The objective behind our work is to become the chief support of mobility in Slovenia with many different services and products widely enjoyed by our passengers, says Director General of Slovenske železnice, Dušan Mes. The railways have played a crucial role in regards to Ljubljana Passenger Centre, which will be the biggest mobility hub in Slovenia. Through the purchase of the bus operating company Nomago, SŽ Group additionally strengthened its role as the backbone of public transport, while the new strategic partner from Hungary will help push through the much-needed modernisation of SŽ – Tovorni promet’s fleet and provide access to new markets.
Things are slowly returning to normal this year. With rising volumes in rail freight and passenger and infrastructure enhancements in full swing, the situation is looking pretty good.
It is certainly true – or so we hope – that the time of uncertainty caused by Covid-19 is mostly behind us; but at the onset of the coronavirus pandemic, things looked rather uncertain and the prospects were very poor. I believe Slovenske železnice did relatively well during that critical time – also because of the assistance from the state – with only minor disturbances. The pandemic also sped some things up. Investment in rail infrastructure, for example, saw a surge throughout Europe because every country – Slovenia included – wanted to boost its economy, and that is exactly what happened! The general consensus in Slovenia is that there is a need for investment in rail infrastructure to promote a modal shift from road to rail in both passenger and freight transport, and I believe the investment in this area will continue to grow over the next ten years.
So the stakeholders are all on the same page regarding investment needs!
Correct. Our only concern is the pace of such investment … but Slovenia is on a good track. Rail infrastructure projects are there, we know what we want – we are currently making large-scale enhancements to the mainline network as set out in our strategy and plans, and shortly after we are expecting to start with renewals, upgrades and capacity increases on branch lines, which have a pivotal role in rail passenger and its future. Launching new products which are attractive to passengers is very difficult right now because of congested infrastructure and small capacity of the network. But despite infrastructure constraints, a lot has been done over the past ten years.
You seem to be optimistic and have a positive outlook. Are you satisfied with your performance in the previous business year and over the first five months of 2022?
I am. All performance indicators, both physical and financial, are showing improvement! But I know for a fact that optimism only goes so far without actions to back it up. Also, when you are in my position you always have to make an accurate assessment of the risks involved.
What are your thoughts on the conflict in Ukraine and the crisis it has fuelled?
Everyone from businesses to individuals can feel the direct effects of the war on energy prices; inflation is rising, and food and other commodity prices hitting record highs … forget ten per cent, we’re taking spikes of one hundred, two hundred per cent and more. This is the reality, and we are most likely heading to another major recession down the line. All these changes and price hikes are putting a damper on consumer demand and leading to economic stagnation, and this will inevitably affect SŽ Group’s business, too. This is why I am glad we prepared up ahead for such a situation! Slovenske železnice is financially in a good spot right now and has very little debt. It has completed a good portion of its investment plans, including the main strategical projects due by 2025, such as the strategic partnership in SŽ – Tovorni promet, the purchase of Nomago, an equity increase for the third call for bids regarding new passenger trains, and earmarking the funds to purchase locomotives for our freight operator. I short, most key projects have been successfully delivered. Careful preparations – also with respect to risk management – are in full swing right now to find ways how to ensure business stability in the coming year. We are expecting a surge in energy prices, costs and inflation, but in turn we will also need to increase prices on our side to help us achieve our business targets, which includes generating profit to finance our investment.
What impacts does the crisis in Ukraine have on your business?
It might sound contradictory, but the war has had a positive effect on SŽ. The logistics links through Ukraine’s Black Sea ports had to be rerouted. With the ports in this part of Europe closed or working at greatly reduced capacity, there has been a surge in freight traffic through northern Adriatic ports, and if we had a larger fleet and higher route capacity – even twice as high – we would be operating at maximum capacity. SŽ and other train operating companies on Slovenian network cannot keep up with the enormous spike in demand. The route capacity is simply too limited to be able to respond to this kind of surge.
The first five months of this year were marked by three different events. In January, EP Holding acquired a 49% stake in SŽ – Tovorni promet, three months later Slovenske železnice purchased a 50% stake in Nomago, and now Ljubljana Passenger Centre is becoming a reality … let us start with EP Holding – what is the new strategic partner from the Czech Republic expected to bring in? Fresh equity, new markets, synergy?
I often see the question if there is a real need for strategic partnership. Even without a strategic partner, our freight operator has been doing quite well on the market. So the answer is simple. If SŽ – TP had not demonstrated a relatively good performance, no one would show interest. Finding a business willing to acquire a minority stake in a company – which is a state enterprise to boot – is an enormous challenge and almost impossible to do. Here we can draw comparisons with the Slovenian airline Adria Airwaves. Had Adria teamed up with a suitable strategic partner back in 2005 or 2006, it would have been like as Swiss or Austrian Airlines are today, and could have stayed in business. We are a small company amidst such fierce competition that we would eventually end up isolated and struggling to compete on Slovenian market if we didn’t quickly go ahead with the extensive modernisation of our freight operator’s train fleet and expand to international markets. The alternative would leave us with nothing but scraps and inevitably lead to downsizing. This means you only have two options. Sure, there are always risks involved in teaming up with an outside enterprise which has its own set of business culture and ethics, but this is the only way – not just in the immediate future but especially in the long run – to make sure our freight operator can stay in business and grow, in turn giving the owners decent returns on their investment and paying the workforce a decent wage. The alternative would be a rerun of 2008 and 2009 when Slovenian railways were only about wage cuts and lay-offs. Investment is the lifeblood of business growth, and that goes for both rail passenger and freight. By 2025, total investment in rail is expected to reach almost one billion euros. This is the level of resources required to maintain or slightly improve our current performance and to give our staff a decent pay for their work. The other option would lead to our downfall, with everyone from banks and suppliers to the owners and state abandoning a sinking ship. The progress over the past years has been remarkable, placing us amongst the most successful enterprises in Slovenia; our financial performance is strong with relatively good profitability and – most of all – we have grown to become a truly high-value business.
The strategic partner will certainly help SŽ expand to new markets in other countries.
Indeed. The strategic plan of the newly established SŽ– EP, which is currently underway, will bring more investment in the locomotive and wagon fleet, pave the way to markets in countries such as Austria, Italy, Hungary and Serbia, and earmark between 250 and 300 billion euros for the purchase of new rolling stock. We also want to team up with the companies from Fersped Group to build a modern logistics network, and I expect this to be done in the next two years. To drive performance and stay competitive, we first and foremost need a modern locomotive and wagon fleet. A transport operator which can offer a complete service from A to B will be far more attractive than a competitor which has to rely on subcontractors.
Can you tell us something about the purchase of Nomago? What is the purpose behind it?
In ten years time, the entirety of public transport in Slovenia will be managed by a single company. Because there is only room for one operator, they will have to offer a lot of different services and products in both bus and rail transport, manage stations and stop-off points, and provide various other services at stations (such as e-bike, e-scooter and e-car schemes) which need to be safe and easy to use. The goal is to let passengers go about their day buying as many products or services as they want without having to worry about the how, where or when. As said, public transport only has room for one company, and it can be either Slovenske železnice or some someone else. There is certainly a lot of interest in this respect, such as from Austrian and German railways, which have very strong mobility departments and also their own bus division. Slovenske železnice’s current concession to operate public transport services is set to expire in 2031, leaving it open to competition in the next call for bids, where the bidder with the widest range of services and products will be at an advantage. We work today to create a tomorrow where we are the chief support of mobility in Slovenia and the backbone of public transport with many different services and products widely enjoyed by our passengers. It is better for public transport to stay under our responsibility because doing so makes us less dependent on other influences in the transport chain.
Through Nomago, SŽ Group gained an important synergy in the mobility pillar.
With a bus fleet of 700 units and a headcount of around 1200, Nomago is a large company generating a revenue of over 100 million, which is 20% of our Group’s revenue. Our company is such that it needs to grow across all pillars – from logistics to mobility and also in civil engineering. Without Nomago, development in our mobility pillar would eventually hit a brick wall, and the earnings, the profit would go to our competitors, instead. I often hear the question: Why are railways making profit? Well, without profit wages in the rail sector would fall by 20%. Profit drives investment and, by extension, leads to better pay! It improves productivity, saves on maintenance costs, and means better rewards for the workforce at the end of the year. It goes without saying that the financial stability, job security, and pay levels all depend on the profit a business generates.
With the purchase of Nomago, there will probably be some timetable streamlining in the mobility pillar.
Harmonising and streamlining timetables is the main purpose of Integrated Public Transport, a project launched and managed by the Ministry of Infrastructure. But our mobility pillar will certainly offer more than just that. The entire process will be optimised, and we will also make public transport better and more user friendly. Passengers should have more and better options to choose from, trains and buses should run more frequently – this is and will always be our objective. Now we need to find a solution for last-mile journeys, such as better transit options in the city of Ljubljana. As it stands, if you arrive to Ljubljana and need a ride to, let’s say, the Ministry of Infrastructure, things are more complicated than you would expect. A trip from the main train station to the ministry might in fact take longer than a ride from Ljubljana’s suburbs to the city proper, for example. This is a problem we need to fix. Whether we find a solution together with the state bus operator LPP or on our own is still up in the air.
Speaking of mobility, the new Ljubljana Passenger Centre likely is the cherry on top. It has been in the works for so many years, and now it is finally taking shape. Once the necessary permits and consents are obtained by the end of this year, construction on the project is due to start next year with the aim of completing works in 2025.
The railways played a pivotal role in making this project happen. Some of our past partners unfortunately did not make good on their commitments under the original contract. Currently we are about to sign the engineering services contract, with the call for bids and construction due in the coming year. Slovenske železnice is financing the new bus station, parking garage and offices in the total amount of €55 to 60m, with the state to fund the train station and track and platform infrastructure, and EP Holding investing in the commercial complex comprising a shopping mall and a hotel. Once completed, this will be a truly modern mobility hub, which will be as ground-breaking for passengers as the recently purchased passenger trains were.
This puts the city of Ljubljana and Slovenia on the global map of modern passenger stations.
Rather than just a station, Ljubljana Passenger Centre will be the heart of mobility in Slovenia. Passengers will have the best services and products to choose from, much like in other transport hubs across Europe. I am filled with pride that we have reached a point where the project is moving from paper to reality.