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At the plenary session held on 14 November 2013, the MP of the United National Movement Zurab Melikishvili stated: “The bad state of affairs in the economy is spreading into other fields. The net profit of the railway, for instance, dropped by 40%. Fitch Ratings

already wrote about this matter and negatively described the perspectives of the Georgian Railway. The decrease of any percentage in the rating requires the specific [correctional] work of a couple of years.”

FactCheck

inquired about the accuracy of the statement.

On 5 November of the current year, the informational-analytical portal Georgian Business and Political Insight (BPI) published financial data of the Georgian Railway. In line with the published statistics, the company received GEL 41.85 million of net profit in the first six months of 2013. This figure is behind the same indicator of 2012 by 41%.

In the first half of the current year, revenues of the Georgian Railway totalled GEL 214.91 million which is 4.53% less than in the last year. Of these revenues, 77% (GEL 165.77 million) are accrued through cargo transportation exceeding the accruements of 2012 by 1%. Funds collected through the leasing of carriages comprised 6.97% (GEL 14.99 million) of total revenues, constituting a decrease of 40.62% in comparison to the figures of the last year. Transportation of passengers brought in GEL 7 million into the income of the Georgian Railway showing a 6.53% decrease relative to the indicators of 2012. (Source: bpi.ge) FactCheck

also verified the data provided by BPI with the Georgian Railway whose representatives confirmed its accuracy.

On 5 November Fitch Ratings published the credit ratings of the Georgian Railway. Fitch left the rating of the Georgian Railway unchanged (as commensurate with a 'BB’ rating) in the long run, however, has revised the Outlook which contains a forecast for 9-15 months. The agency shifted the perspectives for the Georgian Railway from Stable to Negative

to reflect the dwindled volume of freight transportation, decreased profits and the state’s weakened support for the company. The agency experts contemplate a risk for the Tbilisi Bypass Project to remain unfinished and view the state support as the only means of improving negative tendencies of the Georgian Railway.

The Georgian Railway released its position regarding the evaluations of the international rating agency. The press release reads that the negative forecast of Fitch Ratings

is prompted by a decrease in the volume of freight transportation (as compared to the last year; in the first half of 2013 cargo transportation dropped by 11.1%) which was primarily caused by a reduction of Tengiz-Chevron Oil (Kazakhstan) in the transportation corridor (which returned with increased volume in the third quarter) and by the closing of the bauxite plant in Baku.

The Georgian Railway names another reason for the reduced profits of the company by pointing out the 30% increase of the wage fund in 2013 which totalled GEL 30 million and increased the general expenses of the company.

The Georgian Railway hopes that the situation will show significant improvements in the future basing hopes on the indices of the third quarter which showed an increase of 10.4% in the average monthly freight turnover, as compared to the same indicator of the second quarter, while the indices for October demonstrated an increase of 20.1%. The operating profit (EBIDTA) jumped by 65% in the third quarter relative to the profits witnessed in the second quarter. In the third quarter the margin of profitability (EBIDTA Margin) saw an upturn as well and reached 54% while the same indicator in the second quarter was only at 41% and at 50.7% in the third quarter of 2012.

Conclusion Our query about the accuracy of Zurab Melikishvili’s statement revealed that the net profit of the Georgian Railway amounted to GEL 41.85 million in the first six months of 2013 which falls behind the same indicators of the last year by 41%. The international agency Fitch Ratings changed the long-term perspective of the Georgian Railway from Stable to Negative. The Georgian Railway commented on the negative forecast of Fitch Ratings

and clarified the causing factors. The company views the described situation as only temporary and predicts notable improvements in the nearest future, basing the predictions on the tendencies of growth observed in the third quarter.

The data analysed in the article confirms that Zurab Melikishvili correctly indicates the facts and logically correlates the problems of the Georgian Railway to the rough situation in the state economy. Nonetheless, it is to be noted that the downturn of the state economy could be only one of the reasons for the reduced profits of the Georgian Railway along with other factors such as the reduction of international freight transportation and a 30% increase of the wage fund. Considering the aforementioned circumstances, we conclude that Zurab Melikishvili’s statement: “The bad state of affairs in the economy is spreading into other fields. The net profit of the railway, for instance, dropped by 40%. Fitch Ratings already wrote about this matter and negatively described the perspectives of the Georgian Railway,” is MOSTLY TRUE.