Policy, Research, and External Affairs Transport I Infrastructure and Urban Development Department The World Bank August 1991 WPS 750 Reforming and Privatizing Poland's roacd Freight Ilidustukr Esra Bennathan Jeffrey Gutman and Louis Thompson Options for restructuring and privatizing PKS, Poland's main state-owned enterprise for road transport of passengers and general freight. The Policy.Research, and Extemal Affairs Complex distributes PRE Working Papers to disscminatc thc findings of work in progress and to encourage the exchange of ideas among Bank staff and aD others interested in development issues. These papers carry the names of the authors, reflect only their views, and should be used and cited accordingly. Thc findings, interpretations, and conclusions are the authors' own. They should not be attributed to t e World Bank, its Board of Directors, its management, or any of its membcr countrice. Policy, Research, and External Affairs Transp-'rt WPS 750 This paper--- a product of the Transport Division, Infrastructure and Urban Development Department -is partof a largereffort in PRE to develop improved approaches to enterprise refonn in transport. Copies are available free from the World Bank, 1818 H Street NW, Washington, DC20433. Please contact Barbara Gregory, room SIO-045, extension 33744 (41 pages, with figures and tables). The Polish economy uses four to six times as assistance, according to a preannounced time- much f'reight transport per dollar of GD1' as the table. European market economics. The trucking share o To encourage the infusion of new resources of this transport, however, appears far too low. from outside, uncertainty about the ownership, Bennathan, Gutman, and Thompson focus on assets, liabilities, and cash flow of enterprises options important to the privatization of road should be reduced - partly by creating new, haulage in Poland. They recommend that in self-contained subsidiaries (daughter companies) restructuring Poland's road haulage industry the of state-owned enterprises. This typically following options be considered in connectioni creates incentives for improved management and with privatization, regulation, financing, and staff efficiency and productivity. To limit taxation: potential abuse, strict rules and mechanisms for - The business of passenger transport (buses) inspection should be set up. should be completely separated from the busi- e Small-scale haulage enterprises should be ness of' freight haulage (trucks). Combining encouraged, as trucking firms do not benefit freight haulage with subsidized passenger significantly from economies of scale, middle- transport in one enterprise, the common practice class entrepreneurship is socially desirable, and, now, creates the possibility that passenger through subcontracting, large-scale firms can atrocities could subsidize freight (or vice versa). vary their capacity without committing capital. And combining activities with such different o The trend should be toward economic markets, operating techniques, and management deregulation. Regulations should set quality style is inefficient. standards (issuing operator licenses on the basis * Road haulage is a large enough industry and of personal and technical competence, for occupation in Poland to justify a separate privat- example) rather than restricting quantity (limit- ization program -but one that covers the entire ing enlry of new haulage enterprises). No industry. organization should be given preference in tlhe o Poland's program of small- and medium- distribution of intenational permits, which might scale privatization has earmarked a number of be issued by auction or by spot basis to appli- road haulage enterprises for privatization. To cants upon proof of a genuine order for transport. these, the road haulage sector privalizationl o Private liquidity in Poland is low and program should add at least 10 (or 8 percent of commercial banks cannot yet grant credit widely. all) state-owned haulage enitilies for assisted There is a case for exploring sources of technical privatization in the first year of the program. assistance and leasing finance from West Euro- Assistance should be in the formn of' guidance on pean leasing associations and European banks. accounting, auditing, valuation, and legal steps o Enterprise taxation and taxation of road use toward commercialization. need reform. Road user taxes should be based - To guard against the dissipation of state on the relative cost of damage to roads by assets and to rationalize and reform accounting different equipment - with heavy vehicles and information management systems paying a higher tax than lighlt vehicles, for indust-ywide, all 'nterprises should be commer- example - and on the cost of congestion. cialized under central guidance and with expert Thc PRE Working Paper Series disseminates the findings of work under way in the Rank's Policy. Rescarch, and Extemal AffairsComplex. An objective ofthe series ic to gel these findings out quickly, even if presentations arc Iess than fully x)lished. The findings, intcrpretations, and conclusionc in ;hese papers do not necessarily represeni official Rank policy. Produced by the PRE Dissemination Center TABLE OF 9NT]iENIM$ Abstract ............................................... i I. Object of the Report 1................................... II. Features of Poland's Freight Transport ........................ 1 III. Road Haulage ....................................... 6 IV. The PKS Enterprises ................................... 13 V. Recession and the Move to Transportation and Privatization .19 VI. Options in Restructuring Road Haulage: General Criteria .21 VII. Restructuring Freight Haulage: Separating Passengers from Freight .22 VIII. Privatization of Road Haulage .25 IX. A Privatization Program .27 X. Regulation.34 XI. Taxation .......................................... 39 XII. Financing. ......................................... 40 Acknowledgement The authors gratefully acknowledge the assistance received from Professor Wieslaw Bajon, Transport Institute of the Warsaw Polytechnic; Dr. Romuald Bauer, Central School of Planning and Statistics,; Mr. Maciej Iwanek, Economic Council and University of Warsaw; Dr. hab. Boguslaw Liberadzki, Under Secretary of State, Ministry of Transport, Warsaw. ABSTRACT Object and Scope of the Study (i) This study explores options for the restructuring and the privatization of PKS, Poland's mlain state-owned enterprise for road transport of passengers and general freight. (ii) In the discussion of privatization, the focus of the study is on the road freight haulage operations of PKS and not on its passenger operations by bus. Privatization of road haulage, in conformity with the stated purposes of Poland's program of systemic reform, is intended to raise the productivity of resources employed in transport and to assist thereby in the recovery of the economy and of employment. The key to this outcome is the creation of a competitive environment and, equally, the introduction of management by, or under the control of, owners with a clear right to the net income from the business. The process of privatization must therefore allow wide scope for the development of commercially alert and market-oriented management. (iii) If privatization of road haulage is to serve those ends and also conform to Poland's new laws, it will have to be carried out with due regard to the market position of the candidate enterprises -- the demands that they are likely to meet, and the competing sources of present and prospective supply. The scope and form of feasible privatization depend also on how road haulage will be regulated and on financing possibilities for private buyers, investors or tenants. The study therefore analyzes also the general organization of Poland's road haulage, the operations of its different segments, and discusses transport regulation, financing and taxation. Poland's Freisht Transoort (iv) The Polish economy has been remarkably transport-intensive and still uses 4 to 6 times as many tonne-kms of freight transport per dollar of GDP as the European market economies. Improvements in the efficiency of transport, such as privatization is intended to yield, should therefore produce relatively significant benefits to the economy. But transport intensity is declining so that the total market for freight services will narrow for some years. Road haulage, however, is protected against this trend because Poland's railway (PKP) still carries an inordinately high proportion of total freight (76 percent of tonne-kms in 1989) and its share will continue to decline. On balance, the demand for road haulage should grow. While excess capacity is high during the present recession it should be absorbed by even a modest growth in the economy. The total stock of trucks is modest by comparison with countries of similar population size, allowing for differences in population density. A substantial renewal of the fleet will nevertheless be needed when the economy revives, not because the fleet is markedly over- aged by Western European standards but because much of it is technologically obsolete and adapted to a pattern of demand (such as veiy large volumes of construcion) that is unlikely to persist. Organization and Operating Prorile Road Haulag-e (v) The socialist organization of road transport created large enterprises, integrated across the entire area of the country and with a range of activities far more diverse than found in road haulage enterprises of the market econorriies. Different segmeints of the industry were sponsored ("founded") by different ministries. Socialized prfsional haulage is made up of Public Road Transport within which PKS is the main enterprise (17.3 percent of Poland's total tonne-kms by road in 1988), and several Special Road Transport enterprises, each originally attached to individual branches of the economy (together supplying 25.3 percent of tonne-klns in 1988). The distinction between general trucking firms and others that specialize in haulage for individual industries with special technical requirements is normal in road haulage industries, but the relatively large size of the Special, industry-specific, sector in Poland is unusual. (vi) Outside socialized professional haulage, socialized enterprises perform their own-account operations (36 percent of tonne-kms), and alongside public sector road transport there has, during the past decade, grown up a significant amount of truly private haulage (17.4 percent of tonne-kms in 1988). (vii) Taking PKS as a whole, its haulage operations are distinguished from those of Special, own-account or pnvate trucking by their relatively long hauls and high rates of vehicle performance. The long hauls, using relatively large trucks pulling trailers, have withstood best the encroachments of competition and economic stagnation during the 1980s and now the sharp downturn of the economy which has left PKS with much unemployed capacity. But it is those types of operation which most resemble the working patterns of trucking enterprise in Europe's private market economies. (viii) Poland's industrial own-account haulage does not appear abnormally extended when measured in terms of its share of tonnes lifted or tonnes moved. On the other hand, the group of large Special haulage enterprises, taken as a whole, seem to have undergone the least adaptation to changing market conditions, and they appear as the main victims of socialist methods of industrial organization and compartmentalization when applied to freight transport. Judged by lengtds of haul, vehicle utilization rates and the development of performance over time, the Special enterprises appear to overlap in their operations to an abnormal extent with Poland's own-account haulage. It is in the Special haulage segment of the industry that dispersal, reorientation and some failures are to be expected, as well as increasing efforts to compete with those PKS operations that are not specialized in longer-distance work with suitably heavy vehicles. iii PKS.- Reoreanization andCon eeiii (ix) Before its recent reorganization, PKS, together with 3 related enterprises, provided passenger and road freight transport across the entire country. It employed some 110,000 persons and operated 22,000 buses and 21,000 trucks. Individual local depots were (and remain) managed by directors with the participation of Workers' Councils. They were subject to control by regional directorates and, at the top, a PKS directorate, all under the supervision of the founding body, Poland's Ministry of Transport, Maritime Economy and Communications. (x) In 1990, PKS was split up into its constituent, operating units. The resulting 227 entities were instructed to operate as self-contained, independent firms from July 1. Of these, 31 performed only road haulage and were transferred to the spoiisorship of local authorities. The 140 units that combine freight with (subsidized) passenger transport, and account for some 65 percent of PKS tonne-kms of haulage, remain under the sponsorship of the Ministry of Transport. These combined units have, so far, retained their public utility status that confers on them fiscal and financial advantages not available to the rest of road haulage. (xi) Among the separated PKS units, those specialized in haulage are large (average of 240 trucks per unit) by the standards of trucking firms in market econiomies. The haulage fleets of the "mixed" units, while smaller, are still sizeable by those standards -- an average of 113 vehicles per unit, and none with fewer than 47. Individual units vary greatly in the share of longer-distance work in their haulage operations. The smaller units have the longe: hauls, and also generate higher freight revenue per truck. They also appear to have fared bett. in the recent recession than larger units. In general, the smaller units have the better outlook. (xii) Also, pure freight operations achieve better exploitation of their fleets than "mixed" units, supporting the conclusion that a combination of passenger with freight transport in the same entity is inherently inefficient. (xiii) The characteristic of high integration of socialist enterprise reaches down to the individual cells of PKS, now tumed loose to independent, commercial existence. The physical plant of individual units includes substantial, and sometimes very substantial, workshops for maintenance, repair and rebuilding of vehicles and even the production of components, as well as loading machinery, warehouses and extensive administrative, agency and amenity structures. pons for R structurins : Separation of Passen es from 8a eIh (xiv) The case against combining freight haulage with subsidized passenger transport in one and the same enterprise goes well beyond the significant fiscal risk of a drain of subsidy from passengers to freight. Cross-subsidization in the inverse direction, such as was common and accepted before the slump in the freight market, is equally incompatible with an efficient use of resources and the development of a competitive haulage industry. While the two activities iv remain integrated, in the 140 "mixed" PKS entities, cross-subsidization is not realistically avoidable. Attempts to control it will further delay the development of market-oriented, flexible management of commercial haulage. The absence of this kind of combined service operation in the transport ertities of market economies, whether they subsidize passengers or not, in transport entities, )oints to the economic inefficienicy of combining activities that differ so much in their markets, operating techniques and management style. (xv) Separation of passenger business from haulage enterprise appears thus as a basic prior step in restructuring road haulage and preparing it for privatization. Since cross-subsidization within one enterprise cannot be suppressed, and also because subsidized activities require sorr - form of public control, a mere separation of the accounts of the two disparate activities, while they remain under the same managerial roof, is unlikely to produce self-reliant, commercially viable haulage enterprise, nor will it aitract good entrepreneurial and managerial talent. Those results can only be achieved by a total separation of establishments -- legally separate, separately managed and controlled, with separate financial resources and physical assets. Common facilities (such as workshops) will have to be divided up or, if really large and multi-purpose, will have to be separated out as independent establishments and made ready for privatization. (xvi) Poland's Act on the Privatization of State-Owned Enterprises and the procedures developed under it permit Founding Bodies to initiate the commercialization of state-owned enterprises by separating their divisions in preparation for privatization. Freight units emerging from the present 140 "mixed" units could then be converted into business organizations under Poland's Commercial Code. Alternatively, Executive Directors and employees of "mixed" entities could be offered incentives, positive as well as negative (such as withdrawal of public utility status from units while they remain "mixed"), to detach the freight operation from the enterprise and form it into a self-contained subsidiary. Assets and liabilities would have to be valued and divided between parent and daughter enterprise, under rules and guidance to be provided by the Ministry of Transport and the Minister of Ownership Change. Under prevailing law, the founding organ is then entitled, for purposes of privatization, to dispose separately over the freight subsidiaries emerging under this option, if necessary in the process of formal "liquidation". A Program for Privatization (xvii) While many of the problems and requirements of privatization are common to different sectors of the economy, road haulage in Poland is sufficiently large as an industry and an occupation to justify a separate program of privatization. It should constitute an agreed statement of the tasks falling to the authorities and policy-makers in assisting privatization and, being made public, should lessen uncertainty among operators and those interested in entering the industry. Such a program implies administrative and specialist tasks which may be difficult to accommodate in the established work programs of the Ministry of Transport or the Office of the Minister of Ownership Change. It would then be convenient for these authorities to v establish, for the duration of the transition period, a separate office for the privatization of state- owned road haulage that would contract with private sector specialists for their services and would form the natural focus for outside technical assistance. (xviii) The program would contain targets for both the preparatory steps and the actual pnvatization of enterprises. It would therefore have to specify the forms envisaged for privatization, the measures to be taken for the commercialization of yet unprivatized haulage enterprise, and the principles (if not already the full detail) of the intended regulatory regime for road haulage. (xix) This study focusses on the privatization of PKS. A privatization program for road haulage should, however, cover the entire industry, irrespective of the prevailing jurisdictional dispersion of state-owned haulage enterprise. Elements of the program would be as follow.: (a) A Target so- Assisted Privatization (1) Poland's program of small-scale and medium privatization has earmarked a number of road haulage enterprises for privatization. To these, the road haulage sector privatization program would add a target number of state-owned haulage entities -- perhaps no fewer than 10, and representing no less than 8 percent of the total 1990 tonne-km of road haulage by state- owned haulage enterprises -- for assisted privatization in the first one-year phase of the program. (2) Assistance would be in the form of guidance on accounting, auditing, valuation and the legal steps to commercialization. It would consist of advice on such restructuring of the enterprise as appears suitable in the light of experience and with expert advice. Finally, assistance would be given, in conformity with existing procedures, in the disposal of the enterprise through the offer of parts or shares or in the form of leasing of assets. (3) Under Poland's law, privatization of enterprises is to be preceded by corporatization, chiefly at the instance of management and employees, or by "winding up" leading to a new disposition or disposal of assets and the option of letting units and assets to a company formed of the employees, chiefly at the instance of the Founding Body. Active privatization, at the initiative of the government, may therefore require the offer of inducements to the staff of the target enterprise, possibly beyond those provided by law. Such additional inducements should be easiest to offer in the case of the more successful and promising enterprises. Official assistance should indeed focus on promising enterprises, presumably to be found, in the first round, among the smaller entities that operate longer hauls and achieve high output per truck. Enterprises that have to be "wound up" (or "liquidated") because of their failure to service debt (including the 38 percent "dividend" on founder's capital) will have to be added to the privatization target but should not normally make up the entire target. Institutional resources and expert assistance should be reserved on a scale appropriate to the minimum target, with a contingency allowance for service to the year's prospective invalid enterprises. vi (b) mialia nntmedia.t Z (1) Since privatization, in one form or another, will proceed in stages, provisions have to be made for the status of enterprises yet retained in unreconstructed state-ownership. (2) It might be thought right to leave such enterprises to their own devices, subject only to existing financial obligations and disciplines, and national rules on accountitig. Administrative and expert resources might be economized by this method, only to be put to work when the turn of such enterprises comes to be commercialized and privatized according to the program targets. That method, however, will not guard against a dissipation of sate assets, and it sacrifices the opportunity to rationalize the structure and resource use in enterprises on the basis of reformed accounting and the information generated by an audit, in advance of the more thorough surveys required for privatization or "liquidation". The preferred option would therefore be to pursue the commercialization of all enterprises, under central guidance and with some expert assistance, according to a timetable announced in the program. (c) SubsiiarCommemdalizMion (1) Uncertainty about the ownership, assets and liabilities and, indeed, the cash flow of an enterprise hinders the infusion of new resoLrces from the outside. A partial remedy would be the creation of new, self-contained subsidiaries of state-owned enterprises, starting with a new opening balance and leaving questions of the ultimate ownership (of the parent enterprise) at a remove from the sub--diary. This route has already been taken by enterprises of the reforming socialist economies, including Poland. Enterprises have set up daughter companies owned by the parent, often in partnership with managerial and other staff of parent and daughter. Whatever incentives motivated these developments, the usual effect has been an iiiprovement in the efficiency and productivity of management and staff within the new entity, responding to the prospect of acquiring and increasing their property. (2) Unless controlled by strict rules, such "spontaneous privatization" is open to abuses that may easily outweigh its merits. To gain the benefits while limiting the room for abuse, guidance and rules have to be provided and compliance has to be monitored. A privatization program should therefore be accompanied by the issue of such rules and the establishment of a mechanism for inspection. (3) Suitable candidates for subsidiary commercialization are units and activities that appear viable on their own, as going concerns -- workshops, vehicle leasing departments of PKS enterprises, storage units or specialized haulage services, including long-distance and international haulage sections. "ii (d) Small Sce Privatinton (1) Private truck ownership grew rapidly in the 1980s, based larg ly on the acquisition of vehicles sold from the fleets of state haulage or own-account hauling ent.prises. By 1990, the private stock of goods vehicles accounted for perhaps two-thirds of the national total. On a rough estimate, one-half of these vehicles were active in haulage for hire or reward, chiefly in local or short-distance work. (2) Basic trucidng is not subject to significant economies of scale (of the firm). Small- scale haulage business is therefore present in all market economies, in large numbers. By promoting middle class entrepreneurship, it is generally judged to be socially desirable. It is also advantageous to organized, large scale haulage firms since it allows them to vary tieir own capacity by subcontracting without committing capital. The privaization program should therefore encourage the progress of small-scale haulage enterprise. Active assistance will be required in the form of guidance on the valuation of second-hand trucks, and by the formulation of standard forms of contract for subcontracting and vehicle leasing. Private, small scale hauliers must be allowed equal access with other haulage enterprise to foreign exchange, imported vehicles and spares and parts. Another essential condition for the viability of small- scale haulage business is a liberal system of transport regulation, such as exists at present in Poland. (e) Regulation of Road Haulage (1) Entry into road haulage for hire or reward is at present practically free in Poland. There are no legally imposed tariffs. International haulage is restricted, first by the number of foreign permits obtained in bilateral negotiations with countries of destination or transit and, second, by the method employed by the state in distributing such permits among Poland's hauliers. (2) In present circumstances of economic recession there is bound to be a temptation to protect existing enterprise by introducing restrictions on entry into haulage and even into its several markets. The government's wish to privatize state-owned road haulage only reinforces that temptation. It is easier to sell a particular enterprise if its value can be enhanced by some form of market reservation. (3) The adverse economic consequences of quantity restrictions on entry into haulage, complemented of necessity by forms of tariff control, have now been recognized in most market economies. The clear and g,-r. ral trend in Western Europe and North America is therefore towards deregulation of road haulage. In Poland, moreover, given that there are some 150,000 persons privately engaged in haulage for hire or reward, restrictive regulations that limit the activity of truck owners (aside from ensuring their ability to meet reasonable tests of personal and technical competence) seem decidedly undesirable on social grounds. Lastly, thc present excess capacity on the roads is strictly a phenomenon of the current recession. When that viii passes, the country's trucking capacity will not be in excess of demand. At that time, enterprises with good prospects in the market will be able to renew their fleets. Regulatory systems, however, are not easy to reform once they have been imposed. Poland should thus have good reasons for retaining its relatively liberal system of regulation -- for quality restrictions (as in the basic system of operator licensing) instead of quantity restrictions on entry into haulage of different kinds. (4) Uncertainty about an impending system of regulation is bound to inhibit privatization. There is a strong case for the government to commit itself as soon as possible to the principles of the intended regulatory system, and soon thereafter to the detail. (5) The requirements to be satisfied for entry into international haulage are typically more demanding than for domestic operations. Poland may reasonably move towards the standards prevailing, and being developer, in the European Commuiiity. But the allocation of permits among national hauliers who meet those standards, remains under the control of the authorities. Auctioning is the optimal method. A second best method would reserve part of the available permits for spot allocation to applicants upon proof of a genuine order for transport. Freight forwarders, representing the users of transpnrt, should not be excluded from the distributioni of permits. And, at no stage of the distribution of permits, should preference be given to enterprises on greunds of their organizational status. EInanoin (xx) The current low liquidity of the population limits the possibilities of the outright sale of entities or assets selected for privatization. Poland's new commercial banks are not as yet capable of assisting with credit on a wide front. (x.4) - ..a-ket economies, financing or operating leases are major sources of finance for road transr - is also practiced in Poland and has its place among the techniques provided by the p-.-v:- , law. The standard forms of leasing are capable of development to suit Poland's pro6. - ,)ssibiy on the model of agricultural tenancy which offers a great variety of terms and way. oQ distributing risks among the parties. Leasing institutions should be able to facilitate the process of road haulage privatization by taking over equipment and installations on commission from the founding organ, for letting back to private lessees. Financial backing, where required, may be sought for the institutions from Poland's banks and from foreign sources, including truck manufacturers. (xxii) There is then a case for exploring, with the participation of Poland's banks and existing leasing companies, sources of technical assistance and leasing finance from the national leasing associations of West European countries and European banks. Taxa (xxiii) Privadtzaion entails a fundamental change in the financial or fiscal link between state and enterprises. This change should be reflected also in the taxation of road haulage. (xxiv) The expected reform of taxation of enterprises (and of sales) will cover road haulage companies and sales of the service and remove some features that seem anomalous. Road user taxation, however, stands in a separate class inasmuch as such taxes represent prices of road use. They should be cost-based prices, corresponding to the cost that road use by one technique or the other (heavy or light vehicle) causes either to the road authority or to other road users through the congesting effect of road use. Unless such charges are pttuerly related to the cost of the damage caused to the road (or to other users), and unless they are levied fairly, road users will not make decisions based on the true cost of t0'.ir activity. In reviewing the adequacy of taxes on vehicles and other inputs into road haulage, and the available tax instruments, Poland may call on substantial experience and technical advice ftom other countries and international institutions. I. Objcto of t ort 1. The cental purpose of this report is to identify options for the reorganization and restructuring of PKS1. PKS is the main enterprise ir. Poland's "public" road transport sector (and is a component of the country's overall professional road haulage activity) and also the predominant member of the passenger transport industry by road. The report focuses mainly on the road freight haulage component of PKS. 2. PKS has already undergone one radical reorganization which occurred in the course of Poland's major economic and systemic reforms of 1990, and entailed the dismembering of the initially unitary, state-owned enterprise. The unitary PKS was broken down into its original 197 local operating units, each to be constituted as an independent firm in the socialized sector of the economy but ultimately avaiiable for some form of commercialization and, preferably, privatization. The reorganization had important jurisdictional implications because certain of the entities, specifically those engaged solely in the carriage of freight, were transferred to the administrative supervision of the voyvodes, while others (all of those units having passenger transport activities) were retained under the sponsorship of the Ministry of Transport. 3. Restructuring, however, in the sense of the formation of enterprises that are viable under market forces, is not yet much advanced. The interventions and the policy setting that will be conducive to structural change and the emergence of viable enterprises, consistent with the economic and social needs of Poland in the near future, define the questions for this report. 4. The merit of any option for reorganization of Poland's road haulage depends on its expected results. That, in turn, depends on the revival and development of the transport market, on the development of other groups of operators, and on public policy. The report will, therefore, also discuss the issues of privatization, regulation, taxation and finance which surround the more limited problem of restructuring PKS enterprises. II. Features of Poland's Freht Transport Transport Intensity 5. In common with the other socialist economies, Poland's economy is relatively transport intensive. Comparing tonne-kms of freight service per dollar of GNP (a comparison that can only be approximate because of the different methods of national accounting and the difficulty of currency conversions) Poland exceeds the European market economies by a factor of between iPnstwowej Komunikacji Samochodowej 2 four and six (Figure 1). The explanations that suggest themselves for this contrast are the large share of heavy industry in Poland's economy and the large proportion of inter-industry sales in output (well above the 40% common in West Europe's market economies), as well as the large share of construction (9%-10% of GDP at producer prices, while the Westem European norm lies between 6% and 7.6%). Agricultural production is widely dispersed. The combination of a pricing policy which administered cost-based prices uniformly for many products, but also individually for specific enterprises, with high levels of industrial concentration and the absence of a pervasive profit motive in industrial decisions also generted a relatively heavy use of freight transport. Figure 1 TRANSPORT TONNE-KM PER S OF GNP i( 1 988 ) POLAND CSFP 1o0 BULGARIA o es HUNGARY '.oB YUGOSLAVIA 0 si HOLLAND o.sa SPAIN 0.90 SweDeN o .2a WGERMANY 0.93 UK 0 2 PRANCE o is AUSTRIA 0 no BELGIUM 0 'e ITALY _o.2 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Tonneo-Km per- S of GNP USSR 4 v71, US 0 77, CANADA 0 69 So6urco: Wor' Id sank ESEt Imate 6. Price controls have largely disappeared or are being dismantled and the ongoing economic reforms should lead to a gradual adjustment of the structure of production, towards the model of Western European industrial countries. The freight transport intensity of the economy will therefore decline, or rather continue declining. Net Material Output increased at around 3.7% annually between 1970 and 1986, while tonne-kilometers of transport increased by only 2% annually. But, inasmuch as transport intensity is still relatively high, any increase in the productivity of resources in Poland's freight transport should yield a correspondingly 3 substantial benefit to the economy.2 It also follows that, as freight transport intensity declines secularly, the market for freight transport should not grow as fast as national output, and may even shrink in the years of transition. 7. Road haulage, however, will be shielded from the full impact of the relative decline in freight transport demand because it benefits from the countervailing secular shift in the modal distribution of freight transport. Polish State Railways (PKP) carry about 76% of the total rail and highway traffic in Poland, an extraordinarily high share when compared with the levels in Westem European countries (Sweden at 43%, Germany and France at 33%) (Figure 2). The modal shift has already begun in Poland. Since 1970, the share of trucking in Polish rail and road tonne-km has roughly doubled, though it remained nearlv constant between 1980 and the present (Figure 3). The rate at which the future change will take place is difficult to predict. But one may safely assume that the shift from rail to road will resume and continue, in response to the changes in the structure of the economy and its modernization. It may indeed proceed at a faster rate than is currently observed in Western Europe where the full scope of the shift to trucking has apparently not yet been exploited. Figure 2 Figure 3 Rail Share of Truck . Ral I Traffic TRUCKING SHARE OF RAIL * TRUCK TONNE-KM (Percent of Combined Tonne-Km In 1987) CPercent) TRUC 5.RE ^ - =_ . ............... sm - 0.......... o! YVI - lo es 190 17 /0 l a^crn _t o oa.o0f- I* $0a. tSo-LO9, ,d , __ 0 20 *0 e0 go *O0 Pot-cant of RoW . Truck Tonno- Truci Sharo, in ,Ofcent, of TrUck Word eonic EGt !onto bared on Ul Data Plus Ra i Tonno-bo 2 The impression of a relatively high trnsport intensity of Poland's economy is based primarily on physical indicators: t-kms of freight transport and railway passenger-kms per capita (1,278 in 1987, and thus about 20% above France, and twice the level in Germany, Netherlands, the United Kingdom and other Western European countries). Poland's available National Accounts, however, do not indicate an unusually high share of transport. The physical indicators appear to have the higher credibility, but the conflict with national accounts' estimates remains: it is unlikely to have its explanation in a relatively low factor cost of Value Added by Poland's transport. 4 TheD Sokof Goods Vehcls 8. According to official estimates which contain little infermation on vehicle sizes, the total Polish fleet of trucks has been growing steadily. The total fleet (including privately owned trucks) grew between 1980 and 1988 by about 37% in terms of vehicles, which is significantly faster than an estimated 5% growth in total trucking tonne-kilometers over the same period. But the growth in the stock was entirely in the private sector of trucldng which may be assumed to employ relatively small vehicle sizes. A faster growth of aggregate truck numbers than of ton- kilometers is therefore not evidence of declining utilization or of excess capacity. It may just be evidence of increasing motorization of the economy. By comparison with the trucldng fleet of other countries, allowing for different population sizes and densities, Poland's stock of vehicles is still of relatively modest size (Table 1). At around 900,000 lorries, the Polish fleet is small when compared with the Spanish fleet of 1.9 million lorries. Much the same conclusion would be reached when comparing Poland with France, the UK and Austria if allowance is made for differences in the way in which "vans" are included in the term "lorry". But for the effects of the present recession of the economy, there appears to be no reason to conclude that there is a significant amount of excess trucldng capacity. 9. There is only limited information on the relative age of the Polish trucking fleet. Analysis of a sample of PKS unit fleets suggests that the Polish fleet may be somewhat older than the European norm (Figure 4). It is also likely that the technology employed in the current fleet is somewhat out of date compared with modem market economies, as well as in terms of fuel efficiency and pollutant emissions. Flgure 4 AGE DISTRIBUTION CPERCENT) OF TRUCKS AND TRACTORS PERCENT OF TRUCKS AND TRACTORS e0 70 63.9 50~~~~~~~~~~5. so - 4509 30-22 20- a 6 yearn > yars year' AGE CATEGORY CYEARS) AND COUNTRY 3 PKS pLEer 3 PKS TRUCKS ttJN9Ay SyBDEN -3 PKS Unlta-=Rariomsko, ROriom & Oswleclm "Fleet" mean6 Trucks Plus Tractors "Trucks" means Trucks Only TABLE 1 Comparative Transport Data In 1988 LorriA : Total Flet By Capait, In popubs Popu n is"1500 S0W 70 10o ea 31Dec) Denity to de to to TOW (Km2) (00) (psp/Km2) <1s0 4999 6999 9999 14999 >IS0 l.rria Ausut 83,850 7,600 90.6 158,402 35,353 13,113 20,700 7,001 42 234,611 1Bdg t30,513 9,920 325.1 152,489 66,514 15,165 17,898 14,777 3,058 269,901 Fsmce 547,026 55,870 102.1 2,757,731 398,219 45,714 62,010 51,393 6,818 3,321,8 Gemany (FRG) 248,577 61,200 246.2 672,638 401,624 57,564 118,435 66,731 4,832 1,321,824 G=rat Briain 229,989 SS,502 241.3 1,643,000 168,400 27,400 78,2Q0 48,900 38,100 2,004,000 Hungamy 93,030 10,6Q0 113.9 179, Netlldndsi 40,844 14,760 361.4 351,703 54,689 14,503 25,265 16,245 5,361 467,766 Poland 312,677 37,80 121.1 919,321 Spain 504,782 39,850 78.9 1,622,023 169,246 32,470 45,993 106,085 k,975,817 Sweden 449,964 8,440 18.8 182,205 30,223 7,593 17,885 25,435 3,940 267,281 Yugoslavia 255,804 23,56 92.1 260,988 1Potga (1987) 88,944 10,290 115.7 237,278 75,202 19,556 24,293 9,766 366,095 Source: United Nations, Annual Bullecin of Transport Staistics, 1990. 6 m[. RoaQua Generl ganizt Of Road Haulage in d 10. The formal organition of Poland's road haulage under socialism corresponds to that of other socialist countries. In the socialized sector, it distinguished between Public (or general) transport, Special transport attached to various branches of the economy, and the own-account transport of socialized enterprises. Jurisdictionally, public transport was sponsored by the Minister of Transport, the Special transport enterprises by the respective branch ministries, and own-account transport, indirectly, by the corrsponding branch authorities. Private transport was outside the socaliWed sector. In functional terms, Public transport is general freight transport. The Special haulage enterprises, originally attached exclusively to individual branches of the economy (mining, forestry, construction, the meat industry or domestic trade), are the counterpart of special haulage enterprises in market economies where they serve trades that require special equipment (such as tankers for bulk liquids). The professional haulage industry consisted therefore of Public and Special transport, in the socialized sector, and of private transport in so far as it is offered for hire or reward. Division of the Market 11. The relative sizes and shares of these different groups in 1988 can be described in terms of vehicle stocks and, less comprehensively, in their shares of tonnes lifted and tonnes moved (Tables 2 and 3). TABLE 2 The Polsbh Truck Fleet (end of year) 1970 1980 1988 1989 Public 28,142 34,122 27,316 25,034 (of which PKS) 25,532 29,672 22,550 20,669 Special 52,963 93,891 70,671 58,502 Own-Account 161,973 325,937 339,903 343,740 Total "socilized 243,07R 453,950 437,890 427,276 Private 27,000 154,000 394,000 452,000 Total Fleet 244,546 578,278 809,340 858,607 Trailer: Public 8,862 15,075 14,034 13,645 (of which PKS) 7,876 13,787 12,886 12,546 Branch 9,931 27,091 20,160 18,279 Own-Account 134,584 178,487 183,986 188,318 Totl Socialized" 153,377 220,653 218,180 220,242 Soure: Statistical Yearbook (Rocmik Statystyczny), 1990 and 1985, Tables Tabor Uspoliczmionego Trunsportu Samochodowego' and 'Pojazdy Samochodowe I Ciaguiki. 7 TABLE 3 Tonnes Lifted and Tonne-Km Performed, Percentage Distribution by Working Organization Tonn Tonne-Ki (%) (%) Organization 1987 1988 1987 1988 Public 6.0 5.8 22.0 21.3 (of which PKS) 5.7 5.4 18.0 17.3 Special 29.3 29.7 25.3 25.3 Own Account 44.5 43.1 36.5 35.9 Private 20.2 21.3 16.4 17.4 Professional 35.3 35.5 47.3 46.6 (Public+Branch) Souroe: Statistical Yearbook 1990, Table 6(544), and Ministry of Trnsont 12. In numbers of goods vehicles of all kdnds (trucks and tractors), tonnes lifted and tonne- kilometers of haulage, the own-account fleets dominate each of the other organizational classes. But this dominance is greatest in vehicle numbers, less in tonnes lifted and least in tonnes moved (rable 4). TABLE 4 Truck Numbers, Tonnes Lifted and Tonnes Moved, 19889 by Sectors, Relative to Own-Account Fleets and Operations Trucks Tonnes Lifted Tonmes Moved Public Haulage .06 .13 .59 - PKS .05 .12 .48 Special Haulages .19 .69 .70 Own-Account 1.00 1.00 1.00 Private .84 .49 .48 8 13. The private sector (for which the esdmates are most speculative) exceeds the others in vehicle number but not in tonnes lifted, and even less so in tonne-klometers. Special haulage dc ninates PubLic haulage, most markedly in tonnes lifted but much less so in tonne-kilometers. With not quite 4 times as many trucks, the Special haulers lifted 5-1/2 times as many tonnes as PKS, but only performed 45% more in tonne-kilometers. 14. These contrasts between sectors are summed up in the average performance of goods vehicles, in tonne-lometers per vehicle-year (Table 5). The relatively high output rates of PKS trucks are consistent with the relatively long hauls in PKS operations (Figure 5). TABLE 5 Trucking Output per Equipment In 1988 (per truck, and per truck and trailer) Tonne-Km Nwnber of Per Vehicle Vehides (0) Output per Truck Only: Public Freight Trnsport 27,316 370.6 Specia Transport 70,671 168.7 Output per Truck and Trailer: Public 41,350 244.8 (of which PKS) 35,436 231.7 Special 90,831 132.7 Own-Account, Socialized 523,799 32.6 Private 394,000 21.1 Sources: Statistical Yearbook gives number of trucks, Ministry of Transport estimates 'private" tonne-km freight transport, withot.t clearly defining "Private". 15. Average truck sizes in the different segments of Poland's road haulage are further evidence of differentiation in operations. The economics of trucldng, if not constrained by regulations, gives an advantage to professional haulage on the longer hauls, and assigns the larger trucks to the longer haul. PKS appears to have an average capacity close to 8 tons; 1988 additions to the fleet averaged 8.2 tons. Poland's Public road haulage shares with those of other 9 socialist countries the technical peculiarity of large stocks of trailers which are used to enhance the carrying capacity of (typically) rigid trucks. The trailer-enhanced payload of PKS trucks thus reaches 14 - 24 tons. Average capacity of trucks in the Special haulage fleets, on the other hand, appears to lie around 6 tons, except for the much heavier vehicles in the fleets of the former Special transport for construction and forestry. Average truck capacity in the own- account fleets of socialized enterprises appears to be still lower, in the range of 3 - 6 tons. Figure 5 LENGTH OF HAUL CIN KM) OVER TIME BY CLASS OF HAULAGE K I LOMETERS 90 30 - =; p a ^ ~_ 70 72 74 76 78 0A 82 84 86 8e YEAR PKS j SPECiAL a OWN ACCOUNT 16. By such general operational characteristics, PKS very roughly approximates the profile of general freight haulage enterprises as they have developed in market economies. Judging by average lengths of haul and annual performance of trucks, the Special haulage enterprises, own- account fleets and private trucks engage primarily in short-distance and local haulage. 17. The division of Poland's haulage market at the end of the 1980s still preserves the basic features of the organization and the market assignment ordained by socialist policy over a decade ago. But the evolution of the industry and its markets since the economic crisis of 1980-81 and the subsequent measures of liberalization have greatly sharpened the differentiation in ways that seem relevant to what the future may hold. 10 18. haulage has grown rapidly (Table 2). In 1988, it is estimated to have lifted over one-fifth of total road tonnage and, according to a more tentative official estimate, to have provided 17% of all ton-kilometers of road freight transport. Not all of this private operation competes directly with professional haulage. The number of goods vehicles in private hands is estimated at 450,000 in 1989, but only 150,000 private persons declared for purposes of taxation that they are engaged in public haulage. At a guess, no more than half the stock of private trucks and tractors is employed in that way, the rest being used within private enterprises or in conjunction with private trading. 19. The shares of awn-amount haulage, in the stock of trucks, in tonnes and in tonne- kilometers, generally rose throughout the decade. By comparison with road haulage in Europe's market economies, however, the own-account share does not appear abnormal. It is larger than the shares of own-account transport in the lightly regulated (or, simply, deregulated) road transport sectors of Sweden or the United Kingdom, but somewhat lower than the corresponding shares in countries that regulate road haulage and regulate entry into professional haulage (Table 6). Nor do the average lengths of haul of own-account haulage, relative to Public haulage, suggest an inefficient overlap in operations of these two sectors (Table 7). TABLE 6 Transport of Goods by Road: Percentage Distribution by Mode of Working (tonnes) (tonne.km) Professional Private Professional Private Own-Account Haulage Haulage Own-Account Haulage Haulage (%) (%) (%) (%) (%) (%) Column No. (1) (2) (3) (4) (5) ( Country Year Poland 1988 43 36 21 36 47 17 1987 45 35 20 37 47 16 Sweden 1987 23 76 in (2) 16 84 in (S) U.K.1Y 1987 41 59 in (2) 29 71 in (5) 1983 48 52 in (2) 36 64 in (5) France12 1983 64 36 in (2) 38 62 in(5) Belgium3' 1988 55 45 in (2) 51 49 in (5) 1' Excluding trucks below 3 tonnes gross vehicle weight. a' Excluding trucks below 3 tonnes payload. I itemtan on. 11 TABLE 7 Average Lengths of Haul In Road Haulage Professional Own-Account Ratio of Hlage Haulage Profwsional to (Ion) (Ion) Own-Account Poland, 1988 PKS 84 22 3.82 PKS plus Special 47 22 2.14 Sweden, 1989 74 44 1.69 U.K., 1987 9gll 531/ 1.72 1983 88 54 1.63 France, 1983 123 422' 2.93 Belgium, 1989 45a' 40(' 1.13 1' Vehicles above 3 tonnes gross vehicle weight. 2 Vehicles above 3 tonne payload. 23 Domestic haulage. 20. Throughout the decade, Public haulage and PKS within it, and special haulage, generally lost market shares (Figure 6). Their fleets, in terms of units, have decreased. But while PKS lost traffic, the average length of haul of this = traffic (1986-89) was less than one-third of the average length of retained traffic (24 kms against averages of 76 kms in 1986 or 86 kms in 1989). PKS thus appears to have specialized increasingly in longer-distance trucking: the average lengths of haul in its operations doubled between 1980 and 1989 (Figure 5). 21. The Special haulers, similarly, lost traffic and increased their lengths of haul: average distance of haul on traffic 1Q between 1986 and 1989 was 8.5 kms while the average on X1tingd traffic increased from 22 to 25 kms. Nevertheless, the market position of this large block of haulage capacity, and the direction of its adaptation to competition and changing demands, remain difficult to define. The market position of the Special haulage enterprises changed in consequence of the reforms of 1982 which deprived them of monopoly rights to the transport business of socialized enterprise in their respective branches. Special haulage freight 12 tariffs were decontrolled in 1984 while Public haulage tariffs remained under control until November 1989. Some sections of the Special group established themselves in the 1980s as general tansport enterprises, in open competition with PKS. Pressures on the Special haulage sector increased greatly following the economic downturn of the early 1980s. It is normal experience in the haulage industries of most countries that professional haulage takes the brunt of any recession in the market while industrial own-account fleets remain more fully utilized. An inverse movement of the shares and also the absolute volumes of activity of professional and own-account haulage in an economic downturn is therefore not unusual. What is, however, remarkable is the intensity of this inverse movement of Poland's own-account and special haulage activity after 1980 (Figures 6 and 7). The degree of substitutability between these two sectors of haulage suggests an inefficient division of labor which will not withstand market forces in a competitive and lightly regulated industry. While the recession lasts, competition within road haulage will remain lively. In the process, and assuming that no regulatory barrier to a market-responsive reorientation of enterprises is erected, the share of own-account haulage is likely to decline somewhat. The main changes are, however, to be expected in the operations of Special haulage enterprises. While originally attached to specific branches of industry and equipped to serve technical distinctive needs, they appear also to have engaged in a wider variety of haulage work than experience in market economies shows to be profitable for one enterprise. One may therefore have to expect a good deal of disintegration of these enterprises, and a search for structural change that deserves expert guidance, no less than the newly independent PKS enterprises. Figure 6 Figure 7 PERCENT SHARE OF TONNE-KM TRUCKING TRAFFIC LEVELS IN BY CLASS OF HAULAGE POLAND BY CLASS OF HAULAGE P3^NT SKWS (TONNE-KM INOEX) IDEX OF TIE-K: 1980=100 40--i _ s20 r30 so P P S ! Dg 6 40 70 72 74 76 78 80 02 84 86 80 70 72 /4 7S 78 80 82 84 86 88 YEAR YEM Ps -C S!CtIAL M = PM -SL S'CIAL K 0 AC0 L 13 IV. The pKS Enterrses3 22. The PKS enterprise (or the present group of PKS successor enterprises) forms the original main component of Poland's public road transport sector, for both passengers and freight. Its branches or divisions are distributed over the entire country. Before the reorganization of 1990, the enterprise employed about 110,000 persons. It operated 22,000 buses, almost the entire stock of the country, and produced annually over 1,500 passenger-mns per inhabitant. Its trucks and trailers represented 23% and 38% respectively of the combined stocks of Poland's professional haulage in the socialized sector (Public and Special tansport). 23. In its internal organization, PKS (prior to separation) was a creation of the early 1980s. It consisted essentially of 4 enterprises: the massive State Motor Transport, KPKS, comprising 193 divisions grouped under 14 regional directorates and covering 40 voyvodships, and a further 3 enterprises, PKPS, which together operated 41 local divisions and covered the remaining 9 provinces of Poland. The enterprises and their individual divisions were managed by directors appointed by the founding organ, the Ministry of Transport, Maritime Economy and Communications, and by their Workers' Councils. (Complete integration of the PKS enterprises had in fact been blocked by the Workers' Councils of the 3 separate - PKPS - organizations.) 24. The managerial function in the individual units was limited in important respects. Individual units accounted to their supervisory bodies but were not involved in investment decisions or in contacts with sources of fiinance, credit or subsidy. Managers of the subordinate divisions made their requests for equipment and other capital items. But the decision on how much to expend from the resources of the enterprise and state grants, how much and what to acquire and how to distribute it among the subordinate units, was reserved for the supervising body. Transactions with the budget and the bank - the National Bank of Poland until 1989, and then the State Credit Bank of Warsaw which looks after infrastructure - were conducted by the supreme management of PKS. Neither the individual divisions nor the various directorates were thus "finns" as understood in market economies or, indeed, by any of the criteria formulated in Poland's 1981 reform program (the Directions of the Economic Reform). The Rcrganizatio o-f 1990 25. Early in the process of Poland's economic reforms of 1990, professional haulage in the socialized sector underwent a major reorganization. PKS was divided up into its constituent operating entities which were ordered to operate as independent firms from July 1, 1990. The intermediate supervising bodies were to be disbanded. There emerged 227 separate enterprises or firms: 27 specialized in passenger transport, 31 specialized in road haulage, and 140 "mixed' units engaged in both passenger and freight transport. Twelve workshops and repair entities 3 In this note, PKS refers to the two constitutionally separate parts of the entire enterprise before separation, KPKS and PPKS. 14 were constituted as independent enterprises; so were 13 supply units, 3 specialized in building work, and one that coordinates and malkes time tables for cross-country passenger services. Eighteen units, the former supervisory bodies, were abolished. 26. For purposes of administrative supervision and tutelage, the Ministry of Transport retains those of the entities that transport passengers, including therefore 140 "mixed" units. Units specialized in road haulage, on the other hand, were assigned to the supervision of the voyvodes. The enterprises retained under the wings of the Ministry of Transport operate 68% of the total PKS fleet of trucks: 15,906 goods vehicles as well as 17,396 buses. Their output in tonne- kilometers of haulage is about 65% of total PKS performance, or some 27% of the combined tonne-kilometers of "socialized" professional haulage (PKS plus Special transport) in 1989. 27. The policy of dismantling the large, nation-wide road transport enterprises, and the establishment of their former constituent branches as independent, state-owned enterprises, was applied to the Special transport enterprises as well as to PKS. The divisions of the Special transport enterprises, mainly engaged in road haulage, have been assigned to the supervision and control, as founding organs, of the local authorities. The newly independent entities, PKS as well as former Special transport, are each under an obligation to pay to the Treasury the monthly "dividend" on that part of their capital (according to balance sheets revalued for inflation but not othenwise audited) that was defined in 1989 as Founder's Capital. The current standard rate of the dividend is 32% per annum. 28. Reorganization has, however, introduced a significant new differentiation of status among enterprises engaged in road haulage. All enterprises engaged in passenger transport -- hence also the 140 "mixed" PKS enterprises, but not the remainder in Poland's road haulage industry -- retain the status of public utilities. As such they are protected against bankruptcy proceedings. Their liability to payment of the dividend on founder's capital is reduced to one- third of the standard rate. They are further exempt from a variety of taxes, and receive subsidies, negotiated between the Ministries of Transport and Finance, specifically for the support of passenger transport. There results a significant discrimination in favor of one sector of road haulage against all the rest. 29. By virtue of his status as the head of the founding body, the Minister of Transport appoints managers for the entities that remain under his sponsorship. New appointments have to be made in all the units, based on open competition for the posts. 30. Founding organs may also take the initiative in winding up enterprises in their domain.4 A sufficient reason for intervention, followed alternatively by rehabilitation, transformation or true liquidation and sale or other disposal of assets, would be the entity's failure to pay the 4 The conditions under which the founding organ may take the initiative in the liquidation of an enterprise-- meaning, essentially, in intervening an enterprise--are formulated in the 1990 Act on the Privatization of State-Owned Enterprises. Art. 37. 15 dividend due on founder's capital. Minor liquidations took place early in 1990, but not of enterprises with the status of public utilities. Since several of the newly independent enterprises have not yet ascertained from the supervising directorates (to be abolished in due course) the amount of founder's capital, of enterprise own capital and of enterprise debt that is allocable to them, the institution of the intendve regime is bound to take time. The Sepaad Units 31. The newly independent PKS enterprises differ greatly in size. Pure road haulage enterprises, assigned to the local authorities, have an average fleet size of 240 trucks; the largest has 574 trucks and none have fewer than 137. By the standards of haulage enterprises shaped by competitive market forces, these are large or, indeed, very large firms (Figures 8 and 9). The haulage establishment of the individual 140 "mixed" units is smaller, but the average number of trucks, 113 units, also far exceeds the sizes of the average professional haulage firm in Westem Europe. Only 60 of the mixed entities operate fewer than 100 trucks, the smallest consisting of 47 vehicles. Figure 8 Average Number of Trucks Per Firm Selected Countries Country GERMANY ALL A GERMANY SHORT HAUL 2.9 GERMANY OWN-ACCT 2. 9 HOLLAND: ALL 6 7 HOLLAND FOR HIRE 4 3 FRANCE: ALL 7 1 USA FOR HIRE 10 POLAND PKS 136.6 HUNGARY VOLAN 166 0 100 200 300 400 500 600 Average No of Trucks 16 Figure 9 Sizes of Trucking Firms In 5 Countries (Cumulative Percentage Distribution) Cumulative Percent of Trucks 100 9 80 60 40 20 0 100 200 300 400 500 600 700 800 900 1000 Number of Trucks Owned by Firm ! Germiany I Fl I and France ~*& Poland: PKS X Hungary VOLAN Cumulative Percentage of TRUCKS operated by Firms of Various Numbers of Trucks 32. Workshops, repair and maintenance stations, and storage buildings, form parts of the estates of the individual units, and the labor force contains large proportions of mechanics -- 1 to every 2 or 3 drivers - and also substantial numbers of labor, presumably for loading and unloading work. Administrative and management personnel in the newly independent units form some 20% of the entire staff, about twice the proportion that one expects to find in professional haulage firms in market economies. 17 33. In the "mixed" units, the relative importance of freight and passenger transport can only be measured in terms of revenues earned in 1989 at controlled freight rates and fares, and in 1990 at free freight rates and at fares that were raised steeply to reflect inflation, but are still controlled and subsidized. On that basis, freight revenues in the "mixed" units in 1989 exceeded revenues from passengers in about four-fifths of the enterprises. The average excess was only 3%, but the unweighted average for the units that earned more from freight, was 34%. Passenger transport, however, was heavily subsidized.5 Passenger revenue after subsidy exceeded freight revenue by perhaps two-thirds, but even after subsidy, one-quarter of PKS "mixed" units earned revenues from freight that were equal to, or greater than, passenger revenues. In 1990 it is expected that the relation is strongly inverted and that passenger revenues, even before subsidy (at a reduced rate) but after a doubling of fares, will exceed freight revenue by 90%. Only one in ten of the "mixed' units are expected to earn from freight more than from subsidized passenger transport. 34. While the trend toward longer-distance haulage is evident in the aggregate performance data of the entire group there remains a substantial diversity in the spread of operations of different PKS enterprises. While individual PKS units, after reorganization, earn the greater part, or even most, of their freight revenue from long-distance (over 50 kns) haulage, there is still on average a substantial amount of short-distance work, in the haulage of construction materials, agricultural products and various types of less than truckload (LTL) haulage. But it appears from the investigation of a sample of "mixed" units that length of haul is negatively related to the size of the haulage establishment, represented by numbers of trucks in the enterprise (Figure 10).6 The smaller haulage operations have the largest tonne-kilometers per truck, while the largest fleets have the lowest performance (Figure 11). On the hypothesis, derived from experience in Western countries, that the market will lead Poland's general freight enterprise towards longer-distance work, away from the short distance, local haulage jobs, it is the relatively small units (small by Polish standards) that are moving fastest in the direction of viability under competition. s n 1990, the rate of subsidy prevailing until April was Z1.O.72 per Zl. 100 of income from passenger fares. Fares were raised by 100% in March, and the subsidy was then to be reduced to 15 % of income from sales of tickets. We assume that the rate paid in the early months of 1990 applied throughout 1989 even though the real subsidy in that year, before the collapse of haulage freight rates, may have been lower. 6 The scatter diagrams in Figures 10 and 11 are based on 4 different samples of PKS units. The Qdginl SUM] of 29 'mixed" units is strtified by size of fleet. S and Net Weakest Tweny consist of 'mixed' units with poor performance in 1990, as selected by the Ministry of Transport. Eresit 0ixy consists of 8 PKS units that specialize in freight. Observations from each sample are entered with separ mark4. 18 Figure 10 LENGTH OF HAUL Vs SIZE OF UNIT FLEET PKS Units in 1989 Length of Haul CKm) 300 250 - + 200 - too _++ + + O O 0 100 200 300 400 Size of Fleet weaklest 17 un,to + Next Woakeat 20 lOriginal sfnole 0 Fralght Only See Append ix Tables for definition of the PKS groups Figure 11 TONNE-KM Per TRUCK Vs UNIT FLEET SIZE PKS Units in 1989 000 Tonne-Km per Truck 600 550 - + 500 _ ++ q- 450 _ 400 - . 0 350 ± ) WAml- + 0) 30 10+0 0 0 We+kont t 7 wn I tD + 2 250+ 200 ISO 100 0 100 200 300 400 Size of Fleet *Weakest 17 unIts + Next Weakoot 20 0, gI n I el 5mpl 0 Frolght Only See Appendix Tables for Unit Data 19 V. Recessiion and the Move to Transformation and Privatization Effects of Recession 35. As a sequel to the drastic measures of stabilization taken at the beginning of the year, national output during the first 4 months of 1990 declined by 30%, and fell further thereafter. Demand for the services of state-owned transport is reported to have fallen by 58% during the first 5 months, and that for private transport, by 7%. 36. Demand for transport had already been declining in 1989 when GDP fell by over 2%. The response of transport demand in that year reflects the unequal impact of recession on different industries, but also signifies a further structural shift in the entire freight transport sector (Table 8). No information is available on the development of private haulage. Special haulage was particularly affected by recession in the construction industry and in coal mining, and that would account for the steep drop in tonnes lifted. But for the combined tonne- kilometers of Special and own-account haulage, the decline from 1988 to 1989 was a mere 1 %; further evidence of the close substitutability between these two modes of working which contains the suggestion of an inefficiency in the division of labor, and therefore relatively high cost of professional branch haulage. Professional road haulage generally substituted longer hauls for fewer tonnes, assisted by the continuing increase in road-carried intemational trade. In the operations of the Special haulage, short-distance work fared much worse than the longer distances, the former more competitive with own-account and private hauliers, and the latter with PKS. TABLE 8 Socialized Transport of Goods Percentage Change 1988-89 Tonnes (%) T-Kms (%) All modes -6 -7 Railway -9 -9 Road Haulage -5 -2 - PKS -9 -7 - Special Transport -21 -12 - Own-Account Haulage +7 +7 20 37. At mid-1990, utilization of PKS freight capacity was reported to have declined to 40% on average. Individual entities experienced shrinkage in demand for short-distance work, and new industrial clients for the traditional long-term haulage contracts are difficult to find. Competition from private hauliers and from the former Special haulage enterprises was mounting, specifically from the construction industry Special transport which operates heavy vehicles and lost much business in its traditional sector. Commercializatin and rivatizgion 38. Poland's reform programs of 1990 aim at the transformation of state enterprise by commercialization and, ultimately, by privatization. Privatization of road haulage, as such, is already proceeding through the growth of the private truck fleet, based largely on purchases from each of the socialized sectors of road transport and from own-account operators. Outright privatization of socialized road haulage enterprise has not occurred on any scale even though some 100 public sector transport enterprises, chiefly units of the former Special haulage organizations, are earmarked for "small' or "medium" privatization, essentially by sale as going concerns. 39. For the time being, the private economy has also entered the domain of state-owned haulage by less direct routes, as subcontractors and as lessees. PKS and Special haulage enterprises are subcontracting with private drivers, and are letting their vehicles for work assigned by the enterprise and charged to customers at its rates. The incentive in these cases is the higher productivity of the private subcontractor, both in performing haulage work and in marketing the service. Vehicles are also being let to outsiders (including in some cases, former managers of the lessor enterprise) on the basis of regular leases with option to purchase. Special haulage enterprises have let out entire units on such terms. The lessees manage their business without the participation of Workers' Councils and pay wages at rates above those of the lessor enterprise. No such comprehensive forms of leasing are reported from PKS "mixed" road transport entities. 40. From the point of view of management (though not necessarily of individual managers who may lose their jobs in the process), transformation of enterprises, short of privatization or in preparation for it, promises greater freedom of action. Workers' Councils would be transformed into workers' representation on a supervisory council7, and the present dividend on founder's capital -- in essence, a senior debt -- would be transformed into equity. It would facilitate entry into joint ventures with foreign firms. Some managements of both (former) Special haulage enterprises and (former) PKS pure freight enterprises accordingly argue for 7 Corresponding to the Aufsichtsrat of the German joint-stock company or the larger Limited Liability Company; and to the similar French conseil de surveillance. 21 transformation into Public Limited (joint stock) Companies, in state ownership, which is the most widely understood model. 41. Industrial enterprises with own-account haulage operations have for some time been transforming internally. Transport departments of such enterprises have been turned into self- contained subsidiaries, owned jointly by the mother enterprise, its workers, and the workers and management employed in the subsidiary. The subsidiary is a lessee of the mother enterprise, with options to purchase the leased equipment and facilities. The incentives for such decentralization are partly fiscal, but productivity in haulage also improves and the financial discipline on the enterprises' use of road transport is strengthened. This model, which is familiar from developments in other transitional socialist economies in Europe, has not so far been followed in the PKS group of enterprises. Unless carefully controlled in the valuation of assets transferred from mother enterprise to subsidiary, and in the pricing of the subsidiary's services to the mother, it is clearly open to abuse. Nor has it solved the ultimate question of ownership; in fact, by establishing a network of new rights it may actually have made the solution marginally more complicated. The advantages, however, consist in allowing a more effective system of incentives to be introduced, in raising productivity, and in establishing a new opening balance for the haulage firm as is essential if third parties are to contribute new capital. VI. ns in Restructuring Road lage: General Criteria 42. Options for the restructuring of Poland's road haulage must conform to Poland's policy of commercializing and privatizing state-owned enterprises, and they must also contribute to the ultimate objectives of that policy. Options should be judged on their potential to raise the productivity of resources employed in Poland's freight transport, and to open the way for the creation of new jobs. They should contribute to the preservation of employment, though not necessarily employment in each of the individual enterprises. 43. Wide scope should be allowed for the development of entrreneurial activity, on a small scale as well as in larger ventures. Experience in many countries, including Poland, has shown that productivity is raised, and the entrepreneurial potential is activated, by competition. The policy regime should therefore allow freight haulage to undergo structural change and modernization, in conditions of a competitive market. 44. Success of reorganization of road haulage in providing Poland with an efficient transport system and in assisting in the economy's transition is conditional on the policy setting for transport and on the quality of management. Many managers in Poland's professional transport enterprises have shown qualities of resilience and determination in adverse circumstances. There is no lack of technical competence. What has to be developed further is coammerial skill for which no basis of experience and no incentives for learning were available under the rules of the past. Reorganization has to assure scope and incentives for the development of commercially oriented and independently minded management. 22 45. While it is an object of policy, and indeed a condition of sucess, that ownership of assets and firms, with the right of control vested in the residual owner, should be clearly and securely established (as it fails to be under socialism), and that privatization should therefore be strenuously pursued, the transfer to owners should not lead to an avoidable dissipation or unintended diversion of state or social property. VII. Restructuing Freight-Haulage Spaatn Freight from Passenger The- Case for Separaton 46. The combination of freight haulage with passenger transport in one and the same enterprise, and in a large number of enterprises performing together a large proportion of road transport of passengers and a significant proportion of total haulage, is as uncommon in market- oriented countries as it is common in socialist economies. The managerial requirements of the two activities, at the commercial as well as the technical level, are very different. Most passenger transport is local and tied to a local market: 60% of passenger road transport in Poland is local in the narrow sense of one locality, another 30% is travel within the voyvodship and only 10% goes further afield. Freight transport in the 'mixed" PKS units, however, where freight is combined with passengers, tends increasingly to longer hauls, and to work in a wider market. 47. Passenger transport is subsidized in Poland as elsewhere. In the past, freight is likely to have subsidized passengers. While the decline in freight revenues expected for the near future may well reverse the direction of the flow, neither direction of cross-subsidization is conducive to the development of a cost-conscious and service-oriented commercial management. Nor are the established routines of management in the mixed units (and in units specialized in passenger transport) a promising base for the growth of managers with a competitive orientation. National, cross-country road passenger services were in the past planned by the carriers in mutual consultation and then sanctioned by the Minister. Once sanctioned, the arrangement protected every carrier on its assigned routes. Translated into the terms of a marlet economy, the system amounted to a legally backed cartel, apparently controlled by government imposed freight tariffs but in fact buoyed up by subsidies which covered the gap between the fare and the costs as declared by the carrier, plus an allowed percentage for profit. 48. Mixed freight-and-passenger enterprises, unlike specialized freight haulage enterprises, still enjoy public utility status which confers immunity against bankruptcy and provides a variety of fiscal and financial benefits. Such discrimination between enterprises in the same business is incompatible with the rules of a market economy. While it persists, the process of transformation of haulage enterprises of either kdnd -- those privileged by public utility status as well as those denied the privilege -- will be impeded and complicated because the values of assets and market prospects are distorted by the unequal distribution of rights. 23 49. Separating passenger from freight transport in individual enterprises appears as an essential ingredient of any scheme of reorganization of road haulage in Poland. In considering options, two objects may be kept in mind; to assure, as best one may, the efficiency and viability of road haulage enterprise in Poland, and to lay the foundations for the transfer of state- owned enterprise to private control and ownership, at a fair value. Tho Qption of Internal Separation 50. One class of options would attempt to secure the financial and operational separation of the two disparate activities by an internal decentralization of operations and accounting, within the same business organization. After audit and valuation of assets, and an allocation of separable or jointly used assets and facilities to one or the other department, a rule of separate accounting would be imposed with a view to preventing cross-subsidization and especially the diversion of public subsidies intended for passenger transport to freight haulage activities. Some, but obviously not all, of the privileges associated with public utlity status would be withdrawn from the freight activity, notably the concessionary rate of dividend on its share in the founder's capital. 51. Enterprises thus compartmentalized could then be offered for sale, or on lease or for management under contract, to private parties. But the lack of many examples from market economies of freight haulage integrated with passenger transport suggests that this combination is not found profitable. Whatever economies of scope may exist in the production of the two types of service -- due to the common technical requirements for workshop and maintenance services, stores or parking areas -- appear to be outweighed by the commercial distinction between serving freight and serving passengers. If the balance between these considerations looks different in Poland at the present time, that is the result of the high degree of integration of production of goods or services and the associated relative lack of competitive supplies of technical services and components in joint demand by haulage and passenger transport. But facilities such as workshops should be relatively easy to privatize and will spring up anyway in the private sector, as will stocking activities and trade in spares and parts. It should therefore prove easier, as well as more conducive to the emergence of an efficient road transport industry, to find private buyers or lessees for separate road haulage entities. By the same argument, it should be easier to attract efficient and innovative commercial management to separate haulage enterprise than to the haulage department of a mixed business. 52. While any scheme of separation will require assets and liabilities to be valued and distributed between the parts, the separate accounting which this option requires would be difficult to police and would be likely to replicate and continue into the future the arbitrariness and the compromises that are difficult to avoid in the valuation and separation of assets. Cross- subsidization in various forms within an enterprise, especially in an enterprise receiving public subsidy, may prove not just difficult to avoid but also difficult to contain. 24 The ptin o Estblihmet Separation 53. The alternative option aims at the splitting, as completely as possible, of freight haulage from passenger transport and the formation of separate establishments. Separation, preceded by audit, valuation and division of assets, including depots and stations specific to either form of transport, should affect the financial, managerial, commercial and operational aspects of business. Management would be separate at all levels, and locational separation should be at the discretion of the two managements. 54. Under this option, the separation of establishments should occur as soon as possible. It should therefore be applied to all those parts of the enterprise that are capable of being separated in the near future, including assets and liabilities, management, procurement and agencies. It should not have to wait on the commercialization or separate establishment of present common facilities (like workshops) or until separate premises can be secured. What the option aims at is the creation of independent haulage firms, seeking their markets and deploying their resour