Badly Needed World Bank Loan for Bulgarian Railways Falls Through

Business | September 16, 2011, Friday // 18:23
Bulgaria: Badly Needed World Bank Loan for Bulgarian Railways Falls Through BDZ CEO Yordan Nedev has made it clear the Bulgarian State Railways cannot hope to get a World Bank loan at present. Photo by BGNES

The World Bank has refused for the time being to a grant a life-and-death restructuring loan for the Bulgarian State Railways BDZ, according to BDZ CEO Yordan Nedev.

Nedev explained Friday that the ailing Bulgarian railways need to demonstrate much better management in order to hope they can get the long-discussed loan

"We need to demonstrate a dramatic improvement of the financial results. Until that happens, there is no point in us pouring money into BDZ," he told Bulgarian news site Mediapool.

Bulgaria's state-owned passenger railway operator BDZ has been traditionally in a horrendous financial condition in the past 20 years.

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.

Mediapool says BDZ CEO Nedev did not explain how exactly the company can demonstrate a dramatic improvement of its results.

He did say, however, that by the end of 2011 the state company can make about BGN 10-13 M by ridding itself of outdated assets such as railway cars, spare parts, etc.

As part of the company's restructuring efforts, 600 BDZ employees will be transferred into a cleaning firm that will receive a three-year contract for BGN 14 M. Another 250 employees will be transferred to work at security firms guarding BDZ properties.

BDZ has already sent 200 of its employees to work in a joint venture together with Tip-Top Courier, a shipping company.

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 process for the privatization of BDZ Freight Services has not been organized yet," Nedev said, adding the only thing clear at present was that BDZ Freight Services' assets are valued at about BGN 320 M.

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.

Last week 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.

BDZ intended to up its passenger prices by 5% in the summer of 2011 but the measure has not been approved by the Transport Ministry yet.

Bulgaria's railway unions have been fiercely opposed to all moves of the present government, slamming BDZ CEO himself, after Nedev was appointed in the spring without prior experience in the railway sector. The syndicates have threated new protests over the possibility of massive layoffs, and have been vehemently against the loan deal with the World Bank which seems to have fallen through at least for the time being.

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Tags: Bulgarian State Railways, BDZ, railways, Ivaylo Moskovski, Transport Minister, World Bank, loan, privatization, Privatization Agency, Privatization and post-Privatization Control Agency, freight, BDZ Freight Services, trade unions, syndicates, Yordan Nedev, National Company "Railway Infrastructure"
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