Macedonia

The main issues in the transport sector of the Republic of Macedonia are associated either with the changing geographical patterns of trade and transport flows or with the process of economic transition itself. The shift from what was primarily a north-south flow to a more balanced distribution of traffic between the north-south and east-west transport corridors has exposed the inadequate capacity of the east-west transport infrastructure. Macedonia's transition to a market economy is also resulting in a shift in transport demand from low-value bulk commodities (generally transported by rail) towards higher value-added light industrial and agro-industrial products (which need more specialized, flexible, and timely delivery, more appropriately provided by road transport). This long-term modal shift puts additional financial pressure on the Macedonian Railways (MR), whose viability is further jeopardized by its production rather than market orientation.

The Government's strategy regarding the road subsector focuses on upgrading the country's main highways to international standards, both on the east-west axis between Bulgaria and Albania, and on the north-south road from Serbia to Greece. There is a special emphasis on improving the access routes to sea ports (all located in countries neighboring landlocked Macedonia), which are already showing incipient signs of congestion, as well as to reducing transport costs in general.

With respect to the railways, the Government is committed to restructuring the ailing enterprise and ensuring its long-term viability and financial self-sufficiency. This includes the adequate pricing of rail services, securing funding for necessary levels of maintenance and investment in the subsector, the establishment of sound financial management and operating practices, the divestiture of non-core businesses, and the gradual enhancing of labor and asset productivity.

The Road Subsector

The network. The road network totals 8,216 km of roads of which some 4,900 km, or about 60%, have been modernized and about 3,300 still have earth surfacing. Roads are classified as Arterial, Regional and Local. Of the total network, 915 km are Arterial, 2,611 km are Regional and 4,690 km are Local. In addition to the national classification, about 520 km of the arterial roads are part of the European road network ('E" Roads). The arterial network serves seven major corridors in the country. The historically most important corridor is served by the 174 km arterial road No. 1, a section of the Trans-European E-75 highway, which runs roughly north-south across the country from the border with the Federal Republic of Yugoslavia (Serbia/Montenegro) to the border with Greece. This road is the spine of the system and was the most heavily trafficked road until 1990. The next most important arterial road serving international and national traffic is the East-West corridor, the subject of this report. The 302 km road runs from the Bulgarian border at Deve Bair through Skopje, Gostivar and Ohrid to the Albanian border and connects Skopje with Sofia, capital of Bulgaria, and Tirana, capital of Albania as well as linking the Republic of Macedonia with ports on the Black Sea. The third most important corridor is also in the east-west direction and is served by a 330 km arterial road which runs from the Bulgarian border near Delcevo through Veles, Bitola and Ohrid to the Albanian and Greek borders. This alignment passes though the central region of the Republic but, because of very difficult terrain and poor geometric standards, does not serve international traffic well.

The country is located on two of the so-called TEN Pan European transport corridors, which European Union has defined as strategic connections that require additional funding for rehabilitation and upgrade. These are:

• Corridor X, from Tabanovce at the Serbian border up to Bogorodica located on the Greek border, through Kumanovo and Veles. This section of road is 176 km long, and has been progressively upgraded to motorway standards on 109 km. This has been done in general by doubling an existing two lane highway by a second carriageway, sometimes at a noticeable distance from the old one (up to 5 km). This type of upgrading is still underway south of Negotino, mostly under EU financing. Traffic levels are respectively 3,300 and 2,000 vehicles a day.
• Branch C of Corridor X, from Gradsko to Medzitlija, at the Greek border, through Bitola, a two lane highway reconstructed 15 years ago on its most trafficked section. 
• Corridor VIII, from Kafasan at the Albanian border up to Deve Bair at the Bulgarian border, through Struga, Gostivar, Skopje and Kumanovo, with a stretch in common with Corridor X, from Miladinovci to Kumanovo. Part of this link is already a motorway, either constructed on a new alignment, section Gostivar-Tetovo, or upgraded as mentioned above. Other sections have the regular standards of two-lane highways, with a slow vehicle lane when necessary. Traffic on both sides are 1,500/2,500 vehicles a day.
• The so-called Central Route of Corridor VIII, by opposition of the Northern route defined above, with the Ohrid-Bitola link between the two corridors, and the Veles-Kocani-Delcevo link towards Bulgaria and branch B of Corridor IV. The above two links are partly standard two-lane highway, partly substandard, mostly east of Kocani, where traffic is nevertheless 4,000 vehicles a day.
• The Skopje-Blace link, at the Serbian and Montenegro border (Kosovo), with outdated standards and poor conditions, despite its traffic of 4,000 vehicles a day.

The Macedonian Government has clearly made a serious effort during the last ten years to upgrade its main network, particularly on the two Pan-European transport corridors which cross the country. The Arterial and Regional roads are under the responsibility of the National and Regional Roads Fund (NRRF) and local roads are under the responsibility of the municipalities.

NRRF is responsible for preparing road development programs and financing plans as well as implementing policy directives given by Parliament and/or the Ministry of Transport and Communications.

Maintenance of the arterial and regional roads is done by a specialized road maintenance public enterprise, Makedonijapat. The Managing Director of Makedonijapat reports directly to the Director of NRRF. Maintenance is scheduled according to the financial plan issued by the NRRF and maintenance contracts are awarded annually according to the plan.

The Macedonian Railways (MR) network consists of 696 km of open line that includes 226 km of direct (through) station track. The entire network is single track and 233 km are electrified. The Government considers as a high strategic priority the completion of the 55 km line from Beljakovci to the Bulgarian border.

Besides the backbone constituted by the main axis of Corridor X, most of the other lines are only branches ending in blind sidings, with no connection with foreign railway systems. Lines in the network are as follows:

• Tabanovci-Gevgelija, through Skopje and Veles, corresponds to the main axis of Corridor X. It is prolonged in the North to Beograd, Zagreb and Ljubljana, and in the South to port of Thessaloniki. It is a single-track line, electrified. This line was the first constructed, in 1873, to link Skopje and Thessaloniki, and later extended to the north. It has been since regularly improved, but its last overhaul on most sections is already 30 years old. North of Skopje, speed on the line is 110/130 kmh. South of Skopje, allowed speed is reduced to 100 kmh, with many stretches at 65/70 kmh, and a few at even less in the South of Veles.
• Gorce Petrov-Kicevo, on Corridor VIII, which ends at 66 km of the Albanian Railway system at Q.Thanes, but with a rough terrain in between. This line was constructed in 1952/1969 and offers good characteristics.
• Skopje-General Jankovic, at the FRY border (Kosovo), which continues to Pristina and connects with the Yugoslav network.
• Veles-Bitola-Medzitlija, at the Greek border and connects further with the Greek system, but with secondary and low standard lines. It follows the branch D of Corridor X. It has been constructed in 1939.
• Kumanovo-Beljakovce, towards the Bulgarian border to the east. This last branch may be the first section of the link between the Macedonian Railways and the Bulgarian Railways, on Corridor VIII.

With the exception of Corridor X, all lines above are single-track and non-electrified.

Both freight and passenger rail traffic have dropped dramatically in recent years, with current levels of respectively 2.0 million tons and 1.5 million passengers being only a fraction of those attained in 1990 (6.5 million tons and 5.0 million passengers). Due to this precipitous drop in business, and because of other structural inefficiencies and external pressures (on pricing and staffing decisions), the railways' financial situation is especially acute.

MR was identified as one of the main money losing enterprises in Macedonia under the Bank-financed Public Enterprise Restructuring Project. As a result of the project, MR substantially adjusted tariffs upward, reduced the labor force by about 20% (about 900 people), and divested from nine subsidiaries providing non-core services. In addition, a new Railway Law approved in February 1998 established a clear relationship between the state as owner of the infrastructure and MR as the provider of services. In addition, the new law gives to MR sufficient independence in terms of tariffs and staffing decisions to permit it to operate on a commercial basis. However, for MR to actually achieve a "commercial" culture substantial restructuring will be necessary.

The restructuring of MR's organization and improvement of its financial viability is important not just for the transport sector's efficiency but also on macroeconomic grounds. The Government of the Republic of Macedonia is aware of the magnitude of the railways' problems, and is committed to continuing the process of railway restructuring started under the Special Restructuring Program. MR is to be downsized, its non-core business unit spin-offs privatized or liquidated, and the company reorganized along profit centers. More specifically, the program to restructure MR includes the following: (i) establishment of the conditions for effective reform, including the separation of infrastructure management and transport operations into distinct business activities; and (ii) transparent contractual compensation for unprofitable public services and/or infrastructure support ; and (iii) improving operational efficiency.