Results of Railway Roundtable in Vienna, Austria

1. Between September 26 and 28, 1999, the Bank and the Austrian Transport Society (OeVG) sponsored a Railway Roundtable in Vienna, Austria. The EBRD and the EIB also attended as co-sponsors of the conference. The EU was represented by DGVII. The Roundtable was the ninth in a series of such conferences sponsored by the Bank and the OeVG aimed at improving the contacts and understanding of common issues among developing and developed railways and their governments. It took place at the initiative of several CEE countries.
2. The Roundtable was structured as a series of presentations by the Banks (IBRD, EBRD, EIB) and by Western European agencies and railways (EU, UIC, UK and German railways) in counterpoint to presentations by CEE/CIS railways (Romania, Poland, Hungary, Ukraine and Turkey). Other delegations, including Croatia, Russia, Armenia and Macedonia, attended and participated but did not make formal presentations.
3. The objective of this Roundtable was to stress the linkages among the EU countries and the CEE and CIS countries (especially the “accession countries”). The Western presentateurs stressed what their rail problems had been (or still are) and what has been done to attack them: the CEE/CIS presentations focussed on how their problems had developed and what they are now trying to do to reduce them.
4. The rail problems of the CEE/CIS countries are strikingly similar. First, the collapse of the formerly socialist economies has had a dramatic effect on rail traffic, both because of a reduction in total economic activity and because of a shift in the market share of rail (because of lower production of bulk commodities and an increased valuation of transport quality as opposed to solely transport cost). As a result, rail freight traffic has fallen by at least 50 percent, and in some countries as much as 90 percent where local factors (the Greek embargo and the Kosovo conflict for Macedonia or the Azerbaijan/Turkish embargo for Armenia) were added to the general economic trends. Only in a few countries (Poland) has the freight traffic clearly bottomed out and resumed growing. Passenger traffic has fallen by 30 to 50 percent in all countries, and is still continuing to decline slowly as automobile populations grow.
5. As was true in the Western European countries (indeed in most countries), the response of the governments to the changing role of their railways was too long delayed. Labor forces were not trimmed, rolling stock assets were not adjusted to new traffic levels, prices and service quality were not adjusted to market needs, and the railways began to hemorrhage cash (deficits of one percent of GDP or even higher are not unusual). Unable to make changes to adjust, the railways sank into disrepair, creating a significant fiscal drag on their economies and denying the countries the transport services they need.
6. The conference offered a balanced introduction into the merits, as well as shortcomings of the different railways restructuring models, i.e. it showed what one can accept from the Latin-American, the British and the German approaches. This latter one is favored by many CEE countries, considering it more fit to the railways culture in continental Europe, though far less ambitious than the other solutions.
7. The seriousness of these problems is well known, not least from the two prior CEE/CIS Roundtables the Bank sponsored. There are, however, several new elements that distinguish the outcome of this meeting. First, many governments in the region, notably including Poland and Romania, have concluded that they can no longer carry the fiscal burden from deficitary railways. Second, these governments have already begun to take some definitive action to improve the situation. (For example, the Polish Government has already reduced the PKP labor force from 360,000 workers at the end of 1988 to about 205,000 today while Romania has reduced the labor force on SNCFR from over 190,000 in 1992 to about 115,000 today). Other railways have reduced their staff by lesser amounts. Third, EU policy toward rail reform (caused by the EU’s own rail crisis), has set the stage for mandatory reforms of the accession railways and serves as a general guide for countries wanting their transport sector to have policies consistent with (if not identical to) EU practice. Even railways on the periphery, such as Armenia, have decided to move ahead consistent with European practice.
8. More important, the Governments of Romania and Poland have already begun to act. Romania’s progress is particularly impressive: all laws or decrees are in place, the railway structure has already been changed, measures to deal with labor restructuring are ready, and plans to begin at least some privatization (of the freight company) are committed. Though further behind, Poland has announced plans and passed laws that will produce much the same result. Croatia, Macedonia and Bulgaria have IBRD loans to do their restructuring, and we are completing a Transport Sector Loan to Armenia that has a component focussing on the railway. Even Turkey presented plans for rail restructuring that deserve close consideration.
9. All of the CEE countries (and Armenia and Turkey) strongly asked that the Bank continue to work with them. In fact, the discussions pointed to complementary roles for the World Bank, EBRD and the EIB. IBRD's contribution - based on its comparative advantage - should be focussed on several points: a) expertise in restructuring, especially private sector operation of railways – only the Bank has worldwide experience in these areas and EIB, in particular, has no mandate in these areas; b) only the Bank can finance labor transition schemes and, in the case of Poland and Romania (and eventually Hungary) in particular, EBRD does not have resources on the scale needed to finance their needs alone, while currently they are involved in most of the CEE countries; c) participation in private sector investments is appropriate for both EBRD and IFC to do in parallel, and there is plenty of room for both; and, d) in some cases, Bank experience in environmental issues may be the best. EBRD’s role should be to finance some of the transitional planning and rehabilitation activities and to invest in the privatizable areas. EIB can finance some of the European-wide transport corridor improvements. Of course, only the Bank can work in Turkey.
10. There is a clear need for the Bank to be involved in these countries. First, the railways are not now playing the role in the transport sector that is needed, either for freight or for urban passengers in particular. Second, the fiscal burdens of the railways will have to be curbed if the economies are to continue to grow and if they are to meet the EU requirements. Third, the combined IBRD/IFC experience can be invaluable in promoting the growth of the private sector in these railways. This is not in competition with EBRD or EIB: it is very much a combined mission for the three Banks. All the three IBRD's major railways restructuring projects in the ECA region are implemented in cooperation with EBRD.
11. The Bank needs to follow up this Roundtable in several ways, particularly where a country is demonstrating a strong reform commitment (e.g. Romania). First, the Bank should clarify its willingness to support these critical restructurings. Second, staff and lending resources needed to support the process should be identified. Third, the Bank should follow up with the Governments involved, especially Poland and Romania, to see if we can help them to accelerate their programs.