(Originally published in the Autumn 2013 issue of Esquire magazine.)
- [Update: Oct. 14 – The deal to sell CFR Marfa collapses after time runs out and some creditors refuse to approve the change of company ownership. The government says it plans to restructure the company and try the sale again in 2015.]
- [Update: Nov. 21 – CFR Marfa plans to fire 2,500 workers, almost 30 percent of its total workforce, the government discloses in its 2014 budget, according to reports.]
- (Update: Dec. 17 – GFR, which won the bidding for CFR Marfa, is still waiting for its EUR 10 million guarantee to be refunded by the government since the sale collapsed.]
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If you want to see why governments should not run companies, just take a look and see how they sell one.
We’re talking CFR Marfa and, as usual, the farce was at least entertaining. You had the predictable accusations, bureaucratic manipulations, and procedural pratfalls between President Basescu and Prime Minister Ponta that always seem to arise when anyone tries to accomplish something good. In this case, both men wanted it done – and they both were adamant that the other one should do it.
At least for now, the show is over. But before you celebrate, let’s take a look at what this means. Because you might not care about the fate of freight rail here (after all, how many of us ship a train car full of anything these days?), but you should pay attention to how it got done.
Because one of these days, it will very likely be a majority stake of the passenger rail system that’s for sale. Yes, it’s bound to happen. And if this sale is any indication of what you can expect, you might want to get a head start and begin worrying now. Because thanks to this government, your country has just arranged to sell a national railroad in less time than it takes some of us to buy a new pair of shoes.
You knew it was bad when neither the President nor the Prime Minister wanted the credit for the sale. (How’s that for being proud of performance?) Basescu wanted to force Ponta to sign the contract by refusing to name a new Minister of Transport, and Ponta said he would sign but wanted to be certain the contract was approved by the Supreme Council of National Defense (CSAT), which is chaired by Basescu.
In one way, they’re both right to be scared. You cannot sell a company that has hundreds of millions of euros of debt and is losing tens of millions of euros each year and not expect something painful to happen. Someone has to make changes. After all, that’s why Grup Feroviar Romania (GFR) bought it – at least for now, we think it did – to make it part of its expanding regional system, where efficiencies of scale can hopefully bring it a profit.
But to create a profit means restructuring, which means consolidation, which means layoffs, which probably means protests, which means unhappy voters. No matter what Ponta promised (he said there would not be thousands of layoffs), you can be sure they will come. And neither politician wanted to be culpable as an election approached.
In some ways, this sale was inevitable. Rail companies throughout Europe are being sold by their governments. And not just in former Communist countries. They’ve talked for years about privatizing in Germany. They’re doing it in Greece, Bulgaria keeps trying, Poland says it probably will, Hungary has done it. England privatized way back in the 1990s (nobody is happy about that today).
And in Romania, whether the government wanted to or not, it needed to sell. It had committed to find a buyer for a majority stake in CFR Marfa, which handles about 40 percent of all rail freight here, as part of an agreement with the International Monetary Fund and European Commission to receive billions more in much-needed funds.
Indeed, it seems the authorities here were the ones a year ago June to pick CFR Marfa to sell and told the IMF it would be done in December last year. Of course, it was not. Then in a meeting in January, the IMF was asked to be patient once more, so it extended the new deadline from March into June.
Up quickly went a “for sale” sign on its 30,000 rail cars. The government listed conditions for all the bidders to meet, but when none of them did, they made it a bit easier and tried it again. And in the end, the only one left standing, was a locally owned, big regional company. Well, maybe. At this point, it remains unclear if Grup Feroviar Roman will come out of this as the new 51 percent owner or not.
Maybe it will. Maybe it won’t. But who cares? The government did its part: it needed to show the IMF an agreed bill-of-sale and it did. Hooray!
Don’t misunderstand. I’m usually pleased that the IMF is here, lending money and keeping a watchful eye over things, ready to slap the back of some hands if the government begins to stray too far. But allowing this concerns me.
It’s not so easy to unload a big railroad. There are serious questions to consider, none of them you will care about until NATO troops need a ride or CFR Calatori – the one whose freight includes things like you and me – gets put up for sale.
Because explain this: along with the cars, was the government selling the rails (the metal things that keep the train going in the right direction)? Or when the rail breaks, does the new owner call the politicians and ask them to fix it? And how about stations and all the freight depots? Who ends up with those? There are thousands of details and millions of items and some of them (it’s reported), appeared to be moving. In other words, what exactly was sold and will the new owner be in control or is everything still at the mercy of bureaucrats?
Well, don’t ask the would-be bidders about fine details about things like this. OmniTRAX in the US and a partnership between Donau-Finanz of Austria and Transferoviar Grup in Romania both pulled out, complaining they barely had a chance to glance at the terms. Because despite the delays, the deadline was fixed.
In the end, the bidders, I’m told, had only 10 days to submit a firm offer. And they sat there and wondered, submit a bid based on what? There was almost no information. What should they do, just make a good guess?
In conversation, it’s clear that some of the participants suspect a bit of foul-play. It was impossible, I was told, to come up with a price without studying the books. Teams were ready to come, but they never had the chance. How the winner, GFR, did it when they bid 200 million euros, they don’t understand. And they suspect the final price is woefully low.
So of course, there is grumbling that somehow the winner had help. I don’t know that it needs to be necessarily true. GFR is already the second-largest mover of rail freight in the country and is trying to expand. If anyone could estimate the value of CFR Marfa, it would be GFR, it’s closest competitor.
Now, I should probably be concerned that if the GFR-CFR Marfa deal goes through, the company will control about three-quarters of all rail freight that moves through Romania. But then, that type of synergy and scale is what, presumably, allowed GFR to offer an amount and secure the financing needed, knowing it could derive efficiencies from scale. But all that’s on hold anyway, while the sale is being challenged.
And like most everything in Romania, we can argue that later. For now it was enough to toss CFR Marfa out the window and be grateful in the end there was someone to catch it. Now it’s off to the IMF to pick up our check as we all sit and watch the political sides get ready to fling insults for the train wreck that’s coming.