Polish Railways—Towards Privatization
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Feature Transition to Market Economy Polish Railways—Towards Privatization Marcin Lipinski´ modern technologies, and management current subsidy level is much lower than General Economic Situation skills. Direct foreign investment has been in previous years. a major factor in the growth of the last Poland is a democratic, politically stable few years, amounting to $10 billion in Legal Framework of Railway country of 39 million people. Its rapid 1998 and is estimated to reach $20 Operation transition to a market economy and billion in 1999. This is good proof of favourable position at the centre of Europe investors’ growing confidence in Poland’s The legal framework for PKP’s operations is contributing to its business growth. It strong economic fundamentals. is regulated by the Law on State-owned has the largest economy in Central Europe There have also been important changes Enterprise Polish State Railways PKP, with a GDP in 1998 of $145 billion or in infrastructure. An appropriate legal adopted on 6 July 1995. PKP was classified $4000 per capita. Poland enjoys good framework was created to implement as a public transport company providing investment grade ratings from top agencies. national development programmes, services on a market basis, and obtaining The country became a member of the especially construction of motorways and subsidies from the state budget. OECD in November 1996 and joined modernization of some railway lines to The scope of PKP’s activities is described NATO in March 1999. Full EU member- support speeds of 160 km/h. by the law as follows: ship is expected by 2002. An Association Agreement has been • Transport of passengers and goods in The last 10 years have seen fundamental concluded with the EU and negotiations domestic and international traffic political and economic changes in Poland. to join the EU are in progress. Membership • Construction, modernization and In January 1990, radical reforms were of the OECD, NATO and the EU favour maintenance of railway lines launched to develop a market economy. steady economic growth and transformation • Provision of access to the network to Domestic demand was severely dampened of the country. third-party operators at the beginning of the transition, but the • Maintenance of network and rolling situation turned around in 1992 when the stock for reasons of national defence economy returned to growth. During the Changes in Railway Sector • Provision of an internal telecommu- last 5 years, the economy was probably nications network and other activities the fastest growing in Europe with a GDP The first proposals to privatize Polish State providing that they do not restrict the growth rate of 5% to 7% from 1994 to Railways (PKP) were voiced in 1991 when main business of the company 1998. Economic growth is likely to continue the Inter-Ministerial Commission for in 1999, albeit at a slightly slower pace; Restructuring PKP was established to PKP must maintain the railway lines to the forecast GDP growth is 4.5% with transform the railway sector. ensure reliable, regular, safe railway transport inflation dropping to 8%. Unemployment There are two reasons for restructuring while protecting the environment. It also peaked at 16% in 1993 and 1994 and PKP—the requirements of EU Directive has responsibilities to pay pensions to has dropped to about 10% in 1997 and 91/440/EEC, and the financial pressure railway employees and their families and 1998. caused by dramatic declines in passenger to support health care for railway workers. The private sector is the locomotive of and freight revenues. The company is responsible for managing economic growth. Over half (4500) of EU Directive 91/440/EEC does not actually its assets and can transfer or lease some more than 8400 state-owned enterprises apply to Poland because the country is of its assets to other business enterprises. were privatized and the private sector not yet an EU member state. However, However, the Minister of Transport may share of GDP increased from 30% in the aspiration to become a full member veto transfer of assets of national importance 1990 to 65% in 1998. The privatized as soon as possible is a strong stimulus as established by the Council of Ministers. companies include both industrial giants for adopting the necessary measures in PKP may transfer surplus facilities to the and small- and medium-sized businesses, advance of membership. The main points state, local authorities or other organizations. many of which were bought out by of this directive are separate accounting State subsidies to PKP are determined per employees. Privatization is also an important of infrastructure and train operations, and train-km by the annual national budget source of revenue for the state, bringing open access for third-party operators to to cover the difference between the in $2 billion in 1998. Up to 70% of state- the railway infrastructure. railway’s revenues and expenditures. owned assets will be privatized by 2001. The financial pressure results in government There is also a subsidy covering the costs Foreign investors played an important role subsidies to the railway amounting to for constructing new lines of national in the privatization, bringing both money, 13.7% of total revenues. However, the importance and closing unnecessary lines. 20 Japan Railway & Transport Review 21 • September 1999 Copyright © 1999 EJRCF. All rights reserved. Reproduction in whole or in part without permission is prohibited. The costs of maintaining lines not on the list of lines of national importance are Figure 1 PKP Employment borne by PKP. The company charges fees for access to 400 the railway lines. The fees are established 300 337,088 by the Minister of Transport after consul- 308,985 tation with PKP management and the Min- 276,125 261,057 200 248,759 240,635 233,025 226,368 217,962 ister of Finance in relation to the lines of Employees national importance. 100 The railway sector is also governed by 1990 1991 1992 1993 1994 1995 1996 1997 1998 the Railway Transport Law. This law regulates construction and management of railway lines and specifies the system of access fees and the responsibilities of the General Railway Inspectorate (the Figure 2 PKP Freight Traffic body certifying construction and operation 300 of railway lines and rolling stock). The law is consistent with the EU Directives, 250 281.7 especially the requirements for separation 200 227.8 225.3 223.5 227 201.6 214.2 214.7 206.3 of the infrastructure and train operations, 150 Tonne (million) and provision of open access for third-party 100 operators. 1990 1991 1992 1993 1994 1995 1996 1997 1998 Response to Falling Freight and Passenger Revenues The financial situation of PKP has Figure 3 PKP Passenger Traffic deteriorated in recent years due mainly to decreases in coal transport, which 1000 constituted the major part of freight revenues, 800 600 785.5 resulting from lower industrial output, 650.2 548.1 539.9 400 493.7 restructuring of coal mines, the crisis in 465.1 433.1 416.6 400.8 Russia, and weak growth in Europe. 200 In response to falling revenues, PKP Passengers (million) 0 decided to: 1990 1991 1992 1993 1994 1995 1996 1997 1998 • Re-orientate its business towards a market economy • Act to increase revenues • Remain as an independent enterprise Figure 4 State and PKP Subsidies but subsidized by the national budget State subsidies • Re-organize transport on a contract PKP subsidies basis 2 1.82 20 1.55 15.13 16.22 • Privatize some units and create joint 13.47 1.5 17.59 11.59 15 14.27 ventures 8.33 9.23 1 1.23 1.29 6.73 10 0.89 0.5 0.77 5 The basic reasons for the restructuring 0.52 0.56 0 0.39 0 were to solve the financial problems, Percentage of PKP Budget catch up with international technology Percentage of Total State Budget 1990 1991 1992 1993 1994 1995 1996 1997 1998 standards, and play an integrated role in Copyright © 1999 EJRCF. All rights reserved. Reproduction in whole or in part without permission is prohibited. Japan Railway & Transport Review 21 • September 1999 21 Transition to Market Economy the Pan-European Corridors plan (JRTR 14, • 88% of marshalling yards and 55% of also started on modernizing the Berlin– pp. 18–26). shunting yards Poznan–Warsaw–Minsk–Moscow line To achieve the above goals, PKP acted to • 30% of rolling stock maintenance using the company’s own financial adapt itself to a market economy and to workshops resources, state subsidies and loans from rationalize its management. The issues • 13% of electric and 35% of diesel the European Bank for Reconstruction and were complex and involved putting busi- locomotives Development (ERBD), the European ness on a commercial footing, rationaliz- • 17% of passenger carriages and 30% Investment Bank (EIB), and Phare, the EU ing employment, disposing of surplus of freight wagons initiative to provide financial assistance assets, establishing new business units, • 3624-km unprofitable lines to CEE countries. A new economic and and meeting the European standards. • 22% of level crossing operators financial system was introduced from January this year to create positive conditions for further changes, commercialization, First Restructuring (1991-96) Second Restructuring and privatization. PKP uses 105,000 hectares of land that it Restructuring began in 1991 in conjunc- The second stage of restructuring is cannot presently sell because the legal tion with the social and political changes. already quite advanced. ownership is unclear, but the government The main goal was to adapt PKP to a market Originally, the company had been divided recently agreed that PKP should be given economy by changing its management into four divisions based on its operations: the legal right to the land.