Latvia embraces reform of rail company

  • 2005-02-09
  • By TBT staff
RIGA - The Transport Ministry has committed itself to overhauling the country's railway company, Latvijas Dzelcels (Latvian Railway), in an effort to localize profit- and loss-making sides of the company and boost overall effectiveness.

Transport Minster Ainars Slesers took everyone by surprise when he announced on Feb. 1 that he would make a proposal to the Cabinet of Ministers to split up the railway company into three parts: infrastructure, cargo and passengers. Latvian Railway President Andris Zorgevics fully supports the idea, and many in the industry say the restructuring is long overdue.

Traditionally cargo handling has been the breadwinner, while passenger service loses money from year-to-year. In effect then, passenger travel is subsidized by cargo business, which transit businessmen have continually criticized as ineffective. Over the long-term, Latvia risks losing market share Baltic-wide if its railway services must continue subsidizing passenger trains.

The final restructuring plan will not be ready until April, but Slesers said the reform should be completed by the end of the year. Each of the three newly created companies would focus on its core segment of the industry, he explained, and each would be independent and remain wholly in state hands, which would essentially transform Latvian Railway from a vertically integrated concern into a holding company.

In all, the restructuring should end the system of cross-subsidization and allow for the transparent operations of all three companies.

Savely Semyonov, head of the Latvian railway workers' union, told the daily Telegraf, "We spoke about separating passenger travel from cargo handling and subsidizing the former 10 years ago."

Even officials from Pasazieru Vilciens (Passenger Lines), the weak link in the company, saluted the ministry's plan. "For us the idea announced by Mr. Slesers sounds tempting. After all, we will receive a complete state order," said Ivars Zalais, the company's deputy director, said.

"If we aren't in condition to raise the price for tickets, then the government can compensate our losses one of two ways 's by decreasing payment for use of infrastructure or increasing subsidies," he added.

Speaking of passenger travel, Slesers told reporters that he was vetoing any proposal to raise ticket prices. In order to improve overall quality of that end of the business, he said Passenger Lines needed 33 news trains. At the cost of 5 million lats (7.1 million euros) each, that comes to 165 million lats. The 680,000 lats that the company was hoping to receive this year from higher ticket prices, said Slesers, would add up to nothing.

Finance for new passenger trains should come from the European Union, the minister argued.

The company is currently trying to procure up to 120 million euros in EU funds.