Beyond Slowdown

Economic News

22 Jul 2010
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The country’s transport sector has been hard hit by the ongoing international downturn, with falling domestic industrial activity reducing demand for freight haulage, while slowing international trade is cutting into transit traffic revenues.

On May 11, Bulgaria’s National Statistical Institute issued its latest report on industrial production, which showed a 17.1% year-on-year decline as of the end of March, with manufacturing production down 24.1%.

With the International Monetary Fund (IMF) predicting that the Bulgarian economy will contract by 3.5% this year and a further 1% in 2010, it could be a long road back to positive territory for the country’s transport sector.

Though calls on the Bulgarian budget have increased due to the recession, there is an urgent need to boost spending to stimulate short-term growth and ready the economy for longer-term expansion, according to Peter Mutafchiev, the minister of transport. “We have to be ready in order to be able to meet the development of the economy after the crisis,” Mutafchiev told local media on May 18.

The government has determined that the priority projects for the transport sector are developing the intermodal terminals in Burgas, Varna, Russe, Sofia and Plovdiv; improving airport infrastructure; and upgrading the country’s rail network so trains can run at speeds of up to 160 kilometres an hour, the minister said.

Bulgaria’s ports would also be modernised through schemes directly funded by the state and through public-private partnerships, he said.

The best prospects for funding lie outside Bulgaria. The European Commission (EC) unblocked some of the funds it committed to supporting Bulgaria’s drive to improve its transport infrastructure.

In mid-May, the European commissioner in charge of regional policy, Danuta Hubner, and Deputy Prime Minister Meglena Plougchieva, who is responsible for the absorption of EU funds, signed an agreement under which the EC would release $160m for transport infrastructure development. Specifically, the funds will be used to pay for the construction of the Lyulin highway that will link Sofia and Pernik, as well as to provide technical assistance for the preparation of projects within the pan-European transport corridors.

The funding was part of a larger tranche of aid promised to Bulgaria as part of its Instrument for Structural Policies for Pre-Accession programme, but the release of the assistance was halted in July 2008 due to EU concerns over a lack of fiscal control and management transparency, concerns fuelled by corruption charges being laid against the head of a senior official in charge of the country’s road infrastructure agency.

While all segments of Bulgaria’s transport sector have been affected by the economic crisis, hardest hit has been the rail network, with the Transport Ministry announcing in mid-May that freight traffic had fallen by 40% since the beginning of the year. This slump has prompted the state to cut staff working time to four hours a day, while offering retraining programmes to employees facing the possibility of being made redundant.

The ministry also unveiled plans on May 7 to close 12 loss making rail lines, and sell off some properties owned by the National Railway Infrastructure Company (NRIC) and Bulgarian State Railways (BDZ), a move it said would save $14.3m.

Such is the downturn for the state railway that on April 14 it did not operate a single freight service in northern Bulgaria, the first such interruption to traffic in 140 years.

“The situation is bad, but we can’t do anything but face it,” said NRIC chief Anton Ginev. “The number of orders dropped, which also leads to a profit drop.”

On May 20, BDZ released figures showing that freight haulage was down 37.4% over the past year at the end of April, and had slipped 13.4% compared to March, while it had reduced the level of services by 9.4% over the month.

Falling revenue, and high fixed costs, may affect government plans to improve the flagging rail service. Announcing plans to reduce rail staff numbers on May 19, Mutafchiev said the serious decline in demand for freight services had cut earnings by $49m, funds needed to both pay salaries and help improve the network.

Once the government is able to find the funding for its infrastructure projects, the transport sector will be better placed to exploit the upswing in the local and European economy when it comes.

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