Newsletter 16/2011 - Our South East Europe

Highlights from World Bank’s Report Railway Reform in South East Europe and Turkey: On the Right Track?

Situation with railway infrastructure and transport in South East Europe (SEE) is the subject of a comprehensive World Bank (WB)’s report titled Railway Reform in South East Europe and Turkey: On the Right Track? The report was released in June 2011. It looks at the state of the railways in Albania, Bosnia and Herzegovina, Croatia, Montenegro, the Former Yugoslav Republic of Macedonia, Serbia, Bulgaria, Romania, Turkey and UNMIK/Kosovo.

The report revisits the railways of the region five years after the 2005 benchmark study, Railway Reform in the Western Balkans, in order to assess the progress made by the state rail in institutional reform, operating and financial performance, and integration.

Through comparison of the sector in the region in key areas (Institutional Reform, Operating and Financial Performance, Integration), the report’s findings are that there is “modest progress made in implementing substantive rail reform over the past five years”.

The report reiterates number of reasons for the limited progress in rail reform in SEE and Turkey since 2005, some of which are: financial crisis; heavily overstaffed state railways; protectionism that has acted as a powerful factor in slowing down the pace of change; etc. 

 “For the report countries as a whole, rail traffic was lower in 2009 than it was in either 2001 or 2005: it declined from 56,202 million traffic units in 2005 to 45,059 million traffic units in 2009. Overall, passenger traffic declined in both the first and second half of the decade, while freight traffic rose over 2002-2006, before declining sharply in 2008-2009.”

The report estimates that with a total rail network of 32,864 km comparable with Germany’s 33,706 km, the countries of SEE and Turkey operate four times less traffic (45,059 million traffic units compared to Germany’s 170,720 million traffic units).

Some facts and figures on current situation in railway sector in South East European countries, as stated in the WB’s report  

·        Out of the 55 locomotives of Albanian Railways, 25 percent are under 20 years of age, with the bulk of the locomotives acquired over 30 years ago.

·        The rail network of Bulgaria consists of 4,150 km of track, the third most extensive of the countries included in the World Bank’s study.

·        Rail traffic intensity in Croatia rose from 41 percent to 53 percent of the EU average over 2005-2009. In 2009, traffic intensity in Croatia stood at 1,643,775 traffic units per rail route-km—nearly double the traffic intensity in Serbia.

·        As of end of 2009, the number of freight wagons in the Former Yugoslav Republic of Macedonia stood at 1,323, out of which 920 wagons are operational, with an average age exceeding 30 years.

·        To put the traffic volumes at UNMIK/Kosovo in perspective, prior to the conflict in Yugoslavia, the railway lines in the country carried 2.5 million tons annually, compared to 911,830 tons in 2009.

·        The rail network of Montenegro consists of 248 km of track and is the smallest of all the countries covered in this study.

·        The rail network of Romania is the largest of the countries included in this report, at 10,776 km. Of these, 2,909 km are double lines and 4,002 km are electrified. The country is traversed by two Trans-European Transport Network (TEN-T) rail corridors: (i) Corridor IV, which connects Arad to Bucarest and Constanta, starting in Dresden and ending in Istanbul; and (ii) Corridor IX, which connects Romania to Moldova, Bulgaria and beyond.

·        In Serbia in 2009, passenger traffic declined to 582 million passenger-km, down from 648 million in 2008, and freight traffic plummeted by 32 percent, to 2,723 million ton-km. The rise in traffic volume has been uneven, with a steady rise in freight traffic in 2000-2007, compensating for a decline in passenger traffic over the same period.

·        The average age of the rail infrastructure equipment is younger in Turkey than in the Western Balkans. In Turkey, about 27.8 percent of rail is under 10 years of age; 25.2 percent is between 11 and 20 years; 24.7 percent is between 21 and 30 years of age; and 22.3 percent is over 30 years old.

According to the report, the lower traffic volumes in most cases translated into a serious deterioration of the financial performance of the state-owned railways.

“This brought home the costs of failing to implement essential reforms to improve the operational and financial performance of the sector when the economy was strong.”

For the purpose of illustrating the fact that it was unwise to postpone implementation of state railway sector reforms during good economic times, the authors remind that a large-scale layoffs were announced at short notice for the state rail companies in Romania in 2010, while in Bulgaria the state rail incumbents face an acute liquidity crisis, and will require additional state aid merely to keep running.

“From a public policy perspective, a gradual set of reforms aimed at turning around the financial results of the state rail incumbents is less costly socially and politically, than dramatic layoffs at a time of acute crisis.”

Low quality of rail infrastructure is singled out as one of the main obstacles facing rail clients in the region and it impacts “negatively on the global competitive position of economies”.  

“Since the 1990s, the annual volume of track renewal works has been much lower than necessary, and the accumulated backlog imposes speed restrictions on many lines for traffic safety reasons. Similar backlogs have accumulated in the modernization of telecommunication systems, signalling systems, power supply, catenaries and interlocking systems.”                         

The World Economic Forum‘s Global Competitiveness Report 2009-2010 that includes ranking of the regions’ countries (out of total 116 countries) in terms of quality of rail infrastructure shows that with the exception of Croatia and Bulgaria, all countries included in the report are in the bottom half of the ranking—with Serbia, Bosnia and Herzegovina and Albania among the bottom quarter.  

The report stresses the three main reasons for prioritizing changes in the railway sector. The first one is to ensure compliance with the requirements of relevant European Union (EU) directives; the second, the countries can begin to reap the envisaged benefits of adopting this institutional framework; and finally, when the competition is introduced, to enhance the ability of state rail incumbents to compete with new entrants without requiring increased levels of support from the state.

Besides implementing the required legislation, the state rail companies need to change their cultures in order to become more business-oriented.

“They need to focus on meeting customer needs, and providing efficient, cost-effective services. This cultural change is unlikely to take place as long as rail companies are protected by the state and there is no intra-modal competition. Monopolies are not particularly nimble at responding to market-oriented demand, especially if they are protected from facing the pressures of the market.”

The much-needed reforms would “not only reduce transit times and help state rail companies reap economic benefits from enhanced coordination, management, and organization”, but, according to the report, they would also “bring railways in SEE and Turkey closer to standards required by the EU” thus enabling healthy competition of the rail sector in order to improve rail freight and passenger services.

For example, train transit times between Ljubljana and Istanbul can be reduced to a staggering 25 hours – if the necessary reforms in the rail sector are made.

The report goes on by saying that for candidate countries, such as Croatia, Turkey, or the Former Yugoslav Republic of Macedonia there is a particular urgency in complying with EU directives, while the potential candidate countries, like Serbia and Albania, have a bit more time on their hands. Still, “precisely because those countries are further behind, the need to start accelerating the reform process now becomes even more compelling”, the report adds.

In addition to improving their chances of being accepted into the EU, these countries could gain many economic benefits by meeting the institutional framework set by the EU.

Rail freight services that are critical in the production, trade, and distribution of materials, including coal, iron ores, etc., are just as important segment for the improvement as is the provision of efficient rail services to passengers.

“Over sufficiently long distances, railways can provide efficient transport solutions for general freight and for high volume movements from ports. With regard to passenger services, railways can perform valuable economic and social roles in dense inter-city corridors—for suburban transport in major cities and sufficiently populated rural areas.”

Alternative to the rail in such cases is road transport but “at a high cost in terms of pollution and greenhouse gas emissions from vehicles, traffic congestion, and traffic accidents”.

Despite the limited progress in the needed rail sector reform in SEE made so far “there are powerful levers for ensuring progress on the rail reform agenda going forward”, concludes the reports with the set of recommendations mostly referring to an urgent need to accelerate the reforms in the following domains:

  • Continuing necessary institutional reform
  • Strengthening regulation of the rail sector
  • Improving the quality of rail infrastructure and the performance of infrastructure managers
  • Improving operating and financial performance of incumbent operators
  • Improving Integration in Service and Network Provision

“The main objective of this report is to serve as a wake up call to the relevant authorities—which include transport and finance ministries as well as rail companies—of the urgent need for stepping up the reform process.”[1]

[1] World Bank’s Report Railway Reform in South East Europe and Turkey: On the Right Track?


South East European countries and Turkey could gain many economic benefits by meeting railway institutional framework set by the EU, according to World Bank (Photo:

South East European countries and Turkey could gain many economic benefits by meeting railway institutional framework set by the EU, according to World Bank (Photo: