Greek future as trade hub in limbo amid Syriza split on railways

As dusk falls on the plains outside the northern Greek city of Thessaloniki, Georgios Plaitakis opens up the throttle of his diesel-powered passenger train and settles in for the nine-hour journey east to the frontier.

“All this is for the junkyard,” says the 31-year veteran of Trainose SA, Greece’s railway company, waving his hand dismissively around the 1980s locomotive he’s driving to the border with Bulgaria and Turkey. “It’s easier with electricity — it’s faster, it’s more economic and it’s safer.”

Greece is catching up with the rest of Europe when it comes to trains, building an electric, high-speed railway corridor with the help of European Union development funds. The work is part of a longstanding goal to become a major trade gateway for goods arriving in the eastern Mediterranean by ship from Asia, an ambition that has sparked interest in transport assets from would-be investors that include Russia and China.

That strategy may fall victim to an ideological split within the new government of Prime Minister Alexis Tsipras as it pushes to scale back the market-opening conditions tied to Greece’s 240 billion-euro ($262 billion) international bailout.

Even as Greece bleeds cash amid a deadlock with creditors, factions of Tsipras’s party Syriza, an acronym for Coalition of the Radical Left, refuse to offload state-owned infrastructure. Trainose and the seaports of Piraeus and Thessaloniki are among the assets in limbo as their sale has been placed under review.

“We would be very concerned by any delays in improving Greece’s transport services,” said Nikos Rodopoulos, president of the Athens-based Greek Logistics Association, which promotes the industry’s development. “Transport offers the country an immediate chance to generate revenue and a strategic chance to bolster economic growth. This opportunity mustn’t be missed.”

Greece, which joined the EU 34 years ago as its 10th and easternmost member, didn’t share a land border with another EU country until Bulgaria acceded in 2007. With Greece now struggling to stay in the euro after a six-year recession that pushed unemployment above 25 percent, its railway system is a symbol of both its dependence on and detachment from the rest of the EU.

From a budget devoted mainly to rural aid and regional development, the EU is providing more than half the 3.3 billion euros earmarked since 2000 for Greece’s electrified-corridor project. Yet the country, which has received tens of billions of euros in subsidies since joining the now 28-nation bloc, remains largely an island when it comes to electric-rail connections.

Just 17 percent of its 2,500 kilometers (1,550 miles) of operational lines are electrified, according to the European Commission (PDF). The EU average is 54 percent, buoyed by rates such as 86 percent in Belgium. Even Bulgaria, the EU’s poorest member in terms of economic output per head, boasts 70 percent.

As well as enabling faster speeds of 200 kilometers an hour and higher, electric trains are more efficient, spew fewer pollutants and are quieter than diesel engines. They also feature more centralized controls, enhancing safety.

A glimpse of what the future might hold can be seen on the border with the Former Yugoslav Republic of Macedonia. In the secluded Greek village of Idomeni, 80 kilometers northwest of Thessaloniki, an electrified line runs across the frontier toward Macedonia’s capital, Skopje, 165 kilometers away.

The route, which is fully electrified to Thessaloniki, was the first of its kind in Greece when it was completed in 2003. The city’s port, No. 2 after Piraeus, takes advantage of the connection and the proximity of other Balkan markets by sending goods daily to Skopje.

Even here, where new tracks, stations and signaling works are taking shape as part of a 35 million-euro upgrade, the services don’t yet match the political ambitions or the market demand. While sleek tunnels await high-speed lines to be laid over ankle-twisting gravel and heavy tracks are stacked alongside parts of the route, the sleepy station at Idomeni has more stray dogs than people. Train times are scribbled in chalk on an outdoor blackboard.

Back down the line in Thessaloniki, the harbor relies on rail for 20 percent of non-containerized cargo and just 1 percent of its containerized freight, according to Dimitrios Makris, head of strategic planning at Thessaloniki Port Authority SA. While the port could boost those numbers to 50 percent and 20 percent, respectively, Trainose doesn’t offer the services to make this possible.

“Rail operations can’t cover the market demand,” Makris said in his office situated on a pier along the bay of Thessaloniki. “This is a real challenge.”

Athens-based Trainose, a monopoly in Greece, declined to comment on its business. The company posted a profit of 1.95 million euros in 2013 compared with 272,892 euros in 2012.

The previous government of Antonis Samaras, leader of the pro-business New Democracy party, placed Trainose and the ports of Piraeus and Thessaloniki high on its list of planned sales. Samaras, forced out of office in snap elections on Jan. 25, vowed to give foreign investors “red-carpet” treatment.

This fueled Russian ambitions to follow China’s 2009 entry into the market. Bidders for Trainose and Thessaloniki port include OAO Russian Railways, whose chief, Vladimir Yakunin, is a longtime ally of President Vladimir Putin.

“Yakunin has been keen to get into something in central and southern Europe as part of a grand transport strategy,” said Elias Clis, who was Greek ambassador to Russia from 2005 until 2009. “As with China, an investment in Greece would reflect a complex but definitely economic Russian objective and would be looked on favorably by Greeks.”

No known assessments exist of the value of Trainose because it isn’t publicly traded and the bidding process for assets is secret. After a four-month selloff in the Greek stock market, Thessaloniki port is valued at about 170 million euros and Piraeus Port Authority SA at about 275 million euros based on share prices.

Experience suggests asset prices are driven down by political instability. The highest bid for Athens’s old Hellenikon airport— a coastal plot of land twice the size of New York’s Central Park that is Europe’s largest unused tract of urban real estate — was 915 million euros last year. Investor doubts have grown since then over Greece’s future in the euro amid Syriza’s standoff with creditors.

The question marks over privatization extend to a bid by China’s Cosco Pacific Ltd., which operates a pier at Piraeus, for a majority stake in the port authority there.

“Greece is not dogmatic on privatizations and will assess them on a case-by-case basis,” Yanis Varoufakis, the nation’s outspoken finance minister, said on Greek TV earlier this month.

George Stathakis, economy minister in charge of any port and rail sales, and Thodoris Dritsas, alternate minister responsible for shipping, declined to comment on the government’s intentions. Nobody at the Hellenic Republic Asset Development Fund, which has managed Greece’s privatization program, was available to comment.

Grigory Levchenko, a Russian Railways spokesman, said on March 4 that “we continue to analyze projects and to prepare proposals” to acquire Trainose and Thessaloniki port.

Piraeus, which has become the ninth-biggest container port in the EU since Cosco’s arrival, is counting on electrification of the whole Athens-Thessaloniki rail route to bolster cargo- train shipping of goods to other European markets.

Cosco’s Greek unit has attracted four multinational clients that use rail-freight services to move goods to central Europe from Piraeus, the first major European container port for ships entering the Mediterranean Sea through the Suez Canal.

The only part of the Athens-Thessaloniki route yet to be electrified is a 106-kilometer stretch in central Greece between the towns of Tithorea and Domokos.

That work — much of it in mountainous terrain — is due to end in 2017, when journey times between Greece’s two biggest cities will be cut to three hours and 20 minutes from almost five-and-a-half hours.

This section has 46 bridges and 15 tunnels, one of which stretches for 9.2 kilometers. That’s the longest tunnel in the Balkans, according to Fotis Papanikolaou, a construction engineer with Erga Ose SA, the unit of Hellenic Railways Organization SA responsible for investment projects.

The bridges and tunnels are all being built to withstand earthquakes as high as 7.5 on the Richter scale, he said.

“It’s relatively complex work because of the topography,” Papanikolaou said as he maneuvered his Jeep to where an 80- meter-high, 450-meter-long bridge is being built right on a seismic fault line, at a cost of 70 million euros.

Electrifying the whole Athens-Thessaloniki route has a price tag of about 2 billion euros, according to Erga Ose. The cost rises to 3.3 billion euros when the Thessaloniki-Idomeni upgrade and a planned electrified rail link from Athens to the western Greek port city of Patras are included, Erga Ose said.

With the two-month-old Syriza government preoccupied by its cash crisis and divided on asset sales, the broader goal of establishing a trade hub risks being put on hold.

“There is a certain level of uncertainty about anything the government wants to do due to the fact that Syriza is not one party but has different factions,” said Aristotelis Tziampiris, an associate professor at the University of Piraeus’s School of Economics, Business & International Studies.

In any case, there are no concrete plans for electrified lines from Thessaloniki to the frontiers with Bulgaria and Turkey. That means Trainose driver Plaitakis won’t have to abandon diesel anytime soon.

“We know this route rock by rock,” Plaitakis says as his graffiti-covered train pulls into the first stop on the circuitous 600-kilometer journey to the village of Dikaia in Greece’s northeastern corner. “We know it stone by stone.”

[Bloomberg]