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State guarantees $225 million Slovak Rail loan

Cash-strapped Slovak rail (ŽSR) will get a government-guaranteed $225 million loan from the European Investment Bank (EIB) in July - as long as it cuts its staff, raises ticket prices and relies less on state handouts.
The preliminary conditions of the loan are that the EIB will provide a 15-year credit at an interest rate of 0.25 percentage points over LIBOR. The Slovak Cabinet agreed on June 30 to secure the loan, which Slovak rail will use for capital investments and to stabilize its operations.
The EIB's conditions for the provision of the loan are that ŽSR increase charges for transportation and that subsidies it receives from the state budget to cover the costs of passenger transportation be reduced. Moreover, the bank demands that ŽSR cut its workforce over the next three years, increase labour productivity and reduce the extent of the rail network in Slovakia.

Cash-strapped Slovak rail (ŽSR) will get a government-guaranteed $225 million loan from the European Investment Bank (EIB) in July - as long as it cuts its staff, raises ticket prices and relies less on state handouts.

The preliminary conditions of the loan are that the EIB will provide a 15-year credit at an interest rate of 0.25 percentage points over LIBOR. The Slovak Cabinet agreed on June 30 to secure the loan, which Slovak rail will use for capital investments and to stabilize its operations.

The EIB's conditions for the provision of the loan are that ŽSR increase charges for transportation and that subsidies it receives from the state budget to cover the costs of passenger transportation be reduced. Moreover, the bank demands that ŽSR cut its workforce over the next three years, increase labour productivity and reduce the extent of the rail network in Slovakia.

The EIB also calls for a significant reduction in the ŽSR's losses from passenger transportation, where revenues from ticket sales cover only 16% of the costs. The EIB requests that the ZSR increase this share to 30% by 2002 and to 50% by 2004.

Transport Minister Gabriel Palacka announced at a press briefing following the June 30 cabinet session that reform of the ŽSR was already underway. Slovakia's railway network would be cut, he said, and the number of routes reduced. Subsidies should drop from 5.8 billion Slovak crowns this year to 1.7 billion crowns in 2007.

The ŽSR is also set to reduce its labour force by 2000-3000 people annually, bringing its current total of 49,300 employees down to around 30,000 in 2007. Slovak Rail is currently the biggest employer in Slovakia.

The ŽSR has already received a state-guaranteed one-year loan from the Czech bank IPB,totaling 2.2 billion Czech crowns ($70 million) and bearing an interest rate of three-month PRIBOR plus 500 basis points.

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