Hungary is the only neighbour country of Romania that has privatised railway freight transport. Poland, Bulgaria and Romania as well delay the privatisation although each of the three countries has announced their intention to initiate the privatisation of their national freight transport companies at least three times so far.
According to the latest information, Romanian Minister of Transport Relu Fenechiu declared on 22 January at the end of discussions with the representative of the IMF mission in Bucharest that the state would sell a 51% stake in the national railway freight transport operator CFR Marfă. The deadline the two parties agreed on for the sale is of six months starting with February.
“Discussions focused on the attraction of European funds and the restructuring of the companies with losses as well as the schedule established together. As regards CFR Marfă, although I wouldn’t wish to, we have reached the conclusion that we will have to sell 51% of the company’s shares because the current financial situation can only be recovered through a massive infusion of private capital”, added the minister.
Poland, which has the second largest railway freight transport company in the EU, is not hurrying with the sale, on the contrary, the company has dedicated to an aggressive campaign of acquisitions abroad. Both Bulgaria and Romania delay the privatisation process. In Poland, the national railway freight transport company PKP Cargo has been on the sale list for several years, but the process has been delayed because new privatisation recommendations have appeared and new important players have expressed interests, for example Russian Railways. Currently, the company is 91% owned by the Polish Ministry of Finances. PKP controls 9% of the freight transport. In 2011, the government intended to sell 50% plus one share in PKP Cargo to a strategic investor. Over 10 bidders showed interest in the acquisition.
The Polish press also writes that PKP Cargo’s sale was delayed due to the interest of companies in Russia and Germany as well. However, the government said that it did not delay privatisation and that the company should be ready for sale in 2013.
Russian Railways (RZD) has also shown interest in the railway freight transport operators in Bulgaria, Slovakia and Greece. In turn, PKP Cargo has expressed its intention to participate in CFR Marfa’s privatisation and in the takeover of smaller railway operators in Germany where it owns an operation license. In the first half of the year, PKP Cargo recorded a profit of PLN 99 Million (EUR 24.3 Million), a result similar to that in 2011. The Polish railway operator owns around 3,550 locomotives and 50,730 wagons.
The latest information shows that PKP will sell between 25% and 50% minus one share in PKP Cargo in 2013, the company’s CEO Jakub Karnowski said.
The controlling stake will for now remain in the hands of PKP. Sale of the remaining shares would be carried out.
The transaction will ensure the funds necessary for the payment of debts, but in case it doesn’t take place, PKP will consider issuing bonds to pay for its loans.
In 2013, PKP wants to repay some PLN 1 Billion (EUR 243 Million) of its PLN 4.5 Billion (EUR 1 Billion) debt next year.
BDZ Cargo struggles in debts
Nevertheless, Bulgarian authorities have announced their intention to privatise the railway freight operator BDZ Cargo several times, yet without any success.
In June 2012, the Bulgarian Government opened a tender for the privatisation of the debt-struck BDZ Cargo. BDZ Holding, manager of both passenger and freight operation, hopes to collect BGN 200-250 Million (EUR 128 Million) of the sale, funds that could ensure a second loan from the World Bank. The company needs the money to pay for its pending debts which amounted to BGN 743 Million at the end of April 2012. In October 2011, the nominal value of BDZ Cargo’s assets was estimated at BGN 320 Million.
If in July 2012 six investors including Grup Feroviar Român expressed their interest in the privatisation, in September 2012, the government in Sofia announced that just one candidate, a financial investor, had sent an offer including the requested information. That is why the deadline for submitting offers was extended. In this new attempt of sale, Bulgaria will reduce the starting price, initially set at EUR 102 Million. According to Bulgarian estimates, BDZ Cargo market cost varies between EUR 60 and 130 Million, while Bulgaria’s privatisation agency estimated the company at EUR 97-128 Million. BDZ Cargo has a fleet of 220 locomotives of which 164 are in operation for over 30 years and 4,859 cars, third of which older than 30 years. To take over BDZ’s cargo division, the future buyer will have to invest in the year following the takeover at least EUR 50 Million in the acquisition of new freight transport locomotives and wagons.
The future tender to be organised for the privatisation of BDZ Cargo will have new requirements for the candidates, the head of the Bulgarian Privatisation Agency Emil Karanikolov announced.
The new requirements are for a EUR 250 Million turnover annually for the past three years, instead of the previous EUR 400 Million. For financial companies the requirement will be for a turnover of EUR 700 Million for each of the past three years, instead of the previous EUR 1 Billion.
Bulgaria will lower the initial price tag of BGN 200 Million of the cargo unit of Bulgarian State Railways (BDZ) in the second attempt to sell it, due to the tough conditions in which the company was operating since the beginning of 2012, according to Plamen Dzhurov head of BDZ’ freight division.
The Bulgarian Government through its Privatization Agency embarked on a new campaign to privatize BDZ Cargo in November 2012.
The announcement, posted on the Agency’s site, informs that only strategic and financial investors will be allowed to bid.
Strategic investors must have experience in freight railways transport in the last five years, a license to carry out such services, a safety certificate, and minimum annual re-venues of EUR 100 Million in the last three years.
Financial investors must manage assets and have stakes in other companies for no less than EUR 400 Million annually for the last three years.
Consortiums, offshore companies, and individuals with debts to the State cannot apply.
According to the Minister of Transport Ivaylo Moskovski the money from the privatization would be used to pay off the debt and the rest, along with a loan in the amount of EUR 460 Million the World Bank is willing to grant, would be used for the modernization of the railways.
20% of CFR Marfa’s stakes might be sold
The economic recession has severely hit railway freight transport operators in the east and south-east of Europe and the decreasing volumes as well as the aggressive competition of European giants seem to suffocate every gesture of these smaller operators to reach the surface. CFR Marfă makes no exception although was the only profitable state-owned company in 2007. The years that came brought nothing but losses. Thus, if in 2008 the Romanian state was planning to ask EUR 1 Billion for the sale of CFR Marfa, in the last period privatisation costs have not been revealed, but also intentions of privatisation for the sale of either 20% of shares or the full package of shares. According to the agreement with the International Monetary Fund, CFR Marfa should have been privatised by 31 December 2012.
Polish and Czech investors have expressed their intention in taking over CFR Marfă and the privatisation process is expected to stir the interest of Romanian carriers as well, Constantin Zaharia, the company’s general manager, said.
“We have already begun to have contracts with potential investors. Polish and Czech investors have contacted us and we also hear from domestic investors that they want to talk to us”, said Zaharia during a public debate on privatisation organised by the Romanian Ministry of Transport and Infrastructure (MTI) who fully owns CFR Marfă.
Horaţiu Buzatu, Deputy Secretary General MTI and coordinator of CFR Marfă’s activity and privatisation process, said that the privatisation process of the freight transport operator is made following a strategy which is “rather criticised, but which is not the final document, but the general framework, followed by specific norms.
“First of all, we want to get the best possible price. Our interest is not to get rid of CFR Marfă, but the state to gain as much as possible from this privatisation”, said Buzatu.
In 2012, CFR Marfa’s capital was of EUR 56 Million, balance assets of around EUR 300 Million, debts of EUR 450 Million and annual losses of EUR 50 Million. The Romanian company has a rolling stock fleet of 1,000 locomotives and 30,000 wagons.
According to the latest information, “CFR Marfa will have private management and 20% of its shares will be put to sale. I don’t think that companies with losses should be privatised. First of all, we must have profit and then we can think about privatisation, declared the new Romanian Minister of Transport Relu Fenechiu on 22 December 2012.
Despite multiple problems, CFR Marfa is leader of the domestic railway freight transport market.
With or without losses, with more or less obsolete assets, with for or against privatisation opinions, the one thing to be sure is that these companies need restructuring, revitalisation or privatisation. We can only wait to see if in 2013, as scheduled, or later. Their importance as European railway players is not at all insignificant and the active policies of the European Union show that the years to come will bring a new dawn for railway freight transport, a new beginning after the economic recession.
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