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Serbian Railways Expects $1.5 Billion in New Loans for Upgrades

Dec. 28 (Bloomberg) -- Zeleznice Srbije, Serbia’s state-run rail company, is seeking several credit lines that would be used to improve infrastructure while the company is overhauled ahead of plans to open up the market.

The unprofitable company hopes to negotiate a 200 million-euro ($261.4 million) loan with the European Investment Bank, “approximately” 120 million euros with Ceska Exportni Banka and 35 million euros from another, unspecified lender for building and repairing its main routes, General Manager Milovan Markovic told reporters in Belgrade today. Another $800 million is expected from a Russian state loan which the governments may soon complete, he said.

“Some of that will certainly be realized in 2012 and some is mid-term depending on project preparation,” Markovic said.

The loans will be used for sections of the so-called Corridor 10 that are in worst shape where trains have to slow to under 30 kilometers per hour (18.6 miles per hour), while upgrading the routes to speeds of more than 160 kilometers per may cost 4.6 billion euros and take two decades to complete, said Deputy General Manager Predrag Jankovic.

The company’s net loss widened to 17 billion dinars (215 million) in 2010 from 6.6 billion dinars in the previous year. No forecast has been offered for 2011, while the government has proposed subsidizing it with 12.96 billion dinars in its draft 2012 budget.

“The loan from Russia will come in several stages” with the first portion of some $150 million probably in the first quarter next year, said Milan Maksimovic, in charge of infrastructure development at Zeleznice Srbije.

The loan from Russia is intended for rebuilding more than 400 kilometers of tracks, including a link from Serbia’s capital Belgrade to the Montenegrin port city of Bar, and for purchasing 12 Russian-made diesel engines for $100 million.

The state turned Zeleznice into a closed shareholding company in June, dividing it into four units that handle passenger traffic, cargo, infrastructure and asset-management. The change was part of efforts to deregulate and modernize the services.

Parliament this week rejected a new, government-proposed law on rail systems which was meant to open the market and attract investment in the services dominated by the state company.

“I’m sorry the parliament didn’t adopt the law, but it won’t stop the ongoing reform,” Markovic said. Zeleznice’s further transformation into a holding company should be completed by the end of 2012, he said.

To contact the reporter on this story: Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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