BULGARIA'S SINKING RAILWAYS

For decades, one cabinet after another has avoided cutting too deep into the Bulgarian state railways BDZ, fearing the backlash from railways workers numbering in the tens of thousands. As a result, BDZ has accumulated 700 million leva and remains one of the largest employers in the country, even after the railway infrastructure was spun off in a separate company.

To break even, BDZ needs to lay off 2000 workers, cut about 150 lines and hike prices by between nine per cent and 15 per cent, all by the year's end, under the Government's current plan. That would stem the bleeding and save the company about 50 million a year, enough to prevent another loss-making year, which in turn would allow BDZ to apply for a World Bank loan worth 460 million leva to finance further reforms and modernisation.

Failing to implement the plan would lead to BDZ's bankruptcy and liquidation, Transport Minister Ivailo Moskovski has said. Only after the cuts and by qualifying for the World Bank loan could the railways become efficient and modern, he said.

Unlike with former flag carrier Balkan, which declared bankruptcy a decade ago but had its assets transferred to successor Bulgaria Air, defaulting on BDZ's loans is not an acceptable option, economist Georgi Angelov said, because the railways' assets have been used as collateral for its existing debt. Should BDZ go bankrupt, the assets would go to the company's debtors, Angelov said on November 8 at a roundtable discussion on BDZ's future.

"Financial equilibristics will not make the problem go away," he said.

A solvent BDZ could also qualify for more European Union funding, which the chairperson of the board at BDZ, Vladimir Vladimirov, estimated at about 300 million euro.

The European Commission, however, is yet to be persuaded by the plan and has opened an investigation to check whether the proposal would improve BDZ's financial performance without using unsanctioned state aid.

In its current form, the plan does not guarantee that the company's restructuring can be completed if current revenue projections prove overly optimistic, nor did the proposal, in itself, achieve the elimination of BDZ's near-monopoly on the market.

Vladimirov said that the company was doing its best to speed up the privatisation procedure, but no investors showed interest in the company so far.

Labour dispute
Railway employees have threatened to go on general strike starting November 24, ceasing all work between 8am and 4pm, unless the Government abandoned its plan. Instead, the trade unions want redundancies to be limited to 2800 by 2014, mainly by not replacing retiring personnel and outsourcing certain activities like security and cleaning.

The Government's plan would result in the loss of 3000 jobs - 2000 from the initial lay-offs, the rest from the closure of the 150 lines - and the majority will be maintenance personnel, which would worsen train transportation safety, according to the trade unions.

"It's not as if the situation at BDZ has improved over the past several years, when the payroll has been decreased from 18 000 to 13 000 people," the head of the railway workers union in the Confederation of Independent Trade Unions in Bulgaria (CITUB), Petar Bounev, said, as quoted by Dnevnik daily.

The trade unions' bargaining position, however, has been weakened by the lack of a collective bargaining agreement, which expired in April and is yet to be renewed, mainly over the trade unions' demands for higher benefits for union members. Among the agreement's provisions was a requirement that each worker made redundant was entitled to nine months' worth of redundancy pay.

With no collective agreement in place, BDZ plans to offer no more than six months of redundancy pay and can fire employees with four months of redundancy pay.

One of the conditions for calling off the strike later this month would be the signing of a new collective bargaining agreement, the trade unions said.

Impounded assets
With talks between BDZ and the trade unions stalling, the situation took a turn for the worse on November 10, when it emerged that the accounts of BDZ Holding and its two subsidiaries that handle cargo and passenger traffic have been impounded.

The impounding came at the request of a company linked to Vassil Bozhkov, one of Bulgaria's richest businessmen, which was owed 10.3 million leva for goods delivered in 2009.

The court decision is a blow to the Government's plans to privatise BDZ's cargo division, which makes a profit, to raise funds for the modernisation of the rest of the company.

But BDZ chief executive Yordan Nedev said that he was optimistic that the two sides could reach an agreement that would unfreeze BDZ's accounts.