to gradually increase interest. This resulted in a huge debt for OSE, only to put pressure on a visibility action, such as privatisation for the state-owned company to pay for its historic debts. An investigation launched by the Ministry of Finances in 2009 has established the responsible factors for the institution of state guarantees about loans, but has discovered nothing wrong in the government’s balance sheets, feeding the rumours according to which the privatisation would have been planned by banking groups interested in recovering their huge credits and which have been drawn state officials on their side. The leader of the OSE Employees’ Federation Nikos Kytsukis, declared that “for years, different governments have appointed general managers without experience in railway management. They have signed a great number of deals at prices above the market with money coming from loans granted by private investors under non-favourable conditions and yet no corruption investigation has been initiated within OSE”. Other investments have been underestimated, such as the acquisition of modern rolling stock for the 2004 Summer Olympic Games, but whose maintenance costs have forced OSE to sell trains, once the Olympic Games were over, to some foreign operators, such as the Desiro units sold to the Hungarian MAV.
Several sections risk being “put to sleep” by the economic downturn
A compromise solution found by the Greek Government was separating profitable activities from non-profitable activities, such as the establishment of TrainOSE in 2007, responsible for the operation of passenger transport services in Athens area, but which has rapidly accumulated debts of EUR 250 Million (2009) once handed over to the same incompetent managers.
Prospects are not looking good, the different officials at the head of OSE and the resort ministry being applied a hostile treatment by union trades and being confronted with investment freeze given that no bank wished to grant funds to the railway sector anymore. Long-term investment programmes (the Greek railway system development master-plan includes investments of EUR 9.3 Billion by 2017) are under question.
The first signs of railway system crisis are visible. Installations and rolling stock fleets are showing wear problems due to maintenance cost cuts, which, associated with the big number of strikes that blocked trains, have disappointed customers and freight forwarders. Several sections risk being shut down, the IMF agreement stipulating the interruption of services on those lines where incomes are lower then 40% of exploitation costs for more than 3 years. Many sections are already close to this deadline.
by Alin Lupulescu
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