Could the BKV really stop running?
Over the past few months Budapest Mayor István Tarlós and others have made increasingly dire warnings about the financial condition of BKV Zrt, the public transit operator that serves the Hungarian capital. Yet despite these warnings, many residents - especially foreigners - seem unconvinced of the severity of the problem. If so, they are wrong, as a looming cash crunch and political wrangling make it eminently plausible that as early as next month the city's metro and bus network could grind to a halt.
Long-term plans, short-term crisis
This Monday, Mayor Tarlós sent a package of proposals to Prime Minister Viktor Orbán aimed at a long-term solution for the BKV's problems. Tarlós's proposals were heavy on new taxes and revenue and enhancements to the system, including the introduction of a new "transportation" tax on companies, a congestion charge levied on those who drive in the center of the city, the building of "park and ride" facilities, and various plans to create efficiencies via outsourcing and folding the BKV into a single, state-run firm along with the national railway MÁV and intercity bus operator Volán.
The proposals from Tarlós were in response to a decision last month by the national government to allocate Ft 32 billion (roughly €100 million) in subsidies for the BKV in 2012, provided that a plan for the long-term sustainability of the company was drawn up - and that the company's losses were less than this amount.
But Orbán and his cabinet have been cool to Tarlós's pleas, with the PM saying that transport costs in the country's richest region should not be subsidized by those in poorer and less dynamic regions.
According to the non-governmental Urban and Suburban Transit Association (VEKE), the government is holding back the funds because BKV's public contract will run out in April, when a whole new financing plan will have to be put in place in line with EU rules, which require Budapest and the state to cover all of the losses of public transit operators to the last forint. This, in turn, would mean the government will have to lay aside HUF 70 billion a year for BKV for the next 8 years; according to an estimate by the Budapest Transportation Center (BKIK), which coordinates all public transit in the capital, the BKV's operating costs will be about HUF 139 billion in 1012, while it only expects to raise HUF 50 billion from ticket sales.
There is also the complication of a reportedly tense personal relationship between Orbán and Tarlós.
On Wednesday, the BKV said it had implemented a series of measures that it hopes will save the company about HUF 5 billion in annual expenses. These include a streamlined bus operation model and the signing of new contracts to cuts costs on telecommunication, insurance, cleaning, management wages and to boost ad revenues.
That same day, an extraordinary session of the city’s municipal council was scheduled to take place for a vote on a HUF 9 billion emergency loan by the city to the BKV, as well as a plan by Tarlós to divert 15% of the budget of Budapest public institutions to a rescue of the BKV. But the session was canceled at the last moment at the request of the Fidesz-Christian Democrat caucus - the local grouping of the coalition that currently governs at the national level - which has also been vocal in rejecting any hikes in fares or cutting of services to help keep the BKV solvent.
Cash crunch
On Tuesday, portal Index.hu published a detailed look at the looming cash crunch at the BKV, which underscored the critical nature of the situation.
The next hurdle faced by the company is a January 27 deadline for the renewal of an HUF 8.9 billion loan by MKB Bank, which the bank has said it will call in unless repayment is guaranteed by the state - a guaranteed Index says is not forthcoming. Then in February another HUF 16 billion in loans will mature, which Tarlós says Budapest can pay back only if the government releases the HUF 32 billion pledged in December - and provides another HUF 21 billion, or a state guarantee. If the company cannot pay back the loans by mid-February, its banks will likely freeze its access to 18 credit lines worth a total HUF 62 billion.
According to Index, the BKV won’t have enough cash on hand to pay wages for February, which would probably lead to strike and instant collapse. But even if its employees agree to work without pay, the company’s fuel reserves are only enough to last it for one to three days, while electric power for the system would likely be shut down in 30 days after it halts payment to suppliers.
The company could earn some time by filing for bankruptcy protection, or by asking the government to officially declare it a "strategic company," but such measures are seen as offering little help in the short-term, as it still wouldn't be able to pay wages or buy fuel or spare parts. And even the contingency operating plans the company has reportedly drawn up for a bankruptcy - which would likely begin with shutting down the network at night - are not seen as able to offer dramatic savings.
On Friday afternoon, a small ray of light appeared when Budapest took out a HUF 16 billion credit line for BKV from OTP Bank that will mature at the end of this year. But part of this will go toward repaying a HUF 9 billion loan due at the end of this month, and it won't come close to covering the HUF 45 billion in loans coming due in the first three months of 2012.
So the situation is, if not hopeless, then very, very dire. And anyone who relies on the BKV regular transport should make their own contingency plans for at least a temporary halt in operations, or a significant cut in service. Unfortunately, the options for many residents aren't great; Index.hu polled its readers on what form of alternate transport they would use if the BKV couldn't get them around town and the top result was "bicycle," something that might be a fun temporary diversion in summer, but hardly one in the dead of a Central European winter.
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