railway reform in romania washington, 10 march 2004 v. n. olievschi general director department for...
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RAILWAY REFORM IN ROMANIA
Washington, 10 March 2004Washington, 10 March 2004
V. N. OLIEVSCHIV. N. OLIEVSCHIGeneral DirectorGeneral DirectorDepartment for Railway Department for Railway TransportationTransportation
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Main IdeasMain Ideas The European challenges to reform the RailwaysThe European challenges to reform the Railways
Concepts and principles of the Romanian railway reformConcepts and principles of the Romanian railway reform
Main achievements in the Romanian Railway reformMain achievements in the Romanian Railway reform
Adverse factors to be overcomeAdverse factors to be overcome
Next steps in the Romanian Railways reformNext steps in the Romanian Railways reform
Lessons learnedLessons learned
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The Euro
pean
The Euro
pean
challenges to
refo
rm
challenges to
refo
rm
the R
ailways
the R
ailways
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Călători, Mărfuri, PIB
1990 – 20011990 = 100
Călători (1) (călători km)
Mărfuri (2) (tone km)PIB (la preţuri constante)
Călători, Mărfuri, PIB
1990 – 20011990 = 100
Călători (1) (călători km)
Mărfuri (2) (tone km)PIB (la preţuri constante)
1980-1990
1991-2001
2000-2001
GDP (real growth) 2,3 2,1 1,6
Industrial production 1,8 1,0 0,0
Passengers transport (passengers km)( all transportation modes)
3,0 1,7 1,1
Freight transport (tones km) ( all transportation modes)
1,6 2,7 -0,2
The ratio between The ratio between economical activities / transport necessities in UE-15economical activities / transport necessities in UE-15
The actual transport volumes will double in the next 20 - 40 yearsThe actual transport volumes will double in the next 20 - 40 years
Passengers, Freight, GDP
Passengers (1) (passengers km)Freight (2) (tones km)GDP (constant prices)
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Transport market evolution în European Union between 1970 - 2001
Road Rail Maritime Inland waters Pipes
0
200
400
600
800
1000
1200
1400
1600
1970 1980 1990 1991 1995 1997 1998 1999 2000 2001
0
500
1000
1500
2000
2500
3000
3500
4000
1970 1980 1990 1991 1995 1996 1997 1998 1999 2000 2001
X 1000 mil. tone kmX 1000 mil.passengers km
FREIGHT
PASSENGERS
RailRail
RoadRoad RoadRoad
RailRail
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Why are our competitors in a Why are our competitors in a better position ?better position ?
First objective First objective of the Common Transport Policyof the Common Transport Policy
To create a single, competitive marketTo create a single, competitive marketfor each transportation modefor each transportation mode
Achieved byAchieved byother modes other modes of transportof transport
#
Only Only beginnings beginnings in railwaysin railways
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NrNr Name of DirectiveName of Directive
11 Directive 91/440 on the development of the Directive 91/440 on the development of the Community RailwaysCommunity Railways
22 Directive 95/18 regarding the licenses of the Directive 95/18 regarding the licenses of the railway companyrailway company
33 Council Directive 2001/12 amending Council Council Directive 2001/12 amending Council Directive 91/440 on the development of the Directive 91/440 on the development of the Community RailwaysCommunity Railways
44 Council Directive 2001/13 for the modification Council Directive 2001/13 for the modification of Directive 95/18 regarding the licenses of the of Directive 95/18 regarding the licenses of the railway companyrailway company
European Council Directives (1)European Council Directives (1)
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Nr.Nr. Name of DirectiveName of Directive
55 Council Directive 2001/14 on the allocation of Council Directive 2001/14 on the allocation of railways infrastructure capacity and the railways infrastructure capacity and the certification regarding safetycertification regarding safety
66 Council Directive 2001/16 on the Council Directive 2001/16 on the interoperability of the trans-European interoperability of the trans-European conventional railway systemconventional railway system
77 Council Directive 96/48 on the interoperability Council Directive 96/48 on the interoperability of the trans-European high-speed rail systemof the trans-European high-speed rail system
European Council Directives (2)European Council Directives (2)
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The unique EuropeanThe unique Europeanrailway transport marketrailway transport market
Accelerated market liberalization– 2007 for freight (including cabotage)– 2012 for passengers in international traffic
Competition between railway operators Revolution in the railway operators’ mentality Harmonization in the interoperability and safety
domains Separated passengers and freight transport
networks (regularity and punctuality) Take over a larger percent of the European transport
market
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Romanian Railw
ays
Romanian Railw
ays
Reform
Reform
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Factors resisting changeFactors resisting changefor the economies in transitionfor the economies in transition
Management and employees culture of ‘command Management and employees culture of ‘command and control’and control’
No history in the commercial marketplaceNo history in the commercial marketplace Weak technical status (infrastructure and rolling Weak technical status (infrastructure and rolling
stock)stock) Government budget constrains for transitional social Government budget constrains for transitional social
and track subsidiesand track subsidies Economy in transition (difficult to make predictions Economy in transition (difficult to make predictions
about traffic evolution)about traffic evolution) Political instability and changePolitical instability and change
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Traffi
c volume
Traffi
c volume
Market s
hare
Market s
hare
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Romanian Railways vs. EU-15 (UIC Statistics – 2002)
Germany 141719 72423 69296
France 123263 50036 73227
Italy 69016 23060 45956G. Britain 58100 18700 39400
Romania 25699 17197 8502
Country Mil. Conv. TU Mil. Freight TU Mil. Pass. TU
Spain 32733 13253 19480
Austria 25926 17626 8300
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Romanian Railways vs. New EU Members (UIC Statistics – 2002)
Poland 63863 46563 17310
Romania 25699 17197 8502Cech Rep. 22369 15772 6597Hungary 18283 7752 10531
Slovac R. 13065 10383 2682
Bulgaria 7225 4627 2598
Latvia 15764 15020 744
Country Mil. Conv. TU Mil. Freight TU Mil. Pass. TU
Estonia 9874 9697 177Lithuania 10255 9767 488
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Romania - Mil. tonne km
Pipe
4%
Sea
4%Rail
40%
Road
45%
Inland waters
7%
UE - Mil. tonne km
Rail
8%
Pipe
3% Sea
40%
Road
45%
River
4%
Romania - Mil. Pass. kmAir
7,9%Rail
44,1%Road
35%
River
0,1%
UE - Mil. Pass. km
Buses
9%
Rail
6%
Air
6%Other
1%
Automobile
78%
Railways transportation market share in Romania and EU(before May 1 2004)
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STAGES OF RAILWAY REFORM
1991-1998:
Commercial re-orientation of activities Preparation of the legal framework for the reform
1998:
Main institutional railway reform
1999-2003:
Consolidation of new born companiesNew private operatorsOutsourcing (Subsidiaries of railway companies)
2003-2008Privatization of most of the subsidiariesInter-operability
Consolidation of Romanian Railway business-oriented approach
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The major directions The major directions of Romanian Railways Reformof Romanian Railways Reform
New legal environment
Focused organization and management on main line of business
Permanent actions for consolidating a business oriented railway
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New legal environment– Competition, free access to markets
– Ownership – public, private, or partnerships
– Transparent subsidies for passenger traffic
– Ballanced State financial support for the road and rail infrastructure
– Outsourcing of ‘non core’ activities
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Focused organization and management on main lines of business:
– Infrastructure– Freight
Type of commodity– Passenger
Long distance Short distance
Specific MarketsSpecific Markets
Outsourcing any other activitiesOutsourcing any other activities
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Permanent actions for consolidating a business oriented railway
– Labour adjustment in accordance with the demands of the market
– Cutting down the operating costs (surplus assets, closing units)
– Business plans with specific targets – Business-oriented tariff policy
– Methodology for the calculation of infrastructure access charge access charge (avoid cross subsidy)
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New Legal Fra
mework
New Legal Fra
mework
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Legal Framework for Romanian RailwaysLegal Framework for Romanian RailwaysNr Nr European Council DirectiveEuropean Council Directive Romanian LawRomanian Law StatusStatus
11 Directive 91/440 on the development of Directive 91/440 on the development of the Community Railwaysthe Community Railways
Emergency Ordinance Emergency Ordinance 12/199812/1998
In forceIn force
22 Directive 95/18 regarding the licenses Directive 95/18 regarding the licenses of the railway companyof the railway company
Decision of MTCT Decision of MTCT 778/1998778/1998
In forceIn force
33 Directive 2001/12 amending Directive Directive 2001/12 amending Directive 91/440 on the development of the 91/440 on the development of the Community RailwaysCommunity Railways
Emergency Ordinance Emergency Ordinance 125/2003125/2003
In forceIn force
44 Directive 2001/13 for the modification Directive 2001/13 for the modification of Directive 95/18 regarding the of Directive 95/18 regarding the licenses of the railway companylicenses of the railway company
Order of MTCT Order of MTCT 343/2003343/2003
In forceIn force
55 Directive 2001/14 on the allocation of Directive 2001/14 on the allocation of railways infrastructure capacity and the railways infrastructure capacity and the certification regarding safetycertification regarding safety
Ordinance 89/2003Ordinance 89/2003 In forceIn force
66 Directive 2001/16 on the Directive 2001/16 on the interoperability of the European interoperability of the European conventional railway systemconventional railway system
Decision of Decision of Government 850/2003 Government 850/2003
In forceIn force
77 Directive 96/48 on the interoperability Directive 96/48 on the interoperability of the European high-speed rail systemof the European high-speed rail system
Decision of Decision of GovernmentGovernment 1533 1533//20032003
In forceIn force
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Accordance with European Union directivesAccordance with European Union directives
New companies, free of historical debts, capable to New companies, free of historical debts, capable to
supply transport services essential for societysupply transport services essential for society
PSO contribution from the state budgetPSO contribution from the state budget
Turning to account of exceeding assets for Turning to account of exceeding assets for
capitalization of newly established companiescapitalization of newly established companies
Freight tariffs deregulationFreight tariffs deregulation Establishment of immediate privatization goalsEstablishment of immediate privatization goals
More operators allowedMore operators allowed
Main provisions of the new legal Main provisions of the new legal framework 1998framework 1998
[Governmental Ordinance 12 / 7 July 1998][Governmental Ordinance 12 / 7 July 1998]
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6 Laws6 Laws
5 Ordinances of Government5 Ordinances of Government
29 Decisions of Government29 Decisions of Government
55 Decisions of Ministry of 55 Decisions of Ministry of
TransportationTransportation
New Legal Framework New Legal Framework 2001 - 20042001 - 2004
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Organiza
tion and M
anagement
Organiza
tion and M
anagement
on main lin
es of business
on main lin
es of business
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GENERAL OVERHAULGENERAL OVERHAULOF TRACKOF TRACK
GENERAL OVERHAULGENERAL OVERHAULOF ROLLING STOCKOF ROLLING STOCK
PASSENGER PASSENGER COACHES CLEANINGCOACHES CLEANING
COMMERCIALCOMMERCIALACTIVITIES IN ACTIVITIES IN
RAILWAY STATIONSRAILWAY STATIONS
SIGNALLING AND SIGNALLING AND ELECTRIFICATIONELECTRIFICATION
ROMANIANROMANIANNATIONALNATIONALRAILWAYSRAILWAYS
INFRASTRUCTUREINFRASTRUCTURE
FREIGHTFREIGHT
PASSENGERSPASSENGERS
REAL ESTATEREAL ESTATE
Institutional Evolution of Romanian Institutional Evolution of Romanian Railways 1992 - 1998Railways 1992 - 1998
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CFR CFR-Marfă CFR-Călători SMF SAAF
S N C F R
Railways Reorganization 1998 - 2004
RailwayRailwayMManagementanagement
CompanyCompany
PassengersPassengersCompanyCompany
AssetsAssetsMManagementanagement
CompanyCompany
FreightFreightCompanyCompany
NationalNationalRailwayRailwayCompanyCompany(Infrastructure)(Infrastructure)
28 private operators28 private operators
RailwayAuthority
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The commercial approach in railwayThe commercial approach in railway
SSTTAATT
C F RC F R – Infrastructure Manager– Infrastructure Manager
MarketMarket
PASSENGERPASSENGERRAILWAY RAILWAY
UNDERTAKINGSUNDERTAKINGS
FREIGHTFREIGHTRAILWAY RAILWAY
UNDERTAKINGSUNDERTAKINGS
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Public Service ContractPublic Service Contract Four Year Contracts – annually updated
– Infrastructure– Passenger Services
Safety and quality conditions for infrastructure operation
Level of access charge Number of passenger trains to be operated
annually Quality criteria for each type of train Annual subsidy approved by the Parliament
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Privatiz
ation
Privatiz
ation
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GENERAL OVERHAULGENERAL OVERHAULOF TRACKOF TRACK
GENERAL OVERHAULGENERAL OVERHAULOF ROLLING STOCKOF ROLLING STOCK
PASSENGER PASSENGER COACHES CLEANINGCOACHES CLEANING
COMMERCIALCOMMERCIALACTIVITIES IN ACTIVITIES IN
RAILWAY STATIONSRAILWAY STATIONS
SIGNALLING AND SIGNALLING AND ELECTRIFICATIONELECTRIFICATION
ROMANIANROMANIANNATIONALNATIONALRAILWAYSRAILWAYS
INFRASTRUCTUREINFRASTRUCTURE
FREIGHTFREIGHT
PASSENGERSPASSENGERS
REAL ESTATEREAL ESTATEPr
ivat
ized
Priv
atiz
ed
Institutional Evolution of Romanian Institutional Evolution of Romanian Railways 1992 - 1998Railways 1992 - 1998
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NationalNationalRailwayRailwayCompanyCompany
Railways Branches
Rail WeldingCompany
Signaling Equipment
(production &maintenance)
Heavy Track Machinery
Traction PowerDistribution
Engineering &Design
PRIVATIZEDPRIVATIZED
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2 RailcarsWashing
CompaniesFreightFreightCompanyCompany
Railways Branches
RailcarsWashing
Companies(2 branches)
Container Distribution
by trucks
TransshipmentRailcars
Maintenance& Overhaulof Railcars
Maintenance& OverhaulLocomotives
PRIVATIZEDPRIVATIZED
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PassengersPassengersCompanyCompany
Railways Branches
Sleeping &Restaurant
CoachesOperations
Maintenance& Overhaulof Coaches
(4 branches)
TicketsDistribution Maintenance
& Overhaulof Locomotives PRIVATIZEDPRIVATIZED
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Concrete actio
ns for a
Concrete actio
ns for a
business-orie
nted Railw
ay
business-orie
nted Railw
ay
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Railway Infrastructure Management Rolling Stock Management Train Circulation Planning and Monitoring Freight Operations & Commercial Management Financial and accounting system Computer based ticketing system
$ 70 Million$ 70 Million BudgetBudget
IRIS
Integrated Railway Information System
IT – Cost reduction tool
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Reform of the financial & accounting Reform of the financial & accounting systemsystem
Terms for realization: 2002 - 2006Terms for realization: 2002 - 2006
ObjectivesObjectives– Definition of Profit and Cost CentersDefinition of Profit and Cost Centers– Definition of the cost of each activityDefinition of the cost of each activity– Improved access charge formulaImproved access charge formula– Creation of a cost modelCreation of a cost model
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Reduction of operation cost of infrastructure
CFR S.A.Objectives
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Non-Interoperable (Low Traffic) Railways Lines
~2.800 km (25%) 2% freight
8% pass.
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Interoperable Railways Lines
~8.500 km (75%) 98% freight 92% pass.
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Private operation Private operation of low traffic linesof low traffic lines
2.800 km of lines offered for private operation
3 bidding procedure organized 846 km leased to 9 private operators
(31%) 450 km of track closed The lines which will not be leased will
be proposed to be abandoned
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Labour adjustm
ent
Labour adjustm
ent
according to
the m
arket
according to
the m
arket
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0
50000
100000
150000
200000
250000
sta
ff
salariaţi 202244 197698 185362 178820 155678 141027 137139 133201 106000 105200 104600 97304 88444 74162 67790
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
134134..292 EMPLOYEES LESS – 66.5% 292 EMPLOYEES LESS – 66.5%
Labor adjustmentLabor adjustment
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Percentage of personnel cost in EU - 15Percentage of personnel cost in EU - 15
55%55%
45%45%
23% in Romania
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Main costs elementsMain costs elementsat CFR SAat CFR SA inin 2003 2003
5%
23%6%2%
1%
34%
1% 28%
Energy & water
Infrastructure repairs
Costs with materials
Personnel costs
Depreciation
Operation costs
Financial Costs
Contracts with third parties
Wages – low shareWages – low share
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6%
9%
36%18%
4%16%
11%
Fuel
Repairs
Electrical energy
Access Fee
Personnel Costs
Depreciation
Contracts with third parties
Wages – low shareWages – low share
Main costs elementsMain costs elementsat CFR Cat CFR Căăllăătoritori SASA inin 2004 2004
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4%7%1%
2%
4%
9%
29%21%
3%
6%
8%
6%
Fuel
Repairs
Electrical Energy
Access Fee
Personnel Costs
Depreciation
Accounts with foreign railways
Financial Costs
Material Costs
Operation Costs
Contracts with third parties fordiferent servicesOther Costs
Wages – low shareWages – low share
Main costs elementsMain costs elementsat CFR at CFR Marfă Marfă SASA inin 2004 2004
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0
50
100
150
200
250
300
350
400
450
500
Poland Slovenia SlovacRepublic
CechRepublic
Romania Hungary Bulgaria
Mil.
TU
Con
v
2002
2003
2004
268
366
339
Romanian Railways ProductivityRomanian Railways Productivityvs. New EU Membersvs. New EU Members
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CFR FreightCFR FreightProductivity & personnel evolutionProductivity & personnel evolution
808801
647617
555
655
19.55220.705
26.59127.10429.13228.679
0
100
200
300
400
500
600
700
800
900
1999 2000 2001 2002 2003 2004
0
5000
10000
15000
20000
25000
30000
35000
Productivity (x1000 tone*km/employee) Nr.employees
1999 2000 2001 2002 2003 2004
Productivity (x1000 tone*km/employee) 555 617 655 647 801 808
Nr.employees 28.679 29.132 27.104 26.591 20.705 19.552
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Adverse fa
ctors
Adverse fa
ctors
to be overc
ome
to be overc
ome
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Adverse factorsAdverse factors
Market evolution European costs (rolling stock, fuel, energy, etc.) Low passenger tariffs Passenger subsidy dilemma High cost of infrastructure Cross subsidies Distortion of market prices in transportation
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2188
00
6285
8
1462
70
1114
20
9896
0
9918
0
1051
30
1050
40
9388
0
7651
0
6294
0
7146
2
7180
9
6811
0
6876
3
1428
7
5725
3
3780
9
2817
0
2517
0
2470
4
2717
9
2687
7
2478
9
1970
8
1592
7
1658
4
1719
7
1775
7
1798
2
0
50000
100000
150000
200000
250000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Freight Volume (x1.000 tonnes) Tonnes-km (x1.000.000)
Freight transportation market evolution 1990-2004
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0
50000
100000
150000
200000
250000
300000
350000
400000
450000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Passengers-km (x100.000) Passengers (x1.000)
Passenger transportation market evolution 1990-2004
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GermanyGermany - - 9.0409.040 ItalyItaly -- 7.9287.928 FranceFrance -- 6.8766.876 Great BritainGreat Britain -- 2.9852.985 SwitzerlandSwitzerland -- 2,5652,565 HollandHolland -- 2.2732.273 BelgiumBelgium -- 1.9571.957 AustriaAustria -- 1.9171.917 GreGreeceece -- 1.0791.079 SpainSpain -- 1.4011.401 DenmarkDenmark -- 861 861 NorNorwayway -- 734 734 FinlandFinland -- 431 431 IrelandIreland -- 322 322 Romania (2003)Romania (2003) -- 299 299
Public budget contributions inPublic budget contributions in UE-15 UE-15 inin 2001 2001 [Nera Study, December 2001] [Nera Study, December 2001]
[Million [Million €€]]
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6%
9%
36%18%
4%16%
11%
Fuel
Repairs
Electrical energy
Access Fee
Personnel Costs
Depreciation
Contracts with third parties
Acces Fee has a high Acces Fee has a high shareshare in total costs in total costs
Main costs elementsMain costs elementsat CFR Cat CFR Căăllăătoritori SASA inin 2004 2004
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4%7%1%
2%
4%
9%
29%21%
3%
6%
8%
6%
Fuel
Repairs
Electrical Energy
Access Fee
Personnel Costs
Depreciation
Accounts with foreign railways
Financial Costs
Material Costs
Operation Costs
Contracts with third parties fordiferent servicesOther Costs
Acces Fee has a high Acces Fee has a high shareshare in total costs in total costs
Main costs elementsMain costs elementsat CFR at CFR Marfă Marfă SASA inin 2004 2004
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The total infrastructure charge The total infrastructure charge for Railways Undertakingsfor Railways Undertakings
19919999 - 200 - 20055
1,55 1,61,27 1,23 1,21
2,422,61
3,74
4,334,434,464,56
4,88
4,18
0
1
2
3
4
5
6
1999 2000 2001 2002 2003 2004 2005
EU
RO
/tra
in k
m
Passengers Freight
NECESITY
TO AVOID CROSS-SUBSIDY
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The dilemma of railways subsidyThe dilemma of railways subsidy
Subsidy in 2003 was 0,7 % from GDP The nominal value of subsidy is much
lower than the European average The costs of operation of passengers
services is close to the European level
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Non-biased financial support of the Non-biased financial support of the State in infrastructure development ?State in infrastructure development ?
3535 %% of railway transportation of railway transportation tariffs are allocated tariffs are allocated to cover the access chargeto cover the access chargeof Railways infrastructureof Railways infrastructure
< 10 < 10 %% of auto transportation of auto transportation tariffs are allocated tariffs are allocated to cover the costs ofto cover the costs ofRoad infrastructureRoad infrastructure
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The construction of business-The construction of business-oriented railway system must oriented railway system must continuecontinue
What to do ?What to do ?
The new tradition – The continuous change, The new tradition – The continuous change, innovation and updating work practicesinnovation and updating work practices
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NEXT STEPS
NEXT STEPS
IN ROMANIAN RAILWAYS
IN ROMANIAN RAILWAYS
REFORM
REFORM
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Integration of Romanian Railway Infrastructure Integration of Romanian Railway Infrastructure in the European network based on in the European network based on modernization and significant reduction of modernization and significant reduction of access chargeaccess charge
Participation of Romanian Railway Operators Participation of Romanian Railway Operators on the international logistic chain services by a on the international logistic chain services by a complete business process re-designcomplete business process re-design
The main challenges of the The main challenges of the European integrationEuropean integration
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Lessons learnedLessons learned Once the restructuring process started, do not
stop changes, quick reaction to the market Define mixed solution function of specific
conditions (there is no guarantied successful approach)
Flexibility in implementation, do not ignore the feed back of the system
Cooperation with trade unions