IT TOOK several years for the previous government to dismantle the onetime railway goliath, Železnice Slovenskej Republiky (ŽSR), into three independent businesses. Now the government of Prime Minister Robert Fico is toying with the idea of reassembling the national railway giant by bringing the current railway network operator and the passenger and cargo transport companies under one roof. The country’s antitrust authority instantly said there were problems with the plan, suggesting that it not only goes against the spirit of liberalisation and discriminates against other competitors in the railway market, but that it also will attract unwanted attention from the European Commission. The Transportation Ministry said that its goal is to interconnect the state-run railway companies under one holding company with three subsidiaries by January 1, 2011 in order to coordinate the management of the railway companies so that state funds are used more effectively.
“It is not about financial saving, but about more effective management of the railways,” said Transport Minister Ľubomír Vážny.
However, the Slovak Antitrust Office is concerned that the reunification scheme might among other things result in the loss of financial transparency and the exclusion of competition in the industry.
“The proposal to create a holding company negates steps that have been taken since 2002 in Slovakia by separating the infrastructure administrator, passenger transportation and cargo transport in order to support and develop competition in the area of railway transport,” the spokesman for the Slovak Antitrust Office, Vladimír Ferko, told The Slovak Spectator.
The giant ŽSR was founded at the beginning of 1993 as one of the successors emerging from the split of the Czechoslovak federal state railway company – Československé Štátne Dráhy (ČSD). In 2002, the state divided ŽSR into the current railway network operator, which retained the ŽSR name and the transport company ZSSK.
In 2005 the state then divided the national railway company ZSSK into two joint-stock companies: ZSSK Slovakia and ZSSK Cargo Slovakia. The former operates solely as a passenger transport entity, the latter as a railway cargo operator. The more profitable freight transportation part of the ZSSK business was feeding the passenger transportation to keep the service alive. Back in 2004 the government considered the fact that this kind of subsidisation was at odds with EU legislation.
At the time of its split-up ZSSK was among the largest non-financial companies in Slovakia and with a staff of more than 19,000 employees, it was the second largest Slovak employer.
Resurrection of a mammoth or just reorganisation?
At its February 10 session the cabinet of Robert Fico approved a draft plan for the new organisational structure and interconnection of the three state-run railway companies.
The cabinet also accepted some of the objections raised by the Antitrust Office to the scheme.
According to the scheme, the company Slovak Railways (Slovenské Železnice) will be based on an individual law with the state as a 100 percent shareholder. This company will control ZSSK and ZSSK Cargo financially and will be linked to ŽSR through its personnel. According to a document provided by the Antitrust Authority, all this will eventually be the case with all three companies.
According to Ferko, there are serious risks involved in this move such as the companies being interlinked through their property and personnel and the railway infrastructure operator losing its independence among transportation companies. The loss of financial transparency resulting in the exclusion of competition is a further risk. The antitrust authority also warned that if interlinked, the companies may find themselves with conflicts of interest.
“Combining personnel between the companies could motivate the railway infrastructure administrator to create more favourable conditions for access to infrastructure for its sister companies, which may result the discrimination against or limitation of competition on the market,” Ferko told The Slovak Spectator.
The Antitrust Office also said that the ministry’s plan does not describe how railway problems are currently being dealt with, “what needs to be solved and why”.
“From the material it is not clear why the proposed model is better than the existing one and what concrete positive solutions it would bring,” reads the antitrust office’s statement provided to The Slovak Spectator.
At its February 10 session, the government acknowledged the position of the antitrust authority while the ministry promised to take it into consideration during further proceedings.
“The office will monitor the situation and how it will be reflected in the draft bill and will comment at a later date,” Ferko said.
The Transportation Ministry stated that the goal is to coordinate the management of the railway companies, to create unified strategies for management control and to influence the use of state funds. The ministry has suggested that the reorganisation would result in lower transportation fares, which are still relatively high in Slovakia.
In its document the Transport Ministry suggests that “this holding company would be able to directly, purposefully and transparently influence the economical use of state funds as well as drawing of EU funds. At the same time it could continue to secure social reconciliation through retaining employment as well as influencing the fares and public access to transportation.”
The Antitrust Office argues that the state already has this influence with the current arrangement of the railway companies and can influence employment in the same way.
Although the ministry argues that the goal of the scheme is not to merge the infrastructure manager with the transportation operators the Antitrust Office said it will end up this way.
The antitrust authority referred to the fact that the European Union has already begun proceedings in Austria, Germany and Poland due to those countries’ failure to secure the independence of the infrastructure operator because of similar consolidation steps. The Antitrust Authority warns that Slovakia might face similar proceedings.
However, Vážny claims that Slovakia will not face any clash with the EU over this matter since according to him all three firms will be subsidiaries with separate accounting structures, according to the Sme daily.
Slovakia’s railways have faced several significant changes while observers agree that the privatisation of Cargo was one of the most important moves within the sector.
Plans to privatise Cargo collapsed in February 2006 after the final bids had already been submitted and a winner put forth. The ruling coalition at that time – consisting of the SDKÚ, the Christian-Democratic Movement (KDH) and the Hungarian Coalition Party (SMK) – suspended the plans amid irreconcilable conflicts within the coalition which ultimately led to early elections. Fico’s Smer party said at the time that it would have pushed for the prime minister’s dismissal if the government made any attempts to complete the sale of Cargo.
Plans to privatise Cargo in 2005 were interpreted as a sign that the railway transport market would be liberalised; observers predicted that private ownership of Cargo would have been a profitable investment for those transporting goods to the east, especially to Ukraine and Russia.
