Positive financial future for rail in Bulgaria

In 2012, the NRIC (the National Railway Infrastructure Company of Bulgaria) reported very good financial results and succeeded in clearing all debts owed to external partners. In a comprehensive interview for Global Railway Review, Joanna Dimitrova, Financial Director of NRIC speaks about these recent achievements and what can be expected in the near future.

“The NRIC has a lot of things to be proud of – especially after our achievements in 2012 when we cleared all debts incurred from previous years,” explains Joanna. “This was a difficult task to achieve considering the current economic crisis and limited availability of financial resources.”

For every financial year the NRIC has 127 million BGN in subsidies and 90 million BGN in capital transfer. “That money should only be spent during the current financial year and only used for investments,” says Joanna. “Clearing of old debts or other payments are not allowed in any form.”

In parallel with these resources, the company operates with 90-93 million BGN (income from track access charges (TAC)) which might be used for current maintenance of the railway infrastructure and for covering expenditure related with train services.

“The company has not received any additional resources for clearing old debts,” explains Joanna. “It was therefore very difficult for the internal restructuring of the processes and operational management of all needed activities to be performed in a way which lead to the so called economy of scale – or in other words, covering expenditure from non-typical activities and the transfer of expenditure which is not of vital importance for the railway infrastructure. The effect of staff’s optimisation is amounts to between 10 and 15 million BGN per year. The positive result from acting upon these measures is the payment of all old debts.”

Joanna explains that the inherited debts totaled approximately 59 million BGN in losses and debts of 46 million BGN to contractors. “It was almost impossible to pay salaries,” reveals Joanna.

The first action undertaken by the manage – ment was a total review of all company activity, including any active contracts and a review of all activities related to the current maintenance of the railway network, in order to identify the most important actions that the management needed to enforce. “We reviewed employee roles and looked at restructuring all administrative units that were directly related to the core activities of the company,” explains Joanna.

“When I joined the company in December 2009, the NRIC had approximately 15,000 staff members. In October 2012, this number had been reduced to 12,600,” states Joanna. The money which was saved due to the reduction of staff numbers was used to cover paying old debts and for covering current network maintenance work. “This was a real achievement considering the period of time that we worked with,” says Joanna. “Our main task was to implement all necessary measures without delay to stop any additional increases in expenditure.”

The NRIC settled the nine months of 2012 with 15 million BGN in losses – a rather stable condition compared to the previous year when there were loses of 32 million BGN. During 2010 and 2011, the company had a tax profit of 11 million BGN and 17 million BGN respectively and 1,100,000 BGN for 2010 and 1,700,000 BGN effectively payable in the state budget. “Following this, we were able to cover all our inherited debts and were able to start thinking about building our strategy for development during 2013-2015,” says Joanna.

Joanna continues: “The NRIC’s management inherited debts of 59 million BGN in financial losses for 2009, 46 million BGN debts to contractors and a 10 million BGN loan from the Commercial Bank which was needed to pay salaries. The repayment of the Commercial Bank loan was necessary in 2010 and was for a period of only six months.”

For a very short period of time, the new management was obliged to act and through internal restructuring, process optimisation and money-flow prioritisation they were able to follow their strategy for development. “This overturned the company’s image from unstable to stable,” says Joanna.

The NRIC’s restructuring includes three main areas. First is the review of the infrastructure projects that have already been implemented, with a review of the projects which should be prepared, planned, budgeted and paid, and are part of the NRIC’s 10-year programme. “In the beginning the restructuring covered internaloperational processes, increasing of the competence and effectiveness of the personnel, with clear definition of the responsibilities of every position,” explains Joanna. The management undertook general alteration of the existing procedures for public procurements, established in the company in accordance with the Law for Public Procurement as well as the way for formation of so-called ‘audit path’ (following the taken engagement from the genesis, realisation and implementation’s control in the end). Joanna continues: “Serious attention was paid to the personnel’s effect iveness and optimisation of the human resources leading to economy of scale and consequently to economy of resources. Work was reorganised – a new model and work schedule for maintenance and rehabilitation of the network were implemented.”

The main income for current maintenance comes from track access charges which are paid by all railway undertakings using the Bulgarian railway network. Joanna explains: “In 2012, up to October, track access charges amounted to approximately 90-94 million BGN, but we hope that November and December figures will be good so that we can reach our targets. Our other incomes are from the sale of non-operational assets and rent, plus other services.”

In June 2012, the Krumovo-Dimitrovgrad line became operational and the new Svilengrad- Turkish Border line section is due to commence very soon. “We are planning all expenditures for the maintenance of all new lines,” says Joanna. “The budget is prepared for every calendar-year. For 2012, we are planning minimum expendi – tures for the Krumovo-Dimitrovgrad line, because this line just recently became operational. But for 2013 we are planning expenditures for current maintenance of the line in order to be able to increase the life cycle of the new lines.”

Joanna says that although the NRIC does not foresee increases in TAC in 2013, she explains that they may come into force in 2014. “We have to calculate the amount of money directly invested for maintenance, the expenditure for repairing and the reinvested money for current main – tenance, etc., and if this calculation shows that the realised expenditures exceed the incomes we have, than we can start thinking about increasing TACs in 2014.”

The new methodology for TAC calculation comes into force from January 2013 and will not be higher than TAC for 2012. Even TAC for freight transport will be reduced, because the price for traction energy will be excluded from the TAC. “In accordance with the requirements of the EU legislation (Energy Directive and Directive 2001/14) as well as the Bulgarian legislation (The Law for Railway Transport) a separate price for traction energy will be imposed,” explains Joanna.

“All trains in Bulgaria, whether domestic, international, freight or passenger, pay for train or gross kilometre,” states Joanna. “The new methodology for TAC calculation, respectively new TAC, comes into force from 1 January 2013.”

To progress further with maintenance of railway tracks, the NRIC are in negotiations with the World Bank for a 140 million BGN loan for purchasing light and heavy maintenance machinery. “The main contractual part is over,” says Joanna, “and we are ready with the organisation and preparation of the procedures. If the loan is approved, and after the authori – sation of the Ministry of Finance and Ministry of Transport, Information Technologies and Communications, the NRIC is ready to continue negotiations with the World Bank.”

So it seems that the NRIC are heading in the right direction but what will the future hold?

“I do not have any big expectations for 2013,” says Joanna. “The world economic crisis reflects badly to the rail freight transportation as well as to the opportunities of the business for pur – chasing of non-operational assets or renting of facilities. We also have reductions in TACs, with approximately 30 million BGN. Taking into consideration forthcoming reduction of the incomes from TAC, we expect 2013 to be more difficult than 2012. In 2013 we will need to find an additional 30 million BGN in order to be able to continue current maintenance. We carefully review all non-operational assets, which will be offered to the business in order to be able to compensate the incomes which we will not receive by the railway undertakings.

“We also hope privatisation of BDZ ‘Freight Transport’ will happen soon,” says Joanna. The NRIC expects payment of 52 million BGN for TAC owed by BDZ.

“We are expecting an increase of railway freight traffic (gross/kilometers) which will lead to bigger TAC incomes,” says Joanna. “Because of that the budget for 2013 stake on partnership, which is the only way for compensation of the above mentioned deficit, equals 30 million BGN. We also hope to successfully repay the old loan to the World Bank, which is 12 million BGN, payable by NRIC for every calendar year.”

The year ahead will be filled with a lot of priorities requiring strategic and innovative thinking. “We hope that by 2014, the NRIC will be proud of previous achievements and have a well-maintained and renovated railway network giving a new European vision for the development of railway transport in Bulgaria,” concludes Joanna.

Biography

Joanna Dimitrova has a Master’s degree in Management and Marketing from the University of National and World Economy in Sofia, Bulgaria, and holds certificates for requalification in Management of Construction and Renewable Energy Sources from the European Management Centre – C.O.C. Group International, Vienna. Since 2007, Joanna has been a Member of GLG Consultants – New York (Gerson Lehrman Group). Joanna has held positions in a number of corporations including a bank and as an Executive Director and Member of the Board of Directors of an oil holding company.