The crisis at the Bulgarian State Railway company BDZ is worsening as Transport Minister Ivaylo Moskovski declared it to be "technically insolvent."

"BDZ is in a technical bankruptcy, and we are now faced with a huge challenge to take actions that can help heal the company," the Transport Minister declared after Thursday's meeting with syndicate leaders chaired by Prime Minister Boyko Borisov and Finance Minister Simeon Djankov.

Bulgaria's major trade unions continue to threaten an all-out railway strike as little compromise on their demands has been reached with the government.

Moskovski assuaged fears that the state company will run out of money to pay the salaries of its employees. He said the Transport Ministry is mulling the shutting down of some railway lines along routes where alternative transport means can be employed with the help of State Executive Agency "Automobile Administration", a subdivision of the ministry.

"The talks between the syndicates and the BDZ management will continue next week as well," the Minister of Transport declared.

Vladimir Vladimirov, Chair of the Board of BDZ stated in turn that the government is making progress with a reform package, and that the major concern of the unions for a new collective labor contract is only one of the issues on the agenda.

"Our goal is to carry out the reforms and sign a collective labor contract so that in 2012 BDZ won't generate losses. If our talks continue, I think we will reach an agreement," he declared.

"BDZ is incapable of paying old debts as well as of covering its operational losses. The first step for saving the company will be not to generate operational losses in 2012. We need to optimize all activities in order to free funding, and cover old debts," Vladimirov explained.

At the same time, however, the syndicates countered that hardly any progress has been reached on their demands after Thursday's meeting with Prime Minister Borisov.

According to the President of the Confederation of Independent Bulgarian Syndicates KNSB, the unions are inclined to re-sign the old labor contract which was valid until 4 months ago but that would be the extent of their concessions.

With respect to the reports that the Transport Ministry mulls the "optimization" of over 180 trains or railway lines, the syndicate leader said that the economizing of BGN 25 M will be completely insufficient to improve the solvency of the BDZ company.

He made it clear that the trade unions are against such "optimization" measures simply because they would not improve the financial situation of the railways but will deprive entire regions of Bulgaria of basic railway services.

In addition to the looming general strike, the situation at the Bulgarian railways is worsening on all fronts after two days ago, Transport Ministry sources revealed that BDZ was about to collapse since German bank KfW demanded back 50 diesel and electric Siemens trains bought by the Bulgarian government after 2003 because the BDZ management had violated the purchase contract and had not paid its installments since 2010.

Last week, Finance Minister Simeon Djankov revealed the massive debts of the BDZ company total BGN 771 M. Of those, BGN 531 M are debts to financial institutions. This revelation came in the wake of an announcement in September 2011 that for the time being the World Bank has refused to grant the Bulgarian railways an urgently needed loan of BGN 460 M, which was negotiated in December 2010.

Another major issue of dispute on the agenda is the proposed privatization of BDZ Freight Services, which is traditionally more profitable than the passenger services of the state company.

Moskovski vowed to keep up the dialogue and consultations with the syndicates as the privatization procedure for BDZ Freight Services is going on.

The syndicates tend to disagree by stressing they are not convinced that the sale of the freight services department is the only way to raise the badly needed cash for the Bulgarian State Railways.

Raising several hundred million BGN is necessary if BDZ wants to receive a massive, BGN 460 M loan from the World Bank for restructuring and repayment of old debts.

Bulgaria's railway syndicates announced in September they planned a strike in early October 2011 over a number of issues, including the news that a badly needed World Bank loan for state railway company BDZ has fallen through.

The major grievances of the railway unionists and laborers include the failed negotiations with the government for the signing of a new collective labor contract, the refusal of the World Bank to grant a massive loan for BDZ, and what is said to be measures on part of the government to implement massive layoffs from the railways in the near future.

Unionists say the entire railway system in Bulgaria is "in panic" as some 2000 people are to be laid off from BDZ Passenger Services and BDZ Freight Services.

The railway unions' strike announcement came a day after BDZ CEO Yordan Nedev announced that the World Bank has refused for the time being to a grant a life-and-death restructuring loan for the Bulgarian State Railways BDZ.

Since December 2010, when a preliminary loan agreement in the form of a memorandum with the World Bank was signed, the Bulgarian government had been hoping to get a loan of BGN 460 M for BDZ, together with a loan of BGN 160 M for the National Company "Railway Infrastructure", from the World Bank for badly needed reforms.

However, the reform attempts have been countered by the trade unions as they threatened to lead to massive layoffs of the state-employed railway workers (estimated by the unions at as many as 7 000 people).

Thus, in March 2011, the Bulgarian government was forced by an imminent railway strike to back out of some of its reform plans. The following months saw the replacement of the Transport Minister and the BDZ CEO.

The Bulgarian government had planned to grant BDZ a loan of BGN 140 M, counting on receiving back the money from the expected World Bank loan. The rest of the WB credit was to be utilized for covering the railways' mounting debts as the company is said to be nearing bankruptcy even though it has reduced its losses over the past two years.

According to Nedev, the end of 2011 the state company can make about BGN 10-13 M by ridding itself of outdated assets such as railway cars, spare parts, etc.

Nedev has confirmed the intention of the Bulgarian Transport Ministry to go for the privatization of BDZ Freight Services, first announced in August 2011.

The freight services of the Bulgarian state railways have traditionally been its more profitable unit, and past governments have used freight revenues to cover mounting deficits in the passenger services.

Earlier in September, Bulgarian Transport Minister Ivaylo Moskovski said the privatization could take about 6-12 months.

Unlike BDZ, however, Bulgaria's National Company "Railway Infrastructure" is expected to get its BGN 140 M loan from the World Bank because it is not going to cover old debts with the money but will invest them in new railway network equipment.

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