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2 (22) April-August 2010

2 (22) April-August 2010
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Ukrainian transport: suffering a double whammy

 In 2009, the transport industry in Ukraine suffered a double whammy – the economic recession and the political instability at home. This year there may appear a third factor – the financial inability of the state transport complex, which has hitherto occupied a dominating position in the Ukrainian transportation sector.
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Cargoes have left

The first year of the crisis - 2008 - was not very bad for the Ukrainian transport: its freight flow losses were minimum and they decreased by the end of the year. Then 2009 was a serious failure. The railway, which is the basis for the transportation potential of Ukraine, transported a 25% less than in 2008, and 50% less than it used to carry in the pre-crisis year. The throughput of the ports, where the larger part of cargoes is delivered by railway, also fell. The water transport with its limited potential continued to be on the outskirts of the transportation process.
Road hauliers reduced freight transportation volumes, however, due to better flexibility, they managed to keep a quarter of Ukrainian cargoes transported by wheeled transport modes.
It is a paradox, but the reason for the decline was not exports dominating in the structure of Ukrainian foreign trade transportation (60% of railway transportation volume, over 50% of the port throughput). Export volumes were maintained due to grain and cereals, and since the middle of the year – due to fuel coal and a renewed demand for iron ore.
These cargo flows, which were the main ones, allowed the ports to maintain annual export growth, although they changed its structure – the highly profitable freights (ferrous metal, containers, cars) left. The volume of bulk cargo grew by 20%; that of general cargo fell by 10%. Ukrzaliznytsya failed to keep its export growth, but the decline was minimal – just 7%; moreover, at the end of the year its volume started to increase (in December 2009 the growth amounted to 20% year-on-year).
Transit was impacted by several negative factors – the crisis and Russia’s policy of redirecting cargoes to national ports. In addition, transportation via the network of Ukrzaliznytsya became more expensive, since the transit tariffs were fixed in the U.S. dollar equivalent. Finally, port dues also increased (by 30%-40% compared with 2008). As a result, Russian transit – the basic cargo flow for Ukraine – reduced by a third in 2009. And the volume of crude oil transported via Ukraine fell by more than half, which was a record.
In fact, only some Russian transit cargoes were carried via Ukraine last year – the ones which are not handled by the RF Black Sea ports yet (coal, brimstone, cast iron, some fertilisers). Kazakh transit was also redirected from the uncompetitive (because of the tariffs) Russian-Ukrainian route or left for Asian markets. An exception was Kazakh crude oil transported to Feodosia, the volume of which doubled to 1 million tons, but this cargo flow could not compensate for the decline in Russian oil (-5.8 million tons) handled in the port of Odessa.

Tariff as the main instrument

In order to maintain transits, the Ukrainian Ministry of Transport and Communications recommenced the practice of forming adjusted tariffs on freight transportation to ports, which was abolished in 2008 as part of the fight against corruption. The order was put into operation again in autumn 2009 for nine basic ports and a wide range of transit cargoes. However, in the opinion of specialists, it was too late for the initiative. According to the results of the year, Ukrzaliznytsya and ports lost 24 million tons and 14 million tons of transit respectively. Also, some of the offers made by ports were not taken into consideration (including the issue of transit oil transportation to the port of Odessa).
The total decline in volumes, as well as the decrease in the share of highly profitable cargoes, made the financial position of Ukrzaliznytsya and Ukrainian ports more complicated. The former managed to increase revenue from freight transportation, but it was less than 2% (approximately +$60 million). According to the monopoly, the revenue not received because of the decline in freight transportation volume was more significant – over $0.8 billion. All in all, Ukrzaliznytsya earned approximately $5 billion.
Of that, over 10% was to be spent paying back credit. A significant financial loading and its irregularity (quarterly payments in H2 of 2009 – H1 of 2010) made the monopoly speak about the necessity of debt restructuring and state support to pay for them. The first item was solved, but the second wasn’t. Moreover, the Government chose a policy of freezing railway tariffs, increasing the fiscal pressure on Ukrzaliznytsya and abolishing its investment plans. Among the disrupted plans of Ukrzaliznytsya there was rolling stock renewal, fast railway communication implementation, and port infrastructure development.
In fact, the only infrastructure project carried out last year was the construction of 52 km secondary main track on the Dolinskaya – Nikolaev section (part of the transit line from Russian border to Ukrainian ports on the Black Sea coast). The monopoly managed to purchase only 1,000 gondola cars and four electric locomotives. Passenger wagons were not bought. The weakened position of Ukrzaliznytsya and political instability in the state brought a halt to the monopoly’s cooperation with the EBRD; the credit-financed project of renewing 1,400 freight railcars was disrupted.

Politicians hamper matters, as usual

The cooperation of the EBRD with state ports was also stopped. The only acting project in which the EBRD was participating – the reconstruction of berths in the Ilyichevsk port – was blocked because of legal disputes. In the opinion of experts, such a precedent, when the Ukrainian judicial system interfered in a project in which international financial structures participated, became possible because of the political crisis.
Vertical management in the port sphere was disrupted for the same reason, which put a stop to the investment development of ports and worsened working conditions for private stevedores. Last year, there were a lot of conflicts between the largest private companies and the large state ports: termination of the contract between the port of Ilyichevsk and Ukrtranscontainer; a conflict between Transinvestservice stevedoring company and the port of Yuzhny; the confrontation of Nibulon company and the Nikolaevsky sea port because of access to the water-side area.
Finally, this year, there appeared the conflict between Novoflot towing company and the port of Yuzhny, which revealed another aspect of the confrontation between the state and private business in the waters of Ukraine.
According to experts, the intensification of the fight on the port services market, which is beyond the scope of normal competition, is a consequence of the political problems of Ukraine. The list of problems caused by the long-running political chaos shows how serous the situation is: the lack of a consecutive strategy for port sector development; liquidation of the management system in the sector and anarchy at the level of the sectoral authorities; an opaque system of making decisions, particularly the “close” privatisation of ports; liquidation of ports’ joint activities with representatives from private business; the erosion of investors’ trust in the state; corruption and a lack of professionalism in sectoral management; blocking of legislation initiatives and laws for the port sector.
Meanwhile, the state ports kept the status of state donors, having increased assignments to the state budget by 120%, while their revenue grew by only 30%. The increase in revenue alongside the decline in throughput became possible due to the growth of port dues and their pegging to U.S. dollar. At the same time, the ports that get the larger share of revenue from port dues managed to realise only several projects to renew their basic assets: towboats purchase (the sea ports of Odessa and Ilyichevsk), construction of a universal deep-sea berth (the port of Yuzhny) and a berth for ro-ro cargoes (the Odessa port).
It is interesting that only two of eight berths put into operation in 2009 were in the state ports. Private stevedores were extremely active: the length of the berths they put into operation was over 1.3 kilometres (that of state ports was 0.4 kilometres). The profile of the private berths (two for grain handling, two for container handling, and one universal one) shows what role private companies want to play on the Ukrainian market. And their annual results are better than those of the state ports. Last year, their throughput grew by 5%; two-thirds of the 70 private stevedores operating in Ukrainian water areas increased their handling volumes. For the sake of comparison, the state port sector lost 17% of its cargoes, and there was a decline in throughput in 16 out of 18 state ports.
According to experts, the common problem the ports and Ukrzaliznytsya have is a lack of reforms targeted at modernising the Ukrainian transport sector. This problem will hardly be resolved in the near future if Ukrainian politicians do not manage to come to an agreement on legislative and executive powers. “The political fight took too much time, and it couldn’t but influence the sector’s functioning,” said Konstantin Efimenko, new Minister of Transport and Communications of Ukraine, when he was appointed to the post. “Nowadays, we do not have time for political discussions. It is time to work for the state. We will carry on the dialogue on economic aspects to improve the work of the sector.” Well, time will tell…
By Vladimir Katkevich [~DETAIL_TEXT] =>

Cargoes have left

The first year of the crisis - 2008 - was not very bad for the Ukrainian transport: its freight flow losses were minimum and they decreased by the end of the year. Then 2009 was a serious failure. The railway, which is the basis for the transportation potential of Ukraine, transported a 25% less than in 2008, and 50% less than it used to carry in the pre-crisis year. The throughput of the ports, where the larger part of cargoes is delivered by railway, also fell. The water transport with its limited potential continued to be on the outskirts of the transportation process.
Road hauliers reduced freight transportation volumes, however, due to better flexibility, they managed to keep a quarter of Ukrainian cargoes transported by wheeled transport modes.
It is a paradox, but the reason for the decline was not exports dominating in the structure of Ukrainian foreign trade transportation (60% of railway transportation volume, over 50% of the port throughput). Export volumes were maintained due to grain and cereals, and since the middle of the year – due to fuel coal and a renewed demand for iron ore.
These cargo flows, which were the main ones, allowed the ports to maintain annual export growth, although they changed its structure – the highly profitable freights (ferrous metal, containers, cars) left. The volume of bulk cargo grew by 20%; that of general cargo fell by 10%. Ukrzaliznytsya failed to keep its export growth, but the decline was minimal – just 7%; moreover, at the end of the year its volume started to increase (in December 2009 the growth amounted to 20% year-on-year).
Transit was impacted by several negative factors – the crisis and Russia’s policy of redirecting cargoes to national ports. In addition, transportation via the network of Ukrzaliznytsya became more expensive, since the transit tariffs were fixed in the U.S. dollar equivalent. Finally, port dues also increased (by 30%-40% compared with 2008). As a result, Russian transit – the basic cargo flow for Ukraine – reduced by a third in 2009. And the volume of crude oil transported via Ukraine fell by more than half, which was a record.
In fact, only some Russian transit cargoes were carried via Ukraine last year – the ones which are not handled by the RF Black Sea ports yet (coal, brimstone, cast iron, some fertilisers). Kazakh transit was also redirected from the uncompetitive (because of the tariffs) Russian-Ukrainian route or left for Asian markets. An exception was Kazakh crude oil transported to Feodosia, the volume of which doubled to 1 million tons, but this cargo flow could not compensate for the decline in Russian oil (-5.8 million tons) handled in the port of Odessa.

Tariff as the main instrument

In order to maintain transits, the Ukrainian Ministry of Transport and Communications recommenced the practice of forming adjusted tariffs on freight transportation to ports, which was abolished in 2008 as part of the fight against corruption. The order was put into operation again in autumn 2009 for nine basic ports and a wide range of transit cargoes. However, in the opinion of specialists, it was too late for the initiative. According to the results of the year, Ukrzaliznytsya and ports lost 24 million tons and 14 million tons of transit respectively. Also, some of the offers made by ports were not taken into consideration (including the issue of transit oil transportation to the port of Odessa).
The total decline in volumes, as well as the decrease in the share of highly profitable cargoes, made the financial position of Ukrzaliznytsya and Ukrainian ports more complicated. The former managed to increase revenue from freight transportation, but it was less than 2% (approximately +$60 million). According to the monopoly, the revenue not received because of the decline in freight transportation volume was more significant – over $0.8 billion. All in all, Ukrzaliznytsya earned approximately $5 billion.
Of that, over 10% was to be spent paying back credit. A significant financial loading and its irregularity (quarterly payments in H2 of 2009 – H1 of 2010) made the monopoly speak about the necessity of debt restructuring and state support to pay for them. The first item was solved, but the second wasn’t. Moreover, the Government chose a policy of freezing railway tariffs, increasing the fiscal pressure on Ukrzaliznytsya and abolishing its investment plans. Among the disrupted plans of Ukrzaliznytsya there was rolling stock renewal, fast railway communication implementation, and port infrastructure development.
In fact, the only infrastructure project carried out last year was the construction of 52 km secondary main track on the Dolinskaya – Nikolaev section (part of the transit line from Russian border to Ukrainian ports on the Black Sea coast). The monopoly managed to purchase only 1,000 gondola cars and four electric locomotives. Passenger wagons were not bought. The weakened position of Ukrzaliznytsya and political instability in the state brought a halt to the monopoly’s cooperation with the EBRD; the credit-financed project of renewing 1,400 freight railcars was disrupted.

Politicians hamper matters, as usual

The cooperation of the EBRD with state ports was also stopped. The only acting project in which the EBRD was participating – the reconstruction of berths in the Ilyichevsk port – was blocked because of legal disputes. In the opinion of experts, such a precedent, when the Ukrainian judicial system interfered in a project in which international financial structures participated, became possible because of the political crisis.
Vertical management in the port sphere was disrupted for the same reason, which put a stop to the investment development of ports and worsened working conditions for private stevedores. Last year, there were a lot of conflicts between the largest private companies and the large state ports: termination of the contract between the port of Ilyichevsk and Ukrtranscontainer; a conflict between Transinvestservice stevedoring company and the port of Yuzhny; the confrontation of Nibulon company and the Nikolaevsky sea port because of access to the water-side area.
Finally, this year, there appeared the conflict between Novoflot towing company and the port of Yuzhny, which revealed another aspect of the confrontation between the state and private business in the waters of Ukraine.
According to experts, the intensification of the fight on the port services market, which is beyond the scope of normal competition, is a consequence of the political problems of Ukraine. The list of problems caused by the long-running political chaos shows how serous the situation is: the lack of a consecutive strategy for port sector development; liquidation of the management system in the sector and anarchy at the level of the sectoral authorities; an opaque system of making decisions, particularly the “close” privatisation of ports; liquidation of ports’ joint activities with representatives from private business; the erosion of investors’ trust in the state; corruption and a lack of professionalism in sectoral management; blocking of legislation initiatives and laws for the port sector.
Meanwhile, the state ports kept the status of state donors, having increased assignments to the state budget by 120%, while their revenue grew by only 30%. The increase in revenue alongside the decline in throughput became possible due to the growth of port dues and their pegging to U.S. dollar. At the same time, the ports that get the larger share of revenue from port dues managed to realise only several projects to renew their basic assets: towboats purchase (the sea ports of Odessa and Ilyichevsk), construction of a universal deep-sea berth (the port of Yuzhny) and a berth for ro-ro cargoes (the Odessa port).
It is interesting that only two of eight berths put into operation in 2009 were in the state ports. Private stevedores were extremely active: the length of the berths they put into operation was over 1.3 kilometres (that of state ports was 0.4 kilometres). The profile of the private berths (two for grain handling, two for container handling, and one universal one) shows what role private companies want to play on the Ukrainian market. And their annual results are better than those of the state ports. Last year, their throughput grew by 5%; two-thirds of the 70 private stevedores operating in Ukrainian water areas increased their handling volumes. For the sake of comparison, the state port sector lost 17% of its cargoes, and there was a decline in throughput in 16 out of 18 state ports.
According to experts, the common problem the ports and Ukrzaliznytsya have is a lack of reforms targeted at modernising the Ukrainian transport sector. This problem will hardly be resolved in the near future if Ukrainian politicians do not manage to come to an agreement on legislative and executive powers. “The political fight took too much time, and it couldn’t but influence the sector’s functioning,” said Konstantin Efimenko, new Minister of Transport and Communications of Ukraine, when he was appointed to the post. “Nowadays, we do not have time for political discussions. It is time to work for the state. We will carry on the dialogue on economic aspects to improve the work of the sector.” Well, time will tell…
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    [DETAIL_TEXT] => 

Cargoes have left

The first year of the crisis - 2008 - was not very bad for the Ukrainian transport: its freight flow losses were minimum and they decreased by the end of the year. Then 2009 was a serious failure. The railway, which is the basis for the transportation potential of Ukraine, transported a 25% less than in 2008, and 50% less than it used to carry in the pre-crisis year. The throughput of the ports, where the larger part of cargoes is delivered by railway, also fell. The water transport with its limited potential continued to be on the outskirts of the transportation process.
Road hauliers reduced freight transportation volumes, however, due to better flexibility, they managed to keep a quarter of Ukrainian cargoes transported by wheeled transport modes.
It is a paradox, but the reason for the decline was not exports dominating in the structure of Ukrainian foreign trade transportation (60% of railway transportation volume, over 50% of the port throughput). Export volumes were maintained due to grain and cereals, and since the middle of the year – due to fuel coal and a renewed demand for iron ore.
These cargo flows, which were the main ones, allowed the ports to maintain annual export growth, although they changed its structure – the highly profitable freights (ferrous metal, containers, cars) left. The volume of bulk cargo grew by 20%; that of general cargo fell by 10%. Ukrzaliznytsya failed to keep its export growth, but the decline was minimal – just 7%; moreover, at the end of the year its volume started to increase (in December 2009 the growth amounted to 20% year-on-year).
Transit was impacted by several negative factors – the crisis and Russia’s policy of redirecting cargoes to national ports. In addition, transportation via the network of Ukrzaliznytsya became more expensive, since the transit tariffs were fixed in the U.S. dollar equivalent. Finally, port dues also increased (by 30%-40% compared with 2008). As a result, Russian transit – the basic cargo flow for Ukraine – reduced by a third in 2009. And the volume of crude oil transported via Ukraine fell by more than half, which was a record.
In fact, only some Russian transit cargoes were carried via Ukraine last year – the ones which are not handled by the RF Black Sea ports yet (coal, brimstone, cast iron, some fertilisers). Kazakh transit was also redirected from the uncompetitive (because of the tariffs) Russian-Ukrainian route or left for Asian markets. An exception was Kazakh crude oil transported to Feodosia, the volume of which doubled to 1 million tons, but this cargo flow could not compensate for the decline in Russian oil (-5.8 million tons) handled in the port of Odessa.

Tariff as the main instrument

In order to maintain transits, the Ukrainian Ministry of Transport and Communications recommenced the practice of forming adjusted tariffs on freight transportation to ports, which was abolished in 2008 as part of the fight against corruption. The order was put into operation again in autumn 2009 for nine basic ports and a wide range of transit cargoes. However, in the opinion of specialists, it was too late for the initiative. According to the results of the year, Ukrzaliznytsya and ports lost 24 million tons and 14 million tons of transit respectively. Also, some of the offers made by ports were not taken into consideration (including the issue of transit oil transportation to the port of Odessa).
The total decline in volumes, as well as the decrease in the share of highly profitable cargoes, made the financial position of Ukrzaliznytsya and Ukrainian ports more complicated. The former managed to increase revenue from freight transportation, but it was less than 2% (approximately +$60 million). According to the monopoly, the revenue not received because of the decline in freight transportation volume was more significant – over $0.8 billion. All in all, Ukrzaliznytsya earned approximately $5 billion.
Of that, over 10% was to be spent paying back credit. A significant financial loading and its irregularity (quarterly payments in H2 of 2009 – H1 of 2010) made the monopoly speak about the necessity of debt restructuring and state support to pay for them. The first item was solved, but the second wasn’t. Moreover, the Government chose a policy of freezing railway tariffs, increasing the fiscal pressure on Ukrzaliznytsya and abolishing its investment plans. Among the disrupted plans of Ukrzaliznytsya there was rolling stock renewal, fast railway communication implementation, and port infrastructure development.
In fact, the only infrastructure project carried out last year was the construction of 52 km secondary main track on the Dolinskaya – Nikolaev section (part of the transit line from Russian border to Ukrainian ports on the Black Sea coast). The monopoly managed to purchase only 1,000 gondola cars and four electric locomotives. Passenger wagons were not bought. The weakened position of Ukrzaliznytsya and political instability in the state brought a halt to the monopoly’s cooperation with the EBRD; the credit-financed project of renewing 1,400 freight railcars was disrupted.

Politicians hamper matters, as usual

The cooperation of the EBRD with state ports was also stopped. The only acting project in which the EBRD was participating – the reconstruction of berths in the Ilyichevsk port – was blocked because of legal disputes. In the opinion of experts, such a precedent, when the Ukrainian judicial system interfered in a project in which international financial structures participated, became possible because of the political crisis.
Vertical management in the port sphere was disrupted for the same reason, which put a stop to the investment development of ports and worsened working conditions for private stevedores. Last year, there were a lot of conflicts between the largest private companies and the large state ports: termination of the contract between the port of Ilyichevsk and Ukrtranscontainer; a conflict between Transinvestservice stevedoring company and the port of Yuzhny; the confrontation of Nibulon company and the Nikolaevsky sea port because of access to the water-side area.
Finally, this year, there appeared the conflict between Novoflot towing company and the port of Yuzhny, which revealed another aspect of the confrontation between the state and private business in the waters of Ukraine.
According to experts, the intensification of the fight on the port services market, which is beyond the scope of normal competition, is a consequence of the political problems of Ukraine. The list of problems caused by the long-running political chaos shows how serous the situation is: the lack of a consecutive strategy for port sector development; liquidation of the management system in the sector and anarchy at the level of the sectoral authorities; an opaque system of making decisions, particularly the “close” privatisation of ports; liquidation of ports’ joint activities with representatives from private business; the erosion of investors’ trust in the state; corruption and a lack of professionalism in sectoral management; blocking of legislation initiatives and laws for the port sector.
Meanwhile, the state ports kept the status of state donors, having increased assignments to the state budget by 120%, while their revenue grew by only 30%. The increase in revenue alongside the decline in throughput became possible due to the growth of port dues and their pegging to U.S. dollar. At the same time, the ports that get the larger share of revenue from port dues managed to realise only several projects to renew their basic assets: towboats purchase (the sea ports of Odessa and Ilyichevsk), construction of a universal deep-sea berth (the port of Yuzhny) and a berth for ro-ro cargoes (the Odessa port).
It is interesting that only two of eight berths put into operation in 2009 were in the state ports. Private stevedores were extremely active: the length of the berths they put into operation was over 1.3 kilometres (that of state ports was 0.4 kilometres). The profile of the private berths (two for grain handling, two for container handling, and one universal one) shows what role private companies want to play on the Ukrainian market. And their annual results are better than those of the state ports. Last year, their throughput grew by 5%; two-thirds of the 70 private stevedores operating in Ukrainian water areas increased their handling volumes. For the sake of comparison, the state port sector lost 17% of its cargoes, and there was a decline in throughput in 16 out of 18 state ports.
According to experts, the common problem the ports and Ukrzaliznytsya have is a lack of reforms targeted at modernising the Ukrainian transport sector. This problem will hardly be resolved in the near future if Ukrainian politicians do not manage to come to an agreement on legislative and executive powers. “The political fight took too much time, and it couldn’t but influence the sector’s functioning,” said Konstantin Efimenko, new Minister of Transport and Communications of Ukraine, when he was appointed to the post. “Nowadays, we do not have time for political discussions. It is time to work for the state. We will carry on the dialogue on economic aspects to improve the work of the sector.” Well, time will tell…
By Vladimir Katkevich [~DETAIL_TEXT] =>

Cargoes have left

The first year of the crisis - 2008 - was not very bad for the Ukrainian transport: its freight flow losses were minimum and they decreased by the end of the year. Then 2009 was a serious failure. The railway, which is the basis for the transportation potential of Ukraine, transported a 25% less than in 2008, and 50% less than it used to carry in the pre-crisis year. The throughput of the ports, where the larger part of cargoes is delivered by railway, also fell. The water transport with its limited potential continued to be on the outskirts of the transportation process.
Road hauliers reduced freight transportation volumes, however, due to better flexibility, they managed to keep a quarter of Ukrainian cargoes transported by wheeled transport modes.
It is a paradox, but the reason for the decline was not exports dominating in the structure of Ukrainian foreign trade transportation (60% of railway transportation volume, over 50% of the port throughput). Export volumes were maintained due to grain and cereals, and since the middle of the year – due to fuel coal and a renewed demand for iron ore.
These cargo flows, which were the main ones, allowed the ports to maintain annual export growth, although they changed its structure – the highly profitable freights (ferrous metal, containers, cars) left. The volume of bulk cargo grew by 20%; that of general cargo fell by 10%. Ukrzaliznytsya failed to keep its export growth, but the decline was minimal – just 7%; moreover, at the end of the year its volume started to increase (in December 2009 the growth amounted to 20% year-on-year).
Transit was impacted by several negative factors – the crisis and Russia’s policy of redirecting cargoes to national ports. In addition, transportation via the network of Ukrzaliznytsya became more expensive, since the transit tariffs were fixed in the U.S. dollar equivalent. Finally, port dues also increased (by 30%-40% compared with 2008). As a result, Russian transit – the basic cargo flow for Ukraine – reduced by a third in 2009. And the volume of crude oil transported via Ukraine fell by more than half, which was a record.
In fact, only some Russian transit cargoes were carried via Ukraine last year – the ones which are not handled by the RF Black Sea ports yet (coal, brimstone, cast iron, some fertilisers). Kazakh transit was also redirected from the uncompetitive (because of the tariffs) Russian-Ukrainian route or left for Asian markets. An exception was Kazakh crude oil transported to Feodosia, the volume of which doubled to 1 million tons, but this cargo flow could not compensate for the decline in Russian oil (-5.8 million tons) handled in the port of Odessa.

Tariff as the main instrument

In order to maintain transits, the Ukrainian Ministry of Transport and Communications recommenced the practice of forming adjusted tariffs on freight transportation to ports, which was abolished in 2008 as part of the fight against corruption. The order was put into operation again in autumn 2009 for nine basic ports and a wide range of transit cargoes. However, in the opinion of specialists, it was too late for the initiative. According to the results of the year, Ukrzaliznytsya and ports lost 24 million tons and 14 million tons of transit respectively. Also, some of the offers made by ports were not taken into consideration (including the issue of transit oil transportation to the port of Odessa).
The total decline in volumes, as well as the decrease in the share of highly profitable cargoes, made the financial position of Ukrzaliznytsya and Ukrainian ports more complicated. The former managed to increase revenue from freight transportation, but it was less than 2% (approximately +$60 million). According to the monopoly, the revenue not received because of the decline in freight transportation volume was more significant – over $0.8 billion. All in all, Ukrzaliznytsya earned approximately $5 billion.
Of that, over 10% was to be spent paying back credit. A significant financial loading and its irregularity (quarterly payments in H2 of 2009 – H1 of 2010) made the monopoly speak about the necessity of debt restructuring and state support to pay for them. The first item was solved, but the second wasn’t. Moreover, the Government chose a policy of freezing railway tariffs, increasing the fiscal pressure on Ukrzaliznytsya and abolishing its investment plans. Among the disrupted plans of Ukrzaliznytsya there was rolling stock renewal, fast railway communication implementation, and port infrastructure development.
In fact, the only infrastructure project carried out last year was the construction of 52 km secondary main track on the Dolinskaya – Nikolaev section (part of the transit line from Russian border to Ukrainian ports on the Black Sea coast). The monopoly managed to purchase only 1,000 gondola cars and four electric locomotives. Passenger wagons were not bought. The weakened position of Ukrzaliznytsya and political instability in the state brought a halt to the monopoly’s cooperation with the EBRD; the credit-financed project of renewing 1,400 freight railcars was disrupted.

Politicians hamper matters, as usual

The cooperation of the EBRD with state ports was also stopped. The only acting project in which the EBRD was participating – the reconstruction of berths in the Ilyichevsk port – was blocked because of legal disputes. In the opinion of experts, such a precedent, when the Ukrainian judicial system interfered in a project in which international financial structures participated, became possible because of the political crisis.
Vertical management in the port sphere was disrupted for the same reason, which put a stop to the investment development of ports and worsened working conditions for private stevedores. Last year, there were a lot of conflicts between the largest private companies and the large state ports: termination of the contract between the port of Ilyichevsk and Ukrtranscontainer; a conflict between Transinvestservice stevedoring company and the port of Yuzhny; the confrontation of Nibulon company and the Nikolaevsky sea port because of access to the water-side area.
Finally, this year, there appeared the conflict between Novoflot towing company and the port of Yuzhny, which revealed another aspect of the confrontation between the state and private business in the waters of Ukraine.
According to experts, the intensification of the fight on the port services market, which is beyond the scope of normal competition, is a consequence of the political problems of Ukraine. The list of problems caused by the long-running political chaos shows how serous the situation is: the lack of a consecutive strategy for port sector development; liquidation of the management system in the sector and anarchy at the level of the sectoral authorities; an opaque system of making decisions, particularly the “close” privatisation of ports; liquidation of ports’ joint activities with representatives from private business; the erosion of investors’ trust in the state; corruption and a lack of professionalism in sectoral management; blocking of legislation initiatives and laws for the port sector.
Meanwhile, the state ports kept the status of state donors, having increased assignments to the state budget by 120%, while their revenue grew by only 30%. The increase in revenue alongside the decline in throughput became possible due to the growth of port dues and their pegging to U.S. dollar. At the same time, the ports that get the larger share of revenue from port dues managed to realise only several projects to renew their basic assets: towboats purchase (the sea ports of Odessa and Ilyichevsk), construction of a universal deep-sea berth (the port of Yuzhny) and a berth for ro-ro cargoes (the Odessa port).
It is interesting that only two of eight berths put into operation in 2009 were in the state ports. Private stevedores were extremely active: the length of the berths they put into operation was over 1.3 kilometres (that of state ports was 0.4 kilometres). The profile of the private berths (two for grain handling, two for container handling, and one universal one) shows what role private companies want to play on the Ukrainian market. And their annual results are better than those of the state ports. Last year, their throughput grew by 5%; two-thirds of the 70 private stevedores operating in Ukrainian water areas increased their handling volumes. For the sake of comparison, the state port sector lost 17% of its cargoes, and there was a decline in throughput in 16 out of 18 state ports.
According to experts, the common problem the ports and Ukrzaliznytsya have is a lack of reforms targeted at modernising the Ukrainian transport sector. This problem will hardly be resolved in the near future if Ukrainian politicians do not manage to come to an agreement on legislative and executive powers. “The political fight took too much time, and it couldn’t but influence the sector’s functioning,” said Konstantin Efimenko, new Minister of Transport and Communications of Ukraine, when he was appointed to the post. “Nowadays, we do not have time for political discussions. It is time to work for the state. We will carry on the dialogue on economic aspects to improve the work of the sector.” Well, time will tell…
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РЖД-Партнер

Fast Development

 Oleg Frolov, chief of external economic activity of the RZD Trading Company, talks to the RZD-Partner International about expanding business of the largest Russian railway outlet.
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    [DETAIL_TEXT] => – Mr Frolov, what are the plans of the RZD Trading Company in 2010? Will the concluded contracts be revised because of the economic situation? Will new contracts be signed?
– The expected major vector of the foreign economic activity development of the RZD Trading Company in 2010 is extension of the company’s presence at the foreign markets, particularly, a lager geography of export supplies. Also, it envisages an enlargement of the list of exported railway goods made in Russia as well as the list of services provided to foreign contractors using the capacities of enterprises incorporated into RZD holding company. The result of it will be the fulfillment of obligations taken by the company according to the signed foreign trade contracts, and conclusion of new deals.
– Will the RZD Trading Company start to work in the countries, where it has not appeared yet?
– Naturally. As I have mentioned, the extension of the geography and the list of goods to be supplied is our priority. The RZD Trading Company holds regular works to set relations with railway departments of foreign countries and other consumers of the railway production, develops an agency network, organizes market researches, monitors tenders and projects.
– Obviously, RZD and its partners (including the RZD Trading Company) face an intense competition at the foreign markets. How tough is the competition in your opinion? What should be done to win?
– Well, there is a tough competition. Companies compete in the sector of goods they sell as well as in that of services they provide to fulfill the customs, logistic and other aspects of foreign economic contracts. We can hardly speak of any single secret of success. However, an obligatory condition is our professional work.
Interview by Ivan Stupachenko [~DETAIL_TEXT] => – Mr Frolov, what are the plans of the RZD Trading Company in 2010? Will the concluded contracts be revised because of the economic situation? Will new contracts be signed?
– The expected major vector of the foreign economic activity development of the RZD Trading Company in 2010 is extension of the company’s presence at the foreign markets, particularly, a lager geography of export supplies. Also, it envisages an enlargement of the list of exported railway goods made in Russia as well as the list of services provided to foreign contractors using the capacities of enterprises incorporated into RZD holding company. The result of it will be the fulfillment of obligations taken by the company according to the signed foreign trade contracts, and conclusion of new deals.
– Will the RZD Trading Company start to work in the countries, where it has not appeared yet?
– Naturally. As I have mentioned, the extension of the geography and the list of goods to be supplied is our priority. The RZD Trading Company holds regular works to set relations with railway departments of foreign countries and other consumers of the railway production, develops an agency network, organizes market researches, monitors tenders and projects.
– Obviously, RZD and its partners (including the RZD Trading Company) face an intense competition at the foreign markets. How tough is the competition in your opinion? What should be done to win?
– Well, there is a tough competition. Companies compete in the sector of goods they sell as well as in that of services they provide to fulfill the customs, logistic and other aspects of foreign economic contracts. We can hardly speak of any single secret of success. However, an obligatory condition is our professional work.
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    [DETAIL_TEXT] => – Mr Frolov, what are the plans of the RZD Trading Company in 2010? Will the concluded contracts be revised because of the economic situation? Will new contracts be signed?
– The expected major vector of the foreign economic activity development of the RZD Trading Company in 2010 is extension of the company’s presence at the foreign markets, particularly, a lager geography of export supplies. Also, it envisages an enlargement of the list of exported railway goods made in Russia as well as the list of services provided to foreign contractors using the capacities of enterprises incorporated into RZD holding company. The result of it will be the fulfillment of obligations taken by the company according to the signed foreign trade contracts, and conclusion of new deals.
– Will the RZD Trading Company start to work in the countries, where it has not appeared yet?
– Naturally. As I have mentioned, the extension of the geography and the list of goods to be supplied is our priority. The RZD Trading Company holds regular works to set relations with railway departments of foreign countries and other consumers of the railway production, develops an agency network, organizes market researches, monitors tenders and projects.
– Obviously, RZD and its partners (including the RZD Trading Company) face an intense competition at the foreign markets. How tough is the competition in your opinion? What should be done to win?
– Well, there is a tough competition. Companies compete in the sector of goods they sell as well as in that of services they provide to fulfill the customs, logistic and other aspects of foreign economic contracts. We can hardly speak of any single secret of success. However, an obligatory condition is our professional work.
Interview by Ivan Stupachenko [~DETAIL_TEXT] => – Mr Frolov, what are the plans of the RZD Trading Company in 2010? Will the concluded contracts be revised because of the economic situation? Will new contracts be signed?
– The expected major vector of the foreign economic activity development of the RZD Trading Company in 2010 is extension of the company’s presence at the foreign markets, particularly, a lager geography of export supplies. Also, it envisages an enlargement of the list of exported railway goods made in Russia as well as the list of services provided to foreign contractors using the capacities of enterprises incorporated into RZD holding company. The result of it will be the fulfillment of obligations taken by the company according to the signed foreign trade contracts, and conclusion of new deals.
– Will the RZD Trading Company start to work in the countries, where it has not appeared yet?
– Naturally. As I have mentioned, the extension of the geography and the list of goods to be supplied is our priority. The RZD Trading Company holds regular works to set relations with railway departments of foreign countries and other consumers of the railway production, develops an agency network, organizes market researches, monitors tenders and projects.
– Obviously, RZD and its partners (including the RZD Trading Company) face an intense competition at the foreign markets. How tough is the competition in your opinion? What should be done to win?
– Well, there is a tough competition. Companies compete in the sector of goods they sell as well as in that of services they provide to fulfill the customs, logistic and other aspects of foreign economic contracts. We can hardly speak of any single secret of success. However, an obligatory condition is our professional work.
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РЖД-Партнер

Time for Olympic decisions

 The state program for the Olympic Sochi Transport Infrastructure Modernisation requires the involvement of companies with an impeccable business reputation both in the domestic and international transport construction market. RZDstroy, a subsidiary of RZD, is among them.
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The company’s investment portfolio

RZDstroy was created on the basis of RZD’s building capacities to work only within the holding company’s structure, where it is responsible for the strategically important area of construction and development of railway infrastructure.
The company has positive experience working both independently and as a general contractor to manage major projects in transport construction. The results of RZDstroy’s four years of activity are: 486 kilometres of railroads put into operation; 87 reconstructed railway halts; 260 built or renovated bridges; 1,600 automated blocking systems, 430 kilometres of electric power lines; 205 constructed or upgraded railway stations or depots and the reconstructed line between St. Petersburg and Moscow for high-speed traffic.
An undoubted advantage of RZDstroy is its experience gained together with RZD in tackling emergencies, including cases of terrorism on the railway network, where the manpower and money of the company’s affiliates were involved. In addition, an important advantage is the creation together with RZD of a single centralised mobilisation training management system, and also the fact that it has a license to work with information classified as a state secret, which allows it to conclude contracts for the construction and reconstruction of sites where access is restricted.
In 2009, the company fully complied with the obligations taken in its Production Program. Despite the overall decline in investor demand and cutting of investment programs, it is steadily holding 20% to 25% of construction orders made by The Russian Railways JSC. In 2010, RZDstroy’s staff will have to fulfill a large RZD corporate order worth over RUR 30 billion.
In order to effectively work with such large-scale investment inflows, the company intends, first of all, to build a vertically integrated structure of its business units’ chief engineers. The reason is that the corps of engineers is the core business unit in construction, able to practically implement application of new technologies and materials. A creative engineering design office will become a key element in the new system, and it is currently being organised. Furthermore, its branches will appear afterwards to manage particular investment projects, such as: a complex reconstruction of the Karymskaya - Zabaikalsk section (Trans-Baikal Railway), the section Mga - Gatchina - Veimarn - Kotly - Ivangorod and railway approaches to ports on the southern coast of the Gulf of Finland (Oktyabrskaya Railway); the railway line from Karabula to Yarki (Krasnoyarsk region) and reconstruction of Kuznetsovsky tunnel at the section between Komsomolsk and Sovetskaya Gavan (Far Eastern Railway).

At the international level

This year we are opening a new page in our activities, an international one.
On 29 January in Vienna, RZDstroy and Alpine Bau GmbH set up the joint venture Alpine-RZDstroy, with the participation of Vladimir Yakunin, President of RZD, and Dietmar Aluta-Oltyan, Alpine Holding part owner and Chairman of its Supervisory Board.
The company’s objective will be to draw up proposals and to implement special infrastructure projects on the territories of The Russian Federation, Austria, and other countries.
The first projects where the JV will be involved will be the construction of the Alptransit Brenner Baulos A1 – Grundausruestung tunnel in Tyrol and the construction of two tunnels in Sochi, which are the infrastructure for the 2014 Winter Olympics.
The Alpine-RZDstroy joint venture is established in the form of a limited liability company registered in Austria. A representative office will be opened in Russia. The joint venture’s authorized capital is EUR 200,000. The venture will be run on the parity basis.
The company is engaged in over-ground construction, therefore the joint venture activities will not be limited to only rail projects.
Our company expects that the joint venture will give us opportunities to develop our expertise in the existing and new skills, including participating in international tenders and managing large construction projects at a contemporary level. We expect to have an access to progressive engineering solutions and to develop new technologies, for example, in tunnel construction, or in construction of high-speed railways, bridges and overpasses. It is also planned to increase capitalisation of RZDstroy, making the company more attractive for investors and creating a positive business reputation in the contractor sector of the Russian and foreign construction markets.

our partners

Alpine is Austria’s second largest construction company. It is successfully conducting projects of various sizes in 26 countries around the world. The company operates in the sector of on-land construction, road and railway construction, bridge building, underground construction, special projects at large depths, and also the construction of electric power stations in Austria and elsewhere in the world. Alpine has an extensive network of subsidiaries in Austria and Germany, and it continues to expand its position in the global construction market. It has subsidiaries also in the CIS countries (with the purpose to realise projects in The Russian Federation), as well as in Asia and the Arab States.
Among the major projects being carried out by Alpine is the reconstruction of the Berlin-Palermo trans-European railway corridor on the 41 kilometres long section between Kyundl and Baumkirchen (Tyrol, Austria); new metro in Delhi; and a 24.5 kilometres long Pinglu-Tunnel (Shanghai, China) with the diameter of 4.8 metres, which is among the longest tunnels in the world. Also, it is participating in the construction of the world’s longest St. Gotthard tunnel (Switzerland), which is more than 56 kilometres long.
The idea to build the Brenner Base railway tunnel (BOT), where our joint venture will participate, is to reduce the number of overloaded roads by means of redirecting traffic to railroads. Built between Insburg highway (Austria) and Franzenfeste (Forteza, Italy), the BOT will be the second longest tunnel in the world with a planned length of 56 kilometres (36 miles). The main Gotthard tunnel built between Italy and Switzerland, which was mentioned above, is only one kilometre longer than the BOT.
The total length of the bypass railway line from Insburg to Forteza will be 62.7 kilometres, which makes it the longest underground railway line in the world.
BOT construction will start in 2010 in Austria, and it is expected to be finished in the period from 2020 to 2022. After it is launched, it is expected that travelling from Innsbruck to Bolzano in Italy will take 70 minutes less than now, and trains will be able to cross the Alps much faster. The main purpose of BOT in Austria is to use it for moving cargo trains.
BOT consists of two parallel tunnels which are connected to each other in every 333 metres. Freight trains will move in only one direction, since each tunnel consists of only one track. Brenner tunnel lies at a height of 794 m below the lowest road in the Alps, which is situated at a height of 1,371 metres. Construction of the 2/3 part of the tunnel will be realised by a tunnel boring machine, and the remaining 1/3 of the tunnel will be built using the general mining method.

Tunnelling to Sochi

A decision has been taken to lay the second way on the North - Caucasian Railway’s section between Sochi and Adler by building two new tunnels №6 bis and №7 bis, in order to develop the infrastructure in Sochi and to ensure necessary transport during the preparation for and running the Winter Olympics 2014.
JV Alpine-RZDstroy will carry out complex works to build the tunnels. Application of advanced technologies and global integration of leading Austrian tunnel-builders and Russian experts should ensure a high quality work of this enterprise and the reduction in the construction time. Project management will be a joint Russian-Austrian team.
Construction of new tunnels №6 bis and №7 bis is planned in a single-track scheme, involving a high performance mountain cutting machines, in order to ensure both a short time to accomplish the path making works and construction safety, and also remembering that there are tunnels №6 and №7 working currently in a parallel layer with the ones under construction.
The area where the tunnel road to be laid is located in such geological environment, which is characterized by a high level of tectonic activity with the consequent seismicity and exogenous phenomena.
The following negative impacts may complicate the construction there: gravitation and seismological-gravitation factors (landslides); flat or striated erosion and mudflow processes; widespread intense weathering of rocks (mudstones of low and very low strength); landslides especially in the end tunnel sections (five deep landslides were recorded on the site, which appeared due to weakening inclines in the bedrock, as well as four surface landslides in the upper layers of the ground); precipitation and high groundwater levels, which increase rock slope humidity; seasonal changes to a large extent in physical/chemical and physical/mechanical characteristics of soil, depending on the moisture conditions; and the construction area is known to be seismically dangerous.
Also, a serious risk for the project is the fact that there are 74 private sites in the mountain area of the projected tunnels (over the tunnels and within the range of three portals). This requires a strict technological discipline and a proper choice of equipment.
The tunnel cutting will involve the EPB - 10940 Tunnel Boring Machine (TBM) of HERRENKNECHT, with an earth pressure balance shield able to provide tunnelling in the universal soil (from silty sands to unconsolidated rocks and soils). This TBM is a system able to maintain mountain cutting by balancing the pressure of soil and water, as well as to inject chemical reagents on soil. Application of this system removes all risks of possible subsidence of the surface.
The drilling speed in the tunnels №6 bis and №7 bis will be to 400 m per month.
After the tunnel cutting and lining works are finished in both cases, a permanent equipment is to be installed, including railways, electric power network, SCB devices, etc.
The projected tunnel will be laid under the residential, office, industrial and commercial buildings, therefore the design assumes that upper tracks will be supplied with vibration absorbing mats and with welded rail line, which will prevent noise and vibration to spread, so that the vibrodynamic effect on the tunnel lining and the mountain itself will be reduced 75-fold for locomotives and 240-fold for rolling stock.
A monitoring of ground surface subsidence and undermining objects will be carried out during the full range of mining operations in the tunnels № 6 bis and № 7 bis. The monitoring results will be analysed systematically and quickly, in order to determine tendencies and speeds of soil shifting, and to make possible corrections in the set of measures to protect buildings and structures.
All tunnelling, construction, cargo handling and transport vehicles, machines and equipment (including their operation and maintenance schemes) must comply with general safety regulations, current state standards, safety rules for machinery design and operation, as well as with manufacturers’ operational guides for technical devices.
Equipment, machines and mechanisms (including for general construction purposes) are permitted to be used for underground construction if they are designed for underground conditions and allowed for this kind of application by relevant state supervision authorities.
It will take total 26 months to build the tunnels №6 bis and №7 bis (including the preparatory period, which is needed to set up two temporary construction sites and access roads to them), and the net tunnel cutting time will be 6 months.

Resume

Vladimir Yakunin, President of RZD, said at signing agreement to start this JV, that the cooperation with Alpine means new opportunities for the holding company to manage construction projects and to use advanced technologies. Such experience will be beneficial especially when infrastructure projects are realised on Russian railways, and first of all preparing Sochi for the Olympics in 2014. Partnership with the Alpine company will enable RZD to enter infrastructure project markets in Europe and in third countries.
Gennady Talashkin,
First Deputy General Director of RZDstroy
[~DETAIL_TEXT] =>

The company’s investment portfolio

RZDstroy was created on the basis of RZD’s building capacities to work only within the holding company’s structure, where it is responsible for the strategically important area of construction and development of railway infrastructure.
The company has positive experience working both independently and as a general contractor to manage major projects in transport construction. The results of RZDstroy’s four years of activity are: 486 kilometres of railroads put into operation; 87 reconstructed railway halts; 260 built or renovated bridges; 1,600 automated blocking systems, 430 kilometres of electric power lines; 205 constructed or upgraded railway stations or depots and the reconstructed line between St. Petersburg and Moscow for high-speed traffic.
An undoubted advantage of RZDstroy is its experience gained together with RZD in tackling emergencies, including cases of terrorism on the railway network, where the manpower and money of the company’s affiliates were involved. In addition, an important advantage is the creation together with RZD of a single centralised mobilisation training management system, and also the fact that it has a license to work with information classified as a state secret, which allows it to conclude contracts for the construction and reconstruction of sites where access is restricted.
In 2009, the company fully complied with the obligations taken in its Production Program. Despite the overall decline in investor demand and cutting of investment programs, it is steadily holding 20% to 25% of construction orders made by The Russian Railways JSC. In 2010, RZDstroy’s staff will have to fulfill a large RZD corporate order worth over RUR 30 billion.
In order to effectively work with such large-scale investment inflows, the company intends, first of all, to build a vertically integrated structure of its business units’ chief engineers. The reason is that the corps of engineers is the core business unit in construction, able to practically implement application of new technologies and materials. A creative engineering design office will become a key element in the new system, and it is currently being organised. Furthermore, its branches will appear afterwards to manage particular investment projects, such as: a complex reconstruction of the Karymskaya - Zabaikalsk section (Trans-Baikal Railway), the section Mga - Gatchina - Veimarn - Kotly - Ivangorod and railway approaches to ports on the southern coast of the Gulf of Finland (Oktyabrskaya Railway); the railway line from Karabula to Yarki (Krasnoyarsk region) and reconstruction of Kuznetsovsky tunnel at the section between Komsomolsk and Sovetskaya Gavan (Far Eastern Railway).

At the international level

This year we are opening a new page in our activities, an international one.
On 29 January in Vienna, RZDstroy and Alpine Bau GmbH set up the joint venture Alpine-RZDstroy, with the participation of Vladimir Yakunin, President of RZD, and Dietmar Aluta-Oltyan, Alpine Holding part owner and Chairman of its Supervisory Board.
The company’s objective will be to draw up proposals and to implement special infrastructure projects on the territories of The Russian Federation, Austria, and other countries.
The first projects where the JV will be involved will be the construction of the Alptransit Brenner Baulos A1 – Grundausruestung tunnel in Tyrol and the construction of two tunnels in Sochi, which are the infrastructure for the 2014 Winter Olympics.
The Alpine-RZDstroy joint venture is established in the form of a limited liability company registered in Austria. A representative office will be opened in Russia. The joint venture’s authorized capital is EUR 200,000. The venture will be run on the parity basis.
The company is engaged in over-ground construction, therefore the joint venture activities will not be limited to only rail projects.
Our company expects that the joint venture will give us opportunities to develop our expertise in the existing and new skills, including participating in international tenders and managing large construction projects at a contemporary level. We expect to have an access to progressive engineering solutions and to develop new technologies, for example, in tunnel construction, or in construction of high-speed railways, bridges and overpasses. It is also planned to increase capitalisation of RZDstroy, making the company more attractive for investors and creating a positive business reputation in the contractor sector of the Russian and foreign construction markets.

our partners

Alpine is Austria’s second largest construction company. It is successfully conducting projects of various sizes in 26 countries around the world. The company operates in the sector of on-land construction, road and railway construction, bridge building, underground construction, special projects at large depths, and also the construction of electric power stations in Austria and elsewhere in the world. Alpine has an extensive network of subsidiaries in Austria and Germany, and it continues to expand its position in the global construction market. It has subsidiaries also in the CIS countries (with the purpose to realise projects in The Russian Federation), as well as in Asia and the Arab States.
Among the major projects being carried out by Alpine is the reconstruction of the Berlin-Palermo trans-European railway corridor on the 41 kilometres long section between Kyundl and Baumkirchen (Tyrol, Austria); new metro in Delhi; and a 24.5 kilometres long Pinglu-Tunnel (Shanghai, China) with the diameter of 4.8 metres, which is among the longest tunnels in the world. Also, it is participating in the construction of the world’s longest St. Gotthard tunnel (Switzerland), which is more than 56 kilometres long.
The idea to build the Brenner Base railway tunnel (BOT), where our joint venture will participate, is to reduce the number of overloaded roads by means of redirecting traffic to railroads. Built between Insburg highway (Austria) and Franzenfeste (Forteza, Italy), the BOT will be the second longest tunnel in the world with a planned length of 56 kilometres (36 miles). The main Gotthard tunnel built between Italy and Switzerland, which was mentioned above, is only one kilometre longer than the BOT.
The total length of the bypass railway line from Insburg to Forteza will be 62.7 kilometres, which makes it the longest underground railway line in the world.
BOT construction will start in 2010 in Austria, and it is expected to be finished in the period from 2020 to 2022. After it is launched, it is expected that travelling from Innsbruck to Bolzano in Italy will take 70 minutes less than now, and trains will be able to cross the Alps much faster. The main purpose of BOT in Austria is to use it for moving cargo trains.
BOT consists of two parallel tunnels which are connected to each other in every 333 metres. Freight trains will move in only one direction, since each tunnel consists of only one track. Brenner tunnel lies at a height of 794 m below the lowest road in the Alps, which is situated at a height of 1,371 metres. Construction of the 2/3 part of the tunnel will be realised by a tunnel boring machine, and the remaining 1/3 of the tunnel will be built using the general mining method.

Tunnelling to Sochi

A decision has been taken to lay the second way on the North - Caucasian Railway’s section between Sochi and Adler by building two new tunnels №6 bis and №7 bis, in order to develop the infrastructure in Sochi and to ensure necessary transport during the preparation for and running the Winter Olympics 2014.
JV Alpine-RZDstroy will carry out complex works to build the tunnels. Application of advanced technologies and global integration of leading Austrian tunnel-builders and Russian experts should ensure a high quality work of this enterprise and the reduction in the construction time. Project management will be a joint Russian-Austrian team.
Construction of new tunnels №6 bis and №7 bis is planned in a single-track scheme, involving a high performance mountain cutting machines, in order to ensure both a short time to accomplish the path making works and construction safety, and also remembering that there are tunnels №6 and №7 working currently in a parallel layer with the ones under construction.
The area where the tunnel road to be laid is located in such geological environment, which is characterized by a high level of tectonic activity with the consequent seismicity and exogenous phenomena.
The following negative impacts may complicate the construction there: gravitation and seismological-gravitation factors (landslides); flat or striated erosion and mudflow processes; widespread intense weathering of rocks (mudstones of low and very low strength); landslides especially in the end tunnel sections (five deep landslides were recorded on the site, which appeared due to weakening inclines in the bedrock, as well as four surface landslides in the upper layers of the ground); precipitation and high groundwater levels, which increase rock slope humidity; seasonal changes to a large extent in physical/chemical and physical/mechanical characteristics of soil, depending on the moisture conditions; and the construction area is known to be seismically dangerous.
Also, a serious risk for the project is the fact that there are 74 private sites in the mountain area of the projected tunnels (over the tunnels and within the range of three portals). This requires a strict technological discipline and a proper choice of equipment.
The tunnel cutting will involve the EPB - 10940 Tunnel Boring Machine (TBM) of HERRENKNECHT, with an earth pressure balance shield able to provide tunnelling in the universal soil (from silty sands to unconsolidated rocks and soils). This TBM is a system able to maintain mountain cutting by balancing the pressure of soil and water, as well as to inject chemical reagents on soil. Application of this system removes all risks of possible subsidence of the surface.
The drilling speed in the tunnels №6 bis and №7 bis will be to 400 m per month.
After the tunnel cutting and lining works are finished in both cases, a permanent equipment is to be installed, including railways, electric power network, SCB devices, etc.
The projected tunnel will be laid under the residential, office, industrial and commercial buildings, therefore the design assumes that upper tracks will be supplied with vibration absorbing mats and with welded rail line, which will prevent noise and vibration to spread, so that the vibrodynamic effect on the tunnel lining and the mountain itself will be reduced 75-fold for locomotives and 240-fold for rolling stock.
A monitoring of ground surface subsidence and undermining objects will be carried out during the full range of mining operations in the tunnels № 6 bis and № 7 bis. The monitoring results will be analysed systematically and quickly, in order to determine tendencies and speeds of soil shifting, and to make possible corrections in the set of measures to protect buildings and structures.
All tunnelling, construction, cargo handling and transport vehicles, machines and equipment (including their operation and maintenance schemes) must comply with general safety regulations, current state standards, safety rules for machinery design and operation, as well as with manufacturers’ operational guides for technical devices.
Equipment, machines and mechanisms (including for general construction purposes) are permitted to be used for underground construction if they are designed for underground conditions and allowed for this kind of application by relevant state supervision authorities.
It will take total 26 months to build the tunnels №6 bis and №7 bis (including the preparatory period, which is needed to set up two temporary construction sites and access roads to them), and the net tunnel cutting time will be 6 months.

Resume

Vladimir Yakunin, President of RZD, said at signing agreement to start this JV, that the cooperation with Alpine means new opportunities for the holding company to manage construction projects and to use advanced technologies. Such experience will be beneficial especially when infrastructure projects are realised on Russian railways, and first of all preparing Sochi for the Olympics in 2014. Partnership with the Alpine company will enable RZD to enter infrastructure project markets in Europe and in third countries.
Gennady Talashkin,
First Deputy General Director of RZDstroy
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The company’s investment portfolio

RZDstroy was created on the basis of RZD’s building capacities to work only within the holding company’s structure, where it is responsible for the strategically important area of construction and development of railway infrastructure.
The company has positive experience working both independently and as a general contractor to manage major projects in transport construction. The results of RZDstroy’s four years of activity are: 486 kilometres of railroads put into operation; 87 reconstructed railway halts; 260 built or renovated bridges; 1,600 automated blocking systems, 430 kilometres of electric power lines; 205 constructed or upgraded railway stations or depots and the reconstructed line between St. Petersburg and Moscow for high-speed traffic.
An undoubted advantage of RZDstroy is its experience gained together with RZD in tackling emergencies, including cases of terrorism on the railway network, where the manpower and money of the company’s affiliates were involved. In addition, an important advantage is the creation together with RZD of a single centralised mobilisation training management system, and also the fact that it has a license to work with information classified as a state secret, which allows it to conclude contracts for the construction and reconstruction of sites where access is restricted.
In 2009, the company fully complied with the obligations taken in its Production Program. Despite the overall decline in investor demand and cutting of investment programs, it is steadily holding 20% to 25% of construction orders made by The Russian Railways JSC. In 2010, RZDstroy’s staff will have to fulfill a large RZD corporate order worth over RUR 30 billion.
In order to effectively work with such large-scale investment inflows, the company intends, first of all, to build a vertically integrated structure of its business units’ chief engineers. The reason is that the corps of engineers is the core business unit in construction, able to practically implement application of new technologies and materials. A creative engineering design office will become a key element in the new system, and it is currently being organised. Furthermore, its branches will appear afterwards to manage particular investment projects, such as: a complex reconstruction of the Karymskaya - Zabaikalsk section (Trans-Baikal Railway), the section Mga - Gatchina - Veimarn - Kotly - Ivangorod and railway approaches to ports on the southern coast of the Gulf of Finland (Oktyabrskaya Railway); the railway line from Karabula to Yarki (Krasnoyarsk region) and reconstruction of Kuznetsovsky tunnel at the section between Komsomolsk and Sovetskaya Gavan (Far Eastern Railway).

At the international level

This year we are opening a new page in our activities, an international one.
On 29 January in Vienna, RZDstroy and Alpine Bau GmbH set up the joint venture Alpine-RZDstroy, with the participation of Vladimir Yakunin, President of RZD, and Dietmar Aluta-Oltyan, Alpine Holding part owner and Chairman of its Supervisory Board.
The company’s objective will be to draw up proposals and to implement special infrastructure projects on the territories of The Russian Federation, Austria, and other countries.
The first projects where the JV will be involved will be the construction of the Alptransit Brenner Baulos A1 – Grundausruestung tunnel in Tyrol and the construction of two tunnels in Sochi, which are the infrastructure for the 2014 Winter Olympics.
The Alpine-RZDstroy joint venture is established in the form of a limited liability company registered in Austria. A representative office will be opened in Russia. The joint venture’s authorized capital is EUR 200,000. The venture will be run on the parity basis.
The company is engaged in over-ground construction, therefore the joint venture activities will not be limited to only rail projects.
Our company expects that the joint venture will give us opportunities to develop our expertise in the existing and new skills, including participating in international tenders and managing large construction projects at a contemporary level. We expect to have an access to progressive engineering solutions and to develop new technologies, for example, in tunnel construction, or in construction of high-speed railways, bridges and overpasses. It is also planned to increase capitalisation of RZDstroy, making the company more attractive for investors and creating a positive business reputation in the contractor sector of the Russian and foreign construction markets.

our partners

Alpine is Austria’s second largest construction company. It is successfully conducting projects of various sizes in 26 countries around the world. The company operates in the sector of on-land construction, road and railway construction, bridge building, underground construction, special projects at large depths, and also the construction of electric power stations in Austria and elsewhere in the world. Alpine has an extensive network of subsidiaries in Austria and Germany, and it continues to expand its position in the global construction market. It has subsidiaries also in the CIS countries (with the purpose to realise projects in The Russian Federation), as well as in Asia and the Arab States.
Among the major projects being carried out by Alpine is the reconstruction of the Berlin-Palermo trans-European railway corridor on the 41 kilometres long section between Kyundl and Baumkirchen (Tyrol, Austria); new metro in Delhi; and a 24.5 kilometres long Pinglu-Tunnel (Shanghai, China) with the diameter of 4.8 metres, which is among the longest tunnels in the world. Also, it is participating in the construction of the world’s longest St. Gotthard tunnel (Switzerland), which is more than 56 kilometres long.
The idea to build the Brenner Base railway tunnel (BOT), where our joint venture will participate, is to reduce the number of overloaded roads by means of redirecting traffic to railroads. Built between Insburg highway (Austria) and Franzenfeste (Forteza, Italy), the BOT will be the second longest tunnel in the world with a planned length of 56 kilometres (36 miles). The main Gotthard tunnel built between Italy and Switzerland, which was mentioned above, is only one kilometre longer than the BOT.
The total length of the bypass railway line from Insburg to Forteza will be 62.7 kilometres, which makes it the longest underground railway line in the world.
BOT construction will start in 2010 in Austria, and it is expected to be finished in the period from 2020 to 2022. After it is launched, it is expected that travelling from Innsbruck to Bolzano in Italy will take 70 minutes less than now, and trains will be able to cross the Alps much faster. The main purpose of BOT in Austria is to use it for moving cargo trains.
BOT consists of two parallel tunnels which are connected to each other in every 333 metres. Freight trains will move in only one direction, since each tunnel consists of only one track. Brenner tunnel lies at a height of 794 m below the lowest road in the Alps, which is situated at a height of 1,371 metres. Construction of the 2/3 part of the tunnel will be realised by a tunnel boring machine, and the remaining 1/3 of the tunnel will be built using the general mining method.

Tunnelling to Sochi

A decision has been taken to lay the second way on the North - Caucasian Railway’s section between Sochi and Adler by building two new tunnels №6 bis and №7 bis, in order to develop the infrastructure in Sochi and to ensure necessary transport during the preparation for and running the Winter Olympics 2014.
JV Alpine-RZDstroy will carry out complex works to build the tunnels. Application of advanced technologies and global integration of leading Austrian tunnel-builders and Russian experts should ensure a high quality work of this enterprise and the reduction in the construction time. Project management will be a joint Russian-Austrian team.
Construction of new tunnels №6 bis and №7 bis is planned in a single-track scheme, involving a high performance mountain cutting machines, in order to ensure both a short time to accomplish the path making works and construction safety, and also remembering that there are tunnels №6 and №7 working currently in a parallel layer with the ones under construction.
The area where the tunnel road to be laid is located in such geological environment, which is characterized by a high level of tectonic activity with the consequent seismicity and exogenous phenomena.
The following negative impacts may complicate the construction there: gravitation and seismological-gravitation factors (landslides); flat or striated erosion and mudflow processes; widespread intense weathering of rocks (mudstones of low and very low strength); landslides especially in the end tunnel sections (five deep landslides were recorded on the site, which appeared due to weakening inclines in the bedrock, as well as four surface landslides in the upper layers of the ground); precipitation and high groundwater levels, which increase rock slope humidity; seasonal changes to a large extent in physical/chemical and physical/mechanical characteristics of soil, depending on the moisture conditions; and the construction area is known to be seismically dangerous.
Also, a serious risk for the project is the fact that there are 74 private sites in the mountain area of the projected tunnels (over the tunnels and within the range of three portals). This requires a strict technological discipline and a proper choice of equipment.
The tunnel cutting will involve the EPB - 10940 Tunnel Boring Machine (TBM) of HERRENKNECHT, with an earth pressure balance shield able to provide tunnelling in the universal soil (from silty sands to unconsolidated rocks and soils). This TBM is a system able to maintain mountain cutting by balancing the pressure of soil and water, as well as to inject chemical reagents on soil. Application of this system removes all risks of possible subsidence of the surface.
The drilling speed in the tunnels №6 bis and №7 bis will be to 400 m per month.
After the tunnel cutting and lining works are finished in both cases, a permanent equipment is to be installed, including railways, electric power network, SCB devices, etc.
The projected tunnel will be laid under the residential, office, industrial and commercial buildings, therefore the design assumes that upper tracks will be supplied with vibration absorbing mats and with welded rail line, which will prevent noise and vibration to spread, so that the vibrodynamic effect on the tunnel lining and the mountain itself will be reduced 75-fold for locomotives and 240-fold for rolling stock.
A monitoring of ground surface subsidence and undermining objects will be carried out during the full range of mining operations in the tunnels № 6 bis and № 7 bis. The monitoring results will be analysed systematically and quickly, in order to determine tendencies and speeds of soil shifting, and to make possible corrections in the set of measures to protect buildings and structures.
All tunnelling, construction, cargo handling and transport vehicles, machines and equipment (including their operation and maintenance schemes) must comply with general safety regulations, current state standards, safety rules for machinery design and operation, as well as with manufacturers’ operational guides for technical devices.
Equipment, machines and mechanisms (including for general construction purposes) are permitted to be used for underground construction if they are designed for underground conditions and allowed for this kind of application by relevant state supervision authorities.
It will take total 26 months to build the tunnels №6 bis and №7 bis (including the preparatory period, which is needed to set up two temporary construction sites and access roads to them), and the net tunnel cutting time will be 6 months.

Resume

Vladimir Yakunin, President of RZD, said at signing agreement to start this JV, that the cooperation with Alpine means new opportunities for the holding company to manage construction projects and to use advanced technologies. Such experience will be beneficial especially when infrastructure projects are realised on Russian railways, and first of all preparing Sochi for the Olympics in 2014. Partnership with the Alpine company will enable RZD to enter infrastructure project markets in Europe and in third countries.
Gennady Talashkin,
First Deputy General Director of RZDstroy
[~DETAIL_TEXT] =>

The company’s investment portfolio

RZDstroy was created on the basis of RZD’s building capacities to work only within the holding company’s structure, where it is responsible for the strategically important area of construction and development of railway infrastructure.
The company has positive experience working both independently and as a general contractor to manage major projects in transport construction. The results of RZDstroy’s four years of activity are: 486 kilometres of railroads put into operation; 87 reconstructed railway halts; 260 built or renovated bridges; 1,600 automated blocking systems, 430 kilometres of electric power lines; 205 constructed or upgraded railway stations or depots and the reconstructed line between St. Petersburg and Moscow for high-speed traffic.
An undoubted advantage of RZDstroy is its experience gained together with RZD in tackling emergencies, including cases of terrorism on the railway network, where the manpower and money of the company’s affiliates were involved. In addition, an important advantage is the creation together with RZD of a single centralised mobilisation training management system, and also the fact that it has a license to work with information classified as a state secret, which allows it to conclude contracts for the construction and reconstruction of sites where access is restricted.
In 2009, the company fully complied with the obligations taken in its Production Program. Despite the overall decline in investor demand and cutting of investment programs, it is steadily holding 20% to 25% of construction orders made by The Russian Railways JSC. In 2010, RZDstroy’s staff will have to fulfill a large RZD corporate order worth over RUR 30 billion.
In order to effectively work with such large-scale investment inflows, the company intends, first of all, to build a vertically integrated structure of its business units’ chief engineers. The reason is that the corps of engineers is the core business unit in construction, able to practically implement application of new technologies and materials. A creative engineering design office will become a key element in the new system, and it is currently being organised. Furthermore, its branches will appear afterwards to manage particular investment projects, such as: a complex reconstruction of the Karymskaya - Zabaikalsk section (Trans-Baikal Railway), the section Mga - Gatchina - Veimarn - Kotly - Ivangorod and railway approaches to ports on the southern coast of the Gulf of Finland (Oktyabrskaya Railway); the railway line from Karabula to Yarki (Krasnoyarsk region) and reconstruction of Kuznetsovsky tunnel at the section between Komsomolsk and Sovetskaya Gavan (Far Eastern Railway).

At the international level

This year we are opening a new page in our activities, an international one.
On 29 January in Vienna, RZDstroy and Alpine Bau GmbH set up the joint venture Alpine-RZDstroy, with the participation of Vladimir Yakunin, President of RZD, and Dietmar Aluta-Oltyan, Alpine Holding part owner and Chairman of its Supervisory Board.
The company’s objective will be to draw up proposals and to implement special infrastructure projects on the territories of The Russian Federation, Austria, and other countries.
The first projects where the JV will be involved will be the construction of the Alptransit Brenner Baulos A1 – Grundausruestung tunnel in Tyrol and the construction of two tunnels in Sochi, which are the infrastructure for the 2014 Winter Olympics.
The Alpine-RZDstroy joint venture is established in the form of a limited liability company registered in Austria. A representative office will be opened in Russia. The joint venture’s authorized capital is EUR 200,000. The venture will be run on the parity basis.
The company is engaged in over-ground construction, therefore the joint venture activities will not be limited to only rail projects.
Our company expects that the joint venture will give us opportunities to develop our expertise in the existing and new skills, including participating in international tenders and managing large construction projects at a contemporary level. We expect to have an access to progressive engineering solutions and to develop new technologies, for example, in tunnel construction, or in construction of high-speed railways, bridges and overpasses. It is also planned to increase capitalisation of RZDstroy, making the company more attractive for investors and creating a positive business reputation in the contractor sector of the Russian and foreign construction markets.

our partners

Alpine is Austria’s second largest construction company. It is successfully conducting projects of various sizes in 26 countries around the world. The company operates in the sector of on-land construction, road and railway construction, bridge building, underground construction, special projects at large depths, and also the construction of electric power stations in Austria and elsewhere in the world. Alpine has an extensive network of subsidiaries in Austria and Germany, and it continues to expand its position in the global construction market. It has subsidiaries also in the CIS countries (with the purpose to realise projects in The Russian Federation), as well as in Asia and the Arab States.
Among the major projects being carried out by Alpine is the reconstruction of the Berlin-Palermo trans-European railway corridor on the 41 kilometres long section between Kyundl and Baumkirchen (Tyrol, Austria); new metro in Delhi; and a 24.5 kilometres long Pinglu-Tunnel (Shanghai, China) with the diameter of 4.8 metres, which is among the longest tunnels in the world. Also, it is participating in the construction of the world’s longest St. Gotthard tunnel (Switzerland), which is more than 56 kilometres long.
The idea to build the Brenner Base railway tunnel (BOT), where our joint venture will participate, is to reduce the number of overloaded roads by means of redirecting traffic to railroads. Built between Insburg highway (Austria) and Franzenfeste (Forteza, Italy), the BOT will be the second longest tunnel in the world with a planned length of 56 kilometres (36 miles). The main Gotthard tunnel built between Italy and Switzerland, which was mentioned above, is only one kilometre longer than the BOT.
The total length of the bypass railway line from Insburg to Forteza will be 62.7 kilometres, which makes it the longest underground railway line in the world.
BOT construction will start in 2010 in Austria, and it is expected to be finished in the period from 2020 to 2022. After it is launched, it is expected that travelling from Innsbruck to Bolzano in Italy will take 70 minutes less than now, and trains will be able to cross the Alps much faster. The main purpose of BOT in Austria is to use it for moving cargo trains.
BOT consists of two parallel tunnels which are connected to each other in every 333 metres. Freight trains will move in only one direction, since each tunnel consists of only one track. Brenner tunnel lies at a height of 794 m below the lowest road in the Alps, which is situated at a height of 1,371 metres. Construction of the 2/3 part of the tunnel will be realised by a tunnel boring machine, and the remaining 1/3 of the tunnel will be built using the general mining method.

Tunnelling to Sochi

A decision has been taken to lay the second way on the North - Caucasian Railway’s section between Sochi and Adler by building two new tunnels №6 bis and №7 bis, in order to develop the infrastructure in Sochi and to ensure necessary transport during the preparation for and running the Winter Olympics 2014.
JV Alpine-RZDstroy will carry out complex works to build the tunnels. Application of advanced technologies and global integration of leading Austrian tunnel-builders and Russian experts should ensure a high quality work of this enterprise and the reduction in the construction time. Project management will be a joint Russian-Austrian team.
Construction of new tunnels №6 bis and №7 bis is planned in a single-track scheme, involving a high performance mountain cutting machines, in order to ensure both a short time to accomplish the path making works and construction safety, and also remembering that there are tunnels №6 and №7 working currently in a parallel layer with the ones under construction.
The area where the tunnel road to be laid is located in such geological environment, which is characterized by a high level of tectonic activity with the consequent seismicity and exogenous phenomena.
The following negative impacts may complicate the construction there: gravitation and seismological-gravitation factors (landslides); flat or striated erosion and mudflow processes; widespread intense weathering of rocks (mudstones of low and very low strength); landslides especially in the end tunnel sections (five deep landslides were recorded on the site, which appeared due to weakening inclines in the bedrock, as well as four surface landslides in the upper layers of the ground); precipitation and high groundwater levels, which increase rock slope humidity; seasonal changes to a large extent in physical/chemical and physical/mechanical characteristics of soil, depending on the moisture conditions; and the construction area is known to be seismically dangerous.
Also, a serious risk for the project is the fact that there are 74 private sites in the mountain area of the projected tunnels (over the tunnels and within the range of three portals). This requires a strict technological discipline and a proper choice of equipment.
The tunnel cutting will involve the EPB - 10940 Tunnel Boring Machine (TBM) of HERRENKNECHT, with an earth pressure balance shield able to provide tunnelling in the universal soil (from silty sands to unconsolidated rocks and soils). This TBM is a system able to maintain mountain cutting by balancing the pressure of soil and water, as well as to inject chemical reagents on soil. Application of this system removes all risks of possible subsidence of the surface.
The drilling speed in the tunnels №6 bis and №7 bis will be to 400 m per month.
After the tunnel cutting and lining works are finished in both cases, a permanent equipment is to be installed, including railways, electric power network, SCB devices, etc.
The projected tunnel will be laid under the residential, office, industrial and commercial buildings, therefore the design assumes that upper tracks will be supplied with vibration absorbing mats and with welded rail line, which will prevent noise and vibration to spread, so that the vibrodynamic effect on the tunnel lining and the mountain itself will be reduced 75-fold for locomotives and 240-fold for rolling stock.
A monitoring of ground surface subsidence and undermining objects will be carried out during the full range of mining operations in the tunnels № 6 bis and № 7 bis. The monitoring results will be analysed systematically and quickly, in order to determine tendencies and speeds of soil shifting, and to make possible corrections in the set of measures to protect buildings and structures.
All tunnelling, construction, cargo handling and transport vehicles, machines and equipment (including their operation and maintenance schemes) must comply with general safety regulations, current state standards, safety rules for machinery design and operation, as well as with manufacturers’ operational guides for technical devices.
Equipment, machines and mechanisms (including for general construction purposes) are permitted to be used for underground construction if they are designed for underground conditions and allowed for this kind of application by relevant state supervision authorities.
It will take total 26 months to build the tunnels №6 bis and №7 bis (including the preparatory period, which is needed to set up two temporary construction sites and access roads to them), and the net tunnel cutting time will be 6 months.

Resume

Vladimir Yakunin, President of RZD, said at signing agreement to start this JV, that the cooperation with Alpine means new opportunities for the holding company to manage construction projects and to use advanced technologies. Such experience will be beneficial especially when infrastructure projects are realised on Russian railways, and first of all preparing Sochi for the Olympics in 2014. Partnership with the Alpine company will enable RZD to enter infrastructure project markets in Europe and in third countries.
Gennady Talashkin,
First Deputy General Director of RZDstroy
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РЖД-Партнер

The new Silk Way

 Construction of the 3,000km Kazakhstani part of the “West China – West Europe” highway started in September 2009. Once finished, the highway will allow transit transportation volumes via Kazakhstan to treble.
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Far-reaching plans

The Memorandum of Russian-Kazakhstan cooperation signed by Presidents Medvedev and Nazarbaev in September 2009 confirmed the interest of the both countries in the project. A transport corridor linking West China to West Europe is an old idea of Kazakhstani politicians. According to the scheme “a network of modern wayside infrastructure, logistics centres and comfortable recreation facilities” is to be built along the route. That will make the track an international transport corridor which partly follows the ancient Silk Way.
The explosive growth of Chinese industry, as well as its central and west regions development program, became an important factor in the launch of the project. Until recently about 90% of Chinese industry was concentrated in coastal areas in the eastern part of the country. In 2007 China decided to move some production capacities inland.
It opened the possibility for Central Asian countries to become important transit transportation regions.
The project of the West China - West Europe track, as well as the China - Kyrgyzstan - Uzbekistan railway scheme, are being executed for this purpose. The Ministry of Transportation and Communications of Kazakhstan has worked out a comprehensive program to develop the international transit route “West China – West Europe”.
Under this scheme, creation of a second rail border crossing named “Horgos” on the Kazakhstan - China border, infrastructure development on the crossing and construction of the railway spur Horgos – Alma-Ata are planned. The scheme will establish a direct rail connection between Samara (Russia) – Alma-Ata (Kazakhstan) and West China.
The Kazakhstani program of highway infrastructure development is no less ambitious. In 2009 Kazakhstan provided over 79 billion tenge ($521.96 million) from the State budget for a far-reaching reconstruction program of regional roads with a total length of 700 km. Construction work will be carried out at 40 sites simultaneously.
In particular, reconstructions of the road sections Astana - Schuchinsk, Schuchinsk - Kokchetav, Astana – Kustanaj - Chelyabinsk, Russian border – Uralsk - Aktyubinsk and Karabutak – Irgiz - Kyzylordinsk region border, Omsk – Pavlodar - Maikapchagaj, Taskesken - Bakhty, Atyrau - Beineu are projected.
This year Kazakhstan is planning to put 497 km of track into service.
However construction of four international and 12 regional combined terminals and creation of an A-class highway network on the line “West China – West Europe” is going to be the main project in this field.

Russia will benefit

Russian experts note that Kazakhstan with these ambitious projects leaves Russia behind in providing conditions for attracting new cargo flows to its territory. On the other hand, Kazakhstani projects are beneficial for Russia, as development of a route in the neighboring state will surely result in a tangible growth in transit transportation via Russia.
Construction works on the international transit corridor West Europe – West China are to begin in the near future. Its total length is 8,445 km, of which 2,787 km go via Kazakhstan’s territory. The road is supposed to go through all southern regions of the Republic and via the city of Aktyubinsk (in the centre of the Aktyubinsk region of Kazakhstan) on its way to Russia.
Kazakhstan authorities believe the program will help re-route some Chinese goods to road transport from the sea and draw new cargo flows from Central Asia.
About 1,100 km of the highway should be built new, while most of the way just needs to be upgraded to meet international standards. The Ministry of transport forecasts that if the project is executed the truck haul volume on this route will increase from 900,000 tons to 3.5 million tons per year.
Kazakhstani experts have estimated the cost of construction of this 1,100km road section at 900 billion tenge ($5.96 billion). According to economic studies, the project should be supported by private investment. The costs of the project would be covered partly by the state budget, partly by means of a public-private partnership (particularly the construction of the Alma-Ata – Horgos road section), and partly by loans from international financial institutions. According to the Kazakhstani Transport Ministry, the forecast average annual economic impact of the project will reach 55 billion tenge ($364.55 million) if unadjusted for inflation.

A single loan from everyone

Kazakhstan already has reached agreements with five international financial institutions on provision of a $3.5 billion loan to build the 1,100km road section. The costs will be covered by the World Bank ($2.125 billion), Asia Development Bank ($700 million), Islamic Development Bank ($414 million), European Bank for Reconstruction and Development (EBRD) ($180 million) and the Japanese Agency for International Cooperation ($100 million).
The first loan agreements were signed in March 2009 by Asia Development Bank and European Bank for Reconstruction and Development and attested by the Finance Minister of Kazakhstan Bolat Zhamishev, EBRD Vice President Varel Fridman and Director of the ADB office in Kazakhstan Stiven Vermert.
The European Bank for Reconstruction and Development loan, which has a maturity of 19 years and includes $32 million of budgetary financing, will cover reconstruction of the 102km highway linking the Russian border with Aktyubinsk (west Kazakhstan).
ADB grants to Kazakhstan a $340 million loan over 25 years. This money together with $60 mln from the budget will cover reconstruction of a 129km road between Taraz and Kordaj (Zhambyl region). In all, ADB intends to invest $700 million in this project.
The agreement with the International Bank for Reconstruction and Development (a World Bank structure) was signed in June 2009. To our knowledge, these funds, in combination with budgetary financing of $375 million, will cover reconstruction of the road sections connecting the Kzyl-Ordynsk and Aktyubinsk border regions and Chimkent (south Kazakhstan).
Construction of this 1,062km section is expected to be completed by the end of 2013.
The World Bank loan is granted for 25 years. It is not the first Kazakhstani project supported by the World Bank. Since 1992 the Bank had provided 33 loans to the country totalling $4.2 billion. The Islamic Development Bank loan is meant for reconstruction of the 58km road between South Kazakhstan’s border and Taraz, which is the part of the international corridor. Agreement with the Japanese Agency for International Cooperation is expected to be signed in the near future.
Abelgazi Kusainov, the Transport Minister of the country, reported the implementation of the project would start in September 2010. Construction works will be carried out simultaneously in Aktyubinsk, Kzyl-Ordynsk and Zhambyl regions. Most of the works should be done in 2010-2011. Preliminary calculations say 2.9 million tons of cement, 5.3 tons of sand and 569,000 tons of native asphalt are required for the highway.
It is planned to mainly use construction materials produced in Kazakhstan. Today the state is able to provide 84% of this. The new asphalt-producing factory with a productive capacity of 400 cubic meters per year in is supposed be built in Mangistaur region to provide the new track with native asphalt. Kazakhstan’s authorities believe the auto corridor “West China - West Europe” is going to have a multiplier effect.
“If we ship 13 million tons of cargo today, tomorrow we’ll be able to transport 33 million tons. Thanks to this project we’ll be able to use the transit potential of our country to the maximum, which means great prospects for our economy,” Mr Kusainov noted.
By Nadezhda vtorushina [~DETAIL_TEXT] =>

Far-reaching plans

The Memorandum of Russian-Kazakhstan cooperation signed by Presidents Medvedev and Nazarbaev in September 2009 confirmed the interest of the both countries in the project. A transport corridor linking West China to West Europe is an old idea of Kazakhstani politicians. According to the scheme “a network of modern wayside infrastructure, logistics centres and comfortable recreation facilities” is to be built along the route. That will make the track an international transport corridor which partly follows the ancient Silk Way.
The explosive growth of Chinese industry, as well as its central and west regions development program, became an important factor in the launch of the project. Until recently about 90% of Chinese industry was concentrated in coastal areas in the eastern part of the country. In 2007 China decided to move some production capacities inland.
It opened the possibility for Central Asian countries to become important transit transportation regions.
The project of the West China - West Europe track, as well as the China - Kyrgyzstan - Uzbekistan railway scheme, are being executed for this purpose. The Ministry of Transportation and Communications of Kazakhstan has worked out a comprehensive program to develop the international transit route “West China – West Europe”.
Under this scheme, creation of a second rail border crossing named “Horgos” on the Kazakhstan - China border, infrastructure development on the crossing and construction of the railway spur Horgos – Alma-Ata are planned. The scheme will establish a direct rail connection between Samara (Russia) – Alma-Ata (Kazakhstan) and West China.
The Kazakhstani program of highway infrastructure development is no less ambitious. In 2009 Kazakhstan provided over 79 billion tenge ($521.96 million) from the State budget for a far-reaching reconstruction program of regional roads with a total length of 700 km. Construction work will be carried out at 40 sites simultaneously.
In particular, reconstructions of the road sections Astana - Schuchinsk, Schuchinsk - Kokchetav, Astana – Kustanaj - Chelyabinsk, Russian border – Uralsk - Aktyubinsk and Karabutak – Irgiz - Kyzylordinsk region border, Omsk – Pavlodar - Maikapchagaj, Taskesken - Bakhty, Atyrau - Beineu are projected.
This year Kazakhstan is planning to put 497 km of track into service.
However construction of four international and 12 regional combined terminals and creation of an A-class highway network on the line “West China – West Europe” is going to be the main project in this field.

Russia will benefit

Russian experts note that Kazakhstan with these ambitious projects leaves Russia behind in providing conditions for attracting new cargo flows to its territory. On the other hand, Kazakhstani projects are beneficial for Russia, as development of a route in the neighboring state will surely result in a tangible growth in transit transportation via Russia.
Construction works on the international transit corridor West Europe – West China are to begin in the near future. Its total length is 8,445 km, of which 2,787 km go via Kazakhstan’s territory. The road is supposed to go through all southern regions of the Republic and via the city of Aktyubinsk (in the centre of the Aktyubinsk region of Kazakhstan) on its way to Russia.
Kazakhstan authorities believe the program will help re-route some Chinese goods to road transport from the sea and draw new cargo flows from Central Asia.
About 1,100 km of the highway should be built new, while most of the way just needs to be upgraded to meet international standards. The Ministry of transport forecasts that if the project is executed the truck haul volume on this route will increase from 900,000 tons to 3.5 million tons per year.
Kazakhstani experts have estimated the cost of construction of this 1,100km road section at 900 billion tenge ($5.96 billion). According to economic studies, the project should be supported by private investment. The costs of the project would be covered partly by the state budget, partly by means of a public-private partnership (particularly the construction of the Alma-Ata – Horgos road section), and partly by loans from international financial institutions. According to the Kazakhstani Transport Ministry, the forecast average annual economic impact of the project will reach 55 billion tenge ($364.55 million) if unadjusted for inflation.

A single loan from everyone

Kazakhstan already has reached agreements with five international financial institutions on provision of a $3.5 billion loan to build the 1,100km road section. The costs will be covered by the World Bank ($2.125 billion), Asia Development Bank ($700 million), Islamic Development Bank ($414 million), European Bank for Reconstruction and Development (EBRD) ($180 million) and the Japanese Agency for International Cooperation ($100 million).
The first loan agreements were signed in March 2009 by Asia Development Bank and European Bank for Reconstruction and Development and attested by the Finance Minister of Kazakhstan Bolat Zhamishev, EBRD Vice President Varel Fridman and Director of the ADB office in Kazakhstan Stiven Vermert.
The European Bank for Reconstruction and Development loan, which has a maturity of 19 years and includes $32 million of budgetary financing, will cover reconstruction of the 102km highway linking the Russian border with Aktyubinsk (west Kazakhstan).
ADB grants to Kazakhstan a $340 million loan over 25 years. This money together with $60 mln from the budget will cover reconstruction of a 129km road between Taraz and Kordaj (Zhambyl region). In all, ADB intends to invest $700 million in this project.
The agreement with the International Bank for Reconstruction and Development (a World Bank structure) was signed in June 2009. To our knowledge, these funds, in combination with budgetary financing of $375 million, will cover reconstruction of the road sections connecting the Kzyl-Ordynsk and Aktyubinsk border regions and Chimkent (south Kazakhstan).
Construction of this 1,062km section is expected to be completed by the end of 2013.
The World Bank loan is granted for 25 years. It is not the first Kazakhstani project supported by the World Bank. Since 1992 the Bank had provided 33 loans to the country totalling $4.2 billion. The Islamic Development Bank loan is meant for reconstruction of the 58km road between South Kazakhstan’s border and Taraz, which is the part of the international corridor. Agreement with the Japanese Agency for International Cooperation is expected to be signed in the near future.
Abelgazi Kusainov, the Transport Minister of the country, reported the implementation of the project would start in September 2010. Construction works will be carried out simultaneously in Aktyubinsk, Kzyl-Ordynsk and Zhambyl regions. Most of the works should be done in 2010-2011. Preliminary calculations say 2.9 million tons of cement, 5.3 tons of sand and 569,000 tons of native asphalt are required for the highway.
It is planned to mainly use construction materials produced in Kazakhstan. Today the state is able to provide 84% of this. The new asphalt-producing factory with a productive capacity of 400 cubic meters per year in is supposed be built in Mangistaur region to provide the new track with native asphalt. Kazakhstan’s authorities believe the auto corridor “West China - West Europe” is going to have a multiplier effect.
“If we ship 13 million tons of cargo today, tomorrow we’ll be able to transport 33 million tons. Thanks to this project we’ll be able to use the transit potential of our country to the maximum, which means great prospects for our economy,” Mr Kusainov noted.
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Far-reaching plans

The Memorandum of Russian-Kazakhstan cooperation signed by Presidents Medvedev and Nazarbaev in September 2009 confirmed the interest of the both countries in the project. A transport corridor linking West China to West Europe is an old idea of Kazakhstani politicians. According to the scheme “a network of modern wayside infrastructure, logistics centres and comfortable recreation facilities” is to be built along the route. That will make the track an international transport corridor which partly follows the ancient Silk Way.
The explosive growth of Chinese industry, as well as its central and west regions development program, became an important factor in the launch of the project. Until recently about 90% of Chinese industry was concentrated in coastal areas in the eastern part of the country. In 2007 China decided to move some production capacities inland.
It opened the possibility for Central Asian countries to become important transit transportation regions.
The project of the West China - West Europe track, as well as the China - Kyrgyzstan - Uzbekistan railway scheme, are being executed for this purpose. The Ministry of Transportation and Communications of Kazakhstan has worked out a comprehensive program to develop the international transit route “West China – West Europe”.
Under this scheme, creation of a second rail border crossing named “Horgos” on the Kazakhstan - China border, infrastructure development on the crossing and construction of the railway spur Horgos – Alma-Ata are planned. The scheme will establish a direct rail connection between Samara (Russia) – Alma-Ata (Kazakhstan) and West China.
The Kazakhstani program of highway infrastructure development is no less ambitious. In 2009 Kazakhstan provided over 79 billion tenge ($521.96 million) from the State budget for a far-reaching reconstruction program of regional roads with a total length of 700 km. Construction work will be carried out at 40 sites simultaneously.
In particular, reconstructions of the road sections Astana - Schuchinsk, Schuchinsk - Kokchetav, Astana – Kustanaj - Chelyabinsk, Russian border – Uralsk - Aktyubinsk and Karabutak – Irgiz - Kyzylordinsk region border, Omsk – Pavlodar - Maikapchagaj, Taskesken - Bakhty, Atyrau - Beineu are projected.
This year Kazakhstan is planning to put 497 km of track into service.
However construction of four international and 12 regional combined terminals and creation of an A-class highway network on the line “West China – West Europe” is going to be the main project in this field.

Russia will benefit

Russian experts note that Kazakhstan with these ambitious projects leaves Russia behind in providing conditions for attracting new cargo flows to its territory. On the other hand, Kazakhstani projects are beneficial for Russia, as development of a route in the neighboring state will surely result in a tangible growth in transit transportation via Russia.
Construction works on the international transit corridor West Europe – West China are to begin in the near future. Its total length is 8,445 km, of which 2,787 km go via Kazakhstan’s territory. The road is supposed to go through all southern regions of the Republic and via the city of Aktyubinsk (in the centre of the Aktyubinsk region of Kazakhstan) on its way to Russia.
Kazakhstan authorities believe the program will help re-route some Chinese goods to road transport from the sea and draw new cargo flows from Central Asia.
About 1,100 km of the highway should be built new, while most of the way just needs to be upgraded to meet international standards. The Ministry of transport forecasts that if the project is executed the truck haul volume on this route will increase from 900,000 tons to 3.5 million tons per year.
Kazakhstani experts have estimated the cost of construction of this 1,100km road section at 900 billion tenge ($5.96 billion). According to economic studies, the project should be supported by private investment. The costs of the project would be covered partly by the state budget, partly by means of a public-private partnership (particularly the construction of the Alma-Ata – Horgos road section), and partly by loans from international financial institutions. According to the Kazakhstani Transport Ministry, the forecast average annual economic impact of the project will reach 55 billion tenge ($364.55 million) if unadjusted for inflation.

A single loan from everyone

Kazakhstan already has reached agreements with five international financial institutions on provision of a $3.5 billion loan to build the 1,100km road section. The costs will be covered by the World Bank ($2.125 billion), Asia Development Bank ($700 million), Islamic Development Bank ($414 million), European Bank for Reconstruction and Development (EBRD) ($180 million) and the Japanese Agency for International Cooperation ($100 million).
The first loan agreements were signed in March 2009 by Asia Development Bank and European Bank for Reconstruction and Development and attested by the Finance Minister of Kazakhstan Bolat Zhamishev, EBRD Vice President Varel Fridman and Director of the ADB office in Kazakhstan Stiven Vermert.
The European Bank for Reconstruction and Development loan, which has a maturity of 19 years and includes $32 million of budgetary financing, will cover reconstruction of the 102km highway linking the Russian border with Aktyubinsk (west Kazakhstan).
ADB grants to Kazakhstan a $340 million loan over 25 years. This money together with $60 mln from the budget will cover reconstruction of a 129km road between Taraz and Kordaj (Zhambyl region). In all, ADB intends to invest $700 million in this project.
The agreement with the International Bank for Reconstruction and Development (a World Bank structure) was signed in June 2009. To our knowledge, these funds, in combination with budgetary financing of $375 million, will cover reconstruction of the road sections connecting the Kzyl-Ordynsk and Aktyubinsk border regions and Chimkent (south Kazakhstan).
Construction of this 1,062km section is expected to be completed by the end of 2013.
The World Bank loan is granted for 25 years. It is not the first Kazakhstani project supported by the World Bank. Since 1992 the Bank had provided 33 loans to the country totalling $4.2 billion. The Islamic Development Bank loan is meant for reconstruction of the 58km road between South Kazakhstan’s border and Taraz, which is the part of the international corridor. Agreement with the Japanese Agency for International Cooperation is expected to be signed in the near future.
Abelgazi Kusainov, the Transport Minister of the country, reported the implementation of the project would start in September 2010. Construction works will be carried out simultaneously in Aktyubinsk, Kzyl-Ordynsk and Zhambyl regions. Most of the works should be done in 2010-2011. Preliminary calculations say 2.9 million tons of cement, 5.3 tons of sand and 569,000 tons of native asphalt are required for the highway.
It is planned to mainly use construction materials produced in Kazakhstan. Today the state is able to provide 84% of this. The new asphalt-producing factory with a productive capacity of 400 cubic meters per year in is supposed be built in Mangistaur region to provide the new track with native asphalt. Kazakhstan’s authorities believe the auto corridor “West China - West Europe” is going to have a multiplier effect.
“If we ship 13 million tons of cargo today, tomorrow we’ll be able to transport 33 million tons. Thanks to this project we’ll be able to use the transit potential of our country to the maximum, which means great prospects for our economy,” Mr Kusainov noted.
By Nadezhda vtorushina [~DETAIL_TEXT] =>

Far-reaching plans

The Memorandum of Russian-Kazakhstan cooperation signed by Presidents Medvedev and Nazarbaev in September 2009 confirmed the interest of the both countries in the project. A transport corridor linking West China to West Europe is an old idea of Kazakhstani politicians. According to the scheme “a network of modern wayside infrastructure, logistics centres and comfortable recreation facilities” is to be built along the route. That will make the track an international transport corridor which partly follows the ancient Silk Way.
The explosive growth of Chinese industry, as well as its central and west regions development program, became an important factor in the launch of the project. Until recently about 90% of Chinese industry was concentrated in coastal areas in the eastern part of the country. In 2007 China decided to move some production capacities inland.
It opened the possibility for Central Asian countries to become important transit transportation regions.
The project of the West China - West Europe track, as well as the China - Kyrgyzstan - Uzbekistan railway scheme, are being executed for this purpose. The Ministry of Transportation and Communications of Kazakhstan has worked out a comprehensive program to develop the international transit route “West China – West Europe”.
Under this scheme, creation of a second rail border crossing named “Horgos” on the Kazakhstan - China border, infrastructure development on the crossing and construction of the railway spur Horgos – Alma-Ata are planned. The scheme will establish a direct rail connection between Samara (Russia) – Alma-Ata (Kazakhstan) and West China.
The Kazakhstani program of highway infrastructure development is no less ambitious. In 2009 Kazakhstan provided over 79 billion tenge ($521.96 million) from the State budget for a far-reaching reconstruction program of regional roads with a total length of 700 km. Construction work will be carried out at 40 sites simultaneously.
In particular, reconstructions of the road sections Astana - Schuchinsk, Schuchinsk - Kokchetav, Astana – Kustanaj - Chelyabinsk, Russian border – Uralsk - Aktyubinsk and Karabutak – Irgiz - Kyzylordinsk region border, Omsk – Pavlodar - Maikapchagaj, Taskesken - Bakhty, Atyrau - Beineu are projected.
This year Kazakhstan is planning to put 497 km of track into service.
However construction of four international and 12 regional combined terminals and creation of an A-class highway network on the line “West China – West Europe” is going to be the main project in this field.

Russia will benefit

Russian experts note that Kazakhstan with these ambitious projects leaves Russia behind in providing conditions for attracting new cargo flows to its territory. On the other hand, Kazakhstani projects are beneficial for Russia, as development of a route in the neighboring state will surely result in a tangible growth in transit transportation via Russia.
Construction works on the international transit corridor West Europe – West China are to begin in the near future. Its total length is 8,445 km, of which 2,787 km go via Kazakhstan’s territory. The road is supposed to go through all southern regions of the Republic and via the city of Aktyubinsk (in the centre of the Aktyubinsk region of Kazakhstan) on its way to Russia.
Kazakhstan authorities believe the program will help re-route some Chinese goods to road transport from the sea and draw new cargo flows from Central Asia.
About 1,100 km of the highway should be built new, while most of the way just needs to be upgraded to meet international standards. The Ministry of transport forecasts that if the project is executed the truck haul volume on this route will increase from 900,000 tons to 3.5 million tons per year.
Kazakhstani experts have estimated the cost of construction of this 1,100km road section at 900 billion tenge ($5.96 billion). According to economic studies, the project should be supported by private investment. The costs of the project would be covered partly by the state budget, partly by means of a public-private partnership (particularly the construction of the Alma-Ata – Horgos road section), and partly by loans from international financial institutions. According to the Kazakhstani Transport Ministry, the forecast average annual economic impact of the project will reach 55 billion tenge ($364.55 million) if unadjusted for inflation.

A single loan from everyone

Kazakhstan already has reached agreements with five international financial institutions on provision of a $3.5 billion loan to build the 1,100km road section. The costs will be covered by the World Bank ($2.125 billion), Asia Development Bank ($700 million), Islamic Development Bank ($414 million), European Bank for Reconstruction and Development (EBRD) ($180 million) and the Japanese Agency for International Cooperation ($100 million).
The first loan agreements were signed in March 2009 by Asia Development Bank and European Bank for Reconstruction and Development and attested by the Finance Minister of Kazakhstan Bolat Zhamishev, EBRD Vice President Varel Fridman and Director of the ADB office in Kazakhstan Stiven Vermert.
The European Bank for Reconstruction and Development loan, which has a maturity of 19 years and includes $32 million of budgetary financing, will cover reconstruction of the 102km highway linking the Russian border with Aktyubinsk (west Kazakhstan).
ADB grants to Kazakhstan a $340 million loan over 25 years. This money together with $60 mln from the budget will cover reconstruction of a 129km road between Taraz and Kordaj (Zhambyl region). In all, ADB intends to invest $700 million in this project.
The agreement with the International Bank for Reconstruction and Development (a World Bank structure) was signed in June 2009. To our knowledge, these funds, in combination with budgetary financing of $375 million, will cover reconstruction of the road sections connecting the Kzyl-Ordynsk and Aktyubinsk border regions and Chimkent (south Kazakhstan).
Construction of this 1,062km section is expected to be completed by the end of 2013.
The World Bank loan is granted for 25 years. It is not the first Kazakhstani project supported by the World Bank. Since 1992 the Bank had provided 33 loans to the country totalling $4.2 billion. The Islamic Development Bank loan is meant for reconstruction of the 58km road between South Kazakhstan’s border and Taraz, which is the part of the international corridor. Agreement with the Japanese Agency for International Cooperation is expected to be signed in the near future.
Abelgazi Kusainov, the Transport Minister of the country, reported the implementation of the project would start in September 2010. Construction works will be carried out simultaneously in Aktyubinsk, Kzyl-Ordynsk and Zhambyl regions. Most of the works should be done in 2010-2011. Preliminary calculations say 2.9 million tons of cement, 5.3 tons of sand and 569,000 tons of native asphalt are required for the highway.
It is planned to mainly use construction materials produced in Kazakhstan. Today the state is able to provide 84% of this. The new asphalt-producing factory with a productive capacity of 400 cubic meters per year in is supposed be built in Mangistaur region to provide the new track with native asphalt. Kazakhstan’s authorities believe the auto corridor “West China - West Europe” is going to have a multiplier effect.
“If we ship 13 million tons of cargo today, tomorrow we’ll be able to transport 33 million tons. Thanks to this project we’ll be able to use the transit potential of our country to the maximum, which means great prospects for our economy,” Mr Kusainov noted.
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РЖД-Партнер

Time for bold decisions

 Anatoly Golomolzin, Deputy Head of the Federal Antitrust Service of Russia, considers that it is high time to deregulate tariffs in those railway transportation sectors where there is competition.
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Rules for everyone

– Mr Golomolzin, your department initiated a lot of cases about violation of antitrust legislation and the law on protection of competition in the freight transportation sector. Has the character of violations become different? What problems have appeared?
– Nowadays, some issues have become less urgent, in particular the ones concerning rolling stock repair. There is a decline in the cargo transportation volume, consequently, the demand for repair is lower. Repair enterprises search for clients instead of dictating terms unprofitable for customers, as they used to do. Simultaneously, the problem of empty rolling stock runs has become more acute.
Before the reform, delivery of empty wagons of the public park for loading was regulated on a common basis. When the number of private railcars was small and they serviced looped routes, there were no problems. And now they have appeared. When railway transport reform started, the Antitrust Service made two suggestions – the first was to make RZD a holding company instead of a single business entity and the second concerned the market infrastructure (development of market rules and establishment of institutions (organisations or associations of organisations) to monitor rules observance). Neither was supported.
At that time it was clear that the growing private park sparked the need to implement new rules on empty rolling stock turnover. The organisation of the structure providing transport services under the new market conditions was important as well. These issues were to be discussed when the basic decisions on structural reform were made. Unfortunately, the discussion was postponed. And now, when the problems appear here and there, people recognize that the market infrastructure needs to be created.
– How can the problem of empty rolling stock transfer be solved, in your opinion?
– The basic legislative acts regulating rolling stock park turnover are the RF Railway Transport Code as well as the Rules of Taking Applications for Cargo Transportation. But, in effect, they concern loaded railcars only. We believe that these rules should be applied to the empty park as well. Moreover, the procedures for empty rolling stock preparation and delivery for loading should be coordinated with freight transportation procedures.
Thus, there must be changes in the work of RZD’s Centre of Transport Services, freight offices as well as that of consignors and operators.
Recently, trying the complaint of an independent operator against RZD and Freight One, the Federal Antitrust Service (the FAS) had to dismiss the case because this aspect is not properly regulated by legislation. The FAS sent its recommendations and offers to the Transport Ministry, and the latter informed us that they were trying to resolve the problem. RZD also created a working group to develop suggestions to find a way out of the situation.
The adoption of the decree on company operators by the RF Government would partly solve the problem. In the bill of the document there is a definition of operator activity, and a description of the interaction of an operator and a transporter, and there is also a statement about the need for a contract between an operator and a transporter which defines the technology of rolling park circulation.
For example, the interaction of Freight One and RZD in this aspect is regulated in the framework of corporate relations. But for independent companies, a legislative base is required as well as a technology base for their interaction with RZD. All departments and market players adjusted the bill, and it was given to the RF Government, but the document has not yet been adopted. Perhaps, the Government has decided to wait until the revised raft of laws on railway transport is adopted. However, it will not change the situation – the decree is needed anyway. The Ministry of Transport and the FAS are of the same opinion. And the business community insists on its adoption.
– Will the document guarantee that the infrastructure owner will not abuse its monopolistic position? Won’t its subsidiaries be in a better position than independent operators?
– In this case the guarantee is the existence of generally accepted rules extended to the monopoly and independent companies as well. What are the requirements of the monopolist? If RZD and the group of persons to which it belongs (according to the antitrust legislation, a group of persons is considered as a single business unit) Freight One, Refservice, TransContainer and other subsidiaries dominate on the rolling stock provision market, they must work under the terms for the public park.
As soon as they function in a competitive environment, the situation will change. These rules and this scheme of work protect the interests of all transport organisations and all customers of railway transport services on the whole.
– Last year, the FAS gave a number of instructions to Freight One. Why was this done? By the way, what is the penalty for those breaking the law? Do they often challenge your decisions in court?
– When Freight One was launched, we made instructions to establish the legal boundaries for the new market players’ functioning and explain to them what should not be done to avoid accusations of competition restriction. There are a number of cases being investigated by the FAS and its territorial administrations. However, there have been no cases in which Freight One was recognised as an antitrust legislation breaker. We control the situation.
If any business unit breaks antitrust legislation, a fine is imposed. The fine may be from 1% to 15% of the company’s annual turnover on the relative commodity market received in the period before the violation. It is a significant sum. That is why all the determinations of the FAS are contested, as a rule. However, the FAS wins 75-90% of all cases. If we speak about RZD, the figure is less – 50-60%.
For example, the company succeeded in proving in some cassational instances of the district courts that any cases of antitrust legislation violation are not an object to be considered by an antitrust body if they touch upon contract relations. But we managed to turn the tide – the plenum of the Supreme Arbitration Court ruled that when contract relations are formed on the basis of unequal relations of a monopolist and its contractors, if they are a consequence of the company’s abusing its dominating position, such facts may and should be a matter of antitrust investigation.

“A daughter company” as a stimulus to the reform

– What is your view (from the standpoint of your department’s policy) of the present-day results of the hiving off of parts of RZD into daughter companies?
– On the whole, the launch of subsidiaries, including Freight One or TransContainer, is a positive phenomenon. The withdrawal of rolling stock from RZD makes its work more transparent. Nowadays, the separate accounting method does not always allow it to define the real expenditure in all the production chains in the railway transport sector. And when some activities are separated off, the expenditure and revenue are localised. The market situation becomes more transparent. It is helpful for tariff regulators as well as for the antitrust body. It is easier to decide whether there is discrimination. Moreover, operators used to not be able to provide conditions for their rolling stock that were equal with the public park, for example in getting privileged tariffs on transportation. Nowadays, this issue is decided for RZD’s subsidiaries as well as for all other operators.
TransContainer succeeded in getting a so-called geographical reduction of the tariff. Nowadays, the tariff on containerised cargo transportation from the Far East to the RF western border is reduced in accordance with the cost of the alternative sea transportation from the Pacific ports to the Baltic ones. This system could not be put into operation for a long time, because RZD used to say that the tariff is based on average network expenditure. And no external organisation could persuade them that a more flexible and progressive tariff policy was needed.
But the daughter company succeeded in doing it.
The same thing goes for Freight One. A lot of rules and standards on the basis of which it works may be expanded to others. The federal law “On Competition Protection” contains a norm prohibiting discrimination. It means that the monopolist must apply to other companies everything it applies to its subsidiary.
– Judging by the situation with Refservice, not everything goes like clockwork. Consignors complained to the FAS that RZD had refused to transport cargo in refrigerator rolling stock, thus making them conclude a contract with its subsidiary. You decided that the company violated antitrust laws and made a determination which RZD challenged in court. What happened then?
– Although both TransContainer and Refservice are specialist subsidiaries of RZD, they seem to have chosen different strategies to play on the market. The FAS checked how both companies regarded antitrust legislation, and its conclusion was that TransContainer strived to use market instruments, while Refservice tried to abuse its and RZD’s dominating position on the market.
The situation you mentioned was resolved in court. There was a series of trials, and finally our determinations were considered legal and reasonable, although Refservice impugned it. Nevertheless, other problems exist on the market. For example, recently railway transport customers claimed that they could not transport fish from the Far East. Railwaymen thrust unprofitable transportation terms on them.
There are problems with refrigerator rolling stock repair, among others… We do our best to solve the problems and we have created a special working group for transportation via specialist rolling stock at the Expert Council of the FAS. Representatives of Refservice and other market players participate in its work.
What is the main problem? If we compare road hauliers and railway transport, we see that the requirements for perishables transportation are absolutely different. On the railway they are tough and not always reasonable. For example, do we need special conditions, similar to the ones for perishables, for pasteurised beer transportation, if it stands on a shelf in a shop for several months? Brewers use specially heated wagons equipped in accordance with the technical standards implemented by railwaymen. Why should they leave these railcars and transport the cargo in refrigerator wagons, thus making the transportation, and consequently the final production, more expensive?
Another serious problem is the differences in the normative and legislative base between transportation of export and import cargo and domestic cargo. Why are there stricter requirements for transportation inside Russia? We ask these questions and try to find answers investigating cases of antitrust legislation violation. We discuss them and find solutions at the meetings of the Board of the FAS of Russia, and the meetings of the FAS Expert Council for Railway Transport.

Transportation without discrimination

– Do many problems appear because the normative and legislative base disagrees with the reality?
– Yes, there would be fewer violations if there were clear rules of the game. Mainly, the issues of normative and legislative regulation are under the jurisdiction of the Transport Ministry. The issues of normative and legislative regulation in the competition protection sphere are in the competence of the FAS of Russia. Thus, the Rules on Non-Discriminating Access to Infrastructure Services for Transporters are in force in the railway sector. But the competence of the railway monopoly is infrastructure as well as transportation. So, to execute the statements of the so-called second antitrust pack – amendments to the federal law “On Competition Protection”, which came in force in August 2009, we are preparing a new edition of the Rules of Non-Discriminating Access to Railway Transportation.
The document aims to define the spheres of business where competition may develop, terms for free and non-discriminating access, and ways to guarantee access and settle conflicts.
– Don’t you think it is absurd that RZD is turning into a transporter without wagons? How can access to transportation be provided?
– In the railway legislation there is a statement that a transporter must own wagons. How? It can be either the property right or any other legal right. If there is competition on the rolling stock market, there is no need to oblige the transporter to own the public park in property to observe antitrust legislation. The transporter may use railcars of its subsidiaries (leaseback, terms of trust etc.). Meanwhile, if RZD or its subsidiaries are dominating the market segment, they must follow the terms of the public park.
A stumbling rock was the claims of RZD that it would refuse transportation if it had no wagons. The Ministry of Transport must define the criteria of the lack of technical ability to provide transportation. This document has been discussed for several years, but it has not been issued yet. We believe that the transfer of rolling stock to subsidiaries should not be considered a factor in the lack of technical ability to provide transportation.
Freight One and the Second Cargo Company will create competition in the market. Perhaps, one of the companies will be privatised. Then, real competition will appear. But we are against the transfer of private operators’ railcars to the Second Cargo Company. In this case it will be less attractive for investors, because a large shareholding will be owned by operators whose railcars will be given to the company’s authorised capital.
– Why not unite some operators in the framework of a larger structure? Nowadays, there are over 2,000 owners of rolling stock on the market – it is a huge number…
– If a company works on the market, it does not matter how many wagons it owns. It occupies its segment, its services are popular. Some people say that companies should become larger to be more efficient. Meanwhile, experience shows that the fewer the players, the fewer the conditions for competition. Thus, there were over 300 oil companies in Russia. Nowadays, their number decreased, and the share of independent companies in the total volume of oil extraction dropped from 15% to 4%. Some 65% of fuel stations were independent, now it is only 50%. And everyone worries that prices for fuel are growing rapidly. Is it what we are striving for?

We will be lost without tariff deregulation

– What is the opinion of the FAS on railway tariff deregulation? Should it be done?
– The most positive results of the reform were reached using tariff deregulation. In the railway transportation sector, it became possible by means of the separation of the wagon constituent and its deregulation. That is how we managed to solve the problem of rolling stock shortage. During the reform, approximately RUR 400 billion was attracted to the freight transportation sector, and more than 200,000 new railcars were purchased.
Unfortunately, no other efficient decisions have been made to improve flexibility or to deregulate tariffs in the railway cargo transportation sector. However, there are the opportunities and conditions for it. The wagon constituent of the tariff should be deregulated stage-by-stage in the sectors and for the business unities which work in a competition environment. Separate business segments as well as the railway transportation may be deregulated. An example may be fish transportation from Murmansk to Moscow. Railwaymen lost this segment to road hauliers. Why should the tariffs on railway transportation be regulated there? We can speak of deregulation of tariffs on oil bulk transportation by railway on the markets where there is intersectoral competition with pipelines and water transport.
– What do you think about deregulation of the infrastructure constituent of the tariff? What is your opinion on transit tariff liberalisation? Media reports state that the FAS approved this offer. Is this true?
– How can transit influence the internal market? It cannot. Transit enlargement allows the use of free capacities, and consequently, improves the efficiency of the railway transport. The potential of its growth is enormous, but it is not being used. Some time later we may lose this sector of the market. Neighbouring states are creating routes bypassing Russia, modern logistics are being developed. We need a very flexible tariff policy; Russian companies should get an opportunity to work on this market.
As for infrastructure tariffs deregulation, I believe that they should become more flexible at first. A nice example: passenger transportation on the Moscow - St Petersburg line is very popular nowadays. Passenger companies receive significant revenue due to the high prices for tickets. Why then do they pay for the infrastructure on the basis of the average network figures? Why can’t the infrastructure get an opportunity to earn additional profit in this market segment? This money may be spent on the development of the railway infrastructure in other directions, on widening bottlenecks.
– What legal mechanisms for tariff deregulation are there in the competition segments of the transport market? Who must make decisions about them?
– The regulator must. But RZD should take a more active position. The decisions about deregulation may and should be taken especially in the most sensitive and economically important spheres. Unfortunately, the prerequisites for it are limited in the current regulating system because the basic principle of decision-making is not observed, i.e. the principle of making decisions on the basis of market analysis.
Nowadays, the decisions are mainly based on the analysis of the financial and economic activity of this or that subject, as well as projecting macro-economic conditions and limitations on the railway transportation sector. During the rapidly changing economic situation and structural reforms, this is far from enough. One should take into account that the decisions on tariffs deregulation during the recession must be made quickly. Otherwise, additional problems may appear in the economy instead of positive results.
Interview By Tamara Andreeva [~DETAIL_TEXT] =>

Rules for everyone

– Mr Golomolzin, your department initiated a lot of cases about violation of antitrust legislation and the law on protection of competition in the freight transportation sector. Has the character of violations become different? What problems have appeared?
– Nowadays, some issues have become less urgent, in particular the ones concerning rolling stock repair. There is a decline in the cargo transportation volume, consequently, the demand for repair is lower. Repair enterprises search for clients instead of dictating terms unprofitable for customers, as they used to do. Simultaneously, the problem of empty rolling stock runs has become more acute.
Before the reform, delivery of empty wagons of the public park for loading was regulated on a common basis. When the number of private railcars was small and they serviced looped routes, there were no problems. And now they have appeared. When railway transport reform started, the Antitrust Service made two suggestions – the first was to make RZD a holding company instead of a single business entity and the second concerned the market infrastructure (development of market rules and establishment of institutions (organisations or associations of organisations) to monitor rules observance). Neither was supported.
At that time it was clear that the growing private park sparked the need to implement new rules on empty rolling stock turnover. The organisation of the structure providing transport services under the new market conditions was important as well. These issues were to be discussed when the basic decisions on structural reform were made. Unfortunately, the discussion was postponed. And now, when the problems appear here and there, people recognize that the market infrastructure needs to be created.
– How can the problem of empty rolling stock transfer be solved, in your opinion?
– The basic legislative acts regulating rolling stock park turnover are the RF Railway Transport Code as well as the Rules of Taking Applications for Cargo Transportation. But, in effect, they concern loaded railcars only. We believe that these rules should be applied to the empty park as well. Moreover, the procedures for empty rolling stock preparation and delivery for loading should be coordinated with freight transportation procedures.
Thus, there must be changes in the work of RZD’s Centre of Transport Services, freight offices as well as that of consignors and operators.
Recently, trying the complaint of an independent operator against RZD and Freight One, the Federal Antitrust Service (the FAS) had to dismiss the case because this aspect is not properly regulated by legislation. The FAS sent its recommendations and offers to the Transport Ministry, and the latter informed us that they were trying to resolve the problem. RZD also created a working group to develop suggestions to find a way out of the situation.
The adoption of the decree on company operators by the RF Government would partly solve the problem. In the bill of the document there is a definition of operator activity, and a description of the interaction of an operator and a transporter, and there is also a statement about the need for a contract between an operator and a transporter which defines the technology of rolling park circulation.
For example, the interaction of Freight One and RZD in this aspect is regulated in the framework of corporate relations. But for independent companies, a legislative base is required as well as a technology base for their interaction with RZD. All departments and market players adjusted the bill, and it was given to the RF Government, but the document has not yet been adopted. Perhaps, the Government has decided to wait until the revised raft of laws on railway transport is adopted. However, it will not change the situation – the decree is needed anyway. The Ministry of Transport and the FAS are of the same opinion. And the business community insists on its adoption.
– Will the document guarantee that the infrastructure owner will not abuse its monopolistic position? Won’t its subsidiaries be in a better position than independent operators?
– In this case the guarantee is the existence of generally accepted rules extended to the monopoly and independent companies as well. What are the requirements of the monopolist? If RZD and the group of persons to which it belongs (according to the antitrust legislation, a group of persons is considered as a single business unit) Freight One, Refservice, TransContainer and other subsidiaries dominate on the rolling stock provision market, they must work under the terms for the public park.
As soon as they function in a competitive environment, the situation will change. These rules and this scheme of work protect the interests of all transport organisations and all customers of railway transport services on the whole.
– Last year, the FAS gave a number of instructions to Freight One. Why was this done? By the way, what is the penalty for those breaking the law? Do they often challenge your decisions in court?
– When Freight One was launched, we made instructions to establish the legal boundaries for the new market players’ functioning and explain to them what should not be done to avoid accusations of competition restriction. There are a number of cases being investigated by the FAS and its territorial administrations. However, there have been no cases in which Freight One was recognised as an antitrust legislation breaker. We control the situation.
If any business unit breaks antitrust legislation, a fine is imposed. The fine may be from 1% to 15% of the company’s annual turnover on the relative commodity market received in the period before the violation. It is a significant sum. That is why all the determinations of the FAS are contested, as a rule. However, the FAS wins 75-90% of all cases. If we speak about RZD, the figure is less – 50-60%.
For example, the company succeeded in proving in some cassational instances of the district courts that any cases of antitrust legislation violation are not an object to be considered by an antitrust body if they touch upon contract relations. But we managed to turn the tide – the plenum of the Supreme Arbitration Court ruled that when contract relations are formed on the basis of unequal relations of a monopolist and its contractors, if they are a consequence of the company’s abusing its dominating position, such facts may and should be a matter of antitrust investigation.

“A daughter company” as a stimulus to the reform

– What is your view (from the standpoint of your department’s policy) of the present-day results of the hiving off of parts of RZD into daughter companies?
– On the whole, the launch of subsidiaries, including Freight One or TransContainer, is a positive phenomenon. The withdrawal of rolling stock from RZD makes its work more transparent. Nowadays, the separate accounting method does not always allow it to define the real expenditure in all the production chains in the railway transport sector. And when some activities are separated off, the expenditure and revenue are localised. The market situation becomes more transparent. It is helpful for tariff regulators as well as for the antitrust body. It is easier to decide whether there is discrimination. Moreover, operators used to not be able to provide conditions for their rolling stock that were equal with the public park, for example in getting privileged tariffs on transportation. Nowadays, this issue is decided for RZD’s subsidiaries as well as for all other operators.
TransContainer succeeded in getting a so-called geographical reduction of the tariff. Nowadays, the tariff on containerised cargo transportation from the Far East to the RF western border is reduced in accordance with the cost of the alternative sea transportation from the Pacific ports to the Baltic ones. This system could not be put into operation for a long time, because RZD used to say that the tariff is based on average network expenditure. And no external organisation could persuade them that a more flexible and progressive tariff policy was needed.
But the daughter company succeeded in doing it.
The same thing goes for Freight One. A lot of rules and standards on the basis of which it works may be expanded to others. The federal law “On Competition Protection” contains a norm prohibiting discrimination. It means that the monopolist must apply to other companies everything it applies to its subsidiary.
– Judging by the situation with Refservice, not everything goes like clockwork. Consignors complained to the FAS that RZD had refused to transport cargo in refrigerator rolling stock, thus making them conclude a contract with its subsidiary. You decided that the company violated antitrust laws and made a determination which RZD challenged in court. What happened then?
– Although both TransContainer and Refservice are specialist subsidiaries of RZD, they seem to have chosen different strategies to play on the market. The FAS checked how both companies regarded antitrust legislation, and its conclusion was that TransContainer strived to use market instruments, while Refservice tried to abuse its and RZD’s dominating position on the market.
The situation you mentioned was resolved in court. There was a series of trials, and finally our determinations were considered legal and reasonable, although Refservice impugned it. Nevertheless, other problems exist on the market. For example, recently railway transport customers claimed that they could not transport fish from the Far East. Railwaymen thrust unprofitable transportation terms on them.
There are problems with refrigerator rolling stock repair, among others… We do our best to solve the problems and we have created a special working group for transportation via specialist rolling stock at the Expert Council of the FAS. Representatives of Refservice and other market players participate in its work.
What is the main problem? If we compare road hauliers and railway transport, we see that the requirements for perishables transportation are absolutely different. On the railway they are tough and not always reasonable. For example, do we need special conditions, similar to the ones for perishables, for pasteurised beer transportation, if it stands on a shelf in a shop for several months? Brewers use specially heated wagons equipped in accordance with the technical standards implemented by railwaymen. Why should they leave these railcars and transport the cargo in refrigerator wagons, thus making the transportation, and consequently the final production, more expensive?
Another serious problem is the differences in the normative and legislative base between transportation of export and import cargo and domestic cargo. Why are there stricter requirements for transportation inside Russia? We ask these questions and try to find answers investigating cases of antitrust legislation violation. We discuss them and find solutions at the meetings of the Board of the FAS of Russia, and the meetings of the FAS Expert Council for Railway Transport.

Transportation without discrimination

– Do many problems appear because the normative and legislative base disagrees with the reality?
– Yes, there would be fewer violations if there were clear rules of the game. Mainly, the issues of normative and legislative regulation are under the jurisdiction of the Transport Ministry. The issues of normative and legislative regulation in the competition protection sphere are in the competence of the FAS of Russia. Thus, the Rules on Non-Discriminating Access to Infrastructure Services for Transporters are in force in the railway sector. But the competence of the railway monopoly is infrastructure as well as transportation. So, to execute the statements of the so-called second antitrust pack – amendments to the federal law “On Competition Protection”, which came in force in August 2009, we are preparing a new edition of the Rules of Non-Discriminating Access to Railway Transportation.
The document aims to define the spheres of business where competition may develop, terms for free and non-discriminating access, and ways to guarantee access and settle conflicts.
– Don’t you think it is absurd that RZD is turning into a transporter without wagons? How can access to transportation be provided?
– In the railway legislation there is a statement that a transporter must own wagons. How? It can be either the property right or any other legal right. If there is competition on the rolling stock market, there is no need to oblige the transporter to own the public park in property to observe antitrust legislation. The transporter may use railcars of its subsidiaries (leaseback, terms of trust etc.). Meanwhile, if RZD or its subsidiaries are dominating the market segment, they must follow the terms of the public park.
A stumbling rock was the claims of RZD that it would refuse transportation if it had no wagons. The Ministry of Transport must define the criteria of the lack of technical ability to provide transportation. This document has been discussed for several years, but it has not been issued yet. We believe that the transfer of rolling stock to subsidiaries should not be considered a factor in the lack of technical ability to provide transportation.
Freight One and the Second Cargo Company will create competition in the market. Perhaps, one of the companies will be privatised. Then, real competition will appear. But we are against the transfer of private operators’ railcars to the Second Cargo Company. In this case it will be less attractive for investors, because a large shareholding will be owned by operators whose railcars will be given to the company’s authorised capital.
– Why not unite some operators in the framework of a larger structure? Nowadays, there are over 2,000 owners of rolling stock on the market – it is a huge number…
– If a company works on the market, it does not matter how many wagons it owns. It occupies its segment, its services are popular. Some people say that companies should become larger to be more efficient. Meanwhile, experience shows that the fewer the players, the fewer the conditions for competition. Thus, there were over 300 oil companies in Russia. Nowadays, their number decreased, and the share of independent companies in the total volume of oil extraction dropped from 15% to 4%. Some 65% of fuel stations were independent, now it is only 50%. And everyone worries that prices for fuel are growing rapidly. Is it what we are striving for?

We will be lost without tariff deregulation

– What is the opinion of the FAS on railway tariff deregulation? Should it be done?
– The most positive results of the reform were reached using tariff deregulation. In the railway transportation sector, it became possible by means of the separation of the wagon constituent and its deregulation. That is how we managed to solve the problem of rolling stock shortage. During the reform, approximately RUR 400 billion was attracted to the freight transportation sector, and more than 200,000 new railcars were purchased.
Unfortunately, no other efficient decisions have been made to improve flexibility or to deregulate tariffs in the railway cargo transportation sector. However, there are the opportunities and conditions for it. The wagon constituent of the tariff should be deregulated stage-by-stage in the sectors and for the business unities which work in a competition environment. Separate business segments as well as the railway transportation may be deregulated. An example may be fish transportation from Murmansk to Moscow. Railwaymen lost this segment to road hauliers. Why should the tariffs on railway transportation be regulated there? We can speak of deregulation of tariffs on oil bulk transportation by railway on the markets where there is intersectoral competition with pipelines and water transport.
– What do you think about deregulation of the infrastructure constituent of the tariff? What is your opinion on transit tariff liberalisation? Media reports state that the FAS approved this offer. Is this true?
– How can transit influence the internal market? It cannot. Transit enlargement allows the use of free capacities, and consequently, improves the efficiency of the railway transport. The potential of its growth is enormous, but it is not being used. Some time later we may lose this sector of the market. Neighbouring states are creating routes bypassing Russia, modern logistics are being developed. We need a very flexible tariff policy; Russian companies should get an opportunity to work on this market.
As for infrastructure tariffs deregulation, I believe that they should become more flexible at first. A nice example: passenger transportation on the Moscow - St Petersburg line is very popular nowadays. Passenger companies receive significant revenue due to the high prices for tickets. Why then do they pay for the infrastructure on the basis of the average network figures? Why can’t the infrastructure get an opportunity to earn additional profit in this market segment? This money may be spent on the development of the railway infrastructure in other directions, on widening bottlenecks.
– What legal mechanisms for tariff deregulation are there in the competition segments of the transport market? Who must make decisions about them?
– The regulator must. But RZD should take a more active position. The decisions about deregulation may and should be taken especially in the most sensitive and economically important spheres. Unfortunately, the prerequisites for it are limited in the current regulating system because the basic principle of decision-making is not observed, i.e. the principle of making decisions on the basis of market analysis.
Nowadays, the decisions are mainly based on the analysis of the financial and economic activity of this or that subject, as well as projecting macro-economic conditions and limitations on the railway transportation sector. During the rapidly changing economic situation and structural reforms, this is far from enough. One should take into account that the decisions on tariffs deregulation during the recession must be made quickly. Otherwise, additional problems may appear in the economy instead of positive results.
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Rules for everyone

– Mr Golomolzin, your department initiated a lot of cases about violation of antitrust legislation and the law on protection of competition in the freight transportation sector. Has the character of violations become different? What problems have appeared?
– Nowadays, some issues have become less urgent, in particular the ones concerning rolling stock repair. There is a decline in the cargo transportation volume, consequently, the demand for repair is lower. Repair enterprises search for clients instead of dictating terms unprofitable for customers, as they used to do. Simultaneously, the problem of empty rolling stock runs has become more acute.
Before the reform, delivery of empty wagons of the public park for loading was regulated on a common basis. When the number of private railcars was small and they serviced looped routes, there were no problems. And now they have appeared. When railway transport reform started, the Antitrust Service made two suggestions – the first was to make RZD a holding company instead of a single business entity and the second concerned the market infrastructure (development of market rules and establishment of institutions (organisations or associations of organisations) to monitor rules observance). Neither was supported.
At that time it was clear that the growing private park sparked the need to implement new rules on empty rolling stock turnover. The organisation of the structure providing transport services under the new market conditions was important as well. These issues were to be discussed when the basic decisions on structural reform were made. Unfortunately, the discussion was postponed. And now, when the problems appear here and there, people recognize that the market infrastructure needs to be created.
– How can the problem of empty rolling stock transfer be solved, in your opinion?
– The basic legislative acts regulating rolling stock park turnover are the RF Railway Transport Code as well as the Rules of Taking Applications for Cargo Transportation. But, in effect, they concern loaded railcars only. We believe that these rules should be applied to the empty park as well. Moreover, the procedures for empty rolling stock preparation and delivery for loading should be coordinated with freight transportation procedures.
Thus, there must be changes in the work of RZD’s Centre of Transport Services, freight offices as well as that of consignors and operators.
Recently, trying the complaint of an independent operator against RZD and Freight One, the Federal Antitrust Service (the FAS) had to dismiss the case because this aspect is not properly regulated by legislation. The FAS sent its recommendations and offers to the Transport Ministry, and the latter informed us that they were trying to resolve the problem. RZD also created a working group to develop suggestions to find a way out of the situation.
The adoption of the decree on company operators by the RF Government would partly solve the problem. In the bill of the document there is a definition of operator activity, and a description of the interaction of an operator and a transporter, and there is also a statement about the need for a contract between an operator and a transporter which defines the technology of rolling park circulation.
For example, the interaction of Freight One and RZD in this aspect is regulated in the framework of corporate relations. But for independent companies, a legislative base is required as well as a technology base for their interaction with RZD. All departments and market players adjusted the bill, and it was given to the RF Government, but the document has not yet been adopted. Perhaps, the Government has decided to wait until the revised raft of laws on railway transport is adopted. However, it will not change the situation – the decree is needed anyway. The Ministry of Transport and the FAS are of the same opinion. And the business community insists on its adoption.
– Will the document guarantee that the infrastructure owner will not abuse its monopolistic position? Won’t its subsidiaries be in a better position than independent operators?
– In this case the guarantee is the existence of generally accepted rules extended to the monopoly and independent companies as well. What are the requirements of the monopolist? If RZD and the group of persons to which it belongs (according to the antitrust legislation, a group of persons is considered as a single business unit) Freight One, Refservice, TransContainer and other subsidiaries dominate on the rolling stock provision market, they must work under the terms for the public park.
As soon as they function in a competitive environment, the situation will change. These rules and this scheme of work protect the interests of all transport organisations and all customers of railway transport services on the whole.
– Last year, the FAS gave a number of instructions to Freight One. Why was this done? By the way, what is the penalty for those breaking the law? Do they often challenge your decisions in court?
– When Freight One was launched, we made instructions to establish the legal boundaries for the new market players’ functioning and explain to them what should not be done to avoid accusations of competition restriction. There are a number of cases being investigated by the FAS and its territorial administrations. However, there have been no cases in which Freight One was recognised as an antitrust legislation breaker. We control the situation.
If any business unit breaks antitrust legislation, a fine is imposed. The fine may be from 1% to 15% of the company’s annual turnover on the relative commodity market received in the period before the violation. It is a significant sum. That is why all the determinations of the FAS are contested, as a rule. However, the FAS wins 75-90% of all cases. If we speak about RZD, the figure is less – 50-60%.
For example, the company succeeded in proving in some cassational instances of the district courts that any cases of antitrust legislation violation are not an object to be considered by an antitrust body if they touch upon contract relations. But we managed to turn the tide – the plenum of the Supreme Arbitration Court ruled that when contract relations are formed on the basis of unequal relations of a monopolist and its contractors, if they are a consequence of the company’s abusing its dominating position, such facts may and should be a matter of antitrust investigation.

“A daughter company” as a stimulus to the reform

– What is your view (from the standpoint of your department’s policy) of the present-day results of the hiving off of parts of RZD into daughter companies?
– On the whole, the launch of subsidiaries, including Freight One or TransContainer, is a positive phenomenon. The withdrawal of rolling stock from RZD makes its work more transparent. Nowadays, the separate accounting method does not always allow it to define the real expenditure in all the production chains in the railway transport sector. And when some activities are separated off, the expenditure and revenue are localised. The market situation becomes more transparent. It is helpful for tariff regulators as well as for the antitrust body. It is easier to decide whether there is discrimination. Moreover, operators used to not be able to provide conditions for their rolling stock that were equal with the public park, for example in getting privileged tariffs on transportation. Nowadays, this issue is decided for RZD’s subsidiaries as well as for all other operators.
TransContainer succeeded in getting a so-called geographical reduction of the tariff. Nowadays, the tariff on containerised cargo transportation from the Far East to the RF western border is reduced in accordance with the cost of the alternative sea transportation from the Pacific ports to the Baltic ones. This system could not be put into operation for a long time, because RZD used to say that the tariff is based on average network expenditure. And no external organisation could persuade them that a more flexible and progressive tariff policy was needed.
But the daughter company succeeded in doing it.
The same thing goes for Freight One. A lot of rules and standards on the basis of which it works may be expanded to others. The federal law “On Competition Protection” contains a norm prohibiting discrimination. It means that the monopolist must apply to other companies everything it applies to its subsidiary.
– Judging by the situation with Refservice, not everything goes like clockwork. Consignors complained to the FAS that RZD had refused to transport cargo in refrigerator rolling stock, thus making them conclude a contract with its subsidiary. You decided that the company violated antitrust laws and made a determination which RZD challenged in court. What happened then?
– Although both TransContainer and Refservice are specialist subsidiaries of RZD, they seem to have chosen different strategies to play on the market. The FAS checked how both companies regarded antitrust legislation, and its conclusion was that TransContainer strived to use market instruments, while Refservice tried to abuse its and RZD’s dominating position on the market.
The situation you mentioned was resolved in court. There was a series of trials, and finally our determinations were considered legal and reasonable, although Refservice impugned it. Nevertheless, other problems exist on the market. For example, recently railway transport customers claimed that they could not transport fish from the Far East. Railwaymen thrust unprofitable transportation terms on them.
There are problems with refrigerator rolling stock repair, among others… We do our best to solve the problems and we have created a special working group for transportation via specialist rolling stock at the Expert Council of the FAS. Representatives of Refservice and other market players participate in its work.
What is the main problem? If we compare road hauliers and railway transport, we see that the requirements for perishables transportation are absolutely different. On the railway they are tough and not always reasonable. For example, do we need special conditions, similar to the ones for perishables, for pasteurised beer transportation, if it stands on a shelf in a shop for several months? Brewers use specially heated wagons equipped in accordance with the technical standards implemented by railwaymen. Why should they leave these railcars and transport the cargo in refrigerator wagons, thus making the transportation, and consequently the final production, more expensive?
Another serious problem is the differences in the normative and legislative base between transportation of export and import cargo and domestic cargo. Why are there stricter requirements for transportation inside Russia? We ask these questions and try to find answers investigating cases of antitrust legislation violation. We discuss them and find solutions at the meetings of the Board of the FAS of Russia, and the meetings of the FAS Expert Council for Railway Transport.

Transportation without discrimination

– Do many problems appear because the normative and legislative base disagrees with the reality?
– Yes, there would be fewer violations if there were clear rules of the game. Mainly, the issues of normative and legislative regulation are under the jurisdiction of the Transport Ministry. The issues of normative and legislative regulation in the competition protection sphere are in the competence of the FAS of Russia. Thus, the Rules on Non-Discriminating Access to Infrastructure Services for Transporters are in force in the railway sector. But the competence of the railway monopoly is infrastructure as well as transportation. So, to execute the statements of the so-called second antitrust pack – amendments to the federal law “On Competition Protection”, which came in force in August 2009, we are preparing a new edition of the Rules of Non-Discriminating Access to Railway Transportation.
The document aims to define the spheres of business where competition may develop, terms for free and non-discriminating access, and ways to guarantee access and settle conflicts.
– Don’t you think it is absurd that RZD is turning into a transporter without wagons? How can access to transportation be provided?
– In the railway legislation there is a statement that a transporter must own wagons. How? It can be either the property right or any other legal right. If there is competition on the rolling stock market, there is no need to oblige the transporter to own the public park in property to observe antitrust legislation. The transporter may use railcars of its subsidiaries (leaseback, terms of trust etc.). Meanwhile, if RZD or its subsidiaries are dominating the market segment, they must follow the terms of the public park.
A stumbling rock was the claims of RZD that it would refuse transportation if it had no wagons. The Ministry of Transport must define the criteria of the lack of technical ability to provide transportation. This document has been discussed for several years, but it has not been issued yet. We believe that the transfer of rolling stock to subsidiaries should not be considered a factor in the lack of technical ability to provide transportation.
Freight One and the Second Cargo Company will create competition in the market. Perhaps, one of the companies will be privatised. Then, real competition will appear. But we are against the transfer of private operators’ railcars to the Second Cargo Company. In this case it will be less attractive for investors, because a large shareholding will be owned by operators whose railcars will be given to the company’s authorised capital.
– Why not unite some operators in the framework of a larger structure? Nowadays, there are over 2,000 owners of rolling stock on the market – it is a huge number…
– If a company works on the market, it does not matter how many wagons it owns. It occupies its segment, its services are popular. Some people say that companies should become larger to be more efficient. Meanwhile, experience shows that the fewer the players, the fewer the conditions for competition. Thus, there were over 300 oil companies in Russia. Nowadays, their number decreased, and the share of independent companies in the total volume of oil extraction dropped from 15% to 4%. Some 65% of fuel stations were independent, now it is only 50%. And everyone worries that prices for fuel are growing rapidly. Is it what we are striving for?

We will be lost without tariff deregulation

– What is the opinion of the FAS on railway tariff deregulation? Should it be done?
– The most positive results of the reform were reached using tariff deregulation. In the railway transportation sector, it became possible by means of the separation of the wagon constituent and its deregulation. That is how we managed to solve the problem of rolling stock shortage. During the reform, approximately RUR 400 billion was attracted to the freight transportation sector, and more than 200,000 new railcars were purchased.
Unfortunately, no other efficient decisions have been made to improve flexibility or to deregulate tariffs in the railway cargo transportation sector. However, there are the opportunities and conditions for it. The wagon constituent of the tariff should be deregulated stage-by-stage in the sectors and for the business unities which work in a competition environment. Separate business segments as well as the railway transportation may be deregulated. An example may be fish transportation from Murmansk to Moscow. Railwaymen lost this segment to road hauliers. Why should the tariffs on railway transportation be regulated there? We can speak of deregulation of tariffs on oil bulk transportation by railway on the markets where there is intersectoral competition with pipelines and water transport.
– What do you think about deregulation of the infrastructure constituent of the tariff? What is your opinion on transit tariff liberalisation? Media reports state that the FAS approved this offer. Is this true?
– How can transit influence the internal market? It cannot. Transit enlargement allows the use of free capacities, and consequently, improves the efficiency of the railway transport. The potential of its growth is enormous, but it is not being used. Some time later we may lose this sector of the market. Neighbouring states are creating routes bypassing Russia, modern logistics are being developed. We need a very flexible tariff policy; Russian companies should get an opportunity to work on this market.
As for infrastructure tariffs deregulation, I believe that they should become more flexible at first. A nice example: passenger transportation on the Moscow - St Petersburg line is very popular nowadays. Passenger companies receive significant revenue due to the high prices for tickets. Why then do they pay for the infrastructure on the basis of the average network figures? Why can’t the infrastructure get an opportunity to earn additional profit in this market segment? This money may be spent on the development of the railway infrastructure in other directions, on widening bottlenecks.
– What legal mechanisms for tariff deregulation are there in the competition segments of the transport market? Who must make decisions about them?
– The regulator must. But RZD should take a more active position. The decisions about deregulation may and should be taken especially in the most sensitive and economically important spheres. Unfortunately, the prerequisites for it are limited in the current regulating system because the basic principle of decision-making is not observed, i.e. the principle of making decisions on the basis of market analysis.
Nowadays, the decisions are mainly based on the analysis of the financial and economic activity of this or that subject, as well as projecting macro-economic conditions and limitations on the railway transportation sector. During the rapidly changing economic situation and structural reforms, this is far from enough. One should take into account that the decisions on tariffs deregulation during the recession must be made quickly. Otherwise, additional problems may appear in the economy instead of positive results.
Interview By Tamara Andreeva [~DETAIL_TEXT] =>

Rules for everyone

– Mr Golomolzin, your department initiated a lot of cases about violation of antitrust legislation and the law on protection of competition in the freight transportation sector. Has the character of violations become different? What problems have appeared?
– Nowadays, some issues have become less urgent, in particular the ones concerning rolling stock repair. There is a decline in the cargo transportation volume, consequently, the demand for repair is lower. Repair enterprises search for clients instead of dictating terms unprofitable for customers, as they used to do. Simultaneously, the problem of empty rolling stock runs has become more acute.
Before the reform, delivery of empty wagons of the public park for loading was regulated on a common basis. When the number of private railcars was small and they serviced looped routes, there were no problems. And now they have appeared. When railway transport reform started, the Antitrust Service made two suggestions – the first was to make RZD a holding company instead of a single business entity and the second concerned the market infrastructure (development of market rules and establishment of institutions (organisations or associations of organisations) to monitor rules observance). Neither was supported.
At that time it was clear that the growing private park sparked the need to implement new rules on empty rolling stock turnover. The organisation of the structure providing transport services under the new market conditions was important as well. These issues were to be discussed when the basic decisions on structural reform were made. Unfortunately, the discussion was postponed. And now, when the problems appear here and there, people recognize that the market infrastructure needs to be created.
– How can the problem of empty rolling stock transfer be solved, in your opinion?
– The basic legislative acts regulating rolling stock park turnover are the RF Railway Transport Code as well as the Rules of Taking Applications for Cargo Transportation. But, in effect, they concern loaded railcars only. We believe that these rules should be applied to the empty park as well. Moreover, the procedures for empty rolling stock preparation and delivery for loading should be coordinated with freight transportation procedures.
Thus, there must be changes in the work of RZD’s Centre of Transport Services, freight offices as well as that of consignors and operators.
Recently, trying the complaint of an independent operator against RZD and Freight One, the Federal Antitrust Service (the FAS) had to dismiss the case because this aspect is not properly regulated by legislation. The FAS sent its recommendations and offers to the Transport Ministry, and the latter informed us that they were trying to resolve the problem. RZD also created a working group to develop suggestions to find a way out of the situation.
The adoption of the decree on company operators by the RF Government would partly solve the problem. In the bill of the document there is a definition of operator activity, and a description of the interaction of an operator and a transporter, and there is also a statement about the need for a contract between an operator and a transporter which defines the technology of rolling park circulation.
For example, the interaction of Freight One and RZD in this aspect is regulated in the framework of corporate relations. But for independent companies, a legislative base is required as well as a technology base for their interaction with RZD. All departments and market players adjusted the bill, and it was given to the RF Government, but the document has not yet been adopted. Perhaps, the Government has decided to wait until the revised raft of laws on railway transport is adopted. However, it will not change the situation – the decree is needed anyway. The Ministry of Transport and the FAS are of the same opinion. And the business community insists on its adoption.
– Will the document guarantee that the infrastructure owner will not abuse its monopolistic position? Won’t its subsidiaries be in a better position than independent operators?
– In this case the guarantee is the existence of generally accepted rules extended to the monopoly and independent companies as well. What are the requirements of the monopolist? If RZD and the group of persons to which it belongs (according to the antitrust legislation, a group of persons is considered as a single business unit) Freight One, Refservice, TransContainer and other subsidiaries dominate on the rolling stock provision market, they must work under the terms for the public park.
As soon as they function in a competitive environment, the situation will change. These rules and this scheme of work protect the interests of all transport organisations and all customers of railway transport services on the whole.
– Last year, the FAS gave a number of instructions to Freight One. Why was this done? By the way, what is the penalty for those breaking the law? Do they often challenge your decisions in court?
– When Freight One was launched, we made instructions to establish the legal boundaries for the new market players’ functioning and explain to them what should not be done to avoid accusations of competition restriction. There are a number of cases being investigated by the FAS and its territorial administrations. However, there have been no cases in which Freight One was recognised as an antitrust legislation breaker. We control the situation.
If any business unit breaks antitrust legislation, a fine is imposed. The fine may be from 1% to 15% of the company’s annual turnover on the relative commodity market received in the period before the violation. It is a significant sum. That is why all the determinations of the FAS are contested, as a rule. However, the FAS wins 75-90% of all cases. If we speak about RZD, the figure is less – 50-60%.
For example, the company succeeded in proving in some cassational instances of the district courts that any cases of antitrust legislation violation are not an object to be considered by an antitrust body if they touch upon contract relations. But we managed to turn the tide – the plenum of the Supreme Arbitration Court ruled that when contract relations are formed on the basis of unequal relations of a monopolist and its contractors, if they are a consequence of the company’s abusing its dominating position, such facts may and should be a matter of antitrust investigation.

“A daughter company” as a stimulus to the reform

– What is your view (from the standpoint of your department’s policy) of the present-day results of the hiving off of parts of RZD into daughter companies?
– On the whole, the launch of subsidiaries, including Freight One or TransContainer, is a positive phenomenon. The withdrawal of rolling stock from RZD makes its work more transparent. Nowadays, the separate accounting method does not always allow it to define the real expenditure in all the production chains in the railway transport sector. And when some activities are separated off, the expenditure and revenue are localised. The market situation becomes more transparent. It is helpful for tariff regulators as well as for the antitrust body. It is easier to decide whether there is discrimination. Moreover, operators used to not be able to provide conditions for their rolling stock that were equal with the public park, for example in getting privileged tariffs on transportation. Nowadays, this issue is decided for RZD’s subsidiaries as well as for all other operators.
TransContainer succeeded in getting a so-called geographical reduction of the tariff. Nowadays, the tariff on containerised cargo transportation from the Far East to the RF western border is reduced in accordance with the cost of the alternative sea transportation from the Pacific ports to the Baltic ones. This system could not be put into operation for a long time, because RZD used to say that the tariff is based on average network expenditure. And no external organisation could persuade them that a more flexible and progressive tariff policy was needed.
But the daughter company succeeded in doing it.
The same thing goes for Freight One. A lot of rules and standards on the basis of which it works may be expanded to others. The federal law “On Competition Protection” contains a norm prohibiting discrimination. It means that the monopolist must apply to other companies everything it applies to its subsidiary.
– Judging by the situation with Refservice, not everything goes like clockwork. Consignors complained to the FAS that RZD had refused to transport cargo in refrigerator rolling stock, thus making them conclude a contract with its subsidiary. You decided that the company violated antitrust laws and made a determination which RZD challenged in court. What happened then?
– Although both TransContainer and Refservice are specialist subsidiaries of RZD, they seem to have chosen different strategies to play on the market. The FAS checked how both companies regarded antitrust legislation, and its conclusion was that TransContainer strived to use market instruments, while Refservice tried to abuse its and RZD’s dominating position on the market.
The situation you mentioned was resolved in court. There was a series of trials, and finally our determinations were considered legal and reasonable, although Refservice impugned it. Nevertheless, other problems exist on the market. For example, recently railway transport customers claimed that they could not transport fish from the Far East. Railwaymen thrust unprofitable transportation terms on them.
There are problems with refrigerator rolling stock repair, among others… We do our best to solve the problems and we have created a special working group for transportation via specialist rolling stock at the Expert Council of the FAS. Representatives of Refservice and other market players participate in its work.
What is the main problem? If we compare road hauliers and railway transport, we see that the requirements for perishables transportation are absolutely different. On the railway they are tough and not always reasonable. For example, do we need special conditions, similar to the ones for perishables, for pasteurised beer transportation, if it stands on a shelf in a shop for several months? Brewers use specially heated wagons equipped in accordance with the technical standards implemented by railwaymen. Why should they leave these railcars and transport the cargo in refrigerator wagons, thus making the transportation, and consequently the final production, more expensive?
Another serious problem is the differences in the normative and legislative base between transportation of export and import cargo and domestic cargo. Why are there stricter requirements for transportation inside Russia? We ask these questions and try to find answers investigating cases of antitrust legislation violation. We discuss them and find solutions at the meetings of the Board of the FAS of Russia, and the meetings of the FAS Expert Council for Railway Transport.

Transportation without discrimination

– Do many problems appear because the normative and legislative base disagrees with the reality?
– Yes, there would be fewer violations if there were clear rules of the game. Mainly, the issues of normative and legislative regulation are under the jurisdiction of the Transport Ministry. The issues of normative and legislative regulation in the competition protection sphere are in the competence of the FAS of Russia. Thus, the Rules on Non-Discriminating Access to Infrastructure Services for Transporters are in force in the railway sector. But the competence of the railway monopoly is infrastructure as well as transportation. So, to execute the statements of the so-called second antitrust pack – amendments to the federal law “On Competition Protection”, which came in force in August 2009, we are preparing a new edition of the Rules of Non-Discriminating Access to Railway Transportation.
The document aims to define the spheres of business where competition may develop, terms for free and non-discriminating access, and ways to guarantee access and settle conflicts.
– Don’t you think it is absurd that RZD is turning into a transporter without wagons? How can access to transportation be provided?
– In the railway legislation there is a statement that a transporter must own wagons. How? It can be either the property right or any other legal right. If there is competition on the rolling stock market, there is no need to oblige the transporter to own the public park in property to observe antitrust legislation. The transporter may use railcars of its subsidiaries (leaseback, terms of trust etc.). Meanwhile, if RZD or its subsidiaries are dominating the market segment, they must follow the terms of the public park.
A stumbling rock was the claims of RZD that it would refuse transportation if it had no wagons. The Ministry of Transport must define the criteria of the lack of technical ability to provide transportation. This document has been discussed for several years, but it has not been issued yet. We believe that the transfer of rolling stock to subsidiaries should not be considered a factor in the lack of technical ability to provide transportation.
Freight One and the Second Cargo Company will create competition in the market. Perhaps, one of the companies will be privatised. Then, real competition will appear. But we are against the transfer of private operators’ railcars to the Second Cargo Company. In this case it will be less attractive for investors, because a large shareholding will be owned by operators whose railcars will be given to the company’s authorised capital.
– Why not unite some operators in the framework of a larger structure? Nowadays, there are over 2,000 owners of rolling stock on the market – it is a huge number…
– If a company works on the market, it does not matter how many wagons it owns. It occupies its segment, its services are popular. Some people say that companies should become larger to be more efficient. Meanwhile, experience shows that the fewer the players, the fewer the conditions for competition. Thus, there were over 300 oil companies in Russia. Nowadays, their number decreased, and the share of independent companies in the total volume of oil extraction dropped from 15% to 4%. Some 65% of fuel stations were independent, now it is only 50%. And everyone worries that prices for fuel are growing rapidly. Is it what we are striving for?

We will be lost without tariff deregulation

– What is the opinion of the FAS on railway tariff deregulation? Should it be done?
– The most positive results of the reform were reached using tariff deregulation. In the railway transportation sector, it became possible by means of the separation of the wagon constituent and its deregulation. That is how we managed to solve the problem of rolling stock shortage. During the reform, approximately RUR 400 billion was attracted to the freight transportation sector, and more than 200,000 new railcars were purchased.
Unfortunately, no other efficient decisions have been made to improve flexibility or to deregulate tariffs in the railway cargo transportation sector. However, there are the opportunities and conditions for it. The wagon constituent of the tariff should be deregulated stage-by-stage in the sectors and for the business unities which work in a competition environment. Separate business segments as well as the railway transportation may be deregulated. An example may be fish transportation from Murmansk to Moscow. Railwaymen lost this segment to road hauliers. Why should the tariffs on railway transportation be regulated there? We can speak of deregulation of tariffs on oil bulk transportation by railway on the markets where there is intersectoral competition with pipelines and water transport.
– What do you think about deregulation of the infrastructure constituent of the tariff? What is your opinion on transit tariff liberalisation? Media reports state that the FAS approved this offer. Is this true?
– How can transit influence the internal market? It cannot. Transit enlargement allows the use of free capacities, and consequently, improves the efficiency of the railway transport. The potential of its growth is enormous, but it is not being used. Some time later we may lose this sector of the market. Neighbouring states are creating routes bypassing Russia, modern logistics are being developed. We need a very flexible tariff policy; Russian companies should get an opportunity to work on this market.
As for infrastructure tariffs deregulation, I believe that they should become more flexible at first. A nice example: passenger transportation on the Moscow - St Petersburg line is very popular nowadays. Passenger companies receive significant revenue due to the high prices for tickets. Why then do they pay for the infrastructure on the basis of the average network figures? Why can’t the infrastructure get an opportunity to earn additional profit in this market segment? This money may be spent on the development of the railway infrastructure in other directions, on widening bottlenecks.
– What legal mechanisms for tariff deregulation are there in the competition segments of the transport market? Who must make decisions about them?
– The regulator must. But RZD should take a more active position. The decisions about deregulation may and should be taken especially in the most sensitive and economically important spheres. Unfortunately, the prerequisites for it are limited in the current regulating system because the basic principle of decision-making is not observed, i.e. the principle of making decisions on the basis of market analysis.
Nowadays, the decisions are mainly based on the analysis of the financial and economic activity of this or that subject, as well as projecting macro-economic conditions and limitations on the railway transportation sector. During the rapidly changing economic situation and structural reforms, this is far from enough. One should take into account that the decisions on tariffs deregulation during the recession must be made quickly. Otherwise, additional problems may appear in the economy instead of positive results.
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РЖД-Партнер

Controversial decisions

 The Program of Structural Reform defined that 2010 had to be the year when Russian railway sector reform must be completed. It includes the creation of the Second Cargo Company. However, debates about its future status and the market role are still continuing.
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The original idea

A decision to gradually transfer RZD’s rolling stock to two cargo companies was taken in spring 2007. The First Cargo Company (PGK) was created the same year in the form of a subsidiary 100%-owned by RZD. 200,000 wagons were transferred to PGK from the public park. Furthermore, it was planned to transfer another about 200,000 wagons to The Second Cargo Company, so that only about 30,000 units would stay in RZD for the company’s own non-commercial routine transportations.
The Target Market Model for the Cargo Railway Transport to 2015, which was developed in 2009 by McKinsey&Company together with RZD, assigned that the share of the private cargo wagon fleet had to be gradually raised to 100%, and that finally, wagons had to be provided on the basis of free market prices. The idea of the Model’s authors was that the creation of a private rolling stock operating market would help develop a competitive environment, reduce the risk of shortages in freight wagons and attract private capital to the sector.
The concept of The Second Cargo Company (VGK) was approved by RZD’s Board in May 2009. It was planned that the new player would be created the same year, but it took longer than expected to coordinate this issue with ministries and departments. There is no single point of view until now on the question of how to create VGK.
Last year an original version of its creation was under consideration, which suggested that other rolling stock owners would participate in the VGK’s capital as well. RZD was ready to give out its 25% plus 1 share to investors. For example, talks were held with Sberbank and Vneshtorgbank, which became large owners of wagons during the crisis, because operators had pawned their rolling stocks in order to obtain loans. “We thought it was a good solution both for those leasing companies which are now sitting with rolling stock, and for the companies who would like to capitalise themselves in such a way,” said Vladimir Yakunin, President of RZD.

A new version

It is currently stated that VGK will be created as a 100% RZD subsidiary. In this case, the second stage would be that its shares are traded on the market. The company’s IPO is not expected earlier than in 2011 or 2012. Thus, investors will not be able to enter the VGK’s authorised capital earlier than in a year’s time, once a full package of the necessary financial documentation can be introduced.
Igor Artemyev, Head of the Federal Antimonopoly Service, said that the controlling stake in The Second Cargo Company must be sold immediately after the separation stage is finalised and the pre-sale documentation is arranged. “As soon as VGK becomes private, the process of consolidation will start among operators. We already have about 20 fairly large private operating companies. As a result, at least three major operators will remain, as well as about 100 smaller ones in different sectors, which will take about five years, as I see it” says Mr Artemyev.
“Creating VGK, it will also require some time to coordinate timing and proceeding schemes to withdraw rolling stock, as well as improving the legal framework,” emphasised Igor Levitin, Minister of Transport of Russia. This work is expected to be completed in the first half of 2010. It must be mentioned here that the Transport Ministry does not advise the creation of VGK at all, but to sell wagons at auctions instead, or to withdraw them from the company gradually, which would avoid opaque leaseback schemes, which were applied when The First Cargo Company was created.

However, there are many risks ...

The main market participants, whom one must listen to, are the users of railway transport services, cargo owners. Supporters of the reform declare that their goal is to increase flexibility and service quality in providing rolling stock for transportation, develop competition in the sector and, as a result, reduce the transport burden on users. But others are very skeptical regarding both the very idea behind creating VGK and the expected results.
At the end of 2009, a consortium of steel companies headed by Alexei Mordashov, the owner of Severstal, even appealed to the government asking it not to create The Second Cargo Company at all. Steelmakers are afraid that RZD’s “daughters” will monopolise the rail market and that, consequently, tariffs will grow sharply, as soon as VGK comes to the market. “Our experience shows that the creation of daughter transport companies by RZD brings an increase in transport costs for cargo owners, compared to the state regulated rates,” the letter says.
This happened after the creation of Transles, Refservis, TransContainer, First Cargo Company and Rusagrotrans. Albert Nezameev, Head of Nizhnekamskneftekhim’s Transport Management, supports the standpoint of the metallurgists and adds that, when the subsidiaries were created, all sorts of administrative pressure was applied in order to “persuade” shippers to work with them. “We must acknowledge though, that after traffic dropped, the situation has somewhat stabilised, but this pressure still continues to a certain extent,” said Mr Nezameev.
“Rates will inevitably grow after VGK is created. Tariffs will be established at a level as they would be for any private park, and, in addition, this will require payment for empty runs. RZD’s daughter companies’ (PGK’s and VGK’s) dominant position on the market will become an additional factor of growth in prices, because there will be a shortage of gondola wagons in the course of the next three to five years. Another reason for prices to grow will be a need to return investments in new wagons which other owners are to purchase within the next five to seven years,” comments Viktor Kirilenko, Logistics Director of Novolipetsk Steel Works.
Also, there is another extremely important problem which will be become more acute after VGK is created. It lies in the international transport sector. Private operators do not have sufficient technical or administrative support and they are unprotected by the state, therefore they offer to transport cargoes to CIS countries only under a condition that the return empty run is to be paid for. Cargo owners have estimated that, according to the Price List № 10-01, this increases rail fares by between 25% and 40%, and in some cases even by 80%.
“Thus, RZD will not be able to guarantee a public transport service with regulated tariffs to Russia’s manufacturers. As regards the CIS countries market, it will be lost completely as it will go to foreign competitors,” fears Michael Scherbinin, Head of Transport Department from Magnitogorsk Iron and Steel Works. Mr Nezameev makes the same point: “The share of wagon price in the tariff is so much different in the second and the third sections of the Price List № 10-01, that wagon owners refuse completely to provide rolling stock to export cargoes via land border crossings - except for goods to Belarus - because they consider that these routes are unprofitable.
Because of this, we are forced to use RZD’s or foreign railways’ rolling stock in such situations. In cases where the remaining public park is transferred to PGK or VGK, these routes will not be provided with rolling stock, and the shipper will have to use wagons of different owners, but it will be far more expensive.
RZD assures that the company is working to establish principles of operation without a public park. The Central Traffic Management Directorate (a branch of RZD) believes that a fully legally defined concept of “an operator” must be created first of all.
Despite the fact that RZD will not have any public rolling stock in future, nevertheless, the holding group will keep managing all the rolling stock. First of all, it will include speed management within its infrastructure, ensuring sticking to the delivery time and the control over the various types of idling on the public railway network. Here it is important that operators should be responsible for providing shippers with rolling stock.
Moreover, he is sure that during the period of change - whilst RZD is still a natural monopoly unit and therefore uses wagons of different suppliers for its own transportations - an efficient market model should include the following: tariffs should be regulated and limited by a min/max value range; RZD’s subsidiaries should be obliged to provide wagons for the carrier to fulfill those requests, where the condition “in the carrier’s wagons” is agreed; the budgetary system should compensate damages to the carrier arising in specific cases; and a “trading floor” should be created on which wagons are offered by various owners and applications to purchase wagons are listed.
By Elena Ushkova

our reference

 Valeriy Reshetnikov
Vice President of RZD

– It is unlikely that we shall create VGK before we understand completely how to work with the rolling stock when it has the status of the private park. And if there is a danger that public orders for transportation will not be fulfilled, then, of course, we shall not proceed. Our responsibility is to work out this issue before the company is created, doing it either ourselves, or with the participation of the market, or involving experts.

 Michael Scherbinin
Head of Transport Management at Magnitogorsk Iron and Steel Works

– As we see it, the creation of VGK will entail a large number of consequences. First of all, the public park will be given to the subsidiaries, and as a result, the carrier will stay without wagons. This may spark a rise in the number of refusals by RZD to satisfy transportation orders. Secondly, the share of wagons in railway tariffs will leave the sphere of state regulation, and will be established only on a contractual basis, which, in the conditions of a shortage of rolling stock, will definitely raise the costs of cargo owners. Thirdly, the dominance of the operating companies – RZD’s subsidiaries in the market of gondola wagons and some other types of rolling stock, as well as their relations with the parent structure makes it easy to manipulate the market.
In these circumstances, we can not expect to achieve the reform goal of the reduction of the transport burden on the real economy.

 Felix Blinov
CEO of RWM Investment Group:

– A potential investor interested in purchasing a shareholding of VGK considers it important to get guarantees that the announced plans of the freight park transfer will be fulfilled. Some time ago, the top-management of RZD claimed that from 200,000 to 270,000 cargo railcars would be given to the authorized capital of VGK. The shares of the new company may be bought by several large investors. In the words of Vladimir Yakunin, President of RZD, bankers as well as owners of transport companies have already shown their interest. In its turn, VGK is opened for both Russian and foreign capital.
In my opinion, the optimal scheme for entering the VGK’s capital was suggested to investors last year. According to it, the private business is to receive over 20% (according to some data – 25% plus 1 share) when the company is launched. Thus, wagons can be given to the company’s authorized capital in payment for the shares. And the potential life-time of the rolling stock is several-fold longer that that of RZD’s park. It is especially important that the cargo railcars given by operators, leasing companies and cargo owners to the VGK’s authorised capital were valued at market prices.
There is hardly an investor ready to buy the company’s controlling interest at once. At the initial stage, RZD is likely to keep the controlling stake, which will allow to achieve a faster capitalization of VGK.
Also, the volume of the new company’s stock floatation may be restricted by a legal initiative of the Federal Service for Financial Markets. The new norms envisage a tougher mechanism of giving permissions for Russian issuers’ stock flotation abroad. The part of the stock that may be floated abroad can be dependent on the stock floated in Russia. Thus, VGK cannot count on IPO if it does not list its stock in Russia. [~DETAIL_TEXT] =>

The original idea

A decision to gradually transfer RZD’s rolling stock to two cargo companies was taken in spring 2007. The First Cargo Company (PGK) was created the same year in the form of a subsidiary 100%-owned by RZD. 200,000 wagons were transferred to PGK from the public park. Furthermore, it was planned to transfer another about 200,000 wagons to The Second Cargo Company, so that only about 30,000 units would stay in RZD for the company’s own non-commercial routine transportations.
The Target Market Model for the Cargo Railway Transport to 2015, which was developed in 2009 by McKinsey&Company together with RZD, assigned that the share of the private cargo wagon fleet had to be gradually raised to 100%, and that finally, wagons had to be provided on the basis of free market prices. The idea of the Model’s authors was that the creation of a private rolling stock operating market would help develop a competitive environment, reduce the risk of shortages in freight wagons and attract private capital to the sector.
The concept of The Second Cargo Company (VGK) was approved by RZD’s Board in May 2009. It was planned that the new player would be created the same year, but it took longer than expected to coordinate this issue with ministries and departments. There is no single point of view until now on the question of how to create VGK.
Last year an original version of its creation was under consideration, which suggested that other rolling stock owners would participate in the VGK’s capital as well. RZD was ready to give out its 25% plus 1 share to investors. For example, talks were held with Sberbank and Vneshtorgbank, which became large owners of wagons during the crisis, because operators had pawned their rolling stocks in order to obtain loans. “We thought it was a good solution both for those leasing companies which are now sitting with rolling stock, and for the companies who would like to capitalise themselves in such a way,” said Vladimir Yakunin, President of RZD.

A new version

It is currently stated that VGK will be created as a 100% RZD subsidiary. In this case, the second stage would be that its shares are traded on the market. The company’s IPO is not expected earlier than in 2011 or 2012. Thus, investors will not be able to enter the VGK’s authorised capital earlier than in a year’s time, once a full package of the necessary financial documentation can be introduced.
Igor Artemyev, Head of the Federal Antimonopoly Service, said that the controlling stake in The Second Cargo Company must be sold immediately after the separation stage is finalised and the pre-sale documentation is arranged. “As soon as VGK becomes private, the process of consolidation will start among operators. We already have about 20 fairly large private operating companies. As a result, at least three major operators will remain, as well as about 100 smaller ones in different sectors, which will take about five years, as I see it” says Mr Artemyev.
“Creating VGK, it will also require some time to coordinate timing and proceeding schemes to withdraw rolling stock, as well as improving the legal framework,” emphasised Igor Levitin, Minister of Transport of Russia. This work is expected to be completed in the first half of 2010. It must be mentioned here that the Transport Ministry does not advise the creation of VGK at all, but to sell wagons at auctions instead, or to withdraw them from the company gradually, which would avoid opaque leaseback schemes, which were applied when The First Cargo Company was created.

However, there are many risks ...

The main market participants, whom one must listen to, are the users of railway transport services, cargo owners. Supporters of the reform declare that their goal is to increase flexibility and service quality in providing rolling stock for transportation, develop competition in the sector and, as a result, reduce the transport burden on users. But others are very skeptical regarding both the very idea behind creating VGK and the expected results.
At the end of 2009, a consortium of steel companies headed by Alexei Mordashov, the owner of Severstal, even appealed to the government asking it not to create The Second Cargo Company at all. Steelmakers are afraid that RZD’s “daughters” will monopolise the rail market and that, consequently, tariffs will grow sharply, as soon as VGK comes to the market. “Our experience shows that the creation of daughter transport companies by RZD brings an increase in transport costs for cargo owners, compared to the state regulated rates,” the letter says.
This happened after the creation of Transles, Refservis, TransContainer, First Cargo Company and Rusagrotrans. Albert Nezameev, Head of Nizhnekamskneftekhim’s Transport Management, supports the standpoint of the metallurgists and adds that, when the subsidiaries were created, all sorts of administrative pressure was applied in order to “persuade” shippers to work with them. “We must acknowledge though, that after traffic dropped, the situation has somewhat stabilised, but this pressure still continues to a certain extent,” said Mr Nezameev.
“Rates will inevitably grow after VGK is created. Tariffs will be established at a level as they would be for any private park, and, in addition, this will require payment for empty runs. RZD’s daughter companies’ (PGK’s and VGK’s) dominant position on the market will become an additional factor of growth in prices, because there will be a shortage of gondola wagons in the course of the next three to five years. Another reason for prices to grow will be a need to return investments in new wagons which other owners are to purchase within the next five to seven years,” comments Viktor Kirilenko, Logistics Director of Novolipetsk Steel Works.
Also, there is another extremely important problem which will be become more acute after VGK is created. It lies in the international transport sector. Private operators do not have sufficient technical or administrative support and they are unprotected by the state, therefore they offer to transport cargoes to CIS countries only under a condition that the return empty run is to be paid for. Cargo owners have estimated that, according to the Price List № 10-01, this increases rail fares by between 25% and 40%, and in some cases even by 80%.
“Thus, RZD will not be able to guarantee a public transport service with regulated tariffs to Russia’s manufacturers. As regards the CIS countries market, it will be lost completely as it will go to foreign competitors,” fears Michael Scherbinin, Head of Transport Department from Magnitogorsk Iron and Steel Works. Mr Nezameev makes the same point: “The share of wagon price in the tariff is so much different in the second and the third sections of the Price List № 10-01, that wagon owners refuse completely to provide rolling stock to export cargoes via land border crossings - except for goods to Belarus - because they consider that these routes are unprofitable.
Because of this, we are forced to use RZD’s or foreign railways’ rolling stock in such situations. In cases where the remaining public park is transferred to PGK or VGK, these routes will not be provided with rolling stock, and the shipper will have to use wagons of different owners, but it will be far more expensive.
RZD assures that the company is working to establish principles of operation without a public park. The Central Traffic Management Directorate (a branch of RZD) believes that a fully legally defined concept of “an operator” must be created first of all.
Despite the fact that RZD will not have any public rolling stock in future, nevertheless, the holding group will keep managing all the rolling stock. First of all, it will include speed management within its infrastructure, ensuring sticking to the delivery time and the control over the various types of idling on the public railway network. Here it is important that operators should be responsible for providing shippers with rolling stock.
Moreover, he is sure that during the period of change - whilst RZD is still a natural monopoly unit and therefore uses wagons of different suppliers for its own transportations - an efficient market model should include the following: tariffs should be regulated and limited by a min/max value range; RZD’s subsidiaries should be obliged to provide wagons for the carrier to fulfill those requests, where the condition “in the carrier’s wagons” is agreed; the budgetary system should compensate damages to the carrier arising in specific cases; and a “trading floor” should be created on which wagons are offered by various owners and applications to purchase wagons are listed.
By Elena Ushkova

our reference

 Valeriy Reshetnikov
Vice President of RZD

– It is unlikely that we shall create VGK before we understand completely how to work with the rolling stock when it has the status of the private park. And if there is a danger that public orders for transportation will not be fulfilled, then, of course, we shall not proceed. Our responsibility is to work out this issue before the company is created, doing it either ourselves, or with the participation of the market, or involving experts.

 Michael Scherbinin
Head of Transport Management at Magnitogorsk Iron and Steel Works

– As we see it, the creation of VGK will entail a large number of consequences. First of all, the public park will be given to the subsidiaries, and as a result, the carrier will stay without wagons. This may spark a rise in the number of refusals by RZD to satisfy transportation orders. Secondly, the share of wagons in railway tariffs will leave the sphere of state regulation, and will be established only on a contractual basis, which, in the conditions of a shortage of rolling stock, will definitely raise the costs of cargo owners. Thirdly, the dominance of the operating companies – RZD’s subsidiaries in the market of gondola wagons and some other types of rolling stock, as well as their relations with the parent structure makes it easy to manipulate the market.
In these circumstances, we can not expect to achieve the reform goal of the reduction of the transport burden on the real economy.

 Felix Blinov
CEO of RWM Investment Group:

– A potential investor interested in purchasing a shareholding of VGK considers it important to get guarantees that the announced plans of the freight park transfer will be fulfilled. Some time ago, the top-management of RZD claimed that from 200,000 to 270,000 cargo railcars would be given to the authorized capital of VGK. The shares of the new company may be bought by several large investors. In the words of Vladimir Yakunin, President of RZD, bankers as well as owners of transport companies have already shown their interest. In its turn, VGK is opened for both Russian and foreign capital.
In my opinion, the optimal scheme for entering the VGK’s capital was suggested to investors last year. According to it, the private business is to receive over 20% (according to some data – 25% plus 1 share) when the company is launched. Thus, wagons can be given to the company’s authorized capital in payment for the shares. And the potential life-time of the rolling stock is several-fold longer that that of RZD’s park. It is especially important that the cargo railcars given by operators, leasing companies and cargo owners to the VGK’s authorised capital were valued at market prices.
There is hardly an investor ready to buy the company’s controlling interest at once. At the initial stage, RZD is likely to keep the controlling stake, which will allow to achieve a faster capitalization of VGK.
Also, the volume of the new company’s stock floatation may be restricted by a legal initiative of the Federal Service for Financial Markets. The new norms envisage a tougher mechanism of giving permissions for Russian issuers’ stock flotation abroad. The part of the stock that may be floated abroad can be dependent on the stock floated in Russia. Thus, VGK cannot count on IPO if it does not list its stock in Russia. [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>  The Program of Structural Reform defined that 2010 had to be the year when Russian railway sector reform must be completed. It includes the creation of the Second Cargo Company. However, debates about its future status and the market role are still continuing. [~PREVIEW_TEXT] =>  The Program of Structural Reform defined that 2010 had to be the year when Russian railway sector reform must be completed. It includes the creation of the Second Cargo Company. However, debates about its future status and the market role are still continuing. 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The original idea

A decision to gradually transfer RZD’s rolling stock to two cargo companies was taken in spring 2007. The First Cargo Company (PGK) was created the same year in the form of a subsidiary 100%-owned by RZD. 200,000 wagons were transferred to PGK from the public park. Furthermore, it was planned to transfer another about 200,000 wagons to The Second Cargo Company, so that only about 30,000 units would stay in RZD for the company’s own non-commercial routine transportations.
The Target Market Model for the Cargo Railway Transport to 2015, which was developed in 2009 by McKinsey&Company together with RZD, assigned that the share of the private cargo wagon fleet had to be gradually raised to 100%, and that finally, wagons had to be provided on the basis of free market prices. The idea of the Model’s authors was that the creation of a private rolling stock operating market would help develop a competitive environment, reduce the risk of shortages in freight wagons and attract private capital to the sector.
The concept of The Second Cargo Company (VGK) was approved by RZD’s Board in May 2009. It was planned that the new player would be created the same year, but it took longer than expected to coordinate this issue with ministries and departments. There is no single point of view until now on the question of how to create VGK.
Last year an original version of its creation was under consideration, which suggested that other rolling stock owners would participate in the VGK’s capital as well. RZD was ready to give out its 25% plus 1 share to investors. For example, talks were held with Sberbank and Vneshtorgbank, which became large owners of wagons during the crisis, because operators had pawned their rolling stocks in order to obtain loans. “We thought it was a good solution both for those leasing companies which are now sitting with rolling stock, and for the companies who would like to capitalise themselves in such a way,” said Vladimir Yakunin, President of RZD.

A new version

It is currently stated that VGK will be created as a 100% RZD subsidiary. In this case, the second stage would be that its shares are traded on the market. The company’s IPO is not expected earlier than in 2011 or 2012. Thus, investors will not be able to enter the VGK’s authorised capital earlier than in a year’s time, once a full package of the necessary financial documentation can be introduced.
Igor Artemyev, Head of the Federal Antimonopoly Service, said that the controlling stake in The Second Cargo Company must be sold immediately after the separation stage is finalised and the pre-sale documentation is arranged. “As soon as VGK becomes private, the process of consolidation will start among operators. We already have about 20 fairly large private operating companies. As a result, at least three major operators will remain, as well as about 100 smaller ones in different sectors, which will take about five years, as I see it” says Mr Artemyev.
“Creating VGK, it will also require some time to coordinate timing and proceeding schemes to withdraw rolling stock, as well as improving the legal framework,” emphasised Igor Levitin, Minister of Transport of Russia. This work is expected to be completed in the first half of 2010. It must be mentioned here that the Transport Ministry does not advise the creation of VGK at all, but to sell wagons at auctions instead, or to withdraw them from the company gradually, which would avoid opaque leaseback schemes, which were applied when The First Cargo Company was created.

However, there are many risks ...

The main market participants, whom one must listen to, are the users of railway transport services, cargo owners. Supporters of the reform declare that their goal is to increase flexibility and service quality in providing rolling stock for transportation, develop competition in the sector and, as a result, reduce the transport burden on users. But others are very skeptical regarding both the very idea behind creating VGK and the expected results.
At the end of 2009, a consortium of steel companies headed by Alexei Mordashov, the owner of Severstal, even appealed to the government asking it not to create The Second Cargo Company at all. Steelmakers are afraid that RZD’s “daughters” will monopolise the rail market and that, consequently, tariffs will grow sharply, as soon as VGK comes to the market. “Our experience shows that the creation of daughter transport companies by RZD brings an increase in transport costs for cargo owners, compared to the state regulated rates,” the letter says.
This happened after the creation of Transles, Refservis, TransContainer, First Cargo Company and Rusagrotrans. Albert Nezameev, Head of Nizhnekamskneftekhim’s Transport Management, supports the standpoint of the metallurgists and adds that, when the subsidiaries were created, all sorts of administrative pressure was applied in order to “persuade” shippers to work with them. “We must acknowledge though, that after traffic dropped, the situation has somewhat stabilised, but this pressure still continues to a certain extent,” said Mr Nezameev.
“Rates will inevitably grow after VGK is created. Tariffs will be established at a level as they would be for any private park, and, in addition, this will require payment for empty runs. RZD’s daughter companies’ (PGK’s and VGK’s) dominant position on the market will become an additional factor of growth in prices, because there will be a shortage of gondola wagons in the course of the next three to five years. Another reason for prices to grow will be a need to return investments in new wagons which other owners are to purchase within the next five to seven years,” comments Viktor Kirilenko, Logistics Director of Novolipetsk Steel Works.
Also, there is another extremely important problem which will be become more acute after VGK is created. It lies in the international transport sector. Private operators do not have sufficient technical or administrative support and they are unprotected by the state, therefore they offer to transport cargoes to CIS countries only under a condition that the return empty run is to be paid for. Cargo owners have estimated that, according to the Price List № 10-01, this increases rail fares by between 25% and 40%, and in some cases even by 80%.
“Thus, RZD will not be able to guarantee a public transport service with regulated tariffs to Russia’s manufacturers. As regards the CIS countries market, it will be lost completely as it will go to foreign competitors,” fears Michael Scherbinin, Head of Transport Department from Magnitogorsk Iron and Steel Works. Mr Nezameev makes the same point: “The share of wagon price in the tariff is so much different in the second and the third sections of the Price List № 10-01, that wagon owners refuse completely to provide rolling stock to export cargoes via land border crossings - except for goods to Belarus - because they consider that these routes are unprofitable.
Because of this, we are forced to use RZD’s or foreign railways’ rolling stock in such situations. In cases where the remaining public park is transferred to PGK or VGK, these routes will not be provided with rolling stock, and the shipper will have to use wagons of different owners, but it will be far more expensive.
RZD assures that the company is working to establish principles of operation without a public park. The Central Traffic Management Directorate (a branch of RZD) believes that a fully legally defined concept of “an operator” must be created first of all.
Despite the fact that RZD will not have any public rolling stock in future, nevertheless, the holding group will keep managing all the rolling stock. First of all, it will include speed management within its infrastructure, ensuring sticking to the delivery time and the control over the various types of idling on the public railway network. Here it is important that operators should be responsible for providing shippers with rolling stock.
Moreover, he is sure that during the period of change - whilst RZD is still a natural monopoly unit and therefore uses wagons of different suppliers for its own transportations - an efficient market model should include the following: tariffs should be regulated and limited by a min/max value range; RZD’s subsidiaries should be obliged to provide wagons for the carrier to fulfill those requests, where the condition “in the carrier’s wagons” is agreed; the budgetary system should compensate damages to the carrier arising in specific cases; and a “trading floor” should be created on which wagons are offered by various owners and applications to purchase wagons are listed.
By Elena Ushkova

our reference

 Valeriy Reshetnikov
Vice President of RZD

– It is unlikely that we shall create VGK before we understand completely how to work with the rolling stock when it has the status of the private park. And if there is a danger that public orders for transportation will not be fulfilled, then, of course, we shall not proceed. Our responsibility is to work out this issue before the company is created, doing it either ourselves, or with the participation of the market, or involving experts.

 Michael Scherbinin
Head of Transport Management at Magnitogorsk Iron and Steel Works

– As we see it, the creation of VGK will entail a large number of consequences. First of all, the public park will be given to the subsidiaries, and as a result, the carrier will stay without wagons. This may spark a rise in the number of refusals by RZD to satisfy transportation orders. Secondly, the share of wagons in railway tariffs will leave the sphere of state regulation, and will be established only on a contractual basis, which, in the conditions of a shortage of rolling stock, will definitely raise the costs of cargo owners. Thirdly, the dominance of the operating companies – RZD’s subsidiaries in the market of gondola wagons and some other types of rolling stock, as well as their relations with the parent structure makes it easy to manipulate the market.
In these circumstances, we can not expect to achieve the reform goal of the reduction of the transport burden on the real economy.

 Felix Blinov
CEO of RWM Investment Group:

– A potential investor interested in purchasing a shareholding of VGK considers it important to get guarantees that the announced plans of the freight park transfer will be fulfilled. Some time ago, the top-management of RZD claimed that from 200,000 to 270,000 cargo railcars would be given to the authorized capital of VGK. The shares of the new company may be bought by several large investors. In the words of Vladimir Yakunin, President of RZD, bankers as well as owners of transport companies have already shown their interest. In its turn, VGK is opened for both Russian and foreign capital.
In my opinion, the optimal scheme for entering the VGK’s capital was suggested to investors last year. According to it, the private business is to receive over 20% (according to some data – 25% plus 1 share) when the company is launched. Thus, wagons can be given to the company’s authorized capital in payment for the shares. And the potential life-time of the rolling stock is several-fold longer that that of RZD’s park. It is especially important that the cargo railcars given by operators, leasing companies and cargo owners to the VGK’s authorised capital were valued at market prices.
There is hardly an investor ready to buy the company’s controlling interest at once. At the initial stage, RZD is likely to keep the controlling stake, which will allow to achieve a faster capitalization of VGK.
Also, the volume of the new company’s stock floatation may be restricted by a legal initiative of the Federal Service for Financial Markets. The new norms envisage a tougher mechanism of giving permissions for Russian issuers’ stock flotation abroad. The part of the stock that may be floated abroad can be dependent on the stock floated in Russia. Thus, VGK cannot count on IPO if it does not list its stock in Russia. [~DETAIL_TEXT] =>

The original idea

A decision to gradually transfer RZD’s rolling stock to two cargo companies was taken in spring 2007. The First Cargo Company (PGK) was created the same year in the form of a subsidiary 100%-owned by RZD. 200,000 wagons were transferred to PGK from the public park. Furthermore, it was planned to transfer another about 200,000 wagons to The Second Cargo Company, so that only about 30,000 units would stay in RZD for the company’s own non-commercial routine transportations.
The Target Market Model for the Cargo Railway Transport to 2015, which was developed in 2009 by McKinsey&Company together with RZD, assigned that the share of the private cargo wagon fleet had to be gradually raised to 100%, and that finally, wagons had to be provided on the basis of free market prices. The idea of the Model’s authors was that the creation of a private rolling stock operating market would help develop a competitive environment, reduce the risk of shortages in freight wagons and attract private capital to the sector.
The concept of The Second Cargo Company (VGK) was approved by RZD’s Board in May 2009. It was planned that the new player would be created the same year, but it took longer than expected to coordinate this issue with ministries and departments. There is no single point of view until now on the question of how to create VGK.
Last year an original version of its creation was under consideration, which suggested that other rolling stock owners would participate in the VGK’s capital as well. RZD was ready to give out its 25% plus 1 share to investors. For example, talks were held with Sberbank and Vneshtorgbank, which became large owners of wagons during the crisis, because operators had pawned their rolling stocks in order to obtain loans. “We thought it was a good solution both for those leasing companies which are now sitting with rolling stock, and for the companies who would like to capitalise themselves in such a way,” said Vladimir Yakunin, President of RZD.

A new version

It is currently stated that VGK will be created as a 100% RZD subsidiary. In this case, the second stage would be that its shares are traded on the market. The company’s IPO is not expected earlier than in 2011 or 2012. Thus, investors will not be able to enter the VGK’s authorised capital earlier than in a year’s time, once a full package of the necessary financial documentation can be introduced.
Igor Artemyev, Head of the Federal Antimonopoly Service, said that the controlling stake in The Second Cargo Company must be sold immediately after the separation stage is finalised and the pre-sale documentation is arranged. “As soon as VGK becomes private, the process of consolidation will start among operators. We already have about 20 fairly large private operating companies. As a result, at least three major operators will remain, as well as about 100 smaller ones in different sectors, which will take about five years, as I see it” says Mr Artemyev.
“Creating VGK, it will also require some time to coordinate timing and proceeding schemes to withdraw rolling stock, as well as improving the legal framework,” emphasised Igor Levitin, Minister of Transport of Russia. This work is expected to be completed in the first half of 2010. It must be mentioned here that the Transport Ministry does not advise the creation of VGK at all, but to sell wagons at auctions instead, or to withdraw them from the company gradually, which would avoid opaque leaseback schemes, which were applied when The First Cargo Company was created.

However, there are many risks ...

The main market participants, whom one must listen to, are the users of railway transport services, cargo owners. Supporters of the reform declare that their goal is to increase flexibility and service quality in providing rolling stock for transportation, develop competition in the sector and, as a result, reduce the transport burden on users. But others are very skeptical regarding both the very idea behind creating VGK and the expected results.
At the end of 2009, a consortium of steel companies headed by Alexei Mordashov, the owner of Severstal, even appealed to the government asking it not to create The Second Cargo Company at all. Steelmakers are afraid that RZD’s “daughters” will monopolise the rail market and that, consequently, tariffs will grow sharply, as soon as VGK comes to the market. “Our experience shows that the creation of daughter transport companies by RZD brings an increase in transport costs for cargo owners, compared to the state regulated rates,” the letter says.
This happened after the creation of Transles, Refservis, TransContainer, First Cargo Company and Rusagrotrans. Albert Nezameev, Head of Nizhnekamskneftekhim’s Transport Management, supports the standpoint of the metallurgists and adds that, when the subsidiaries were created, all sorts of administrative pressure was applied in order to “persuade” shippers to work with them. “We must acknowledge though, that after traffic dropped, the situation has somewhat stabilised, but this pressure still continues to a certain extent,” said Mr Nezameev.
“Rates will inevitably grow after VGK is created. Tariffs will be established at a level as they would be for any private park, and, in addition, this will require payment for empty runs. RZD’s daughter companies’ (PGK’s and VGK’s) dominant position on the market will become an additional factor of growth in prices, because there will be a shortage of gondola wagons in the course of the next three to five years. Another reason for prices to grow will be a need to return investments in new wagons which other owners are to purchase within the next five to seven years,” comments Viktor Kirilenko, Logistics Director of Novolipetsk Steel Works.
Also, there is another extremely important problem which will be become more acute after VGK is created. It lies in the international transport sector. Private operators do not have sufficient technical or administrative support and they are unprotected by the state, therefore they offer to transport cargoes to CIS countries only under a condition that the return empty run is to be paid for. Cargo owners have estimated that, according to the Price List № 10-01, this increases rail fares by between 25% and 40%, and in some cases even by 80%.
“Thus, RZD will not be able to guarantee a public transport service with regulated tariffs to Russia’s manufacturers. As regards the CIS countries market, it will be lost completely as it will go to foreign competitors,” fears Michael Scherbinin, Head of Transport Department from Magnitogorsk Iron and Steel Works. Mr Nezameev makes the same point: “The share of wagon price in the tariff is so much different in the second and the third sections of the Price List № 10-01, that wagon owners refuse completely to provide rolling stock to export cargoes via land border crossings - except for goods to Belarus - because they consider that these routes are unprofitable.
Because of this, we are forced to use RZD’s or foreign railways’ rolling stock in such situations. In cases where the remaining public park is transferred to PGK or VGK, these routes will not be provided with rolling stock, and the shipper will have to use wagons of different owners, but it will be far more expensive.
RZD assures that the company is working to establish principles of operation without a public park. The Central Traffic Management Directorate (a branch of RZD) believes that a fully legally defined concept of “an operator” must be created first of all.
Despite the fact that RZD will not have any public rolling stock in future, nevertheless, the holding group will keep managing all the rolling stock. First of all, it will include speed management within its infrastructure, ensuring sticking to the delivery time and the control over the various types of idling on the public railway network. Here it is important that operators should be responsible for providing shippers with rolling stock.
Moreover, he is sure that during the period of change - whilst RZD is still a natural monopoly unit and therefore uses wagons of different suppliers for its own transportations - an efficient market model should include the following: tariffs should be regulated and limited by a min/max value range; RZD’s subsidiaries should be obliged to provide wagons for the carrier to fulfill those requests, where the condition “in the carrier’s wagons” is agreed; the budgetary system should compensate damages to the carrier arising in specific cases; and a “trading floor” should be created on which wagons are offered by various owners and applications to purchase wagons are listed.
By Elena Ushkova

our reference

 Valeriy Reshetnikov
Vice President of RZD

– It is unlikely that we shall create VGK before we understand completely how to work with the rolling stock when it has the status of the private park. And if there is a danger that public orders for transportation will not be fulfilled, then, of course, we shall not proceed. Our responsibility is to work out this issue before the company is created, doing it either ourselves, or with the participation of the market, or involving experts.

 Michael Scherbinin
Head of Transport Management at Magnitogorsk Iron and Steel Works

– As we see it, the creation of VGK will entail a large number of consequences. First of all, the public park will be given to the subsidiaries, and as a result, the carrier will stay without wagons. This may spark a rise in the number of refusals by RZD to satisfy transportation orders. Secondly, the share of wagons in railway tariffs will leave the sphere of state regulation, and will be established only on a contractual basis, which, in the conditions of a shortage of rolling stock, will definitely raise the costs of cargo owners. Thirdly, the dominance of the operating companies – RZD’s subsidiaries in the market of gondola wagons and some other types of rolling stock, as well as their relations with the parent structure makes it easy to manipulate the market.
In these circumstances, we can not expect to achieve the reform goal of the reduction of the transport burden on the real economy.

 Felix Blinov
CEO of RWM Investment Group:

– A potential investor interested in purchasing a shareholding of VGK considers it important to get guarantees that the announced plans of the freight park transfer will be fulfilled. Some time ago, the top-management of RZD claimed that from 200,000 to 270,000 cargo railcars would be given to the authorized capital of VGK. The shares of the new company may be bought by several large investors. In the words of Vladimir Yakunin, President of RZD, bankers as well as owners of transport companies have already shown their interest. In its turn, VGK is opened for both Russian and foreign capital.
In my opinion, the optimal scheme for entering the VGK’s capital was suggested to investors last year. According to it, the private business is to receive over 20% (according to some data – 25% plus 1 share) when the company is launched. Thus, wagons can be given to the company’s authorized capital in payment for the shares. And the potential life-time of the rolling stock is several-fold longer that that of RZD’s park. It is especially important that the cargo railcars given by operators, leasing companies and cargo owners to the VGK’s authorised capital were valued at market prices.
There is hardly an investor ready to buy the company’s controlling interest at once. At the initial stage, RZD is likely to keep the controlling stake, which will allow to achieve a faster capitalization of VGK.
Also, the volume of the new company’s stock floatation may be restricted by a legal initiative of the Federal Service for Financial Markets. The new norms envisage a tougher mechanism of giving permissions for Russian issuers’ stock flotation abroad. The part of the stock that may be floated abroad can be dependent on the stock floated in Russia. Thus, VGK cannot count on IPO if it does not list its stock in Russia. [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>  The Program of Structural Reform defined that 2010 had to be the year when Russian railway sector reform must be completed. It includes the creation of the Second Cargo Company. However, debates about its future status and the market role are still continuing. [~PREVIEW_TEXT] =>  The Program of Structural Reform defined that 2010 had to be the year when Russian railway sector reform must be completed. It includes the creation of the Second Cargo Company. However, debates about its future status and the market role are still continuing. 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РЖД-Партнер

Panorama

RF Government to Give State Guarantees for Three Roads Construction Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg.
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RF Government to Give State Guarantees for Three Roads Construction

Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg.
“I signed the decree on giving guarantees to the companies which participate in the construction of state infrastructure objects, i.e. roads, railways, ports, airport take-off and landing facilities. This decree allows the state and private business to work in the framework of concession agreements,” said Mr Putin at his meeting with Igor Levitin, Russian Transport Minister, on March 16.
“The supplement to this decree contains the order for financing of three specific projects (motorway construction),” he added.
Mr Levitin emphasised that the documents ratified by the Government allows concessionaires and the Ministry of Finance to conclude the contract on giving state guarantees for the placement of financial instruments in the market. He specified that Russian as well as foreign banks may take part in the programme.
The Russian Prime Minister specified that a private investor participating in such a project is to invest at least 25% of its cost.

Transport Ministry of Belarus plans to raise $200 million foreign investment in 2010

Organisations at the Ministry of Transport and Communications of Belarus are planning to raise $200 million of foreign investment in 2010.
Foreign investment worth $1.2 million was attracted in January 2010.
This sector is planning to implement 20 innovation projects in 2010.
In January 2010, 80.7 billion Byelorussian roubles ($27 million) were attracted in the fixed assets arena (although 131.9 billion Byelorussian roubles, or $44.18 million, of investment had been planned).
A representative of the Transport Ministry noted that Byelarusian Railways are taking measures to increase freight and passenger traffic, which allows prediction of a positive development in the export of services.
In January, service exports provided by the Transport Ministry’s enterprises was triple that of service imports.

Russian Railways, Alstom and Transmashholding sign cooperation protocol

During Russian President Dmitry Medvedev’s state visit to France in the beginning of March, Russian Railways, Alstom and Transmashholding signed a protocol on technological and production cooperation, as a continuation of a protocol signed in Paris on Alstom’s entry into the ownership structure of Transmashholding.
Commenting on the signing, Russian Railways President Vladimir Yakunin said: “The signing of this agreement is an unprecedented event for us, and reflects the foundation that has been laid by our political leaders in the new relations between Russia and France. For us, this is first and foremost an indicator that the real stage of integration has begun – at any rate, in our sector.”
The Russian Railways President noted that the company had already been working with Alstom, and mentioned the agreement previously signed between the companies on the acquisition of Pendolino tilting trains to run between Helsinki and St Petersburg. “The first train of this series is already complete, and we hope that by the end of the year it will pass technical and certification tests, and that we will be able to present it to the Russian public. We also want to jointly create a prototype of a new EP20 electric locomotive by the end of this year, and I expect that this will also serve as a dynamic continuation of all the documents signed here,” Mr Yakunin said.

Russian President signs decree “On Measures to Organise High-Speed Rail Transport in Russia”

On March 16, 2010, Dmitry Medvedev, President of Russia, signed the decree “On Measures to Organise High-Speed Rail Transport in Russia”. The decree contains a series of instructions to the Government of Russia on technical recommendations for high-speed trains, safety and security requirements and mechanisms for allocating budget funds and attracting extra-budgetary funds, as well as on the training of the necessary personnel.
According to the decree, Russian Railways is the sole provider which will implement the functions on behalf of the state in designing high-speed rail infrastructure.
“This decree will provide support to Russian Railways in the development of high-speed rail, which is one of the priorities of the Development Strategy of Rail Transport in Russia to 2030, one of the most important “breakthrough” areas in the development of railways in Russia.
The emergence of high-speed communications in Russia will change the entire national transportation system, ensuring freedom of movement in minimal time. In addition, it will create a number of positive effects in the social sphere, transport engineering and other industries, and promote the introduction of new technologies that will have a positive impact on Russia’s international prestige,” said Vladimir Yakunin, RZD President, at his meeting with Mr Medvedev.

Draft paper for establishment of customs logistics border terminals to be considered by summer 2010

The Commission of the Federal Customs Service of Russia (FCS) will review the draft paper for establishment of customs logistics terminals in accordance with the provisions of the Concept of customs clearance and customs control of goods in locations close to the state border by summer 2010.
According to the plan published by the commission of the FCS, the project setting up the terminals in the areas covered by the North-West Customs Administration and the Central Customs Administration will be addressed in April 2010, the Far Eastern Customs Administration in May 2010, the Southern Customs Administration in April-May 2010. The projects for establishment of other terminals in other Administrations are also planned to be considered by the summer. [~DETAIL_TEXT] =>

RF Government to Give State Guarantees for Three Roads Construction

Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg.
“I signed the decree on giving guarantees to the companies which participate in the construction of state infrastructure objects, i.e. roads, railways, ports, airport take-off and landing facilities. This decree allows the state and private business to work in the framework of concession agreements,” said Mr Putin at his meeting with Igor Levitin, Russian Transport Minister, on March 16.
“The supplement to this decree contains the order for financing of three specific projects (motorway construction),” he added.
Mr Levitin emphasised that the documents ratified by the Government allows concessionaires and the Ministry of Finance to conclude the contract on giving state guarantees for the placement of financial instruments in the market. He specified that Russian as well as foreign banks may take part in the programme.
The Russian Prime Minister specified that a private investor participating in such a project is to invest at least 25% of its cost.

Transport Ministry of Belarus plans to raise $200 million foreign investment in 2010

Organisations at the Ministry of Transport and Communications of Belarus are planning to raise $200 million of foreign investment in 2010.
Foreign investment worth $1.2 million was attracted in January 2010.
This sector is planning to implement 20 innovation projects in 2010.
In January 2010, 80.7 billion Byelorussian roubles ($27 million) were attracted in the fixed assets arena (although 131.9 billion Byelorussian roubles, or $44.18 million, of investment had been planned).
A representative of the Transport Ministry noted that Byelarusian Railways are taking measures to increase freight and passenger traffic, which allows prediction of a positive development in the export of services.
In January, service exports provided by the Transport Ministry’s enterprises was triple that of service imports.

Russian Railways, Alstom and Transmashholding sign cooperation protocol

During Russian President Dmitry Medvedev’s state visit to France in the beginning of March, Russian Railways, Alstom and Transmashholding signed a protocol on technological and production cooperation, as a continuation of a protocol signed in Paris on Alstom’s entry into the ownership structure of Transmashholding.
Commenting on the signing, Russian Railways President Vladimir Yakunin said: “The signing of this agreement is an unprecedented event for us, and reflects the foundation that has been laid by our political leaders in the new relations between Russia and France. For us, this is first and foremost an indicator that the real stage of integration has begun – at any rate, in our sector.”
The Russian Railways President noted that the company had already been working with Alstom, and mentioned the agreement previously signed between the companies on the acquisition of Pendolino tilting trains to run between Helsinki and St Petersburg. “The first train of this series is already complete, and we hope that by the end of the year it will pass technical and certification tests, and that we will be able to present it to the Russian public. We also want to jointly create a prototype of a new EP20 electric locomotive by the end of this year, and I expect that this will also serve as a dynamic continuation of all the documents signed here,” Mr Yakunin said.

Russian President signs decree “On Measures to Organise High-Speed Rail Transport in Russia”

On March 16, 2010, Dmitry Medvedev, President of Russia, signed the decree “On Measures to Organise High-Speed Rail Transport in Russia”. The decree contains a series of instructions to the Government of Russia on technical recommendations for high-speed trains, safety and security requirements and mechanisms for allocating budget funds and attracting extra-budgetary funds, as well as on the training of the necessary personnel.
According to the decree, Russian Railways is the sole provider which will implement the functions on behalf of the state in designing high-speed rail infrastructure.
“This decree will provide support to Russian Railways in the development of high-speed rail, which is one of the priorities of the Development Strategy of Rail Transport in Russia to 2030, one of the most important “breakthrough” areas in the development of railways in Russia.
The emergence of high-speed communications in Russia will change the entire national transportation system, ensuring freedom of movement in minimal time. In addition, it will create a number of positive effects in the social sphere, transport engineering and other industries, and promote the introduction of new technologies that will have a positive impact on Russia’s international prestige,” said Vladimir Yakunin, RZD President, at his meeting with Mr Medvedev.

Draft paper for establishment of customs logistics border terminals to be considered by summer 2010

The Commission of the Federal Customs Service of Russia (FCS) will review the draft paper for establishment of customs logistics terminals in accordance with the provisions of the Concept of customs clearance and customs control of goods in locations close to the state border by summer 2010.
According to the plan published by the commission of the FCS, the project setting up the terminals in the areas covered by the North-West Customs Administration and the Central Customs Administration will be addressed in April 2010, the Far Eastern Customs Administration in May 2010, the Southern Customs Administration in April-May 2010. The projects for establishment of other terminals in other Administrations are also planned to be considered by the summer. [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] => RF Government to Give State Guarantees for Three Roads Construction Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg. [~PREVIEW_TEXT] => RF Government to Give State Guarantees for Three Roads Construction Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg. 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RF Government to Give State Guarantees for Three Roads Construction

Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg.
“I signed the decree on giving guarantees to the companies which participate in the construction of state infrastructure objects, i.e. roads, railways, ports, airport take-off and landing facilities. This decree allows the state and private business to work in the framework of concession agreements,” said Mr Putin at his meeting with Igor Levitin, Russian Transport Minister, on March 16.
“The supplement to this decree contains the order for financing of three specific projects (motorway construction),” he added.
Mr Levitin emphasised that the documents ratified by the Government allows concessionaires and the Ministry of Finance to conclude the contract on giving state guarantees for the placement of financial instruments in the market. He specified that Russian as well as foreign banks may take part in the programme.
The Russian Prime Minister specified that a private investor participating in such a project is to invest at least 25% of its cost.

Transport Ministry of Belarus plans to raise $200 million foreign investment in 2010

Organisations at the Ministry of Transport and Communications of Belarus are planning to raise $200 million of foreign investment in 2010.
Foreign investment worth $1.2 million was attracted in January 2010.
This sector is planning to implement 20 innovation projects in 2010.
In January 2010, 80.7 billion Byelorussian roubles ($27 million) were attracted in the fixed assets arena (although 131.9 billion Byelorussian roubles, or $44.18 million, of investment had been planned).
A representative of the Transport Ministry noted that Byelarusian Railways are taking measures to increase freight and passenger traffic, which allows prediction of a positive development in the export of services.
In January, service exports provided by the Transport Ministry’s enterprises was triple that of service imports.

Russian Railways, Alstom and Transmashholding sign cooperation protocol

During Russian President Dmitry Medvedev’s state visit to France in the beginning of March, Russian Railways, Alstom and Transmashholding signed a protocol on technological and production cooperation, as a continuation of a protocol signed in Paris on Alstom’s entry into the ownership structure of Transmashholding.
Commenting on the signing, Russian Railways President Vladimir Yakunin said: “The signing of this agreement is an unprecedented event for us, and reflects the foundation that has been laid by our political leaders in the new relations between Russia and France. For us, this is first and foremost an indicator that the real stage of integration has begun – at any rate, in our sector.”
The Russian Railways President noted that the company had already been working with Alstom, and mentioned the agreement previously signed between the companies on the acquisition of Pendolino tilting trains to run between Helsinki and St Petersburg. “The first train of this series is already complete, and we hope that by the end of the year it will pass technical and certification tests, and that we will be able to present it to the Russian public. We also want to jointly create a prototype of a new EP20 electric locomotive by the end of this year, and I expect that this will also serve as a dynamic continuation of all the documents signed here,” Mr Yakunin said.

Russian President signs decree “On Measures to Organise High-Speed Rail Transport in Russia”

On March 16, 2010, Dmitry Medvedev, President of Russia, signed the decree “On Measures to Organise High-Speed Rail Transport in Russia”. The decree contains a series of instructions to the Government of Russia on technical recommendations for high-speed trains, safety and security requirements and mechanisms for allocating budget funds and attracting extra-budgetary funds, as well as on the training of the necessary personnel.
According to the decree, Russian Railways is the sole provider which will implement the functions on behalf of the state in designing high-speed rail infrastructure.
“This decree will provide support to Russian Railways in the development of high-speed rail, which is one of the priorities of the Development Strategy of Rail Transport in Russia to 2030, one of the most important “breakthrough” areas in the development of railways in Russia.
The emergence of high-speed communications in Russia will change the entire national transportation system, ensuring freedom of movement in minimal time. In addition, it will create a number of positive effects in the social sphere, transport engineering and other industries, and promote the introduction of new technologies that will have a positive impact on Russia’s international prestige,” said Vladimir Yakunin, RZD President, at his meeting with Mr Medvedev.

Draft paper for establishment of customs logistics border terminals to be considered by summer 2010

The Commission of the Federal Customs Service of Russia (FCS) will review the draft paper for establishment of customs logistics terminals in accordance with the provisions of the Concept of customs clearance and customs control of goods in locations close to the state border by summer 2010.
According to the plan published by the commission of the FCS, the project setting up the terminals in the areas covered by the North-West Customs Administration and the Central Customs Administration will be addressed in April 2010, the Far Eastern Customs Administration in May 2010, the Southern Customs Administration in April-May 2010. The projects for establishment of other terminals in other Administrations are also planned to be considered by the summer. [~DETAIL_TEXT] =>

RF Government to Give State Guarantees for Three Roads Construction

Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg.
“I signed the decree on giving guarantees to the companies which participate in the construction of state infrastructure objects, i.e. roads, railways, ports, airport take-off and landing facilities. This decree allows the state and private business to work in the framework of concession agreements,” said Mr Putin at his meeting with Igor Levitin, Russian Transport Minister, on March 16.
“The supplement to this decree contains the order for financing of three specific projects (motorway construction),” he added.
Mr Levitin emphasised that the documents ratified by the Government allows concessionaires and the Ministry of Finance to conclude the contract on giving state guarantees for the placement of financial instruments in the market. He specified that Russian as well as foreign banks may take part in the programme.
The Russian Prime Minister specified that a private investor participating in such a project is to invest at least 25% of its cost.

Transport Ministry of Belarus plans to raise $200 million foreign investment in 2010

Organisations at the Ministry of Transport and Communications of Belarus are planning to raise $200 million of foreign investment in 2010.
Foreign investment worth $1.2 million was attracted in January 2010.
This sector is planning to implement 20 innovation projects in 2010.
In January 2010, 80.7 billion Byelorussian roubles ($27 million) were attracted in the fixed assets arena (although 131.9 billion Byelorussian roubles, or $44.18 million, of investment had been planned).
A representative of the Transport Ministry noted that Byelarusian Railways are taking measures to increase freight and passenger traffic, which allows prediction of a positive development in the export of services.
In January, service exports provided by the Transport Ministry’s enterprises was triple that of service imports.

Russian Railways, Alstom and Transmashholding sign cooperation protocol

During Russian President Dmitry Medvedev’s state visit to France in the beginning of March, Russian Railways, Alstom and Transmashholding signed a protocol on technological and production cooperation, as a continuation of a protocol signed in Paris on Alstom’s entry into the ownership structure of Transmashholding.
Commenting on the signing, Russian Railways President Vladimir Yakunin said: “The signing of this agreement is an unprecedented event for us, and reflects the foundation that has been laid by our political leaders in the new relations between Russia and France. For us, this is first and foremost an indicator that the real stage of integration has begun – at any rate, in our sector.”
The Russian Railways President noted that the company had already been working with Alstom, and mentioned the agreement previously signed between the companies on the acquisition of Pendolino tilting trains to run between Helsinki and St Petersburg. “The first train of this series is already complete, and we hope that by the end of the year it will pass technical and certification tests, and that we will be able to present it to the Russian public. We also want to jointly create a prototype of a new EP20 electric locomotive by the end of this year, and I expect that this will also serve as a dynamic continuation of all the documents signed here,” Mr Yakunin said.

Russian President signs decree “On Measures to Organise High-Speed Rail Transport in Russia”

On March 16, 2010, Dmitry Medvedev, President of Russia, signed the decree “On Measures to Organise High-Speed Rail Transport in Russia”. The decree contains a series of instructions to the Government of Russia on technical recommendations for high-speed trains, safety and security requirements and mechanisms for allocating budget funds and attracting extra-budgetary funds, as well as on the training of the necessary personnel.
According to the decree, Russian Railways is the sole provider which will implement the functions on behalf of the state in designing high-speed rail infrastructure.
“This decree will provide support to Russian Railways in the development of high-speed rail, which is one of the priorities of the Development Strategy of Rail Transport in Russia to 2030, one of the most important “breakthrough” areas in the development of railways in Russia.
The emergence of high-speed communications in Russia will change the entire national transportation system, ensuring freedom of movement in minimal time. In addition, it will create a number of positive effects in the social sphere, transport engineering and other industries, and promote the introduction of new technologies that will have a positive impact on Russia’s international prestige,” said Vladimir Yakunin, RZD President, at his meeting with Mr Medvedev.

Draft paper for establishment of customs logistics border terminals to be considered by summer 2010

The Commission of the Federal Customs Service of Russia (FCS) will review the draft paper for establishment of customs logistics terminals in accordance with the provisions of the Concept of customs clearance and customs control of goods in locations close to the state border by summer 2010.
According to the plan published by the commission of the FCS, the project setting up the terminals in the areas covered by the North-West Customs Administration and the Central Customs Administration will be addressed in April 2010, the Far Eastern Customs Administration in May 2010, the Southern Customs Administration in April-May 2010. The projects for establishment of other terminals in other Administrations are also planned to be considered by the summer. [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] => RF Government to Give State Guarantees for Three Roads Construction Vladimir Putin, Russian Prime Minister, signed a decree on giving guarantees to concessionaires participating in the construction of three sections of motorway in the Russian Federation. The three roads are: the route bypassing Odintsovo in the Moscow region, the Moscow – St Petersburg motorway, and the Western High-Speed Diameter in St Petersburg. 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РЖД-Партнер

In Search Of Optimal Decisions

  The liberalisation of railway transport in Europe and the CIS countries is accelerating which coupled with efforts made by carriers to shift traffic from road to rail is driving cooperation between companies operating in different countries.
The two largest companies in the region, Russia's RZD and Germany's Deutsche Bahn, have no choice but to unite their efforts in a highly competitive environment. Dr. Karl-Friedrich Rausch, Member of the Management Board of DB Mobility Logistics AG speaks on the matter in an interview.
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Eurasia Is the Focus

– Dr. Rausch, Deutsche Bahn AG is consistently claiming that business with Eastern European countries, including the CIS, is important for the company. Why is it important for DB at the moment?
– Economic relations between Germany, Central Europe, Russia and the CIS-countries are developing apace. Now we see the development potential in transport and logistics sectors is not completely realized yet. Our company is a worldwide leader in the transport and logistics and of course the Russian market is of great interest to us. Just for example, if we’re talking about the car industry, we can say a lot of our customers have already realized their business in Russia. We would like to offer in all parts of the world equally high-quality logistic services and transit transport chains to our partners. DB Schenker Logistics makes use of on average 20 locations in the major European and Asian parts of Russia. DB Schenker Rail (our European subsidiary company) has concentrated its activity on joining the European markets to Asia. Russia is one of the largest transport markets in the world (not including the pipeline) accounts for approximately 2,
4 billion ton-kilometres. In addition, Russia is a link between Europe and Asia. OAO RZD is without doubt the most important business partner for DB there.
– Two years ago Mr Hartmut Mehdorn in his speech in Sochi called for bureaucratic barriers to be destroyed to improve transportation. What are the main obstacles in the development of railway transportation between the 1435- and 1520-parts of Europe?
– The major factor for us is now an accurate learning of the rules and peculiarities of Russian freight legislation. In Europe the CIM liability regime is used, but in Asia and the CIS countries it’s the SMGS liability regime. There are different requirements and rules concerning conditions of loading and the accompanying documentation. The goal is to equalize all operating requirements to a truck transport crossing CIM and SMGS country borders. For that reason we are working on optimization of technical conditions. Moreover, reduction of bureaucratic procedures will considerably reduce latency- and demurrage time, and also speed up of customs formalities.
– DB is actively expanding its business across Europe. Do you think, it is possible that DB will be involved in the railway transportation business within the CIS somehow?
– DB has worked actively in CIS countries for many years. Since 1999, railway transportations on a broad gauge have been carried out by OOO Railion Russija Services (a subsidiary of DB Schenker Rail). In more than 100 years of work, DB Schenker has achieved success through its comprehensive logistics network. In the coming years, we will strengthen rail transportation. Rail cargo transportation now accounts for 1% of the share of transportation between Germany and Russia. Here car and sea transportations prevail.

Fewer Formalities, Bigger Successes

– In 2006, a unified consignment note CIM\SMGS was introduced. What value do you place on this document? Did it prove to be efficient? Do you have any suggestions for improving it?
– First of all, our transportations to Kaluga for the car industry from Mlada Boleslav (the Czech Republic), Velka Ida (the Slovak Republic) and Wolfsburg (Germany) involve the successful use of the CIM\ SMGS – liability regime. The trains have carried out about 900 trips in both directions. From the moment unified invoices were introduced, the transportation time reduced considerably - approximately by 1.5 days. We plan to actively improve this practice.
– Does DB have a strategy for developing its business activities with and in the CIS countries? Which spheres of cooperation are you considering? How do you evaluate the current level of cooperation?
– Worldwide we are focused on our clients and their needs; the same exists in the CIS countries. But we would also like to gain new clients and new markets. Cooperation and interaction with our Russian partners play an exceedingly important role in that. The most successful joint project of Germany and Russia is the logistics for the Volkswagen factory in Kaluga. DB Schenker Rail and Transcontainer (a subsidiary of RZD) realized the entire transportation process of car components from Volkswagen – and Skoda factories in Slovakia, Czech Republic, Germany and Poland to the VW factory in Kaluga. VW has awarded DB and Transcontainer’s joint efforts the “VW Group Award 2009” for outstanding planning and realization of the logistical concept on the supply to VW \Skoda factories in Kaluga. The importance of our cooperation with the RZD is reflected by the joint Logistical institute which opened in March, 2010 in St. Petersburg. The centre of the international logistics and supply chain management works as a place for the exchange of advanced experience and for the furthering of research and education in the field of international logistics and supply chain management.
– DB and RZD had plans to launch a regular container shuttle service between China and Europe through Russia, but these plans were repeatedly postponed.
– Unfortunately, the global economic crisis resulted in serious changes to our calculations and budget. We don’t see sufficient demand for such intercontinental rail transportations. But I am convinced that eventually our container trains will regularly run along the Transeurasian ways.
– DB was going to sell some of its shares through an IPO, as does RZD by selling the shares of its subsidiaries. Does DB consider the possibility of buying shares in any of RZD’s subsidiaries?
– Now there is no question of IPO DB ML AG and thus, there is no conversation about majority participation, buy-in or equity participation. We wish to continue our cooperation and partnership, and to further develop our joint projects. At this point I mean, for example, intermodal logistics centres.
Interview by Ivan Stupachenko [~DETAIL_TEXT] =>

Eurasia Is the Focus

– Dr. Rausch, Deutsche Bahn AG is consistently claiming that business with Eastern European countries, including the CIS, is important for the company. Why is it important for DB at the moment?
– Economic relations between Germany, Central Europe, Russia and the CIS-countries are developing apace. Now we see the development potential in transport and logistics sectors is not completely realized yet. Our company is a worldwide leader in the transport and logistics and of course the Russian market is of great interest to us. Just for example, if we’re talking about the car industry, we can say a lot of our customers have already realized their business in Russia. We would like to offer in all parts of the world equally high-quality logistic services and transit transport chains to our partners. DB Schenker Logistics makes use of on average 20 locations in the major European and Asian parts of Russia. DB Schenker Rail (our European subsidiary company) has concentrated its activity on joining the European markets to Asia. Russia is one of the largest transport markets in the world (not including the pipeline) accounts for approximately 2,
4 billion ton-kilometres. In addition, Russia is a link between Europe and Asia. OAO RZD is without doubt the most important business partner for DB there.
– Two years ago Mr Hartmut Mehdorn in his speech in Sochi called for bureaucratic barriers to be destroyed to improve transportation. What are the main obstacles in the development of railway transportation between the 1435- and 1520-parts of Europe?
– The major factor for us is now an accurate learning of the rules and peculiarities of Russian freight legislation. In Europe the CIM liability regime is used, but in Asia and the CIS countries it’s the SMGS liability regime. There are different requirements and rules concerning conditions of loading and the accompanying documentation. The goal is to equalize all operating requirements to a truck transport crossing CIM and SMGS country borders. For that reason we are working on optimization of technical conditions. Moreover, reduction of bureaucratic procedures will considerably reduce latency- and demurrage time, and also speed up of customs formalities.
– DB is actively expanding its business across Europe. Do you think, it is possible that DB will be involved in the railway transportation business within the CIS somehow?
– DB has worked actively in CIS countries for many years. Since 1999, railway transportations on a broad gauge have been carried out by OOO Railion Russija Services (a subsidiary of DB Schenker Rail). In more than 100 years of work, DB Schenker has achieved success through its comprehensive logistics network. In the coming years, we will strengthen rail transportation. Rail cargo transportation now accounts for 1% of the share of transportation between Germany and Russia. Here car and sea transportations prevail.

Fewer Formalities, Bigger Successes

– In 2006, a unified consignment note CIM\SMGS was introduced. What value do you place on this document? Did it prove to be efficient? Do you have any suggestions for improving it?
– First of all, our transportations to Kaluga for the car industry from Mlada Boleslav (the Czech Republic), Velka Ida (the Slovak Republic) and Wolfsburg (Germany) involve the successful use of the CIM\ SMGS – liability regime. The trains have carried out about 900 trips in both directions. From the moment unified invoices were introduced, the transportation time reduced considerably - approximately by 1.5 days. We plan to actively improve this practice.
– Does DB have a strategy for developing its business activities with and in the CIS countries? Which spheres of cooperation are you considering? How do you evaluate the current level of cooperation?
– Worldwide we are focused on our clients and their needs; the same exists in the CIS countries. But we would also like to gain new clients and new markets. Cooperation and interaction with our Russian partners play an exceedingly important role in that. The most successful joint project of Germany and Russia is the logistics for the Volkswagen factory in Kaluga. DB Schenker Rail and Transcontainer (a subsidiary of RZD) realized the entire transportation process of car components from Volkswagen – and Skoda factories in Slovakia, Czech Republic, Germany and Poland to the VW factory in Kaluga. VW has awarded DB and Transcontainer’s joint efforts the “VW Group Award 2009” for outstanding planning and realization of the logistical concept on the supply to VW \Skoda factories in Kaluga. The importance of our cooperation with the RZD is reflected by the joint Logistical institute which opened in March, 2010 in St. Petersburg. The centre of the international logistics and supply chain management works as a place for the exchange of advanced experience and for the furthering of research and education in the field of international logistics and supply chain management.
– DB and RZD had plans to launch a regular container shuttle service between China and Europe through Russia, but these plans were repeatedly postponed.
– Unfortunately, the global economic crisis resulted in serious changes to our calculations and budget. We don’t see sufficient demand for such intercontinental rail transportations. But I am convinced that eventually our container trains will regularly run along the Transeurasian ways.
– DB was going to sell some of its shares through an IPO, as does RZD by selling the shares of its subsidiaries. Does DB consider the possibility of buying shares in any of RZD’s subsidiaries?
– Now there is no question of IPO DB ML AG and thus, there is no conversation about majority participation, buy-in or equity participation. We wish to continue our cooperation and partnership, and to further develop our joint projects. At this point I mean, for example, intermodal logistics centres.
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The two largest companies in the region, Russia's RZD and Germany's Deutsche Bahn, have no choice but to unite their efforts in a highly competitive environment. Dr. Karl-Friedrich Rausch, Member of the Management Board of DB Mobility Logistics AG speaks on the matter in an interview. [~PREVIEW_TEXT] =>   The liberalisation of railway transport in Europe and the CIS countries is accelerating which coupled with efforts made by carriers to shift traffic from road to rail is driving cooperation between companies operating in different countries.
The two largest companies in the region, Russia's RZD and Germany's Deutsche Bahn, have no choice but to unite their efforts in a highly competitive environment. Dr. Karl-Friedrich Rausch, Member of the Management Board of DB Mobility Logistics AG speaks on the matter in an interview. 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Eurasia Is the Focus

– Dr. Rausch, Deutsche Bahn AG is consistently claiming that business with Eastern European countries, including the CIS, is important for the company. Why is it important for DB at the moment?
– Economic relations between Germany, Central Europe, Russia and the CIS-countries are developing apace. Now we see the development potential in transport and logistics sectors is not completely realized yet. Our company is a worldwide leader in the transport and logistics and of course the Russian market is of great interest to us. Just for example, if we’re talking about the car industry, we can say a lot of our customers have already realized their business in Russia. We would like to offer in all parts of the world equally high-quality logistic services and transit transport chains to our partners. DB Schenker Logistics makes use of on average 20 locations in the major European and Asian parts of Russia. DB Schenker Rail (our European subsidiary company) has concentrated its activity on joining the European markets to Asia. Russia is one of the largest transport markets in the world (not including the pipeline) accounts for approximately 2,
4 billion ton-kilometres. In addition, Russia is a link between Europe and Asia. OAO RZD is without doubt the most important business partner for DB there.
– Two years ago Mr Hartmut Mehdorn in his speech in Sochi called for bureaucratic barriers to be destroyed to improve transportation. What are the main obstacles in the development of railway transportation between the 1435- and 1520-parts of Europe?
– The major factor for us is now an accurate learning of the rules and peculiarities of Russian freight legislation. In Europe the CIM liability regime is used, but in Asia and the CIS countries it’s the SMGS liability regime. There are different requirements and rules concerning conditions of loading and the accompanying documentation. The goal is to equalize all operating requirements to a truck transport crossing CIM and SMGS country borders. For that reason we are working on optimization of technical conditions. Moreover, reduction of bureaucratic procedures will considerably reduce latency- and demurrage time, and also speed up of customs formalities.
– DB is actively expanding its business across Europe. Do you think, it is possible that DB will be involved in the railway transportation business within the CIS somehow?
– DB has worked actively in CIS countries for many years. Since 1999, railway transportations on a broad gauge have been carried out by OOO Railion Russija Services (a subsidiary of DB Schenker Rail). In more than 100 years of work, DB Schenker has achieved success through its comprehensive logistics network. In the coming years, we will strengthen rail transportation. Rail cargo transportation now accounts for 1% of the share of transportation between Germany and Russia. Here car and sea transportations prevail.

Fewer Formalities, Bigger Successes

– In 2006, a unified consignment note CIM\SMGS was introduced. What value do you place on this document? Did it prove to be efficient? Do you have any suggestions for improving it?
– First of all, our transportations to Kaluga for the car industry from Mlada Boleslav (the Czech Republic), Velka Ida (the Slovak Republic) and Wolfsburg (Germany) involve the successful use of the CIM\ SMGS – liability regime. The trains have carried out about 900 trips in both directions. From the moment unified invoices were introduced, the transportation time reduced considerably - approximately by 1.5 days. We plan to actively improve this practice.
– Does DB have a strategy for developing its business activities with and in the CIS countries? Which spheres of cooperation are you considering? How do you evaluate the current level of cooperation?
– Worldwide we are focused on our clients and their needs; the same exists in the CIS countries. But we would also like to gain new clients and new markets. Cooperation and interaction with our Russian partners play an exceedingly important role in that. The most successful joint project of Germany and Russia is the logistics for the Volkswagen factory in Kaluga. DB Schenker Rail and Transcontainer (a subsidiary of RZD) realized the entire transportation process of car components from Volkswagen – and Skoda factories in Slovakia, Czech Republic, Germany and Poland to the VW factory in Kaluga. VW has awarded DB and Transcontainer’s joint efforts the “VW Group Award 2009” for outstanding planning and realization of the logistical concept on the supply to VW \Skoda factories in Kaluga. The importance of our cooperation with the RZD is reflected by the joint Logistical institute which opened in March, 2010 in St. Petersburg. The centre of the international logistics and supply chain management works as a place for the exchange of advanced experience and for the furthering of research and education in the field of international logistics and supply chain management.
– DB and RZD had plans to launch a regular container shuttle service between China and Europe through Russia, but these plans were repeatedly postponed.
– Unfortunately, the global economic crisis resulted in serious changes to our calculations and budget. We don’t see sufficient demand for such intercontinental rail transportations. But I am convinced that eventually our container trains will regularly run along the Transeurasian ways.
– DB was going to sell some of its shares through an IPO, as does RZD by selling the shares of its subsidiaries. Does DB consider the possibility of buying shares in any of RZD’s subsidiaries?
– Now there is no question of IPO DB ML AG and thus, there is no conversation about majority participation, buy-in or equity participation. We wish to continue our cooperation and partnership, and to further develop our joint projects. At this point I mean, for example, intermodal logistics centres.
Interview by Ivan Stupachenko [~DETAIL_TEXT] =>

Eurasia Is the Focus

– Dr. Rausch, Deutsche Bahn AG is consistently claiming that business with Eastern European countries, including the CIS, is important for the company. Why is it important for DB at the moment?
– Economic relations between Germany, Central Europe, Russia and the CIS-countries are developing apace. Now we see the development potential in transport and logistics sectors is not completely realized yet. Our company is a worldwide leader in the transport and logistics and of course the Russian market is of great interest to us. Just for example, if we’re talking about the car industry, we can say a lot of our customers have already realized their business in Russia. We would like to offer in all parts of the world equally high-quality logistic services and transit transport chains to our partners. DB Schenker Logistics makes use of on average 20 locations in the major European and Asian parts of Russia. DB Schenker Rail (our European subsidiary company) has concentrated its activity on joining the European markets to Asia. Russia is one of the largest transport markets in the world (not including the pipeline) accounts for approximately 2,
4 billion ton-kilometres. In addition, Russia is a link between Europe and Asia. OAO RZD is without doubt the most important business partner for DB there.
– Two years ago Mr Hartmut Mehdorn in his speech in Sochi called for bureaucratic barriers to be destroyed to improve transportation. What are the main obstacles in the development of railway transportation between the 1435- and 1520-parts of Europe?
– The major factor for us is now an accurate learning of the rules and peculiarities of Russian freight legislation. In Europe the CIM liability regime is used, but in Asia and the CIS countries it’s the SMGS liability regime. There are different requirements and rules concerning conditions of loading and the accompanying documentation. The goal is to equalize all operating requirements to a truck transport crossing CIM and SMGS country borders. For that reason we are working on optimization of technical conditions. Moreover, reduction of bureaucratic procedures will considerably reduce latency- and demurrage time, and also speed up of customs formalities.
– DB is actively expanding its business across Europe. Do you think, it is possible that DB will be involved in the railway transportation business within the CIS somehow?
– DB has worked actively in CIS countries for many years. Since 1999, railway transportations on a broad gauge have been carried out by OOO Railion Russija Services (a subsidiary of DB Schenker Rail). In more than 100 years of work, DB Schenker has achieved success through its comprehensive logistics network. In the coming years, we will strengthen rail transportation. Rail cargo transportation now accounts for 1% of the share of transportation between Germany and Russia. Here car and sea transportations prevail.

Fewer Formalities, Bigger Successes

– In 2006, a unified consignment note CIM\SMGS was introduced. What value do you place on this document? Did it prove to be efficient? Do you have any suggestions for improving it?
– First of all, our transportations to Kaluga for the car industry from Mlada Boleslav (the Czech Republic), Velka Ida (the Slovak Republic) and Wolfsburg (Germany) involve the successful use of the CIM\ SMGS – liability regime. The trains have carried out about 900 trips in both directions. From the moment unified invoices were introduced, the transportation time reduced considerably - approximately by 1.5 days. We plan to actively improve this practice.
– Does DB have a strategy for developing its business activities with and in the CIS countries? Which spheres of cooperation are you considering? How do you evaluate the current level of cooperation?
– Worldwide we are focused on our clients and their needs; the same exists in the CIS countries. But we would also like to gain new clients and new markets. Cooperation and interaction with our Russian partners play an exceedingly important role in that. The most successful joint project of Germany and Russia is the logistics for the Volkswagen factory in Kaluga. DB Schenker Rail and Transcontainer (a subsidiary of RZD) realized the entire transportation process of car components from Volkswagen – and Skoda factories in Slovakia, Czech Republic, Germany and Poland to the VW factory in Kaluga. VW has awarded DB and Transcontainer’s joint efforts the “VW Group Award 2009” for outstanding planning and realization of the logistical concept on the supply to VW \Skoda factories in Kaluga. The importance of our cooperation with the RZD is reflected by the joint Logistical institute which opened in March, 2010 in St. Petersburg. The centre of the international logistics and supply chain management works as a place for the exchange of advanced experience and for the furthering of research and education in the field of international logistics and supply chain management.
– DB and RZD had plans to launch a regular container shuttle service between China and Europe through Russia, but these plans were repeatedly postponed.
– Unfortunately, the global economic crisis resulted in serious changes to our calculations and budget. We don’t see sufficient demand for such intercontinental rail transportations. But I am convinced that eventually our container trains will regularly run along the Transeurasian ways.
– DB was going to sell some of its shares through an IPO, as does RZD by selling the shares of its subsidiaries. Does DB consider the possibility of buying shares in any of RZD’s subsidiaries?
– Now there is no question of IPO DB ML AG and thus, there is no conversation about majority participation, buy-in or equity participation. We wish to continue our cooperation and partnership, and to further develop our joint projects. At this point I mean, for example, intermodal logistics centres.
Interview by Ivan Stupachenko [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>   The liberalisation of railway transport in Europe and the CIS countries is accelerating which coupled with efforts made by carriers to shift traffic from road to rail is driving cooperation between companies operating in different countries.
The two largest companies in the region, Russia's RZD and Germany's Deutsche Bahn, have no choice but to unite their efforts in a highly competitive environment. Dr. Karl-Friedrich Rausch, Member of the Management Board of DB Mobility Logistics AG speaks on the matter in an interview. [~PREVIEW_TEXT] =>   The liberalisation of railway transport in Europe and the CIS countries is accelerating which coupled with efforts made by carriers to shift traffic from road to rail is driving cooperation between companies operating in different countries.
The two largest companies in the region, Russia's RZD and Germany's Deutsche Bahn, have no choice but to unite their efforts in a highly competitive environment. Dr. Karl-Friedrich Rausch, Member of the Management Board of DB Mobility Logistics AG speaks on the matter in an interview. 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РЖД-Партнер

Main Direction – Cooperation

 The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo,
Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine.
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    [DETAIL_TEXT] => – Please tell us, what is the purpose of establishing the PKP CARGO GROUP (PKP – Polish State Raillways) with national subsidiaries which have separate, strictly defined tasks and scopes of activities. What are the advantages of such an organizational structure of business for you? At what stage is this project?     
– PKP CARGO owns shares in over twenty business entities. In eleven of them it owns 100 per cent of the shares, including eight rolling stock repair companies, two forwarding companies: CARGOSPED Limited Liability Company and PKP CARGO SERVICE Limited Liability Company as well as PKP CARGO Logistical Center
Maaszewicze Limited Liability Company. PKP CARGO also has minority shares in other business entities.
The aim of setting up a capital group is fairly simple. In smaller business organizations, it is easier to effectively control costs as well as increase the effectiveness of activities thanks to their targeted character. It is possible to render outsourced services to a greater degree – as in the case of repair companies. On top of that, there is the possibility of obtaining capital and gaining partners, including foreign ones, to implement development goals. And, what is most important, it is possible in an easier and more effective way to serve customers, who are brought considerably closer to the organization. Smaller companies understand customers needs better and respond to them faster. With such a structure, one can embrace newly emerging areas of service really quickly.
PKP CARGO SERVICE is currently at the stage of change with regard to its activities. Ultimately, instead of rendering forwarding and customs services it will offer a railway siding service. It is an example of the fast expansion of PKP CARGO GROUP’s activities because it includes areas in which we have not provided services in the past. It is also an example of how we respond to clients’ needs in this respect.
CARGOSPED will carry out the role of an intermodal operator. The process of separation has already started. On March 1st this year, CARGOSPED took over service for the container terminal in Kobylnica near Poznan.
An example of the new quality of effective service for cross-border haulage will be, however, the Logistical Center
Maaszewicze, being set up by PKP
CARGO, which operates in the border area of Maaszewicze/Terespol-
Brze. Within the framework of this venture, we will be cooperating with our colleagues from BC (Belarussian Railways) and we do not exclude inviting more partners to join us in the future, for example Russian Railways. As a basic goal of the functioning of this entity we envisage providing an effective service for goods shipped via the border, with a broad spectrum of extra services in the areas of cargo handling, periodic storage, sorting and conditioning of goods with optimum use of the cargo handling potential of PKP CARGO and BC on both sides of the border.
– It is known that the company works on broadening international cooperation with regard to setting up joint ventures with foreign partners. Are there any specific examples of such cooperation? What prospects do you see for such companies? Perhaps we could get acquainted with some details of the Sawkow project, such as who is the partner, what are the prospects, difficulties, and the like?
– PKP CARGO is currently in negotiations regarding acquiring shares in the company which is a German railway carrier. It will allow us to expand our company’s activities on the German market, increase revenues from haulage as well as broaden our offer of services.
Simultaneously, a project with a Chinese company of CNR Jinan is being carried out. It consists of setting up a joint business entity to deal with the manufacturing of freight cars. A project study is currently being done on the subject.
In 2009 the process of building the terminal in Slavkov was completed. Talks are being conducted regarding setting up a joint business entity in Slavkov by CHZ Joint Stock Company, PKP LHS Joint Stock Company and PKP CARGO Joint Stock Company. The company will be established based on the Slavkov infrastructure, which is currently developed.
This entity is to provide services for the terminal, i.e. rendering cargo handling and storage services. Thanks to locating the Euroterminal in Slavkov, efficient organisation of haulage from the Far East to Slavkov by railway will be possible as an alternative to sea transport from Asia to Europe. Due to the international importance of the project, participation of partners both from East as well as West is not excluded in further stages of the project.
– What is the company’s situation in the area of haulage as far as borders are concerned? Which aspects do you focus on?
– We treat haulage in border areas as the key component of the quality of our international haulage offer. Haulage in relationship: export, import and transit, represents a considerable share of the overall volume of haulage of our company, with the level fluctuating by about 40 per cent.
These haulages can be divided according to the amount of PKP contact with railways of two standards: European and 1,520 mm. In the first group, we talk about cross-border transport carried out through internal borders of European Union countries where border and customs control processes no longer take place and our activities in cooperation with foreign partners focus on minimising the duration of railway border processes. Consequently, crossing the border by our goods trains in many cases is shortened to an exchange of locomotives while any necessary information concerning shipment and cars is transmitted electronically. Thanks to this, haulage times become competitive in relation to road transport.
Haulage carried out through railway frontier crossing points with CIS (Commonwealth of Independent States) railways with the track gauge of 1520 mm have different characteristics, resulting from the fact of applying other haulage laws in this type of transport. Due to European Union external border, processes performed by state services take place here, including border, customs, phytosanitary and veterinary. At these frontier crossing points we carry out as much as 33 per cent of all international haulage of our Company.
Our efforts in the area of improving and shortening border processes, taken together with our colleagues from RZD (Russian Railways), BC and UZ (Ukrainian Railways), are focused on the flexible use of haulage potential, both on the sending railway as well as the receiving one. Cooperating with BC to scrap the rigid SMGS (International Railway Goods Transport Agreement) principle can serve as a model example: cargo handling is done on the side of the receiving railway, which becomes particularly important in situations of periodic accumulation of trains on the busy approach to the border or in case of harsh weather.
– Who does your company work with in the area of cargo handling at the frontier crossing point in Braniewo / Mamonowo? What problems arise in working with foreign partners?
– At this frontier crossing point between PKP (Polish State Raillways) and RZD (Russian Railways) cargo handling is carried out at nine terminals of various firms, including the MIR TRADE terminal belonging to our CARGOSPED subsidiary. In the structure of shipments carried out through the above-mentioned frontier crossing point, whose level in 2008 was a record 2.2 million tons (in the crisis year of 2009 – down to 1.6 million tons), the prevailing types of goods are: coal, petrochemicals, fertilisers and building materials.
– How does your cooperation with the German party look like? Can you tell us about the form of your cooperation and about its prospects or, alternatively, about difficulties?
– Arrangements are in the process regarding the joint involvement of PKP
CARGO and the German party in the planned terminal in Poznan-Franowo. In the long-term we envisage the terminal in Poznan-Franowo as a railway hub with storage, cargo handling and customs service functions. As studies show, in the Poznan region, Franowo constitutes one of the best locations for a container terminal due to its convenient location at the intersection of the most important railway and road routes.
Interview by Stanislav Russkov [~DETAIL_TEXT] => – Please tell us, what is the purpose of establishing the PKP CARGO GROUP (PKP – Polish State Raillways) with national subsidiaries which have separate, strictly defined tasks and scopes of activities. What are the advantages of such an organizational structure of business for you? At what stage is this project?
– PKP CARGO owns shares in over twenty business entities. In eleven of them it owns 100 per cent of the shares, including eight rolling stock repair companies, two forwarding companies: CARGOSPED Limited Liability Company and PKP CARGO SERVICE Limited Liability Company as well as PKP CARGO Logistical Center
Maaszewicze Limited Liability Company. PKP CARGO also has minority shares in other business entities.
The aim of setting up a capital group is fairly simple. In smaller business organizations, it is easier to effectively control costs as well as increase the effectiveness of activities thanks to their targeted character. It is possible to render outsourced services to a greater degree – as in the case of repair companies. On top of that, there is the possibility of obtaining capital and gaining partners, including foreign ones, to implement development goals. And, what is most important, it is possible in an easier and more effective way to serve customers, who are brought considerably closer to the organization. Smaller companies understand customers needs better and respond to them faster. With such a structure, one can embrace newly emerging areas of service really quickly.
PKP CARGO SERVICE is currently at the stage of change with regard to its activities. Ultimately, instead of rendering forwarding and customs services it will offer a railway siding service. It is an example of the fast expansion of PKP CARGO GROUP’s activities because it includes areas in which we have not provided services in the past. It is also an example of how we respond to clients’ needs in this respect.
CARGOSPED will carry out the role of an intermodal operator. The process of separation has already started. On March 1st this year, CARGOSPED took over service for the container terminal in Kobylnica near Poznan.
An example of the new quality of effective service for cross-border haulage will be, however, the Logistical Center
Maaszewicze, being set up by PKP
CARGO, which operates in the border area of Maaszewicze/Terespol-
Brze. Within the framework of this venture, we will be cooperating with our colleagues from BC (Belarussian Railways) and we do not exclude inviting more partners to join us in the future, for example Russian Railways. As a basic goal of the functioning of this entity we envisage providing an effective service for goods shipped via the border, with a broad spectrum of extra services in the areas of cargo handling, periodic storage, sorting and conditioning of goods with optimum use of the cargo handling potential of PKP CARGO and BC on both sides of the border.
– It is known that the company works on broadening international cooperation with regard to setting up joint ventures with foreign partners. Are there any specific examples of such cooperation? What prospects do you see for such companies? Perhaps we could get acquainted with some details of the Sawkow project, such as who is the partner, what are the prospects, difficulties, and the like?
– PKP CARGO is currently in negotiations regarding acquiring shares in the company which is a German railway carrier. It will allow us to expand our company’s activities on the German market, increase revenues from haulage as well as broaden our offer of services.
Simultaneously, a project with a Chinese company of CNR Jinan is being carried out. It consists of setting up a joint business entity to deal with the manufacturing of freight cars. A project study is currently being done on the subject.
In 2009 the process of building the terminal in Slavkov was completed. Talks are being conducted regarding setting up a joint business entity in Slavkov by CHZ Joint Stock Company, PKP LHS Joint Stock Company and PKP CARGO Joint Stock Company. The company will be established based on the Slavkov infrastructure, which is currently developed.
This entity is to provide services for the terminal, i.e. rendering cargo handling and storage services. Thanks to locating the Euroterminal in Slavkov, efficient organisation of haulage from the Far East to Slavkov by railway will be possible as an alternative to sea transport from Asia to Europe. Due to the international importance of the project, participation of partners both from East as well as West is not excluded in further stages of the project.
– What is the company’s situation in the area of haulage as far as borders are concerned? Which aspects do you focus on?
– We treat haulage in border areas as the key component of the quality of our international haulage offer. Haulage in relationship: export, import and transit, represents a considerable share of the overall volume of haulage of our company, with the level fluctuating by about 40 per cent.
These haulages can be divided according to the amount of PKP contact with railways of two standards: European and 1,520 mm. In the first group, we talk about cross-border transport carried out through internal borders of European Union countries where border and customs control processes no longer take place and our activities in cooperation with foreign partners focus on minimising the duration of railway border processes. Consequently, crossing the border by our goods trains in many cases is shortened to an exchange of locomotives while any necessary information concerning shipment and cars is transmitted electronically. Thanks to this, haulage times become competitive in relation to road transport.
Haulage carried out through railway frontier crossing points with CIS (Commonwealth of Independent States) railways with the track gauge of 1520 mm have different characteristics, resulting from the fact of applying other haulage laws in this type of transport. Due to European Union external border, processes performed by state services take place here, including border, customs, phytosanitary and veterinary. At these frontier crossing points we carry out as much as 33 per cent of all international haulage of our Company.
Our efforts in the area of improving and shortening border processes, taken together with our colleagues from RZD (Russian Railways), BC and UZ (Ukrainian Railways), are focused on the flexible use of haulage potential, both on the sending railway as well as the receiving one. Cooperating with BC to scrap the rigid SMGS (International Railway Goods Transport Agreement) principle can serve as a model example: cargo handling is done on the side of the receiving railway, which becomes particularly important in situations of periodic accumulation of trains on the busy approach to the border or in case of harsh weather.
– Who does your company work with in the area of cargo handling at the frontier crossing point in Braniewo / Mamonowo? What problems arise in working with foreign partners?
– At this frontier crossing point between PKP (Polish State Raillways) and RZD (Russian Railways) cargo handling is carried out at nine terminals of various firms, including the MIR TRADE terminal belonging to our CARGOSPED subsidiary. In the structure of shipments carried out through the above-mentioned frontier crossing point, whose level in 2008 was a record 2.2 million tons (in the crisis year of 2009 – down to 1.6 million tons), the prevailing types of goods are: coal, petrochemicals, fertilisers and building materials.
– How does your cooperation with the German party look like? Can you tell us about the form of your cooperation and about its prospects or, alternatively, about difficulties?
– Arrangements are in the process regarding the joint involvement of PKP
CARGO and the German party in the planned terminal in Poznan-Franowo. In the long-term we envisage the terminal in Poznan-Franowo as a railway hub with storage, cargo handling and customs service functions. As studies show, in the Poznan region, Franowo constitutes one of the best locations for a container terminal due to its convenient location at the intersection of the most important railway and road routes.
Interview by Stanislav Russkov [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>  The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo,
Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. [~PREVIEW_TEXT] =>  The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo,
Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. 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hspace="5" width="200" height="282" align="left" />The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo, <br />Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. [ELEMENT_META_TITLE] => Main Direction – Cooperation [ELEMENT_META_KEYWORDS] => main direction – cooperation [ELEMENT_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2010/2/5.jpg" border="1" alt=" " hspace="5" width="200" height="282" align="left" />The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo, <br />Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. 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    [DETAIL_TEXT] => – Please tell us, what is the purpose of establishing the PKP CARGO GROUP (PKP – Polish State Raillways) with national subsidiaries which have separate, strictly defined tasks and scopes of activities. What are the advantages of such an organizational structure of business for you? At what stage is this project?     
– PKP CARGO owns shares in over twenty business entities. In eleven of them it owns 100 per cent of the shares, including eight rolling stock repair companies, two forwarding companies: CARGOSPED Limited Liability Company and PKP CARGO SERVICE Limited Liability Company as well as PKP CARGO Logistical Center
Maaszewicze Limited Liability Company. PKP CARGO also has minority shares in other business entities.
The aim of setting up a capital group is fairly simple. In smaller business organizations, it is easier to effectively control costs as well as increase the effectiveness of activities thanks to their targeted character. It is possible to render outsourced services to a greater degree – as in the case of repair companies. On top of that, there is the possibility of obtaining capital and gaining partners, including foreign ones, to implement development goals. And, what is most important, it is possible in an easier and more effective way to serve customers, who are brought considerably closer to the organization. Smaller companies understand customers needs better and respond to them faster. With such a structure, one can embrace newly emerging areas of service really quickly.
PKP CARGO SERVICE is currently at the stage of change with regard to its activities. Ultimately, instead of rendering forwarding and customs services it will offer a railway siding service. It is an example of the fast expansion of PKP CARGO GROUP’s activities because it includes areas in which we have not provided services in the past. It is also an example of how we respond to clients’ needs in this respect.
CARGOSPED will carry out the role of an intermodal operator. The process of separation has already started. On March 1st this year, CARGOSPED took over service for the container terminal in Kobylnica near Poznan.
An example of the new quality of effective service for cross-border haulage will be, however, the Logistical Center
Maaszewicze, being set up by PKP
CARGO, which operates in the border area of Maaszewicze/Terespol-
Brze. Within the framework of this venture, we will be cooperating with our colleagues from BC (Belarussian Railways) and we do not exclude inviting more partners to join us in the future, for example Russian Railways. As a basic goal of the functioning of this entity we envisage providing an effective service for goods shipped via the border, with a broad spectrum of extra services in the areas of cargo handling, periodic storage, sorting and conditioning of goods with optimum use of the cargo handling potential of PKP CARGO and BC on both sides of the border.
– It is known that the company works on broadening international cooperation with regard to setting up joint ventures with foreign partners. Are there any specific examples of such cooperation? What prospects do you see for such companies? Perhaps we could get acquainted with some details of the Sawkow project, such as who is the partner, what are the prospects, difficulties, and the like?
– PKP CARGO is currently in negotiations regarding acquiring shares in the company which is a German railway carrier. It will allow us to expand our company’s activities on the German market, increase revenues from haulage as well as broaden our offer of services.
Simultaneously, a project with a Chinese company of CNR Jinan is being carried out. It consists of setting up a joint business entity to deal with the manufacturing of freight cars. A project study is currently being done on the subject.
In 2009 the process of building the terminal in Slavkov was completed. Talks are being conducted regarding setting up a joint business entity in Slavkov by CHZ Joint Stock Company, PKP LHS Joint Stock Company and PKP CARGO Joint Stock Company. The company will be established based on the Slavkov infrastructure, which is currently developed.
This entity is to provide services for the terminal, i.e. rendering cargo handling and storage services. Thanks to locating the Euroterminal in Slavkov, efficient organisation of haulage from the Far East to Slavkov by railway will be possible as an alternative to sea transport from Asia to Europe. Due to the international importance of the project, participation of partners both from East as well as West is not excluded in further stages of the project.
– What is the company’s situation in the area of haulage as far as borders are concerned? Which aspects do you focus on?
– We treat haulage in border areas as the key component of the quality of our international haulage offer. Haulage in relationship: export, import and transit, represents a considerable share of the overall volume of haulage of our company, with the level fluctuating by about 40 per cent.
These haulages can be divided according to the amount of PKP contact with railways of two standards: European and 1,520 mm. In the first group, we talk about cross-border transport carried out through internal borders of European Union countries where border and customs control processes no longer take place and our activities in cooperation with foreign partners focus on minimising the duration of railway border processes. Consequently, crossing the border by our goods trains in many cases is shortened to an exchange of locomotives while any necessary information concerning shipment and cars is transmitted electronically. Thanks to this, haulage times become competitive in relation to road transport.
Haulage carried out through railway frontier crossing points with CIS (Commonwealth of Independent States) railways with the track gauge of 1520 mm have different characteristics, resulting from the fact of applying other haulage laws in this type of transport. Due to European Union external border, processes performed by state services take place here, including border, customs, phytosanitary and veterinary. At these frontier crossing points we carry out as much as 33 per cent of all international haulage of our Company.
Our efforts in the area of improving and shortening border processes, taken together with our colleagues from RZD (Russian Railways), BC and UZ (Ukrainian Railways), are focused on the flexible use of haulage potential, both on the sending railway as well as the receiving one. Cooperating with BC to scrap the rigid SMGS (International Railway Goods Transport Agreement) principle can serve as a model example: cargo handling is done on the side of the receiving railway, which becomes particularly important in situations of periodic accumulation of trains on the busy approach to the border or in case of harsh weather.
– Who does your company work with in the area of cargo handling at the frontier crossing point in Braniewo / Mamonowo? What problems arise in working with foreign partners?
– At this frontier crossing point between PKP (Polish State Raillways) and RZD (Russian Railways) cargo handling is carried out at nine terminals of various firms, including the MIR TRADE terminal belonging to our CARGOSPED subsidiary. In the structure of shipments carried out through the above-mentioned frontier crossing point, whose level in 2008 was a record 2.2 million tons (in the crisis year of 2009 – down to 1.6 million tons), the prevailing types of goods are: coal, petrochemicals, fertilisers and building materials.
– How does your cooperation with the German party look like? Can you tell us about the form of your cooperation and about its prospects or, alternatively, about difficulties?
– Arrangements are in the process regarding the joint involvement of PKP
CARGO and the German party in the planned terminal in Poznan-Franowo. In the long-term we envisage the terminal in Poznan-Franowo as a railway hub with storage, cargo handling and customs service functions. As studies show, in the Poznan region, Franowo constitutes one of the best locations for a container terminal due to its convenient location at the intersection of the most important railway and road routes.
Interview by Stanislav Russkov [~DETAIL_TEXT] => – Please tell us, what is the purpose of establishing the PKP CARGO GROUP (PKP – Polish State Raillways) with national subsidiaries which have separate, strictly defined tasks and scopes of activities. What are the advantages of such an organizational structure of business for you? At what stage is this project?
– PKP CARGO owns shares in over twenty business entities. In eleven of them it owns 100 per cent of the shares, including eight rolling stock repair companies, two forwarding companies: CARGOSPED Limited Liability Company and PKP CARGO SERVICE Limited Liability Company as well as PKP CARGO Logistical Center
Maaszewicze Limited Liability Company. PKP CARGO also has minority shares in other business entities.
The aim of setting up a capital group is fairly simple. In smaller business organizations, it is easier to effectively control costs as well as increase the effectiveness of activities thanks to their targeted character. It is possible to render outsourced services to a greater degree – as in the case of repair companies. On top of that, there is the possibility of obtaining capital and gaining partners, including foreign ones, to implement development goals. And, what is most important, it is possible in an easier and more effective way to serve customers, who are brought considerably closer to the organization. Smaller companies understand customers needs better and respond to them faster. With such a structure, one can embrace newly emerging areas of service really quickly.
PKP CARGO SERVICE is currently at the stage of change with regard to its activities. Ultimately, instead of rendering forwarding and customs services it will offer a railway siding service. It is an example of the fast expansion of PKP CARGO GROUP’s activities because it includes areas in which we have not provided services in the past. It is also an example of how we respond to clients’ needs in this respect.
CARGOSPED will carry out the role of an intermodal operator. The process of separation has already started. On March 1st this year, CARGOSPED took over service for the container terminal in Kobylnica near Poznan.
An example of the new quality of effective service for cross-border haulage will be, however, the Logistical Center
Maaszewicze, being set up by PKP
CARGO, which operates in the border area of Maaszewicze/Terespol-
Brze. Within the framework of this venture, we will be cooperating with our colleagues from BC (Belarussian Railways) and we do not exclude inviting more partners to join us in the future, for example Russian Railways. As a basic goal of the functioning of this entity we envisage providing an effective service for goods shipped via the border, with a broad spectrum of extra services in the areas of cargo handling, periodic storage, sorting and conditioning of goods with optimum use of the cargo handling potential of PKP CARGO and BC on both sides of the border.
– It is known that the company works on broadening international cooperation with regard to setting up joint ventures with foreign partners. Are there any specific examples of such cooperation? What prospects do you see for such companies? Perhaps we could get acquainted with some details of the Sawkow project, such as who is the partner, what are the prospects, difficulties, and the like?
– PKP CARGO is currently in negotiations regarding acquiring shares in the company which is a German railway carrier. It will allow us to expand our company’s activities on the German market, increase revenues from haulage as well as broaden our offer of services.
Simultaneously, a project with a Chinese company of CNR Jinan is being carried out. It consists of setting up a joint business entity to deal with the manufacturing of freight cars. A project study is currently being done on the subject.
In 2009 the process of building the terminal in Slavkov was completed. Talks are being conducted regarding setting up a joint business entity in Slavkov by CHZ Joint Stock Company, PKP LHS Joint Stock Company and PKP CARGO Joint Stock Company. The company will be established based on the Slavkov infrastructure, which is currently developed.
This entity is to provide services for the terminal, i.e. rendering cargo handling and storage services. Thanks to locating the Euroterminal in Slavkov, efficient organisation of haulage from the Far East to Slavkov by railway will be possible as an alternative to sea transport from Asia to Europe. Due to the international importance of the project, participation of partners both from East as well as West is not excluded in further stages of the project.
– What is the company’s situation in the area of haulage as far as borders are concerned? Which aspects do you focus on?
– We treat haulage in border areas as the key component of the quality of our international haulage offer. Haulage in relationship: export, import and transit, represents a considerable share of the overall volume of haulage of our company, with the level fluctuating by about 40 per cent.
These haulages can be divided according to the amount of PKP contact with railways of two standards: European and 1,520 mm. In the first group, we talk about cross-border transport carried out through internal borders of European Union countries where border and customs control processes no longer take place and our activities in cooperation with foreign partners focus on minimising the duration of railway border processes. Consequently, crossing the border by our goods trains in many cases is shortened to an exchange of locomotives while any necessary information concerning shipment and cars is transmitted electronically. Thanks to this, haulage times become competitive in relation to road transport.
Haulage carried out through railway frontier crossing points with CIS (Commonwealth of Independent States) railways with the track gauge of 1520 mm have different characteristics, resulting from the fact of applying other haulage laws in this type of transport. Due to European Union external border, processes performed by state services take place here, including border, customs, phytosanitary and veterinary. At these frontier crossing points we carry out as much as 33 per cent of all international haulage of our Company.
Our efforts in the area of improving and shortening border processes, taken together with our colleagues from RZD (Russian Railways), BC and UZ (Ukrainian Railways), are focused on the flexible use of haulage potential, both on the sending railway as well as the receiving one. Cooperating with BC to scrap the rigid SMGS (International Railway Goods Transport Agreement) principle can serve as a model example: cargo handling is done on the side of the receiving railway, which becomes particularly important in situations of periodic accumulation of trains on the busy approach to the border or in case of harsh weather.
– Who does your company work with in the area of cargo handling at the frontier crossing point in Braniewo / Mamonowo? What problems arise in working with foreign partners?
– At this frontier crossing point between PKP (Polish State Raillways) and RZD (Russian Railways) cargo handling is carried out at nine terminals of various firms, including the MIR TRADE terminal belonging to our CARGOSPED subsidiary. In the structure of shipments carried out through the above-mentioned frontier crossing point, whose level in 2008 was a record 2.2 million tons (in the crisis year of 2009 – down to 1.6 million tons), the prevailing types of goods are: coal, petrochemicals, fertilisers and building materials.
– How does your cooperation with the German party look like? Can you tell us about the form of your cooperation and about its prospects or, alternatively, about difficulties?
– Arrangements are in the process regarding the joint involvement of PKP
CARGO and the German party in the planned terminal in Poznan-Franowo. In the long-term we envisage the terminal in Poznan-Franowo as a railway hub with storage, cargo handling and customs service functions. As studies show, in the Poznan region, Franowo constitutes one of the best locations for a container terminal due to its convenient location at the intersection of the most important railway and road routes.
Interview by Stanislav Russkov [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>  The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo,
Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. [~PREVIEW_TEXT] =>  The biggest Polish railway operator, state-owned PKP Cargo, is now implementing a number of logistics projects. CEO of PKP Cargo,
Mr Wojciech Balczun talks about them in an interview with The RZD-Partner International Magazine. 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РЖД-Партнер

The tunnel to Sakhalin or to Alaska?

 “American investors initiated negotiations with Russian Railways JSC over the construction of a 100-kilometre railway tunnel under the Bering Strait which would connect Asia with North America and become the transport corridor between the East and the West,” said Vladimir Yakunin, President of RZD in his interview with the British “Sunday Express”. As Mr Yakunin reported, several American funds showed their interest in the project.
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Railway through the Arctic

The idea is not a new one. The concept of the tunnel connecting Chukotka and Alaska was supported by Russian Tsar Nicholas II and Prime Minister Sergey Vitte in the 19th century. The Defence and Finance departments of the Russian Empire considered the project technologically feasible and economically viable. After the war and the revolution the idea was abandoned and rediscovered only in the 21st century. The international conference «Eurasia-America transcontinental trunk through the Bering Strait» was held in Moscow three years ago.
Some experts are concerned that the cost of the project would outweigh the benefits due to the high price of new rail trucks to be built to connect Alaska and Chukotka with the existing road system. A 100-kilometre tunnel under the Bering Strait will be also quite costly - about $65 billion. Besides, there are doubts that the rail link will be able to compete with shipment by sea. Still, Russia already has made the first step. Construction of the North transport corridor is included in the Strategy for RF Transport Development till 2030. Still, the question is where should the corridor go?
Mr Yakunin is confident that railways could link up half the world, and this ambition is to come to life in the nearest decades. But the way to Alaska goes through thousands kilometers of Arctic landscape.
At the same time, there is no less grandiose strategic project that could be implemented today: the tunnel linking Sakhalin Island to the mainland. This project has a very long and complicated story starting from the beginning of the 20th century. Construction works were launched after the Second World War. The plan was to lay a railroad from the city of Komsomolsk-on-Amor to Pobedino town on the Island, including construction of a tunnel under the Tatar Strait. The work was planned for completion in 5 years.
Over 20,000 Gulag prisoners were sent to the construction sites. By spring 1953, most of the work was done: 120 kilometres of the land route, artificial islands in the Strait, a base for the undersea tunnel. The death of Stalin put an end to the project.
In the 1990s the scheme was suddenly remembered. The Traffic Ministry ordered a new project for the land route from Sakhalin to the mainland. Alexander Granberg, academician of the Russian Academy of Science welcomed the idea. He said it would keep Sakhalin involved in the Russian economy.

Non-stop from Tokyo to London

We should admit, today Sakhalin Island is part of Russia only in theory. A goods van covers the distance from Moscow to Khabarowsk in one week and from Khabarovsk to Sakhalin in two weeks! Cargo is delivered to the island by means of railway ferry crossing Vanino-Holmsk that was built over 30 years ago. The ferry cannot be considered very safe: transportation is often interrupted by storms and fogs. Ferries are out of work for at least one third of the year. Besides, the vessels are worn out and quays need reconstruction. All this requires large investments.
Isn’t it more reasonable to establish a safer and more effective transport connection?
Cargo flow to the island will reach 1 million tons in several years, as 10 new oil and gas fields are discovered on Sakhalin. It is hardly possible to transport such volumes by ferry. “A few years ago we were participating in the construction of the natural gas liquefaction factory on Sakhalin,” said Efim Basin, Gosstroy (RF State Committee for Construction, Architectural and Housing Policy) ex-chairman. “And we had big problems with transportation of structural steel and construction materials. The train ferry Vanino - Holmsk is very unstable. Shipments turned out to be really slow and expensive. The way from European Russia to the construction site on Sakhalin was taking over two months. That’s why I stand for creation of the tunnel”.
Mr Granberg supposes that the Sakhalin project will cost between $2 and $4 billion (depending on the variant chosen). It’s not too much if we compare with the costs of construction of oil and gas pipelines in the framework of shelf exploration projects that is estimated at about $12 billion. The most difficult part is boring a 12-kilometre subway under Nevelsky bay.
Anatoly Vasiljev, ex-director of Sakhalin railway, objects, saying that “this is just like two blocks of the Moscow underground, but under the sea”. Mr Valiljev is a ardent supporter of the project. He had carefully studied European experience of underwater tunnel construction. He is sure he has found an optimal technology: concrete sections are mounted on the coast, then they are shipped on pontoons to the final grade and embedded on the prepared base. After that the sections are connected, the water removed, and isolation made. Such technology is tangibly less expensive than traditional methods. Igor Levitin, Minister of Transport of RF proposes to make a two-level tunnel: one level for trains and another for cars.
And what about the cargo turnover? It’s definitely set to grow. There are three ice-free sea ports on the island – Holmsk, Korsakov and Nevelsk. And they are more convenient for fuel and food supply of northern areas (Magadan, Kamchatka, Chukotka), than the ports of Vanino and Vladivistok. The distance will be cut by 600-100 kilometres if we use this new way. Pavel Minaker, Director of the Economic Research Institute of the Far Eastern Department of the Russian Science Academy, said that “the project is going to have a great economic and strategic effect, like the Transsib had before.
Moreover, the tunnel may become part of the other great project – a big land bridge linking Russia and Japan,” asserted Mr Vasiljev. The distance between the port of Korsakov on Sakhalin and Vakkanai in Japan is only 42 kilometres. The distance issue is surmountable, especially if we remember the experience of Japan, which built the 53-kilometre tunnel connecting Honshu and Hokkaido islands in 1980s. Japan is also considering the idea of building the tunnel to Sakhalin over La Perouse Strait. A group of Japanese even initiated “The society for Japanese islands integration to the Eurasia continent”.
If the overland transport corridor from Sakhalin to Europe is established, the haulage distance for Japanese cargoes will be halved, and time of shipment reduced by two-thirds. Today Japanese cargo is transported to Europe on a roundabout sea route that covers 20,000 kilometres and takes 35-40 days. Economists estimate that the shorter and more direct way would enable the growth of cargo turnover between Japan and Europe by up to 20 million tonnes. Respectively, Russia’s cargo transit income will reach $2 billion annually.
The Sakhalin project is included in the Federal Strategy for Transport Development till 2030. It involves construction of 583 kilometres of railway from Selihin to Nish and and an overland pass-over from the continent to the island, as well as works to convert the island’s narrow-gauge rail system to the broader Russian 1510-millimetre gauge (which is now being done by The Russian Railways JSC). Three variants of the pass-over for the Nevelski strait are considered in the Strategy: the 12.4 kilometre tunnel, 16-metre high filling dam with a shipping passage and 6.6-kilometre bridge. Many experts consider that the dam will badly affect the ecological balance of the sea area, and that a bridge is not safe due to storms and frequent glaciation. So the tunnel is considered to be the best option.
The investment needed for the project’s implementation are estimated at between RUR 300-330 billion. The price is high, but not impossible, especially if Japan contributes to this epic project.
BY Tamara Andreeva [~DETAIL_TEXT] =>

Railway through the Arctic

The idea is not a new one. The concept of the tunnel connecting Chukotka and Alaska was supported by Russian Tsar Nicholas II and Prime Minister Sergey Vitte in the 19th century. The Defence and Finance departments of the Russian Empire considered the project technologically feasible and economically viable. After the war and the revolution the idea was abandoned and rediscovered only in the 21st century. The international conference «Eurasia-America transcontinental trunk through the Bering Strait» was held in Moscow three years ago.
Some experts are concerned that the cost of the project would outweigh the benefits due to the high price of new rail trucks to be built to connect Alaska and Chukotka with the existing road system. A 100-kilometre tunnel under the Bering Strait will be also quite costly - about $65 billion. Besides, there are doubts that the rail link will be able to compete with shipment by sea. Still, Russia already has made the first step. Construction of the North transport corridor is included in the Strategy for RF Transport Development till 2030. Still, the question is where should the corridor go?
Mr Yakunin is confident that railways could link up half the world, and this ambition is to come to life in the nearest decades. But the way to Alaska goes through thousands kilometers of Arctic landscape.
At the same time, there is no less grandiose strategic project that could be implemented today: the tunnel linking Sakhalin Island to the mainland. This project has a very long and complicated story starting from the beginning of the 20th century. Construction works were launched after the Second World War. The plan was to lay a railroad from the city of Komsomolsk-on-Amor to Pobedino town on the Island, including construction of a tunnel under the Tatar Strait. The work was planned for completion in 5 years.
Over 20,000 Gulag prisoners were sent to the construction sites. By spring 1953, most of the work was done: 120 kilometres of the land route, artificial islands in the Strait, a base for the undersea tunnel. The death of Stalin put an end to the project.
In the 1990s the scheme was suddenly remembered. The Traffic Ministry ordered a new project for the land route from Sakhalin to the mainland. Alexander Granberg, academician of the Russian Academy of Science welcomed the idea. He said it would keep Sakhalin involved in the Russian economy.

Non-stop from Tokyo to London

We should admit, today Sakhalin Island is part of Russia only in theory. A goods van covers the distance from Moscow to Khabarowsk in one week and from Khabarovsk to Sakhalin in two weeks! Cargo is delivered to the island by means of railway ferry crossing Vanino-Holmsk that was built over 30 years ago. The ferry cannot be considered very safe: transportation is often interrupted by storms and fogs. Ferries are out of work for at least one third of the year. Besides, the vessels are worn out and quays need reconstruction. All this requires large investments.
Isn’t it more reasonable to establish a safer and more effective transport connection?
Cargo flow to the island will reach 1 million tons in several years, as 10 new oil and gas fields are discovered on Sakhalin. It is hardly possible to transport such volumes by ferry. “A few years ago we were participating in the construction of the natural gas liquefaction factory on Sakhalin,” said Efim Basin, Gosstroy (RF State Committee for Construction, Architectural and Housing Policy) ex-chairman. “And we had big problems with transportation of structural steel and construction materials. The train ferry Vanino - Holmsk is very unstable. Shipments turned out to be really slow and expensive. The way from European Russia to the construction site on Sakhalin was taking over two months. That’s why I stand for creation of the tunnel”.
Mr Granberg supposes that the Sakhalin project will cost between $2 and $4 billion (depending on the variant chosen). It’s not too much if we compare with the costs of construction of oil and gas pipelines in the framework of shelf exploration projects that is estimated at about $12 billion. The most difficult part is boring a 12-kilometre subway under Nevelsky bay.
Anatoly Vasiljev, ex-director of Sakhalin railway, objects, saying that “this is just like two blocks of the Moscow underground, but under the sea”. Mr Valiljev is a ardent supporter of the project. He had carefully studied European experience of underwater tunnel construction. He is sure he has found an optimal technology: concrete sections are mounted on the coast, then they are shipped on pontoons to the final grade and embedded on the prepared base. After that the sections are connected, the water removed, and isolation made. Such technology is tangibly less expensive than traditional methods. Igor Levitin, Minister of Transport of RF proposes to make a two-level tunnel: one level for trains and another for cars.
And what about the cargo turnover? It’s definitely set to grow. There are three ice-free sea ports on the island – Holmsk, Korsakov and Nevelsk. And they are more convenient for fuel and food supply of northern areas (Magadan, Kamchatka, Chukotka), than the ports of Vanino and Vladivistok. The distance will be cut by 600-100 kilometres if we use this new way. Pavel Minaker, Director of the Economic Research Institute of the Far Eastern Department of the Russian Science Academy, said that “the project is going to have a great economic and strategic effect, like the Transsib had before.
Moreover, the tunnel may become part of the other great project – a big land bridge linking Russia and Japan,” asserted Mr Vasiljev. The distance between the port of Korsakov on Sakhalin and Vakkanai in Japan is only 42 kilometres. The distance issue is surmountable, especially if we remember the experience of Japan, which built the 53-kilometre tunnel connecting Honshu and Hokkaido islands in 1980s. Japan is also considering the idea of building the tunnel to Sakhalin over La Perouse Strait. A group of Japanese even initiated “The society for Japanese islands integration to the Eurasia continent”.
If the overland transport corridor from Sakhalin to Europe is established, the haulage distance for Japanese cargoes will be halved, and time of shipment reduced by two-thirds. Today Japanese cargo is transported to Europe on a roundabout sea route that covers 20,000 kilometres and takes 35-40 days. Economists estimate that the shorter and more direct way would enable the growth of cargo turnover between Japan and Europe by up to 20 million tonnes. Respectively, Russia’s cargo transit income will reach $2 billion annually.
The Sakhalin project is included in the Federal Strategy for Transport Development till 2030. It involves construction of 583 kilometres of railway from Selihin to Nish and and an overland pass-over from the continent to the island, as well as works to convert the island’s narrow-gauge rail system to the broader Russian 1510-millimetre gauge (which is now being done by The Russian Railways JSC). Three variants of the pass-over for the Nevelski strait are considered in the Strategy: the 12.4 kilometre tunnel, 16-metre high filling dam with a shipping passage and 6.6-kilometre bridge. Many experts consider that the dam will badly affect the ecological balance of the sea area, and that a bridge is not safe due to storms and frequent glaciation. So the tunnel is considered to be the best option.
The investment needed for the project’s implementation are estimated at between RUR 300-330 billion. The price is high, but not impossible, especially if Japan contributes to this epic project.
BY Tamara Andreeva [DETAIL_TEXT_TYPE] => html [~DETAIL_TEXT_TYPE] => html [PREVIEW_TEXT] =>  “American investors initiated negotiations with Russian Railways JSC over the construction of a 100-kilometre railway tunnel under the Bering Strait which would connect Asia with North America and become the transport corridor between the East and the West,” said Vladimir Yakunin, President of RZD in his interview with the British “Sunday Express”. As Mr Yakunin reported, several American funds showed their interest in the project. [~PREVIEW_TEXT] =>  “American investors initiated negotiations with Russian Railways JSC over the construction of a 100-kilometre railway tunnel under the Bering Strait which would connect Asia with North America and become the transport corridor between the East and the West,” said Vladimir Yakunin, President of RZD in his interview with the British “Sunday Express”. As Mr Yakunin reported, several American funds showed their interest in the project. 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Railway through the Arctic

The idea is not a new one. The concept of the tunnel connecting Chukotka and Alaska was supported by Russian Tsar Nicholas II and Prime Minister Sergey Vitte in the 19th century. The Defence and Finance departments of the Russian Empire considered the project technologically feasible and economically viable. After the war and the revolution the idea was abandoned and rediscovered only in the 21st century. The international conference «Eurasia-America transcontinental trunk through the Bering Strait» was held in Moscow three years ago.
Some experts are concerned that the cost of the project would outweigh the benefits due to the high price of new rail trucks to be built to connect Alaska and Chukotka with the existing road system. A 100-kilometre tunnel under the Bering Strait will be also quite costly - about $65 billion. Besides, there are doubts that the rail link will be able to compete with shipment by sea. Still, Russia already has made the first step. Construction of the North transport corridor is included in the Strategy for RF Transport Development till 2030. Still, the question is where should the corridor go?
Mr Yakunin is confident that railways could link up half the world, and this ambition is to come to life in the nearest decades. But the way to Alaska goes through thousands kilometers of Arctic landscape.
At the same time, there is no less grandiose strategic project that could be implemented today: the tunnel linking Sakhalin Island to the mainland. This project has a very long and complicated story starting from the beginning of the 20th century. Construction works were launched after the Second World War. The plan was to lay a railroad from the city of Komsomolsk-on-Amor to Pobedino town on the Island, including construction of a tunnel under the Tatar Strait. The work was planned for completion in 5 years.
Over 20,000 Gulag prisoners were sent to the construction sites. By spring 1953, most of the work was done: 120 kilometres of the land route, artificial islands in the Strait, a base for the undersea tunnel. The death of Stalin put an end to the project.
In the 1990s the scheme was suddenly remembered. The Traffic Ministry ordered a new project for the land route from Sakhalin to the mainland. Alexander Granberg, academician of the Russian Academy of Science welcomed the idea. He said it would keep Sakhalin involved in the Russian economy.

Non-stop from Tokyo to London

We should admit, today Sakhalin Island is part of Russia only in theory. A goods van covers the distance from Moscow to Khabarowsk in one week and from Khabarovsk to Sakhalin in two weeks! Cargo is delivered to the island by means of railway ferry crossing Vanino-Holmsk that was built over 30 years ago. The ferry cannot be considered very safe: transportation is often interrupted by storms and fogs. Ferries are out of work for at least one third of the year. Besides, the vessels are worn out and quays need reconstruction. All this requires large investments.
Isn’t it more reasonable to establish a safer and more effective transport connection?
Cargo flow to the island will reach 1 million tons in several years, as 10 new oil and gas fields are discovered on Sakhalin. It is hardly possible to transport such volumes by ferry. “A few years ago we were participating in the construction of the natural gas liquefaction factory on Sakhalin,” said Efim Basin, Gosstroy (RF State Committee for Construction, Architectural and Housing Policy) ex-chairman. “And we had big problems with transportation of structural steel and construction materials. The train ferry Vanino - Holmsk is very unstable. Shipments turned out to be really slow and expensive. The way from European Russia to the construction site on Sakhalin was taking over two months. That’s why I stand for creation of the tunnel”.
Mr Granberg supposes that the Sakhalin project will cost between $2 and $4 billion (depending on the variant chosen). It’s not too much if we compare with the costs of construction of oil and gas pipelines in the framework of shelf exploration projects that is estimated at about $12 billion. The most difficult part is boring a 12-kilometre subway under Nevelsky bay.
Anatoly Vasiljev, ex-director of Sakhalin railway, objects, saying that “this is just like two blocks of the Moscow underground, but under the sea”. Mr Valiljev is a ardent supporter of the project. He had carefully studied European experience of underwater tunnel construction. He is sure he has found an optimal technology: concrete sections are mounted on the coast, then they are shipped on pontoons to the final grade and embedded on the prepared base. After that the sections are connected, the water removed, and isolation made. Such technology is tangibly less expensive than traditional methods. Igor Levitin, Minister of Transport of RF proposes to make a two-level tunnel: one level for trains and another for cars.
And what about the cargo turnover? It’s definitely set to grow. There are three ice-free sea ports on the island – Holmsk, Korsakov and Nevelsk. And they are more convenient for fuel and food supply of northern areas (Magadan, Kamchatka, Chukotka), than the ports of Vanino and Vladivistok. The distance will be cut by 600-100 kilometres if we use this new way. Pavel Minaker, Director of the Economic Research Institute of the Far Eastern Department of the Russian Science Academy, said that “the project is going to have a great economic and strategic effect, like the Transsib had before.
Moreover, the tunnel may become part of the other great project – a big land bridge linking Russia and Japan,” asserted Mr Vasiljev. The distance between the port of Korsakov on Sakhalin and Vakkanai in Japan is only 42 kilometres. The distance issue is surmountable, especially if we remember the experience of Japan, which built the 53-kilometre tunnel connecting Honshu and Hokkaido islands in 1980s. Japan is also considering the idea of building the tunnel to Sakhalin over La Perouse Strait. A group of Japanese even initiated “The society for Japanese islands integration to the Eurasia continent”.
If the overland transport corridor from Sakhalin to Europe is established, the haulage distance for Japanese cargoes will be halved, and time of shipment reduced by two-thirds. Today Japanese cargo is transported to Europe on a roundabout sea route that covers 20,000 kilometres and takes 35-40 days. Economists estimate that the shorter and more direct way would enable the growth of cargo turnover between Japan and Europe by up to 20 million tonnes. Respectively, Russia’s cargo transit income will reach $2 billion annually.
The Sakhalin project is included in the Federal Strategy for Transport Development till 2030. It involves construction of 583 kilometres of railway from Selihin to Nish and and an overland pass-over from the continent to the island, as well as works to convert the island’s narrow-gauge rail system to the broader Russian 1510-millimetre gauge (which is now being done by The Russian Railways JSC). Three variants of the pass-over for the Nevelski strait are considered in the Strategy: the 12.4 kilometre tunnel, 16-metre high filling dam with a shipping passage and 6.6-kilometre bridge. Many experts consider that the dam will badly affect the ecological balance of the sea area, and that a bridge is not safe due to storms and frequent glaciation. So the tunnel is considered to be the best option.
The investment needed for the project’s implementation are estimated at between RUR 300-330 billion. The price is high, but not impossible, especially if Japan contributes to this epic project.
BY Tamara Andreeva [~DETAIL_TEXT] =>

Railway through the Arctic

The idea is not a new one. The concept of the tunnel connecting Chukotka and Alaska was supported by Russian Tsar Nicholas II and Prime Minister Sergey Vitte in the 19th century. The Defence and Finance departments of the Russian Empire considered the project technologically feasible and economically viable. After the war and the revolution the idea was abandoned and rediscovered only in the 21st century. The international conference «Eurasia-America transcontinental trunk through the Bering Strait» was held in Moscow three years ago.
Some experts are concerned that the cost of the project would outweigh the benefits due to the high price of new rail trucks to be built to connect Alaska and Chukotka with the existing road system. A 100-kilometre tunnel under the Bering Strait will be also quite costly - about $65 billion. Besides, there are doubts that the rail link will be able to compete with shipment by sea. Still, Russia already has made the first step. Construction of the North transport corridor is included in the Strategy for RF Transport Development till 2030. Still, the question is where should the corridor go?
Mr Yakunin is confident that railways could link up half the world, and this ambition is to come to life in the nearest decades. But the way to Alaska goes through thousands kilometers of Arctic landscape.
At the same time, there is no less grandiose strategic project that could be implemented today: the tunnel linking Sakhalin Island to the mainland. This project has a very long and complicated story starting from the beginning of the 20th century. Construction works were launched after the Second World War. The plan was to lay a railroad from the city of Komsomolsk-on-Amor to Pobedino town on the Island, including construction of a tunnel under the Tatar Strait. The work was planned for completion in 5 years.
Over 20,000 Gulag prisoners were sent to the construction sites. By spring 1953, most of the work was done: 120 kilometres of the land route, artificial islands in the Strait, a base for the undersea tunnel. The death of Stalin put an end to the project.
In the 1990s the scheme was suddenly remembered. The Traffic Ministry ordered a new project for the land route from Sakhalin to the mainland. Alexander Granberg, academician of the Russian Academy of Science welcomed the idea. He said it would keep Sakhalin involved in the Russian economy.

Non-stop from Tokyo to London

We should admit, today Sakhalin Island is part of Russia only in theory. A goods van covers the distance from Moscow to Khabarowsk in one week and from Khabarovsk to Sakhalin in two weeks! Cargo is delivered to the island by means of railway ferry crossing Vanino-Holmsk that was built over 30 years ago. The ferry cannot be considered very safe: transportation is often interrupted by storms and fogs. Ferries are out of work for at least one third of the year. Besides, the vessels are worn out and quays need reconstruction. All this requires large investments.
Isn’t it more reasonable to establish a safer and more effective transport connection?
Cargo flow to the island will reach 1 million tons in several years, as 10 new oil and gas fields are discovered on Sakhalin. It is hardly possible to transport such volumes by ferry. “A few years ago we were participating in the construction of the natural gas liquefaction factory on Sakhalin,” said Efim Basin, Gosstroy (RF State Committee for Construction, Architectural and Housing Policy) ex-chairman. “And we had big problems with transportation of structural steel and construction materials. The train ferry Vanino - Holmsk is very unstable. Shipments turned out to be really slow and expensive. The way from European Russia to the construction site on Sakhalin was taking over two months. That’s why I stand for creation of the tunnel”.
Mr Granberg supposes that the Sakhalin project will cost between $2 and $4 billion (depending on the variant chosen). It’s not too much if we compare with the costs of construction of oil and gas pipelines in the framework of shelf exploration projects that is estimated at about $12 billion. The most difficult part is boring a 12-kilometre subway under Nevelsky bay.
Anatoly Vasiljev, ex-director of Sakhalin railway, objects, saying that “this is just like two blocks of the Moscow underground, but under the sea”. Mr Valiljev is a ardent supporter of the project. He had carefully studied European experience of underwater tunnel construction. He is sure he has found an optimal technology: concrete sections are mounted on the coast, then they are shipped on pontoons to the final grade and embedded on the prepared base. After that the sections are connected, the water removed, and isolation made. Such technology is tangibly less expensive than traditional methods. Igor Levitin, Minister of Transport of RF proposes to make a two-level tunnel: one level for trains and another for cars.
And what about the cargo turnover? It’s definitely set to grow. There are three ice-free sea ports on the island – Holmsk, Korsakov and Nevelsk. And they are more convenient for fuel and food supply of northern areas (Magadan, Kamchatka, Chukotka), than the ports of Vanino and Vladivistok. The distance will be cut by 600-100 kilometres if we use this new way. Pavel Minaker, Director of the Economic Research Institute of the Far Eastern Department of the Russian Science Academy, said that “the project is going to have a great economic and strategic effect, like the Transsib had before.
Moreover, the tunnel may become part of the other great project – a big land bridge linking Russia and Japan,” asserted Mr Vasiljev. The distance between the port of Korsakov on Sakhalin and Vakkanai in Japan is only 42 kilometres. The distance issue is surmountable, especially if we remember the experience of Japan, which built the 53-kilometre tunnel connecting Honshu and Hokkaido islands in 1980s. Japan is also considering the idea of building the tunnel to Sakhalin over La Perouse Strait. A group of Japanese even initiated “The society for Japanese islands integration to the Eurasia continent”.
If the overland transport corridor from Sakhalin to Europe is established, the haulage distance for Japanese cargoes will be halved, and time of shipment reduced by two-thirds. Today Japanese cargo is transported to Europe on a roundabout sea route that covers 20,000 kilometres and takes 35-40 days. Economists estimate that the shorter and more direct way would enable the growth of cargo turnover between Japan and Europe by up to 20 million tonnes. Respectively, Russia’s cargo transit income will reach $2 billion annually.
The Sakhalin project is included in the Federal Strategy for Transport Development till 2030. It involves construction of 583 kilometres of railway from Selihin to Nish and and an overland pass-over from the continent to the island, as well as works to convert the island’s narrow-gauge rail system to the broader Russian 1510-millimetre gauge (which is now being done by The Russian Railways JSC). Three variants of the pass-over for the Nevelski strait are considered in the Strategy: the 12.4 kilometre tunnel, 16-metre high filling dam with a shipping passage and 6.6-kilometre bridge. Many experts consider that the dam will badly affect the ecological balance of the sea area, and that a bridge is not safe due to storms and frequent glaciation. So the tunnel is considered to be the best option.
The investment needed for the project’s implementation are estimated at between RUR 300-330 billion. The price is high, but not impossible, especially if Japan contributes to this epic project.
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111117:94 [DESCRIPTION] => [~DESCRIPTION] => [~VALUE] => ) [BLOG_COMMENTS_CNT] => Array ( [ID] => 95 [IBLOCK_ID] => 25 [NAME] => Количество комментариев [ACTIVE] => Y [SORT] => 500 [CODE] => BLOG_COMMENTS_CNT [DEFAULT_VALUE] => [PROPERTY_TYPE] => N [ROW_COUNT] => 1 [COL_COUNT] => 30 [LIST_TYPE] => L [MULTIPLE] => N [XML_ID] => [FILE_TYPE] => [MULTIPLE_CNT] => 5 [LINK_IBLOCK_ID] => 0 [WITH_DESCRIPTION] => N [SEARCHABLE] => N [FILTRABLE] => N [IS_REQUIRED] => N [VERSION] => 1 [USER_TYPE] => [USER_TYPE_SETTINGS] => [HINT] => [~NAME] => Количество комментариев [~DEFAULT_VALUE] => [VALUE_ENUM] => [VALUE_XML_ID] => [VALUE_SORT] => [VALUE] => [PROPERTY_VALUE_ID] => 111117:95 [DESCRIPTION] => [~DESCRIPTION] => [~VALUE] => ) [MORE_PHOTO] => Array ( [ID] => 98 [IBLOCK_ID] => 25 [NAME] => Дополнительные фотографии [ACTIVE] => Y [SORT] => 500 [CODE] => MORE_PHOTO [DEFAULT_VALUE] => [PROPERTY_TYPE] => F [ROW_COUNT] => 1 [COL_COUNT] => 30 [LIST_TYPE] => L [MULTIPLE] => Y [XML_ID] => [FILE_TYPE] => jpg, gif, bmp, png, jpeg [MULTIPLE_CNT] => 5 [LINK_IBLOCK_ID] => 0 [WITH_DESCRIPTION] => N [SEARCHABLE] => N [FILTRABLE] => N [IS_REQUIRED] => N [VERSION] => 2 [USER_TYPE] => [USER_TYPE_SETTINGS] => [HINT] => [~NAME] => Дополнительные фотографии [~DEFAULT_VALUE] => [VALUE_ENUM] => [VALUE_XML_ID] => [VALUE_SORT] => [VALUE] => [PROPERTY_VALUE_ID] => [DESCRIPTION] => [~DESCRIPTION] => [~VALUE] => ) [PUBLIC_ACCESS] => Array ( [ID] => 110 [IBLOCK_ID] => 25 [NAME] => Открытый доступ [ACTIVE] => Y [SORT] => 500 [CODE] => PUBLIC_ACCESS [DEFAULT_VALUE] => [PROPERTY_TYPE] => L [ROW_COUNT] => 1 [COL_COUNT] => 30 [LIST_TYPE] => C [MULTIPLE] => N [XML_ID] => [FILE_TYPE] => [MULTIPLE_CNT] => 5 [LINK_IBLOCK_ID] => 0 [WITH_DESCRIPTION] => N [SEARCHABLE] => N [FILTRABLE] => N [IS_REQUIRED] => N [VERSION] => 2 [USER_TYPE] => [USER_TYPE_SETTINGS] => [HINT] => [~NAME] => Открытый доступ [~DEFAULT_VALUE] => [VALUE_ENUM] => [VALUE_XML_ID] => [VALUE_SORT] => [VALUE] => [PROPERTY_VALUE_ID] => 111117:110 [DESCRIPTION] => [~DESCRIPTION] => [~VALUE] => [VALUE_ENUM_ID] => ) [ATTACHED_PDF] => Array ( [ID] => 324 [IBLOCK_ID] => 25 [NAME] => Прикрепленный PDF [ACTIVE] => Y [SORT] => 500 [CODE] => ATTACHED_PDF [DEFAULT_VALUE] => [PROPERTY_TYPE] => F [ROW_COUNT] => 1 [COL_COUNT] => 30 [LIST_TYPE] => L [MULTIPLE] => N [XML_ID] => [FILE_TYPE] => pdf [MULTIPLE_CNT] => 5 [LINK_IBLOCK_ID] => 0 [WITH_DESCRIPTION] => N [SEARCHABLE] => N [FILTRABLE] => N [IS_REQUIRED] => N [VERSION] => 2 [USER_TYPE] => [USER_TYPE_SETTINGS] => [HINT] => [~NAME] => Прикрепленный PDF [~DEFAULT_VALUE] => [VALUE_ENUM] => [VALUE_XML_ID] => [VALUE_SORT] => [VALUE] => [PROPERTY_VALUE_ID] => 111117:324 [DESCRIPTION] => [~DESCRIPTION] => [~VALUE] => ) ) [DISPLAY_PROPERTIES] => Array ( ) [IPROPERTY_VALUES] => Array ( [SECTION_META_TITLE] => The tunnel to Sakhalin or to Alaska? [SECTION_META_KEYWORDS] => the tunnel to sakhalin or to alaska? [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2010/2/4.jpg" border="1" alt=" " hspace="5" width="200" height="197" align="left" />“American investors initiated negotiations with Russian Railways JSC over the construction of a 100-kilometre railway tunnel under the Bering Strait which would connect Asia with North America and become the transport corridor between the East and the West,” said Vladimir Yakunin, President of RZD in his interview with the British “Sunday Express”. As Mr Yakunin reported, several American funds showed their interest in the project. [ELEMENT_META_TITLE] => The tunnel to Sakhalin or to Alaska? [ELEMENT_META_KEYWORDS] => the tunnel to sakhalin or to alaska? [ELEMENT_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2010/2/4.jpg" border="1" alt=" " hspace="5" width="200" height="197" align="left" />“American investors initiated negotiations with Russian Railways JSC over the construction of a 100-kilometre railway tunnel under the Bering Strait which would connect Asia with North America and become the transport corridor between the East and the West,” said Vladimir Yakunin, President of RZD in his interview with the British “Sunday Express”. As Mr Yakunin reported, several American funds showed their interest in the project. [SECTION_PICTURE_FILE_ALT] => The tunnel to Sakhalin or to Alaska? [SECTION_PICTURE_FILE_TITLE] => The tunnel to Sakhalin or to Alaska? [SECTION_DETAIL_PICTURE_FILE_ALT] => The tunnel to Sakhalin or to Alaska? [SECTION_DETAIL_PICTURE_FILE_TITLE] => The tunnel to Sakhalin or to Alaska? [ELEMENT_PREVIEW_PICTURE_FILE_ALT] => The tunnel to Sakhalin or to Alaska? [ELEMENT_PREVIEW_PICTURE_FILE_TITLE] => The tunnel to Sakhalin or to Alaska? [ELEMENT_DETAIL_PICTURE_FILE_ALT] => The tunnel to Sakhalin or to Alaska? [ELEMENT_DETAIL_PICTURE_FILE_TITLE] => The tunnel to Sakhalin or to Alaska? ) )



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