Industrial action threatened over railway restructuring

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July 2003 saw a wave of protests by trade unions represented at Polish National Railways (PKP) against the planned closure of loss-making local services. Faced with the unions' threat of a general rail strike, PKP management and the government agreed to cut the number of services to be axed. However, the continuing restructuring of PKP, which is facing major financial difficulties, suggests that further unrest cannot be ruled out.

Polish National Railways (Polskie Koleja Państwowe, PKP) is one of the largest rail operators in Europe. In the mid-1990s, it was second only to the French National Railways Company (Société nationale des chemins de fer français, SNCF) in terms of passenger transport and to German Railways (Deutsche Bahn, DB) in terms of freight transport. At the same time, PKP was one of the largest employers in Poland, with almost 300,000 people on its payroll at the beginning of the 1990s.

The 1990s, however, were a period of constant economic decline for PKP. From the beginning of that decade, rail infrastructure investments fell dramatically, preventing significant modernisation and indeed making it impossible to prevent deterioration of the network. The same problem applies to the rolling stock, which is outdated and much more costly to operate than newer-generation stock. The technological gap between PKP and its counterparts in other European countries has been deepening. The 1990s were also a time of a road transport boom in Poland, which resulted in a decline in the number of passengers and the volume of goods carried by rail. PKP found itself saddled with an increasingly unwieldy body of fixed assets, comprising not only an overly extensive rail network, but also various real estate (the overwhelming majority of which had an unclear legal status). These difficulties were compounded by what were regarded as excessive employment levels and an attendant poor working efficiency.

It became clear that restructuring of PKP was inevitable. However, successive governments were less than keen to tackle this challenge. For several years in the early 1990s, reforms were all but abandoned, while any solutions which were agreed were not followed up in a consistent and determined way. In several instances, the management of PKP and the national government dropped restructuring plans under pressure from the trade unions, and the status quo was left in place.

Slow restructuring

The first half-hearted attempts at restructuring Poland’s national railways were made in 1991. They were limited to freezing the process of electrifying lines and to reducing PKP’s autonomy with respect to the execution of contracts. All other changes implemented until 1995 were superficial, concerning primarily the divestment of a few operations not related to PKP’s core activity. Nevertheless, some modest progress was made in reducing over-employment at PKP, with the company shedding tens of thousand of jobs, resulting in a workforce of 228,000 in 1992.

The turning points in the process of restructuring PKP were marked by the enactment of two laws regarding the railways. The first of these, adopted on 6 July 1995, gave PKP the status of a public utility. This was promptly followed by organisational changes geared at adapting PKP’s structure to what were considered business norms. Four distinct organisational units were created, responsible for passenger transport, goods transport, track and rolling stock. This asset restructuring aimed to enable expendable lines to be closed and residential properties owned by PKP to be sold. The rising debt of PKP, mostly owed to the social insurance system and various state entities, was to be converted into shares for the creditors in the new business entities being created out of the previous monolithic company. PKP management and trade unions representing railway workers reached an understanding whereby workforce reductions were to be achieved through voluntary departures and retirement, coupled with cutbacks in external recruitment, with collective redundancies ruled out. As a result of the implementation of these various measures, PKP's management became somewhat more efficient and employment was slimmed down to some extent (to 208,000 in 1999). The largest problem, however – that of PKP’s indebtedness – remained unresolved, with debts rising sharply from some PLN 46 million in 1991 to PLN 6,281 million in 2000.

The second turning point came on 8 September 2000 with the enactment of an Act regarding the 'commercialisation', restructuring, and privatisation (PL0209103F) of the state-owned PKP. This Act provided for the commercialisation of PKP, which was thus to become a company in which the State Treasury had a 100% stakeholding, and for its transformation into a holding structure, with separate entities running the various aspects of its operations, as previously decided. This resulted in the establishment of: two separate companies which handle passenger transport - PKP Przewozy Regionalne SA (for local routes) and PKP Intercity SA (long-distance routes); a company responsible for freight transport, PKP Cargo SA; and a company responsible for infrastructure, Polskie Linie Kolejowe SA. These organisational changes were finalised in October 2001 with the formal establishment of the parent company, PKP SA, and its 42 subsidiaries, 24 of them owned entirely by the parent company.

The main aim of financial restructuring was that PKP’s debts to the state and social insurance system were to be gradually repaid, though some of the funds earmarked for this purpose were themselves borrowed. Asset restructuring continued to focus on straightening out the legal status of PKP’s real estate holdings. Once the legal title to such properties was clearly established, they were allocated to the newly established companies. The extent of the rail network was still considerable - of almost 23,000 kilometres of track, more than 21,000 kilometres were in use as of late 2001. One of the more pressing issues was that of reducing employment at PKP. By the end of 2000, this was brought down to 172,000 people through the departure of employees entitled to pre-retirement benefits (PL0211108F) and through termination of employment contracts for 'reasons on the part of the employer', with the workers who left receiving substantial severance packages. Some training courses and vocational activation programmes were also launched to help with the process of workforce reduction. By late 2001, the entire PKP group had 152,000 employees.

Nevertheless, PKP continues to post financial losses every year. The loss was almost PLN 3,353,000 in 2001, despite a state subsidy of PLN 300 million, while in 2002, the loss was PLN 2,650,000, despite an injection of PLN 500 million from the state (though it might be noted that the financial support extended to the railways by the Polish state is rather modest, corresponding to some 0.08% of GDP). At the same time, passenger and cargo traffic have been consistently dropping. In 1995, PKP carried 465 million passengers and 225 million tonnes of goods; by 2002, these figures had fallen to 304 million passengers and 222 million tonnes of goods, with a concomitant reduction of the average length of journeys.

Regional and local routes have been a particular loss-maker for PKP (more than PLN 1 billion in the red and with 'negative equity' of PLN 275 million as of late 2002). The thinking has been that PKP must maintain certain local connections irrespective of how much money they lose, as for many communities they represent the only transport link to the outside world. However, PKP management and the government recently began to contemplate reducing the number of such loss-generating local services, arousing fears of massive job losses among the staff of PKP Przewozy Regionalne – understandably enough, given that the most radical versions of the plan called for axing almost 1,000 local routes.

Trade unions and restructuring

PKP, as one of the largest state-owned enterprises with operations across Poland, has traditionally been a trade union stronghold. Accordingly, in planning reform measures – particularly those concerning employment - management has always had to take into account the opinion of the unions, which often took a confrontational stance. There are no fewer than 20 trade unions active within PKP, with the most important including: the Federation of PKP Employee Trade Unions (Federacja Związków Zawodowych Pracowników PKP); the Domestic Railway Workers' Section (Krajowa Sekcja Kolejarzy) of the Independent and Self-governing Trade Union Solidarity (Niezależny Samorządny Związek Zawodowy Solidarność, NSZZ Solidarność); the Locomotive Drivers’ Trade Union in Poland (Związek Zawodowy Maszynistów Kolejowych w Polsce); the Federation of Switching and Telecommunications Workers' Labour Unions (Federacja Związków Zawodowych Pracowników Automatyki i Telekomunikacji); and the PKP Traffic Controllers' Labour Union (Związek Zawodowy Dyżurnych Ruchu PKP).

During the 1990s, the financial difficulties faced by PKP resulted in an accumulation of tension, which often escalated into strikes. The first protests took place in 1990, although these were rather limited in their scope and in the number of workers involved. A next wave of protests, similarly local in character and concentrated mostly in Silesia, came two years later. Given that Poland's first presidential elections and early parliamentary elections were held in 1992, commentators tended to link any labour unrest occurring at this time with the busy political calendar. However, a reasonably stable list of railway workers' demands crystallised at this point, centring on higher wages and on employment guarantees, along with some calls to recognise the unique social and economic role of the railways and to give them special treatment. 1993 was a busy year for railway workers' protests, as was 1995. 1996 and 1997 were free of unrest, apparently because the authorities adopted a conciliatory line and essentially went along with the demands of the railway unions. The lull was broken by an all-out, five-day strike in May 1998, which at its height brought more than half the trains in the country to a standstill. PKP managers condemned this protest as illegal and negotiations failed to bring any results, leading to a suspension of the strike. The Locomotive Drivers’ Trade Union resumed strike action unilaterally in July 1998, but the protest - which also seemed to have political undertones - petered out after a few days.

The end of the decision-making inertia over railway reform in the late 1990s resulted in the drafting of restructuring plans and in the passing of the 2000 Act (see above). The trade unions persistently sought the most comprehensive government guarantees possible to accompany the restructuring, including 'social packages' for PKP workers and annulment of its debts, and opposed the government's draft legislation. In March 2000, all the union organisations active within PKP reached an understanding among themselves, with the aim of coordinating their pressure on the government. The unions were most successful in pressing their demands as regards social protection for workers, in terms of pre-retirement benefits, severance payments etc. In the process, the unions’ attitude appeared to change, moving from a decidedly confrontational stance to a more cooperative one. However, the level of acceptance of the restructuring programme varied among the different union organisations, although the major ones - the Federation of PKP Employee Trade Unions and the NSZZ Solidarność Domestic Railway Workers' Section – firmly supported the programme.

Compromise over closing local lines

Since the new legislation on the railways came into force, implementation of the programme of organisational and structural changes at PKP has been progressing. As indicated above, however, these measures have so far been insufficient to bring the PKP group out of its financial doldrums. Therefore, a new initiative was launched recently to close down unprofitable local lines and routes, in the hope that this would cut expenditure and curtail losses. These services are especially problematic for PKP in that local authorities, while theoretically obliged to contribute to their upkeep, have proved to be less than forthcoming in this respect.

It was thus planned to close 357 local lines and delete 220 services from the timetable from 1 July 2003 (a smaller number than originally envisaged). However, trade unions opposed these cuts, alleging that PKP and the Ministry of Infrastructure (Ministerstwo Infrastruktury, MI) were not honouring their previous commitments in this regard. The unions threatened to call a general strike on the railways if their demands were not met. The scheduled local cuts was moved back to mid-July 2003, but the negotiations reached an impasse. The prospect of a general strike loomed, with a demonstration held by 1,500 union activists outside the Ministry of the Infrastructure building in Warsaw on 9 July 2003 indicating the strength of feeling. Negotiations were resumed and, two days later, a compromise was reached. It was agreed that, in choosing the routes to be eliminated, two factors would be taken into account – profitability (revenue from services must cover a minimum of 10% of the expenses) and the average number of travellers (services must average at least 50 passengers per journey). Services not meeting these criteria were to be struck from the timetables. The review of local routes using these criteria yielded a list of 125 services to be cut. A further 44 services are to have their routes shortened, and 120 are to run at a reduced frequency, while 25 services are to be both shortened and made less frequent.

It was also agreed that PKP is to receive the remainder of the government subsidy provided for by statute for 2003, amounting to an additional PLN 500 million (to supplement the PLN 300 million already paid out). Addressing the lower chamber of parliament towards the end of July 2003, the Minister of Infrastructure, Marek Pol, explained that the privatisation of PKP SA is not possible; instead, a capital injection for the company is planned, involving the issue of PLN 150 million in government-guaranteed bonds by the end of 2003 and a further PLN 450 million in 2004. As of 2004, modernisation of the rail infrastructure will be eligible for funding by the European Union.

The willingness of the government and the unions to reach a compromise has made it possible to avert the prospect of a general rail strike, at least for the time being. However, the final days of July brought another outbreak of protests in Silesia, prompted by what the unions perceived as the unjustified elimination of local routes which met the agreed minimum profitability and passenger traffic criteria. The Silesian railway workers have warned that, if termination of the 17 connections in question proceeds, a general strike in their region cannot be discounted. Such 'flare-ups' suggest that the calming of the situation may be short-lived.

Commentary

The endemic problems of Poland's national railways, after years of neglect and half-measures, are ripe for resolution. The operation of passenger rail services depends on the support of the state and of local governments, as for many residents of small towns and rural areas, local trains are the only means of public transport connecting them to the outside world. The key to development of rail freight transport, meanwhile, seems to lie in a cohesive long-term government policy, primarily in terms of legislation. The rapid increase in the number of vehicles on Poland’s roads over recent years has not been accompanied by any improvement of the highway infrastructure. Legal regulations providing incentives to choose trains over cars would result in benefits not only to PKP, but also to society at large. However, the restructuring of the railways must be brought to its conclusion; this will entail sorting out issues of asset ownership as well as, most likely, further reduction of employment. (Jan Czarzasty, Warsaw School of Economy [Szkoła Główna Handlowa, SGH] and Institute of Public Affairs [Instytut Spraw Publicznych, ISP]).

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