Full steam for Brits in Latvia

Helga Balode and Mikhail Tuzhikov, Transport Rossii

Privatization of railways is a process that receives special attention from the state and business circles regardless of the economic situation in which it takes place. Therefore privatization and restructuring of railways in post-Soviet countries has drawn the attention of many Europeans. The UK's Secretary of Transport David Jamieson recently visited Riga to share his country’s not so successful experience in railway privatization and offer help to his Latvian colleagues moving towards Europe

Photo: A.F.I.

British railways – the oldest in the world – are renown for traditions and modern technologies that have been taken over and introduced by other countries. It is also true that privatization in misty Albion ran into problems which are now felt also by the Estonians, who chose the very same privatization model and also sold the British 25.5 percent of the stakes in the Estonian Railway company. All the above reasons probably accounted for the great interest in a seminar in Riga this past October, where companies related to UK railways demonstrated their abilities. The delegation was headed by Secretary of Transport David Jamieson. UK Ambassador to Latvia, Andrew Tesoriere, said the Secretary wanted to improve his understanding of Latvia’s plans for developing its railway systems as it would help “Britain to offer individual experience and knowledge.”

Stumbling stone

Mr. Jamieson admitted openly that mistakes were made in the UK's railway privatization. Firstly, the manner of privatization did not encourage private businesses to invest money in upgrading infrastructure. Problems emerged due to constantly growing passenger numbers, having increased 20 percent since 1996. Secondly, the strategy had an obvious drawback with the industry being split up in a hap-hazard way. Thirdly, Railtrack put in charge of infrastructure maintenance and upgrading could not cope with its responsibilities efficiently enough, regularly overrunning its budget until it became insolvent. Eventually these tasks were taken over last October by Network Rail, a non-profit organization set up by the government.

The Secretary said that British railway privatization was not implemented under the right "philosophy of privatization", i.e., the government did not really know what it wanted to achieve through privatization, wishing only to get rid of the railway. All the same, the British noted overall growth of passenger and cargo transportation as well as improved security during the privatization years. They refuse to see large accidents caused by the railway maintenance company as indicative. The Secretary said this opinion emerged largely due to excessive publicity. In general, railway safety has increased from an average of seven railway crashes a year in the 1970s to just one nowadays.

It could be said that striving of the British to grasp some part of Latvian transport development for the third time already is partly due to the Baltic states gearing themselves up for EU membership. Then the Balts would not only need infrastructure meeting EU standards -- they would also receive access to EU funds. This, undoubtedly, will interest also British businessmen.

Cooperation and assistance 

The UK's Secretary of Transport David Jamieson. Photo: The BC archives

After the seminar Mr. Jamieson managed to fit into the tight schedule of his one-day visit to Riga a special interview with the BC concerning various aspects of the railway business.

The London transport system has been singled out on the list of ministerial responsibilities. This way the government shares obligations with the city mayor. Does that work? The Riga City Council, regretfully, does not want to know or support railway routes that take labor to production plants in Riga.

London is a special city, first of all for its size. It also has a special responsibility to make its own arrangements for the functioning of its transport system. The London mayor is responsible for the entire transport system – quite soon he will also have the Underground under his wing. London and its suburbs are a home to some 9 million people or one-sixth of the UK population. The mayor is in charge of a wide and multi-modal public transport system that must make sure people get to work and back. This includes the railway. Only heavy cargo transported by railway through the city is the government's responsibility. One can say that half of all passenger transportation by railway is done in London or the southern part of the country. The railway network is extremely complicated and lines overlap because in the old days, before the UK came into existence, railways in England were built according to the principle that every line should lead to London.

Baltic strength lies in unity

It became clear after the presentation of your companies that you feel skeptical about most EU procedures and directives for railways. Being rich and large, the UK can afford behavior that will not be tolerated from small Latvia in EU negotiations. What details should Latvian representatives focus on in particular upon accession to the EU?

I would like to give an answer that would apply not only to the transport industry. I have noticed that when one communicates with friends, there are things on which one doesn’t want to agree. We not only don’t want to agree, we also disagree. Concerning European Commission proposals, at first we decide what British interests would be in the matter, what will and what will not work in the UK. Afterwards we defend our position with much energy and dedication – either at the European Parliament or at some more specific institution such as the council of transport ministers, for example. Other countries also do the same. In the end we arrive at an agreement that is acceptable to us and other nations as well. Then we defend it together with other countries which also have the same interests. Surely, the Baltic states must have common interests too. They can defend their position jointly and that way achieve much more than a single small state could do. I would like to add that everybody should begin negotiations, starting from the position – do we want to reach an agreement? . Then it can be done.

Now the British government had to admit that it was wrong to privatize railway infrastructure and it will have to be brought back under state control. Infrastructure is the most important aspect from the railway safety perspective. What’s the current situation in negotiating the repurchase of stocks by the state?

We have founded a non-profit organization, Network Rail, representing railway industry experts. We also formed a Railway Strategy Board of five members, including some public representatives. The task of the board is to make sure that railway services meet the interests of passengers and equal attention is paid to transportation of both cargo and passengers. Board members are responsible for continued improvement and the upgrading of infrastructure and work with all agencies related to the railway. Network Rail is buying up stocks from current holders at the same price they initially paid for their holdings.

So the stocks are being bought at initial, and not the market price? Did the initial privatization agreement contain such a provision? Maybe the Estonians have missed something because their shareholders want to sell their stocks to the government for a fivefold price?

Upon privatization of the British railway infrastructure, the agreement did not say that the state may buy stocks back at the initial price. But it was a special case. Usually, if a private company runs into financial problems, it goes bankrupt. But in the given situation it could not be permitted because it was vital that the railway system should keep operating. Therefore we brought a lawsuit against Railtrack, set up Network Rail to take over all functions so that the railway system would go on with its business.

Latvia has chosen a different path to railway privatization than Britain did. Was offering us advice the key purpose of your visit?

The decision will be up to Latvia, we are not forcing it on you. If Latvia thinks it will be to the benefit of the Latvijas Dzelzcels railway company, this must be done, taking into account expert advice and knowledge.

EU membership was an obvious gain to the UK with five million new jobs coming up. We hope that after Latvia’s admission to the EU, supported also by Britain, we will be able to use money from the Cohesion Fund and other funds, paying for expert assistance to the transport industry.

Yes, it is possible because under EU rules, for example, a country with economic growth at 70 percent of average national level may claim larger allocations from various funds for these regions. The UK still has regions with high unemployment that may receive extra financing from various funds. We can help you with expert knowledge in drafting applications for allocations from such funds, in applying the money towards lower unemployment, development of the transport industry. We can advise you how to use this funding to the greatest benefit of the people in their everyday needs.

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The UK Railway comprises of 17,000 kilometers of rail tracks, 2,500 stations and carries 18,500 passengers daily. Operator companies last year earned a profit of 7 billion pounds sterling. Within the next ten years the British government intends to invest 270 billion euros (total package of state and private funds) in development of the transport sector. Investment of 100 billion euros is planned to expand the national railway. State subsidies to passenger transportation are 1 billion euros a year and 500 billion euros are allocated for infrastructure maintenance.

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State-owned company Latvijas Dzelzcels (Latvian Railway) represents a 2,6140 kilometer long railway network with 260 stations and stops. Latvijas Dzelzcels with its staff of 15,000 is the largest company in Latvia by the number of people it employs. In 2001 the company carried 37.8 ? million tons of cargo (29.557 mln tons in nine months of 2002), 20.1 million passengers (10.6 mln in six months of 2002). Latvijas Dzelzcels profit in 2001 was 2.58 million lats, and its contribution to state revenues amounted to 26.18 million lats. The company also received 300,000 lats in state subsidies to passenger transportation.

Baltic rail tracks with a British accent

Anna Belova. Photo: The BC archives

The BC obtained special comments from the Russian Deputy Minister of Transport, Anna Belova, on the visit of British transport industry representatives to Latvia and their persistence in offering services to Latvian railwaymen.

Why the steadfast British interest in the Baltic states? The answer is obvious – British company Pandrol UK Limited, like any other commercial enterprise, is looking for ways to expand sales markets of its products – rail fastenings, including the Baltic states. Considering that this company controls 60 percent of the world market in anchor fastenings with resilient clips, the Baltic states aspiring to the EU membership could be a tasty chunk for British businessmen.    

As for the technical side of the business, anchor fastenings by Pandrol UK Limited were tested last year on the experimental circular track at the VNIIZhT railway scientific research center, near Moscow. They were not tested on actually operating railways. The circular track test showed that it would not be rational to use these fastenings without first adapting them to conditions typical for Russian railways. The British-made fastenings use hard gaskets between the rail foot and sleeper instead of the elastic rubber gaskets used in Russian fastenings. This results in intensive wear of the crushed stone underneath the steel reinforced concrete sleepers and, consequently, more frequent spot-surfacing of tracks. Moreover, the fastening allows only for limited adjustment of track position by means of gaskets placed under the foot during winter periods. On top of that, Russia has too great a difference between air temperature in winter and summer which is not common in the UK bathing in the warm Gulf Stream. Climat conditions in the Baltics are not as tough as in Russia but not equal to British weather. This may be the reason why two years ago Germany beat the Brits in a tender by the European Bank for Reconstruction and Development (EBRD) for money allocated to upgrading rail fastenings in Latvia.

One also cannot agree with the claim made by British railwaymen to prioritize continuous welded rail technology. In fact continuous welded rail tracks is not British know-how, as rails of this kind are used on all railways in the world. The Soviet Union started building continuous welded rail tracks in the late 1950s. Today in Russia continuous welded rail tracks account for 37 percent of the total length of its main railroads. By 2010 this figure will grow to 70 percent, and in the Baltic states the trend is the same.

At present Russia is laying continuous welded rail tracks, using locally-made fastenings that are also equipped with resilient clips, but have rubber gaskets under the rail foot. The use of such fastenings will grow with each year. Continuous efforts are being made to improve their design, building on experience accumulated during the operation of railways. Attempts to adapt fastenings of foreign designs to Russian conditions, working with German companies in particular, have so far failed to yield any positive results.

Naturally, the question arises: why Russia, having shared with the Baltic states a common railway network for over a hundred years and also has the benefit of similar climatic conditions, has not made a bid for the “adjustment” of Baltic railways to European standards like the British and Germans did?

In 1995 Russia began its transition to railway track repair technologies meeting modern global standards. To this end, a set of measures is being carried out to develop and supply local railways with new maintenance cars compatible with the best world standards and to increase production of up-to-date types of fastenings and ferroconcrete sleepers. But due to a lack of adequate funding, current capacities are not sufficient to handle even domestic objectives, not to mention production for foreign railways.