CFR Marfa changes track for privatization station

In mid-July last year, CFR Marfa announced that it had presented a non-engaging offer for the privatization of the Hungarian transportation division, MAV Cargo. The Romanian authorities said at the time that CFR Marfa would not use money from the budget for this acquisition, but from investment funds or banks. Analysts thought that MAV Cargo, which has a 13,000-wagon fleet, had a market value between EUR 280 and 320 million.
Judging by the companies that showed interest in the Hungarian transportation operator the competition was likely to be pretty tough for CFR Marfa. Deutsche Bahn, Osterreichische Bundesbahnen and companies from France, the United States, Holland, Russia and Ukraine lined up to bid for the Hungarian operator.
But just when a final offer for MAV Cargo was expected, Ludovic Orban, the Romanian Transportation Minister, announced plans to privatize CFR Marfa in 2008. Orban said the privatization would happen in seven steps and the final procedure for the process would be approved by the government this year. Furthermore, he said that at the beginning of this year a date for CFR Marfa to be listed on Bucharest Stock Exchange (BVB) would be made public.
Liviu Bobar, GM of CFR Marfa, told Business Review that the privatization strategy would be drafted by a consortium made up of Deloitte and law firm Bostina and Associates. “The contract between CFR Marfa and the consortium was signed in November last year. We have 90 days to finalize the privatization strategy. We are pleased to have won the bid in such a vital project for the Romanian infrastructure network,” said George Toma Mucibabici, chairman of Deloitte Romania. At the same time, Standard & Poor's raised from CCC to B- the rating for the long-term debt of the Romanian company.
What does CFR Marfa have to offer?
“CFR Marfa has a wagon fleet of 50,285 units, with a value of approximately EUR 170 million,” said Bobar. It owns 987 locomotives and two ferryboats. The Transportation Minister aims to get EUR 1 billion from selling the company. “Up until now, no specific intentions to buy CFR Marfa have been voiced, but from all discussions with foreign officials I have detected increased interest in
the Romanian company,” said the minister.
According to the transportation minister in the following ten years CFR Marfa needs to attract EUR 10 billion for investments. This is also the timeframe for a third of CFR Marfa wagons to be replaced. “Until now, investments in the railway system have been neglected. Consequently, we have a lower market share,” Orban said. Last year, CFR Marfa had an investment budget of approximately EUR 20 million. “We spent the money to modernize some wagons and locomotives, to acquire computers and software licenses, to renew the car fleet, to modernize CFR office buildings from Timisoara and Brasov and to initiate some programs for environmental protection,” Bobar said.
According to the CFR Marfa GM, for this year, the investment budget for wagon and locomotive modernization will reach approximately EUR 22 million. Bobar said that as of the beginning of this year the company will increase its prices. “Due to the rise in energy costs and fuels CFR Marfa tariffs have risen by 10 percent for local traffic and 15 percent for international transport,” said the company's GM.
The CFR Marfa head says that during the privatization process the company will not freeze any of its present contracts. Bobar's announcement is of vital interest to companies such as the energy firms CE Turceni SA, CE Craiova SA, CET Govora, CET Bacau, CET Brasov, Electrocentrala Deva, Mittal Steel Galati, Petrom, Azomures, Oltchim, Lafarge, Carpat Cement, Holcim and Kronospan. Several of these clients consider the privatization a good move for the Romanian authorities.
“We believe that the privatization of CFR Marfa will make the activity of the company more flexible and will bring more competitive prices for services. At the moment, CFR Marfa has tariffs, in many situations, much higher than those of the private transport operators. We hope that the new owners will improve CFR Marfa services by raising the competition on this market,” said Stelian Ciulacu, acquisition manager at Carpatcement, which has been working with CFR since 2000. If, for Carpatcement, the alternative was private operators, for other important players on the Romanian economy in addition to working with CFR Marfa the solution was to develop their own railway network. Rompetrol for instance developed a logistics division which ensures the link between Rompetrol Group and CFR Marfa. “Since we set up this division in 2001, we have grown to have now 30 locomotives and 500 wagons for the transportation of oil products,” Rompetrol officials said.
With significant investments CFR Marfa could be an important player on the local and regional market.
It remains to be seen how these will take shape in the election year 2008.

By Dana Ciuraru