Czech Railways will shed assets

State-owned Czech Railways (ČD) is facing increasing competition from private carriers while the Transport Ministry plans to cut costs - two factors that have brought the company to a crossroads in recent weeks. A new proposal would see all of ČD's assets not involved in transportation sold off as part of a move to consolidate personnel and services between ČD and a second state company, the Railway Infrastructure Administration (SŽDC), which owns the tracks trains run on.

"ČD owns a lot of assets that are now redundant, [like] warehouses [and] unused land, which require unnecessary spending for their maintenance. Therefore, unnecessary property will be sold," said Transport Ministry spokesman Martin Novák. "Given the entry of private carriers on the rails, it is necessary to resolve this issue so that ČD is at an advantage over other carriers."

In October, private carrier RegioJet launched as the first competition to ČD with its Prague-Ostrava-Havířov route that was accompanied by something like a war between the two railway companies. Just weeks before RegioJet launched its service, ČD implemented several service improvements on its own long-haul trains, and then shortly after the RegioJet train was launched, ČD lowered its prices to meet those of RegioJet.

Transport Minister Pavel Dobeš has proposed selling all the railway stations and property of ČD to the SŽDC, municipalities and regions, a sale that is expected to bring in between 10 billion Kč ($519 million/389 million euros) and 12 billion Kč.

RegioJet officials have protested the property sale plan, saying it is illegal state support.

"Creation of a holding structure that would make clearer all the financial flows for use of stations and other infrastructure would be a step [to make companies more transparent and equal]," said RegioJet spokesman Aleš Ondrůj. "Nevertheless, we would not accept any decision that could serve as a secret donation or financial support of ČD, meaning for example the sale of such property and use of the money for supporting ČD passenger transportation. Such a money transfer would be considered [outlawed] financial support from the point of view of EU legislation."

The idea of consolidating services between ČD and SŽDC started under former Transport Minister Vít Bárta, who spoke of creating a holding company to improve transparency and the flow of European Union funding.

The Transport Ministry is now saying it is too early to discuss any holding structure or holding company, but they have moved forward with consolidation of the two companies. In August, Dobeš signed an agreement on the transfer of 9,500 employees from ČD to SŽDC, including dispatchers, switchmen and signalmen.

"Thus it became only a railway carrier, and no longer operates the tracks," Novák said.

RegioJet has said it plans to expand its services, and even made a proposal to the Transport Ministry to run all InterCity (IC) and EuroCity (EC) routes free of government subsidies.

"There are certain long-haul routes, such as Ostrava-Prague or Brno-Prague, where EC and IC trains should be operated on business risk without subsidies," Ondrůj said. "We have shown with our IC RegioJet trains that it can work, economically and also from a quality point of view."

The increased competition could strain ČD: In addition to IC and EC routes, they are also responsible for regional routes, which often cost more money than they bring in. Last year, the Transport Ministry stopped the funding of 10 regional lines.

The Transport Ministry is working on a bill that would anchor the annual 2.6 billion Kč in financing for regional railway transport by the middle of 2012, a subsidy that currently requires regions to apply for compensation for losses they can prove from running regional rail routes.

Finance Minister Miroslav Kalousek said the memorandum on the subsidy structure was not legally binding, and the financing in the 2012 budget was short 600 million Kč, which Dobeš said would be made up for with state money, the Transport Ministry budget, by ČD and SŽDC, and 100 million Kč from regions.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com