Bulgarian Railways BDZ Start All-out Layoffs to Stave Off Bankruptcy

Business | November 4, 2011, Friday // 18:42|  views

2000 Bulgarian railway workers are to be laid off by January 2012. Photo by BGNES

The deeply indebted Bulgarian State Railways BDZ is going to lay off 2 000 workers and to reduce its daily number of trains servicing the routes in the country by 150, the company management announced.

The measures are supposed to help stave off the bankruptcy of the hugely troubled state railway company BDZ, declared Friday at a news conference the head of the BDZ Board Vladimir Vladimirov.

"We've got two options. We are either laying off 2 000 employees, or we are going towards bankruptcy, and then all 13 000 employees will lose their jobs," he stated.

In addition to laying off 2 000 anyway impoverished workers, and to shutting down 150 trains, BDZ Holding is also planning to make money by selling some of its assets, and by upping train ticket prices.

Thus, ticket prices along state-subsidized routes will be increased by 9% as of January 1, 2012, and those of "business trains", i.e. the handful of profitable railway routes in Bulgaria – by 15% as December 1, 2011.

"Our major goal is to have the BDZ budget break even in 2012. Our second goal is to set aside more money from our internal resources in order to cover some of our debts to the creditor banks," Vladimirov explained.

"The shutting down of 150 trains doesn't mean shutting down entire railway lines; we will reduced the number of trains in service. No a single railway line will be closed," explained in turn BDZ CEO Yordan Nedev.

In his words, the termination of the 150 trains will save BGN 22 M annually, and about BGN 105 M over the next five years; the funds in question are to be used to cover some of the debts of the ailing state company.

Nedev pointed out as an example the Septemvri-Dobrinishte railway line in Southern Bulgaria, which accumulates an annual loss of BGN 7 M but cannot be shut down because it is the only transportation means available along the respective route.

The BDZ CEO did admit that in the past year the number of BDZ passengers declined by 10% but said it was a matter of analysis to figure out whether the decline was due to the poor service or to other factors.

The railway management is set to "offer" 2 000 BDZ employees to leave in exchange for a payment of six monthly salaries, hoping to be done with the layoffs by January 2012.

BDZ Board Chair Vladimirov added that a quarter of the 2 000 people slated to be laid off are part of the BDZ administration, and the rest come from the repair and maintenance departments.

In 2011 so far, the BDZ management has made BGN 4 M from selling assets and other measures, and some BGN 8 M more are expected from austerity and privatization measures by the end of the year. The management plans to make another BGN 25-30 M in the first six months of 2012.

The BDZ management is firmly intent on privatizing the only profitable department of the company, BDZ Freight Services; they argued Friday that in the past 5 years the freight transport by the railways declined by 50%.

The crisis at the Bulgarian State Railway company BDZ has been worsening as in October 2011 Transport Minister Ivaylo Moskovski declared it to be "technically insolvent."

"BDZ is in a technical bankruptcy, and we are now faced with a huge challenge to take actions that can help heal the company," the Transport Minister declared after Thursday's meeting with syndicate leaders chaired by Prime Minister Boyko Borisov and Finance Minister Simeon Djankov.

Bulgaria's major trade unions continue to threaten an all-out railway strike as little compromise on their demands has been reached with the government.

In addition to the looming general strike, the situation at the Bulgarian railways is worsening on all fronts after earlier in October, Transport Ministry sources revealed that BDZ was about to collapse since German bank KfW demanded back 50 diesel and electric Siemens trains bought by the Bulgarian government after 2003 because the BDZ management had violated the purchase contract and had not paid its installments since 2010.

At the beginning of October, Finance Minister Simeon Djankov revealed the massive debts of the BDZ company total BGN 771 M. Of those, BGN 531 M are debts to financial institutions. This revelation came in the wake of an announcement in September 2011 that for the time being the World Bank has refused to grant the Bulgarian railways an urgently needed loan of BGN 460 M, which was negotiated in December 2010.

Another major issue of dispute on the agenda is the proposed privatization of BDZ Freight Services, which is traditionally more profitable than the passenger services of the state company.

Moskovski vowed to keep up the dialogue and consultations with the syndicates as the privatization procedure for BDZ Freight Services is going on.

The syndicates tend to disagree by stressing they are not convinced that the sale of the freight services department is the only way to raise the badly needed cash for the Bulgarian State Railways.

Raising several hundred million BGN is necessary if BDZ wants to receive a massive, BGN 460 M loan from the World Bank for restructuring and repayment of old debts.

The major grievances of the railway unionists and laborers include the failed negotiations with the government for the signing of a new collective labor contract, the refusal of the World Bank to grant a massive loan for BDZ, and what is said to be measures on part of the government to implement massive layoffs from the railways in the near future.

Since December 2010, when a preliminary loan agreement in the form of a memorandum with the World Bank was signed, the Bulgarian government had been hoping to get a loan of BGN 460 M for BDZ, together with a loan of BGN 160 M for the National Company "Railway Infrastructure", from the World Bank for badly needed reforms.

However, the reform attempts have been countered by the trade unions as they threatened to lead to massive layoffs of the state-employed railway workers (estimated by the unions at as many as 7 000 people).

Thus, in March 2011, the Bulgarian government was forced by an imminent railway strike to back out of some of its reform plans. The following months saw the replacement of the Transport Minister and the BDZ CEO.

The Bulgarian government had planned to grant BDZ a loan of BGN 140 M, counting on receiving back the money from the expected World Bank loan. The rest of the WB credit was to be utilized for covering the railways' mounting debts as the company is said to be nearing bankruptcy even though it has reduced its losses over the past two years.

Unlike BDZ, however, Bulgaria's National Company "Railway Infrastructure" is expected to get its BGN 140 M loan from the World Bank because it is not going to cover old debts with the money but will invest them in new railway network equipment.

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Tags: bank, Germany, KfW, Bulgarian State Railways, trains, Siemens, BDZ, syndicates, railway strike, KNSB, Plamen Dimitrov, Boyko Borisov, Plamen Dimitrov, Petar Bunev, National Company "Railway Infrastructure", Yordan Nedev, syndicates, trade unions, BDZ Freight Services, freight, Privatization and post-Privatization Control Agency, Privatization Agency, privatization, loan, World Bank, Transport Minister, Ivaylo Moskovski, railways, BDZ, Bulgarian State Railways, KNSB, Peter Bunev, Boyko Borisov, Prime Minister


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