Railway stations might be organised as a separate unit under the wing of Bulgaria’s State Railways (BDZ).

Transport and Communications Minister Petar Moutafchiev hinted at the change at a railway forum  held in Veliko Turnovo on October 9. At present the state-owned National Railway Infrastructure Company (NRIC) owns railway stations. The NRIC acts as a separate unit and is in charge of all of BDZ’s public property.

The change stems from BDZ’s economic performance, according to Moutafchiev.

Since Bulgaria became a democracy in 1989, BDZ has been losing money, enjoying never-ending and ever-rising subsidies from the state budget. Today, when most previously state-owned giants have been sold, BDZ together with Bulgaria Air and Bulgartabac continue to be a burden on taxpayers while arguments about its efficiency erupt almost every week.

In the first nine months of 2006, BDZ accumulated 158 million leva in debt. Two weeks ago, the Government allocated BDZ an additional 20 million leva. BDZ will use 15 million leva to pay VAT in order to release from customs nine diesel, German-built Siemens trains it has purchased.

What Moutafchiev suggested follows the logic of a business. Parliament’s transport committee chairperson Yordan Mirchev said that BDZ and NRIC should find the market mechanisms for their survival by themselves.

The railway stations are one of the most attractive assets of  NRIC. Railways stations are used by thousands of people every day, promising a venue for thousands of potential customers. These facilities may be converted into commercial areas, an avenue that has not yet been explored. The Sofia central railway station and stations in Stara Zagora, Plovdiv, Gorna Oryahovitsa, Varna and Bourgas have been kept aside from such commercial initiatives, not counting the small international fast food chain located in the Sofia station.

If the stations are given on concession, the concessionaire would have the motivation to keep them in good shape and improve service. BDZ claims it has not developed the stations because of a lack of funds.

On paper, Moutafchiev’s idea looks good. However, it is just an idea. No one knows what will happen with it when the draft bill is tabled in Parliament. A debatable issue is what should happen with the new unit that will unite the railway stations. Moutafchiev did not say whether the new unit would still be owned by the state or if it would be put on sale. The new unit might be tempting for any private investor. But if the new unit remains under Government control, the whole idea might be pointless.

Moutafchiev announced his idea as part of his efforts to cut BDZ’s debt. With the high revenues that the new unit would generate, Moutafchiev obviously hopes to find a new financial source for the company’s existence.

Privatising BDZ at present seems off the Government’s agenda. On the contrary, the state plans to invest more in the railways.

Several months ago it became clear that 2.6 billion leva were needed for improving the conditions in Bulgaria’s railways. A week ago, BDZ said it would ask that the Government to extend guarantees for a 200 million leva loan that will be sought in 2007 to finance the purchase of train cars and engines. The company plans to borrow a further 211 million leva in 2008. BDZ plans to borrow a total 2.6 billion leva by 2020. In September, Moutafchiev said his ministry had developed a plan for obtaining the credit.

If a financial institution grants such a loan, talks on the  privatisation of BDZ can become real after 2020 because no private investor would like to inherit such debt.

The core of BDZ’s problem, however, is social. In Bulgaria, railway transport for years has been considered as the transport for low-income people. It is the cheapest form of transportation in the country because of state-subsidised tickets.

The other social aspect are BDZ employees. Thousands of people are employed by the state giant. These people started their careers in BDZ with the idea that they would end their working lives there. With few qualifications and little enticement for re-training, they enjoy not enormous, but regular, state-guaranteed salaries and state-guaranteed social benefits. If BDZ goes private, these people would likely lose their jobs.

Higher ticket prices and massive layoffs are undertaken lightly by any government. They often result in social protests. And the nice picture of Bulgaria’s low unemployment rate, so often drawn by the Labour and Social Policy Minister Emilia Maslarova, would be different.

The answer to these issues may be within BDZ itself: cargo transportation services. The railways are the cheapest way for a company to transport goods across Bulgaria. Today, when almost 99 per cent of Bulgaria’s industrial enterprises are private, and other sectors  of the economy are developing fast, transportation has remained one of the country’s drawbacks. Since BDZ is the only railway company in the country, companies are forced to use its service. But the railway infrastructure fails to meet the growing demand.

In September, BDZ head Oleg Petkov said that because of the five per cent increase of cargo transport in 2006, BDZ was no longer capable of servicing its corporate clients. BDZ needed 8200 wagons while at present the company had 7800, Petkov said. The state-owned company needed at least five locomotives and 94 wagons more every day to meet the demand.

Projections for 2007 showed an even worse picture. Pertkov said that next year he expected 1500 wagons to be under repair, which would leave BDZ with 6300 wagons in the first year of Bulgaria’s EU membership. That would seriously hamper the country’s competitiveness in a new market environment.

The Branch Chamber of Ferrous and Non-Ferrous Metallurgy made things even worse for Moutafchiev and Petkov by saying last week that BDZ was precipitating a crisis by not providing enough cargo services.