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Next Stop on Balkan Railways – Restructuring

26 06 2007  After years of neglect, new investments aim to save ailing railways in the former Yugoslavia.

By Kire Kocevski in Skopje and Jovana Gligorijevic in Belgrade

Grimy stations, rusty tracks, rickety carriages, broken windows, ill-conceived timetables and late arrivals.

Of the glamour that once rode the Balkan rails, all that remains are the many splendid views that travellers can still glimpse from moving trains – the lone aspect of former Yugoslav railways impervious to severe degradation through decades of underinvestment.

Not since 1977 has the luxury Orient Express swept through as it once did, visiting Balkan capitals between Paris and Istanbul. Even James Bond paid a visit then, riding in style from Belgrade to Zagreb in the 1963 film of “From Russia with Love”.

Bond returned to the region by rail last year in “Casino Royale”, riding what filmmakers presented as a sleek Montenegrin high-speed train. But local viewers wondered at it. In real life no such service exists. In Montenegro, the big rail story last year was the Bioce disaster, in which an old train derailed on the once-fabled, now-ailing Belgrade-Bar line, killing 47 passengers.

Facing such grim realities, few travellers and commuters in the former Yugoslavia consider train travel a viable option. A consequent lack of revenue, coupled with meagre support from state budgets, means that the region’s state-owned railway companies must get creative in order to survive.

Only in Slovenia and Croatia have notable improvements been seen.

But at last, plans throughout the former Yugoslavia are taking shape. With credits and restructuring on the cards, a new wave of investment is on the way, starting small but reaching even the region’s poorest railways.

Macedonian Railways, one of the poorest, is this week preparing to receive the first installation of a loan from the World Bank which, by the standards of recent years, looks very big indeed.

The 19.4 million dollar loan, with a half-million dollars of supplementary funds added from the Macedonian side, will go toward the stabilisation of existing railways, construction of related communications infrastructure, the repair of 60 carriages and the purchase of two new electrical engines and 20 new carriages.

Denis Boskovski, senior local staff member at the World Bank office in Macedonia, says the loan fits with the international development bank’s investment strategy for Balkan railways, which focuses on “improving service quality”.

Other railway systems in the region have already seen higher levels of investment, but the impact has been uneven from country to country, and even regionally within some countries, most notably Bosnia-Herzegovina.

In 2006, more than 500 million euros were spent on refurbishment of infrastructure in the former Yugoslavia. Of this, more than 300 million euros were spent in the Republika Srpska, the Serb-majority area of post-war Bosnia-Herzegovina. The smallest amount of spending was seen in Macedonia.

Though in most former Yugoslav countries, most investment has gone toward upgrading physical infrastructure, tracks and trains, levels of spending remain far below projected need. As a result, in Serbia more than two thirds of engines last year were listed as “broken”. In Macedonia, half the stock of engines and wagons were listed as broken or deemed “unsafe” for use.

Commercial use of railway transport is therefore minimal, as well, as large importers and exporters continue to prefer transport of goods by truck, on major highways that have already benefited from earlier-starting investment programmes.

Cash is in the pipeline. In Serbia, whose government views its railway investment needs as the most expensive in the region – reaching a total of 3 billion euros – numerous international lenders are already engaged in the effort. Like Macedonia, Serbia last year sought new credits to accelerate upgrading of its portion of “Corridor X”, a major transport corridor that remains a vital trans-Balkan link between western Europe and Turkey.

Among the institutions engaged are the European Bank for Reconstruction and Development, which lent 80 million euros for improving service quality on Serbia’s portion of Corridor X, and the European Investment Bank, which lent an additional 60 million euros for the purchase of 1100 stock transport wagons. Negotiations with the World Bank are also underway.

Even at this improved pace of investment, state-owned railway operators in the region estimate that the region remains at least ten years away from a return to standards that could be considered competitive elsewhere in Europe.

Moving in parallel with investment plans are new plans for restructuring and, in some cases, potential privatisation.

Macedonia offers a current case in point. The World Bank loan is directly linked to a plan to divide Macedonian Railways into separate companies for infrastructure maintenance and railway operations. “Transformation” as the restructuring plan is called locally is seen as a prerequisite for effective investment.

“It is going to be hard. The infrastructure is damaged, and we need investments. That is the next thing to focus on, right after transformation,” says a spokesman for the Macedonian transport ministry.

However, Slovenia – often viewed as a model for Macedonian reforms – has shown a way forward. Slovenia’s railways never suffered from the acute underinvestment seen elsewhere in the region, but their partial privatisation has nonetheless boosted railway travel in the country.

Meanwhile a restructuring programme for Croatian Railways, launched in 1998 and followed soon thereafter with an ambitious investment and modernisation programme, has invited a return to the rails for both passengers and commercial clients. Traffic volumes remain below half the 1990 level, but this is much higher than elsewhere in the former Yugoslavia, with the exception of Slovenia, and volumes in Croatia are rising steadily according to a World Bank report on railways in the region.

However, restructuring and privatisation offer no easy fix. In the Republika Srpska, a recent effort at railways privatisation failed.

Railways privatisation has gone wobbly in some European countries outside the region, to both the east and the west. A key case is Estonia, a new European Union country widely portrayed as a leading eastern European reformer. Following a troubled privatisation, Estonia’s railways were renationalised at the beginning of this year.

With such experiences in view, the region’s largest country, Serbia has opted against privatisation. Yet foreign and domestic private operators are still to be given scope for market entry, through a licensing process.

With a variety of approaches being adopted by different governments and operators across the region, experiences of rail transport through the former Yugoslavia are likely to remain highly varied as well. But with credit at last rolling in even where reforms have lagged, international finance is now at least one unifying factor.

Kire Kocevski is a journalist with Kanal 5 Televizija in Skopje. Jovana Gligorijevic is a journalist with the weekly magazine Vreme in Belgrade. Balkan Insight is BIRN’s online publication.

This article was published as part of the project: "Bosnia and Herzegovina and Neighbours: Training and Reporting on Economic Dialogue" supported by the British Embassy in Sarajevo.