Georgia: Support to Rail Passenger Services Contracting

Transport / Rail transport (non-urban)

The small-scale knowledge and support technical assistance will support Georgian Railway and the government in the formulation of a long-term business development strategy for rail passenger services and assist in the finalization of a fair and transparent public service contract.

To establish a public service contract with the government in-depth analyses are required of (i) rail passenger demand assessment, including competition from other modes of transportation (buses, private cars); (ii) cost pricing of passenger services; (iii) timetabling and interconnectivity with other public transport modes; (iv) staffing; (v) infrastructure charging; (vi) fare schemes and integrated ticketing; (vii) rolling stock investment; (viii) marketing; and (ix) the required compensation (subsidy) for a longer-term contract with the government for the provision of a determined package of passenger services. Although Georgian Railway has already spent significant time and resources in preparing such a contract, further refinement of contracting details is required, for which experts' assistance is needed.

Georgian Railway is a state-owned joint stock company (JSC) responsible for the management and maintenance of railway infrastructure and the operation of railway passenger and freight services. It has about 13,000 staff, making it Georgia's largest employer. It has three strategic business units (SBUs): (i) the Freight Transportation SBU; (ii) the Passenger Transportation SBU; and (iii) the Infrastructure SBU. These function as separate profit centers and produce separate financial statements. In 2019, Georgian Railway transported 10.6 million tons, with a turnover of 2,640 million ton-kilometers, and 2.8 million passengers of which 96.4% were domestic passengers.

The Georgian railway network is almost entirely broad gauge (1,520 millimeters). The total network length is 1,443 kilometers, almost fully electrified, and connects 51 passenger and

100 goods stations. In 2019, Georgian Railway transported 10.6 million tons, with a turnover of 2,640 million ton-kilometers, and 2.8 million passengers of which 96.4% were domestic passengers. In 2019, the total revenues were GEL491 million (an increase of 16% compared to 2018) with a result of operating activities of GEL108 million and a net loss of GEL5 million. In the first 9 months of 2020, revenues were equal to the same period in 2019, with an increase of 4% in the operational result

The sole shareholder of Georgian Railway is the government's JSC Partnership Fund which is overseen by the Enterprise Management Agency of the Ministry of Economy and Sustainable Development. The government expects Georgian Railway to operate on a self-financing basis, without capital or operating subsidies. Revenues from freight are Georgian Railway's main source of income, providing 57% of revenues, and more than 90% when associated services are considered (e.g., handling, forwarding, freight car rentals). Passenger services are loss-making, where losses are covered by profits from freight transportation. Under recently adopted regulation, this cross-subsidization will no longer be allowed. Georgian Railway will have to close a contract with the government by the end of 2021 to agree on the provision of a package of loss-making, yet socio-economically desired passenger rail services against a well-determined contribution (subsidy).

Rail passenger service business development strategy and implementation plan developed

Draft public service obligation contract finalized