Railways in the new EU

Change is coming to central Europe's railways, but slowly

Inexorably, western Europe's railways have seen their share of the freight market shrink. That has happened also in the new countries of the European Union farther east. Yet rail there still carries over 30% of goods. So the launch of a tender next week to privatise Slovakia's rail-freight company, ZSSK Cargo, is sparking interest from some big names in the business, not least Railion, the freight arm of Germany's Deutsche Bahn.

The railways of what was once the Soviet block have undergone wrenching changes since then. Formerly monolithic, vertically-integrated systems designed to shift bulk commodities (and car-less people), they have seen their share of traffic drop by half since 1990, as heavy industry collapsed and car ownership increased. Bloated workforces have been slashed, and infrastructure ownership has been separated from train operations to allow competition. Yet nearly all of the region's railways are still state-owned and need wads of cash to carry out a backlog of maintenance and investment necessary to bring them up to EU standards.
Estonia has moved fastest: in 2001 it sold its entire rail network to an international consortium of investors. Private money has been ploughed into infrastructure. Productivity and profits have risen. Yet things are not all rosy. New railway legislation, designed to bring in new operators, has allowed a handful of Russian firms tied to Severstal, a big steel producer, to snap up over half of the infrastructure. One of these even sued the earlier company, Eesti Raudtee (Estonian railways), for allegedly over-charging for use of its track, and has not paid its bills since January. Russian carriers were bound to muscle in, as oil exports account for the bulk of Estonia's rail freight. But liberalisation, says Ed Burkhardt, Eesti Raudtee's boss, "has not gone according to plan."

In Poland, liberalisation has not gone far enough. Once described by the OECD as a "state within a state, with its own schools and hospitals", PKP, the national railway company, is an outmoded behemoth. True, it has trimmed its headcount sharply and unbundled its assets. But it has done little to streamline its operations, which will mean closing loss-making regional passenger lines and bolstering its more attractive freight unit. There are plans to privatise the cargo business, but bidders could be deterred by the high track-access fees. These could be cut if PKP's overmanned infrastructure arm were cut first. There is little chance of that: on June 6th, the unions will decide whether to strike in the hope of halting privatisation and slowing restructuring.

Nor will PKP's fortunes improve if the bulk of Poland's transport investment goes on roads, as it well may, given how few motorways there are. Brussels talks of heavier tolls on lorries, and dreams up trans-European rail networks. But "look at the new members' infrastructure plans," laments Johannes Ludewig, of CER, a lobby group for the EU's main railway companies, "and rail is losing out to road."

Yet Slovakia's rail-freight company is hopeful. It says it expects to carry 85% of the 900,000 cars a year which Slovakia will produce by 2008. In a country fast becoming the Detroit of Europe, ZSSK Cargo's privatisation could be quite a success.