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Railway Reform in South East Europe and Turkey: On the Right Track?

The railways of South East Europe and Turkey experienced significant declines in traffic volumes in 2009. This reflected the impact of the international financial crisis unleashed in the last quarter of 2008 and its contractionary impact on the economies of the region and elsewhere. Lower traffic volumes
translated in most cases into a serious deterioration of the financial performance of the state-owned railways. This brought home the costs of failing to implement essential reforms to improve the operational and financial performance of the sector when the economy was strong. In Romania in 2010, large-scale layoffs were announced at short notice for the state rail companies. The situation is similar for the Bulgarian state rail incumbents—they face an acute liquidity crisis, and will require additional state aid merely to keep running. The lesson of these events is clear: it is unwise to delay implementing state railway sector reforms during good economic times—because the consequences can be too severe if a financial downturn occurs before those reforms have been taken and properly implemented.

Railway Reform in South East Europe and Turkey On the Right Track?
Executive Summary
Also available in:
Macedonian,Croatian, Bosnian, Serbian, Albanian 
Full Report
Annexes
 
Introduction
The railways of South East Europe and Turkey experienced significant declines in traffic volumes in 2009. This reflected the impact of the international financial crisis unleashed in the last quarter of 2008 and its contractionary impact on the economies of the region and elsewhere. Lower traffic volumes translated in most cases into a serious deterioration of the financial performance of the state-owned railways. This brought home the costs of failing to implement essential reforms to improve the operational and financial performance of the sector when the economy was strong. In Romania in 2010, large-scale layoffs were announced at short notice for the state rail companies. The situation is similar for the Bulgarian state rail incumbents—they face an acute liquidity crisis, and will require additional state aid merely to keep running. The lesson of these events is clear: it is unwise to delay implementing state railway sector reforms during good economic times—because the consequences can be too severe if a financial downturn occurs before those reforms have been taken and properly implemented.

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Progress in institutional reform
The rail liberalization process in the EU was formally initiated by a series of directives issued in 1991 and 1995. Since that time, the EU has progressively built a large body of legislation that focuses on: (i) the gradual opening of the rail market by regulating access to the infrastructure and interoperability of the European rail network; (ii) separation of infrastructure from transport operations; and (iii) a common approach on rail safety. This body of legislation includes a diversity of acts, which are binding on all member, accession and applicant countries unless specific derogations have been agreed.

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A comparative assessment of operating and financial performance
This chapter reviews the operational and financial performance of state rail companies in South East Europe and Turkey from a comparative perspective. Ten countries are included in this report and in six of these there is more than one state rail company operating—in the case of Bulgaria, Croatia, Romania, FYR Macedonia and Montenegro due to reforms separating transport services from infrastructure provision, and in the case of Bosnia and Herzegovina, due to an integrated rail company operating in each entity. The rail companies included for the purpose of this analysis are Albanian Railways, Bosnia and Herzegovina’s ŽFBH and ŽRS, BDZ and NRIC of Bulgaria, Croatian Railways, Kosovo Railways, Macedonia Railways Transport (MŽ-T), Macedonia Railways Infrastructure (MŽ-I), Montenegro’s Montecargo, Railway Infrastructure of Montenegro (ŽICG), Railway Transport of Montenegro (ŽTCG), Romania’s CFR Calatori, CFR Marfa, and CFR, Serbian Railways, and Turkish Railways (TCDD).

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The state of international integration
Despite recent transport demand trends towards increasing individuality and flexibility — which have tended to shift both passenger and freight traffic on to roads—there exists a large and growing market segment for rail transport, particularly along international freight corridors. The case for long distance rail is underpinned by economies of scale and density of traffic, and with sufficient volume, a very attractive potential market for rail operators as well as for rail infrastructure managers. The expansion of the EU rail networks into the new member states has created important opportunities in the long-run for rail freight, given the extra capacity on East-West axes and high growth rates of trade between EU-15 and EU-12 countries, as well as with candidate and potential candidate countries. However, this potential for a significant modal shift, particularly for freight, using international rail corridors connecting EU-15 and EU-12 countries and beyond, has not been realized in recent years.

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Conclusions and recommendations
The railways of South East Europe and Turkey experienced significant declines in traffic volumes in 2009. This reflected the impact of the international financial crisis unleashed in the last quarter of 2008 and its contractionary impact on the economies of the region and elsewhere. Lower traffic volumes translated in most cases into a serious deterioration of the financial performance of the state-owned railways. This brought home the costs of failing to implement essential reforms to improve the operational and financial performance of the sector when the economy was strong. In Romania in 2010, large-scale layoffs were announced at short notice for the state rail companies. The situation is similar for the Bulgarian state rail incumbents—they
face an acute liquidity crisis, and will require additional state aid merely to keep running. The lesson of these events is clear: it is unwise to delay implementing state railway sector reforms during good economic times—because the consequences can be severe if a financial downturn occurs before those reforms have been taken and properly implemented.

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Annex 1: The Incumbent Railway Companies

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Annex 2: The Three EU Rail Packages

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Annex 3: EU Legislation Applicable To The Rail Sector

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Annex 4: Framework Border-Crossing Agreement

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Annex 5: Model Agreement On Infrastructure Interconnection

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References
Multimedia
Interview with Carolina Monsalve: Railway Reform in South East Europe and Turkey: On the Right Track?
Interview with Carolina Monsalve: Railway Reform in South East Europe and Turkey: On the Right Track?
Railway reform in South East Europe and Turkey



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