THE LOSS-MAKING state-owned rail companies are facing one of the biggest rounds of layoffs in the history of rail transport in Slovakia. Last year, rail freight transporter Cargo, one of the three main rail businesses, received a huge government loan to keep it afloat. But now, with losses still mounting, the company is having to make serious cuts.
Cargo plans to sack about 20 percent of its employees, equivalent to over 1,800 people, with the losses affecting all units from operations to technical employees, company spokesman Martin Halanda confirmed to The Slovak Spectator. Halanda added that the layoffs form only one part of Cargo’s consolidation plan.
The state-run rail freight transport operator expects a loss this year of just under €100 million, 21 percent lower than last year but still more than 20 percent higher than projected. Last year the company made a loss of €126.6 million, as reported by the SITA newswire.
Large-scale layoffs at rail passenger transporter Železničná Spoločnosť Slovensko (ZSSK), which employs almost 5,000 people, and at infrastructure operator Železnice Slovenskej Republiky (ŽSR) are also expected. Neither firm has formally announced any staff reductions, but ŽSR signalled that they are a possibility.
“Considering the complicated economic situation, ŽSR will be addressing the need to reduce costs as well as seeking further resources or eventual revenues,” ŽSR’s Dana Hurtová told The Slovak Spectator, adding that one possibility is considering the volume of personnel costs and eventual “optimisation of employment”.
Hurtová stressed that her company has not yet published any layoff numbers and thus data published in the local media are irrelevant. ZSSK has not officially released any numbers either.
While Cargo, which currently employs 9,250 people, has confirmed its planned layoffs, it also said that the company has further plans, such as a new transportation model with reduced transportation time and idle times. Cargois also negotiating with banks to restructure its loan portfolio, alanda said.
The plans, according to Halanda, also includes the revision of contracted investment projects and revision of contracts that he described as being at odds with the trade strategy of the company. Cargo also aspires to reduce the administrative burden of the company and will freeze salaries in 2011, he added.
Cargo has also started conducting electronic auctions, Halanda added. Between September 6 and November 11 this year 21 electronic auctions were held, saving an annualised €1.2 million and pushing down prices by 25.46 percent. He added that the company is also selling its redundant property.
Halanda said the company’s major challenges in 2011 will be to complete the consolidation process in order to increase the market value of the company and make it profitable by 2012, and prepare for the entry of a strategic investor in 2013.
When asked about the challenges facing ŽSR, Hurtová said that in 2011 reduced use of the railway infrastructure will result in a revenue shortfall of about €80 million. Also, the fee charged to all users of the rail network will change, based on a law implementing European Commission regulations obliging the state to finance rail infrastructure which is in its ownership, according to Hurtová.
“At the same time the reduction of the fee should motivate transporters to send more goods by rail and, not least, strengthen the competitiveness of rail compared to other means of transportation,” Hurtová said.
For next year, ŽSR forecasts revenues of €401 million and costs of €597 million, resulting in a loss of €196 million.
Meanwhile Cargo expect its staff cuts to transform its profitability: next year the company projects an operating profit of €66.97 million based on operating revenues of €378.67 million, 0.2 percent below 2010 projections, and operating costs of €311.7 million, down 19.5 percent yearon-year, SITA reported.
ZSSK reported that it expects to close 2010 with a loss of €78 million. Last year, the company posted a profit of €27.15 million, according to SITA. ZSSK earlier denied reports that it planned to fire 500 employees, or around 10 percent of its workforce. The transport operator says it does not plan to cancel trains or hike fares next year, either, wrote SITA.
The long rail road
Last year, the government of Robert Fico provided a significant loan to Cargo, which had been badly hit by the global economic crisis after several customersreduced their production. It received €165.970 million of public funds, in the form of refundable state assistance which should be repaid by 2019. Last year more than 600 employees left the company on the basis of employment termination agreements and received severance compensation.
The former state railway company once was among the biggest non-financial companies in Slovakia. With more than 19,000 employees, it was the second biggest Slovak employer. ŽSSK itself was established when the former railway company Železnice Slovenskej Republiky (ŽSR) was separated into the current railway network operator (which retained the ŽSR name) and transport company ŽSSK.
Cargo Slovakia was created in January 2005, when the state broke ŽSSK into two joint-stock companies: ZSSK for passenger transport and ZSSK Cargo for cargo transportation. The reason for the move was that the cargo business, which at that time was profitable, was being used to fund the company's passenger transport services, a cross-subsidy that European Union rules do not allow.
The Slovak Democratic and Christian Union (SDKÚ) argued last year that the government of Robert Fico had contributed to Cargo’s worsening situation by cancelling its privatisation. Last year Ivan Mikloš, then an MP for the SDKÚ and now finance minister, argued that the state could have raised Sk14 billion (€465 million) from a sale, since an Austrian railway transporter was interested in participating.
Plans to privatise Cargo collapsed in February 2006 after final bids had already been submitted and a winner recommended. The ruling coalition, which then consisted of the SDKÚ, the Christian Democratic Movement (KDH) and the Hungarian Coalition Party (SMK), suspended privatisation plans amid political infighting which ultimately led to early elections. Fico’s Smer party, then in opposition, said at the time that it would have pushed for the prime minister’s dismissal if the government had made any attempt 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 could have been a profitable investment for those transporting goods to the east, especially Ukraine and Russia.
