Hungary Freight Transportation Report Q2 2008

In November 2007, the government said a consortium made up of Rail Cargo Austria and GYSEV of Hungary had successfully tendered to buy MAV Cargo, the cargo subsidiary of MAV, the state-owned railway company. The consortium had presented a bid worth HUF102.5bn (US$582.1mn) for a 100% stake in MAV Cargo. Government officials said the bid had exceeded expectations and made it the best privatization transaction of 2007. 'The winner offered 35 times MAV cargo's 2007 net profit, versus the customary 10-15 times the annual profit' economy minister Janos Koka said. Proceeds from the sale would be used to reduce MAV's debts. Other unsuccessful bidders for MAV Cargo included a Slovakian consortium of Sped-Trans and Slavia Capital Group, which offered HUF86bn, and Cargo Central Europe, a US-UK consortium, which offered HUF57.1bn. We believe it will take some time to revive the railfreight sector in Hungary, but that mid-term prospects are good. In our newly released Hungary Freight Transport Report, BMI concludes that railfreight will grow by an average of 3.5% per annum in 2008-2012.

Our forecast is based on a number of factors. Despite Hungary's current fiscal difficulties, which will lead to low economic growth in 2008, we still see GDP rising by an annual average of 4.1% in 2008-2012.

Hungarian and European freight haulage demand will be growing, and plans for a 'Silk Road' rail freight service from China to Europe currently envisage Hungary as a gateway country. Hungary will therefore have an important opportunity to boost its strategic role and cash in on transit fees.

Growth in rail will come against the background of a reasonably healthy freight industry. As the central road-building policy is implemented, albeit at a reduced pace because of the fiscal crunch, and vehicle ownership continues to spread, road freight will see strong growth. We expect average annual growth for 2008-2012 to reach 5.4%. Boosted by the boom in budget airlines, but with restructuring in prospect as the privatisation of national flag carrier Malv has finally been concluded, airfreight will experience an average annual increase of 6.2% during 2008-2012. Inland waterway will grow at the slowest average annual rate of 2.0%. Pipeline throughput will expand by an average of 5.1%.. We now expect the total freight carried across all modes, measured in million tonne-km (mntkm), to grow by an annual average of 4.9% across the 2008-2012 forecast period. Hungary scores a freight rating of 55.8 (out of a theoretical maximum of 100). An area where it could score better is the somewhat restricted competitive environment, as state-owned companies (some of which are loss-making) still dominate the transport sector.

The total value of Hungarian transport and communications GDP will rise to US$12.9bn in nominal terms by 2012, representing 8.7% of Hungary's GDP. The transport and communications sector employed 301,100 people, or 7.7% of the labour force, in 2007. We see the number of people employed in the sector falling marginally to 297,200 by 2012, although it will remain constant in relative terms at 7.7% of the total labour force.