Montenegro’s state-owned passenger rail operator, Montenegro Rail Passenger Transport (ŽPCG), is seeking higher annual state subsidies as it recorded a 1 million euro loss in the first half of this year. The request and the company’s financial, operational and reputational risks are set out in its management report, which says the existing subsidy is insufficient to sustain passenger services and address business pressures.
ŽPCG receives six million euros a year from the state budget to provide passenger transport services of public interest. Its first-half loss widened from 683,000 euros in the same period last year, while its accumulated loss has reached 26 million euros. Unpaid taxes and contributions amounted to seven million euros at the end of last year.
Ticket sales generated 1.7 million euros in the first six months of this year. Wage costs were 2.8 million euros and other operating costs 2.6 million euros, while other income totalled 2.8 million euros, mostly from state subsidies. The figures show that ticket revenue alone was below the wage bill, before other operating costs.
Insufficient state support could jeopardise timely wage payments and the payment of taxes and contributions, exposing the company to penalties, the loss of tax benefits and possible worker strikes. ŽPCG says it tries to pay suppliers as soon as possible despite its accumulated losses, but payments are often delayed because of a shortage of funds.
Service problems threaten passenger confidence
Frequent breakdowns and delays, alongside passenger comfort that management considers unsatisfactory, feature among the risks. Low average speeds and late trains could reduce ticket income faster than expected as passengers turn to other forms of transport, even though rail fares are lower. The company offers discounts to targeted groups, including cheaper annual tickets for students and pensioners, to mitigate the risk of declining ticket revenue.
Videos posted by passengers showing extreme conditions on trains are identified as a reputational risk, especially among younger people, who use digital media most. Examples include temperatures of zero degrees without heating and 40 degrees without cooling, leaking carriage roofs and overcrowded corridors. Such posts can deter people from using the service, adding to the impact of poor reliability and comfort.
Management also lists what it describes as biased and sensationalist media coverage as a reputational risk following passenger posts about delays. “The media see the railway as an easy target for clicks,” the report says. Dramatic headlines about even minor problems, it argues, foster a perception of an unsuccessful organisation and can obscure what the company does well.
Delays risk weakening ŽPCG’s standing as a reliable partner for employees, students and school pupils who rely on trains to reach work, school or university on time. Conductors, ticket sellers and information staff face insults and frustration from passengers over late services and poor comfort. Staff are, in management’s words, “under stress, prone to speaking negatively about their own company” among friends and relatives.
Passenger dissatisfaction contributes to employees leaving and further harms the company’s reputation. A poor public image also makes it harder to recruit, particularly young engineers and information technology specialists; job competitions attract too few applicants or candidates with weaker qualifications. Negative coverage, passenger dissatisfaction and employee comments also weaken the political case for seeking increased subsidies. “Poor reputation prevents more money, and lack of money prevents service improvements,” the report says.
ŽPCG identifies competition as its main business risk because it can reduce demand for rail travel. Passengers may choose another mode according to journey conditions and duration, even when rail tickets cost less. The company’s ability to compete is therefore exposed to the service problems identified in the report, as well as to the risk of ticket income falling faster than forecast.
Liquidity, investment and operating risks
Operational risks include hidden faults, air-conditioning failures, unusable toilets and incidents caused by poor infrastructure. The company also faces a shortage of serviceable carriages, frequent staff sick leave, reduced concentration and possible human error, dispatcher mistakes and failures in the ticket-sales system. Older trains cost more to maintain, while poor track, more frequent faults and parts made to order can push maintenance spending above budget.
The management document points to inconsistent application of the Law on Salaries in the Public Sector compared with another railway company, which it links to falling work discipline and a greater risk of human error and union action. The reported difference in pay between the two companies is more than 30%; the report does not identify which company pays more or give salary amounts. All railway companies in Montenegro are under the Ministry of Transport.
ŽPCG’s economic efficiency ratio is 0.82, below the level of more than one required for regular operations. Its current liquidity ratio is 0.01, compared with a benchmark of one, meaning cash can cover 1% of its obligations. The current ratio is 0.69, below the minimum of one, while the indebtedness factor is minus 0.75 against a stated range of two to six. Without a capital increase, the company cannot cover all its obligations.
Investment timing creates another risk: new trains can lose value if rolling stock is bought long before the railway line is renewed. The report gives the example of a modern train bought five years before track renewal. If poor track limits it to 40 kilometres per hour during that period, its warranty runs down while its high-technology equipment depreciates.
ŽPCG can obtain loans from international euro funds for investment only with the approval and guarantee of the Government of Montenegro. The company is required to maintain a risk register and says it updates it regularly, assessing financial and operational effects on its reputation, likely results and the ranking of identified risks. Its management warns that inadequate subsidies could also put wages and statutory payments at risk, while delays and low speeds could send passengers to alternative transport and reduce ticket income.
