GEORGIAN RAILWAY ON THE BRINK OF COLLAPSE, CRISIS OF THE COUNTRY`S TRANSIT FUNCTION (ABSTRACT)

Sophico Sichinava

– Debts are divided into two parts: the first one was 12 millions in 1996 and the second one accumulated so to say through the use of wagons after 1996. During the use of wagons mutual settling of accounts takes place, i.e. when a wagon comes from another country, it is put into operation in accordance with a particular ratio: for instance, if wagons are delayed up to 15 days, a railway is charged with 10 dollars, from 15 days to 30 days the sum is 13 dollars, after more than 30 days it reaches more than 30 dollars. The three factors serve as a penalty.

After 1996 a great sum was accumulated through the three factors due to ineffective use of wagons. There was no system of registration at that time: wagons might have been lost, delayed and unreturned, etc. Accordingly, the debt increased in this way.
When we came to the railway, the foreign debt was about 18 million Swedish francs, i.e. 15 million dollars of which 13 million Swedish francs belong to Russia. Of this sum 2,5 millions’ worth debt belongs to the period of 1996 while the rest debt belongs to subsequent period. Thus, we paid out old debts in 1996-2003 and started paying out new debts since June. Nowadays, debts are sharply reduced and by the end of the year we will pay the total of 7 million Swedish francs. Debt to Uzbekistan and Ukraine has been paid out. Russia remains the largest debtor. We held meetings and negotiations with it. I would like to mention that since Georgia gained independence head of Russian railway has never met his Georgian colleagues. Due to the non-payment of debts relations with Russia have always been marked with strain and distrust.
– Railway has always looked as a successful enterprise to outsiders.
– Until recently one could get an impression that the picture of Georgian railway looked ideal. Yet, we have experienced the result of relations with foreign countries. Therefore, we can make conclusions of the railway’s work: it was a disreputable enterprise with debts and fines. At first, no one agreed to negotiations. After the change of management in the railway, other countries saw that repayment of debts started and the ice was broken in this way. For instance, Russia cancelled a great deal of penalties. As a rule, 6% should have been charged to the above-mentioned sum of 13 million Swedish francs. After calculations the sum grew considerably. All countries pay penalties for debts. Our achievement was that Russia agreed to cancel penalties if we fulfilled the schedule. Though, Russia remembers many of Georgian side’s promises, but this time 300 thousand dollars have really been transferred to Russia on monthly basis. As mentioned, we paid out debts to Ukraine and Uzbekistan, but not to Kazakhstan and Russia. We might also start debt repayment to other countries several years later.
– Now that wagons are used effectively, we have positive balance with all countries, i.e. our wagons are delayed for a long time there and the countries are charged more. It is the other way round with us. Hence, each month we are in a more advantageous position than other countries and to a certain extent, this is why we manage to cover our debts.
– With what financial indicators did the Georgian railway close the year 2004?
– I think, it will be interesting to draw parallels with the years when in the country dominated the idea that Georgian budget was replenished by the railway and people lived on its incomes. Statistic data show that budget receipts made up 43 millions in 2001, 53 millions in 2002, 68 millions in 2003 and 75 millions this year – in fact twice as much as compared to 2001. The same refers to profits. Until recently profits were only on paper. The railway has bad debt of 70 millions. These are debts to foreign countries or debts charged to transportations that have never existed. From 1992 onward the railway would, for instance, transfer money to somebody. This somebody would suddenly disappear, and the industry’s debt has been growing from year to year. There was no registration of fixed assets so there was no idea of the railway property. No one knew whether amortization sum was right or wrong.
– What does the railway need so much non-profile property for?
– Property used for our main business will, certainly, remain, but it will be in a certain way consolidated and used more effectively. Besides, we have large property for secondary business. For instance, we have two farms in Gurjaani. The railway should dispose of such property.
There was a different principle before. The railway was in effect a state within a state. The railways of the Soviet Union countries disposed of such property but in our country farms, schools, nursery schools, hospitals, stadiums still remain in the ownership of the railway. A state should not exist within a state. A state should fulfill its functions, footballers should play football, doctors should cure people and the railway should do its business. The assets were taken away from the railway but it does not mean that everything was sold.
– There was a talk about leaving 90% of dividends in the enterprise….
– The whole infrastructure got ruined, as capital investments were not spent for the needs of the railway. The principal line is more or less preserved, branch lines are completely ruined. One can go only to Gurjaani via Kakheti branch line. The branch line of Samegrelo does not operate. Akhalkalaki line was completely stopped this year.
– The railway, so to say, worked on amortization. Items left after the Communist period got ruined and rotten, there were no funds for restoring the infrastructure and as a result, it plunged into a crisis. In a Tifi tunnel we saw a track built in 1950s. The one in Batumi was built in 1923. Thus, our railway lines are a century old. Technical speed in Georgia is one of the lowest in the world. When some railway track is in a poor state, speed is reduced for safety purposes. Here we have many bad railway tracks. This is a very unfavourable factor for marketing as for this reason foreigners prefer not to travel by our railway. We do not mean fast modern trains, but rather restoration of the train speed that existed during the Communist period. We have 100-120 years old bridges, yet as a rule, bridges ought to be changed in every 60 years. We mean that there should be more investments in the restoration of the ruined infrastructure.
– How profitable are the branch lines?
– Any branch line is loss making. As a rule, railway becomes profitable when working for long distances and large volumes. It is profitable after 600-700 km. Hence, transit is the most profitable one. 80-85% of our incomes come from transit. Proceeding from the economic state of Georgia, there is no large commodity turnover that is required for maintaining the branch lines. Nowadays, existence of branch lines is stipulated by socio-political factor as a railway is a commercial organization and it should look to becoming a profitable business. The branch lines should be preserved because of these very social factors. Akhalkalaki as well as Kakheti branch lines should be preserved. There can be no talk about economy there yet, everything is completely ruined. Just imagine, only one wagon can be loaded for one year so there can be no talk about profit. In fact, it turns out that the railway subsidizes branch lines by incomes obtained from the principal railway line and thus performs state functions. The same concerns passenger traffic. Calculations revealed that loss was 241 million laris. We intend to reduce the losses by cutting expenses, but in the long run, it will still be in loss. The same happens in the whole world.
We would like to describe what happens in other world countries ? passenger and cargo transportations are different and as passenger traffic is always a loss-making business, it is subsidized by state. We are often blamed for demanding state subsidies. It is claimed that the railway does not need any subsidies as it is profitable and its profit will rise even more. If a state needs passenger transportation of high quality, it should finance it as a separate branch. For instance, each year England allocates subsidies of 5 million pound sterlings . The same happens in Russia where railway is of great importance given the long distances. Subsidies are allocated here, too. We hold negotiations with international organizations. We want an advisory company to come to the railway from January. You’ll see that they will make the same conclusion that I have just spoken about. They are sure to demand that passenger traffic should be separated. Hence, railway does not ask for any subsidies but, on the contrary, it is a profitable business and it will become even more profitable by cutting down expenses. Only for bank services we paid 2 million less than last year. Every year 600 thousand laris are spent on stadium, 400 thousands for football teams. The railway should stop this practice.
– What is your approximate subsidy for passenger traffic?
– 40 millions per year. If passenger traffic were a separate direction, a state would allocate the same subsidy each year. We allocate subsidies in two ways: first, current expenses are covered from cargo transportation and amounts payable to the infrastructure are not paid.
– How much is commodity turnover growth in the railway?
– We should single out two directions here, too: oil, oil products and dry cargo. Oil products are very sensitive to political factors and from this point of view any slight change has its effect. It is also affected by tariff, as competition is quite high. For instance, in March a decision was taken to increase the tariff from 1 to 6 dollars. This was followed by change in trend seen in the decrease of volume to 200 thousand tons. Batumi events added to this negative trend. After the problem arose here, alternative corridors became activated, but as soon as we reduced the tariff to 5 dollars, we faced a positive effect and the volume increased in the first month as compared to the last year.
– In 2005 decrease of liquid cargo was expected as activation of Iranian and Baku-Jeikhan line will be a serious factor from the viewpoint of cargo transportation. Yet, after the decline in 2005 growth is expected over the coming two years. Overcoming of bad trend cannot be achieved so easily, and it will take some time. As for dry cargoes, they are more profitable for the railway since price is higher at the expense of the volume. They are more stable than oil and oil products. This year growth of dry cargo volume is observed in all directions. We can say that losses from liquid cargo were compensated through dry cargoes.
Change in dollar exchange rate against lari inflicted loss of 22 million laris to the railway. Our incomes are mainly linked to the dollar, we have income in dollars whereas expenses are in laris and hence, incomes have dropped significantly against the previous years.
How much time and money will it take for the railway to reach the international standards so that an express train could also tart running here?
– It is early to speak on this subject yet. We still have to reach the level of the communist period. Low technical speed poses a serious problem. It takes 8-9 hours for a day-time train to reach the place of destination. We have ordered three day-time and one night train. The latter is quite expensive and it will really meet international standards. We will get it in 2005. The train will start operating from May. Cost of tickets is not yet calculated but we will do our best to keep prices from increasing considerably though the price will still be lower than the cost price.
– What was the cost of the train?
– I would answer you in this way: just imagine that construction of a new wagon costs one million dollars. Railway park is in a lamentable condition. Not a single wagon has been bought or repaired anew for 15 years. You can watch the situation in all night trains. Railway park diminishes year by year and if the trend continues, we will have only 1000 wagons in 2015 or according to rough estimates, 2 trains. If our trains do not go abroad, it means we will be in debts to other. Wagon park is very important, first of all, for incomes as well as for the operation of corridors. We are in a very difficult situation, and now we negotiate with the European Bank to renovate the railway park.
– Does this concern two types of transportation?
– No, only cargo transportation. We negotiate with investors on cargo wagons that are repairable, but there is no money for this. Wagons will be given to investors who will hire and rent them. These are the two ways ? borrowing and finding an investor.
An intermittent reform of different departments is planned for the future: based on the conclusions of foreign consultants (USAID, CESO-Canada), complex auditing (as well as reappraisal of assets) should be performed by means of elaborating the reorganization and development program. Besides, it is planned to set up Commission of Economic Development Ministry and to consider and approve the reorganization and development program, to implement complex program of reorganization and development (including privatization of some assets and business directions).