Bulgaria’s railway network is state-owned, as is the largest and predominant operator that uses the rail network – the Bulgarian State Railways (BDZ). In the past 10 years, Bulgarian authorities have taken significant steps to improve the efficiency of the state railway system. Steps have included investments in infrastructure and rolling stock, major reductions in personnel and divestiture of almost all auxiliary activities.

Based on the Railway Act, in 2002 the Government separated the infrastructure and rail service parts of BDZ into two new independent companies in compliance with the main European Union railway regulations. The act also created the base for the opening of the railway infrastructure to competing rail service suppliers.

Bulgaria has so far licensed two private railway carriers – Bulmarket and National Railway Company. They operate in the cargo transport business.

Since the separation into BDZ, operating the passenger and cargo traffic; and National Company Railway Infrastructure (NCRI), taking care of the railroads, the railway sector has gradually improved its performance. However, the infrastructure operator relies mainly on BDZ for revenue and BDZ currently owes the operator about 50 million leva in fees for the use of the railway infrastructure.

Much remains to be done to set the railway sub-sector on a sustainable path. Despite recent measures, the railway remains very fragile financially, mainly because passenger fares are below cost. The new infrastructure access tariff and the accounting separation between the freight and passenger operations of BDZ  limited the cross-subsidy within the company and demonstrated the low efficiency of the passenger services.

The two new railway companies need to sustain their efforts in rationalising the rail network and services and, therefore, improving their productivity.

The Government is partially covering the losses from the uneconomic passenger services through a Public Service Obligation (PSO) contract. While this contract is a positive step in supporting the sector reforms, it may need to be strengthened based on the experience since its initial implementation.

In recent statements, Transport Minister Petar Moutafchiev unveiled plans to improve the national railway system.

He said an overall strategy to develop the national transport infrastructure was almost ready. The methods of financing some projects are yet to be determined. Possible financing sources include the EU Cohesion Fund and credit funds. The aim is to absorb over 800 million leva in funding for the railway infrastructure by 2013.

The total budget subsidy for railway infrastructure in 2006 is 60 million leva (about 30 million euro), including 43 million leva in funding from own sources of the railways. Over 20 million leva of the subsidy will go towards rehabilitating railways damaged by floods in 2005.

Meanwhile, the Transport Ministry is considering a merger between BDZ and the company that operates the domestic railway infrastructure to form a railway holding or consortium. No specific timetable has been approved for this yet, but the goal is to bolster the market share of railway transport.

Within the holding structure, passenger and cargo transportation, and possibly engine maintenance, would be split into separate divisions. The current Cabinet views the decision made in 2002 to split the BDZ into two separate companies a mistake.

The two companies are in a lamentable financial state and their reforms were to be fulfilled through amendments to the Railway Transport Act this year, but they have not yet made it to Parliament.

The preparation of the new texts has been postponed until the end of the year, in order for it to be seen whether or not the measures taken by the two companies’ managements have an effect.

BDZ is about to put an end to the policy of subsidising passenger transport with money planned for cargo transport. That policy used to make the railways uncompetitive as compared to private carriers who only are only occupied with cargo transport.

“Cargo transport will be separated, because otherwise we will lose the competition with the private competitors. Last year, a total of 88 000 tons of cargo was transported and that was 0.4 per cent less compared to 2004,” BDZ executive director Oleg Popov said recently. This decision hides lots of unsolved problems, because if the state fulfils its intention not to grant further subsidies for BDZ’s social functions, the company has to find a way to make passenger transport profit by itself.

A well-known method of achieving this is to close the losing routes. However, this measure will hardly be sufficient, especially considering the numbers of passengers  transported in 2005. The railways last year carried 4.5 million people less than they did in 2004, and it would be naive to believe that this negative trend will have stopped by the end of 2006.

The other way to solve the problem is to sell the non-operating assets. They include real estate in Sofia – the Pioner and Serdika cargo stations (the second one not used currently) – and holiday stations in Bankya (near Sofia) and Varna (on the Black Sea). However, parts of the stations are still public state property.

Whatever measures are taken, the main problem impeding the achievement of quality railway services is the poor condition of the infrastructure.

In 2005, torrential rains and floods seriously damaged the rail roads in large portions of Bulgaria, reducing the speed of trains and  influencing negatively the quality of the service.

The NCRI was not doing well last year, either. For 2005, it reported losses amounting to more than 75 million leva (39 million euro).
Apart from the floods, low revenues from fares and bad working discipline provoked by low salaries, led to the poor financial results (the average working salary in the company is about 150 euro).

The programme for the gradual rehabilitation of the company stipulates that assets (such as land and unoccupied property) that are not needed for the company’s operation are to be sold. The sales will provide money for another priority task – the restoration and modernisation of the major rail roads in the country.

Opportunities will also be sought to attract private capital as well as money from EU funds.

In end-April 2006, the Cabinet approved a draft agreement on the construction of a high-speed railway network in South Eastern Europe. The document regulates co-operation among the countries in the region in railway transport and envisages the building of a prime-quality high-speed network of 16 railway lines for cargo and passenger transport. Five of them will run across Bulgaria, passing through the cities of Sofia, Plovdiv, Stara Zagora, Varna, Bourgas, Gorna Oryahovitsa, Vidin and Rousse.

The railway lines in South Eastern Europe, the quality of which is high enough to be included in the high-speed network as part of the Trans-European Network, the Pan-European Corridors or the South-East railways, will allow a speed of 160km h, reaching 220 km h in some sections by 2020.