HAC is facing restructuring and long-term business stabilization

The Minister of the Sea, Transport and Infrastructure, Oleg Butković, has taken measures to review the operations and indebtedness of the largest highway operator, Hrvatske autoceste d.o.o. (HAC), in order to initiate the refinancing process of existing debts that cannot be repaid from regular operations as soon as possible.

The aim is to achieve long-term business stabilization in a self-sustainable manner, rather than through the sale or monetization of Croatian highways over a longer period, emphasized Butković. As part of the upcoming activities, the issue of restructuring this road company in the most qualitative long-term manner is also being considered, he noted.

This year, HAC has 466 million euros due for repayment of credit debts, and it has secured funds to cover credit obligations maturing until April 2016, of which a total of 115 million euros is for interest. Therefore, one of his biggest challenges is refinancing HAC’s debts and restructuring the company to pull it out of the circle of very expensive operations that are not self-sustainable.

– Unfortunately, we are currently forced to focus on reports about HAC’s operations in the domain of credit relations and finding funds for their repayment. Our goal is solely to reprogram existing credit obligations in agreement with the World Bank, as this is a real need, which will certainly ensure space for all further necessary steps in stabilizing highway operations, stated Butković.

In addition, at the very beginning of the year, HAC needs to secure an additional 9 million euros to cover the costs of fees and interest for loans that are yet to be contracted for refinancing existing credit obligations. Furthermore, it is necessary to contract an additional 390 million euros for refinancing the repayment of principal loans maturing from April to December 2016, which is why the current Management Board of the company announced a public tender in December 2015 for the procurement of a loan of 200 million euros. The remaining funds needed for refinancing the debts amounting to 190 million euros should be contracted by October this year, and this amount should be fully paid for the repayment of principal loans in the last quarter.

The Rijeka – Zagreb Highway (ARZ) is also burdened with debts, which in 2016 will have principal and interest payments amounting to 93.8 million euros, with 8.2 million euros due just for January, while funds for repayment are secured for the first quarter, with the remainder planned to be covered by new borrowing.

– The primary goal is certainly the financial consolidation of the company through the refinancing of debts to create preconditions for stabilizing operations. After that, and probably simultaneously, the process of restructuring HAC will follow through transformation into a business model that will guarantee balanced operations, orderly loan repayments, and most importantly, financial self-sustainability based on its own operations. Whether this restructuring will mean that all separated activities that were turned into independent subsidiaries through an unsuccessful attempt at monetization will return to the company’s portfolio or some other model, we will know soon as we are working diligently on realizing these goals, said Butković.

He reminded that HAC-ONC recently went through a restructuring process for monetization, but that project could not be implemented as it was not prepared or aligned with the legislative framework of Croatia. Namely, the collection and maintenance sectors of HAC were separated in early 2013 into a new joint company HAC-ONC to achieve greater efficiency and savings, which, he says, unfortunately turned out to be an unsuccessful and quite costly move.
 Butković also reiterated that the introduction of vignettes is possible, emphasizing that, in addition to restructuring public road companies, the goal is to rationalize the toll collection system in terms of efficiency.

– Whether this will be realized through a contactless payment system (video surveillance), vignettes, or global satellite positioning systems (GPS), we will know upon completion of the first preliminary analyses, said Butković.

High expectations for railways

Butković sees the solution for improving rail traffic, which has recorded a constant decline in the number of passengers and kilometers traveled in recent years, in adjusting the timetable to the actual needs of passengers, introducing modern marketing and online systems for selling transport tickets, and in the modernization, reconstruction, and electrification of existing railway infrastructure. In the area of infrastructure railway projects, priority will, as he states, be given to the construction of strategic infrastructure facilities whose co-financing is largely expected from EU funds, namely those projects for which HŽ Infrastruktura already has secured European funds, as well as all future projects that can be realized through co-financing from EU funds. In this category are the section Dugo Selo – Križevci, worth 200 million euros, then Križevci – Koprivnica – state border, valued at 300 million euros, and the already commenced construction of the section Gradec-Sveti Ivan Žabno. HŽ Infrastruktura has also prepared documentation for the project of renewing the section Zagreb Glavni kolodvor – Savski Marof, which is financed from national funds and World Bank loans. The project for the modernization and electrification of the section Zaprešić – Zabok, valued at 82.3 million euros, is also in preparation, as well as project documentation for the section Vinkovci- Vukovar, Hrvatski Leskovac – Karlovac, and Dugo Selo – Novska. A detailed analysis of the assets and obligations of individual companies will precede the decision on the potential privatization of railway companies, emphasizes Butković.

Privatization of CA after business stabilization

In his opinion, before the privatization of Croatia Airlines, it is necessary to stabilize its operations, which can only be achieved by strengthening competitive advantages and positions in the air transport market.

– If the stabilization of Croatia Airlines is only possible through quality strategic partnership or privatization, I believe that the primary goal or precondition of that process must be bringing in a quality strategic partner, he said.

The strategic partner, he believes, should have significant experience in civil aviation and ensure further expansion of the traffic network and increase market share. At the same time, he notes, it must take into account the importance of regular and year-round connections in both domestic and international air traffic, i.e., support the development of Croatia’s tourism potential, as well as participate in recapitalization, along with the mandatory renewal of the aircraft fleet.

Priority in road construction: Pelješac Bridge

As the most important investment projects in road infrastructure, Butković highlighted those for which funds have been secured and those that are already in implementation. First of all, these are the Pelješac Bridge with connecting roads and the new section D414 with the bypass of Ston, with a total value of around 380 million euros, the new state road D403 from the Škurinje junction to the port of Rijeka worth around 65 million euros, the interstate bridge over the Sava River near Gradiška with a connecting road to the Okučani junction of about 64 million euros, the bypass of Opatija and Lovran worth around 65 million euros, and the road Dubrovnik-airport-border of Montenegro. He also mentions road safety projects, the new multimodal platform of the Split agglomeration Solin-Stobreč-Dugi rat-Omiš worth around 295 million euros, and Veli Vrh – Pula-airport of about 30 million euros. Butković emphasized that the budget of his ministry is relatively well balanced and that there is no room for any significant savings or cuts.