69686 Bulgaria Railways Policy Note March 3, 2009 Sustainable Development Department (ECSSD) Europe and Central Asia Region Document of the World Bank CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2008) Currency Unit = Bulgarian Lev (BGN) BGN 1.36410 = US$ 1 US$ 0.73308 = BGN 1 BGN 1.95583 = EUR 1 EUR 1 = US$ 1.43345 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS BDZ EAD Bulgarian Railway Operating Company BRC Bulgarian Railway Company (Private Freight Operator) CF EU Cohesion Fund ECA Europe and Central Asia (World Bank region) EU European Union GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IFI International Financial Institution MOF Ministry of Finance MOT Ministry of Transport NRIC National Railway Infrastructure Company OECD Organization for Economic Cooperation and Development PPP Purchasing Power Parity PPP Public Private Partnership PSC Public Service Contract PSO Public Service Obligation SOPT Sectoral Operational Program for Transport (for the use of EU Cohesion Funds) TAC Track Access Charge TU Traffic Unit (passenger-kilometer or ton-kilometer) UIC International Railways Union Vice President: Shigeo Katsu, ECAVP Country Director/Manager: Orsalia Kalantzopoulos/Florian Fichtl, ECCU5 Sector Director/Manager: Peter D. Thomson/Motoo Konishi, ECSSD Task Team Leaders: Mohammed Dalil Essakali, ECSSD Vasile Nicolae Olievschi, ECSSD Bulgaria Railways Policy Note Contents POLICY NOTE ....................................................................................................... I TECHNICAL ANNEX ..............................................................................................1 Industry Structure.................................................................................................................. 3 Markets ............................................................................................................................... 10 Assets .................................................................................................................................. 14 Operational and Financial Performance.............................................................................. 18 Operational Performance ............................................................................................. 19 Financial Performance ................................................................................................. 22 State Financial Contribution to Railways ........................................................................... 24 Overall State Financial Contribution ........................................................................... 25 Passenger Services ....................................................................................................... 26 Railway Infrastructure .................................................................................................. 27 Figures Figure 1: Evolution of Average Track Access Charge (EUR/Train-km) ............................................... 6 Figure 2: Average Track Access Charges in Europe (EUR/Train-km) .................................................. 7 Figure 3: Average Revenue and Cost per Freight Unit (EUR Cents/Net Ton-km) ................................ 7 Figure 4: Passenger Transport Cost Recovery ....................................................................................... 8 Figure 5: Cumulative Growth of GDP, Freight and Passenger Transport in Bulgaria and EU-27 ...... 11 Figure 6: Evolution of Freight Transport by Rail and Road................................................................. 12 Figure 7: Railway Traffic Evolution in Bulgaria.................................................................................. 12 Figure 8: Freight Transport by Mode in EU-27 and in Bulgaria (2006) .............................................. 13 Figure 9: Bulgarian Railway Asset Management Strategy .................................................................. 15 Figure 10: Age Structure of Rolling Stock ........................................................................................... 16 Figure 11: Railway Staff Productivity in Bulgaria and in EU-27 (Million TU/Staff) .......................... 19 Figure 12: Staff Productivity of BDZ Freight and BRC (Net Ton-km/Staff) ...................................... 20 Figure 13: Average Staff per Kilometer of Track ................................................................................ 20 Figure 14: Traffic Intensity (Million TU/route-km) ............................................................................. 21 Figure 15: Rolling Stock Productivity (per unit) .................................................................................. 22 Figure 16: Total State Financial Contribution in Selected EU-15 Countries ....................................... 25 Figure 17: State Budget Contribution (in Million BGN and % of GDP) ............................................. 26 Figure 18: Average Cost and Average Revenue per Pass-km (EUR Cents/pass-km) .......................... 27 Figure 19: State Financial Contribution to PSO in Selected EU-15 Countries (EUR Cents/pass-km) 27 Figure 20: State Financial Contribution to Infrastructure in Selected EU-15 Countries (% of GDP).. 28 Figure 21: Sources of Financing for NRIC Expenditures .................................................................... 28 Tables Table 1: Freight and Passenger Transport by BDZ .............................................................................. 13 Table 2: NRIC Network Characteristics............................................................................................... 15 Acknowledgements This Note was prepared by Mohammed Dalil Essakali and Vasile Nicolae Olievschi, with contributions from Jung Eun Oh, Sunja Kim, Antti Talvitie, and Orlin Dikov. The World Bank team would like to thank counterparts in Bulgaria for fruitful discussions, access to data and information, and comments and feedback on an earlier draft of this note. These include management and officials from the Ministry of Transport, the Ministry of Finance, National Railway Infrastructure Company, Bulgarian State Railways, and Railway Administration Executive Agency. World Bank management oversight was provided by Motoo Konishi, Sector Manager, and Florian Fichtl, Country Manager. Comments from peer reviewers Martha Lawrence, Stella Ilieva, Binyam Reja, and Karim Jacques Budin are gratefully acknowledged. Adelina Dotzinska provided invaluable logistical and administrative support. Ms. Bonita Brindley was responsible for editing the note. POLICY NOTE 1. Under a succession of reform-minded governments, the Bulgarian rail sector has achieved some ambitious targets—stable traffic volumes and hard-won financial stability that was endorsed by investor confidence during a recent bond issuance for EUR 120 million. At end-2007, arrears were cleared, the Bulgarian Railway Operating Company BDZ EAD showed net profits, and the company’s overall financial position improved. 2. The achievements are the result of implementation during the years leading up to European Union (EU) accession of coherent reforms that aligned the institutional and legal framework of the Bulgarian rail sector with those of the EU. Today, all Acquis Communautaires relevant to the rail sector have been adopted. Vertical unbundling of services separated public railway infrastructure from operation of railway transport services; the track access charges that were introduced opened market access to rail infrastructure and allowed cost recovery; and public service contracts were laid out to clarify government contributions to the sector. Government policy and strategic directions for the rail sector are clearly laid out in the Transport Sector Strategy for the period 2006-2015, and they are encapsulated in a more comprehensive National Strategy for Integrated Infrastructure Development for the period 2006-2015. Investment plans are presented in the Sector Operational Program for Transport (SOPT), which covers the investments under EU Cohesion Fund over the period 2007–2013, and in the railway companies’ own capital investment programs. 3. In addition, Bulgaria’s substantial accomplishments in improving railway operating efficiency included reducing the State-owned railway company staff by 40 percent; creating a holding company structure with three legally independent subsidiaries and business lines— freight, passengers, and traction services. The relationship between the parent company and the subsidiary is based on commercial contractual arrangements. This new organization eliminated implicit cross subsidies between freight and passenger services, improved cost control and accounting transparency, and helped prepare BDZ EAD to compete in an open railway transport market. 4. After these considerable achievements, Bulgaria is now well-positioned to consolidate the gains and efforts made so far and continue rail system reform. Railway reforms are chasing a moving target, and Bulgaria will need to acknowledge that railway reforms can be considered successful only if the outcome is a flexible and nimble railway industry that can adapt to the rapidly changing business environment—without resorting to constant policy interventions. The single most important driver for continuous railway reforms in Bulgaria is the ever changing transport market combined with increasing competition. Bulgarian rail traffic volumes have stabilized somewhat, but the railway share in the growing transport market has plummeted from its peak in the 1980s. Lack of market adaptation leaves Bulgaria with a railway system that has a network density close to the EU- 27 average, but with only 50 percent of the network productivity, and only one-third of the labor productivity. Market pressures combined with Government climate change policy creates an urgency for Bulgaria to make its railway industry viable enough to capture a significant share of the new transport volumes demanded by the country’s growing economy. Finally, constraints on public finances will continue to limit Government transfers of public money to the railway sector to support public policy choices, reinforcing the need to rapidly develop a market-driven model for operating the sector. 5. Developing a viable and flexible railway industry in a timeframe compatible with Bulgaria’s EU convergence aspirations is possible only through a commitment to fully implementing the next phase of reforms that will enable the railways to be run as a business, and in which market forces and competition from other transport modes and international corridors will propel adaptation. This requires continuous efforts—to understand, predict, respond to, and even drive the market, which can be achieved only through a major cultural change in the management of the railways and in the State’s role in the railway industry. 6. The various roles of the State in Bulgaria’s rail industry—policymaker, regulator, owner, and client require a cultural change if Government is to optimize the balance among public policy choices, entity management constraints, and available fiscal space. As policymaker, Government must accept responsibility for the fiscal impacts of policy choices, including setting levels of State support for investments and passenger services. As regulator, the government role is safeguarded by strict EU regulations, mainly as a guarantor of open access on infrastructure and fair competition, issuing and monitoring the safety standards and acting as an appeal body for any discrimination in the market. As owner, Government must enhance governance mechanisms and skillfully supervise its companies—defining challenging annual business targets for the railway industry and holding management accountable by monitoring performance outcomes—but without meddling in management decisions. As a client, Government must promote transparent contractual relationships with railway operators selected to provide public services requested by the State. 7. In parallel to changes undertaken by Government, changes in the culture of State- owned railway companies—the National Railway Infrastructure Company (NRIC), and BDZ EAD—must occur if they are to radically improve their organizational performance. In any organization, only Management can deliver on reforms, hence, fully implementing these changes will require a managerial incentive system to drive continuous business efficiency improvements; training railway management on marketing, pricing, costing, finance, and customer service; clarifying internal organization into separate lines of business; and developing a market-driven business strategy to consolidate the railway market position and grow its business. A strong business strategy is essential to expand services in which the railway is competitive, to phase back assets or labor in less competitive areas, and to drive investments in assets and processes. This strategy should also sharpen targeting for State contributions to the railways. 8. Therefore, unless Government, NRIC, and BDZ EAD prepare and fully implement a coherent strategy for creating a viable railway business—including the components for extensive cultural change—the reform process that started more than a decade ago may take ii much longer to complete, and an opportunity for a significant contribution to national economic growth could be lost. Throughout the global economy, governments are launching stimulus packages to speed recovery from the global economic recession. These packages include not only increased infrastructure investments but also cost-cutting measures to avoid unproductive public spending. As an EU member, Bulgaria should follow this trend within the framework of the European Economic Recovery Plan. At the same time, investment decisions during a financial crisis intensify the onus on Government, NRIC and BDZ EAD to use available funds wisely and to protect that investment with the strongest business model possible for the efficient utilization of resources, timely project implementation, and efficient operation of transport services. It is therefore urgent that Government, NRIC, and BDZ EAD implement an action plan to minimize the effects of the severe drop in railway business since the second half of 2008 due to the global financial crisis. 9. Overcoming the railway industry’s challenges will be difficult and should not be underestimated; the current financial crisis would appear to militate against immediate action in an investment-intensive sector such as infrastructure, but the railway industry in Bulgaria has never been better positioned to move forward. Postponing the completion phase of railway reform would not only squander future economic prospects through continued asset deterioration and loss of market share, but also lay waste to the past investments that have brought the country so far along in attaining today’s railway market position and financial stability. RECOMMENDATIONS 10. The overarching goal of the next phase of railway reforms in Bulgaria should be to develop a flexible and nimble railway industry that can adapt to the rapidly changing business environment—without resorting to constant policy interventions. To achieve this goal, it is essential that the railways be run like a business. This means that Government and the State-owned railway companies should embark on a cultural change program to clarify Government roles in the railways sector and boost the organizational performance of the companies to enable them to develop a market-driven business strategy, analyze where efficiency and productivity gains are needed and where investments would be most productive, and balance State-supported public policy choices with available fiscal space. A. FULLY IMPLEMENT A NEW BUSINESS CULTURE 11. The Government of Bulgaria and the railway companies need to implement a new and comprehensive business model that includes clearly specified roles for all government and private sector stakeholders, and strategies and action plans to improve NRIC and BDZ EAD governance; strengthen management; clarify the roles and responsibilities of Government; enhance market responsiveness, develop a market-driven business strategy, enhance internal organization and productivity; and encourage private sector participation. iii 1. Enhance NRIC and BDZ EAD Governance Structure 12. The first step for the Government—as owner—is to align the governance structure of NRIC and BDZ EAD with best business practices. The current railway companies’ governance structure is a good beginning and further improvements should be pursued. An enhanced NRIC and BDZ EAD governance structure should (i) support efficient use of staff and assets; (ii) ensure that management decisions are based on financial and efficiency measures, not political patronage; (iii) enable a revamped Board of Directors to measure management performance; and (iv) offer a system of incentives for managers who improve financial and efficiency outcomes. a. Enhance the competencies and objectivity of Board of Directors. The Board of Directors of BDZ EAD and NRIC could expand its expertise and understanding of market needs by recruiting some members from the business community. In addition, according to OECD guidelines of corporate governance of state-owned enterprises, good practice calls for the Chair to be separate from the CEO. b. Strengthen the oversight role. The Board of Directors of BDZ EAD and NRIC could reinforce its oversight role, and explore the idea specialized and independent committees that report directly to the Board, for example an Audit Committee and Risk Management committee, among others. 2. Strengthen Management 13. In any organization, only management can deliver on reforms. To consolidate gains and successfully implement railway reforms in Bulgaria, NRIC and BDZ EAD need to implement a radical cultural change, beginning with implementing a performance-based management linked to pay incentives, enforcing a merit-based manager selection process, and establishing an institutional management development program to train management. a. Implement performance contracts for railway managers. Establishing key performance indicators and linking them to an incentive system for managers who reach them is essential. Obviously, performance-based management requires good managers, but it also requires key performance indicators to measure profitability, performance, or customer satisfaction. b. Enforce transparent and merit-based manager selection. Selecting managers without a merit-based competition undermines industry productivity and market- driven behavior. The new business model should focus on attracting and retaining human resources with skills and experience that support business development objectives. c. Establish an Institutional Management Development Program, to improve skills among mid- and upper-level managers in NRIC, BDZ, MOT and the regulator. Continuous industry adaptation requires continuous updating of skills and knowledge. iv Mid-level managers and railway engineers must acquire new skills to become market- focused business managers—familiar with business change management and commercial culture. They should be trained in up-to-date marketing, pricing, costing, finance, and customer service. All railway employees must become client-driven and business-oriented rather than production-oriented; staff need complex skills to identify and design services that are competitive in the marketplace. The Institutional Management Development Program should be a permanent component of railway reform in Bulgaria. 3. Refine the Role of Government in the New Business Model 14. Creating a viable railway business requires a cultural change in the way Government exercises its prerogatives in its capacity as policymaker, regulator, owner and client. These multiple roles enable Government to create a legal and institutional environment that maximizes railway efficiency while minimizing the State financial support. a. Establish transparent relationships with railways through clear separation of policy objectives and service provision. Implementing the new business model requires clearly separating the role of the State and the railway industry. Railway business development must be commercially driven—responding to market demands, this means when the State intervenes with policy-driven demands, it should compensate the railways, accordingly. Bulgaria has implemented the contractual relationship between the State and NRIC and between the State and BDZ, according to EU regulations. Multi-annual Public Service Contracts (PSC) and Long-term Infrastructure Maintenance Contracts should be strengthened to increase the railways’ accountability. Public funds should be transferred only when contractual obligations are fulfilled, including specific targets for punctuality, maintenance standards, and productivity. For the successful implementation a transparent relationship with railways, the Ministry of Transport should strengthen its capacity to develop, negotiate, and monitor multi-annual contracts. b. Adjust the level of public passenger services to be commensurate with budget constraints. The Government should elaborate a detailed service plan under budget constraints based on comprehensive studies of the number of passenger trains to be operated on each transport link on the railway network. Local governments are an important stakeholder in this process; they should be consulted on their needs and they may have to consider financial contributions for services they deem necessary. When services are identified, public service contracts should be competitively awarded to railway operators, which will minimize State compensation. c. Strengthen performance monitoring mechanisms for railway managers. As an owner of NRIC and BDZ, the State is responsible for monitoring actual performance outcomes against those outlined in a business plan. Monitoring specific performance indicators enables the State to measure managers’ performance so it can link State support directly to efficiency improvements, rather than unproductive spending. The State as owner should also be willing to accept challenging business plans prepared v by competent railway management, without meddling in daily management decisions or in the roles of the Board of Directors. 4. Enhance Market Responsiveness, Internal Organization, Productivity 15. The transport market is changing continuously in Bulgaria, and the railway industry is facing stiff competition from roads—BDZ has to compete with existing and future entrants to the railway freight market, and NRIC is competing with other railway corridors in the international transit market. Market responsiveness is key to staying in business in a competitive environment, which means that railway reforms are chasing a moving industry target. It is therefore essential that the railway companies develop a market-driven business strategy, which should be supported by an internal organization aligned with providing new and better quality services that respond to client needs. A market-driven strategy will enable railway companies to target areas with potential for efficiency and productivity gains. Productivity improvement measures taken during the last decade have not offset the results of sharp reductions in traffic volumes and have not significantly closed the gap between Bulgarian and EU technical and operational railway performance. a. Enhance market responsiveness and develop a market-driven business strategy. Freight and passenger transport demands will evolve continuously, requiring flexible and nimble responses such as just-in-time services and sophisticated logistics to manage them. Bulgarian railways need to conduct regular and systematic market research to evaluate existing products and services and develop new ones, and design complementary marketing strategies. NRIC should examine the competitive international routes to develop competitive strategies to attract business. Continuous evaluation is essential because it exposes the areas of the railway business that need productivity gains, and those that need investments in assets and processes. b. Enhance internal organization. The organization of NRIC, BDZ Freight, and BDZ Passengers is primarily based on geography (regions and sub-regions). This is a typical approach that works for infrastructure managers, local and regional passenger trains, but fails to stimulate commercial improvements to freight transport services and long-distance passengers. Many railways have successfully implemented a new business model based on vertically integrated profit centers for a specific service. This potential exists in Bulgaria, where the 2006 data show that 86 percent of all freight transport volume involved only seven commodities. Therefore BDZ Freight should strongly consider replacing the existing geographical structures with customer service centers specialized by commodity (coal, oil, containers, and so forth). Similarly, BDZ Passengers should create specialized customer service centers for specific types of services (international, inter-city, commuters). Specialization strengthens client relationships, resource allocation, and cost control. c. Increase productivity. While a market-driven business strategy can identify areas where productivity gains can be achieved, current levels of productivity in Bulgaria suggest that NRIC and BDZ EAD can begin immediately to improve their productivity in areas where obvious gains can be achieved quickly. Higher productivity levels achieved by Western European railways over the past two decades vi required persistence and boldness to create good governance, management incentive structures and accountability, improved interactions among railway entities and the government as policymaker, regulator, owner, and client. - NRIC productivity gains. Until NRIC improves the productivity of staff and assets, it has little chance to compete in the market. NRIC’s current productivity in infrastructure maintenance is only one-quarter of the EU average. Therefore NRIC should continuously adapt staff size to business demands and rationalize assets according to current market needs. This means that NRIC needs to expand utilization of information, technology and communication systems (ITC) for train control, signaling, and interlocking; and acquire modern track mechanization equipment for infrastructure maintenance, and maximize its efficiency. Finally, NRIC needs to adopt the modern concept of condition-based maintenance of infrastructure, which will significantly reduce its operating costs. - BDZ productivity gains. BDZ staff productivity is around 40 percent of the EU-27 average; asset productivity is less than 50 percent, which positions it poorly to compete in the open European transport market. Therefore BDZ must adjust staff size to business demands and rationalize assets according to current market needs. This means that BDZ must invest in a freight fleet that matches current market demands and liquidate excess or depreciated rolling stock. BDZ needs to improve maintenance procedures and increase the efficiency of fleet operation to avoid unnecessary investment. 5. Encourage Increased Private Sector Participation in the Railways 16. Private sector participation in train operations will likely occur through third-party freight operators taking advantage of track access rights. This is already the case for some operators in Bulgaria—they are now focusing primarily on specific freight types but already introducing contestability into the Bulgarian rail market. Increasing private sector participation in railways could help increase traffic for Bulgarian railways, and ultimately increase traffic intensity on the rail infrastructure. a. Increase private sector participation in freight services. The overall operating environment should be conducive for BDZ Freight to operate as any other private sector entity in the market, which would increase its ability to compete. The recommended approach to achieve this would be to consider private sector participation in BDZ Freight (private management, partial or full privatization). Delayed implementation of this approach could jeopardize BDZ Freight’s profitability because new freight market entrants—with a flexible cost structure—will target profitable, high-density traffic such as unit train movements. If private sector participation is delayed, BDZ Freight could suffer rapid decline, which would not only be costly but also socially disruptive. b. Increase private sector participation in passenger services. The Government of Bulgaria has implemented Public Service Contracts and has begun to pay vii compensation for passenger services. The next step is for the Government to invite private sector operators to bid competitively for future Public Service Contracts covering part or all requested services. B. INVEST STRATEGICALLY 17. The market-driven business strategy should enable the railway companies to develop an investment program that can support the growth of the railway business in Bulgaria and the continuous improvement of traffic safety. At the same time, urgent investment needs exist now because railway assets in Bulgaria suffer from a legacy of chronic underinvestment that has resulted in today’s significantly degraded infrastructure and rolling stock. Therefore, the railway industry’s unenviable starting point is an exceptionally low capital base and massive investment needs to generate financial flows sufficient to support the much-needed new business model. Significant productivity improvements cannot happen without investments in new business processes, technology, infrastructure and rolling stock, in parallel to right-sizing staff and assets. 18. NRIC should initiate an investment program to upgrade the core infrastructure network to European technical and quality standards. As a percentage of GDP, Bulgarian State contributions to infrastructure investment will generally be higher than other EU member states with mature railways industries that have a sound financial footing. Delaying Bulgaria’s investments in the rail sector will not only result in higher costs in the future, but also create further erosion of the transport market share. Furthermore, investments that have undergone rigorous financial and economic analyses have a lower life-cycle cost than the option of delayed investment. 19. Crucial sector investments include new computer-based systems needed to replace inefficient and underproductive staff and facilities in stations; track machines to replace outsized track maintenance crews; and modern signaling systems needed to replace existing obsolete equipment. Typically, railway managers in many state-owned railways would favor investment in system expansion, but in the case of Bulgaria, the new business model includes management performance contracts that reward managers who support business outcomes that boost system efficiency and productivity, thus protecting railways’ investments. a. Establish capital planning processes that prioritize projects according to financial rate of return. The NRIC and BDZ need to recognize that a business- oriented railway aligns its capital investment program with a market-driven business strategy using rigorous assessment to screen and prioritize potential investments. NRIC needs to renew track, upgrade power systems, and modernize signaling and telecommunication facilities. Similarly, BDZ urgently needs modern locomotive power, additional freight wagons types, and new passenger equipment. Limited investment funds require cost effective investment targets. Each railway entity should institute a capital planning process that requires investments to have a high rate of return, demonstrated cost effectiveness, while fully satisfying safety requirements. b. NRIC and BDZ should begin immediately to implement investments for which assessments have already been carried out. viii (i) NRIC should vigorously implement planned investments to modernize railway infrastructure in accordance with the National Infrastructure Strategy and the SOPT. Priority investments are those on major corridors and the core network. In addition to track renewal and rehabilitation, other high-priority investments include mechanization of maintenance, signaling and telecommunication networks, and power supply. (ii) NRIC should establish a system to improve infrastructure maintenance and operation efficiency. NRIC should invest in mechanization and automation of infrastructure operations by acquiring modern track machinery; the implementation of condition-based railway infrastructure maintenance; and the implementation of IT systems for cost control, traffic management, maintenance planning, and other major activities. (iii) BDZ should invest in new computer-based systems to improve its operations; and implement its plans to extend the life of certain freight wagons and acquire new types of freight wagons needed to meet new services. c. Continue with long-term strategic planning. The immediate capital investment and maintenance program exists in the Infrastructure Strategy and in the SOPT. These strategic frameworks should be extended beyond 2013 or 2015 with a thorough evaluation of longer-term railway transport needs in Bulgaria. The investment program proposed for the Bulgarian railways until 2013 is driven mainly by EU funds and the European objectives of developing international corridors, ensuring railway inter-operability, and increasing traffic safety. d. Strengthen the capacity to implement large investment projects. Successful implementation of the ambitious railway investment program in Bulgaria will require continuous consolidation of existing NRIC structures into a sound and accountable body that can coordinate accelerated elaboration of project technical documentation, carry out detailed design and cost estimates, organize bidding procedures, monitor quality of works, and maintain terms of execution and costs within contractual limits. These elements should be included in railway managers’ performance agreements. ix TECHNICAL ANNEX Industry Structure After several years of policy reforms and institutional restructuring, the Bulgarian railway industry structure follows now the principles set out in the European Union (EU) railway directives. The next phase of railway industry reforms should aim to create a strong business culture because the future of the industry depends on its ability to adapt and drive change without resorting to policy intervention. This will require Bulgaria to seriously consider intensive professional development for railway managers so they can drive changes and deliver on the next wave of reforms. In parallel, the composition of the railway companies’ Board of Directors should be expanded, and their roles and responsibilities should include full involvement in implementing the new business model, following international best practice. This business culture should also be introduced in the State’s exercise of its separate roles as policymaker, regulator, owner, and client. To accompany this change, the internal organization of the railway companies should be revised to enhance their organizational performance. Finally, Encouraging more private sector participation in the railway industry would strongly support this transformation. Some options for going forward could include the following: 1. Enhance NRIC and BDZ EAD governance structure - Expand the range of competencies and increase objectivity among the Board of Directors by recruiting some members from the business community. - Strengthen Board of Directors’ oversight role; create specialized and independent committees, for example, Audit, and Risk Management, or improve the activity of the existing committees. 2. Strengthen management - Implement performance contracts for railway managers that include key performance indicators linked to an incentive system. - Enforce transparent and merit-based manager selection. - Establish an Institutional Management Development Program to expand the skill set among mid-level and upper-level managers in NRIC, BDZ, MOT. Managers need to develop expertise in managing change, developing processes and business plans; performance-based management and human resources policies related to resizing companies; track access charge methodologies; planning and managing large infrastructure works; developing client service centers; and rolling out marketing campaigns. 3. Refine the role of Government - Establish transparent relationships with railways through clear separation of policy objectives and service provision. - Strengthen performance monitoring mechanisms for railway managers. - Aim to gradually increase the cost recovery from tariffs of regulated passenger services to at least 50 percent. - Regularly reassess the track access charge methodology to ensure it is robust in the long-term. 4. Enhance internal organization - Implement a new business model based on vertically integrated profit centers for specific services: by commodity (BDZ Freight) or by type of passenger services (BDZ Passengers), based on integrated cost centers for NRIC. - Fine-tune the internal structure of BDZ EAD as a holding company to align it with the new market-based model. 5. Encourage increased private sector participation in railways, including options for private sector participation in BDZ Freight. 3 1. The railway industry structure in Bulgaria follows the principles set by the EU railway directives. These include (a) vertically unbundle services to separate public railway infrastructure from railway transport services operations; (b) separate freight and passenger services to establish conditions for private sector participation in the freight sector; (c) introduce track access charges; and (d) use Public Service Contracts to specify Government contributions to the sector. 2. Current industry structure resulted from a long but successful reform program initiated in the late 1990s, and completed in time for EU accession in 2007. The reforms covered the following specifics: (a) Restructure and commercialize railway companies  In 2001-02, in conformity with provisions in the 2000 Law on Railway Transport, the Bulgarian State Railways National Company was split into National Railway Infrastructure Company—NRIC, managing the railway infrastructure, and Bulgarian State Railways—BDZ EAD, the railway operator.  Multi-annual Public Service Contracts (PSC) for passenger transport services commenced in June 2004, and the NRIC and the State signed the first contract in December 2005 for long-term infrastructure planning and financing.  The infrastructure access charge methodology was established to put the railway companies at arm’s length from the Government, granting NRIC the opportunity to sell railway capacity to railway operators. (b) Modernize regulatory framework  The provisions of the Railway Transport Act of Decree 167/29.06.2001 established the Railway Administration Executive Agency as a budget-funded entity acting as a regulatory body and national railway safety agency.  Open access to railway transport market was implemented, and two private operators are now licensed for freight transport services. At end-2008, requests for licensing were received from two additional private railway operators. Bulgarian Railway Company (BRC), the most important private operator licensed in Bulgaria, had 20 percent of railway freight market in 2008. (c) Restructure workforce and improve operating efficiency  The total staff of the State-owned railway companies was reduced by 40 percent during 1995-06. 3. The NRIC and BDZ governance structures resemble a corporate governance structure. NRIC has a status of a state enterprise, and according to the Law on Railway Transport, the managing bodies of the company are the Minister of Transport, the Managing Board, and the General Director. BDZ EAD is a joint stock company—the sole owner is the Bulgarian State, and the rights of the State are exercised by the Ministry of Transport. BDZ has a Board of Directors. The Managing Board of NRIC and the Board of Directors of BDZ comprise five members each, including the Director General. The Chairman of the Board is different from the Director General. Both companies prepare annual reports and financial statements according to IFRS rules, and they are audited by external auditors annually. The Governance structure can be enhanced to align it better with best business practices. In 4 addition, management incentives and a training program on new skills should be put in place to increase organizational performance. 4. Recently, Government introduced changes that affect the railway industry structure. In 2007, BDZ EAD was reorganized as a holding structure and it set up three subsidiaries as legally independent companies along three separate lines of business—freight, passengers, and traction services. BDZ EAD owns passenger coaches, freight wagons, and locomotives, and the three subsidiaries can lease rolling stock and locomotives and the passenger and freight companies can contract with the traction company for locomotives and drivers—commensurate with market demand. BDZ EAD is responsible for servicing debts existing prior to the reorganization and the subsidiaries are responsible for maintenance of the assets they lease from BDZ EAD. These are substantial accomplishments as the reorganization aimed to consolidate contractual relationships between the railway companies, thereby terminating implicit cross subsidies from freight to passengers and improving cost control and accounting transparency. These changes will help prepare BDZ EAD Passengers to compete for a public tender of passenger operation planned by the Government. 5. The internal organization of BDZ EAD is not yet well aligned with a market- based approach to railways. BDZ EAD, as a holding structure must begin to shift its role away from control of production to strategic leadership and financial oversight. The BDZ EAD asset ownership is a sensitive issue; the tariff structure for BDZ Freight and BDZ Passengers to lease rolling stock from the holding company should be carefully analyzed to avoid transport price market distortions. The freight and passenger subsidiaries now must be fully responsible for assessing transport demand trends, setting up competitive tariff levels, and evaluating client needs, and based on these must develop business plans—including estimating investment needs to acquire new rolling stock. Since BDZ EAD owns the assets, its role in policy decision-making poses a serious risk of diminishing the subsidiaries’ autonomy and eroding their ability to respond to their respective markets. 6. The traction activities should be repositioned. Efficiency gains depend on being in touch with market demands but BDZ Traction lacks a direct connection with the market and its tariffs are not established through interaction with clients, which prevents successful implementation of market-based railway activities. In some railways, traction activities are organized as independent units functioning as cost centers. At least two major risks are associated with a monopolistic structure for traction activities when they are organized as profit centers: (a) tariffs imposed by BDZ Traction on BDZ Freight and BDZ Passengers could jeopardize tariff competitiveness in railway markets, (b) BDZ Traction will be unable to elaborate a development strategy without an understanding of market demand (only BDZ Freight and BDZ Passengers can produce a development strategy, including rolling stock needs). 7. Organize around customer service centers instead of territorial structures. The present structures of BDZ EAD and NRIC are based mainly on territorial structure (regions and sub-regions). It is a reasonable approach for NRIC and for local and regional passenger trains. However, the regional structure does not stimulate the commercial behavior of freight transport services and long distance passengers. Many European railways and the North American railroad companies have successfully implemented a new business model based on 5 vertically integrated profit centers that manage each major type of commodity. The data for 2006 show that 86 percent of the freight transport volume in Bulgaria was achieved by only seven commodities. It is highly recommended for BDZ Freight in particular to assess the possibility of structuring based on customer service centers for each of these products, which will create a stronger relationship with the main clients and a better allocation of resources in line with the needs of the market. NRIC can also consider its restructuring according to cost centers. In a similar way, NRIC should organize some of its activities as profit centers (traffic management, power, and telecommunication) oriented to attract more clients for its services. 8. Infrastructure Access Charge methodology must be reassessed regularly to ensure its long-term robustness. Bulgaria now has a good Track Access Charge (TAC) but regular reassessment is essential and standard practice among most other European countries. The railway track access charge is key to implementing commercial relationships between the infrastructure manager and infrastructure users. Bulgaria has developed and implemented a reliable tariff-setting methodology for railway infrastructure utilization for different service types and different sections of railway network. The average tariff paid by the railway operators has varied during the last three years around EUR 3.6 / freight train-km and EUR 1.3 – 0.9 Euro / passenger train-km (Figure 1). These tariffs are competitive with European tariffs, positioning the Bulgarian railway infrastructure well in the transit market (Figure 2). 9. Nevertheless, the track access charge paid by passenger trains merits detailed analysis—mainly on the secondary lines that are used exclusively or primarily by passenger services. During the last three years, the government has tended to lower passenger train track access charges, which may create a cross-subsidy from freight to passenger traffic. International experience demonstrates that over the long term, this practice creates a vicious circle—the infrastructure manager cannot preserve its assets or provide needed capacity to operators, resulting in deteriorated railway operations and a non-competitive railway industry. Average track access charge evolution Figure 1: Evolution of Average Track Access Charge (EUR/Train-km) [Euro/train-km] 4.00 3.50 3.61 3.60 3.63 3.00 2.50 2.00 1.38 1.28 1.50 0.93 1.00 0.50 0.00 2005 2006 2007 Freigth Pass Source: NRIC, Study data 6 Track access charge in Europe Figure 2: Average Track Access Charges in Europe (EUR/Train-km) [Euro / train-km] 10 Freight Passengers 8 6 4 2 0 ly ce nd D e nd Ita en Hu i a Po m ia l y Bu ia Fi y k ga an nd ar Ro p. ar an ak ar la iu nd a ed an rtu nl ng Po 7 lg lg Fr Re rl a nm ov rm la m Sw 00 Be er de Sl Ge h -2 itz ec Ne ia Cz Sw ar lg Bu Source: UIC, Study data 10. Fine-tune freight tariffs according to commercial principles. Freight tariffs are fully deregulated enabling railway freight operators in Bulgaria, including BDZ Freight, to set the structure and level of tariffs for their services. This creates fair competition among railway operators and among rail transport and other transport modes. Railway freight rates in Bulgaria have been stable during the last few years—a positive sign of market maturity. The 2005–07 data show a good unit cost/ unit revenue ratio for BDZ Freight (Figure 3) demonstrating BDZ Freight’s financial viability and boding well for the business of BDZ EAD. BDZ Freight should target even higher revenue/cost ratios and increase its efficiency to remain competitive in the Bulgarian and South-East European transport market. Average unit cost / revenue for freight [Eurocents / Net-ton-km] Figure 3: Average Revenue and Cost per Freight Unit (EUR Cents/Net Ton-km) 4 3.73 3.44 3.07 3.00 2.76 2.76 3 2 1 0 2005 2006 2007 Unit revenue Unit cost Source: BDZ, Study data 11. Passenger service cost recovery from tariffs is lower than many European railways. Most tariffs for passenger services are regulated and must be approved by the State, except for international and express trains, which are established strictly on a commercial basis by the railway operators. Compared to other countries in Central and Eastern Europe, Bulgaria has a good legal framework for unregulated commercial services that creates healthy competition among railway operators and other transport modes. But for non-commercial services provided at Government request and based on social or other 7 considerations, the Government establishes the passenger tariff/revenue ratio that determines the amount of compensation for railway operators to provide the service. Establishing a new business model will require Bulgaria to evaluate the need for such services, user affordability levels, and the ability of the State budget to offer market-based compensation levels to service providers. The goal of policy must be to create conditions for a commercial approach to passenger services that will ensure the financial viability of railway operators. 12. A low cost recovery ratio for passenger services is a huge burden on the State budget. The viability of tariff policy for passenger services is primarily determined by the level of cost recovery from tariff revenues. According to 2008 first-quarter data, cost recovery from tariff revenues was 35 percent for express trains, 15 percent for suburban trains, 12 percent for ordinary trains on main lines, and only 9 percent for ordinary trains on secondary lines (Figure 4). By comparison, in many European railways, average minimum cost recovery from tariffs is 50 percent. Therefore, Government should aim to gradually increase cost recovery from tariffs to at least 50 percent for regulated passenger services by simultaneously adjusting tariff structures and levels for all types of passenger services, and by creating incentives in passenger service contracts for operators to keep their costs low. In addition, Government could encourage more competition among operators for passenger service contracts and could base service contracts on outputs not inputs, which would lower costs. Figure 4: Passenger Transport Cost Recovery 20 18.028 18 16 14 12 11.157 11.426 10 8 6.275 6 5.258 4 1.623 1.413 2 0.483 0 Fast Trains Suburban Trains Ordinary Trains (main) Ordinary Trains (secondary) Operating Costs (BGN million) Operating Revenues (BGN million) Source: BDZ, Study data 13. Adequate contractual relationships exist between railway sector and State. Bulgaria has implemented a sound system for transparent allocation of public funds to the railway sector, in line with EU regulations. The State financial contribution is allocated exclusively for infrastructure and passenger services; freight services receive no State support. The State financial contribution conforms to the provisions of Public Service Contracts (PSC) for the operation of passenger trains, and EU requirements for state support to the development of railway infrastructure. 14. A multi-annual Public Service Contract (PSC) is in place for passenger services. This conforms to EC requirements for setting up contractual relationships between the State and the operators that provide railway passenger services. For non-commercial services requested by Government, operators must be compensated by the State for their losses—the 8 difference between operating costs and revenues from regulated tariffs. The current PSC between BDZ EAD and the State was concluded in June 2004, and is revised annually through an Annex to the PSC. The PSC should be improved with specific provisions to clearly link service standards purchased by the Government to the actual payments from the State. 15. A multi-annual contract is in place for long-term railway infrastructure planning and financing between the NRIC and the State. The December 2005 contract specifies NRIC responsibilities as manager of Bulgarian railway infrastructure and as monitor of the utilization of public funds allocated for railway infrastructure. This contract should include specific provisions to increase management accountability and to encourage cost control. Council of Ministers Decision of February 2, 20091 is a sound basis to reinforce future multi-annual contracts. State contributions should be linked to meeting targets specified in the contract. 1 Council of Ministers Decision 66 for approval of a vision for a new Bulgarian railways development policy for the period 2008 – 2013. February 2, 2009. 9 Markets Bulgaria’s transport demand has outpaced the country’s steady economic growth and as the economy has transformed so has the transport market. However, so far, the railway industry has been unable to adapt to these changes and capture its share of the transport market, a share that has been in decline over the past two decades. This decline may continue; today, some lines are uneconomic and some sections of the network may be economically unsustainable in the long term unless the industry can adapt to demand shifts, develop markets, and compete aggressively with other transport means. To do this, railways must develop and implement a market-driven business strategy to provide customers with more just-in-time, reliable, and sophisticated logistics services, and passengers with affordable direct routes that can compete with road and air travel. Options that would help transform the railway into a flexible and nimble industry include the following: 1. Enhance market responsiveness and develop a market-driven strategy - Conduct regular and systematic market research to evaluate existing products and services and develop new ones; design complementary marketing strategies. - Ensure commitment from multiple railway departments to provide new and better services. - Invest in processes, fleet, technology, and human resources. - Establish coordinating mechanisms, service standards, staff rewards, and access to investment funds, before these new services are delivered. 2. Implement a marketing strategy for NRIC to attract clients from competing railway corridors in the international transit market. - Implement infrastructure investments on main lines - Develop a business and client orientation culture at all levels of NRIC. 10 16. Bulgaria’s steady decade of economic growth has stimulated transport demand, including population mobility. Economic growth has attracted more foreign direct investment and significantly increased exports and demand for freight transport. During 2000-06, freight volumes increased by 60 percent, from 12.6 to 20.3 billion ton-km, and passenger traffic increased by 12.5 percent from 40 to 45 billion passenger-km, trends that are similar in other EU countries. Growth in freight demand has surpassed that of GDP, while passenger transport demand generally follows GDP growth (Figure 5). These trends are expected continue, and transport demand is forecasted to almost double in the next 20 to 25 years. 17. The EU transport policy calls for the promotion of railways. Future transport demand in Bulgaria will be influenced by the EU policy that aims for railways to prepare to handle a significant share of transport demand to mitigate road transport externalities such as green house gas emissions, road congestion, and road safety. EU statistics show that road transport is responsible for more than 70 percent of green house gas emissions, and that railway passenger travel is much safer than road travel as measured by deaths per passenger kilometer. 18. Transport demand patterns have changed continuously in the growing economy. Bulgarian railways must adjust to freight transport customers that need more just-in-time and sophisticated logistics services and passengers that will need rail services that can compete with roads because car ownership is increasing rapidly in Bulgaria, and air travel, which is becoming more affordable. Rail links between Sofia and Burgas or Varna on the Black Sea coast, distances of around 350 km, are typical market niches for express train services. Figure 5: Cumulative Growth of GDP, Freight and Passenger Transport in Bulgaria and EU-27 70 EU-27 Freight [ton-km] 60 EU-27 Passengers [pass-km] 50 BG Freight [ton-km] BG Passengers [pass-km] 40 EU-27 GDP [growth to 2000] BG GDP [growth to 2000] 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 Source: UIC, Study data 11 19. Railways have been unable to capture more traffic and consolidate their market position. The volume of freight transported by all modes dropped throughout the 1990s but has been growing ever since; however, railways have been losing market share to road transport (Figure 6). The volumes of transport captured by the railways (expressed in tons- km and passengers-km) declined significantly during the last 18 years. The data show that present freight traffic levels are about 54 percent of those in 1991, and passenger traffic, only 51 percent (Figure 7). This decline reflects the loss of bulk traffic as the Bulgarian economy is now much less dependent on heavy industries, rendering some lines uneconomic, and some sections of the network economically unsustainable in the long term. Traffic volume declines reflect an inability to adjust and adapt to changing market conditions. But there is a positive aspect—international traffic has a larger share in the structure of the freight railway traffic; it increased from 12 percent in 1999 to 26 percent in 2006. However, this increase is the result of increased foreign trade with the EU countries not higher railway sector competitiveness. The shift from road transport to railways was imposed mainly by restrictions enforced on road freight operators in the EU. Figure 6: Evolution of Freight Transport by Rail and Road Rail Ton-km 14,000 Road Ton-km 80% Rail modal share 12,000 70% Road modal share 60% 10,000 50% Freight (Million Ton-km) 8,000 40% Figure 7: Railway Traffic Evolution in Bulgaria 6,000 Bulgaria Railway Traffic Evolution 30% 4,000 10,000 20% 9,000 Pass-km Ton-km 2,000 10% 8,000 7,000 0 0% 6,000 2000 2001 2002 2003 2004 Traffic units 5,000 4,000 3,000 2,000 1,000 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 Source: BDZ, Study data Year 12 20. Railways still play an important role in Bulgarian freight transport. Railways carry 27 percent of freight ton-km, compared to a freight transport market share of 17 percent in the EU2 (Figure 8). In 2007, the rail sector carried 26 million tons and 5.0 billion ton-km of freight. Almost 75 percent of the traffic volume is domestic and nearly 25 percent is import, export, or transit (Table 1). The average transport distance is 233 kilometers per ton of freight and 73 kilometers per passenger transported. The railway carries a broad mix of traffic, but about 50 percent of freight traffic is heavy minerals, fuels, iron, and steel. More than 60 percent of freight is concentrated on seven clients, for example, 25-30 percent for the steel factory Kremikovtzi, shut down in 2008 due to financial difficulties. Figure 8: Freight Transport by Mode in EU-27 and in Bulgaria (2006) Freight Transport by Mode in EU-27 (2006) Freight Transport by Mode in Bulgaria (2006) Oil Pipelines Inland Pipelines Inland 5% Waterways 2% Waterways 4% 5% Rail 27% Road Road 67% Rail 73% 17% Road Rail Inland Waterways Oil Pipelines Road Rail Inland Waterways Pipelines Source: UIC, Study data Table 1: Freight and Passenger Transport by BDZ 2006 2007 Freight handled (1,000 tons) 21,183 20,175 Domestic railways service 1,000 tons 15,885 14,459 1,000,000 ton-km 3,989 3,383 International railway service 1,000 tons 5,298 5,716 1,000,000 ton-km 1,236 1,328 Passengers (1,000s) 34,113 33,283 Domestic railways Service 1,000s 33,905 32,978 1,000,000 pass-km 2,366 2,342 International railway service 1,000s 208 305 1,000,000 pass-km 56 81 Source: BDZ 2 In contrast, railway passenger transport in Bulgaria is weak—only 5.4 percent of transport needs, below even the modest European Union average of 6.9 percent. 13 Assets Both NRIC and BDZ are managing a legacy of underinvestment that has left them with significantly degraded infrastructure and rolling stock assets. As a result, speed restrictions are now imposed on about 75 percent of the railway network, and BDZ’s freight, passenger, and locomotive fleets are old and sometimes, obsolete. Implementing a new business culture in the railway industry in Bulgaria will not be possible without urgent investment in infrastructure and modern fleets to serve more and more demanding customers. Options to support the new business culture in the railway industry include the following: 1. Design and implement a market-driven strategy that enables railway companies to develop an investment program that can support the growth of the railway business in Bulgaria. - Gradually refurbish the rolling stock fleet, and invest in new fleet to satisfy new services. - Increase rolling stock availability using modern maintenance strategy, and increase rolling stock utilization by adopting efficient fleet operation. - Immediately implement a railway infrastructure asset management strategy, including reaching agreement on what size of network is affordable. - Implement SOPT and in NRIC planned investments. - Establish capital planning processes that prioritize projects according to financial rate of return, keeping in mind traffic safety requirements. - Continue with long-term strategic planning. - Strengthen capacity to implement large investment projects. 14 21. Chronic underinvestment has left NRIC and BDZ EAD with significantly degraded infrastructure and rolling stock assets. Bulgarian rail industry requires major investment programs in infrastructure, locomotives, wagons, and coaches to achieve an acceptable level of business efficiency for the benefit of its freight and passenger customers. The Bulgarian rail network has 4,071 route-km of standard gauge, of which 24 percent is double track, and 67 percent is electrified. About 2,915 km of the railway network form the main railway lines in Bulgaria (Table 2). Most of the railway network was constructed more than 50 years ago with standards and facilities that allow up to 100 km/h. Telecommunication, power supply, and safety facilities were installed during 1960 to mid- 1980s, and still use mostly obsolete technology. Underinvestment has led to poor conditions that now require speed restrictions on almost 75 percent of the rail network. Over the past 15 years, an annual average of 25-30 kilometers were renewed and 30-40 kilometers repaired— only 10 percent of the levels of system repairs achieved each year before 1990. These low levels of repair and renewals increase operating costs for the railway infrastructure company and these costs are passed on to the railway operators through the track access charges— higher track access fees for lower quality services. Deferred maintenance increases the cost of assets over their life cycle, creating an additional burden on the State budget. It is urgent that NRIC and Government implement a railway infrastructure asset management strategy, including agreements on rationalizing railway network size to an affordable level. An asset management strategy has already been prepared by NRIC and consultants (Figure 9). Table 2: NRIC Network Characteristics Nr Length of railway network Length (km) 1 Running track (1,435 mm) 4,031 1.1. Double Rail lines (1,435 mm) 948 1.2. Electrified lines 2,854 3 Narrow railway lines (760 mm) 228 4 Station track 1,979 5 Grand Total (1+3+4) 6,238 Source: National Statistics Institute 2005 Figure 9: Bulgarian Railway Asset Management Strategy3 Action Means Agree on an affordable network This is a political decision. If the decision is taken to keep the whole size and manage the network operational, sufficient State support must be provided to NRIC to consequences. implement the Government decision. Improve quality by reinforcing To improve rail infrastructure quality, NRIC needs investment funds for maintenance organization. new materials, light and heavy machinery, workforce mobility, and new management techniques and instruments. Permanently eliminate the Investment funds are essential to permanently eliminate speed restrictions. renewal backlog. Renewals can be designed to incorporate less labor-intensive techniques and systems Develop a strategy to incorporate Manual control of level crossings and local traffic control will disappear less labor-intensive techniques after renewals with new techniques. The strategy must include mitigation measure for social impacts. 3 Tebodin, ProRail, NEA. 2006-2007. Study Reports. Asset Management Strategy for NRIC. 15 22. The rolling stock fleet needs to be refurbished or replaced. Over 88 percent of the existing locomotives, 60 percent of passenger coaches, and 70 percent of freight wagons have outlived their useful economic lifespan of 20 years (Figure 10). Government is supporting passenger fleet modernization, but urgent investment is necessary to modernize locomotives and freight wagons, and acquire the new types of wagons needed to satisfy increasing demands for container traffic. This is essential if BDZ Freight is to survive in the current market. The immediate management objective of BDZ Freight should be to generate enough cash to modernize and adapt the wagon fleet to emerging freight market demands. Unlike private railway freight operators, BDZ Freight has a rigid cost structure, therefore private operators are more likely to adapt quickly, including providing the type of rolling stock that meets new market demands in Bulgaria. Figure 10: Age Structure of Rolling Stock < 10 years 11-20 years 21-25 years 26-30 years > 30 years Coaches Wagons Locomotives 0% 20% 40% 60% 80% 100% Source: BDZ, Study data 23. Considerable investment is necessary to bring rail infrastructure assets up to standards. Government has approved in February 2009 a decision4 on a vision for a new Bulgarian railways development policy for the period 2008 – 2013, including a financing framework for this vision. This vision estimates the required investment, including infrastructure maintenance, current repair, rehabilitation, and maintenance at an average EUR 350 million per year, equivalent to 0.75 percent of GDP annually on average. If these required investments were to be fully implemented during this period, an average of EUR 130 million—equivalent to 0.28 percent of GDP or similar to the level of State contribution to infrastructure in 2007—will have to come from State budget annually to contribute to maintenance and current repairs, and an additional EUR 50 million to complement EU Cohesion Funds, ongoing ISPA program, and planned loans. The majority of the proposed increase in investment in railway infrastructure is proposed to cover investments under the SOPT Operational Program for Transport (SOPT), which are to be financed from EU Cohesion Fund—EUR 464 million over the period 2008 - 2013, to be complemented by EUR 116 million from State budget. In addition, the vision envisages EUR 180 million of loans, and the rest to be financed from internal cash generation through track access charge. 24. Bulgaria should plan to implement these public sector investments within a well- defined medium-term expenditure framework that will maintain macroeconomic 4 Council of Ministers Decision 66 for approval of a vision for a new Bulgarian railways development policy for the period 2008 – 2013. February 2, 2009. 16 stability and take into account implementation capacity. The proposed investments in the Government vision reflect the legacy of underinvestment in railway infrastructure in Bulgaria. They are large relative to the size of the country’s economy, but countries such as Finland, Italy, or Spain in the early years after their EU accession did implement railway investments that represented a high percentage of their respective GDP. Fiscal constraints should be taken into account to adjust infrastructure investments, and in addition to implementing actions aimed at reducing the cost of maintaining the network, rationalization of the network is another option to focus available resources on the core network. There is more than fiscal constraints for these investments, implementation capacity is as important, and NRIC’s capacity to plan, prepare and implement such large investment projects needs urgent strengthening. 17 Operational and Financial Performance During the late 1990s and early 2000s, the Government of Bulgaria and Bulgarian railways implemented a significant restructuring program to improve industry performance. During 1995-04, staffing levels were reduced by 40 percent, and loss-making passenger services were terminated on some 250 kilometers of uneconomic lines. However, these measures were insufficient to compensate for a 40 percent decline in railway business over the same period. Today, using the average performance of EU-27 railways as a benchmark, Bulgaria’s railways industry still suffers from low labor and asset productivity, and its financial performance remains fragile, although stable. It is necessary to implement a new business model, which would require a second wave of reforms to gradually align Bulgarian railways industry operational and financial performance with the average EU level. The new business model should be developed by railway management and supported by Government. The following proposed actions could be considered. 1. Develop a market-driven strategy that enables railway companies to target areas with potential for efficiency and productivity gains. - Increase NRIC productivity * Develop and implement a plan to improve labor productivity over a 5-10 year period in line with traffic demand. * Introduce infrastructure maintenance mechanization and technologies. * Redesign NRIC business processes to modernize traffic control, dispatching, and maintenance. - Increase BDZ EAD productivity * Develop and implement a plan to improve labor productivity over a 5-10 year period in line with traffic demand. * Invest in freight rolling stock that matches the demand and offload excess or depreciated freight fleet. * Redesign BDZ EAD business processes in operating companies and develop freight and passenger business centers. 2. Government, in its role of policymaker, to reach agreement on what size of network is affordable and then to manage the social and financial consequences. - Government to review the network and identify loss-making lines and reach agreement to fund them for social reasons, or gradually close them. 3. Government and NRIC to implement urgent investments to align railway infrastructure with the highest demand and an acceptable operational level. 4. Develop capabilities and tools within NRIC and BDZ EAD to assess the financial performance of specific business categories, and to adapt them to the transport market. 18 Operational Performance 25. Bulgarian railways labor productivity is about 33 percent of the EU-27 average (Figure 11). Traffic has fallen off at a higher rate than staff reductions, resulting in declining labor productivity—from 299,000 TU in 1986 to 224,000 TU in 2007. During 2005-07, staff productivity remained almost unchanged, despite a slight increase in traffic. Bulgarian railway labor productivity is also below that of other Central European railways and the unit cost to transport one ton-km or one passenger-km is sharply higher than other European railway operators, which would prevent railways in Bulgaria from successfully competing with other modes. There are two ways to improve labor productivity: reduce staff or increase business. Careful assessment of the implications is essential on this sensitive issue, which has been faced by many railways in transition. The Bulgarian railway system employs about 34,000 workers, split almost evenly between BDZ EAD and NRIC. In a stable railway market, increasing labor productivity from one-third to one-half the EU-27 average would require some 40 percent labor force reduction, which may be politically, socially, or technically difficult to implement. However, during the 1995-02 ―first wave‖ of labor restructuring, Bulgaria’s success in managing to reduce staff by 40 percent may provide useful lessons for gradually improving railway labor productivity over the next 5-10 years. Staff productivity Figure 11: Railway Staff Productivity in Bulgaria and in EU-27 (Million TU/Staff) 0.800 0.685 0.700 0.600 0.500 0.400 0.300 0.224 0.227 0.224 0.200 0.100 0.000 Bulgaria (2005) Bulgaria (2006) Bulgaria (2007) EU-27 Source: BDZ, NRIC, UIC, Study data. Staff include staff of NRIC and BDZ. 26. BDZ Freight needs fast productivity improvement. Open access to railway infrastructure for private operators is putting BDZ Freight in a tough competition. At least 20 percent of the freight market has been taken by new licensed private operators. In 2009 the difficult conditions of the market generated by the global financial crisis make competition for freight market even harder. The key element to maintain or expand the transport market share is to offer better quality services with lower costs. Bulgarian Railway Company (BRC)—the major private freight operator in Bulgaria—had staff productivity in 2007 seven times higher than that of BDZ Freight reached (Figure 12). Immediate actions are necessary to address this critical situation for the BDZ Freight and the whole BDZ EAD holding. 19 Figure 12: Staff Productivity of BDZ Freight and BRC (Net Ton-km/Staff) 4,000,000 3,773,138 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 556,461 500,000 0 BDZ Freight Bulgarian Railway Company Source: BDZ, NRC. Staff include BDZ Freight only. 27. The NRIC average of 4.23 staff/km is among the highest among EU railway infrastructure managers (Figure 13). Railway infrastructure operating cost affects the efficiency of railway transport services in general. The average number of infrastructure staff per kilometer of track is a generally accepted efficiency indicator for infrastructure operation. Bulgaria’s low productivity leads to higher track access charges for railway operators making railway transport less attractive to new clients and accelerating the shift of traffic from rail to roads. (Compounding the effects of poor infrastructure quality—speed restrictions, hazard locations—discussed earlier in this note.) One option to offset the effect on operators of low staff productivity would be for Government to cover a larger portion of infrastructure costs, which would help keep track access charges under control. However, this would appear to endorse NRIC’s low productivity, and a more beneficial long-term solution would be to invest in efficiency-increasing measures for railway infrastructure operation (maintenance, repair, traffic control) by two interlinked actions. First, mechanize and automate infrastructure operations, and second, implement condition-based maintenance for railway infrastructure. Average staff per km Kilometer of Track Figure 13: Average Staff per of track 6 4.96 5 4.23 4 3 2.63 2.15 2 1.41 0.94 1.08 1.05 1 0.71 0 l ER il C SR ai IF FR V K Ra RI -B DB oR AD EF -Z -C -N en k Pr k- ia -R ia n- or ia ed ar ak s- an ai al w ar nd nm Sw ov ug Sp et m lg la -N Ro Sl Bu rt De er Po UK th Ne Source: UIC, Study data, UIC 20 28. Railway traffic intensity is low. Railway networks respond to large economies of scale—the higher the traffic levels, the lower the unit operating costs. Traffic intensity in Bulgaria, with 1.9 million traffic units per rail-route-km is about half the average traffic intensity in EU-27 (Figure 14), which makes access to the country’s infrastructure more expensive than other railway networks. In fact, for most railways, more than 80 percent of the traffic is achieved on less than 40 percent of the network. These figures were confirmed for Bulgaria through a detailed analysis of the traffic density of different railway lines, combined with the fact that the country’s network is large for its size, which is the case in many railways, especially in Central and Eastern Europe. This reality is a consequence of major traffic pattern changes over the past 20 years rendering some lines uneconomic, and some network sections economically unsustainable in the long term. 29. Aim for rail traffic density comparable to the EU average (Figure 14). It is strongly recommended that Bulgaria develop long-term plans to right-size the railway network, modernize the core network, achieve inter-operability with European railways, and maintain sufficient connections with neighboring countries’ railway networks. Rightsizing will involve some combination of options, such as closing some uneconomical lines, and reclassifying remaining railway lines into categories based on strategic importance and traffic levels. Policies for modernization and operation could be developed for each category, including rules for allocating infrastructure cost, involving local authorities in covering infrastructure costs of secondary lines deemed necessary to their area of the country and lobbied for by local interests; granting exclusive rights to selected private operators for some secondary lines by leasing of infrastructure and rolling stock, etc. (Million TU/route-km) Figure 14: Traffic IntensityTU per route-km) Traffic intensity (Million 4.000 3.620 3.500 3.000 2.500 2.000 1.815 1.841 1.904 1.500 1.000 0.500 0.000 Bulgaria (2005) Bulgaria (2006) Bulgaria (2007) EU-27 Source: BDZ, UIC, Study data 30. Railway fleet and locomotive productivity is very low compared to other EU railway operators (Figure 15). Cash generation in railway operations depends on efficient use of wagons, coaches, and locomotives. High utilization of rolling stock and fleet availability for operation are important indicators for railway efficiency and BDZ EAD has been unable to improve asset productivity during the last three years, during which freight wagon and locomotive productivity remained almost unchanged, and coach productivity declined by about 9 percent. Compared to average EU-27 productivity, BDZ EAD coaches 21 were at 39 percent, freight wagons at 50 percent, and locomotives, 44 percent. The low utilization level of rolling stock is due to low fleet availability from a maintenance backlog (too many units awaiting repair); unreliable and fully depreciated fleet (frequent breakdowns, or units that should be scrapped); and low fleet operation efficiency. These factors generate higher freight and passenger traffic costs for BDZ EAD, leaving them unable to compete with roads or other potential rail competitors, jeopardizing their market position, and making them vulnerable to losing customers to other operators. Figure 15: Rolling Stock Productivity (per unit) 35,000 30,000 28,793 Bulgaria EU-27 25,000 20,000 15,000 12,733 10,000 8,350 4,190 4,534 5,000 1,788 0 Locomotives [1,000s TU] Freight Fleet [100s TU] Passenger Fleet [1,000 TU] Source: BDZ, UIC, Study data Financial Performance 31. Overall, the BDZ and NRIC financial situation is improving but fragile. The BDZ share of traffic is declining due to competition from road transport and private rail freight operators. Two major private rail freight operators and three new entrants account for about 10 percent of the rail freight market. Including the impact of private operators, rail transport has stabilized since 2006. The poor technical condition of the rolling stock impedes BDZ EAD operational efficiency gains. For NRIC, lack of resources has led to deteriorating rail networks and operating capacity due to more speed restrictions and hazard locations. 32. BDZ plans to improve productivity and efficiency, is gradually becoming independent, is improving results, and continuing to deepen reforms through organizational and labor restructuring. BDZ had bond issues in 2004 and 2007 to refurbish and modernize its operating fleet, clear debt payment arrears, and reduce financing costs. NRIC has completed internal reorganizations to improve accountability for revenue growth and cost reduction. NRIC plans to reduce infrastructure costs through mechanizing operations and implementing economic maintenance practices and procedures. 33. BDZ annual sales averaged about EUR 200 million in 2006 and 2007. BDZ financial performance improved in 2007—because Government cut track access charges for passenger services; because there was a one-off sale of non-operational fixed assets; because of a year-end supplemental allocation of BGN 30 million for PSC; and because there was a second bond issue of EUR 120 million. As a result, BDZ ended 2007 with net profits of BGN 24 million, compared to BGN 30 million of net losses a year earlier. The company is clear of 22 all payment arrears. The working ratio (without subsidy) improved from 115 percent in 2006 to 102 percent in 2007. 34. A EUR 120 million bond was issued in November 2007 on a private placement with five institutional investors with a 10-year maturity including an 18-month grace period, at a variable 3-month EURIBOR plus 3.5 percent spread per annum. Bond proceeds financed the refurbishment of 1,200 freight wagons (EUR 20 million), debt incurred for the purchase of 25 diesel locomotives (EUR 40 million) and, the clearing of arrears to NRIC and the electricity company (EUR 60 million). The wagons refurbishment, prepayment of higher interest loan, and payoff of long overdue trade liabilities should increase operating revenues and reduce interest and penalties, thereby improving the BDZ financial position. The first bond was issued in 2004 for EUR 30 million to refurbish 3,600 freight wagons secured by the refurbished wagons. Both bonds were issued without State guarantee. 35. A main concern for BDZ is the future production volume of its major client Kremikovtzi steel factory, which filed for bankruptcy in 2008; its production declined sharply from 25 percent of BDZ’s total freight traffic and revenue in the recent past, to less than 10 percent in 2008. BDZ foresees a 13 percent reduction of freight ton-km in 2008, while passenger traffic is expected to stabilize at 2007 levels. BDZ has set a five percent target for downsizing staff to minimize losses, issues that were discussed during the collective agreement negotiations with trade unions in late 2008. 36. NRIC’s annual revenues averaged EUR 125 million in 2006 and 2007. This included EUR 75 million per year from the track access charge. The NRIC financial position also improved in 2007 as Government allocated a supplemental budget of BGN 40 million, including compensation for BGN 25 million cut in track access charges for BDZ. Thanks to BDZ clearing its arrears for access charges, NRIC eliminated its BGN 38 million arrears to the State budget and its chronic cash shortage. NRIC is now current with the tax payments. 37. NRIC’s ratio of labor cost in the total operating cost is fairly high at 40 percent. As a result of reevaluation of assets, annual depreciation cost (non cash) doubled from 2004. The working ratio (without subsidy) deteriorated from 104 percent to 133 percent because of the reduction in access charges and sharp increase of labor cost as a result of salary increases and increase in the number of temporary staff for safeguarding and security of railway assets. 38. During 2007-08, the overall financial performance of the Bulgarian railway system improved. However, the newly created structures will need detailed financial analyses to help develop successful marketing and operational strategies. They must develop IT tools to assess the financial performance of specific categories of business: (a) NRIC by type of lines (international corridors, main lines, and secondary lines), (b) BDZ Passengers by type of servicers (international, Inter-City, Regional, Local trains), and (c) BDZ Freight by type of commodities (coal, ore, metallurgic products, raw materials, chemical products, cement, etc.). 23 State Financial Contribution to Railways EU legislation allows state financial support for railway undertakings and railway infrastructure managers including public service obligations (PSO), infrastructure financing, specific operating costs, historic debt, and restructuring. During the late 1990s and early 2000s, the Government of Bulgaria and Bulgarian railways implemented a significant restructuring program that reduced the State financial contribution from more than 0.8 percent of GDP to around 0.4 percent in 2005. In 2007, this contribution increased to 0.56 percent, reflecting stronger Government commitment to the industry, but still in line with EU directives and practices. Given the deteriorated state of Bulgarian railway infrastructure, a high share of GDP may be necessary in the future. However, over half of the State financial contribution pays for passenger service obligations, the rest is used for infrastructure. Most EU-15 countries’ spending for infrastructure is double that for passenger service obligations, because productive investments in infrastructure are typically a priority. Therefore Government should balance its public policy choices to avoid jeopardizing its significant accomplishments in the railway sector so far. The following actions are proposed to be considered: 1. Government to conduct a detailed analysis of the use of public funds allocated to the railway sector to optimize the State contribution. 2. Government to establish infrastructure’s priority over passenger services for State contributions. 3. NRIC to reduce infrastructure costs by acquiring modern track machinery with higher productivity for infrastructure maintenance and repair; implement IT systems for cost control, traffic, and maintenance management; adopt condition-based maintenance. 4. Government, as policymaker and client, to adjust the level of public passenger services to be commensurate with budget constraints, including the following: - Evaluate current and future market for passenger railway transport. - Develop medium-term forecasts for local and long distance railway passenger demand under several fare and service scenarios. - Correlate the social railway passenger transport services with Bulgarian population travel requirements and Government capacity for compensation. - Identify the extent, type, and service level of railway passenger services, selecting commercially viable services, and social railway passenger services that are consistent with BDZ Passengers’ revenue and PSC budget. - Identify measures to reduce passenger railway transport service costs. - Develop a methodology to award PSCs on a competitive basis, including output- based contracts. - Consult with local governments and consider financial contributions from them for services they deem necessary. 24 Overall State Financial Contribution 39. European Commission studies compared amounts and characteristics of EU member countries’ state financial contributions to the railway sector and found a wide variation and inaccuracies in financial contribution reporting. However, available data provide a good indication of the range of financial transfers from state budgets to the railway sector. 40. In 2007, total State contribution to the Bulgarian railway sector was about EUR 140 million or 0.56 percent of GDP—one tenth of a percentage point higher than EU average in the past several years—but justifiable in the face of the huge backlog of infrastructure maintenance and investments and low passenger tariffs. In recent years, about 0.4 percent of total EU-15 GDP went to the railway sector in various ways (Figure 16). The United Kingdom has the lowest ratios of budget contribution to national GDP (0.29 percent in 2004, 0.18 percent in 2001), and Spain (0.16 percent in 2004, 0.20 percent in 2001—excluding public spending on the high-speed railway system). State financial contributions to the railway sector were the highest to GDP in the Netherlands (0.56 percent in 2004, 0.58 percent in 2001), followed by Sweden (0.41 percent in 2004, 0.38 percent in 2001), France (0.39 percent in 2004, 0.43 percent in 2001), and Germany (0.37 percent in 2004, 0.45 percent in 2001). Moreover, in the 1990s, clearing the historical debt of the large railway undertakings in Europe such as in Germany and France required significant State funding. 41. On average, the EU-15 Governments supported their railway system at the ratio of 6.5 euro cents per traffic unit in 2004, 6.4 in 2001. The expenditure level varies significantly among countries: 3.99 euro cents per traffic unit in Spain, 19.57 in the Netherlands, and 21.02 in Ireland, all in 2004. Yet, it was found that many countries contribution ratios fall between 4 and 6.5 euro cents per traffic unit. In 2007, State contribution per traffic unit was 1.90 euro cents per traffic unit in Bulgaria (Figure 16). Figure 16: Total State Financial Contribution in Selected EU-15 Countries Public budget contribution total 25 0.70% In 2001 (€ cents/TU) In 2004 (€ cents/TU) In 2001 (% of GDP) In 2004 (% of GDP) 0.60% 20 0.50% 15 0.40% 0.30% 10 0.20% 5 0.10% 0 0.00% Finland France Germany Ireland Netherlands Spain Sweden UK EU15 Source: NERA 2004, NEA 2008, Study data 25 Figure 17: State Budget Contribution (in Million BGN and % of GDP) State budget contribution (in Million BGN and % of GDP) 160 0.56% 0.6% 140 130 0.43% 0.43% 0.5% 120 145 0.4% 100 93 89 115 87 80 0.3% 60 0.2% 40 0.1% 20 0 0.0% 2005 2006 2007 Passenger Infrastructure % of GDP Source: BDZ, NRIC, Study data Passenger Services 42. Since the 2004 Public Service Contract with BDZ Passengers, the State has steadily increased its financial contribution to compensate for non-commercial passenger services. In 2007, the State contribution was 56 percent higher than in 2005, an increase due to the Government’s effectively transferring funds committed in the PSC, unlike past years when most of the PSC services remained unfunded. However, this increased State contribution has not been matched by reduced BDZ Passengers costs. For example, during 2005-07 the average unit revenue from tariffs decreased and the average unit operating costs increased (Figure 18), resulting in a lower cost coverage ratio: the average unit revenue reached in 2007 was only 19 percent of the average unit cost compared to 23 percent in 2005. The increase of the state contribution during 2005-07 was insufficient to balance the income statement of BDZ Passengers. Even with the 2007 PSC compensation, BDZ Passengers can cover only 85 percent of its costs. 43. In Bulgaria, average PSO payments per passenger-kilometer are between 2.5 and 3 Euro cents (Figure 18). In 2004, among EU-15 countries, the governments contributed an average of 4.02 euro cents per passenger-km for PSO (Figure 19). In the Netherlands and Ireland, contributions were significantly higher—12.3 and 15.2 Euro cents per passenger-km, respectively. Most other countries allocate public budget to PSO at ratios between 4-7 Euro cents per passenger-km. The PSO payments per passenger-kilometer are however difficult to compare between countries because of the questions of purchasing power parity as well as the issues of cost structure of providing the service, especially labor costs. 44. The State contribution to the railway sector for passenger service obligations, as a share of total State contributions to the railway sector, fluctuates between 50-55 percent annually, a higher share than many EU railways. For example, out of EU-15 total budget contributions to the railway sector, 30 percent in 2001 and 35 percent in 2004 were for PSO. 26 Average passenger unit cost / revenue Figure 18: Average Cost and Average Revenue per Pass-km (EUR Cents/pass-km) [Eurocents / pass-km] 5 4.61 4.61 4.35 3.94 4 3.01 3.48 3 2 1.03 1.05 0.88 1 0 2005 2006 2007 Unit revenue (no PSC) Unit revenue (with PSC) Unit cost Source: BDZ, Study data Figure 19: State Financial Contribution to PSO in Selected EU-15 Countries (EUR Cents/pass- km) Public budget contribution to PSO (€ cents/pass-km) 16 2001 2004 14 12 10 8 6 4 2 0 Finland France Germany Ireland Netherlands Spain Sweden UK EU15 Source: NERA 2004, NEA 2008, Study data Railway Infrastructure 45. In 2005, the NRIC and the State concluded a multi-annual contract that led to a gradual increase of State financial support to the railway infrastructure. In 2007, this support reached about 0.25 percent of GDP; in 2004, EU-15 countries allocated an average of 0.15 percent of national GDP for railway infrastructure investment (Figure 20) although this excludes major investment programs such as the one for Spain’s high speed train. In addition, EU-15 railway infrastructure is relatively mature, whereas Bulgarian railway infrastructure requires more investment to recover form the past 20 years of underinvestment. 27 Figure 20: State Financial Contribution to Infrastructure in Selected EU-15 Countries (% of GDP) Public budget contribution to infrastructure (% of GDP) 0.60% 2001 2004 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% Finland France Germany Ireland Netherlands Spain Sweden UK EU15 Source: NERA 2004, NEA 2008, Study data 46. Due to increased State financial support in Bulgaria, the track access charge for Bulgarian railway operators to utilize the railway infrastructure reached the levels of average European practices. The present level of track access charge covers about 45 percent of railway infrastructure costs (Figure 21). Assuming NRIC’s total expenditures are sufficient to maintain and operate the network, the current share of track access charges in NRIC’s total costs is in line with the EU levels. Investments in increasing the efficiency of NRIC in maintenance and repair of Bulgarian railway infrastructure should lead to lower operating costs and create conditions, in the medium term, to reduce State support, while maintaining or increasing cost recovery ratio of track access charge. Sources of Figure 21: Sources ofFinancing for NRIC Expenditures Expenditures Financing for NRIC 100% 80% 60% 40% 20% 0% 2002 2003 2004 2005 2006 2007 Track Access Charge State Budget Sources: NRIC, Study data 28 References and Selected Bibliography  Community of European Railways. 2004. European Railway Legislation Handbook.  Community of European Railways. 2007. Competition in Europe’s Rail Freight Market.  European Commission. 2001. White Paper: European transport policy for 2010: time to decide.  NEA 2008. Impact Assessment of Guidelines on State Aid to Railway Undertakings.  NERA 2004. Study of the Financing of and Public Budget Contributions to Railways. A Final report for European Commission DG TREN.  Republic of Bulgaria, Council of Ministers. 2006 May. National Strategy for Integrated Development of the Infrastructure of the Republic of Bulgaria for the Period 2006-2015.  Republic of Bulgaria, Council of Ministers. 2009 February. Decision 66 for approval of a vision for a new Bulgarian railways development policy for the period 2008 – 2013. February 2, 2009.  Republic of Bulgaria, Ministry of Transport. 2005. Strategy for Development of the National Transport System of the Republic of Bulgaria until 2015.  Republic of Bulgaria, Ministry of Transport. 2007. Sectoral Operational Program Transport 2007- 2013.  Tebodin, ProRail, NEA, NRIC. 2006-2007. Study Reports. Asset Management Strategy for National Railway Infrastructure Company (NRIC).  World Bank. 1995 May 19. Staff Appraisal Report. Railway Rehabilitation project (Loan 3922- BUL). Report No. 13443-BUL.  World Bank. 2003 January 23. Program Document. Programmatic Adjustment Loan I. Report No. 25374-BUL.  World Bank. 2003 March 3. Implementation Completion Report. Railway Rehabilitation project. Report No. 25128.  World Bank. 2004 May 4. Program Document. Programmatic Adjustment Loan II. Report No. 27473-BUL.  World Bank. 2005 December. Railway reform in the Western Balkans. Europe and Central Asia. Chief Economist’s Regional Working paper Series. ECSIE. Vol. 1, No. 2. Martin Humphreys, Martha Lawrence.  World Bank. 2005 January. Reform, Commercialization and Private Sector Participation in railways in Eastern Europe and Central Asia. World Bank Transport Papers. TP-4. Paul Amos.  World Bank. 2005 May 31. Project Performance Assessment Report. Railway Rehabilitation project. Report No. 32486.  World Bank. 2005 May 4. Program Document. Programmatic Adjustment Loan III. Report No. 30696-BG.  World Bank. 2006 June 26. Implementation Completion Report. Series of Three Programmatic Adjustment Loans. Report No. 36603.  Website NRIC: www.rail-infra.bg/cms/opencms/menu/bg  Website BDZ: www.bdz.bg  Website Bulgarian Ministry of Transport: www.mtc.government.bg  Website Bulgarian Railway Authority: www.iaja.government.bg/IAJI/engwwwFWRAEA.nsf/index.htm?ReadForm 29