Striking (in) State Railways BDZ: Let's Amputate Bulgaria!
What would you think of a doctor amputating the legs of a crash victim with 95% chance of walking again given the right treatment? I bet you'd say that doctor is a crazy butcher.
This simple metaphor sums up the situation of the tremendously indebted, mismanaged, and robbed Bulgarian State Railways (BDZ) company.
BDZ workers started on Thursday, November 24, 2011, probably Bulgaria's largest railway strike since the 1920s. Their grievances boiled down to the government plan to lay off more than 2 000 of them, and to stop from operation 150 trains, with further criticism of Transport Ministry's intention to sell BDZ Freight Services – the one remotely profitable unit of the state company at present.
The strike ended 23 days later, on December 18, 2011, with the syndicates and BDZ management sealing a new collective labor contract. But both the Bulgarian government, and the unions missed the big picture – which is the need to save Bulgaria's railways, and make them a development tool.
Bulgarian railways workers rally, chanting and carrying posters that read: "Stop the genocide" and "GERB - impotent in governing, potent in police state." Photo by Sofia Photo Agency
The Bulgarian railway strike quickly became a joke. The unions failed to organize a truly mass protest, blaming the state for pressuring the workers. The BDZ management, who were supposed to be the bad guys, and the syndicates, supposedly the good guys, blurred into the chaos which has decided the fate of the Bulgarian railways.
All that aside, discrepancies in strike data of the unions and the government have been quite entertaining. For example, after the first strike the syndicates claimed they stopped from operation 83% of the trains, while government data put the figure at 40%.
In one of the more tragicomic moments of contemporary Bulgarian history the Transport Ministry and the BDZ management kept publishing diverging data. God forbid that a state-owned firm and its parent, a government ministry, have the decency to compare their numbers to avoid looking stupid.
The mind boggles why BDZ's total debts are nearing BGN 800 M with such management gurus and dedicated administration in charge.
But the coolest part in the Bulgarian railway mess has been the reaction of BDZ: "The management of BDZ Holding EAD is stating again that it will not yield any ground from its position to carry out the necessary reforms."
Why the Bulgarian Railways Need Reforms
There are several major reasons the Bulgarian State Railways company is where it is, with its passengers feeling as if being in some of the least fortunate parts of the developing world, instead of in the EU. Or in a time capsule from the early Cold War (on the wrong side, judging by the trains' "interior design"), the major difference being that the likelihood of dying in a train fire in today's Bulgaria is much greater than in the 1950s.
Save for 50 Siemens Desiro trains bought after 2003 (and not fully paid for yet), the newest BDZ trains date back to the 1970s. Photo by BGNES
For all of that one needs to thank all those in charge of the Bulgarian Transport Ministry and the BDZ company in the past 20 years, whose activity apparently boiled down to the following:
First, total mismanagement. For example, nobody in the Bulgarian transport authorities ever got enough brains to figure out that some days you have more commuters than others. Thus, they would keep the same number of trains and railway cars every single day, the result being that you have to climb on top of people to get on a Bulgarian train on Fridays and Sundays, whereas the same trains go empty the rest of the week.
Second, wide-spread embezzlement of state assets combined with rampant theft on the lower levels allowing even the lowest ranking worker to steal "whatever they can get" (no, this is not your Facebook relationship status, this is actually some of the good old take-whatever-you-can-get-from-a-state-company human vice because of which communism didn't pan out).
Third, total failure to attract investment. Contrary to what those in charge would have you believe, decent investments could have been attracted, especially in 2001-2008, but nobody even bothered; every single Bulgarian government would write off BDZ by pouring only enough money to keep the crappy trains running for the impoverished provincial populace.
Fourth, no regard for the well-being of the entire Bulgarian nation – because, as our readers from around the world are well-aware, in self-respecting nations the railways are one of the crucial factors for economic development and trade.
An Epitome of Arrogance
Here is more to getting a better idea of why BDZ is the railway from hell.
Back in February 2008, nine innocent, decent people were charred to death in their sleep on the Sofia-Kardam train, two hours northeast of Sofia near the town of Cherven Bryag.
This night train travels a distance of 650 km in 11 hours (that actually is slightly more than the average BDZ speed of 47.5 km!), taking you from Sofia to some of the dilapidated parts of the EU.
What followed was a weird trial in which a train attendant and a lowest-level chief were sentenced, re-sentenced, acquitted, etc, and eventually in September 2011 the Supreme Appellate Court returned the case for further investigation, with the real culprits – the big bosses of the Bulgarian railways not even being investigated.
Rescue workers carry a charred body, one of the nine victims of the fire in the train traveling from the capital city of Sofia to the northern town of Kardam, February 2008. Photo by BGNES
As if that isn't enough, the arrogance of those in power in Bulgaria – in both 2008 and 2011 – went further. The Transport Ministry had a train spruced up, put the former minister on it, and invited the media on a two-hour trip to Cherven Bryag, the location of the train fire, to demonstrate how convenient and safe the Bulgarian railways are.
To this very day I struggle to fathom the ignorance of those journalists who got on that train and reported how nice it was with no respect whatsoever for the innocent victims' memories. Meanwhile, the incidence of train fires in Bulgaria has grown considerably.
And that's not the whole Bulgarian railway arrogance story. Since it announced the plan for layoffs BDZ has been keeping a bizarre count of how many workers have agreed to be laid off with a miserable severance package of six monthly salaries, and would publish these figures daily with weirdly perverted pride. This is how they do reforms: without any reason, direction, or national goals but by counting layoffs – 245, 410, 798, 955, 1078. They will probably scream out "Bingo!" when they hit 2 000!
And what about the eager message in every email sent by the BDZ press service: "Save the nature - go by train" (Which train? Where?)? Or the attempt of the BDZ management to ban the workers from striking because the new general train schedule entered into force in December?
These perversions is surpassed only by the statement of the reform-excited CEO of BDZ Yordan Nedev who described the company that he is in charge of as "trash" and "skin boil".
"We have a lot of meat to cut from the railways. The fewer people, the more responsibility... right now there are five people in charge of one and the same process. This was done on purpose so that there is no visibility, and everybody can do what they please in the company which right now is trash," he stated recently.
The irony is that Nedev would have a valid point if he hadn't caused a public scandal. Not that this really matters for the big picture.
The Big Picture: Cutting the Branch You're Sitting On
Against this backdrop, what is the management of the Bulgarian State Railways doing to rescue it? Simple: amputation instead treatment. No rational efforts. Cutting the branch you are sitting on. Doing away with the one single division of the Bulgarian State Railways that stands the chance of making the entire company profitable, boosting Bulgaria's regional development, and putting it on the transcontinental traffic map.
BDZ has been technically insolvent every single year since the end of communism, and probably since the 1940s.
In 2002, the Bulgarian railways were divided into two companies – BDZ, the passenger and freight operator (later divided into three subdivisions, including BDZ Passenger Services, BDZ Freight Services and a third unit for locomotives) and National Company "Railway Infrastructure" (NKZI). Each of those two has over 13 000 employees today.
(L-R) Finance Minister Djankov, Transport Minister Moskovski and PM Borisov; all three of them have been involved in major talks with syndicates over the fate of the BDZ railways. Photo by BGNES
The government and the management are now laying off 2 000 workers from BDZ, stopping from operation some 150 trains, and selling whatever they can for scrap. This is supposed to save the company some BGN 20 M annually, which are to be used to pay off BGN 100 M in debts over the next 5 years.
The next step is the privatization of BDZ Freight Services, which has been the one major source of income for BDZ in the past 20 years - a subdivision with high viability when it comes to transporting industrial goods, raw materials, fuel, etc, even with the outdated machinery of BDZ.
For the past 20 years, BDZ Freight Services would turn in a small profit time and again that would be poured into keeping the entire company afloat.
Even though it registered a loss of BGN 3.3 M in the first half of 2011, its loss is down by BGN 6.2 M year-on-year. At the same time, its revenues grew by BGN 29 M to reach BGN 86 M in the first six months of 2011; its losses also grew – from BGN 66.7 M in January-June 2010 to BGN 89.3 M in the same period of 2011.
In November 2011, the two CEOs of BDZ Freight Services Plamen Dzhurov and Ivaylo Ivanov stated their division was now generating a daily profit of BGN 500 000, stressing they had boosted its revenues by some 20% since they took over a year ago, and could increase them further by 30% over the next three months.
Transport Minister Moskovski himself recently said that BDZ Freight Services will end 2011 with a loss of BGN 4-5 M. This is a decent financial result that is not that hard to be improved.
All of this goes to suggest that with the right goal-setting and management BDZ Freight Services has the capacity to be the engine driving the Bulgarian railways towards solvency. One just wonders why the Bulgarian government is so eager to sell the most viable part of the troubled state company.
Interestingly, even though according to Transport Minister Ivaylo Moskovski, the assets of the BDZ Freight Services are worth some BGN 320 M, the estimates about the cash the government can make from this sale remain blurry.
This makes it all the easier to sell it for a dime to some foreign corporation or local oligarch who might be nice enough to provide some covert financial incentives for bureaucrats and politicians. Of course, whoever is in power will declare everything to be transparent – as has been the case with all privatization deals of Bulgaria's vast communist-era industry.
Bulgaria's Transport Minister Ivaylo Moskovski has promised to be "responsible" for the sale of BDZ Freight Services even though it remains unclear what his responsibility might entail. Photo by BGNES.
World Bank "Help"
Anyway, once the privatization happens, this should get the World Bank extremely excited, aroused, and enjoying other feelings with sexual connotation so that it will grant a "very favorable" loan for the Bulgarian railways which by that time will be reduced to the Sofia-Varna and Sofia-Burgas trains, and a couple of ticket counters.
The Cabinet of Boyko Borisov has firmly decided to go for the privatization of BDZ Freight Services, Transport Minister Ivaylo Moskovski assured on December 9.
"We are certainly going to sell BDZ Freight Services, and I am responsible for that. I am not worried in any way about the privatization topic," Moskovski said, refusing to comment on the rumors that the asking price for BDZ Freight Services - the company controlling more than 80% of the Bulgarian railway freight market - will be BGN 200 M.
"I don't wish to comment. I don't know what price BDZ Freight Services will be privatized at. The price is determined by the demand and the market. We have set sufficient high privatization criteria," he stressed.
"Based on their nominal value the assets of BDZ Freight Services are worth BGN 300 - 320 M. I can't say whether the market will "approve" of that, and which way the price will shift," Moskovski elaborated.
In his words, the sale of BDZ Freight Services is the only way to make enough cash to guarantee the long-anticipated BGN 460 M loan from the World Bank to for the ailing Bulgarian railways.
"The sale of BDZ Freight Services has two dimensions. If we sign an agreement with the World Bank, which will provide for a BGN 460 M loan, this will be a loan from the World Bank to the Bulgarian state, not to BDZ. The state is to grant it in some way to BDZ with the sanction of the European Commission. For that to happen, BDZ will have to provide a minimum funding of its own equaling at least 50% of the loan. There is nowhere else to get this money expect the sale of Freight Services," Moskovski declared.
He added that even if the World Bank does not grant the loan, the fresh inflow of cash from the sale of BDZ Freight Services is the only way for the railways to start overcoming its dire situation.
So even if the bliss of the World Bank loan doesn't shine on the Bulgarian railways, everybody will still live happily ever after since BDZ Freight Services will be liquidated. Of course, the money will sink quickly, and in a couple of years, Bulgaria won't have BDZ Freight Services, it won't really have BDZ Passenger Services, either, but whatever is left of the Bulgarian railways will still be accruing large losses because of the way they are run – and the people who run them.
BDZ Freight Services seems to have the potential to be profitable even with its outdated equipment. Photo by BGNES
Grappling with Inefficiency
What is the big deal, you would say – an inefficient business is bound to be optimized. Sure it is. But it mustn't be amputated to the extent of uselessness when 1) it has a potential to be sound; 2) it is no ordinary company whose ownership makes no difference; it's the railways of an entire nation, whose significance goes beyond a single balance sheet, all the way to regional development, international trade, transcontinental traffic, national security, if you please.
Railway freight services might easily be the key to a very serious boost to the country's GDP.
Take the railway link between Bulgaria's Port Varna on the Black Sea and Port Ruse on the Danube – which, in the absence of a canal (not counting the one in Romania), has the potential to be a major international trade route for all of Eurasia, especially with rail now catching up with ocean container trade in efficiency.
If Bulgaria managed to get even 5% of the Asia-Europe trade through this route, it will see a major economic upswing. But it can't. Because for that to happen, the Bulgarian governments should promote it, and they never had the brains, goodwill, or honesty to do so.
Because of the limitations of the Romanian Danube-Black Sea canal, the Bulgarian railway route Varna-Ruse could be very competitive to it. But here is a fun fact you didn't know: the Varna-Ruse railway was the first one in the Ottoman Empire – built in 1867. And it has hardly been modernized ever since.
There are at least half of dozen major intercontinental railway freight routes that can be developed in Bulgaria even going beyond the five Pan-European Transport Corridors.
Map of the new railway Silk Road. Bulgaria could be on its southern route - from China via Turkey. Map from railwaypro.com
As early as 2008 the Beijing-Hamburg railway "silk route" halved the time for shipping cargo by sea. The new 6 000-mile silk route crosses China, Mongolia, Russia, Belarus, Poland and Germany – clearly an indication of the potential of the railways. Why is Bulgaria not the hub for similar trans-continental railway routes given its geographic location?
Because nobody in the Sofia government offices doesn't have the vision for this. Even after in October 2010 China formally invited Bulgaria to join together with Turkey a project for a high-speed railway connection from the Far East to Europe – Bulgaria's government has done little.
Bulgarians can only hope that somebody like China will drag their government into something that makes sense. Of course, by that time, an endless line of distinguished Transport Ministers and other pundits will have killed whatever might be left of the Bulgarian railways.
Whatever is left of the narrow-gauge railway to the Bulgarian Danube port of Oryahovo, which was shut down in 2002! Photo from Bulgarian online railway forum
What's the Opposite of Regional Development?
Take the former narrow gauge railway in Northern Bulgaria from the village of Zlatna Panega, with its large cement factory, via the town of Cherven Bryag, to Port Oryahovo on the Danube. Instead of extending it through the Balkan ridge, thus linking the Danube Oryahovo Ferry with the south, the Bulgarian authorities shut it down in 2002.
Some idiotic bureaucrat decided that it was unprofitable, and bammm! It's gone. Of course it was unprofitable the way it was mismanaged and left unfinished since the 1920s!
But however slow and outdated this line might have been, it was a major means of transportation and freight trade for much of Northwestern Bulgaria, the poorest EU region. Since the railway was shut, the local municipalities have become poorer and more depopulated. The only ones who got richer were several local bus firms.
But the "best part" is the fate of the actual rail tracks. They have been brutally dismantled not by the dignified transport authorities of the Republic of Bulgaria but by local gangs, often organized by Roma clans, who found an easy way of making bucks from scrap. A nice example of how government mismanagement and corruption brings lawlessness and dilapidation for entire regions. You can't make this stuff up!
What Is to Be Done: Act Globally!
The situation at the Bulgarian State Railways is disastrous. But that doesn't mean it should be amputated with rash solutions – unless those who are proposing them have some covert agenda (which is too often the case to be disregarded).
First, the dear World Bank officials who will read this article should explain to Bulgarians why the sale of BDZ Freight Services is one of their conditions for granting a loan for BDZ and how exactly the Bulgarian nation will prosper by eliminating its public railway freight carrier.
There is simply no reason the Bulgarian government should allow BDZ to go bankrupt other than the fiscal extremism of Finance Minister Simeon Djankov, a former World Bank operative himself.
Syndicate leader Petar Bunev (left) is pictured here during talks on Dec 1 with BDZ CEO Yordan Nedev (middle) and BDZ Board head Vladimir Vladimirov. Photo by BGNES
Djankov is a cool dude who keeps saying he "won't give" any more money to BDZ unless he sees "reforms". Boo! The BDZ Board and its chair Vladimir Vladimirov must have been scared to death by that. Which is why they are to make the mess even bigger while getting paid the combined total of the salaries in a medium-sized Bulgarian town - regardless of whether being in charge of a trans-continental company, or of a three-car train from the 1950s.
The additional spending of BGN 100-200 M won't kill the Bulgarian state budget, but failure to provide them could doom the railways. For example, the sum that BDZ owes German bank KfW for its 50 Siemens trains is not that great – EUR 24 M; and Moskovski got the Germans to agree to EUR 12 M for the time being. Raising the budget deficit by 0.1-0.2 percentage points will have a short-term effect. The elimination of BDZ Freight Services will have a long-term effect, and a disastrous one. It will be many times worse than the pornographic sale of the Bulgarian cigarette maker Bulgartabac to God (and some people) know who via the Russian bank VTB.
The Bulgarian government is only supposed to get BDZ through the current difficulties, while focusing on a major strategy to make Freight Services profitable through international trade and to optimize Passenger Services but without leaving entire regions with no transportation.
"Where is the profit of Freight Services to come from – there is no Kremikovtzi, there are no factories, the company is registering losses, not profits," Transport Minister Moskovski commented recently, referring to Kremikovtzi – the Bulgarian communist-era steel behemoth which has now been utterly pillaged after its botched privatization in 1999– an inadvertent reminder of what the fate of BDZ Freight Services will probably look like.
It's totally untrue that there are no factories in Bulgaria. It's only true that there might not be any if the railways are done away with. But the major point here is that the government seems to be thinking in a very limited way.
Why doesn't Bulgaria boost its own railway operator to run trans-continental routes? Why is it better to bestow the freight operator to someone instead of bidding for Silk Road transit? The only reasons for that I can think of are corruption and/or incompetence.
Minister Moskovski assured Bulgaria he will be responsible for the sale of BDZ Freight Services! Wow! What do I, Ivan, a citizen of the Republic, care that some minister whose name won't be remembered in a few months will be "responsible"? First, no official in Bulgaria will ever get sentenced for crime in office. And even if they did – the tremendous damage would have been done.
"Bulgaria, which way are you going without railways?", asks the banner of a protesting railway worker in Varna in March 2011. Photo by BGNES
Privatization is a terrible idea. Clearly, a business would be a lot more efficient if privatized because it will be run by private interests; but this will be for the benefit of the private interests, not for the benefit of the public, and certainly not for those God-forsaken regions of Bulgaria.
Staff optimization does appear necessary. In a 2010 interview Rumyana Mihaylova, HR head at BDZ Holding, said that since the division of the company in 2002, the administrative staff grew by 10%.
What Bulgaria needs is a special public body, including the state, but also NGOs, the media, and local authorities for overseeing the affairs of BDZ given its importance for the national economy. Getting municipalities involved would be crucial – in the case of the now gone Oryahovo railway – the local authorities asked the state to let them save and run the line but BDZ did not agree.
To be fair, Bulgaria's Borisov Cabinet has started to use EU money to modernize some railway lines. However, this has been too limited and not accompanied with major efforts to attract international freight traffic. A couple of modest attempts to bring more freight traffic to Bulgaria have been made in the past few years have been made – such as the ferry between Varna and Russia's Port Kavkaz. But such efforts need to increased hundredfold.
All the talk in Bulgaria has been about getting FDI. Not that we get much FDI as a result. But nobody ever thinks of attracting transit cargo and freight traffic which for such a small country could be a source of GDP boost as important as FDI and foreign tourists.
One wonders, is the amputation of the Bulgarian railways going to help attract foreign investors? Probably not. Not only because they won't be able to enjoy simple transportation services in large swaths of the country but also because - what self-respecting investor would go to a country that can't even maintain the basic infrastructure necessary for a nation's economic survival?
But who cares, let's sell all the rails for scrap, shall we! Lets amputate Bulgaria!
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