RESTRUCTURING generates MODERNISATION in Croatia

The end of October 2012 saw the finalisation of the status and structural changes to the HŽ Holding system in the scope of the Restructuring Programme, and now we are entering a new phase in the organisation of the railways in Croatia in which three independent companies will seek new business opportunities on the liberalised market of railway services. These companies are HŽ Infrastruktura d.o.o. (management, maintenance and construction of railway infrastructure), HŽ Putnički prijevoz d.o.o. (passenger transportation) and HŽ Cargo d.o.o. (freight transportation).

All this began with the passing of the Railways Act in 2003 and its amendments in 2009, as well as the Act on the Division of the Trade Company HŽ-Hrvatske željeznice d.o.o. These acts set up the strategic, legal and structural platform for the reorganisation of the Croatian railway system in accordance with EU directives. Thus, HŽ-Hrvatske željeznice d.o.o. was divided into independent trade companies, each with its own core activities. The preconditions were created for the business organisation of each company for market competition imposed by the liberalisation of track access to other undertakings on the railway transport market.

This organisation is in accordance with EU requirements for providing non-discriminatory railway infrastructure access to all operators who meet the requirements, as well as trans – parent subsidising and use of state budget funds. Also in accordance with the specifics of the activities of each company are a rationali – sation of business operations and a more efficient management of resources on the open market.

The new Management Board, which was placed at the head of what was still HŽ Holding on 29 February 2012, was given a challenging assignment – to draw up the Restructuring Programme in a very short time with the aim of achieving an adjustment of the railway system for the liberalised market by 1 July 2013 – when Croatia is set to join the EU. The Programme was drawn up internally without the aid of consultants. The first phase was finalised with the division into three companies as of 31 October 2012, and the implementation of the Programme continues at the same pace through the internal restructuring of each individual company, in order to achieve the set targets.

Thus, a new chapter in the history of Croatian railways began on 1 November 2012 as the following three independent companies became known:

HŽ Infrastruktura

This company’s activities include the manage – ment, maintenance and construction of tracks and traffic regulation. Regular business operations include financing from the state budget and track access charges.

HŽ Putnički prijevoz

This is a passenger transportation operator that aims to achieve sustainable market orientated business operations with minimal state budget subsidies for public interest services.

HŽ Cargo

This is a freight operator that aims to achieve sustainable market orientated freight transportation.

The role of HŽ Holding has been taken over by the Ministry of Maritime Affairs, Transport and Infrastructure of the Republic of Croatia which coordinates the development of the three companies in order to ensure high quality traffic and transport services.

New beginning

This new beginning does not mean that restructuring is finalised but rather indicates that it is just the beginning: The Programme foresees activities in business and financial restructuring, and investments in technology modernisation. The next step is the restructuring of subsidiaries in each of the three companies, further mergers, separations, transfer of shares and even bankruptcy with or without reorganisation.

In parallel to the status changes, the biggest task that is faced by the largest of the three companies – HŽ Infrastruktura – is its financial consolidation with the aid of bank loans with state guarantees. It also has intensified activities in order to absorb as much financing as possible for investments from EU funds. In order to increase the quality of railway infrastructure, HŽ Infrastruktura has drawn-up an investment plan with projects up to the end of 2016 according to which investments in construction are planned to the amount of €1.3 billion of which €332 million is their own funds and €1 billion is from EU funds. Financing from EU funds will be of great assistance in these times of state budget constraints.

HŽ Infrastruktura has prepared a large number of projects which are in various phases of implementation but are mostly connected to the reconstruction and modernisation of sections of Pan-European Corridor X and branches b and c of Pan-European Corridor V. The preparation and implementation of railway infrastructure modernisation projects (as with all large infrastructure projects) is a long process made even more complicated by the procedures connected to the use of EU funds.

On its road to EU accession, Croatia has (since 2000) benefited from the EU financial assistance programmes CARDS, PHARE, ISPA and SAPARD, which in 2007 were replaced by a new programme – the Instrument for Pre-Accession Assistance – or IPA. The IPA programme has five components, and component III (Regional Development) consists of:

● Transport

● Environment

● Regional competitiveness.

The programme is primarily focused on modernising the railway network and the inland waterways system. Financing in the scope of the Transport Operational Programme is structured in the direction of three priority axes which encompass several measures focused on individual sector areas. Priority Axis 1 is for upgrading Croatia’s rail transport system and will promote the reconstruction and development of the railway network in Croatia which will then be able to respond to the increased demands put on railway traffic in the future and which will be coordinated with EU technical standards. Investments are focused on Pan-European Corridor X.

Included in this priority axis are activities to develop and modernise railway lines, to improve the safety and efficiency of railway operations and to prepare projects which will be financed at a later date. Projects in the scope of IPA are already underway on the signalling and interlocking system at Zagreb Main Station to the value of €11.7 million, as well as the rehabilitation of the Okučani-Novska line section of Pan- European Corridor X to the value of €35.8 million. Design and other documentation will also be prepared for a whole series of projects on the modernisation and upgrading of the Croatian railway network to the estimated value of €1 billion.

The implementing body for all projects within Priority Axis 1 is HŽ Infrastruktura d.o.o., and the competent body for the priority/ measure and the operational programme is the Directorate for Transport Infrastructure of the Ministry of Maritime Affairs, Transport and Infrastructure. The beneficiaries are the Directorate for Road and Railways Transport of the Ministry of Maritime Affairs, Transport and Infrastructure and HŽ Infrastruktura d.o.o. Since the projects involved are intended to improve the public transportation of passengers and goods in Croatia, then they are of public interest and the beneficiary in the broader sense is also the Croatian public.

With the accession of Croatia to the EU, financing of new projects will be available to us and HŽ Infrastruktura is preparing itself without delay. The Department for EU Funds has been active for the past several years within HŽ Infrastruktura. This department is growing all the time with new experts joining forces to ensure the maximum possible absorption of funds that are available to Croatia. In this task HŽ Infrastruktura has considerable support from the Croatian government which considers the rehabilitation of the railways as one of its priorities, since the road network in Croatia in the last 10 years has been developed in all strategic directions lessening the pressure on the budget for road construction. Unfortunately, the railways have all these years been the collateral victim in this strategy in which road infrastructure was given priority, with very little investments in the railways. For this reason, Croatia is in a situation in which it has a developed modern road infrastructure which gives a great contribution to the quality of transport services but only for a few summer months during the tourist season while the rest of the year it does not bring in the expected revenues to the state but rather creates problems in the repayment of the debts incurred for its construction.

What the Management Board of HŽ Infrastruktura currently has in its favour is the drawing up of a new traffic strategy which will anticipate the further development of railway infrastructure. The Management Board is determined to sign a 10-year contract on the development and maintenance of railway infrastructure with the Croatian government as soon as the new transport strategy is brought ensuring that, in the event of a new government and management board after the next elections, the development concept would not be changed until all plans have been implemented.

Biography

Darko Peričić graduated from the Faculty of Transport and Traffic Sciences in Zagreb. He joined the railway in 1977 as Traffic Controller and later he worked as Rijeka Station Manager, Rail Incident Investi – gator and Driving Instructor. From 2003 to 2009, Darko was Director of the Rijeka Regional Office and from January 2012 Head Technologist in HŽ Infrastruktura. Since 12 March 2012, Darko has been President of the HŽ Infrastruktura Management Board.