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FYR Macedonia: Deepening the Reform Agenda

Deepening the Reform Agenda in FYR Macedonia

Improving the Operational Effectiveness of the Country’s Railways


Synopsis

The Former Yugoslav Republic (FYR) of Macedonia is located on one of the most important European international routes - Corridor X - which links Europe with Greece, Turkey, and Central Asia. The efficient and effective operation of the regional road and railway links is important to the country’s growth potential. Through the Railways Reforms Project, the previously inefficient and nonprofitable state-owned enterprise has been transformed into two more accountable and transparent companies that are increasingly adopting a commercial approach to their operations as they implement new business plans.



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Challenge

In the mid-1990s, Macedonian Railways was one of the largest loss-making public sector enterprises in the country. Total debt at the end of 2004 was €143 million (3.3 percent of GDP); its operational performance had been declining since 1993 and the sector was increasingly unable to pay staff salaries. It was estimated that without radical reforms, operating losses over a decade would cost the government €100 million.


Approach

In June 2006, the FYR Macedonian Government and the World Bank signed the €15 million Railways Reform Project to improve the financial viability, productivity, and effectiveness of railway operations. The project balanced investment components in track machinery and rolling stock with institutional and organizational reforms. In this way, it helped to progressively transform the single Macedonia railways into two new market-oriented companies, and set up the regulatory framework for other operators to use the railway infrastructure. The reform was meant to lead to more accountable and commercially oriented management. Labor restructuring, streamlined operational and financial performance, and targeted investments were intended to show an improvement in the railway’s performance as a commercial enterprise.


Results

Although major challenges remain, good progress was made in implementing important components of the railways reform process:

  1. The former Macedonian Railways has been divided into a Rail Infrastructure Company (MR-I) and a Rail Transport Joint Stock Company (MR-T).
  2. A number of new laws have been adopted in conformity with the aquis communautaire (Railway Law, Transport Safety, Contracts for Carriage by Rail, Transport of Dangerous Goods, Railway Agency, etc.) and an independent Regulatory Body and Safety Agency established.
  3. The operating capacity of the MR-T increased from 2 to 3 million tons between 2004 and 2010. The downward trend in passenger traffic was successfully reversed, with an increase of 64 percent between 2004 and 2009. The government has adopted the Public Service Contract concept as a basis for paying MR-T for passenger transport services operated at government request.
  4. Through investments in track maintenance, track sections with speed restrictions have decreased from about 30 percent of total track length in 2004 to roughly 10 percent in 2011. The above results are part of a complex reform process aimed at establishing a sustainable railway system in Macedonia that is part of a pan-European railway system. The government is to be congratulated for these achievements and is now expanding the reforms in order to fully realize their benefits and ensure that they are maintained.

Bank Contribution

Bank-financed projects supported various studies and interventions between 2003 and 2005 that helped the government gain real understanding of the structural problems facing the railways. Consensus on the findings led to (i) an agreement on the need to restructure the railways and (ii) the government’s adoption of the Railway Law in 2005, whose implementation was supported by the project. Total project cost was US$19.9 million, of which $19.4 was provided by the IBRD (€15 million equivalent) and $0.5 was contributed by the government in counterpart funding.


Partners

Consensus on the needed reforms was made possible by a collaboration between the Bank, the European Union (EU), which aimed to link the Macedonia railway system to the rest of Europe’s railways and organize it in line with its aquis communautaire, and the government which had an active policy for EU accession. The European Bank for Reconstruction and Development (EBRD) has agreed to assist the government with the modernization of sections of railway corridor X.


Moving Forward

To deepen the reform process, the World Bank and the government have agreed on a detailed set of actions that are now being implemented. The successful completion of these actions should result in a financially viable railway transportation system able to compete for a fair share of available traffic.


Beneficiaries

According to Milan Jankulovski, head of the Macedonian Railways electro-installation department and part of the team that negotiated and signed the project with the Bank in 2005, “Times were difficult, and the stakes high. It was a time for tough decisions. We knew we had to reform in order to survive, and we knew it was not going to be easy. We had to be part of the complex reform process, changing both the legal and institutional framework in order to create a railway system that is linked to the rest of Europe’s railways.” 

 



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