What would you think of a doctor amputating the legs of a car crash victim who has a 95% chance of walking again given the right treatment, efforts and patience? This simple metaphor sums up nicely the basic picture of the tremendously indebted, mismanaged, and robbed Bulgarian State Railways (BDZ) company. If you are of any sound mind, you'd say that doctor is a crazy, blood-thirsty butcher. Except that in BDZ's case the butchering doctor applying with the surgical "solution" is related to the driver who caused the crash crippling the victim in the first place. BDZ workers started on Thursday, November 24, 2011, what seems to be Bulgaria's largest railway strike since the 1920s. The workers' grievances as expressed by their syndicate leaders focused on the government plan to lay off more than 2 000 railway employees, and to stop from operation 150 trains, among other supposedly "healing" austerity measures, with additional criticism of the Transport Ministry's intention to sell BDZ Freight Services – the one at least remotely profitable unit of the state company. The strike ended 23 days later, on December 18, 2011, with the syndicates and BDZ management agreeing to sign a new collective labor contract, among a bunch of minor deals. But neither the Bulgarian government represented by the Transport Ministry, nor the BDZ management, nor the unions, nor the actual railway workers focused on the big picture – first, saving Bulgaria's railways, and, second, using them to promote Bulgaria's development – because at the end of the day – that's what it should all be about. Striking... Out In a sense, the strike became a joke. The unions have failed to organize a truly mass strike, with many workers wishing to strike complaining of a lack of leadership. Syndicate leaders have responded by claiming that the state had been pressuring many railway workers against striking. By the end of the strike, the management and the government, who were supposed to be the bad guys, and the unionists, who were supposed to be the good guys, seemed to similar that blurred into the common chaos that seems to be sealing the fate of the Bulgarian railways. All that aside, the discrepancies in strike data published by the unions and the government have been entertainingly puzzling. For example, after the first day of the strike the syndicates claimed they managed to stop from operation 83% of the trains, while government data eventually put the figure at 40% (?!). And in one of the more tragicomic moments of contemporary Bulgaria's history all throughout the first strike day the Transport Ministry and the BDZ management kept publishing vastly diverging data about the number of stranded trains and striking workers. God forbid that a state-owned firm and its parent, a government ministry, have the decency to compare their information to avoid looking stupid. The mind truly boggles why BDZ's total debts amount to BGN 771 M with such management gurus and dedicated administration in charge... But the coolest part in the whole Bulgarian railway mess is the reaction of the BDZ management to the strike, summarized as follows: "The management of BDZ Holding EAD is stating again that it will not yield any ground from its position to carry out the necessary reforms." Why We Need Reforms.. There are several major reasons the Bulgarian State Railways company is where it is, with its passengers feeling as if they aren't in the EU but in some of the least fortunate parts of the developing world. Or as if they are in a time capsule from the early Cold War (on the wrong side, apparently, judging by the trains' "interior design"), the major difference being that the likelihood of dying in a train fire in today's Bulgaria is a lot higher than it was in the 1950s. For all of that we need to thank big time all those in charge of both the Bulgarian Transport Ministry and the BDZ company in the past 20 years, whose activity apparently boiled down to the following: First, total mismanagement. For example, nobody in the Bulgarian transport authorities ever got enough brains to figure out that some days you have more commuters than others. Thus, they would keep the same number of trains with the same number of railway cars running every single day, the result being that you have to climb on top of people to get on a Bulgarian train on Fridays and Sundays, whereas the same trains go 80% empty the rest of the week. Second, wide-spread embezzlement of state assets combined with rampant theft on the lower levels of management, all the way to allowing the lowest ranking worker to steal "whatever they can get" (no, this is not your Facebook relationship status, this is actually some of the good old take-whatever-you-can-get-from-a-state-company human vice because of which communism didn't pan out). Third, total failure of those in charge to attract investment – both from the Bulgarian state budget and from other potential sources. Contrary to what they would love to have you believe, a decent amount of money could have been attracted to the Bulgarian railways, at least to some sectors and some routes, especially in 2001-2008, but nobody even bothered trying; every single Bulgarian government would write off BDZ as that thing in which they only had to pour enough state money to somehow keep the crappy trains running for the impoverished provincial populace. Fourth, a total lack of goodwill and care for the well-being not only of the railway employees but also of the entire Bulgarian nation – because, as our readers from around the world are well-aware, in self-respecting nations the railways are one of the crucial factors for economic development and trade. An Epitome of Arrogance Another very important angle of the whole story should provide you with a better idea of why BDZ is the railway from hell. Back in February 2008, nine innocent, decent people were charred to death in their sleep on the Sofia-Kardam train, some two hours northeast of Sofia near the town of Cherven Bryag. This night train travels a distance of 650 km in 11 hours (hey, that actually seems to be slightly more than the average BDZ speed of 47.5 km), taking you from Sofia to some of the most remote and dilapidated parts of Bulgaria and the EU. What followed was a weird trial in which a train attendant and some lowest-level boss were sentenced, re-sentenced, acquitted, etc, and eventually in September 2011 the Bulgarian Supreme Appellate Court returned the case to a lower-level court, with the real culprits – the big shot bosses of the Bulgarian railways obviously getting away. As if that isn't enough, the arrogance of those in power in Bulgaria – in both 2008 and 2011 – went further. The former staff of the Transport Ministry had a train spruced up, put the minister on it, and invited the media on a two-hour trip to Cherven Bryag, the place of the incident with the train fire, in order to demonstrate how convenient and safe the Bulgarian railways really are. To this very day I struggle to fathom the ignorance and shameless of those journalists who got on that train together with the Transport Minister and then reported how nice it was with no respect whatsoever for the memory of the innocent victims. And, sure, the incidence of train fires in Bulgaria has grown big time ever since. But that is not the whole Bulgarian railway arrogance story. Since the railway strike was fully on, the current management of BDZ has been keeping a very weird count of how many workers have agreed to be laid off with a severance package of six monthly salaries! BDZ would publish these figures daily with a weirdly perverted pride. Apparently, this is how they do reforms: without any reason, direction, or sense of national goals but by counting layoffs – 245, 332, 410, 527, 798, 955, 1078. They will probably scream out "Bingo!" when they hit 2 000! This is topped only by the statement of the reform-excited CEO of BDZ Yordan Nedev who described the company that he has been in charge of for six months now as "trash" and "skin boil". "We have a lot of meat to cut from the railways. The fewer people, the more responsibility... right now there are five people in charge of one and the same process. This was done on purpose so that there is no visibility, and everybody can do what they please in the company which right now is trash," he stated recently. The irony is that Nedev would probably have a valid point about staff numbers and responsibility, had he not caused a public scandal with his comparisons. Of course, none of that really matters for the big picture. Now What: Cutting the Branch You're Sitting On So against this backdrop, what is the current management of the Bulgarian State Railways doing to rectify the disastrous situation of the company? It's the simplest solution: amputation instead of rational efforts. Cutting the branch you are sitting on. Doing away with the one single division of the Bulgarian State Railways that stands the chance of making the entire company profitable, boosting Bulgaria's regional development, and giving it leverage on the transcontinental traffic map. The company's debts are up to some BGN 800 M, which makes BDZ technically insolvent, as it has been every single year since the end of communism, and probably since the 1940s. In 2002, the Bulgarian railways were divided into two companies – BDZ, the passenger and freight operator (later divided into three subdivisions, including BDZ Passenger Services and BDZ Freight Services and a third unit in charge of the locomotives) and the National Company "Railway Infrastructure". Each of those two today has over 13 000 employees. The government and the management now plan to lay-off at least 2 000 workers from BDZ, to stop from operation some 150 trains, and to sell whatever can be sold for scrap. This is supposed to save the company some BGN 20 M annually that will be used to pay off some BGN 100 M in debts over the next five years. The next step is the privatization of BDZ Freight Services, which has been the one major source of profit for BDZ in the past 20 years. This is a subdivision with high economic viability when it comes to transporting industrial goods, raw materials, fuel, etc, even with the outdated machinery of BDZ. For the better part of past 20 years, BDZ Freight Services would turn in a small profit here and there that will be poured into keeping the entire company afloat. Even though it registered a loss of BGN 3.3 M in the first half of 2011, BDZ Freight Services reduced its loss substantially from the BGN 9.5 M in the same period of 2010. At the same time, its revenues grew by BGN 29 M year-on-year to reach BGN 86 M in the first six months of 2011; but its losses also grew – from BGN 66.7 M in January-June 2010 to BGN 89.3 M in the same period of 2011. In early November 2011, the two heads of BDZ Freight Services Plamen Dzhurov and Ivaylo Ivanov stated their division was now generating a daily profit of BGN 500 000. They also said they had boosted its revenues by some 20% since they took over more than a year ago, and could increase them further by 30% over the next three months. Transport Minister Moskovski himself recently said that BDZ Freight Services will end 2011 with a loss of BGN 4-5 M – a decent financial result that is clearly not that hard to be improved. All of this goes to suggest that given the right goal-setting and follow-up management BDZ Freight Services has the capacity to be the engine driving the Bulgarian railways forward towards solvency and beyond. One wonders why, then, the Bulgarian government is so eager to sell the one viable section that can propel the troubled state company. What is more, even though according to Transport Minister Ivaylo Moskovski, the assets of the BDZ Freight Services are worth some BGN 320 M, the estimates about how much money the government can make from this sale taking into account the market position of company remain largely unclear. This makes it all the easier to sell it for a dime to some foreign corporation or local oligarch who might be nice enough to provide some covert financial incentives for some nice Bulgarian bureaucrat or politician. Of course, whoever is in power will convince the nice people of Bulgaria that everything has been nicely transparent – as has been the case with all the nice privatization deals of Bulgaria's pretty vast communist-era industry. World Bank "Help" Anyway, once the privatization happens, this should get the World Bank extremely excited, aroused, and enjoying other positive feelings with sexual connotation so that it will grant to the Bulgarian government some kind of a "very favorable" loan for whatever is left of the Bulgarian railways which by that time will be reduced to the Sofia-Varna and Sofia-Burgas trains, and a couple of counters selling tickets for them. Bulgaria's Borisov Cabinet has firmly decided to go for the privatization of BDZ Freight Services, Transport Minister Ivaylo Moskovski assured on December 9. "We are certainly going to sell BDZ Freight Services, and I am responsible for that. I am not worried in any way about the privatization topic," Moskovski said, refusing to comment on the rumors that the asking price for BDZ Freight Services - the company controlling more than 80% of the Bulgarian railway freight market - will be BGN 200 M. "I don't wish to comment. I don't know what price BDZ Freight Services will be privatized at. The price is determined by the demand and the market. We have set sufficient high privatization criteria," he stressed. "We are carrying out an analysis, based on their nominal value the assets of BDZ Freight Services are worth BGN 300 - 320 M. I can't say whether the market will "approve" of that, and which way the price is going to shift," Moskovski elaborated. According to the Transport Minister, the sale of BDZ Freight Services is the only way to make enough cash in order to guarantee the long-anticipated massive loan from the World Bank to the Bulgarian for the ailing Bulgarian State Railways BDZ. "The sale of BDZ Freight Services has two dimensions. If we sign an agreement with the World Bank, which will provide for a BGN 460 M loan, this will be a loan from the World Bank to the Bulgarian state, not to BDZ. The state is to grant it in some way to BDZ with the sanction of the European Commission. For that to happen, BDZ will have to provide a minimum funding of its own equaling at least 50% of the loan. There is nowhere else to get this money expect the sale of Freight Services," Moskovski declared. He further explained his rationale by saying that even if the World Bank does not grant the loan, the fresh inflow of cash that is to come from the sale of BDZ Freight Services is the only way for BDZ to start overcoming its dire situation. So even if the bliss of the World Bank loan doesn't shine on the Bulgarian railways, everybody will still live happily ever after since BDZ Freight Services will be liquidated. Of course, the money will sink quickly, and in a couple of years, Bulgaria won't have BDZ Freight Services, it won't really have BDZ Passenger Services, either, but whatever is left of the Bulgarian railways will still be accruing large losses because of the way they are run – and the people who run them. Grappling with Inefficiency What is the big deal, you would say – an inefficient business is bound to be optimized. Sure it is. But it must not be amputated to the extent of uselessness when 1) it has a potential to be profitable, or at least, sound; 2) it is not just any ordinary company whose private or state ownership makes no difference – this is about the railways of an entire nation, whose significance goes way beyond a single balance sheet, all the way to regional development, international trade, transcontinental traffic, national security, if you please. Railway freight services might easily be the key to the economic development of entire regions of Bulgaria and to a very serious boost to the country's GDP. Take the railway connection between Bulgaria's Port Varna on the Black Sea and Port Ruse on the Danube – which, in the absence of a canal (not counting the one in Romania, i.e. the Bulgarian authorities never cared enough to think seriously about building one), has got the potential to be a major international trade highway for all of Eurasia, especially with railways now, at least in Eurasia, seemingly catching up with ocean container trade in terms of cost and time efficiency. If Bulgaria managed to get even 5% of the Asia-Europe trade channeled through this route, it will see a major economic upswing. But it can't. Because for that to happen, the Bulgarian governments should have promoted it and improved it long ago, and they never had the brains, goodwill, or honesty for such smart investments. Because of the features of the Romanian Danube-Black Sea canal, the Bulgarian railway route Varna-Ruse could technically be absolutely competitive. But here is a fun fact you didn't know: the Varna-Ruse railway was the first one in the Ottoman Empire – built in 1867. And it has hardly been modernized ever since. There are at least half of dozen major intercontinental railway freight routes that can and must be developed in Bulgaria that even go beyond the five recognized (but still only imaginary as far as Bulgaria is concerned) Pan-European Transport Corridors. As early as 2008 the Beijing-Hamburg railway "silk route" halved the time for shipping cargo by sea. The new 6 000-mile silk route crosses China, Mongolia, Russia, Belarus, Poland and Germany – clearly an indication of the potential of the railways. Why is Bulgaria not the hub for similar trans-continental railway routes given its geographic location? Because nobody in the Sofia government offices doesn't have the vision for this. Even after in October 2010 China formally invited Bulgaria to join together with Turkey a project for a high-speed railway connection from the Far East to Europe – Bulgaria's government has done little. So the good people of Bulgaria can only hope that somebody like China will basically drag the Bulgarian government into something that makes sense. Of course, by the time that happens, an endless line of distinguished Transport Ministers and other pundits will have eliminated whatever might be left of the Bulgarian railways. What's the Opposite of Regional Development? Or take the former narrow gauge railway in Northern Bulgaria from the village of Zlatna Panega, which has a large cement factory, via the town of Cherven Bryag, to Port Oryahovo on the Danube. Instead of extending it through the Balkan ridge, thus linking the Danube Oryahovo Ferry with the railway network of the south, the Bulgarian authorities shut it down in 2002. Some idiotic bureaucrat decided that it was unprofitable, and bammm! It's gone. Of course it was unprofitable the way it was mismanaged and left unfinished since the 1920s! But however slow and outdated this railway line might have been, it was a major means of transportation and freight trade for a large section of Northwestern Bulgaria, the poorest EU region. Since the railway was shut, the municipalities along its route have become even poorer and even more depopulated. The only ones who got richer were several local bus firms. But the "best part" is the fate of the actual rail tracks. They have been brutally dismantled but not by the dignified transport authorities of the Republic of Bulgaria but by local gangs, often organized by Roma clans, who found an easy way of making bucks by selling the rails for scrap. A nice example of how government mismanagement and corruption brings lawlessness and dilapidation for entire regions. You can't make this stuff up! What Is to Be Done: Act Globally! The situation at the Bulgarian State Railways is pretty disastrous. But that doesn't mean that that it should be amputated by rushing to rash solutions – unless those who are proposing them have some covert agenda for doing that (which is too often the case to disregard it). First, the dear World Bank officials who will read this article should explain to the good people of Bulgaria why the sale of BDZ Freight Services is one of their conditions for granting a loan for BDZ and why their nation will prosper by doing away with its state railway freight carrier. Leaving aside the fact that it remains unclear why one should sell the only part of a public business that has the potential to be highly profitable, there is simply no reason the Bulgarian government should allow BDZ to go bankrupt other than the fiscal extremism of Finance Minister Simeon Djankov, a former World Bank operative himself. Djankov is a really cool dude, indeed. He keeps on saying that he "won't give" any more money to BDZ unless he sees "reforms". Boo! The BDZ Board bravely headed by its chairman Vladimir Vladimirov must have gotten scared by that threat. Which is why all the Board is going to do is making the mess even bigger while still making as much as the combined total of the salaries in a medium-sized Bulgarian town. And that will continue regardless of whether they are in charge of a company with a trans-continental potential, or of one train with three cars, five passengers, and two ticket counters. The fact of the matter is that an additional BGN 100-200 M won't kill the Bulgarian state budget, but failure to provide them could doom the railways to extinction. For example, the sum that BDZ owes to German bank KfW for its 50 Siemens trains is not that great – EUR 24 M – Moskovski did get the Germans to agree to EUR 12 M for the time being. So looking at the big picture, raising the budget deficit by 0.1-0.2 percentage points will have a short term effect. The elimination of BDZ Freight Services will have a long-term, and a much more disastrous one. Not mention that this isn't the only way to find funding. The government is only supposed to help get BDZ through the current difficulties, while focusing on a major strategy to make BDZ Freight Services profitable through international trade and simultaneously optimizing the resources of BDZ Passenger Services but without leaving entire regions of the country without any means of transportation. "Where is the profit of Freight Services supposed to come from – there is no Kremikovtzi, there are no factories, the company is registering losses, not profits," Bulgaria's Transport Minister Moskovski commented recently, interestingly mentioning Kremikovtzi – the Bulgarian communist-era steel behemoth which has now been utterly pillaged after its botched privatization – a reminder of what the fate of BDZ Freight Services will probably look like. Of course, it's totally untrue that there are no factories in Bulgaria. It's only true that there might not be any if the railways are done away with. But the major point here is that the government minister seems to be thinking in a very limited way. Why doesn't Bulgaria boost its own railway operator to run international, trans-continental routes? Why is that so impossible? Why is it better to bestow the Bulgarian freight operator to someone instead of bidding for Silk Road transit? The only reasons for that that I can think of are lack of brains, corruption, and incompetence. Of course, Minister Moskovski assured the good people of Bulgaria that he will be responsible for the sale of BDZ Freight Services! Can it become more outrageous? What do I, Ivan, a citizen of the Republic, care that some minister whose name won't be remembered in a few months or couple of years at best, will be "responsible"? First, nobody in Bulgaria will ever get sentenced. And even if they did – the damage would have been done, and it would be so great that no punishment would ever buy it up. Privatization – especially of the profitable division of BDZ – is simply a bad idea. Obviously, a business would be many times more efficient if privatized because it will be run by private interests; but this will be for the benefit of the private interests, not for the benefit of the public, and certainly not for those God-forsaken regions of Bulgaria which rely on the rails for development and trade. What is really needed is to concentrate on the freight services, with continued reforms in all sectors. Staff optimization does indeed appear absolutely necessary. In a 2010 interview Rumyana Mihaylova, HR head at BDZ Holding, said that since the division of the company in 2002, the administrative staff grew in numbers by 10%. The creation of a special public body, including not just the state, but also NGOs, the media, and local and regional authorities for overseeing the affairs of the BDZ will be a great idea given the great importance of the railways for the national economy. Getting municipalities involved would be crucial – in the case of the now gone Oryahovo railway referred to above – the local municipalities asked the state to let them save and run the line but BDZ did not agree. To be fair, Bulgaria's Borisov Cabinet has started to use EU money for the modernization of some railway lines. However, that is that – it refers only to some railway lines, and in regions which aren't doing that bad anyway such as the Plovdiv-Burgas railway, and isn't accompanied with any major efforts to attract international freight traffic. All the talk in Bulgaria has been about getting FDI. Not that we get that much FDI as a result of that. But nobody ever even thinks of trying to attract transit cargo and freight traffic which for a small country like Bulgaria could be a source of GDP boost as important as FDI and foreign tourists. By the way, one wonders: is the amputation of the Bulgarian railways going to help attract foreign investors? Probably not. Not only because they won't be able to enjoy simple transportation services in large swaths of the country but also because what self-respecting investor would go to a country that can't even maintain the most basic infrastructure necessary for a nation's economic survival? But who cares, let's sell all the rails for scrap, shall we! Lets amputate Bulgaria!