Банкеръ Weekly

Briefs

LIGHT GLIMMERS IN THE END OF THE TUNNEL

The National Railway Infrastructure Company will seek almost BGN200MN for modernization, repair and construction of a new railroad and equipment in 2008, it became known in the beginning of the week. According to the company's calculations, at least BGN314MN will be necessary for fulfilment of the set aims, but just BGN120MN coming from the State's budget has been ensured so far.
Investments shall be made in three main directions: railroads, energy, and telecommunications. Almost 200 km of railways will be repaired. The priority sections are: Sofia-Plovdiv-Stara Zagora-Bourgas and Sofia-Vladaya-Pernik. One of our main targets is to reduce the time of travelling from Sofia to Bourgas by one hour, and from the capital city to Pernik - by some 12 minutes, the company's Director General Anton Ginev explained.
Hardly anyone doubts that money is necessary for that. It will be just enough to mention that the average density of the railroad network in the country is 68 km per territory of 1,000 sq. km, which places us at the bottom among EU member countries. But that is far from being everything. The cycle of repairs of 2,435 km of railroad sections (35% of all railways in the country) has been disrupted. The fact that a considerable part of the turns have a radius up to 500 m seriously slows down the speed.
The situation with the contact network is not rosier, although that problem is usually being neglected. Electrified railways in the country total 2,860 km. 1,275 km of their conduits are more than 30 years old, 1,073 km are aged between 20 and 30, 356 km - between 10 and 20, and only 156 km - less than 10 years. The supporting copper wires are of poor quality and the isolation of conduits is too old, Stoyan Stoyanov, Director of the Energy department, admitted. In numbers that means that BGN6MN will be needed this year for the investment policy in that division alone, but the State's subsidy has ensured only about BGN4.6MN.
Asked by the BANKER weekly if there isn't a great difference between available and necessary funds, Anton Ginev explained that for 2008 specifically the shortage would be compensated by sale of non-operative assets. In 2007 we managed to get some BGN16MN in that way and now we hope to replenish the fund we need this year by selling assets which do not matter for our work any more, such as the Pioneer station for which we have set an initial price of BGN115.3MN. Lawsuits are still going on for the Serdika station with the Sofia Municipality in order to specify the ownership and its sale cannot start now. But as a whole we expect BGN163MN from sale of such terrains this year, Mr. Ginev said. No doubt, the company has considerable long-term fixed assets as it is responsible for 365 railway stations in the country, and the terrains it owns cost more than BGN300BN as per their tax evaluation. Of course, only a part of them can be sold out and investors' interest is concentrated mainly on those in Sofia and the bigger towns in the country.
However, that will be hardly the most suitable formula to ensure financing for the years 2009, 2010 and 2011. About BGN125MN will be needed in that period for construction and modernization of traction sub-stations, supply of materials and parts for the network, repair of transformer stations, etc. We should necessarily add the money necessary for the development of the National Railway Infrastructure Company, for maintenance and modernization of safety equipment and telecommunications. According to an analysis of a consultancy from the Netherlands, the company will need a total of BGN500MN within that period. Well, some of that amount could be ensured through the managerial team's exotic idea for setting up photovoltaic power stations, but the eco energy would hardly be the panacea for the company's chronic impecuniosity.
The idea to draw an investment loan of BGN360MN is undoubtedly curious. In the words of Maria Chakurova, Director of the Strategic Development and Investment Policy department, intentions for such a credit already meet approval from the ministries of transport and of finance. The positive sides are that fresh money will be quickly invested in railway infrastructure and in that way will reduce the money for current maintenance. The big problem, however, is that the loan should be guaranteed by the State and that will cause serious political polemics. However, National Railway Infrastructure Company insiders have calculated they would not be able to bear the financial burden without such a guarantee.
During the next five years the company will have to pay back BGN85MN from the USD340MN PAL loan from the World Bank. Thus, if there is no guarantee by the budget, the National Railway Infrastructure Company will have to pay between BGN70-80MN more in interest and won't be able to pay the increased instalments during the peak years after the grace period. The last condition for drawing such a credit is not to reduce the infrastructural taxes or if that happens - the State to compensate the respective difference.
The fact that by 2013 the National Railway Infrastructure Company will realize projects worth EUR580MN under the EU's Transport operational programme should not be ignored either. Serious efforts will be necessary for the timely absorption of that money on the part of the company. The most large-scale project is the modernization of the Vidin-Sofia railroad, for which EUR320MN has been earmarked. The aim is to cut down the time for travelling from Vidin to Sofia by more than 2 hours. Currently the trip takes about 5 hours and 10 minutes.
Electrification and reconstruction of the section between Svilengrad and the Turkish border will cost EUR35MN and is also of key importance to the country. With it the entire renovation of the railway from Plovdiv to Turkey's border will be completed. The first stage is already in progress (though half a year late) and the second stage - from Purvomai to Svilengrad - will start in June.
The entire section Plovdiv-Svilengrad-Turkey's border is of strategic importance as it is projected to link our country with the tunnel under the Bosphorus which is under construction at present. It should be ready in 2009 and our railway section must be ready at the same time. Otherwise, the railway traffic might go around our country and pass through Greece, National Railway Infrastructure Company representatives admitted.
The remaining two projects under the EU programme for renovation are for the Sofia-Plovdiv section, worth EUR125MN, and the Sofia-Pernik-Radomir section, worth EUR100MN.
National Railway Infrastructure Company's managerial team has drafted four alternative projects under the Transport programme which could be implemented if due to unforeseen circumstances there is a danger of not utilizing the funds for railway infrastructure. They amount to EUR329MN and include reconstruction of sections along the Mezdra-Gorna Oryahovita (EUR160MN) and Plovdiv-Bourgas (EUR63MN) railroads, doubling and electrification of the Purvomai-Yabalkovo (EUR23MN) railway, and modernization of the Sofia-Dragoman (EUR83MN) section.
Indeed we meet hindrances in handling the documentation of so serious and big projects, but we manage anyway, Maria Chakurova admitted. But we don't have reasons to worry that the money under the programme wouldn't be absorbed in due time.
Undoubtedly, the optimism, demonstrated by the company's managers is worth of esteem. It's good they don't forget even for a moment that the current state of the railroads in the country is tragical. And that the light in the end of the tunnel can hardly be seen yet and at times is very, very dim.

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