Wednesday 21 July 2010

The OSE Saga Continues

Landon Thomas, writing in the New York Times (Greek Rail System’s Debt adds to Economic Woes) on June 20th, has just published an excellent and highly cogent analysis of the financial and operating problems faced by OSE, the Hellenic Railways Organisation.

Among the points mentioned in this article:

·         The government has agreed to the Troika request to add OSE’s debt to the Central Government balance. This means that approximately $ 13 bln will be added to Greece’s debt this year from OSE alone.

·         Drivers on some routes are moving near-empty trains on mountain routes at a salary of $ 130,000 per year.

·         There have been $ 3.2 bln in investments on rail track and infrastructure since 1997.

·         OSE’s personnel numbers some 7,000. Between 2000 and 2009, OSE’s payroll rose by 50% while total headcount fell by 30%.

I’ve written about OSE several times in past posts (see list below). Today, I think we should all recognise that the government’s stated plans of privatisation of 49% and cessation of management control are simply not going to work. This is a half-measure, which no potential investor is going to accept given the militancy of Greece’s unions, the fickle nature of the Greek government’s promises, and the basic economics of rail travel in Greece.

What is needed is far more drastic therapy:

·         OSE should be immediately broken up into inter-regional and urban operating companies. Major cities, like Athens and (in the future, Thessaloniki) should have their own companies. A PPP partnership, such as the Athens Metro, could be one bidder for the assets in Athens.

·         Inter-city lines, like Athens-Thessaloniki, or Athens-Patras, should be continued only on the basis of an objective business plan and due diligence by an external company like Deutsche Bahn or SNCF.

·         Regional lines, like those in the Peloponnese or northern Greece, should also be reviewed by the consultants, but it is highly likely that these need to be stopped entirely.

In each case, the objective is to transfer assets, less liabilities, to the operating companies, which should be fully privatised within a period of 12 months. All privatisations should occur through televised, transparent auctions.

Any entity can bid: for instance, if the city of Drama, which recently protested the announced closure of its rail link, wants to bid, it should be able to. But it has to be established that the central government will not allocate any further funding to any other public or private organisation for railway operation or investment.

Any operating entity not purchased at auction should be liquidated and the assets transferred to the Public Property Management Organisation for sale. Any proceeds should be earmarked to pay down central government debt.

Any employees currently working for OSE lose their right to continuation of public sector employment. The new operating companies will be able to offer certain members a position, at private sector rates. The remaining employees can receive a standard unemployment insurance, or potentially retirement.

This is the only realistic option to solving the problem. Inner-city rail travel is economically possible; only a few inter-city routes have the potential for profitability; most regional lines have to close.

There is no further time to lose, and no further funds to invest in the maintenance of a public sector behemoth of this type.

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  1. There was a time when I took the train from Amaliada to Athens on a regular basis. I love trains because one can relax, walk up and down the aisles and see things through the window that you miss in a car or a bus.

    But the trip took 6 hours (one way) on an express route and 8 hours on a regular route. Eventually, even though I'm not regularly employed, this became too much of a waste of time. Then the Peloponnese train station was closed in Athens. That put paid to my desire to support OSE.

    So, I started taking the bus and spending only 4 hours traveling each way.

    If OSE had decent trains that could cover the same distance in a reasonable time frame, I'd take the train.

    We then had to take the train in January of last year because of a farmers' strike. The new Peloponnese station in Athens requires you to climb several flights of stairs - as does the Larissa Metro station which borders both the Northern and Southern Greece rail lines.

    What is the point of building a new train station that requires you to climb several flights of stairs WITH luggage!

  2. I'm afraid everything you write is indicative of the mentality which predominates in the Greek public sector today. There is absolutely no regard for user convenience and cost/time effectiveness.

    Greece would be far better off expanding a network of diesel or natural gas-powered inter-city busses, since the investment in road networks in being made in parallel to a massive investment in rail networks and infrastructure. One of the two has to go - we can't afford to do a bad job on both.