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The only meaningful solution – capping of energy prices

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The only meaningful solution – capping of energy prices

In mid-September 2022, the largest European railway technology fair - InnoTrans 2022 - was held again in Berlin after four years. After a break forced by the corona crisis, professionals from the transport industry had the opportunity to meet to establish new contacts, exchange experiences and get to know the latest technologies in the industry. Traditionally, ZSSK CARGO could not be missing here. On this occasion, we spoke with Roman Gono, the CEO  of ZSSK CARGO, about the exhibition itself and the current situation in the company.

What is your impression of this year's InnoTrans?

My first impression was that the corona crisis "did its work" here as well. In the first days, it was felt that fewer people were coming. Moreover, several exhibitors are not here. For ZSSK CARGO, however, it is necessary to be here and be visible. InnoTrans is a very important and inspiring fair from the point of view of maintenance, components, wagons, railway vehicles and new technologies. A space has been created here so that we can meet our business partners and exchange experiences with partner companies, for example, with representatives of ČD Cargo.

How do you assess the current situation in the transport field and the next period ahead?

We are entering a very difficult time. Electricity prices have gone crazy, increases in all inputs and inflation are causing our core costs to skyrocket, and we are faced with an unanswered question of how the whole situation will play out. Its solution will be key to our results next year. My expectations are that the Slovak Republic, also following the example of the Czech Republic, will adopt some solutions to capping electricity prices because the current exchange prices are completely liquidating. If we were to start from the price that is currently on the spot market, we would pay for diesel, electricity and other forced inputs in 2023 by almost 100 million euros more than this year, which basically represents 50% of our annual two hundred million sales. This would mean a dramatic increase in transport prices. And that is unbearable: the market and our customers would not accept such prices.

Is electricity price development essential for your operation?

What is really key for us in the near term is what the price of electricity will "do" and how we will deal with it. We can neither absorb these increases nor pass them on to customers who would probably terminate their contracts with us due to a 50 to 100 percent increase. The question is, what's next? Will there be a pan-European solution, or will each country develop its own? However, time is playing against us.

Therefore, in a very short time, it is necessary to find a solution so that rail freight transport can maintain at least the position it has now because with the dramatically higher future realisation prices, the exact opposite of what we really need will happen - for the goods to be transferred to the railway. Diesel has become more expensive, but compared to electricity, it is a considerable disproportion. If the price of electricity were reflected in the same increase in the price of diesel, a litre of diesel would have to cost 20 euros. And no one would buy that.

What impact do energy prices have on ZSSK CARGO's key customers?

Those who are supposed to pay the current market price of electricity already today, companies such as Slovalco, Fortischem, OFZ and other important players and at the same time our customers, are stopping production because they would be producing at a huge loss. For us, of course, this results in a decrease of hundreds of thousands of tons, which we will miss in transportation. And this will be reflected in the missing millions in sales. There will be nothing to replace them because these wagons of raw materials and finished products will be completely lost. I'm afraid we will "out" ourselves. If, for example, we stop producing aluminium because it does not make sense to produce it at a loss, then it will start to be imported to a greater extent from Asia. This can have a negative consequence for the entire European Union, which I am not sure if everyone is well aware of.

What is the current situation with electricity in Europe, and what would be its ideal solution?

A wait-and-see tactic prevails in energy in Europe, and each country "deals with it in its own way". An example is the Czech Republic, where the price was "capped" at 200 euros, which also applies to the price of traction energy and infrastructure. This is a big advantage for them because they know how to calculate the maximum prices they will go to the market with and can translate this into economic data and price increases. Unfortunately, we are behind in this. Discussions are going on here, in which we are not a participant, even though we prepared documents for them. We are not participants because we do not buy energy ourselves: ŽSR does so as the infrastructure manager. They have their representation there. I don't know what price levels we are "talking about", but if it were about 200 euros, it is somehow an acceptable price increase, and we would be able to operate in this way. The question is when such a solution will come because in October we have an annual meeting with our customers to present how it will look in the coming year. We are currently in a situation where we do not know "how much we will drive for". Everyone works with some margin, and the margins in transport are very low. Production shutdowns and high transport prices can have a domino effect.

But the government solves energy issues, at least for households...

A lot of attention is paid to energy and heat for households, but my question is: "What is the households’ energy good for if families have no money to pay for it because a closed factory has put people out of work?"

All our customers - from steel mills to the chemical industry - depend on energy; we are all in the same boat. The only meaningful solution seems to be to cap electricity prices to a certain level for companies so we can continue to operate.

What prevents the development of the transport segment with the greatest potential, intermodal transport, in Slovakia?

Our intention was to significantly develop intermodal transport and transport the largest possible volumes of goods in containers. However, real transport flows bypass Slovakia. The price of a transport route abroad is guaranteed for several years ahead. In Austria, the resulting shipping price is much lower. In Slovakia, it is rather said that "what does the railway want?" - "It has a discount, after all". But even after the discount, this price will only come close to what it is like abroad. The problem is also that every year we do not know for sure how long the discounted price will be valid: it depends on the volume of transported goods. And paradoxically, the larger the transport volume, the sooner the amount allocated for the discount, the 22.5 million euros, will be used up.

How can Slovakia's position on the European transport map be highlighted?

If we want the goods to go through Slovakia, the transport prices must be lower than in the surrounding countries. At the last meeting, the General Director of Ukrainian Railways spoke about how they are strengthening transport to Poland, Hungary, and Moldova and what new routes and corridors they are building to enhance the connection to these countries. There is a huge opportunity here because the war will end one day; we believe that as soon as possible. And just as commodity flows reversed after World War II and raw materials began to flow from east to west, they will now apparently go in the opposite direction. If Slovakia is not ready and does not have a high-quality infrastructure that can be driven on, then the most important transport corridors will bypass us, which is very bad. Just like costs, people also want to move faster, better and safer: In this way, without sufficient infrastructure, the current trend, when people prefer to move by individual transport, will deepen. Moreover, with poor mobility, young people who go abroad, even if only to the Czech Republic to study, do not want to return. We lack a vision so that residents want to live here, want to develop, want to have children and for the country as a whole to progress.

We can buy the latest locomotives, but they reach speeds that we don't even use. We have to start here. The country must decide what its priority is. For many years, we have only been building highways, even that very cumbersomely. Here we have to determine what the national interests and state priorities are. We are a mountainous country, and when we want to transport through the key northern route, we need more time to do it and to double the locomotives. Here, I would expect that if the state knows what a mountainous country it has, it will increase the support to negate the geographical disadvantage.

Why is rail freight transport so important for a rail infrastructure manager?

Even after the discount, ZSSK CARGO will pay the infrastructure manager 15 to 18 million euros - depending on how much cargo we transport. It is freight transport that really brings money to the railway infrastructure. In other words, the more freight on the railway, the more money for the infrastructure manager, who can thus better modernise it. But to modernize in such a way that freight transport is not forgotten during the reconstruction of the corridors. We need sidings to allow faster and more prioritised passenger traffic in front of our trains. And we need them longer to run longer and therefore more cost-effective trains. We need side tracks and sidings so that our customers have somewhere to load and unload.

I would also like to point out a fact that puts the railway at a disadvantage in the competitive battle with the road: on the railway, we pay for every single kilometre we travel on the rails. And that is the fundamental difference from the competition on the road. If the truck does not want to pay the toll, it exits the tolled section and does not pay – the driver knows how to bypass it. Well, we can't bypass that rail. It is rumoured that a change in the transport route discount scheme is in the making. We'll see if that happens and what it brings.

The dominant theme of Innotrans was alternative drives - batteries and hydrogen. What is your view on the applicability of these drives in Slovakia?

Hydrogen is an interesting alternative. We took part in meetings where the prototype of the driving vehicle was discussed. But even here, a system solution is necessary - filling stations must be available. I can imagine that we can make available a closed circuit of broad gauge rail, where no passenger traffic goes and it could be tested there. But it should be done quickly.

The whole world is dealing with electromobility, battery drives. However, batteries are heavy and a huge load is transferred to the axles. Therefore, it is questionable whether the infrastructure in Slovakia is set up for this. If the locomotive is several tons heavier, the passability over bridges and the like will be a problem in Slovakia.

There is no point in inventing the wheel, you have to go where the world is going. A few years ago, many people and manufacturers rejected electric cars, and the situation changed quickly. You have to be prepared, because we don't want to, figuratively speaking, miss this train of innovations.

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