Will The Uzbek Railways Ever Be Privatized?

The Cabinet of Ministers has issued a Resolution on the improvement of the management of the State Joint-Stock Railway Company «Uzbekiston Temir Yullari» (hereafter the UTY), reports «Pravda Vostoka» in its publication titled «Uzbekiston Temir Yullari: Privatization, Management, Investments». The Resolution commands the UTY to liquidate its regional transport operations offices and the Aral regional branch by September 1, 2001. By June 1, 2001 the UTY’s assets will be revalued and the Company’s statutory fund formed. The transformation of the UzZhelDorPass (passenger transport), the DorRefTrans (perishable goods transport), and the UzZhelDorContainer (container shipments) into «open» joint-stock companies has been scheduled to take place during 2002-2003.

The government-owned shares in 30 economic entities associated with the UTY are to be sold through the stock market during 2001-2002, and it has been specifically emphasized that the shares will be sold into private ownership. Simultaneously, the UTY-owned enterprises and organizations producing consumer goods, as well as the UTY’s social infrastructure are to be fully privatized. Among these entities are the bread-making factory, bakeries, enterprises engaged in production and distribution, the «Khojikent» resort, the «Locomotive» hotel, the «Yangiabad» farm and a dental clinic.

In addition, the government gives into the trust management of the UTY its share packets in the equity of the JSC «Yol-Elektrmexanik Ustaxonalari» (railway electromechanical workshops), the «ToshTemirYolLoyha» (design institute), the «EivalekMakhsusTemirBeton» (unfinished factory making concrete products such as railway ties)), the «Jumurtau Karyeri» (Jumurtau Quarry) and the «Granite».

The Resolution also says that in the process of transforming the UTY into an «open» joint-stock company new shares will be issued to become the property of the government and never be sold, used as collateral or security against the issue of secondary securities. The following facilities shall never be privatized either:

• The single traffic control center;
• Functional structural units;
• Track maintenance, power supply, signaling and communications; emergency rehabilitation, waybill processing;
• Traction [locomotive depots].

The Resolution allows the establishment of freight and passenger transport companies, forwarding companies and also companies serving railway stations and providing various services to passengers (catering, tourism, ticket delivery, etc.) in any organizational and legal form. The Resolution concludes by saying that by January 1, 2002 the UTY together with the Ministry of Finance and local authorities (khokimiyats) shall transfer to the books of regional utility-operational associations the housing fund and engineering infrastructure. Khokimiyats, ministries and agencies will also take charge of the 27 enterprises and entities not engaged in railway transport operations.

How and why the Uzbekistan’s only railway company operating on the only track linking the country with the CIS and Europe is going to be privatized? The State Joint-Stock Railway Company «Uzbekiston Temir Yullari» was created following Presidential Decree of November 1994 as «an authorized government agency for railway transport management in Uzbekistan». The initial plans and reports of the Company were optimistic. Ten months after the newspapers reported a new passenger route opened between Khanabad and Kokand, the two cities in the Ferghana Valley. Eventually it was also announced that the railways would open an Uzbek-American joint venture producing lacquers and paints , and that the Company planned to build wagon repair factory in Tashkent , etc.

However, neither the triumphant Company management, nor complimentary press could not conceal the fact that from year to year the Company’s affairs were going worse. Not only the service quality deteriorated and the number of trains on many routs, as well as destinations were canceled, but also the Company’s financial position was getting weaker. For instance, by January 1, 1999 the UTY was one of the country’s major debtors with payables of 11.6 billion soums, or about 80 million US dollars. Despite all the efforts of the special commission the debtors were unable to clear their debts.

Approximately at the same time the Cabinet of Ministers issued a Resolution which directed the EBRD loan of $US 40 million to the UTY for the procurement of freight electric locomotives, and obliged the UTY to repay the loan from its own resources. Thus the UTY, on top of its old debt of $US 80 million was burdened with another 40 million dollars -- all this happening while the sales were going down and losses steadily going up! At the next meeting of the special commission on debt cancellation the Company’s management was «severely criticized», and in a month a Committee on demonopolization and competitive market development working under the Ministry of Finance concluded that the Company «was violating users’ rights» and decreed to extract 2.882 billion soums to the benefit of the price regulating fund of the Ministry of Finance and extended the «contribution» deadline for two years, since an immediate extraction «could entail the bankruptcy of the company».

So, misfortunes befell the UTY one after another. In such circumstances the Company’s restructuring has become unavoidable. The Presidential Decree «On Demonopolization and Corporatization of the Railway Transport» and the Cabinet of Minister’s Resolution that followed ended the story that lasted almost seven years during which the government tried to make its only railway company profitable changing neither management practices, nor the ownership.

At the same time, judging by the text of the Resolution, the scheduled restructuring is unlikely to change fundamentally the current situation. Of course the UTY will be rid of its social infrastructure and other entities not involved in transport operations, which it had to maintain and subsidize for many years. However, all levers of control over railway transport remain in the hands of the government, and the shares issued in the course of transforming the UTY into an «open» joint-stock company shall remain the exclusive property of the government and will not be traded. Even assuming that these shares would find a buyer determined to invest in a loosing enterprise like the UTY, he would never be able to make it happen. It is hard to say what awaits the UTY in the future, but it is clear that the actual privatization, if it ever happens, still lies ahead.