May 23, 2012

Hungary presses for a new public transport policy

Written by  Ference Joo, IRJ correspondent
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Hungary's new transport act, which was approved in April, is resulting in a huge shake-up of passenger services designed to improve efficiency and introduce minimum service levels, as Ferenc Joo reports.

EVER since the introduction of democracy in 1990, Hungarian governments have been forced to finance a huge communist-era transport system designed to carry the great volumes of passengers and goods produced by a centrally-planned economy. While some 3000km of railway in peripheral areas - mostly narrow-gauge lines - closed in the late 1960s and early 1970s, the remaining 8000km continued to carry passengers at very low fares. And with freight volumes falling dramatically as the railway retained its employee levels, the network's infrastructure started to show signs of neglect.

In the past two decades, every government has tried to overcome these problems by either dramatically cutting the size of the rail network or restructuring Hungarian State Railways (MÁV), but with little success.

Due to an extensive system of concessionary fares only one in 10 passengers pays the full fare. This combined with constant senior management changes - MÁV directors general have only stayed in office for an average of 18 months in the past 10 years - has made reducing MAV's annual loss a very slow process.

Nevertheless, a number of major line reconstruction projects and investment in new trains have gone ahead in recent years improving the efficiency of the network. However, these projects were financed largely from European funds, only compounding MÁV's financial situation further as it now has to repay large bank loans incurring high interest payments each year.

A major restructuring of MÁV got underway in 2008. MÁV was divided into a passenger carrier (MÁV-Start), a traction company (MÁV-Trakció), and a rolling stock maintenance department (MÁV-Gépészeti), while the headquarters of MÁV became the infrastructure manager and leader of the holding company. At the same time, MÁV's profitable freight sector MÁV-Cargo was sold to Rail Cargo Austria; and GySev, a small railway owned jointly by Hungary and Austria, soon prospered and doubled in size by taking over the management of over 300km of MÁV lines in western Hungary.

HungaryThe current right-wing government, which came to power in 2010, promised to re-open secondary lines closed to passenger traffic by the previous socialist government, reinstating services on several lines. But on April 15, in a bid to reduce public transport expenditure, the government cut back services on most of these lines to two or three trains a day. Altogether 410 trains per day were withdrawn, including some mainline services.

However, this was not enough as Hungary's poor economic situation requires further spending cuts. Current talks with the International Monetary Fund (IMF) for a huge loan requires the consent of the European Union (EU) which only recently received the Hungarian convergence plan to keep the annual budget deficit below 2.2% by 2013. This requires savings of up to Forints 600bn ($US 2.77bn) per year from 2013, to which public transport must contribute savings of Forints 45bn this year and Forints 60bn per year from 2013. Much of this could come from abandoning certain concessionary fares, which will lead to compensation payments of Forints 110bn for public transport companies this year. A detailed plan to achieve the savings was due to be announced on May 31 by the minister of national development, who is responsible for transport issues.

To achieve a more efficient and integrated public transport system, the Hungarian Parliament passed a new passenger transport act on April 23. Under the act, domestic and international scheduled passenger services will be ordered by so-called transport organisers (TOs), which will be appointed by national or local government - in the case of Budapest, the TO is Budapest Transport Centre (BKK). TOs will also be allowed to operate ticketing and passenger information systems.

The minimum train service level is defined as three trains/day/direction for each settlement, but train operators may substitute trains with buses if it proves more efficient and does not disadvantage passengers or the environment. Furthermore, each settlement needs to be able to reach the nearest regional centre with just one connection, or Budapest with two changes en-route, and county towns must have direct links to Budapest as well as their neighbours.

During strikes, 50% to 66% of scheduled services must be operated, which is more than were operated (if at all) during recent strikes, and the new act encourages the use of rail transport where possible. Many bus routes that parallel long-distance rail services, such as from Györ to Budapest, have been withdrawn.

Following the 2010 elections, the government tried to create a national transport holding company including all the MÁV companies, regional bus companies and Budapest Transport (BKV). But the idea was dropped earlier this year mainly as a result of opposition from BKV and regional bus companies, and led to the resignation on April 30 of MÁV's director general and president, Mr Ferenc Szarvas, who had backed the plan.

The government has now decided that MÁV-Trakció and MÁV-Gépészeti will be merged into MÁV-Start, bringing all passenger rail activities under one roof. To carry out the changes, the general director of GySev, Mrs Ilona Dávid, who is already a member of the MÁV board, will act as general director of MÁV for 18 months. It was originally intended that two other senior GySev managers would become general director at MÁV-Start and head of MÁV's Infrastructure Department, however this was rejected by GySev's Austrian shareholders.

Mr János Fónagy, a former minister of transport, and since June 2010 secretary of state to the minister of national development, was appointed as a government commissioner on May 1 for one year to spearhead the process to streamline MÁV and manage public transport reform. Fónagy will report directly to Hungary's prime minister Mr Viktor Orbán and, as he has no ties to rail or bus transport, is more likely to carry out the required changes than his predecessors.

The final chunk of reorganisation involves BKV. Under the new passenger transport act, an eight-year public service contract was signed on April 27 between the company and BKK acting as the local TO. BKV will be entitled to full compensation for its costs. In return, BKK will have the right to keep tight control of BKV expenditure, and will be responsible for collecting fares, and traffic control.

However, the government is gradually transferring responsibility for financing BKV to Budapest municipality which will be able to introduce a special tax on utility companies, and from July 2013 a city centre congestion charge. For the 2012 financial year, Budapest has to generate an extra Forints 35bn to fund BKV, which means city-run institutes such as schools and hospitals will have to cut their expenditure by 10%.

With the newest measures in place, Hungary's public transport sector should become more efficient and economic. However, the government, municipalities and companies involved may have to rely even more on funding from the EU to not only maintain but also develop their passenger services.

The latest government announcements underline this. Following the signing of the agreement with the mayor of Budapest on the long-term financing of BKV on April 27, which formed the basis for BKV's public service contract signed on the same day, it was announced that the EU will have to finance a new electronic ticketing system in Budapest, and certain tram projects.

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