English collection of articles from Innotéka magazine appearing monthly in Hungary.

English collection of articles from Innotéka magazine appearing monthly in Hungary.

September 19, 2014

Author:
Zoltán Bogdán

Photo:
Katalin Böhm, MÁV Plc.

‘Credibility has great tensile strength’

After so many abortive efforts in restructuring, a decisive event occurred in the history of the Hungarian State Railways Group (MÁV Group) in May 2012: a chairwoman, Ilona Dávid was appointed as head of the company. A series of radical corporate, personnel and financial changes have followed suit since then: fusions, mergers, exchanges in terms of staff and management, and the elimination of the recurring cycles of debt. The passengers themselves have started to experience the results: renovated stations and track sections, motor trains with Wi-Fi, bike transport wagons, and so on. The president and CEO of MÁV kindly gave a personal interview to a member of our editorial staff.


More than two years have passed since your appointment as CEO. In retrospect, has the task been as overwhelming as it was considered to be, back in 2012?

– We were fully aware that we were undertaking a daunting task, and we were right. Fortunately, the domain was not un­known to us, as most of the new management had previously worked for MÁV, only they were temporarily transferred to the GYSEV. There we had gained some experience in terms of economic management of a railway company on an international level, as well as in terms of public service provision.

Ilona Dávid, president and CEO of MÁV Plc.

We had to take into account all the details – and to adapt to them. Having a close insight into the Austrian example, we could also see the MÁV operation from outside, as the two companies are major partners of each other. Of course, we also understood that implementing changes in the life of a company is not a spectator sport. We were, however, appointed to carry out the internal ’house cleaning’, and have been working on this for two years.

Have there been any positive or negative surprises, or has everything taken place according to schedule?

– There were no extraordinary surprises. On one hand, we had a realistic view of the pitfalls and difficulties to encounter. On the other hand, we experienced a number of pleasant surprises, fortunately enough. For example, if one works a lot steadily and consistently, i.e. one does what one says without deceiving people, then the results will come. Results can be seen by all concerned: management, employees, the proprietor and the government alike. Credibility has very high ’tensile strength’. It will bring forth support. It is also very important that everyone wants the same and at the same time. If we just want something in general or we strive for it at different times, it is not going to happen.

The new call centre of MÁV-START in Szolnok
While of course you have generated serious conflicts of interest…

– We encounter conflicts of interest on a permanent basis. But unless we faced up to these, it would be quite impossible to successfully change the previous mode of operation of the company. When one is aware of the task to accomplish, the precise destination, and the tools being at their disposal, they will be able to go all the way with due determination. We should not let ourselves be discouraged and dissuaded (the in-house slang term is ’minced’, as in minced meat), as it actually did happen so often in the past. Nobody should just shrug saying ‘we have so many problems, and this railway will remain the same for good, there is nothing that can be done about it!’ This mentality does not work with us.

MÁV has been waiting for 164 years
MÁV – officially known as the Hungarian State Railways Plc. – is Hungary’s state-owned railway company. Its predecessor (the Hungarian Royal State Railways), founded in 1868, became a public limited company in 1993, with one hundred percent state ownership. As its freight business (MÁV Cargo) was privatized in 2008, developments since then have been focused on personal transport and domestic infrastructure management. The continuously loss-making corporate groups have undergone countless restructuring processes, but the quality standards of services have not improved. The current management was appointed in May, 2012. This was the prelude to several radical organizational, personnel and financial changes, the results of which can already be noticed: through the merger of more than forty subsidiaries and by a re­de­fi­nition of profile, and regaining its outsourced activities, a transparent and efficient structure has been established.
The implementation of structural changes is already well advanced …

– In fact, we have already introduced a number of changes in the ownership structure of MÁV Group, as well as in the operative and economic processes. Nevertheless, there is a lot of work ahead of us and many things need to be improved. Since June 1, 2013, we have significantly reorganized the activities of MÁV Group. The organization and the operative structure of the parent company and of several major subsidiaries have also been modified. MÁV Service Centre Plc. was established on January 1, 2014. The Traction and Engineering Divisions were integrated into MÁV START. The process of change can be expected to continue this year, as further companies will be merged so as to insure efficient management of the available financial resources. Four of our companies will fuse this year: specifically, the branches in charge of Asset Management (Vagyonkezelő Zrt.), Property Management (Ingatlankezelő Kft.), Cargo Security (Vasútőr Kft.) and Facilities and Landscape Management (MÁV Kert Kft.) will form a single corporation. Our biggest task for the years 2014 and 2015 will be the outsourcing of railway tracks in line with the EU directives.

A few weeks ago you declared that MÁV had been cleared of circular debt. What was the situation before and why did it change?

– Circular debt emerged because MÁV’s operations had not fully been financed by the State, so the company was forced to take more and more loans. It is another matter that the amount of debt accumulated might have been too extravagant, and the problems faced could have been resolved with smaller amounts, but that was the given situation then. The present situation is that we no longer need extra loans for our yearly operations, we make use of the produced revenue, as well as the reimbursement of expenses we receive from the State. That is why the circular debt disappeared.

Facts and figures
MÁV, with a staff of more than 40,000, is our country’s largest employer. It manages a track length of more than 8,000 kilometres, which consists of only 210 kms of narrow-gauge tracks and 37 km broad-gauge track lines. Over the past three years, a length of about 500-km-long rail track has been restored, and a similar restoration work is being carried out on the same stretch of lines. The average age of approx. 2,700 carriages is 35 years, but the refurbishing processes are ongoing. Based on a public procurement of 267 million EUR, 42 pieces of FLIRT engine trains will soon be put into service to satisfy all needs, completing the present stock of 60 railroad trains.
And what about the loans taken in the past?

– It is a serious problem that MÁV, on its own, will not be able to generate the assets required for the payment of principal on the loans taken between 2002 and 2010. State subsidy is needed for this. Not surprisingly, this year the State will take over the repayment of bonds equivalent to 35 billion HUF, since this amount was already foreseen in the 2014 budget. Two years ago, we agreed with the State that the company could only be reorganised at a pace the state budget would be able to bear. We do not require hundreds of billions of forints for the consolidation of the MÁV, but we will make it clear in advance whenever we need state support. Fortunately, we are considered a fair partner and we regularly negotiate these issues in detail.

In recent weeks, the new Minister for National Development and the new State Secretary for Infrastructure have taken office. Can these change the current system of relations?

– In my experience, establishing a proper work relationship and providing the support required are not people-dependent issues. These have nothing to do with the fact one likes railways or not. The State has clearly shown commitment for the railways, so everyone performs the tasks accordingly. However, if the State – with the European Union in the background – says that ‘we like the railways’, then this will be the preferred transportation mode in the field of public transport, and we will receive development aid for this from EU, without leaving many open questions. However, this requires the transformation of rail operating companies according to the EU financial model as a necessary condition. This is, among a number of issues, what we are currently working on.

In order to ensure that the EU subsidies earmarked for supporting railway transportation in the 2014-2020 period, amounting to 600 billion HUF, is efficiently used, the long awaited National Transport Strategy would come in handy...

– In practical terms, the NTS is ready. It just has not been submitted to the Government yet. MÁV has taken an active part in the process of preparing. We are familiar with this material and the main figures, although it should also be known that this strategy is not only about the railways, but covers all other means of transport too. The amount of 600 billion HUF may seem quite colossal, but considering the condition of our 8-thousand-kilometre-long railway system, it is not excessively large. In any case, all the stakeholders involved clearly agree in terms of which rail improvements are of paramount importance and should thus enjoy priority. We share the tasks too, as we are not the largest player in railway development. That role is played by the National Infrastructure Development Plc., while we are applying for smaller EU sources.

According to some experts about 4000 billion HUF would be needed to eliminate our backlogs in the condition of the railway system compared to Western European countries.

– One could argue over the actual amounts, but the fact is that in the past twenty years, the investments, the improvements or even the maintenance needed for international competitiveness have not been made. The situation would have been better if at least the absolutely necessary maintenance activities had been executed. For example, we would not be struggling with so many malfunctions in the railway security systems, although we are aware that most of our safety equipment was installed in the 1970s. The average age of our locomotives is 38 years, but at least they would function better. We are currently striving to provide as much money as possible for preventive maintenance in order to improve the quality of services. First of all, this involves two key fields: schedule compliance, as well as the quality of the carriages and the rolling stock. Thus, lots of opportunities have been missed within our group, which puts us presently under a lot of pressure. The situation can be improved, but this is not an overnight job.

The speed limit, the so-called slow-speed sign, is one of the main obstacles to train travel time reduction and punctuality. As far as I know, you are trying to move forward in this area as well.

– After economically stabilizing the MÁV Group, we will have more and more time and energy to solve the technical problems of the railway. Such tasks include the elimination of slow-speed signs, since they apply to 40 percent of the domestic lines. We have, for instance, recently undertaken a major operation: the reconstruction of the first segment of the Dombóvár-Kaposvár line (between Baté and Kaposvár), where slow-speed signs of 60, 40 and even 20 have previously been imposed. The EU does not provide grants for such by-line investments, and we do not receive specific additional funding for this from the Hungarian budget either, so we have to ‘sweat out’ these amounts. The tragic state of this line segment is not accidental, since the entire substructure has been left to soak by the humid, boggy soil for over 20 years. We have no choice but to rebuild it completely: an overall substructure and track replacement with mainframe machines in order to re-establish the original 100 km/h speed limit. Actually, for you, as a periodical focusing on innovation, this reconstruction process may be particularly interesting, as this specific technology for driving water out of the substructure will be applied in Hungary for the first time here.

A complete substructure replacement with mainframe machines between Baté and Kaposvár
More superfluous MÁV properties have been handed over to the state, and some of the station buildings are jointly operated by local governments. These steps also mark a new approach.

– Let there be no misunderstanding: this is not a case of free transfer of property. We are Hungary’s largest real estate property managers, as a lot of lands and buildings all over the country belong to us. Some of these properties used to have major railway functions – but no longer. We jointly assess with the Hungarian National Asset Management Plc. (MNV Plc.) which areas we need, and the rest shall be handed over, on the basis of strict accounting standards, rather than for free. The MNV Plc. itself either exploits those properties or passes them on to local governments in order to involve them in various urban development projects. In the case of some station buildings, we conclude operating agreements, as a number of municipalities have their own maintenance companies, just like we do. We think that the local provision of services will be cheaper than sending people there. This is a win-win scenario. The proof for the potential success of this project is that in many cases the local councils are the initiators applying to the railway company, not the other way around.

Recently passengers have experienced spectacular changes: restored line sections and stations, new railroad trains…

– Fortunately, in addition to the complaints, we have recently received a lot of compliments from the passengers themselves. It is clear that we can certainly provide competitive services where the lines have been restored and new train schedules have been introduced. Where we have put into service new motor trains and new appliances, many people opt for the railway instead of the coach or the car. It is no coincidence that in the last two years the number of passengers has increased in the country, and on the restored sections up to 10-12 percent more people are travelling than before. This is a very important indicator, since, first of all, this company transformation project is not about numbers, profits, losses, and loan portfolio, but it is about the services provided for our passengers in order to make them feel better on the trains, as well as at the stations.

The restored station building in Tárnok, on the Budapest-Székesfehérvár line
They certainly feel excellent on the elegant FLIRT motor trains …

– We’ve managed to prepare an EU project in the frame of which the railway company will acquire further 42 Stadler FLIRT (Fast Light Innovative Regional Train) suburban train engines – in addition to the existing 60 items. I must emphasise: the acquisition is not financed from loans, but from the EU grant we have won. These new carriages equipped with large LCD displays for passenger information, Wi-Fi routers and electric sockets will bring significant change in the suburban train transportation in the autumn of 2014 and the spring of 2015. Passengers will certainly appreciate the improved and more civilized conditions while commuting. It is an additional benefit that the so-called BDV vehicles coming from the suburban transport, still in proper condition, will improve the quality of transport around the cities in the countryside.

The Stadler FLIRT suburban engine trains are equipped with LCD displays for passenger information, Wi-Fi routers and electric sockets
Speaking of one of your most successful recent services, will you provide Wi-Fi access in all the railway carriages?

– Wouldn’t it be nice! We are delighted that our internet service has received such a positive welcome. Travellers increasingly seem to take it for granted that service is free of charge, but we are well aware how much the conversion of more than 700 rail cars would cost for the railway company. We provide this additional service for the InterCity, express train and suburban transport, and, unfortunately, it is not in our power to install the routers in all cars – and this service might not be required by passengers everywhere. Anyway, we are working on the Wi-Fi network establishment at the stations. Our goal is to provide such free networks not only on the carriages, but at the major railway stations and at stations with significant traffic. Needless to say, such a development costs a serious amount of money.

Wi-Fi networks are continuously installed at major stations
How about the rail car restoration program?

– We already made the decisions last year on the basis of which we started the restoration of fast train carriages, which will remain in service for at least ten more years. Our specialists are constantly carrying out the modernizations at the MÁV-START premises and vehicle repair plants. So far, about 280 car interiors or comfort-enhancing renovations have been completed under the project, but according to our plans, the number of the restored cars will exceed three hundred by the end of 2014. This program is also part of the long-term construction project. We will be able to put into service more and more bike carrier wagons, and we are already providing dining-car services ourselves on international lines. Of course, these are incremental steps, rather than big leaps, but we must fight for them one by one, and we believe that we will enjoy the benefits before long.

A number of domestic news sites have reported of the assessment made by the European Commission concerning railway transportation in overly severe terms, particularly where we obtained bad grades in punctuality and pricing …

– With due respect to the efforts made by the press to come to terms with the content of the Commission’s assessment, it is fair to say we made a deeper analysis of the report involved. We do not consider the results so severe. Some journalists might have over­looked the fact that the report is divided into several chapters, consulting only the first one. Interestingly, it seems they haven’t noticed that the survey examines the period between 2005 and 2012. Needless to say, a great many things have happened to MÁV since then. For example, we have made serious progress in all aspects. Our train schedule compliance significantly improved in 2013 and in 2014 as well, and we also took advantage of the ‘reduction of overhead expenses’. In 2013 and in 2014 the so-called regional tariff system was introduced which reduced the ticket prices on 25 lines. We also introduced home-printed tickets, potentially resulting in a 3 percent price reduction. I could go on with my comments, but the key idea is that sensation-seeking journalists and experts will emphasize different points. You have to live with it.

New automated equipment to simplify buying tickets
Finally, I would like to ask you about your future vision. What do you think MÁV will look like in 3 or 4 years?

– We will use a lot more reconstructed tracks complying with EU standards and suitable for 160 km/h speed, and we will have more railway tracks reconstructed to the original track parameters. For example, the tracks all along the Southern coasts of Lake Balaton will be fit for 100 km/h speed. We can introduce a number of schedule improvements by then, so we can accelerate rail travel and reduce travel time. I really hope that in three years’ time we will have lots of new, modern engines and refurbished carriages to the full satisfaction of the passengers. Serial production of the IC+ carriages will hopefully continue at full throttle in 2017. The prototype carriage has been designed by our professionals in Szolnok, Hungary, and has recently received all the necessary certificates for serial production. The Hungarian engineers designed an InterCity car with the unique feature of being compatible with five different electricity standards, which therefore can run in all European countries! In summary, we believe that in three years’ time, MÁV will provide far better services than it does today.•

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