RAILWAYS ACT: Government Converts HZ Infrastructure Debt into Public Debt
On 5 July, the government sent the Railways Act, proposed by the Ministry of Maritime Affairs, Transport and Infrastructure, to the Sabor urgent procedure. The proposed legislation provides for the liberalisation of Croatia’s railway services (in line with Directive 2012/34/EU that establishes a single European railway area), because the country’s railway infrastructure has integrated with European railway area as of 1 July. The legislation also requires that the management and accounting of Croatian railway companies HZ Infrastructure, HZ Passenger Transport, and HZ Cargo have to be implemented through separate business entities.
The clause that regulates financing of railway infrastructure caused a controversy in the original government’s legislative proposal. The initial proposal stipulated that infrastructure expenditures and debts could no longer be financed directly from the state budget. However, on Friday, the government proposed, and the Sabor adopted, two amendments to the proposed legislation, according to which the accumulated financial losses of HZ Infrastructure, a state-owned company responsible for the maintenance of the railway infrastructure, organisation and regulation of rail transport, will continue to be financed through the state budget. In particular, the government undertakes to repay the company’s loans that involve state guarantees by converting them into public debt.
The schizophrenic behaviour of the Croatian government can be explained by taking a closer look at HZ Infrastructure financial obligations. The company has two credit obligations totalling €115 million. In April, the government decided to refinance a 2009 €27 million loan from PBZ Bank and extend the grace period to 31 December 2013. Regarding the second loan that HZ Infrastructure received from the Zagrebacka Bank (ZABA) in the amount of €88 million, the government decided in May to prolong the grace period for an additional two years (i.e. February 2015).
If we take into account that the share capital of HZ Infrastructure amounts to €30 million, repaying the abovementioned credit obligations would lead the company to bankruptcy. Instead of implementing urgent management and operational restructuring to solidify and sustain the operations of HZ Infrastructure, this legislation essentially transfers the state-owned debts to the public debt and future generations, and further destimulates the efforts to reform the business practices of HZ Infrastructure, since debts are to be paid by taxpayers and no repercussions to poor management.
The legislation passed the Sabor urgent procedure, and will be adopted on Monday, 15 July…