Transport and Infrastructure: Reform at a Crossroads?

February 3, 2012


During the panel session, moderator Kirill Androsov outlined three main themes – the development of rail infrastructure, rolling stock operations and locomotive market liberalization.

Rail infrastructure

Vadim Mikhailov noted the issue of rapid growth in rail freight traffic, which will increase to 1.7 bn tonnes by 2015, compared with 1.4 bn tonnes in 2011. The main growth will occur in the direction of the Far East, with traffic planned to increase 47% by 2015 compared with 2010. Given such significant growth, the total length of railway network bottlenecks may increase by 7,200 km to 13,300 km by 2015, he believes. Mr Mikhailov argues that the Russian government understands the scale of the problem and is actively seeking a solution. For instance, the recently signed agreement between Russian Railways and the largest cargo shippers suggests that the companies guarantee to provide declared cargo volumes, while Russian Railways promises timely delivery to customers. He also stressed that the amount of non-delivered goods would reach 230 mn tonnes by 2015, if no actions to solve the cargo problem were taken. In 2012, Russian Railways’ investment program will increase to R428 bn, of which R173.8 bn will be spent to remove infrastructure bottlenecks. Despite a number of non-profitable infrastructure projects, the state must invest in them, as they will lead to increased cargo turnover, higher corporate profits and, accordingly, better tax collection.

Victor Olerskiy talked about the major infrastructure projects to be implemented at ports in the coming years.

North-Western basin. This involves the construction of railway approaches to the port of Ust-Luga, which will basically be completed in 2015. By that time, the port’s throughput will exceed 100 mn tonnes, including 30–35 mn tonnes of liquids delivered via pipeline and the rest via railroad. It is also planned to construct railway approaches to Primorsk Trade Port, which will add 20–25 mn tonnes of cargo. Finally, a project to construct railroads to the port of Murmansk is being designed now, which should boost cargo turnover by 30 mn tonnes (mainly coal) in the future.

Southern basin. The development of railway approaches to Novorossiisk Commercial Seaport will provide an additional 15–20 mn tonnes of dry cargo. Moreover, there are plans to build a new cargo port in Taman by 2020.

Far East basin. The total capacity of Far East basin ports is expected to expand by an additional 75 mn tonnes by 2020. In particular, Daltransugol (SUEK) plans to boost coal handling at Vanino port from 12 mn to 20 mn tonnes, Summa Group plans to build a coal terminal at Vostochny port (18 mn tonnes by 2015) and Mechel is looking to build up coal exports through Vanino port (25–30 mln tonnes) from its Elga coal field.

Ziyavudin Magomedov noted that Russia misses up to 150 mn tonnes of cargo in potential business annually, in particular due to slow custom procedures at borders and low implementation of electronic documentation. In his view, infrastructural development in the Far East is important, but beyond that it is necessary to maintain attractive railroad tariffs for cargo transportation to this region. Mr Magomedov drew attention to the fact that the transport infrastructure needs to be in surplus and equally accessible for everyone, so shippers can choose the transportation direction they need and not have to choose direction depending on capacity utilization at ports.

Rolling stock operations

Vadim Aminov noted the problem of an excessive number of rolling stock operators, leading to inefficient use of the existing system. He believes that the requirement to operate at least 1,000 railcars will not improve the situation on railroads dramatically. He thinks that operators should have at least 5,000 railcars under management. Given that there are over 30 companies with such a fleet size in Russia, it will not lead to a lack of competition in the sector.

Kirill Rubinsky supported Mr Aminov’s view that an operator must have a minimum of 5,000 railcars. He also added that the level of containerization in Russia remains low, while many goods that are transported in bulk would be transported more efficiently in containers. Separately, Mr Rubinsky emphasized the problem of the locomotive fleet, which is now depreciated by 80%, while the average speed of freight trains is equal to the level of the 1920–30s.

According to Sergey Maltsev, reform has allowed Russian Railways to modernize rolling stock, and presently it is generally in good condition. He thinks that the problem of traffic congestion lies not in the excessive number of railway operators, but in low efficiency – railway management nowadays does not split operations for loaded and empty rolling stock, unlike in the Soviet era. Mr Maltsev drew attention to the problem that Russian Railways is operating on a regional basis, whereas private companies operate nationwide. Therefore, for example, the number of required locomotives sometimes does not match the number of trains in the regions.

The liberalization of locomotives

According to Mr Maltsev, about $60–70 bn should be invested in locomotive modernization in the coming years and thus the government has to decide whether it will provide investment itself or in partnership with private investors. He also noted that managing locomotives is technologically a more complicated process than operating rolling stock. Therefore, it makes sense to run pilot projects at short distances of 200–300 km, for example. At the end of the panel discussion, the speakers answered the question of what should be done to avoid traffic congestion on railroads in the future. They believe there are a number of important factors, such as actual transport cargo volumes that should be matched with declared volumes; tolerance between operators and Russian Railways, which should be improved; and implementation of strict planning and hard execution on a weekly basis. The speakers agreed that, in general, the industry’s problems can be solved, though the lack of communication was a factor that must be overcome.