World Bank Strategy in the Balkan

World Bank Strategy in the Balkan




The purpose of this report is to propose a strategy for the World Bank intervention in favor of the freight railway service in the Balkan region.

The strategy is elaborated on the basis of paper studies (TIRS and REBIS projects and projects of other donors) and on interviews with railway officials and operators in Romania, Turkey, Austria and Hungary.

A number of physical investment are needed to complete international corridors, to modernize the fleet, to assure the interoperability, to overcome the lack of communication between railways, and also to rebuilt or renew sections of the infrastructure damaged by the war or by years of neglect. However, the physical investment are not enough. The very structure of the railway organization should be restructured and modernized to overcome the financial weakness of the companies and the problems induced by the inherent national characteristics of the traditional railways.

Hereunder we propose actions and related projects that the Bank should promote and finance and

the information on which the proposals are based.



1. Liberalization

1.1. Liberalization before restructuring

1.2 Liberalization along the Corridors

2.Restructuring of the companies

2.1. Separation of the freight service

3. Establishment of internationally operating companies

4. Acquiring new markets

5. Custom controls and border crossing

6. Physical investments

6.1. Interoperability

6.2 Communication between Railways and Customs

6.3 The fleet

6.4 Logistic and equipments

6.5. Infrastructure

6.5.1.Projects for Corridor VI

6.5.2.Projects for Corridor VI

6.5.3. Projects for corridor V


1. The International Railway Transport

1.1Volume and value of goods and the role of the railways

1.2. Railway network in the Balkans

1.3. The National railways and the traffic flows

1.3.1 Albania

1.3.2. Bulgaria


1.3.4. Romania



1.3.7.Bosnia and Herzegovina

1.4 Transport cost by railway

1.4.1 Railways revenues

1.4.2. Prices and costs

1.4.3. The international tariffs

1.4.4. Railway tariffs and competition

1.5. Quality of railway transport

1.5.1. Time of delivery, timetable and delays

1.5.2. Train and wagon tracking

1.5.3. Security of the shipments

1.6. Border crossing

2. Studies and Projects

2.1 Donors

2.2. Regional cooperation

2.3 Projects


1. Liberalization

The first World Bank objective should be the liberalization of the market.

In addition to competition, liberalization means that throughout services could be provided by international operators, who would at the same time establish tariffs, collect haulage revenue, operate terminals. They would operate with their own train crews, locomotives and wagons and therefore they would be accountable for the entire service from the origin to destination. The fragmented approach to service delivery and pricing would thus be eliminated, and rail would be able to compete with other modes.

1.1. Liberalization before restructuring

The most important innovation in railway organization in the Region over the next years will be induced by the necessity to comply with the EU acquis. The regulatory changes have already entailed the separation of infrastructure from operations in Bulgaria and Romania and are leading to the same kind of restructuring in Macedonia and Croatia. One eventual result of institutional separations will be the franchising or even the privatization of most freight services.

Nevertheless, this is not enough. In fact, on the first place not all the countries of the Region are about to access the EU and therefore not all of them are restructuring their railway company. Secondarily, it is unlikely that the restructuring will be carried out at the same pace. Furthermore, according to the EU countries experience, it takes a lot of time to actually liberalize the market after the completion of the restructuring process.

Therefore, the Bank should figure out ‘short cut’ solutions to address the main issues and impediments.

One solution is to separate the process of restructuring of the companies from the process of liberalizing the market, thus allowing private, international companies to operate into the national networks, even if the separation between infrastructure and transport is not yet implemented.

To achieve this solution there is the need of:

-regulatory framework for the liberalization of the freight transit. The regulation should regulate the licensing of locomotive and driver. It could be issued on a national basis but there should be at least a system of reciprocal acceptance and acknowledgement of the licenses, as it happens for vehicles and driver operating on the road network.

-defining the Track Access Charge (TAC) in every state To accelerate the process, an innovative path could be followed: to establish the TAC on the basis of the market instead than on the basis of the costs, as already happens for most of the other service tariffs, as the road and highway toll and the urban transport tickets.

In fact, to define a TAC system following the classical method, a reliable accounting system of the railway company should be already in place. In addition, important policy decisions should be taken: (i) whether or not subsidy the infrastructure, and consequently offer under-cost prices either to national and to international transport companies, as it happens with the road sector; (ii) whether or not cross-subsidy a part or another of the State railways (passenger from freight, or maybe a region from another, a line from another etc.). (It is noted that this second option is excluded by the European Community directive, but countries that are not accessing the EU are not forced to apply the directive and, however, it is very difficult to prove that a cross subsidy system is in place.)

-defining prices for logistic. To be able to operate in a foreign network, a railway company, or a newcomer, needs logistic services for: (i) light maintenance services, (ii) access to shunting tracks, (iii) shunting services. The furniture of these services should be assured to every newcomer and a price system should be established, both for the use of the facilities and for the services offered.

Title of project/component: (1) - Definition of the measures to be taken to liberalize the freight transport on the national rail network (one for each Balkan country)

Components: (i) regulatory framework, (ii) TAC, (iii) prices for logistic

Type of project: TA

Client: Each Balkan country

Liaison with other projects/components: (xxxxxxxx)

1.2Liberalization along the Corridors

While waiting for the complete liberalization, the countries of the region should grant that at least on the PAN-EU corridors free competition be allowed and promoted.

Therefore, as a first action, every national railway company should be invited to establish at least a price for track slots and driving services on the EU corridors. This would allow international companies to begin operations by using the driving services of the national companies.

The countries should establish:

-an international license for operating on the corridor

-the TAC for the corridors. It is not important that the level and the algorithm of the TAC be equal in every state. In fact, the defined TAC of the corridor could be the addition of the TAC in each of the countries. Anyhow, an agreement to harmonize the TAC is advisable.

-the logistic assistance along the corridor.

This would allow international companies to operate with their own locomotives and drivers.

The transport branches of the National Railways should be involved in the liberalization of the corridors to avoid the negative result experienced by EU, where little use of the open access is made. Besides, on the corridors the competition should be opened also to cabotage, otherwise the market would be too small to attract newcomers.

Title of project/component: (2)-Definition of the measures to be taken to liberalize the freight transport along the corridors (one for each corridor)

Components: (i) international license, (ii) TAC, (iii) organization of the logistic assistance along the corridors

Type of project: TA

Client: Countries along the corridors (for example: corridor X, Macedonia, Serbia-Montenegro, Bosnia and Herzegovina, Croatia)

Liaison with other projects/components: (xxxxxxxx)

2.Restructuring of the companies

Another important World Bank objective should be to reduce the railway burden on the state budget.

The restructuring of the companies in the region is currently more focused on complying with the EU acquis than on achieving a real economic stability. Moreover, the economic restructuring of the companies is currently viewed as a mere negative sum of cuttings: of workplaces, of lines, and of services. It is therefore unpopular and difficult to be achieved.

The Bank should propose a positive form of restructuring, developed on the basis of the future feature of the railway services in the country. The restructuring should imply the separations (and eventually privatization) of parts of the national railway in the context of the liberalized traffic and should take into account the likely future raise of wages.

In parallel, the Bank should propose to the governments the establishment of a rationale TAC. As already expressed above (par. 1.1.) this is an instrument of transport policy to regulate (or to cancel) cross-subsidy between freight and passenger services, to subsidy (or not) the railway operators (public or private, domestic or international). In addition, together with the tariff system, the TAC is a means to subsidy (or not) the industries of a region by regulating the price of transport.

The Bank should also propose to the government the establishment of a comprehensive PSO, encompassing the furniture of every commuter service, i.e. including regional railway but also local bus services and urban public transport.

Title of project/component: (3)-Restructuring of the railway service


For the preparation of the project: (i) definition of the railway role in the transport market, (ii) organization and business plan of the infrastructure company, TAC (iii) the regional services, PSO, role of sub-national institution, concessioning of the service (iv) the long distance passenger services, licensing, role of the regulator (v) the freight service, licensing, role of the regulator (vi) feature of the railway operators: role of the national company, number and type of newcomers (vii) organization and business plan of the national transport company.

For the implementation (i) physical investments for the reshaping of the network and the network logistic (ii) physical investments for the reshaping of the transport services and the transport logistic (iii) preparation of the bids for the concession of the regional services (iv) financing of the workforce retrenchment and retraining.

Type of project: TA for the preparation of the project, physical investments and financing of workforce retrenchments for the implementation

Client: All the countries, a part from Serbia-Montenegro, have already completed or are implementing a restructuring of the company (not of the service as a whole). Part of this project could be proposed as an extension or a follow up of the previous projects.

Liaison with other projects/components: (xxxxxxxx)

2.1. Separation of the freight service

To accelerate the process, the World Bank should propose the upfront separation of the freight branch.

This is the first step toward the creation of an independent freight company, provided that this includes the allocation of drivers and the ownership of locomotives and rolling stock. The separation could be easily made before the completion of the restructuring, because usually the freight service is already supported by dedicated headquarters’ offices and maintenance workshops. In addition, drivers’s shifts can be separately set without changing the whole shifts structure, while locomotives are mainly already dedicated.

Moreover, the upfront establishment of the PSO is not essential for the separation of freight service, although the TAC is essential for the preparation of the business plan of the freight branch.

Title of project/component: (4)-Establishment of the freight company

Components: (i) organization, (ii) TAC, (iii) business plan, (iv) ownership

Type of project: TA

Client: All the Balkan countries a part from Romania, where the Freight company already exists.

Liaison with other projects/components: (xxxxxxxx)

3. Establishment of internationally operating companies

The World Bank should encourage the establishment of freight companies able to operate on the international market, to complement the liberalization of the market. One of the method is to build joint ventures or to merge freight branches of national companies of different countries in way to offer international freight services, with the result of the creation of independent companies to be successively privatized.

An important issue to address is the labor contract. Presently all the railway labor contracts are national and only occasionally (for example for shuttle border trains) foreign driver are allowed to operate. This is an impediment for the efficiency of freight international transport in the region, where the distances between borders are quite limited. The change of crews and locomotive should be organized in way to take place at the more convenient marshalling yard within whatever boundaries, where custom operation could also be performed. The possibility for a worker to travel in an another country should be contemplated in the labor contract. A regional common framework contract should be established, and used by public, private, national or multinational companies.

Another impediment for the crew cross-border is the language. In other european countries the problem has been solved by training drivers to learn the neighboring countries languages, but this is an expensive solution more suitable for big companies but not for small newcomers, or for national railways of small countries. The issue should be addressed in a pragmatic way, establishing a lingua franca for the railway in the region and training the train crews only on standardized sentences.

Anyhow, as a first step, some form of cooperation between national railways should be enacted for smoothing the cross border and the dispatching procedures. The analysis on the field prove that lack of organization and human errors produce more delays than the physical impediments. This is particularly felt in the cross-borders operations.

The railways should work for the establishment of common new procedures aimed to facilitate the international traffic. At the main shunting station borders, ‘Quality Circle’ or other Quality instrument should be implemented with the participation of forwarders and employees of the railways operating on the corridors. Those circle would help to overcome the procedure flaw and the most common human errors. Little investments could be proposed, for example for communication or small marshalling equipments.

Title of project/component: (5)-Establishment of international freight company (one for each corridor)

Components: (i) definition of the products (type of service, draft of the timetable, etc), (ii) workforce and assets, (iii) business plan, (iv) ownership, (v) transition phase (the international company is only a commercial body that buys railway services from the national companies)

Type of project: TA

Client: Countries along the corridors (for example: corridor X, Macedonia, Serbia-Montenegro, Bosnia and Herzegovina, Croatia)

Liaison with other projects/components: (xxxxxxxx)

4. Acquiring new markets

The World Bank should encourage the railways to be more client-friendly oriented.

The regional railway have already lost a substantial part of their traffic. The present Balkan countries economical structure changes will result in an additional loss of market share (see also the TACIS and REBIS traffic forecast). Therefore, there is the necessity to attract new markets. To do so, the railways not only should improve their quality, but should also become more client-friendly. A relatively easy and cheap way is the establishment of forms of e-advertising of the products and of e-commerce. Via computer a client would know the price for the transport, pay for it and receive all the documentation needed. Example of this solution are on the web. Unfortunately, no one of the Railway companies of the area have a e-commerce system for cargo.

The best solution for the railways in the area would be an integrated web-site in English, German, French, Russian and the national languages.

The site would promote and sell:

-national services (every company would be independent in setting them)

-international services (in the different forms, common scale, sum tariff and co-traitance or sous-traitance)

-international services along the corridors (see above).

Title of component: (6)-Introduction of new commercial instruments

Type of project: TA component of a major project

Client: Each Balkan country

Liaison with other projects/components: (xxxxxxxx)

5. Custom controls and border crossing

The World Bank should encourage a change in the custom control procedures, to localize all the controls at the origin/destination of the transport or at the marshalling yard. This change, together with the establishment of internationally operating companies should cancel any need for particular border facilities, a part from the transshipment facilities at the border with Moldova.

6. Physical Investments

The World Bank should finance physical investments with the aim to improve the performance of the freight service along the corridors, that is addressing all the issues, including the interoperability, the communication, the fleet and the logistic and equipment, the infrastructure.

As outlined in the previous chapter, the physical investments are viable only in the framework of an extensive restructuring of all the freight system. Therefore, they are not ‘stand-alone’. On the contrary, they should be components of broader projects.

6.1. Interoperability

Interoperability is more a matter of procedures, organization and of training of railway staff than a matter of physical investment. This is particularly valid for the freight service in the Balkan area, where the only break of gauge is at the Romania-Moldova border on the IX corridor and where the discontinuity in the traction system are due only to the non electrification of some sections, while the necessity of ATC systems are not really stringent for trains slow as the freight trains. The procedural and physical solutions should be sought on the basis of an organization of the freight traffic along the corridors that foresee the exchange of crew and locomotives at the more convenient marshalling yards.