Restructuring: the Bulgarian key for success

Historically, the state railways in Bulgaria have always been the most significant part of the national railway system, which embraces industrial lines, factories and mine railways too. The split-up between the railway operator and the infrastructure manager in 2002, was a major change and a process which continues today.

From a strictly formal point of view, the general condition of Bulgarian State Railways EAD (BDZ EAD) has not changed even after the separation of the company from the infrastructure manager. This conclusion is based upon the assessment of the mutually balancing, opposite trends in freight and passenger services and the related operational and economic indicators (such as traffic, performance, etc.) in the context of the general economic growth of Bulgaria.

The freight service market has developed rapidly with regards to international services, while as far as domestic services are concerned – this market has remained relatively underdeveloped. More than half of the domestic freight services by road, for example, are carried out at the expense of the companies which own the freight lorries. Generally, the freight service market can be described as a market with surplus capacity and an inadequate amount of quality (with respect to demand) for the offered freight services.

The freight services market share of BDZ EAD is 6% (in terms of nettonkilometer performance). The previous tendency for reduction of freight volumes was discontinued but still we do not observe a clear tendency for growth. This fragile balance is due to the simulaneous impact of two, mutually-opposing trends – namely, the growth of international railway transports (import, export and transit) and the reduction of domestic transports, including the import/export via ports.

The freight volumes in 2006 amount to 21.250 million tons, which is 4.7% more than the freight volumes in 2005.
The otherwise favourable trends for further growth of international railway services and of combined services should be considered in the context of the forecasted shift of freight consignments from BDZ EAD to other road and railway carriers. Nevertheless, in 2006 the company managed to expand the block-train operations by commissioning new block-trains from Pernik to Thessaloniki and a second container block-train along the route Sofia-Thessaloniki-Sofia. As far as domestic freight services are concerned, BDZ EAD has increased by 20% in comparison to figures for its block-train transports in 2005.

On the other hand, the market of passenger services in our country develops rapidly. More and more people prefer to travel by car in result of the inadequate quality of the public transport services (both road and rail). If we take into consideration the potential of travelling by one’s own car, we can describe pasenger services in Bulgaria as a market with an enormous surplus capacity and inadequate quality of public passengers services. This results in particularly low price leves for passenger services, thus depriving public passenger operators the opportunity to generate sufficient revenue.

The market share of BDZ EAD in the sphere of passenger services has been declining and currently amounts to 4-5%. International passenger services by rail remain at minimum levels with one exception – travels between Bulgaria and Greece have increased considerably in result of the commissioning of a direct sleeping car between Sofia and Athens.

In 2006 BDZ EAD transported 34.650 million passengers, which is only 2.7% more than the number of passengers transported in 2005.

Favourable forecasts for passenger services could only be made in a long-term perspective as they depend entirely upon the regulatory framework and the radical improvement of railway infrastructure. In a short-term perspective, if we manage to discontinue the decline of passenger services by rail, this should be considered as a success.

Currently, BDZ EAD functions in a dynamic and competitive environment with a relatively high degree of price sensitiveness, which curtails the possibilities for growth of the revenue from traditional customers. The marketing re-orientation of our company encompasses not only the efforts for identification of new customers and entry into new markets, but also the dynamic management of expenditure. The revenue-related indicators grow slower than the expenditure-related indicators as most of BDZ EAD expenditures are allocated for infrastructure access charges, traction needs and maintenance of rolling stock.

The railway lines in Bulgaria were built for speeds in the range between 60 and 130km/h and the gradients are not only frequent, but quite considerable as well (30 / 1000). Only 27% of the railway lines are doubled. In the railway network, there are 660 sections where traffic speed is permanently restricted to 15-25km/h and 80 other line sections where speeds are temporarily restricted. The poor condition of railway infrastructure causes serious problems for the transportation process, such as train delays, extended turn-over of rolling stock, etc. Any railway infrastructure, which was built with slender financial means and is not adequately maintained generates high operational costs. Technically speaking, the infrastructure is the key factor for the competitiveness of the railways in Bulgaria.

Over 70% of the BDZ EAD locomotive fleet are more than 25 years old. The only exceptions are the eight modernised electric locomotives and the newly procured Desiro diesel trainsets. The average age of the wagon and coach fleet is also above 25 years and half of the fleet needs emergency overhaul. Daily, the company operates with 91 passenger coaches and 120-180 freight wagons less than necessary.

The technological restructuring is based upon the application of a marketing approach to the evaluation and specification of alternative technological solutions with a view to the enhancement of economic efficiency. To name only a few of the necessary new technological and operational solutions, we should point out the improvement of train and shunting operations and the large scale implementation of combined services (inlcuding transports of containers, swap bodies, semi-trailers, Ro-La).

Furthermore, one of the ongoing tasks is the implementation of a high level of traffic safety. The challenges here are related to the integration into the ERTMS, which is a highly innovative system, combining interoperability and safety, technological and technical solutions, signalling and information systems, standardisation and common European policy.

Technical renovation is an inherent part of the overal technological restructuring process and includes the modernisation and procurement of locomotives, passenger coaches and freight wagons, multiple units, etc. In 2006, BDZ EAD put into operation all of the 25 diesel Desiros along non-electrified lines in different regions of the country and as a result, there was a 30% increase in the passenger flow along the routes operated by the new trains.

The company also procured 21 second-hand passenger coaches with special compartments for disabled passengers and at the end of 2006 it was in the position to offer services for customers with reduced mobility along four new routes. Therefore, the overall number of routes in the country, along which BDZ EAD can serve disabled people, increased to eight. Furthermore, in 2006 BDZ EAD launched a bidding procedure for the leasing of 100 second-hand passenger coaches and plans to open a bidding procedure for the procurement of 30 new sleeping cars. The business plan of the company for 2007 envisages the modernisation of 63 locomotives, the modernization and overhaul of 1,850 freight wagons and of 639 passenger coaches. The total investments in this fleet renovation project will amount to BGN 104.7 million.

In order to successfully meet the challenges posed by our country’s accession into the EU, in 2006 the company started a process for redesigning its organisational structure and as of the 1 January 2007, the new structures have been enforced. The main objective was to separate in accounting terms the main business activities, thus achieving the discontinuation of the cross-subsidizing from freight to passenger services and the enhancement of cost management. Thus, passenger, freight and traction services were split up into three divisions, each of them with their own accountancy and IT units.The new organizational structure will allow for a clear cut definition of responsibilities, thus making it possible to evaluate individual performance against precise indicators. The restructuring process was implemented with the clear recognition of its social aspects and did not result in any downsizing of personnel.

The main objective of BDZ EAD is the enhancement of its competitivess. In order to preserve its market positions, the company should improve significantly its economic efficiency. The provision of high-quality service to the customers necessitates the implementation of modern operational and technological solutions, new rolling stock, highly qualified and motivated personnel. These are the key factors for the successful integration into the market for domestic and international railway services.

About the author

Mr. Oleg Petkov was appointed Executive Director of BDZ EAD in October 2005. He has an M.Eng.Sc. degree from the Technical University in Sofia and a post-graduate degree in railway transport management. Mr. Petkov began his career as a technologist in the Freight yard of Plovdiv. Subsequently, he held managerial positions in movement and commercial operation units. Between 1992 and 1997, Mr. Petkov headed the Regional railway division of Plovdiv. From 1997 till 2005, Mr. Petkov held managerial positions in private transport and forwarding companies.