RAILWAY REFORM IN ROMANIA

1

• RAILWAY REFORM IN ROMANIA

V. N. OLIEVSCHI General Director Department for
Railway Transportation
Washington, 10 March 2004
2
Main Ideas

• The European challenges to reform the Railways
• Concepts and principles of the Romanian railway
  reform
• Main achievements in the Romanian Railway reform
• Adverse factors to be overcome
• Next steps in the Romanian Railways reform
• Lessons learned

3
The European challenges to reform the Railways
4
The ratio between economical activities /
transport necessities in UE-15
Passengers, Freight, GDP
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
Passengers (1) (passengers km) Freight (2) (tones
km) GDP (constant prices)
The actual transport volumes will double in the
next 20 - 40 years
5
Transport market evolution în European Union
between 1970 - 2001
Road
Road
X 1000 mil. passengers km
X 1000 mil. tone km
P A S S E N G E R S
F R E I G H T
Rail
Rail
Road Rail Maritime Inland
waters Pipes
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Why are our competitors in a better position ?
First objective of the Common Transport Policy
To create a single, competitive market for each
transportation mode
Only beginnings in railways
Achieved by other modes of transport

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European Council Directives (1)
Nr Name of Directive
1 Directive 91/440 on the development of the Community Railways
2 Directive 95/18 regarding the licenses of the railway company
3 Council Directive 2001/12 amending Council Directive 91/440 on the development of the Community Railways
4 Council Directive 2001/13 for the modification of Directive 95/18 regarding the licenses of the railway company
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European Council Directives (2)
Nr. Name of Directive
5 Council Directive 2001/14 on the allocation of railways infrastructure capacity and the certification regarding safety
6 Council Directive 2001/16 on the interoperability of the trans-European conventional railway system
7 Council Directive 96/48 on the interoperability of the trans-European high-speed rail system
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The unique Europeanrailway 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 Railways Reform
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Factors resisting changefor the economies in
transition

• Management and employees culture of command and
  control
• No history in the commercial marketplace
• Weak technical status (infrastructure and rolling
  stock)
• Government budget constrains for transitional
  social and track subsidies
• Economy in transition (difficult to make
  predictions about traffic evolution)
• Political instability and change

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Traffic volume Market share
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Romanian Railways vs. EU-15 (UIC Statistics
2002)
14
Romanian Railways vs. New EU Members (UIC
Statistics 2002)
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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 companies New private
operators Outsourcing (Subsidiaries of railway
companies)
2003-2008
Privatization of most of the subsidiaries Inter-op
erability Consolidation of Romanian Railway
business-oriented approach
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The major directions of 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
Specific Markets

• Infrastructure
• Freight
• Type of commodity
• Passenger
• Long distance
• Short distance

Outsourcing 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 (avoid cross subsidy)

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New Legal Framework
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Legal Framework for Romanian Railways
Nr European Council Directive Romanian Law Status
1 Directive 91/440 on the development of the Community Railways Emergency Ordinance 12/1998 In force
2 Directive 95/18 regarding the licenses of the railway company Decision of MTCT 778/1998 In force
3 Directive 2001/12 amending Directive 91/440 on the development of the Community Railways Emergency Ordinance 125/2003 In force
4 Directive 2001/13 for the modification of Directive 95/18 regarding the licenses of the railway company Order of MTCT 343/2003 In force
5 Directive 2001/14 on the allocation of railways infrastructure capacity and the certification regarding safety Ordinance 89/2003 In force
6 Directive 2001/16 on the interoperability of the European conventional railway system Decision of Government 850/2003 In force
7 Directive 96/48 on the interoperability of the European high-speed rail system Decision of Government 1533/2003 In force
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Main provisions of the new legal framework
1998Governmental Ordinance 12 / 7 July 1998

• Accordance with European Union directives
• New companies, free of historical debts, capable
  to supply transport services essential for
  society
• PSO contribution from the state budget
• Turning to account of exceeding assets for
  capitalization of newly established companies
• Freight tariffs deregulation
• Establishment of immediate privatization goals
• More operators allowed

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New Legal Framework 2001 - 2004

• 6 Laws
• 5 Ordinances of Government
• 29 Decisions of Government
• 55 Decisions of Ministry of
  Transportation

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Organization and Management on main lines of
business
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Institutional Evolution of Romanian Railways 1992
- 1998
GENERAL OVERHAUL OF TRACK
INFRASTRUCTURE
FREIGHT
GENERAL OVERHAUL OF ROLLING STOCK
PASSENGERS
PASSENGER COACHES CLEANING
REAL ESTATE
COMMERCIAL ACTIVITIES IN RAILWAY STATIONS
ROMANIAN NATIONAL RAILWAYS
SIGNALLING AND ELECTRIFICATION
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Railways Reorganization 1998 - 2004
Railway Authority
S N C F R





Railway Management Company
Freight Company
National Railway Company (Infrastructure)
Passengers Company
Assets Management Company
CFR
CFR-Marfa
SMF
CFR-Calatori
SAAF
28 private operators
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The commercial approach in railway
Market
S T A T
PASSENGER RAILWAY UNDERTAKINGS
FREIGHT RAILWAY UNDERTAKINGS
C F R Infrastructure Manager
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Public 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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Privatization
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Institutional Evolution of Romanian Railways 1992
- 1998
GENERAL OVERHAUL OF TRACK
INFRASTRUCTURE
FREIGHT
GENERAL OVERHAUL OF ROLLING STOCK
PASSENGERS
Privatized
PASSENGER COACHES CLEANING
REAL ESTATE
COMMERCIAL ACTIVITIES IN RAILWAY STATIONS
ROMANIAN NATIONAL RAILWAYS
SIGNALLING AND ELECTRIFICATION
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Railways Branches
National Railway Company
Rail Welding Company
Signaling Equipment (production maintenance)
Heavy Track Machinery
Traction Power Distribution
Engineering Design
PRIVATIZED
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Railways Branches
Railcars Washing Companies (2 branches)
2 Railcars Washing Companies
Freight Company
Transshipment Railcars
Container Distribution by trucks
Maintenance Overhaul of Railcars
Maintenance Overhaul Locomotives
PRIVATIZED
34
Railways Branches
Passengers Company
Maintenance Overhaul of Coaches (4 branches)
Sleeping Restaurant Coaches Operations
Tickets Distribution
Maintenance Overhaul of Locomotives
PRIVATIZED
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Concrete actions for a business-oriented Railway
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IT Cost reduction tool
IRIS Integrated Railway Information System

• 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 Budget
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Reform of the financial accounting system

• Terms for realization 2002 - 2006
• Objectives
• Definition of Profit and Cost Centers
• Definition of the cost of each activity
• Improved access charge formula
• Creation of a cost model

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CFR S.A. Objectives
Reduction of operation cost of infrastructure
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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 of 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 adjustment according to the market
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Labor adjustment
134.292 EMPLOYEES LESS 66.5
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Percentage of personnel cost in EU - 15
55
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23 in Romania
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Main costs elementsat CFR SA in 2003
Wages low share
46
Main costs elementsat CFR Calatori SA in 2004
Wages low share
47
Main costs elementsat CFR Marfa SA in 2004
Wages low share
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Romanian Railways Productivity vs. New EU
Members

2004
2003
366
339
2002
268
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CFR FreightProductivity personnel evolution
1999 2000 2001 2002 2003 2004
Productivity (x1000 tonekm/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 factors to be overcome
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Adverse 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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Freight transportation market evolution
1990-2004
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Passenger transportation market evolution
1990-2004
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Public budget contributions in UE-15 in 2001
Nera Study, December 2001
Million

• Germany - 9.040
• Italy - 7.928
• France - 6.876
• Great Britain - 2.985
• Switzerland - 2,565
• Holland - 2.273
• Belgium - 1.957
• Austria - 1.917
• Greece - 1.079
• Spain - 1.401
• Denmark - 861
• Norway - 734
• Finland - 431
• Ireland - 322
• Romania (2003) - 299

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Main costs elementsat CFR Calatori SA in 2004
Acces Fee has a high share in total costs
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Main costs elementsat CFR Marfa SA in 2004
Acces Fee has a high share in total costs
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The total infrastructure charge for Railways
Undertakings1999 - 2005
NECESITY TO AVOID CROSS-SUBSIDY
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The 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 State in
infrastructure development ?
35 of railway transportation tariffs are
allocated to cover the access charge of Railways
infrastructure
lt 10 of auto transportation tariffs are
allocated to cover the costs of Road
infrastructure
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What to do ?

• The construction of business-oriented railway
  system must continue

The new tradition The continuous change,
innovation and updating work practices
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NEXT STEPS IN ROMANIAN RAILWAYS REFORM
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The main challenges of the European integration

• Integration of Romanian Railway Infrastructure in
  the European network based on modernization and
  significant reduction of access charge
• Participation of Romanian Railway Operators on
  the international logistic chain services by a
  complete business process re-design

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Lessons 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

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Thank you for the kind attention !
Vasile Olievschi e-mail olievski_at_mt.ro