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Will the €4bn Belgrade-Budapest rail upgrade be a benefit or burden?

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The route of the Budapest-Belgrade rail link
The route of the Budapest-Belgrade rail link   -   Copyright  Euronews
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At the sleepy, rural station of Szbadaszallas, 80 km south of the Hungarian capital, half a dozen passengers alight from the 07.57 train from Budapest Keleti.

After a stop of less than a minute, the train leaves on time, heading for Kelebia, the border station with Serbia, roughly the same distance again to the south.

The train is clean but rather empty, with perhaps 15% of the seats taken. Despite the electric locomotive at the front, it is no express: passengers from Budapest to the border will enjoy views of the Hungarian plain – the line is entirely rural - for nearly 3 ¼ hours for the 163 km journey.

This translates to an average speed of just 56 kph, limited primarily to the state of the single track and frequency of wayside stops, necessary largely to allow trains to pass.

But this 19th century, steam-like schedule is set to change dramatically within a few years.

With Chinese (and some Russian) loans, Hungary and Serbia have agreed to modernise and upgrade their respective sections of the 350-km Budapest-Belgrade rail link at a total cost of some €4 billion, split between the two countries.

By installing double track throughout, modern signalling and an expected line speed of 160 kph on the Hungarian side (200 kph in Serbia) international expresses will whizz between the two capitals in four hours – half the previous journey time - according to the Hungarians or even “less than three hours” according to the Serbs.

Whatever the ultimate schedule, it will clearly make the rail journey more competitive compared to the (legal) best by motorway.

But while these headline figures allow politicians to inspire voters, passenger traffic potential between the two capitals is limited. Even when fully open (part of the Serbian section is currently closed for rebuilding) only three passenger trains a day plied the entire route.

A clue to the more plausible reason for this massive investment lies in the intermodal freight train sitting in Szabadszallas station: all its containers are Chinese owned.

The economic argument for the project – a major plank in Beijing's “One Belt – One Road” Asia-Europe infrastructure project – is to provide a fast and efficient rail link for freight from the Chinese-owned port of Pireaus, in Greece, to Budapest and onwards to western Europe.

Budapest will become a “logistics hub” for the region when the project is completed, the government says.

Lack of transparency

The Hungarian section currently sees an average of 47 freight trains per day, which along with passenger services, mean the line is at full capacity, Kinai-Magyar Vasuti Non-profit Co, the joint Chinese-Hungarian firm set up to oversee the project, told Euronews.

However, it admits that only an average of seven freights currently cross the border per day.

The Serbian section, prior to closure of its southern end for rebuilding in 2019, was busier, with some 115 passenger and 85 freight trains daily, according to Serbia Railways Infrastructure, the company charged with managing the rebuilding project.

But the condition of the track makes it even slower than the Hungarian section, with large sections restricted to a 40 kph maximum speed.

Since it serves Subotica (population 105,000) near the Hungarian border, and Novi Sad (population 280,000), just 77 km from Belgrade, these cities will clearly benefit from vastly improved rail links to their capital.

Serbia, which has used both Chinese and Russian loans to finance the bulk of the investment, has a target date of mid-2024 for finishing the northern phase of their project.

But while the arguments for at least some modernisation of the lines in both countries sound reasonable, neither the Budapest nor Belgrade authorities have released details of expected traffic levels after the project, nor any hard figures available to prove the business cases for these lavish rebuilds at such vast expenditures.

The transparency in Hungary is not helped by the government, using the emergency powers granted to itself as a result of the coronavirus pandemic, declaring the project a state secret in April.

Thus, after answering a few questions about the current route, the project company failed to respond to follow-up enquiries regarding future traffic projections and payback scenarios - projections which, given businesses rethinking their reliance on long supply chains in the wake of the coronavirus pandemic, should be subject to revision.

'From nowhere to nowhere'

Hungarian opposition parties have denounced the entire project, saying it is a giant, overpriced operation designed to cream off state money.

Without effective rail connections from Belgrade to Greece, “this railway will go from nowhere to nowhere,” says Laszlo Varju, an MP for the centre-left Democratic Coalition party.

“Traditional cost-benefit calculations do not work in this case,” Viktor Friedmann, a China specialist at Budapest Metropolitan University, told Euronews, arguing that for both countries the project is embedded in broader, geo-political strategies for influence in the region.

For Hungary, it also serves the Orban government's “system of political capitalism”, which aims at channelling state money to oligarchs and businesses that are formally private but are in fact fully dependent on Orban and his Fidesz party, he said.

Hungary signed up for a 10-year loan of €1.85 billion with China's Exim Bank last April to pay for the majority of the construction costs. (The Hungarian state will cough up 15% of the total outlay.) The loan carries a fixed interest rate of 2.5%.

But with the Hungarian section now scheduled to be completed only in 2025, it will likely take at least a decade to reveal whether the investment – or gamble - is set to be a benefit or burden for future Hungarian taxpayers.

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