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A LONG-AWAITED PROJECT IS LAUNCHED 
The agreement between Alstom and Karelian Trains, a Russian-Finnish joint venture, was signed in 2007. Alstom produced four Pendolino-family trains that were later named Allegro. The contract price amounted to €120 million. The trains operate at top speeds of 220 kph. Each seven-car train holds up 352 passengers and offers 304 second-class seats, 42 first class, six business-class ones. Special wagons for people with disabilities are equipped with more comfortable seats and wheelchair ramps. On Russian territory the train runs at 200 kph, on Finnish territory it accelerates to 220 kph. 
The name ‘Pendolino’ reflects the construction of the wagon with a tilting body. The technology allows the speed of movement around a curve to increase by 20-30% compared to ordinary trains. When rounding a bend, the head wagon tilts by up to 8 grades due to the special design of the bogie. Then starting resistance and a pendulum mechanism tilts the other wagons. Luigi Musso, the Head of Pendolino project for Karelian Trains, explained that the minimal level had been chosen as the most comfortable for passengers. 
The first commercial run was made on 12 December, 2010, and a regular service was launched the following day. Since that time, two pairs of trains have run twice a day, linking the centre of Finland’s capital to the centre of Russia’s second city. Allegro starts from St Petersburg at 6.40 and 15.25, and from Helsinki at 10.00 and 15.00. The train makes stops in Vyborg (Russia), Vainikkala, Kouvola, Tikkurila and Pasila (Finland). 
The journey time was cut twice: the 450km distance is covered in 3.5 hours. Before, it used to take about 6-8 hours, including 
20-30 minutes stops in Vyborg, Buslovskaya and Vainikkala stations and a time-consuming locomotive change at the frontier.
The reduction in journey time has been achieved via innovative construction of wagons that are good at high speed and low temperatures. No smaller achievement is that all border checkpoint procedures are undertaken on the move. Only a year ago it was not clear whether Russian customs were going to permit this. Luckily, our customs officials prefer fast and comfortable trains, too. 
Allegro immediately replaced two trains on the route: ‘Repin’ and ‘Sibelius’. This secured enough time in the train schedule for the new service, as well as a steady passenger flow. To attract more people to Allegro, RZD proposed to the Federal Government to adopt a new law on visa-free travel. It’s similar to the ferry traffic regulation adopted in St Petersburg, and proposes a 72-hours visa-free period for foreign tourists arriving in the city. Michail Akulov, RZD Vice President, believes the law could be enacted next year. 
 Russian-Finnish services make over 72% of all Russian international passenger rail traffic.  According to Mr Akulov, in 2009 rail passenger flow between the two countries exceeded 200,000 people. The estimate for 2010 is about 214,000 and the forecast for 2011 is 241,000. By 2014, RZD intends to boost cross-border railway transport up to 340,000 passengers. 

Overpriced or underestimated?
Some experts are not very optimistic about the project due to the comparatively high fares. VR Group and RZD didn’t pay much attention to possible competition with air carriers and have set the price just below average airfares. A one-way journey on Allegro costs €84 for second class and €134 for first class.  At the same time, ‘Russia’ air company offers tickets for €80, and the lowest price in Finnish airports is about €70. Tickets for ‘Repin’ and ‘Sibelius’ costed RUR 2,700 (about €68).  
The lowest price for bus tickets is RUR 1,200 (€30), for the ferry ‘Princess Maria’ it cost from €25 to €450. Michael Aro, President of VR-Group, explains that the company has to recover the high expenditure on railway track reconstruction. Vladimir Yakunin, RZD President, noted that the train delivers passengers directly from the centre of one city to the centre of another, so the comparison with air services is not fair. 
Infomost agency experts expect that the launch of Allegro will encourage a general increase in passenger turnover, but not as great as the operator expects: ‘The service will certainly attract passengers that used to travel by cars and buses and don’t want to waste time in queues on the border. The idea of a centre-to-centre service is great, but still the price is hefty’. Vladimir Lebedev, President of ‘Strategy-Center’, also expects high fares to limit possible passenger traffic. 
Sergey Korneev, Vice President of the Russian Travel Industry Union, believes that a substantial rise in turnover could be achieved with a more flexible pricing strategy: ‘The operator would win much by offering customer loyalty programs and discounts,’ he says. 
Other experts believe the price is adequate, taking into consideration the fact that it’s an international line and use of Finnish rail infrastructure is rather expensive. ‘It’s possible to depart from Vyborg and pay less. Air service really could be cheaper, but we should not forget that it’s associated with many more formalities. Strict rules of carriage and location of both airports outside the cities make the trip time- and energy-consuming. Rail traffic regulations are much easier,’ says Dmitry Baranov, Finam Management’s leading expert. 
We could make some forecasts about Allegro based on the example of another high-speed rail service operating in Russia – the Sapsan train linking Moscow and St Petersburg. It has been operating for over a year already, and has become quite popular. Valentin Gapanovich, RZD Chief Engineer, says the daytime passenger flow on this route has tripled in a year. 
During this period, seven trains have carried about 2 million passengers between Moscow and St Petersburg, and Moscow and Nizhny Novgorod. Before the launch of the high-speed service the traffic did not exceed 700,000 passengers per year. Air traffic experts note that introduction of the new service did not cause any reduction in demand for air transportation on Moscow-St Petersburg lines. Some experts are sure that the total number of passengers has grown due to a revival of business and tourist activities after the financial crisis. 
We believe Allegro, with its rather expensive but unique services, has every chance to fulfill RZD ambitions for cross-border passenger traffic growth. 
By Maria Shevchenko
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A LONG-AWAITED PROJECT IS LAUNCHED 
The agreement between Alstom and Karelian Trains, a Russian-Finnish joint venture, was signed in 2007. Alstom produced four Pendolino-family trains that were later named Allegro. The contract price amounted to €120 million. The trains operate at top speeds of 220 kph. Each seven-car train holds up 352 passengers and offers 304 second-class seats, 42 first class, six business-class ones. Special wagons for people with disabilities are equipped with more comfortable seats and wheelchair ramps. On Russian territory the train runs at 200 kph, on Finnish territory it accelerates to 220 kph. 
The name ‘Pendolino’ reflects the construction of the wagon with a tilting body. The technology allows the speed of movement around a curve to increase by 20-30% compared to ordinary trains. When rounding a bend, the head wagon tilts by up to 8 grades due to the special design of the bogie. Then starting resistance and a pendulum mechanism tilts the other wagons. Luigi Musso, the Head of Pendolino project for Karelian Trains, explained that the minimal level had been chosen as the most comfortable for passengers. 
The first commercial run was made on 12 December, 2010, and a regular service was launched the following day. Since that time, two pairs of trains have run twice a day, linking the centre of Finland’s capital to the centre of Russia’s second city. Allegro starts from St Petersburg at 6.40 and 15.25, and from Helsinki at 10.00 and 15.00. The train makes stops in Vyborg (Russia), Vainikkala, Kouvola, Tikkurila and Pasila (Finland). 
The journey time was cut twice: the 450km distance is covered in 3.5 hours. Before, it used to take about 6-8 hours, including 
20-30 minutes stops in Vyborg, Buslovskaya and Vainikkala stations and a time-consuming locomotive change at the frontier.
The reduction in journey time has been achieved via innovative construction of wagons that are good at high speed and low temperatures. No smaller achievement is that all border checkpoint procedures are undertaken on the move. Only a year ago it was not clear whether Russian customs were going to permit this. Luckily, our customs officials prefer fast and comfortable trains, too. 
Allegro immediately replaced two trains on the route: ‘Repin’ and ‘Sibelius’. This secured enough time in the train schedule for the new service, as well as a steady passenger flow. To attract more people to Allegro, RZD proposed to the Federal Government to adopt a new law on visa-free travel. It’s similar to the ferry traffic regulation adopted in St Petersburg, and proposes a 72-hours visa-free period for foreign tourists arriving in the city. Michail Akulov, RZD Vice President, believes the law could be enacted next year. 
 Russian-Finnish services make over 72% of all Russian international passenger rail traffic.  According to Mr Akulov, in 2009 rail passenger flow between the two countries exceeded 200,000 people. The estimate for 2010 is about 214,000 and the forecast for 2011 is 241,000. By 2014, RZD intends to boost cross-border railway transport up to 340,000 passengers. 

Overpriced or underestimated?
Some experts are not very optimistic about the project due to the comparatively high fares. VR Group and RZD didn’t pay much attention to possible competition with air carriers and have set the price just below average airfares. A one-way journey on Allegro costs €84 for second class and €134 for first class.  At the same time, ‘Russia’ air company offers tickets for €80, and the lowest price in Finnish airports is about €70. Tickets for ‘Repin’ and ‘Sibelius’ costed RUR 2,700 (about €68).  
The lowest price for bus tickets is RUR 1,200 (€30), for the ferry ‘Princess Maria’ it cost from €25 to €450. Michael Aro, President of VR-Group, explains that the company has to recover the high expenditure on railway track reconstruction. Vladimir Yakunin, RZD President, noted that the train delivers passengers directly from the centre of one city to the centre of another, so the comparison with air services is not fair. 
Infomost agency experts expect that the launch of Allegro will encourage a general increase in passenger turnover, but not as great as the operator expects: ‘The service will certainly attract passengers that used to travel by cars and buses and don’t want to waste time in queues on the border. The idea of a centre-to-centre service is great, but still the price is hefty’. Vladimir Lebedev, President of ‘Strategy-Center’, also expects high fares to limit possible passenger traffic. 
Sergey Korneev, Vice President of the Russian Travel Industry Union, believes that a substantial rise in turnover could be achieved with a more flexible pricing strategy: ‘The operator would win much by offering customer loyalty programs and discounts,’ he says. 
Other experts believe the price is adequate, taking into consideration the fact that it’s an international line and use of Finnish rail infrastructure is rather expensive. ‘It’s possible to depart from Vyborg and pay less. Air service really could be cheaper, but we should not forget that it’s associated with many more formalities. Strict rules of carriage and location of both airports outside the cities make the trip time- and energy-consuming. Rail traffic regulations are much easier,’ says Dmitry Baranov, Finam Management’s leading expert. 
We could make some forecasts about Allegro based on the example of another high-speed rail service operating in Russia – the Sapsan train linking Moscow and St Petersburg. It has been operating for over a year already, and has become quite popular. Valentin Gapanovich, RZD Chief Engineer, says the daytime passenger flow on this route has tripled in a year. 
During this period, seven trains have carried about 2 million passengers between Moscow and St Petersburg, and Moscow and Nizhny Novgorod. Before the launch of the high-speed service the traffic did not exceed 700,000 passengers per year. Air traffic experts note that introduction of the new service did not cause any reduction in demand for air transportation on Moscow-St Petersburg lines. Some experts are sure that the total number of passengers has grown due to a revival of business and tourist activities after the financial crisis. 
We believe Allegro, with its rather expensive but unique services, has every chance to fulfill RZD ambitions for cross-border passenger traffic growth. 
By Maria Shevchenko
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A LONG-AWAITED PROJECT IS LAUNCHED 
The agreement between Alstom and Karelian Trains, a Russian-Finnish joint venture, was signed in 2007. Alstom produced four Pendolino-family trains that were later named Allegro. The contract price amounted to €120 million. The trains operate at top speeds of 220 kph. Each seven-car train holds up 352 passengers and offers 304 second-class seats, 42 first class, six business-class ones. Special wagons for people with disabilities are equipped with more comfortable seats and wheelchair ramps. On Russian territory the train runs at 200 kph, on Finnish territory it accelerates to 220 kph. 
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The first commercial run was made on 12 December, 2010, and a regular service was launched the following day. Since that time, two pairs of trains have run twice a day, linking the centre of Finland’s capital to the centre of Russia’s second city. Allegro starts from St Petersburg at 6.40 and 15.25, and from Helsinki at 10.00 and 15.00. The train makes stops in Vyborg (Russia), Vainikkala, Kouvola, Tikkurila and Pasila (Finland). 
The journey time was cut twice: the 450km distance is covered in 3.5 hours. Before, it used to take about 6-8 hours, including 
20-30 minutes stops in Vyborg, Buslovskaya and Vainikkala stations and a time-consuming locomotive change at the frontier.
The reduction in journey time has been achieved via innovative construction of wagons that are good at high speed and low temperatures. No smaller achievement is that all border checkpoint procedures are undertaken on the move. Only a year ago it was not clear whether Russian customs were going to permit this. Luckily, our customs officials prefer fast and comfortable trains, too. 
Allegro immediately replaced two trains on the route: ‘Repin’ and ‘Sibelius’. This secured enough time in the train schedule for the new service, as well as a steady passenger flow. To attract more people to Allegro, RZD proposed to the Federal Government to adopt a new law on visa-free travel. It’s similar to the ferry traffic regulation adopted in St Petersburg, and proposes a 72-hours visa-free period for foreign tourists arriving in the city. Michail Akulov, RZD Vice President, believes the law could be enacted next year. 
 Russian-Finnish services make over 72% of all Russian international passenger rail traffic.  According to Mr Akulov, in 2009 rail passenger flow between the two countries exceeded 200,000 people. The estimate for 2010 is about 214,000 and the forecast for 2011 is 241,000. By 2014, RZD intends to boost cross-border railway transport up to 340,000 passengers. 

Overpriced or underestimated?
Some experts are not very optimistic about the project due to the comparatively high fares. VR Group and RZD didn’t pay much attention to possible competition with air carriers and have set the price just below average airfares. A one-way journey on Allegro costs €84 for second class and €134 for first class.  At the same time, ‘Russia’ air company offers tickets for €80, and the lowest price in Finnish airports is about €70. Tickets for ‘Repin’ and ‘Sibelius’ costed RUR 2,700 (about €68).  
The lowest price for bus tickets is RUR 1,200 (€30), for the ferry ‘Princess Maria’ it cost from €25 to €450. Michael Aro, President of VR-Group, explains that the company has to recover the high expenditure on railway track reconstruction. Vladimir Yakunin, RZD President, noted that the train delivers passengers directly from the centre of one city to the centre of another, so the comparison with air services is not fair. 
Infomost agency experts expect that the launch of Allegro will encourage a general increase in passenger turnover, but not as great as the operator expects: ‘The service will certainly attract passengers that used to travel by cars and buses and don’t want to waste time in queues on the border. The idea of a centre-to-centre service is great, but still the price is hefty’. Vladimir Lebedev, President of ‘Strategy-Center’, also expects high fares to limit possible passenger traffic. 
Sergey Korneev, Vice President of the Russian Travel Industry Union, believes that a substantial rise in turnover could be achieved with a more flexible pricing strategy: ‘The operator would win much by offering customer loyalty programs and discounts,’ he says. 
Other experts believe the price is adequate, taking into consideration the fact that it’s an international line and use of Finnish rail infrastructure is rather expensive. ‘It’s possible to depart from Vyborg and pay less. Air service really could be cheaper, but we should not forget that it’s associated with many more formalities. Strict rules of carriage and location of both airports outside the cities make the trip time- and energy-consuming. Rail traffic regulations are much easier,’ says Dmitry Baranov, Finam Management’s leading expert. 
We could make some forecasts about Allegro based on the example of another high-speed rail service operating in Russia – the Sapsan train linking Moscow and St Petersburg. It has been operating for over a year already, and has become quite popular. Valentin Gapanovich, RZD Chief Engineer, says the daytime passenger flow on this route has tripled in a year. 
During this period, seven trains have carried about 2 million passengers between Moscow and St Petersburg, and Moscow and Nizhny Novgorod. Before the launch of the high-speed service the traffic did not exceed 700,000 passengers per year. Air traffic experts note that introduction of the new service did not cause any reduction in demand for air transportation on Moscow-St Petersburg lines. Some experts are sure that the total number of passengers has grown due to a revival of business and tourist activities after the financial crisis. 
We believe Allegro, with its rather expensive but unique services, has every chance to fulfill RZD ambitions for cross-border passenger traffic growth. 
By Maria Shevchenko
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A LONG-AWAITED PROJECT IS LAUNCHED 
The agreement between Alstom and Karelian Trains, a Russian-Finnish joint venture, was signed in 2007. Alstom produced four Pendolino-family trains that were later named Allegro. The contract price amounted to €120 million. The trains operate at top speeds of 220 kph. Each seven-car train holds up 352 passengers and offers 304 second-class seats, 42 first class, six business-class ones. Special wagons for people with disabilities are equipped with more comfortable seats and wheelchair ramps. On Russian territory the train runs at 200 kph, on Finnish territory it accelerates to 220 kph. 
The name ‘Pendolino’ reflects the construction of the wagon with a tilting body. The technology allows the speed of movement around a curve to increase by 20-30% compared to ordinary trains. When rounding a bend, the head wagon tilts by up to 8 grades due to the special design of the bogie. Then starting resistance and a pendulum mechanism tilts the other wagons. Luigi Musso, the Head of Pendolino project for Karelian Trains, explained that the minimal level had been chosen as the most comfortable for passengers. 
The first commercial run was made on 12 December, 2010, and a regular service was launched the following day. Since that time, two pairs of trains have run twice a day, linking the centre of Finland’s capital to the centre of Russia’s second city. Allegro starts from St Petersburg at 6.40 and 15.25, and from Helsinki at 10.00 and 15.00. The train makes stops in Vyborg (Russia), Vainikkala, Kouvola, Tikkurila and Pasila (Finland). 
The journey time was cut twice: the 450km distance is covered in 3.5 hours. Before, it used to take about 6-8 hours, including 
20-30 minutes stops in Vyborg, Buslovskaya and Vainikkala stations and a time-consuming locomotive change at the frontier.
The reduction in journey time has been achieved via innovative construction of wagons that are good at high speed and low temperatures. No smaller achievement is that all border checkpoint procedures are undertaken on the move. Only a year ago it was not clear whether Russian customs were going to permit this. Luckily, our customs officials prefer fast and comfortable trains, too. 
Allegro immediately replaced two trains on the route: ‘Repin’ and ‘Sibelius’. This secured enough time in the train schedule for the new service, as well as a steady passenger flow. To attract more people to Allegro, RZD proposed to the Federal Government to adopt a new law on visa-free travel. It’s similar to the ferry traffic regulation adopted in St Petersburg, and proposes a 72-hours visa-free period for foreign tourists arriving in the city. Michail Akulov, RZD Vice President, believes the law could be enacted next year. 
 Russian-Finnish services make over 72% of all Russian international passenger rail traffic.  According to Mr Akulov, in 2009 rail passenger flow between the two countries exceeded 200,000 people. The estimate for 2010 is about 214,000 and the forecast for 2011 is 241,000. By 2014, RZD intends to boost cross-border railway transport up to 340,000 passengers. 

Overpriced or underestimated?
Some experts are not very optimistic about the project due to the comparatively high fares. VR Group and RZD didn’t pay much attention to possible competition with air carriers and have set the price just below average airfares. A one-way journey on Allegro costs €84 for second class and €134 for first class.  At the same time, ‘Russia’ air company offers tickets for €80, and the lowest price in Finnish airports is about €70. Tickets for ‘Repin’ and ‘Sibelius’ costed RUR 2,700 (about €68).  
The lowest price for bus tickets is RUR 1,200 (€30), for the ferry ‘Princess Maria’ it cost from €25 to €450. Michael Aro, President of VR-Group, explains that the company has to recover the high expenditure on railway track reconstruction. Vladimir Yakunin, RZD President, noted that the train delivers passengers directly from the centre of one city to the centre of another, so the comparison with air services is not fair. 
Infomost agency experts expect that the launch of Allegro will encourage a general increase in passenger turnover, but not as great as the operator expects: ‘The service will certainly attract passengers that used to travel by cars and buses and don’t want to waste time in queues on the border. The idea of a centre-to-centre service is great, but still the price is hefty’. Vladimir Lebedev, President of ‘Strategy-Center’, also expects high fares to limit possible passenger traffic. 
Sergey Korneev, Vice President of the Russian Travel Industry Union, believes that a substantial rise in turnover could be achieved with a more flexible pricing strategy: ‘The operator would win much by offering customer loyalty programs and discounts,’ he says. 
Other experts believe the price is adequate, taking into consideration the fact that it’s an international line and use of Finnish rail infrastructure is rather expensive. ‘It’s possible to depart from Vyborg and pay less. Air service really could be cheaper, but we should not forget that it’s associated with many more formalities. Strict rules of carriage and location of both airports outside the cities make the trip time- and energy-consuming. Rail traffic regulations are much easier,’ says Dmitry Baranov, Finam Management’s leading expert. 
We could make some forecasts about Allegro based on the example of another high-speed rail service operating in Russia – the Sapsan train linking Moscow and St Petersburg. It has been operating for over a year already, and has become quite popular. Valentin Gapanovich, RZD Chief Engineer, says the daytime passenger flow on this route has tripled in a year. 
During this period, seven trains have carried about 2 million passengers between Moscow and St Petersburg, and Moscow and Nizhny Novgorod. Before the launch of the high-speed service the traffic did not exceed 700,000 passengers per year. Air traffic experts note that introduction of the new service did not cause any reduction in demand for air transportation on Moscow-St Petersburg lines. Some experts are sure that the total number of passengers has grown due to a revival of business and tourist activities after the financial crisis. 
We believe Allegro, with its rather expensive but unique services, has every chance to fulfill RZD ambitions for cross-border passenger traffic growth. 
By Maria Shevchenko
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Things are Getting Better
The insurance market is beginning to overcome the crisis. Alexander Koval, Head of the Federal Service for Insurance Supervision (FSIS), came to this conclusion while commenting on the official results of the performance in the area in the first half of 2010. According to FSIS, market volume has grown by 6% year-on-year. The total insurance premiums for all types of insurance was RUR 521 billion for the first six months which exceeds last year’s result by 16%. The total profits hit RUR 367.24 billion (+4.4%). 
However, this is an average temperature in a hospital. The insurance companies obtain most of their earnings from compulsory insurance. This area is not affected by the crisis because the law states it must be taken. So the question is whether the results above reflect the growth in cargo insurance as well. This type of voluntary insurance suffered substantially from the crisis. According to polls carried out by the National Agency for Financial Research, the number of Russian citizens who used insurance services reduced from 42% to 29% between October 2008 and June 2010. 
The market of freight transportation insurance decreased even more significantly. However this was not a surprise. The reasons for this are the decrease in the cargo flow itself and the reduction of their insurance coverage. Indeed, the first thing which the company abandons when facing a cash deficit is insurance. The insured event may not occur while the company has a real opportunity to save substantial assets and thus even large business enterprises prefer to run the risk. The volume of cargo insurance had reached RUR 22 billion before the crisis, whereas in 2009 it decreased to nearly RUR 16 billion. The average decrease was around 20% while in certain modes of transport it reached 50%. 
However even with this overpowering tendency there can be exceptions. For instance, Gefest insurance company showed a 50% growth in this particular area in 2009. 

Was There a Crisis?
However, even in the favourable conditions, when the Russian economy showed external signs of well-being, the share of insured cargo turnover amounted to 30-35%, according to the best-case scenario, and 10-12% in the worst case. For reference, the European market of cargo insurance covers 85-90%. Cargo transported via railways is the least insured with no more than 15%. For instance, the portfolio of the Centre for transport risks insurance in the North-West directorate of ROSNO consists mostly of road transportation. Then, in descending order, come sea, air and then railway transportation, with a 3% share in the total number of contracts. 
This tendency is supported by the figures provided by Innogarant insurance company, which show that, during the first nine months of 2010, the portfolio share of road transportations was 62%, air transportations 11%, inland water transportations 10%, sea transportations 9% and railway transportations 8%. Export and import transportations are the most advanced in terms of cargo insurance. International commerce terms do not allow transportations without insurance, thus in this sphere the share of insured transportations exceeds 70%. According to Gefest, only transit railway cargo, less-than-truckload freight and road transportations to Russia’s neighbours are still not insured.

Companies are Forced to take Risks
When cargo owners are asked why they run the risk, the first answer that occurs is that they try to avoid excessive expenses. The reason for this is not necessarily their poverty. Most of the entrepreneurs in Russia obviously got over this stage; however they are not ready to endure expenses which are a total waste in 90% of cases. Almost all experts attribute this attitude to a specific mentality and culture. For instance, Konstantine Barkovsky, Deputy CEO of Gefest, points out that Russian cargo owners and carriers neglect financial security measures because they are accustomed to maintaining their business relationships with the contactors on a personal level. 
Nevertheless he is convinced that the development of an insurance culture and improvement of legislation will encourage them to turn to insurance services as an important financial tool. Mr Barkovsky mentions that this will happen in the fairly distant future as it requires a significant change in the mentality of cargo owners and carriers.
However a waste of money is not the only reason. Cargo owners also complain about the over-bureaucratized procedure of getting insurance and indemnity in the case of an accident. ‘We finalize deals efficiently,’ says Oleg Bondarenko, Deputy CEO of Caucasian Mineral Waters Company. ‘We are ready to consolidate a consignment via telephone from our partner and send it the next day, but the insurance procedure takes a lot of time and energy,’ he adds.
Alexander Timoschenko, Head of the Directorate for organisation of railway transportation at TMK, also mentions a high time and energy input into insurance. ‘We issue insurance policy only for the multimodal export transportations, merely because our foreign partners state it in the terms of the agreement,’ says Mr Timoschenko.
Experts point out that besides other reasons insurance companies are still not fully trusted. Supposedly, when the entrepreneurs purchase insurance they protect themselves from unforeseen accidents, however when they occur, the insurance company does its best to minimize the benefits or even denies the claim. This opinion might have formed due to the fact that the legal departments of cargo owners lack competency. They are unable to foresee all the pitfalls of insurance contracts and fail to organise document flow properly. Kirill Trukhanov, Head of Arbitrary group of Vegas-Lex law firm, considers that with a more transparent procedure of claim denial there would be another stimulus for the development of insurance, including the sphere of cargo transportation.
During the crisis the number of claims grew significantly. Previously the company used to turn a blind eye to minor losses to avoid launching a complicated procedure. Afterwards they were forced to do the opposite. According to Vegas-Lex, in the first half of 2010 insurers took legal recourse 59.7% more often year-on-year. It is worth mentioning that in 85% of cases the court took the insurer’s side. 

Railways are Safer
Another reason why railway transportations fall behind in terms of insurance volumes sounds quite absurd. Cargo owners neglect insurance policy due to the high safety level of railway transportation. Anastasia Lukyanova, Deputy Director of the Centre for transport risks insurance in the North-West directorate of ROSNO, points out that railway transportation is not subject to substantial risks, because serious insurance events rarely occur here compared with other modes of transport. Thus most of the companies choose to neglect insurance policy for the reasons of economy. This point of view is supported in the transport department of TMK. 
The company transports its main product, large pipes, chiefly via railway. According to Mr Timoschenko, a well-functioning system of Russian railways minimizes the risks and thus insurance seems unnecessary. In the more than 10 years that TMK has been on the market, the company has not suffered any cargo loss or damage due to carrier fault; although minor flaws in insulation do occur. 
However even in those times when one fifth of the consignment was damaged on arrival, the company chose to settle this with a consignee due to the high possibility that the damage occurred during the loading and unloading process rather than transportation. 
Most companies refuse to insure the cargo transported via railway because they are convinced that they can make a complaint directly to the carrier. 
Insurance companies regard these implications as unsound. The law does impose the responsibility for cargo safety on a carrier. However it is not clear what should happen if no one is guilty of the damage, i.e. force majeure.
Ms Lukyanova is convinced that the number of insurance contracts is influenced by the types of cargo transported via railway, most of which is bulk cargo. This makes it difficult to estimate the damage and detect its causes. Moreover a substantial part of the market in this segment is occupied by captive insurance companies, which are established by large industrial and commercial enterprises to insure their own risks. Thus not all companies are able to work in the segment, explains Ms Lukyanova.
Vladislav Sedov, Director of the Centre for cargo and insurance of Innogarant, also refers to the dominant position of captive companies such as ZhASO. ‘Certain types of insurance ZhASO presents as if they were almost obligatory,’ says Mr Sedov. ‘The fact that some RZD subsidiaries do not accept consignments without an insurance policy is confirmed by cargo owners. However with all this the insurance volumes of the railway insurer do not differ from those in the wider industry,’ Mr Sedov points out. In his opinion, two types of cargo owners choose to insure their goods – novices and experienced ones, who has already suffered serious losses. 
The policy price also plays a significant role when a company makes a decision whether to insure its cargo or not. Mr Barkovsky explains that since the railways are primarily used for long-distance deliveries, which often require reloading and handling of cargo en route, the potential risks of damage increase and thus influence the price of insurance.
However, several types of companies, including producers and distributors of high-tech products, have solved the dilemma ‘insure or risk’ unambiguously. Computers, medical equipment and cars are easily damaged and the potential loss incommensurably exceeds the policy price. Moreover these types of cargo, as well as cosmetics, shoes and alcohol, are very attractive for criminal groups. Gefest insurance company admits that thefts occur rather often. For instance, consignments with cosmetics and cheese have disappeared twice. 
Both times the course of events was similar. Contractor’s driver arrived at the storehouse, took the consignment using forged documents and escaped. Police failed to find both the cargo and the driver. ‘Another incident has recently occurred which shows that thefts are becoming more sophisticated’, tells Mr Barkovsky. ‘A consignment of children’s shoes was transported from Moscow to Riga. Unidentified persons broke into the Krone’s semi-trailer, cut the wire rope and stole a part of the consignment, throwing it out on the road. The compensation for this insurance event was RUR 700,000. Unfortunately, such cases are not becoming any rarer,’ the expert admits.
Innogarant have to deal with criminal cases as well. For example, a trailer loaded with pork half carcasses worth of RUR 3 million was stolen outside Moscow, then a truck with consumer electronics worth USD 60,000 disappeared in Poland. This is not a full list,’ says Mr Sedov. 
Thus high-tech products, consumer goods and food are usually insured. For instance, for AvtoVAZ it is a routine practice with an elaborated procedure. Automobile giants choose an insurer annually based on the insurance company’s economic performance as well as the quality parameters, including its experience and service opportunities in terms of losses coverage.

What Prevents Development?
Even with resistance from the client companies, the cargo insurance market has been growing steadily. It has been growing by 5% or 10% a year according to different estimates. Today insurers are talking about the recovery after a two-year hiatus. The data, provided by FSIS, show that insurance premiums for cargo transportation approximated RUR 8.5 billion during the first half of 2010, which is a growth of 20% year-on-year. ROSNO analytics talk about 10-15% growth during the first nine months of 2010 year-on-year. Gefest is more moderate in its estimations. Mr Barkovsky predicts a 5% growth. 
‘The basis for this positive tendency is a general revival of the Russian economy and, in particular, the growth in imports and exports,’ says Ms Lukyanova. ‘Starting from spring, 2010 we can speak of a slow but tangible recovery in this market segment. However, in the current situation it would be hasty to claim that the cargo insurance market has returned to its pre-crisis level,’ she adds.
Experts are convinced that the state could facilitate higher rates of development of the insurance market in cargo transportation. ‘The market of cargo insurance is strongly influenced by the supply base, used in foreign trade turnover. Either seller or buyer makes a choice between a foreign and Russian insurer depending on certain conditions. If the export of domestic products were insured by Russian companies, insurance volumes would increase dramatically,’ says Mr Barkovsky. ‘At present, traders choose to insure the exported goods using foreign companies.’
Meanwhile, it is not only the financial aspects that impede the development of the cargo insurance market. The main problem, as Ms Lukyanova suggests, is the desire of insurance companies to indulge in dumping. However, all parties understand that fraud and robberies occur often throughout the transportation process. These usually lead to a complete loss of the cargo and serious insurance payouts. If a company, in an effort to attract customers, offers unreasonably low rates, a potential insurer may face serious problems.
Insurance companies are convinced that a lot of cargo owners and freight forwarding companies suffer from low-quality document flow and as a result the insurer is not able to make the payment even when an insured event, which meets the policy conditions, occurs. Clients make errors when filling in the documents, or provide documents which are invalid or incomplete.
In some cases cargo owners do not obtain a policy and prefer to deal with a carrier that holds a master agreement for cargo insurance which also does not promote trust among contractors.
A situation may arise when an intermediary, in order to secure the lower rates of insurance, includes in the contract an additional franchise agreement and provisos, reduces the limits or excludes certain risks from the coverage. At the same time a cargo owner is rarely informed about these changes. As a result, disputes and conflicts arise when the losses are being settled. To avoid this, Mr Barkovsky recommends cargo owners demand full information about all changes to the master agreement.

Resume
The need to apply more civilised approaches in the sphere of cargo transportation insurance is obvious even to those cargo owners that have never entered into such legal relations. This is a worldwide practice, and the Russian market will ripen to this stage sooner or later, say the participants of the transportation process.
What is important is that insurance companies are eager to provide quality services, while cargo owners want to ensure the safety of their property. All we need is to solve the problems in the economy, slightly improve legislation and increase legal literacy. If all these conditions are adhered to, cultural evolution is inevitable. 
By Tatyana Svaytkina 
    [~DETAIL_TEXT] => 
Things are Getting Better
The insurance market is beginning to overcome the crisis. Alexander Koval, Head of the Federal Service for Insurance Supervision (FSIS), came to this conclusion while commenting on the official results of the performance in the area in the first half of 2010. According to FSIS, market volume has grown by 6% year-on-year. The total insurance premiums for all types of insurance was RUR 521 billion for the first six months which exceeds last year’s result by 16%. The total profits hit RUR 367.24 billion (+4.4%). 
However, this is an average temperature in a hospital. The insurance companies obtain most of their earnings from compulsory insurance. This area is not affected by the crisis because the law states it must be taken. So the question is whether the results above reflect the growth in cargo insurance as well. This type of voluntary insurance suffered substantially from the crisis. According to polls carried out by the National Agency for Financial Research, the number of Russian citizens who used insurance services reduced from 42% to 29% between October 2008 and June 2010. 
The market of freight transportation insurance decreased even more significantly. However this was not a surprise. The reasons for this are the decrease in the cargo flow itself and the reduction of their insurance coverage. Indeed, the first thing which the company abandons when facing a cash deficit is insurance. The insured event may not occur while the company has a real opportunity to save substantial assets and thus even large business enterprises prefer to run the risk. The volume of cargo insurance had reached RUR 22 billion before the crisis, whereas in 2009 it decreased to nearly RUR 16 billion. The average decrease was around 20% while in certain modes of transport it reached 50%. 
However even with this overpowering tendency there can be exceptions. For instance, Gefest insurance company showed a 50% growth in this particular area in 2009. 

Was There a Crisis?
However, even in the favourable conditions, when the Russian economy showed external signs of well-being, the share of insured cargo turnover amounted to 30-35%, according to the best-case scenario, and 10-12% in the worst case. For reference, the European market of cargo insurance covers 85-90%. Cargo transported via railways is the least insured with no more than 15%. For instance, the portfolio of the Centre for transport risks insurance in the North-West directorate of ROSNO consists mostly of road transportation. Then, in descending order, come sea, air and then railway transportation, with a 3% share in the total number of contracts. 
This tendency is supported by the figures provided by Innogarant insurance company, which show that, during the first nine months of 2010, the portfolio share of road transportations was 62%, air transportations 11%, inland water transportations 10%, sea transportations 9% and railway transportations 8%. Export and import transportations are the most advanced in terms of cargo insurance. International commerce terms do not allow transportations without insurance, thus in this sphere the share of insured transportations exceeds 70%. According to Gefest, only transit railway cargo, less-than-truckload freight and road transportations to Russia’s neighbours are still not insured.

Companies are Forced to take Risks
When cargo owners are asked why they run the risk, the first answer that occurs is that they try to avoid excessive expenses. The reason for this is not necessarily their poverty. Most of the entrepreneurs in Russia obviously got over this stage; however they are not ready to endure expenses which are a total waste in 90% of cases. Almost all experts attribute this attitude to a specific mentality and culture. For instance, Konstantine Barkovsky, Deputy CEO of Gefest, points out that Russian cargo owners and carriers neglect financial security measures because they are accustomed to maintaining their business relationships with the contactors on a personal level. 
Nevertheless he is convinced that the development of an insurance culture and improvement of legislation will encourage them to turn to insurance services as an important financial tool. Mr Barkovsky mentions that this will happen in the fairly distant future as it requires a significant change in the mentality of cargo owners and carriers.
However a waste of money is not the only reason. Cargo owners also complain about the over-bureaucratized procedure of getting insurance and indemnity in the case of an accident. ‘We finalize deals efficiently,’ says Oleg Bondarenko, Deputy CEO of Caucasian Mineral Waters Company. ‘We are ready to consolidate a consignment via telephone from our partner and send it the next day, but the insurance procedure takes a lot of time and energy,’ he adds.
Alexander Timoschenko, Head of the Directorate for organisation of railway transportation at TMK, also mentions a high time and energy input into insurance. ‘We issue insurance policy only for the multimodal export transportations, merely because our foreign partners state it in the terms of the agreement,’ says Mr Timoschenko.
Experts point out that besides other reasons insurance companies are still not fully trusted. Supposedly, when the entrepreneurs purchase insurance they protect themselves from unforeseen accidents, however when they occur, the insurance company does its best to minimize the benefits or even denies the claim. This opinion might have formed due to the fact that the legal departments of cargo owners lack competency. They are unable to foresee all the pitfalls of insurance contracts and fail to organise document flow properly. Kirill Trukhanov, Head of Arbitrary group of Vegas-Lex law firm, considers that with a more transparent procedure of claim denial there would be another stimulus for the development of insurance, including the sphere of cargo transportation.
During the crisis the number of claims grew significantly. Previously the company used to turn a blind eye to minor losses to avoid launching a complicated procedure. Afterwards they were forced to do the opposite. According to Vegas-Lex, in the first half of 2010 insurers took legal recourse 59.7% more often year-on-year. It is worth mentioning that in 85% of cases the court took the insurer’s side. 

Railways are Safer
Another reason why railway transportations fall behind in terms of insurance volumes sounds quite absurd. Cargo owners neglect insurance policy due to the high safety level of railway transportation. Anastasia Lukyanova, Deputy Director of the Centre for transport risks insurance in the North-West directorate of ROSNO, points out that railway transportation is not subject to substantial risks, because serious insurance events rarely occur here compared with other modes of transport. Thus most of the companies choose to neglect insurance policy for the reasons of economy. This point of view is supported in the transport department of TMK. 
The company transports its main product, large pipes, chiefly via railway. According to Mr Timoschenko, a well-functioning system of Russian railways minimizes the risks and thus insurance seems unnecessary. In the more than 10 years that TMK has been on the market, the company has not suffered any cargo loss or damage due to carrier fault; although minor flaws in insulation do occur. 
However even in those times when one fifth of the consignment was damaged on arrival, the company chose to settle this with a consignee due to the high possibility that the damage occurred during the loading and unloading process rather than transportation. 
Most companies refuse to insure the cargo transported via railway because they are convinced that they can make a complaint directly to the carrier. 
Insurance companies regard these implications as unsound. The law does impose the responsibility for cargo safety on a carrier. However it is not clear what should happen if no one is guilty of the damage, i.e. force majeure.
Ms Lukyanova is convinced that the number of insurance contracts is influenced by the types of cargo transported via railway, most of which is bulk cargo. This makes it difficult to estimate the damage and detect its causes. Moreover a substantial part of the market in this segment is occupied by captive insurance companies, which are established by large industrial and commercial enterprises to insure their own risks. Thus not all companies are able to work in the segment, explains Ms Lukyanova.
Vladislav Sedov, Director of the Centre for cargo and insurance of Innogarant, also refers to the dominant position of captive companies such as ZhASO. ‘Certain types of insurance ZhASO presents as if they were almost obligatory,’ says Mr Sedov. ‘The fact that some RZD subsidiaries do not accept consignments without an insurance policy is confirmed by cargo owners. However with all this the insurance volumes of the railway insurer do not differ from those in the wider industry,’ Mr Sedov points out. In his opinion, two types of cargo owners choose to insure their goods – novices and experienced ones, who has already suffered serious losses. 
The policy price also plays a significant role when a company makes a decision whether to insure its cargo or not. Mr Barkovsky explains that since the railways are primarily used for long-distance deliveries, which often require reloading and handling of cargo en route, the potential risks of damage increase and thus influence the price of insurance.
However, several types of companies, including producers and distributors of high-tech products, have solved the dilemma ‘insure or risk’ unambiguously. Computers, medical equipment and cars are easily damaged and the potential loss incommensurably exceeds the policy price. Moreover these types of cargo, as well as cosmetics, shoes and alcohol, are very attractive for criminal groups. Gefest insurance company admits that thefts occur rather often. For instance, consignments with cosmetics and cheese have disappeared twice. 
Both times the course of events was similar. Contractor’s driver arrived at the storehouse, took the consignment using forged documents and escaped. Police failed to find both the cargo and the driver. ‘Another incident has recently occurred which shows that thefts are becoming more sophisticated’, tells Mr Barkovsky. ‘A consignment of children’s shoes was transported from Moscow to Riga. Unidentified persons broke into the Krone’s semi-trailer, cut the wire rope and stole a part of the consignment, throwing it out on the road. The compensation for this insurance event was RUR 700,000. Unfortunately, such cases are not becoming any rarer,’ the expert admits.
Innogarant have to deal with criminal cases as well. For example, a trailer loaded with pork half carcasses worth of RUR 3 million was stolen outside Moscow, then a truck with consumer electronics worth USD 60,000 disappeared in Poland. This is not a full list,’ says Mr Sedov. 
Thus high-tech products, consumer goods and food are usually insured. For instance, for AvtoVAZ it is a routine practice with an elaborated procedure. Automobile giants choose an insurer annually based on the insurance company’s economic performance as well as the quality parameters, including its experience and service opportunities in terms of losses coverage.

What Prevents Development?
Even with resistance from the client companies, the cargo insurance market has been growing steadily. It has been growing by 5% or 10% a year according to different estimates. Today insurers are talking about the recovery after a two-year hiatus. The data, provided by FSIS, show that insurance premiums for cargo transportation approximated RUR 8.5 billion during the first half of 2010, which is a growth of 20% year-on-year. ROSNO analytics talk about 10-15% growth during the first nine months of 2010 year-on-year. Gefest is more moderate in its estimations. Mr Barkovsky predicts a 5% growth. 
‘The basis for this positive tendency is a general revival of the Russian economy and, in particular, the growth in imports and exports,’ says Ms Lukyanova. ‘Starting from spring, 2010 we can speak of a slow but tangible recovery in this market segment. However, in the current situation it would be hasty to claim that the cargo insurance market has returned to its pre-crisis level,’ she adds.
Experts are convinced that the state could facilitate higher rates of development of the insurance market in cargo transportation. ‘The market of cargo insurance is strongly influenced by the supply base, used in foreign trade turnover. Either seller or buyer makes a choice between a foreign and Russian insurer depending on certain conditions. If the export of domestic products were insured by Russian companies, insurance volumes would increase dramatically,’ says Mr Barkovsky. ‘At present, traders choose to insure the exported goods using foreign companies.’
Meanwhile, it is not only the financial aspects that impede the development of the cargo insurance market. The main problem, as Ms Lukyanova suggests, is the desire of insurance companies to indulge in dumping. However, all parties understand that fraud and robberies occur often throughout the transportation process. These usually lead to a complete loss of the cargo and serious insurance payouts. If a company, in an effort to attract customers, offers unreasonably low rates, a potential insurer may face serious problems.
Insurance companies are convinced that a lot of cargo owners and freight forwarding companies suffer from low-quality document flow and as a result the insurer is not able to make the payment even when an insured event, which meets the policy conditions, occurs. Clients make errors when filling in the documents, or provide documents which are invalid or incomplete.
In some cases cargo owners do not obtain a policy and prefer to deal with a carrier that holds a master agreement for cargo insurance which also does not promote trust among contractors.
A situation may arise when an intermediary, in order to secure the lower rates of insurance, includes in the contract an additional franchise agreement and provisos, reduces the limits or excludes certain risks from the coverage. At the same time a cargo owner is rarely informed about these changes. As a result, disputes and conflicts arise when the losses are being settled. To avoid this, Mr Barkovsky recommends cargo owners demand full information about all changes to the master agreement.

Resume
The need to apply more civilised approaches in the sphere of cargo transportation insurance is obvious even to those cargo owners that have never entered into such legal relations. This is a worldwide practice, and the Russian market will ripen to this stage sooner or later, say the participants of the transportation process.
What is important is that insurance companies are eager to provide quality services, while cargo owners want to ensure the safety of their property. All we need is to solve the problems in the economy, slightly improve legislation and increase legal literacy. If all these conditions are adhered to, cultural evolution is inevitable. 
By Tatyana Svaytkina 
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If the mercury goes up, this means that the crisis is over and we can talk about recovery.
    [~PREVIEW_TEXT] => Volumes of insurance of cargo transportation, as well as the share of voluntary insurance on the market, indicate the state of health of Russia’s economy. It is like the temperature of the patient, only vice-versa. If the volumes go down, it means that the economy is sick and requires treatment.
If the mercury goes up, this means that the crisis is over and we can talk about recovery.
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Things are Getting Better
The insurance market is beginning to overcome the crisis. Alexander Koval, Head of the Federal Service for Insurance Supervision (FSIS), came to this conclusion while commenting on the official results of the performance in the area in the first half of 2010. According to FSIS, market volume has grown by 6% year-on-year. The total insurance premiums for all types of insurance was RUR 521 billion for the first six months which exceeds last year’s result by 16%. The total profits hit RUR 367.24 billion (+4.4%). 
However, this is an average temperature in a hospital. The insurance companies obtain most of their earnings from compulsory insurance. This area is not affected by the crisis because the law states it must be taken. So the question is whether the results above reflect the growth in cargo insurance as well. This type of voluntary insurance suffered substantially from the crisis. According to polls carried out by the National Agency for Financial Research, the number of Russian citizens who used insurance services reduced from 42% to 29% between October 2008 and June 2010. 
The market of freight transportation insurance decreased even more significantly. However this was not a surprise. The reasons for this are the decrease in the cargo flow itself and the reduction of their insurance coverage. Indeed, the first thing which the company abandons when facing a cash deficit is insurance. The insured event may not occur while the company has a real opportunity to save substantial assets and thus even large business enterprises prefer to run the risk. The volume of cargo insurance had reached RUR 22 billion before the crisis, whereas in 2009 it decreased to nearly RUR 16 billion. The average decrease was around 20% while in certain modes of transport it reached 50%. 
However even with this overpowering tendency there can be exceptions. For instance, Gefest insurance company showed a 50% growth in this particular area in 2009. 

Was There a Crisis?
However, even in the favourable conditions, when the Russian economy showed external signs of well-being, the share of insured cargo turnover amounted to 30-35%, according to the best-case scenario, and 10-12% in the worst case. For reference, the European market of cargo insurance covers 85-90%. Cargo transported via railways is the least insured with no more than 15%. For instance, the portfolio of the Centre for transport risks insurance in the North-West directorate of ROSNO consists mostly of road transportation. Then, in descending order, come sea, air and then railway transportation, with a 3% share in the total number of contracts. 
This tendency is supported by the figures provided by Innogarant insurance company, which show that, during the first nine months of 2010, the portfolio share of road transportations was 62%, air transportations 11%, inland water transportations 10%, sea transportations 9% and railway transportations 8%. Export and import transportations are the most advanced in terms of cargo insurance. International commerce terms do not allow transportations without insurance, thus in this sphere the share of insured transportations exceeds 70%. According to Gefest, only transit railway cargo, less-than-truckload freight and road transportations to Russia’s neighbours are still not insured.

Companies are Forced to take Risks
When cargo owners are asked why they run the risk, the first answer that occurs is that they try to avoid excessive expenses. The reason for this is not necessarily their poverty. Most of the entrepreneurs in Russia obviously got over this stage; however they are not ready to endure expenses which are a total waste in 90% of cases. Almost all experts attribute this attitude to a specific mentality and culture. For instance, Konstantine Barkovsky, Deputy CEO of Gefest, points out that Russian cargo owners and carriers neglect financial security measures because they are accustomed to maintaining their business relationships with the contactors on a personal level. 
Nevertheless he is convinced that the development of an insurance culture and improvement of legislation will encourage them to turn to insurance services as an important financial tool. Mr Barkovsky mentions that this will happen in the fairly distant future as it requires a significant change in the mentality of cargo owners and carriers.
However a waste of money is not the only reason. Cargo owners also complain about the over-bureaucratized procedure of getting insurance and indemnity in the case of an accident. ‘We finalize deals efficiently,’ says Oleg Bondarenko, Deputy CEO of Caucasian Mineral Waters Company. ‘We are ready to consolidate a consignment via telephone from our partner and send it the next day, but the insurance procedure takes a lot of time and energy,’ he adds.
Alexander Timoschenko, Head of the Directorate for organisation of railway transportation at TMK, also mentions a high time and energy input into insurance. ‘We issue insurance policy only for the multimodal export transportations, merely because our foreign partners state it in the terms of the agreement,’ says Mr Timoschenko.
Experts point out that besides other reasons insurance companies are still not fully trusted. Supposedly, when the entrepreneurs purchase insurance they protect themselves from unforeseen accidents, however when they occur, the insurance company does its best to minimize the benefits or even denies the claim. This opinion might have formed due to the fact that the legal departments of cargo owners lack competency. They are unable to foresee all the pitfalls of insurance contracts and fail to organise document flow properly. Kirill Trukhanov, Head of Arbitrary group of Vegas-Lex law firm, considers that with a more transparent procedure of claim denial there would be another stimulus for the development of insurance, including the sphere of cargo transportation.
During the crisis the number of claims grew significantly. Previously the company used to turn a blind eye to minor losses to avoid launching a complicated procedure. Afterwards they were forced to do the opposite. According to Vegas-Lex, in the first half of 2010 insurers took legal recourse 59.7% more often year-on-year. It is worth mentioning that in 85% of cases the court took the insurer’s side. 

Railways are Safer
Another reason why railway transportations fall behind in terms of insurance volumes sounds quite absurd. Cargo owners neglect insurance policy due to the high safety level of railway transportation. Anastasia Lukyanova, Deputy Director of the Centre for transport risks insurance in the North-West directorate of ROSNO, points out that railway transportation is not subject to substantial risks, because serious insurance events rarely occur here compared with other modes of transport. Thus most of the companies choose to neglect insurance policy for the reasons of economy. This point of view is supported in the transport department of TMK. 
The company transports its main product, large pipes, chiefly via railway. According to Mr Timoschenko, a well-functioning system of Russian railways minimizes the risks and thus insurance seems unnecessary. In the more than 10 years that TMK has been on the market, the company has not suffered any cargo loss or damage due to carrier fault; although minor flaws in insulation do occur. 
However even in those times when one fifth of the consignment was damaged on arrival, the company chose to settle this with a consignee due to the high possibility that the damage occurred during the loading and unloading process rather than transportation. 
Most companies refuse to insure the cargo transported via railway because they are convinced that they can make a complaint directly to the carrier. 
Insurance companies regard these implications as unsound. The law does impose the responsibility for cargo safety on a carrier. However it is not clear what should happen if no one is guilty of the damage, i.e. force majeure.
Ms Lukyanova is convinced that the number of insurance contracts is influenced by the types of cargo transported via railway, most of which is bulk cargo. This makes it difficult to estimate the damage and detect its causes. Moreover a substantial part of the market in this segment is occupied by captive insurance companies, which are established by large industrial and commercial enterprises to insure their own risks. Thus not all companies are able to work in the segment, explains Ms Lukyanova.
Vladislav Sedov, Director of the Centre for cargo and insurance of Innogarant, also refers to the dominant position of captive companies such as ZhASO. ‘Certain types of insurance ZhASO presents as if they were almost obligatory,’ says Mr Sedov. ‘The fact that some RZD subsidiaries do not accept consignments without an insurance policy is confirmed by cargo owners. However with all this the insurance volumes of the railway insurer do not differ from those in the wider industry,’ Mr Sedov points out. In his opinion, two types of cargo owners choose to insure their goods – novices and experienced ones, who has already suffered serious losses. 
The policy price also plays a significant role when a company makes a decision whether to insure its cargo or not. Mr Barkovsky explains that since the railways are primarily used for long-distance deliveries, which often require reloading and handling of cargo en route, the potential risks of damage increase and thus influence the price of insurance.
However, several types of companies, including producers and distributors of high-tech products, have solved the dilemma ‘insure or risk’ unambiguously. Computers, medical equipment and cars are easily damaged and the potential loss incommensurably exceeds the policy price. Moreover these types of cargo, as well as cosmetics, shoes and alcohol, are very attractive for criminal groups. Gefest insurance company admits that thefts occur rather often. For instance, consignments with cosmetics and cheese have disappeared twice. 
Both times the course of events was similar. Contractor’s driver arrived at the storehouse, took the consignment using forged documents and escaped. Police failed to find both the cargo and the driver. ‘Another incident has recently occurred which shows that thefts are becoming more sophisticated’, tells Mr Barkovsky. ‘A consignment of children’s shoes was transported from Moscow to Riga. Unidentified persons broke into the Krone’s semi-trailer, cut the wire rope and stole a part of the consignment, throwing it out on the road. The compensation for this insurance event was RUR 700,000. Unfortunately, such cases are not becoming any rarer,’ the expert admits.
Innogarant have to deal with criminal cases as well. For example, a trailer loaded with pork half carcasses worth of RUR 3 million was stolen outside Moscow, then a truck with consumer electronics worth USD 60,000 disappeared in Poland. This is not a full list,’ says Mr Sedov. 
Thus high-tech products, consumer goods and food are usually insured. For instance, for AvtoVAZ it is a routine practice with an elaborated procedure. Automobile giants choose an insurer annually based on the insurance company’s economic performance as well as the quality parameters, including its experience and service opportunities in terms of losses coverage.

What Prevents Development?
Even with resistance from the client companies, the cargo insurance market has been growing steadily. It has been growing by 5% or 10% a year according to different estimates. Today insurers are talking about the recovery after a two-year hiatus. The data, provided by FSIS, show that insurance premiums for cargo transportation approximated RUR 8.5 billion during the first half of 2010, which is a growth of 20% year-on-year. ROSNO analytics talk about 10-15% growth during the first nine months of 2010 year-on-year. Gefest is more moderate in its estimations. Mr Barkovsky predicts a 5% growth. 
‘The basis for this positive tendency is a general revival of the Russian economy and, in particular, the growth in imports and exports,’ says Ms Lukyanova. ‘Starting from spring, 2010 we can speak of a slow but tangible recovery in this market segment. However, in the current situation it would be hasty to claim that the cargo insurance market has returned to its pre-crisis level,’ she adds.
Experts are convinced that the state could facilitate higher rates of development of the insurance market in cargo transportation. ‘The market of cargo insurance is strongly influenced by the supply base, used in foreign trade turnover. Either seller or buyer makes a choice between a foreign and Russian insurer depending on certain conditions. If the export of domestic products were insured by Russian companies, insurance volumes would increase dramatically,’ says Mr Barkovsky. ‘At present, traders choose to insure the exported goods using foreign companies.’
Meanwhile, it is not only the financial aspects that impede the development of the cargo insurance market. The main problem, as Ms Lukyanova suggests, is the desire of insurance companies to indulge in dumping. However, all parties understand that fraud and robberies occur often throughout the transportation process. These usually lead to a complete loss of the cargo and serious insurance payouts. If a company, in an effort to attract customers, offers unreasonably low rates, a potential insurer may face serious problems.
Insurance companies are convinced that a lot of cargo owners and freight forwarding companies suffer from low-quality document flow and as a result the insurer is not able to make the payment even when an insured event, which meets the policy conditions, occurs. Clients make errors when filling in the documents, or provide documents which are invalid or incomplete.
In some cases cargo owners do not obtain a policy and prefer to deal with a carrier that holds a master agreement for cargo insurance which also does not promote trust among contractors.
A situation may arise when an intermediary, in order to secure the lower rates of insurance, includes in the contract an additional franchise agreement and provisos, reduces the limits or excludes certain risks from the coverage. At the same time a cargo owner is rarely informed about these changes. As a result, disputes and conflicts arise when the losses are being settled. To avoid this, Mr Barkovsky recommends cargo owners demand full information about all changes to the master agreement.

Resume
The need to apply more civilised approaches in the sphere of cargo transportation insurance is obvious even to those cargo owners that have never entered into such legal relations. This is a worldwide practice, and the Russian market will ripen to this stage sooner or later, say the participants of the transportation process.
What is important is that insurance companies are eager to provide quality services, while cargo owners want to ensure the safety of their property. All we need is to solve the problems in the economy, slightly improve legislation and increase legal literacy. If all these conditions are adhered to, cultural evolution is inevitable. 
By Tatyana Svaytkina 
    [~DETAIL_TEXT] => 
Things are Getting Better
The insurance market is beginning to overcome the crisis. Alexander Koval, Head of the Federal Service for Insurance Supervision (FSIS), came to this conclusion while commenting on the official results of the performance in the area in the first half of 2010. According to FSIS, market volume has grown by 6% year-on-year. The total insurance premiums for all types of insurance was RUR 521 billion for the first six months which exceeds last year’s result by 16%. The total profits hit RUR 367.24 billion (+4.4%). 
However, this is an average temperature in a hospital. The insurance companies obtain most of their earnings from compulsory insurance. This area is not affected by the crisis because the law states it must be taken. So the question is whether the results above reflect the growth in cargo insurance as well. This type of voluntary insurance suffered substantially from the crisis. According to polls carried out by the National Agency for Financial Research, the number of Russian citizens who used insurance services reduced from 42% to 29% between October 2008 and June 2010. 
The market of freight transportation insurance decreased even more significantly. However this was not a surprise. The reasons for this are the decrease in the cargo flow itself and the reduction of their insurance coverage. Indeed, the first thing which the company abandons when facing a cash deficit is insurance. The insured event may not occur while the company has a real opportunity to save substantial assets and thus even large business enterprises prefer to run the risk. The volume of cargo insurance had reached RUR 22 billion before the crisis, whereas in 2009 it decreased to nearly RUR 16 billion. The average decrease was around 20% while in certain modes of transport it reached 50%. 
However even with this overpowering tendency there can be exceptions. For instance, Gefest insurance company showed a 50% growth in this particular area in 2009. 

Was There a Crisis?
However, even in the favourable conditions, when the Russian economy showed external signs of well-being, the share of insured cargo turnover amounted to 30-35%, according to the best-case scenario, and 10-12% in the worst case. For reference, the European market of cargo insurance covers 85-90%. Cargo transported via railways is the least insured with no more than 15%. For instance, the portfolio of the Centre for transport risks insurance in the North-West directorate of ROSNO consists mostly of road transportation. Then, in descending order, come sea, air and then railway transportation, with a 3% share in the total number of contracts. 
This tendency is supported by the figures provided by Innogarant insurance company, which show that, during the first nine months of 2010, the portfolio share of road transportations was 62%, air transportations 11%, inland water transportations 10%, sea transportations 9% and railway transportations 8%. Export and import transportations are the most advanced in terms of cargo insurance. International commerce terms do not allow transportations without insurance, thus in this sphere the share of insured transportations exceeds 70%. According to Gefest, only transit railway cargo, less-than-truckload freight and road transportations to Russia’s neighbours are still not insured.

Companies are Forced to take Risks
When cargo owners are asked why they run the risk, the first answer that occurs is that they try to avoid excessive expenses. The reason for this is not necessarily their poverty. Most of the entrepreneurs in Russia obviously got over this stage; however they are not ready to endure expenses which are a total waste in 90% of cases. Almost all experts attribute this attitude to a specific mentality and culture. For instance, Konstantine Barkovsky, Deputy CEO of Gefest, points out that Russian cargo owners and carriers neglect financial security measures because they are accustomed to maintaining their business relationships with the contactors on a personal level. 
Nevertheless he is convinced that the development of an insurance culture and improvement of legislation will encourage them to turn to insurance services as an important financial tool. Mr Barkovsky mentions that this will happen in the fairly distant future as it requires a significant change in the mentality of cargo owners and carriers.
However a waste of money is not the only reason. Cargo owners also complain about the over-bureaucratized procedure of getting insurance and indemnity in the case of an accident. ‘We finalize deals efficiently,’ says Oleg Bondarenko, Deputy CEO of Caucasian Mineral Waters Company. ‘We are ready to consolidate a consignment via telephone from our partner and send it the next day, but the insurance procedure takes a lot of time and energy,’ he adds.
Alexander Timoschenko, Head of the Directorate for organisation of railway transportation at TMK, also mentions a high time and energy input into insurance. ‘We issue insurance policy only for the multimodal export transportations, merely because our foreign partners state it in the terms of the agreement,’ says Mr Timoschenko.
Experts point out that besides other reasons insurance companies are still not fully trusted. Supposedly, when the entrepreneurs purchase insurance they protect themselves from unforeseen accidents, however when they occur, the insurance company does its best to minimize the benefits or even denies the claim. This opinion might have formed due to the fact that the legal departments of cargo owners lack competency. They are unable to foresee all the pitfalls of insurance contracts and fail to organise document flow properly. Kirill Trukhanov, Head of Arbitrary group of Vegas-Lex law firm, considers that with a more transparent procedure of claim denial there would be another stimulus for the development of insurance, including the sphere of cargo transportation.
During the crisis the number of claims grew significantly. Previously the company used to turn a blind eye to minor losses to avoid launching a complicated procedure. Afterwards they were forced to do the opposite. According to Vegas-Lex, in the first half of 2010 insurers took legal recourse 59.7% more often year-on-year. It is worth mentioning that in 85% of cases the court took the insurer’s side. 

Railways are Safer
Another reason why railway transportations fall behind in terms of insurance volumes sounds quite absurd. Cargo owners neglect insurance policy due to the high safety level of railway transportation. Anastasia Lukyanova, Deputy Director of the Centre for transport risks insurance in the North-West directorate of ROSNO, points out that railway transportation is not subject to substantial risks, because serious insurance events rarely occur here compared with other modes of transport. Thus most of the companies choose to neglect insurance policy for the reasons of economy. This point of view is supported in the transport department of TMK. 
The company transports its main product, large pipes, chiefly via railway. According to Mr Timoschenko, a well-functioning system of Russian railways minimizes the risks and thus insurance seems unnecessary. In the more than 10 years that TMK has been on the market, the company has not suffered any cargo loss or damage due to carrier fault; although minor flaws in insulation do occur. 
However even in those times when one fifth of the consignment was damaged on arrival, the company chose to settle this with a consignee due to the high possibility that the damage occurred during the loading and unloading process rather than transportation. 
Most companies refuse to insure the cargo transported via railway because they are convinced that they can make a complaint directly to the carrier. 
Insurance companies regard these implications as unsound. The law does impose the responsibility for cargo safety on a carrier. However it is not clear what should happen if no one is guilty of the damage, i.e. force majeure.
Ms Lukyanova is convinced that the number of insurance contracts is influenced by the types of cargo transported via railway, most of which is bulk cargo. This makes it difficult to estimate the damage and detect its causes. Moreover a substantial part of the market in this segment is occupied by captive insurance companies, which are established by large industrial and commercial enterprises to insure their own risks. Thus not all companies are able to work in the segment, explains Ms Lukyanova.
Vladislav Sedov, Director of the Centre for cargo and insurance of Innogarant, also refers to the dominant position of captive companies such as ZhASO. ‘Certain types of insurance ZhASO presents as if they were almost obligatory,’ says Mr Sedov. ‘The fact that some RZD subsidiaries do not accept consignments without an insurance policy is confirmed by cargo owners. However with all this the insurance volumes of the railway insurer do not differ from those in the wider industry,’ Mr Sedov points out. In his opinion, two types of cargo owners choose to insure their goods – novices and experienced ones, who has already suffered serious losses. 
The policy price also plays a significant role when a company makes a decision whether to insure its cargo or not. Mr Barkovsky explains that since the railways are primarily used for long-distance deliveries, which often require reloading and handling of cargo en route, the potential risks of damage increase and thus influence the price of insurance.
However, several types of companies, including producers and distributors of high-tech products, have solved the dilemma ‘insure or risk’ unambiguously. Computers, medical equipment and cars are easily damaged and the potential loss incommensurably exceeds the policy price. Moreover these types of cargo, as well as cosmetics, shoes and alcohol, are very attractive for criminal groups. Gefest insurance company admits that thefts occur rather often. For instance, consignments with cosmetics and cheese have disappeared twice. 
Both times the course of events was similar. Contractor’s driver arrived at the storehouse, took the consignment using forged documents and escaped. Police failed to find both the cargo and the driver. ‘Another incident has recently occurred which shows that thefts are becoming more sophisticated’, tells Mr Barkovsky. ‘A consignment of children’s shoes was transported from Moscow to Riga. Unidentified persons broke into the Krone’s semi-trailer, cut the wire rope and stole a part of the consignment, throwing it out on the road. The compensation for this insurance event was RUR 700,000. Unfortunately, such cases are not becoming any rarer,’ the expert admits.
Innogarant have to deal with criminal cases as well. For example, a trailer loaded with pork half carcasses worth of RUR 3 million was stolen outside Moscow, then a truck with consumer electronics worth USD 60,000 disappeared in Poland. This is not a full list,’ says Mr Sedov. 
Thus high-tech products, consumer goods and food are usually insured. For instance, for AvtoVAZ it is a routine practice with an elaborated procedure. Automobile giants choose an insurer annually based on the insurance company’s economic performance as well as the quality parameters, including its experience and service opportunities in terms of losses coverage.

What Prevents Development?
Even with resistance from the client companies, the cargo insurance market has been growing steadily. It has been growing by 5% or 10% a year according to different estimates. Today insurers are talking about the recovery after a two-year hiatus. The data, provided by FSIS, show that insurance premiums for cargo transportation approximated RUR 8.5 billion during the first half of 2010, which is a growth of 20% year-on-year. ROSNO analytics talk about 10-15% growth during the first nine months of 2010 year-on-year. Gefest is more moderate in its estimations. Mr Barkovsky predicts a 5% growth. 
‘The basis for this positive tendency is a general revival of the Russian economy and, in particular, the growth in imports and exports,’ says Ms Lukyanova. ‘Starting from spring, 2010 we can speak of a slow but tangible recovery in this market segment. However, in the current situation it would be hasty to claim that the cargo insurance market has returned to its pre-crisis level,’ she adds.
Experts are convinced that the state could facilitate higher rates of development of the insurance market in cargo transportation. ‘The market of cargo insurance is strongly influenced by the supply base, used in foreign trade turnover. Either seller or buyer makes a choice between a foreign and Russian insurer depending on certain conditions. If the export of domestic products were insured by Russian companies, insurance volumes would increase dramatically,’ says Mr Barkovsky. ‘At present, traders choose to insure the exported goods using foreign companies.’
Meanwhile, it is not only the financial aspects that impede the development of the cargo insurance market. The main problem, as Ms Lukyanova suggests, is the desire of insurance companies to indulge in dumping. However, all parties understand that fraud and robberies occur often throughout the transportation process. These usually lead to a complete loss of the cargo and serious insurance payouts. If a company, in an effort to attract customers, offers unreasonably low rates, a potential insurer may face serious problems.
Insurance companies are convinced that a lot of cargo owners and freight forwarding companies suffer from low-quality document flow and as a result the insurer is not able to make the payment even when an insured event, which meets the policy conditions, occurs. Clients make errors when filling in the documents, or provide documents which are invalid or incomplete.
In some cases cargo owners do not obtain a policy and prefer to deal with a carrier that holds a master agreement for cargo insurance which also does not promote trust among contractors.
A situation may arise when an intermediary, in order to secure the lower rates of insurance, includes in the contract an additional franchise agreement and provisos, reduces the limits or excludes certain risks from the coverage. At the same time a cargo owner is rarely informed about these changes. As a result, disputes and conflicts arise when the losses are being settled. To avoid this, Mr Barkovsky recommends cargo owners demand full information about all changes to the master agreement.

Resume
The need to apply more civilised approaches in the sphere of cargo transportation insurance is obvious even to those cargo owners that have never entered into such legal relations. This is a worldwide practice, and the Russian market will ripen to this stage sooner or later, say the participants of the transportation process.
What is important is that insurance companies are eager to provide quality services, while cargo owners want to ensure the safety of their property. All we need is to solve the problems in the economy, slightly improve legislation and increase legal literacy. If all these conditions are adhered to, cultural evolution is inevitable. 
By Tatyana Svaytkina 
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If the mercury goes up, this means that the crisis is over and we can talk about recovery.
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If the mercury goes up, this means that the crisis is over and we can talk about recovery.
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    [DETAIL_TEXT] => 
The Crisis Has Been Overcome
According to the results of 2010, the RF wagon-building sector saw an unprecedented rise. The number of rolling stock produced last year exceeded even that of 2008. Almost 44,000 cargo railcars of all types were made in the pre-crisis 2008 (according to the data of IA INFOLine), and 49,800 wagons were produced in 2010. Meanwhile, in 2009, Russian wagon builders produced half as much machinery as in 2008 – just 24,400 units. Last year, almost all Russian railcar building companies doubled their production volume in comparison with 2009, and some of them exceeded that of 2008. 
There is a similar situation at plants in Ukraine and the CIS. Ukrainian enterprises produced 38,300 railcars in 2010, while the figure was 12,800 units in 2009. In particular, Azovmash made 12,300 wagons, more than twice as much as in 2009, or 3,000 units more than in 2008. Kryukovsky Wagon Building Plant increased its production volume three-fold in comparison with 2009. Stakhanovsky Wagon Building Plant had a 4.5-fold growth, and Dneprvagonmash – a five-fold increase.
The record results in the wagon-building sector in the CIS in 2010 were forecasted by experts in the middle of the year. ‘Already in July it had become obvious that the output of the sector would double and amount to 80,000 – 100,000 cargo wagons. In the first half of 2010, the growth rate of this machinery increased fast, and it happened in comparison with the 2009 results, when the production volume fell by more than 40%, as well as the 2008 results. In the first six months of 2008 (before the crisis), approximately 38,000 railcars were made, in the same period in 2009 (the time of the most serious decline) the CIS wagon builders produced not more than 6,000 railcars. But in the first half of 2010, the sector produced 40,000 wagons. As a result, all wagon-building enterprises in the CIS produced 89,900 railcars of all types.
However, the market needs many more wagons, especially if we take into account the deterioration of the park and the further growth of cargo transportation forecasted by RZD,’ said Maxim Kuzemchenko, Director of Tikhvin Wagon Building Plant Trading House, at the time.
The boom in demand for wagons may to some degree be explained by the sector’s recovery after the crisis. ‘In 2009, operators practically did not buy any wagons, having significantly cut their investment programmes. Consequently, in 2010 they fulfilled their two-year needs,’ comment on the situation specialists at Freight One. The demand for gondola cars after the crisis was so high that operators faced difficulties when giving their orders to wagon building enterprises. In the words of top managers at Metalinvesttrans, ‘last year, gondola cars were distributed among clients long before their production was completed.’

A Logical Rise
It is worth noting that prices for rolling stock changed significantly in this period. In July – August 2008, a gondola car cost RUR 2.5 million, in October of the same year the price dropped to RUR 2 million, and in the first half of 2009 the average price in this segment was RUR 1.1-1.2 million. Some operators considered it the reason for concluding a number of contracts on rolling stock supply, which helped the sector to survive. In particular, the production volume of such enterprises as Uralvagon and Altaivagon increased several times over after October 2009. There was a similar situation at the Ukrainian wagon-building plants.
Meanwhile, at the beginning of 2010, prices started to grow and those for some types of rolling stock had already reached pre-crisis levels in June. The reason for the increase in prices was the influence of metallurgical companies on the wagon-building sector. A lot of them managed to get preferential loans from the state during the crisis. Unlike machine-building enterprises, only 75-80% of their capacities were used. 
Thus, the pre-crisis shortage of heavy wagon casting became even worse. Simultaneously, in early 2010, metallurgical holding companies began to raise prices for rolled metal, and the increase reached 20-30% in May. It caused growth in the cost of components. And they make up the lion’s share of the wagon’s final cost – not less than 84-86%.
No wonder prices for rolling stock started to grow again. ‘The cost of new gondola cars has increased by 60% since the beginning of the year. Now, it has reached a record level – RUR 2.1 million,’ say specialists at Freight One. Their colleagues from Metalinvesttrans (MIT) agree. ‘Last year, prices for railway rolling stock grew very fast, the cost of a new gondola car in 2010 increased by 62% from RUR 1.3 million to RUR 2.1 million (regardless of the VAT)’, says Alexey Tyufaev, Head of Logistic and Planning Department at the MIT.
Operators also think that the basic reasons for the growth in prices for the production of the wagon building sector were objective factors, not just the wishes of machine-building enterprises to compensate for the profit lost during the crisis. 
‘The major factor influencing the prices for gondola cars is the cost of heavy wagon casting, i.e. solebars and bolsters. For example, in January 2010, heavy wagon casting necessary for production of one railcar cost approximately RUR 135,000, and in January 2011 – RUR 540,000. People say in such cases, ‘no comment’ – the cost of the casting grew four-fold during the year,’ emphasises Mr Tyufaev. In his words, there were two major drivers for a gondola car cost increases last year. ‘From the market viewpoint, it is the balance of demand and supply, i.e. the high demand for gondola cars across the 1520 area. 
From the rolling stock cost price viewpoint, it is the price of the heavy wagon casting,’ he concludes. Specialists at Freight One share his opinion, ‘Partly, one of the reasons was the shortage of heavy wagon casting, the demand for which exceeds producers’ capacities three-fold.’ Casting is needed for new wagon manufacturing as well as for scheduled repair. After 50,000 wagons from the public park were moved to the market, it became very popular.

Pushing rates upwards
The last increase in the prices for rolling stock was ahead of the most pessimistic forecasts, and step by step, wagon profitability is turning to zero. ‘Nobody doubts that the transportation price must be a market-based one. However, at the end of 2010, wagon profitability was behind the rates of rolling stock cost growth,’ considers Nikolay Koshelev, Director of Wagon Economy Department at firm Transgarant. 
Mr Tyufaev shares his opinion. ‘Sector experts and research institutes have often spoken about the trend of the decline in a gondola car’s efficiency, i.e. amid the increase in the number of wagons in the country, the loading volume and throughput reduce in comparison with the pre-crisis 2006 - 2007 years and 2008. Thus, in 2006 and in 2007, a smaller park serviced a larger railway transportation volume, but the shortage of gondola cars has not disappeared in 2010-2011,’ he emphasises.
According to information from companies, in the first quarter of 2011, demand for new gondola cars has exceeded supply. Consequently, manufacturers’ prices continue to increase, and this pushes operators’ rates upwards. As a result, the rental rates on a gondola car have grown since the beginning of the year. ‘Nowadays, the average cost of a gondola car rent is RUR 1,500-1,600,’ says Dmitry Nikolaev, Head of Transportation Department at 3P. On average, this figure has increased by RUR 400 since December 2010.
The deficit was brought about to some degree by artificial reasons. Another important factor stimulating the demand for universal rolling stock and allowing wagon producers to change prices is the ageing of the railcar park. ‘In the last two years, only the tank wagon park has been rejuvenated, since Freight One and other railcar owners purchased new wagons. 
The gondola car park needs significant renewal,’ believe specialists at Freight One. Despite the active manufacturing of gondola cars, the existing wagon-building capacities are not enough to compensate for the shortage of this type of rolling stock, caused by deterioration of the inventory park and the abrupt decline in wagon manufacturing in 2009. ‘More and more wagons are falling out of use, and railcar-building enterprises are failing to produce enough rolling stock even if 100% of their producing capacities are loaded,’ he believes. 
According to the data of RZD, almost half of the present-day gondola car park was to be written off in 2010, i.e. about 200,000 units. Naturally, some of them belong to the CIS and the Baltic states, but the number itself makes everyone believe in the problem of a universal rolling stock deficit. 

Role of Regulators
Operators forecast that the market in the gondola cars sector must level off this year. ‘It will happen once new wagons are put into operation, and then the worn-out park will be disposed of without difficulty,’ considers Dmitry Nikolaev, Head of Transportation Department at 3P. Specialists at Brunswick Rail say that it is too early to speak about balance in this segment. 
‘The growth in prices for gondola cars continues in 2011, so we cannot speak about balance yet – the demand exceeds the supply until now. And this will continue until either additional casting capacities are put into operation or the market is opened for the global import of railway casting. The second important factor is making wagons work more efficiently by forming new route structure, something that was damaged during the process of transferring the public park to RZD’s daughter companies,’ assures Andrey Tsyganov, Lead Analyst at Brunswick Rail. 
According to analysts, in 2011 operators and leasing companies will purchase about 60,000 railcars, which will allow an equitable volume of the worn-out park to be written off. The question is whether it will help solve the problem of rolling stock shortage if no measures are taken to regulate and optimise the empty run. 
By Maria Shevchenko

viewpoint
Mikhail Burmistrov,
CEO of INFOLine-Analytics:
– In 2006-2010, Russian rolling stock owners and RZD purchased over 150,000 gondola cars. Of that, 34.2% was bought by RZD (in the fourth quarter of 2010 most of the gondola cars purchased in the last five years were given to the authorised capital of Freight Two) and Freight One. The share of leasing companies in the total volume of gondola cars purchased in Russia in 2006-2010 was 50%, and in 2010 this figure was 60%. Due to the increase in prices for rolling stock, the share of gondola cars bought using leasing schemes will increase in 2011-2012. 

Andrey Tsyganov,
Lead Analyst of Brunswick Rail:
– On the one hand, the cost of a gondola car was influenced by the increasing demand for rolling stock. Buying new wagons, consignors and operators strive to minimise tariff and logistics risks, which appeared after RZD’s park was given to the authorised capital of Freight One and Freight Two. On the other hand, wagon builders raised their prices because the cost of components had increased: in 2010 steel became 20% more expensive, prices for heavy railway casting rose more than three-fold.

Andrey Konoplev,
CEO of VTB-Leasing
– Nowadays, the production capacities of railway machine-building plants are limited. In 2010, they actively enlarged their production volume and set a record in December – 10,700 wagons (of all types). The forwarders’ and operators’ needs for rolling stock park renewal and enlargement (taking deferred demand into account) exceeded the supply, which led to wagon cost increases. Unfortunately, the characteristics of rolling stock have remained practically unchanged.
Measures taken to enlarge the existing capacities of the plants and put new ones into operation, in our opinion, will help to fulfill the demand for gondola cars, and the demand and supply will level off by the end of 2011. If this factor does not stabilise the prices for rolling stock, it will at least slow down their increase.
    [~DETAIL_TEXT] => 
The Crisis Has Been Overcome
According to the results of 2010, the RF wagon-building sector saw an unprecedented rise. The number of rolling stock produced last year exceeded even that of 2008. Almost 44,000 cargo railcars of all types were made in the pre-crisis 2008 (according to the data of IA INFOLine), and 49,800 wagons were produced in 2010. Meanwhile, in 2009, Russian wagon builders produced half as much machinery as in 2008 – just 24,400 units. Last year, almost all Russian railcar building companies doubled their production volume in comparison with 2009, and some of them exceeded that of 2008. 
There is a similar situation at plants in Ukraine and the CIS. Ukrainian enterprises produced 38,300 railcars in 2010, while the figure was 12,800 units in 2009. In particular, Azovmash made 12,300 wagons, more than twice as much as in 2009, or 3,000 units more than in 2008. Kryukovsky Wagon Building Plant increased its production volume three-fold in comparison with 2009. Stakhanovsky Wagon Building Plant had a 4.5-fold growth, and Dneprvagonmash – a five-fold increase.
The record results in the wagon-building sector in the CIS in 2010 were forecasted by experts in the middle of the year. ‘Already in July it had become obvious that the output of the sector would double and amount to 80,000 – 100,000 cargo wagons. In the first half of 2010, the growth rate of this machinery increased fast, and it happened in comparison with the 2009 results, when the production volume fell by more than 40%, as well as the 2008 results. In the first six months of 2008 (before the crisis), approximately 38,000 railcars were made, in the same period in 2009 (the time of the most serious decline) the CIS wagon builders produced not more than 6,000 railcars. But in the first half of 2010, the sector produced 40,000 wagons. As a result, all wagon-building enterprises in the CIS produced 89,900 railcars of all types.
However, the market needs many more wagons, especially if we take into account the deterioration of the park and the further growth of cargo transportation forecasted by RZD,’ said Maxim Kuzemchenko, Director of Tikhvin Wagon Building Plant Trading House, at the time.
The boom in demand for wagons may to some degree be explained by the sector’s recovery after the crisis. ‘In 2009, operators practically did not buy any wagons, having significantly cut their investment programmes. Consequently, in 2010 they fulfilled their two-year needs,’ comment on the situation specialists at Freight One. The demand for gondola cars after the crisis was so high that operators faced difficulties when giving their orders to wagon building enterprises. In the words of top managers at Metalinvesttrans, ‘last year, gondola cars were distributed among clients long before their production was completed.’

A Logical Rise
It is worth noting that prices for rolling stock changed significantly in this period. In July – August 2008, a gondola car cost RUR 2.5 million, in October of the same year the price dropped to RUR 2 million, and in the first half of 2009 the average price in this segment was RUR 1.1-1.2 million. Some operators considered it the reason for concluding a number of contracts on rolling stock supply, which helped the sector to survive. In particular, the production volume of such enterprises as Uralvagon and Altaivagon increased several times over after October 2009. There was a similar situation at the Ukrainian wagon-building plants.
Meanwhile, at the beginning of 2010, prices started to grow and those for some types of rolling stock had already reached pre-crisis levels in June. The reason for the increase in prices was the influence of metallurgical companies on the wagon-building sector. A lot of them managed to get preferential loans from the state during the crisis. Unlike machine-building enterprises, only 75-80% of their capacities were used. 
Thus, the pre-crisis shortage of heavy wagon casting became even worse. Simultaneously, in early 2010, metallurgical holding companies began to raise prices for rolled metal, and the increase reached 20-30% in May. It caused growth in the cost of components. And they make up the lion’s share of the wagon’s final cost – not less than 84-86%.
No wonder prices for rolling stock started to grow again. ‘The cost of new gondola cars has increased by 60% since the beginning of the year. Now, it has reached a record level – RUR 2.1 million,’ say specialists at Freight One. Their colleagues from Metalinvesttrans (MIT) agree. ‘Last year, prices for railway rolling stock grew very fast, the cost of a new gondola car in 2010 increased by 62% from RUR 1.3 million to RUR 2.1 million (regardless of the VAT)’, says Alexey Tyufaev, Head of Logistic and Planning Department at the MIT.
Operators also think that the basic reasons for the growth in prices for the production of the wagon building sector were objective factors, not just the wishes of machine-building enterprises to compensate for the profit lost during the crisis. 
‘The major factor influencing the prices for gondola cars is the cost of heavy wagon casting, i.e. solebars and bolsters. For example, in January 2010, heavy wagon casting necessary for production of one railcar cost approximately RUR 135,000, and in January 2011 – RUR 540,000. People say in such cases, ‘no comment’ – the cost of the casting grew four-fold during the year,’ emphasises Mr Tyufaev. In his words, there were two major drivers for a gondola car cost increases last year. ‘From the market viewpoint, it is the balance of demand and supply, i.e. the high demand for gondola cars across the 1520 area. 
From the rolling stock cost price viewpoint, it is the price of the heavy wagon casting,’ he concludes. Specialists at Freight One share his opinion, ‘Partly, one of the reasons was the shortage of heavy wagon casting, the demand for which exceeds producers’ capacities three-fold.’ Casting is needed for new wagon manufacturing as well as for scheduled repair. After 50,000 wagons from the public park were moved to the market, it became very popular.

Pushing rates upwards
The last increase in the prices for rolling stock was ahead of the most pessimistic forecasts, and step by step, wagon profitability is turning to zero. ‘Nobody doubts that the transportation price must be a market-based one. However, at the end of 2010, wagon profitability was behind the rates of rolling stock cost growth,’ considers Nikolay Koshelev, Director of Wagon Economy Department at firm Transgarant. 
Mr Tyufaev shares his opinion. ‘Sector experts and research institutes have often spoken about the trend of the decline in a gondola car’s efficiency, i.e. amid the increase in the number of wagons in the country, the loading volume and throughput reduce in comparison with the pre-crisis 2006 - 2007 years and 2008. Thus, in 2006 and in 2007, a smaller park serviced a larger railway transportation volume, but the shortage of gondola cars has not disappeared in 2010-2011,’ he emphasises.
According to information from companies, in the first quarter of 2011, demand for new gondola cars has exceeded supply. Consequently, manufacturers’ prices continue to increase, and this pushes operators’ rates upwards. As a result, the rental rates on a gondola car have grown since the beginning of the year. ‘Nowadays, the average cost of a gondola car rent is RUR 1,500-1,600,’ says Dmitry Nikolaev, Head of Transportation Department at 3P. On average, this figure has increased by RUR 400 since December 2010.
The deficit was brought about to some degree by artificial reasons. Another important factor stimulating the demand for universal rolling stock and allowing wagon producers to change prices is the ageing of the railcar park. ‘In the last two years, only the tank wagon park has been rejuvenated, since Freight One and other railcar owners purchased new wagons. 
The gondola car park needs significant renewal,’ believe specialists at Freight One. Despite the active manufacturing of gondola cars, the existing wagon-building capacities are not enough to compensate for the shortage of this type of rolling stock, caused by deterioration of the inventory park and the abrupt decline in wagon manufacturing in 2009. ‘More and more wagons are falling out of use, and railcar-building enterprises are failing to produce enough rolling stock even if 100% of their producing capacities are loaded,’ he believes. 
According to the data of RZD, almost half of the present-day gondola car park was to be written off in 2010, i.e. about 200,000 units. Naturally, some of them belong to the CIS and the Baltic states, but the number itself makes everyone believe in the problem of a universal rolling stock deficit. 

Role of Regulators
Operators forecast that the market in the gondola cars sector must level off this year. ‘It will happen once new wagons are put into operation, and then the worn-out park will be disposed of without difficulty,’ considers Dmitry Nikolaev, Head of Transportation Department at 3P. Specialists at Brunswick Rail say that it is too early to speak about balance in this segment. 
‘The growth in prices for gondola cars continues in 2011, so we cannot speak about balance yet – the demand exceeds the supply until now. And this will continue until either additional casting capacities are put into operation or the market is opened for the global import of railway casting. The second important factor is making wagons work more efficiently by forming new route structure, something that was damaged during the process of transferring the public park to RZD’s daughter companies,’ assures Andrey Tsyganov, Lead Analyst at Brunswick Rail. 
According to analysts, in 2011 operators and leasing companies will purchase about 60,000 railcars, which will allow an equitable volume of the worn-out park to be written off. The question is whether it will help solve the problem of rolling stock shortage if no measures are taken to regulate and optimise the empty run. 
By Maria Shevchenko

viewpoint
Mikhail Burmistrov,
CEO of INFOLine-Analytics:
– In 2006-2010, Russian rolling stock owners and RZD purchased over 150,000 gondola cars. Of that, 34.2% was bought by RZD (in the fourth quarter of 2010 most of the gondola cars purchased in the last five years were given to the authorised capital of Freight Two) and Freight One. The share of leasing companies in the total volume of gondola cars purchased in Russia in 2006-2010 was 50%, and in 2010 this figure was 60%. Due to the increase in prices for rolling stock, the share of gondola cars bought using leasing schemes will increase in 2011-2012. 

Andrey Tsyganov,
Lead Analyst of Brunswick Rail:
– On the one hand, the cost of a gondola car was influenced by the increasing demand for rolling stock. Buying new wagons, consignors and operators strive to minimise tariff and logistics risks, which appeared after RZD’s park was given to the authorised capital of Freight One and Freight Two. On the other hand, wagon builders raised their prices because the cost of components had increased: in 2010 steel became 20% more expensive, prices for heavy railway casting rose more than three-fold.

Andrey Konoplev,
CEO of VTB-Leasing
– Nowadays, the production capacities of railway machine-building plants are limited. In 2010, they actively enlarged their production volume and set a record in December – 10,700 wagons (of all types). The forwarders’ and operators’ needs for rolling stock park renewal and enlargement (taking deferred demand into account) exceeded the supply, which led to wagon cost increases. Unfortunately, the characteristics of rolling stock have remained practically unchanged.
Measures taken to enlarge the existing capacities of the plants and put new ones into operation, in our opinion, will help to fulfill the demand for gondola cars, and the demand and supply will level off by the end of 2011. If this factor does not stabilise the prices for rolling stock, it will at least slow down their increase.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/26.jpg" border="1" alt=" " hspace="5" width="200" height="264" align="left" />In 2010, Russian wagon builders broke a record set in Soviet times – they produced almost 50,000 railcars of all types. Meanwhile, the price for rolling stock grew from RUR 1.2 million in June 2009 to RUR 2.1 million in early 2011, i.e. a 60% increase. Cargo owners and operators are sure that this year the demand and growth of prices for wagons will continue, but before the end of 2011 the situation must stabilise.
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    [DETAIL_TEXT] => 
The Crisis Has Been Overcome
According to the results of 2010, the RF wagon-building sector saw an unprecedented rise. The number of rolling stock produced last year exceeded even that of 2008. Almost 44,000 cargo railcars of all types were made in the pre-crisis 2008 (according to the data of IA INFOLine), and 49,800 wagons were produced in 2010. Meanwhile, in 2009, Russian wagon builders produced half as much machinery as in 2008 – just 24,400 units. Last year, almost all Russian railcar building companies doubled their production volume in comparison with 2009, and some of them exceeded that of 2008. 
There is a similar situation at plants in Ukraine and the CIS. Ukrainian enterprises produced 38,300 railcars in 2010, while the figure was 12,800 units in 2009. In particular, Azovmash made 12,300 wagons, more than twice as much as in 2009, or 3,000 units more than in 2008. Kryukovsky Wagon Building Plant increased its production volume three-fold in comparison with 2009. Stakhanovsky Wagon Building Plant had a 4.5-fold growth, and Dneprvagonmash – a five-fold increase.
The record results in the wagon-building sector in the CIS in 2010 were forecasted by experts in the middle of the year. ‘Already in July it had become obvious that the output of the sector would double and amount to 80,000 – 100,000 cargo wagons. In the first half of 2010, the growth rate of this machinery increased fast, and it happened in comparison with the 2009 results, when the production volume fell by more than 40%, as well as the 2008 results. In the first six months of 2008 (before the crisis), approximately 38,000 railcars were made, in the same period in 2009 (the time of the most serious decline) the CIS wagon builders produced not more than 6,000 railcars. But in the first half of 2010, the sector produced 40,000 wagons. As a result, all wagon-building enterprises in the CIS produced 89,900 railcars of all types.
However, the market needs many more wagons, especially if we take into account the deterioration of the park and the further growth of cargo transportation forecasted by RZD,’ said Maxim Kuzemchenko, Director of Tikhvin Wagon Building Plant Trading House, at the time.
The boom in demand for wagons may to some degree be explained by the sector’s recovery after the crisis. ‘In 2009, operators practically did not buy any wagons, having significantly cut their investment programmes. Consequently, in 2010 they fulfilled their two-year needs,’ comment on the situation specialists at Freight One. The demand for gondola cars after the crisis was so high that operators faced difficulties when giving their orders to wagon building enterprises. In the words of top managers at Metalinvesttrans, ‘last year, gondola cars were distributed among clients long before their production was completed.’

A Logical Rise
It is worth noting that prices for rolling stock changed significantly in this period. In July – August 2008, a gondola car cost RUR 2.5 million, in October of the same year the price dropped to RUR 2 million, and in the first half of 2009 the average price in this segment was RUR 1.1-1.2 million. Some operators considered it the reason for concluding a number of contracts on rolling stock supply, which helped the sector to survive. In particular, the production volume of such enterprises as Uralvagon and Altaivagon increased several times over after October 2009. There was a similar situation at the Ukrainian wagon-building plants.
Meanwhile, at the beginning of 2010, prices started to grow and those for some types of rolling stock had already reached pre-crisis levels in June. The reason for the increase in prices was the influence of metallurgical companies on the wagon-building sector. A lot of them managed to get preferential loans from the state during the crisis. Unlike machine-building enterprises, only 75-80% of their capacities were used. 
Thus, the pre-crisis shortage of heavy wagon casting became even worse. Simultaneously, in early 2010, metallurgical holding companies began to raise prices for rolled metal, and the increase reached 20-30% in May. It caused growth in the cost of components. And they make up the lion’s share of the wagon’s final cost – not less than 84-86%.
No wonder prices for rolling stock started to grow again. ‘The cost of new gondola cars has increased by 60% since the beginning of the year. Now, it has reached a record level – RUR 2.1 million,’ say specialists at Freight One. Their colleagues from Metalinvesttrans (MIT) agree. ‘Last year, prices for railway rolling stock grew very fast, the cost of a new gondola car in 2010 increased by 62% from RUR 1.3 million to RUR 2.1 million (regardless of the VAT)’, says Alexey Tyufaev, Head of Logistic and Planning Department at the MIT.
Operators also think that the basic reasons for the growth in prices for the production of the wagon building sector were objective factors, not just the wishes of machine-building enterprises to compensate for the profit lost during the crisis. 
‘The major factor influencing the prices for gondola cars is the cost of heavy wagon casting, i.e. solebars and bolsters. For example, in January 2010, heavy wagon casting necessary for production of one railcar cost approximately RUR 135,000, and in January 2011 – RUR 540,000. People say in such cases, ‘no comment’ – the cost of the casting grew four-fold during the year,’ emphasises Mr Tyufaev. In his words, there were two major drivers for a gondola car cost increases last year. ‘From the market viewpoint, it is the balance of demand and supply, i.e. the high demand for gondola cars across the 1520 area. 
From the rolling stock cost price viewpoint, it is the price of the heavy wagon casting,’ he concludes. Specialists at Freight One share his opinion, ‘Partly, one of the reasons was the shortage of heavy wagon casting, the demand for which exceeds producers’ capacities three-fold.’ Casting is needed for new wagon manufacturing as well as for scheduled repair. After 50,000 wagons from the public park were moved to the market, it became very popular.

Pushing rates upwards
The last increase in the prices for rolling stock was ahead of the most pessimistic forecasts, and step by step, wagon profitability is turning to zero. ‘Nobody doubts that the transportation price must be a market-based one. However, at the end of 2010, wagon profitability was behind the rates of rolling stock cost growth,’ considers Nikolay Koshelev, Director of Wagon Economy Department at firm Transgarant. 
Mr Tyufaev shares his opinion. ‘Sector experts and research institutes have often spoken about the trend of the decline in a gondola car’s efficiency, i.e. amid the increase in the number of wagons in the country, the loading volume and throughput reduce in comparison with the pre-crisis 2006 - 2007 years and 2008. Thus, in 2006 and in 2007, a smaller park serviced a larger railway transportation volume, but the shortage of gondola cars has not disappeared in 2010-2011,’ he emphasises.
According to information from companies, in the first quarter of 2011, demand for new gondola cars has exceeded supply. Consequently, manufacturers’ prices continue to increase, and this pushes operators’ rates upwards. As a result, the rental rates on a gondola car have grown since the beginning of the year. ‘Nowadays, the average cost of a gondola car rent is RUR 1,500-1,600,’ says Dmitry Nikolaev, Head of Transportation Department at 3P. On average, this figure has increased by RUR 400 since December 2010.
The deficit was brought about to some degree by artificial reasons. Another important factor stimulating the demand for universal rolling stock and allowing wagon producers to change prices is the ageing of the railcar park. ‘In the last two years, only the tank wagon park has been rejuvenated, since Freight One and other railcar owners purchased new wagons. 
The gondola car park needs significant renewal,’ believe specialists at Freight One. Despite the active manufacturing of gondola cars, the existing wagon-building capacities are not enough to compensate for the shortage of this type of rolling stock, caused by deterioration of the inventory park and the abrupt decline in wagon manufacturing in 2009. ‘More and more wagons are falling out of use, and railcar-building enterprises are failing to produce enough rolling stock even if 100% of their producing capacities are loaded,’ he believes. 
According to the data of RZD, almost half of the present-day gondola car park was to be written off in 2010, i.e. about 200,000 units. Naturally, some of them belong to the CIS and the Baltic states, but the number itself makes everyone believe in the problem of a universal rolling stock deficit. 

Role of Regulators
Operators forecast that the market in the gondola cars sector must level off this year. ‘It will happen once new wagons are put into operation, and then the worn-out park will be disposed of without difficulty,’ considers Dmitry Nikolaev, Head of Transportation Department at 3P. Specialists at Brunswick Rail say that it is too early to speak about balance in this segment. 
‘The growth in prices for gondola cars continues in 2011, so we cannot speak about balance yet – the demand exceeds the supply until now. And this will continue until either additional casting capacities are put into operation or the market is opened for the global import of railway casting. The second important factor is making wagons work more efficiently by forming new route structure, something that was damaged during the process of transferring the public park to RZD’s daughter companies,’ assures Andrey Tsyganov, Lead Analyst at Brunswick Rail. 
According to analysts, in 2011 operators and leasing companies will purchase about 60,000 railcars, which will allow an equitable volume of the worn-out park to be written off. The question is whether it will help solve the problem of rolling stock shortage if no measures are taken to regulate and optimise the empty run. 
By Maria Shevchenko

viewpoint
Mikhail Burmistrov,
CEO of INFOLine-Analytics:
– In 2006-2010, Russian rolling stock owners and RZD purchased over 150,000 gondola cars. Of that, 34.2% was bought by RZD (in the fourth quarter of 2010 most of the gondola cars purchased in the last five years were given to the authorised capital of Freight Two) and Freight One. The share of leasing companies in the total volume of gondola cars purchased in Russia in 2006-2010 was 50%, and in 2010 this figure was 60%. Due to the increase in prices for rolling stock, the share of gondola cars bought using leasing schemes will increase in 2011-2012. 

Andrey Tsyganov,
Lead Analyst of Brunswick Rail:
– On the one hand, the cost of a gondola car was influenced by the increasing demand for rolling stock. Buying new wagons, consignors and operators strive to minimise tariff and logistics risks, which appeared after RZD’s park was given to the authorised capital of Freight One and Freight Two. On the other hand, wagon builders raised their prices because the cost of components had increased: in 2010 steel became 20% more expensive, prices for heavy railway casting rose more than three-fold.

Andrey Konoplev,
CEO of VTB-Leasing
– Nowadays, the production capacities of railway machine-building plants are limited. In 2010, they actively enlarged their production volume and set a record in December – 10,700 wagons (of all types). The forwarders’ and operators’ needs for rolling stock park renewal and enlargement (taking deferred demand into account) exceeded the supply, which led to wagon cost increases. Unfortunately, the characteristics of rolling stock have remained practically unchanged.
Measures taken to enlarge the existing capacities of the plants and put new ones into operation, in our opinion, will help to fulfill the demand for gondola cars, and the demand and supply will level off by the end of 2011. If this factor does not stabilise the prices for rolling stock, it will at least slow down their increase.
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The Crisis Has Been Overcome
According to the results of 2010, the RF wagon-building sector saw an unprecedented rise. The number of rolling stock produced last year exceeded even that of 2008. Almost 44,000 cargo railcars of all types were made in the pre-crisis 2008 (according to the data of IA INFOLine), and 49,800 wagons were produced in 2010. Meanwhile, in 2009, Russian wagon builders produced half as much machinery as in 2008 – just 24,400 units. Last year, almost all Russian railcar building companies doubled their production volume in comparison with 2009, and some of them exceeded that of 2008. 
There is a similar situation at plants in Ukraine and the CIS. Ukrainian enterprises produced 38,300 railcars in 2010, while the figure was 12,800 units in 2009. In particular, Azovmash made 12,300 wagons, more than twice as much as in 2009, or 3,000 units more than in 2008. Kryukovsky Wagon Building Plant increased its production volume three-fold in comparison with 2009. Stakhanovsky Wagon Building Plant had a 4.5-fold growth, and Dneprvagonmash – a five-fold increase.
The record results in the wagon-building sector in the CIS in 2010 were forecasted by experts in the middle of the year. ‘Already in July it had become obvious that the output of the sector would double and amount to 80,000 – 100,000 cargo wagons. In the first half of 2010, the growth rate of this machinery increased fast, and it happened in comparison with the 2009 results, when the production volume fell by more than 40%, as well as the 2008 results. In the first six months of 2008 (before the crisis), approximately 38,000 railcars were made, in the same period in 2009 (the time of the most serious decline) the CIS wagon builders produced not more than 6,000 railcars. But in the first half of 2010, the sector produced 40,000 wagons. As a result, all wagon-building enterprises in the CIS produced 89,900 railcars of all types.
However, the market needs many more wagons, especially if we take into account the deterioration of the park and the further growth of cargo transportation forecasted by RZD,’ said Maxim Kuzemchenko, Director of Tikhvin Wagon Building Plant Trading House, at the time.
The boom in demand for wagons may to some degree be explained by the sector’s recovery after the crisis. ‘In 2009, operators practically did not buy any wagons, having significantly cut their investment programmes. Consequently, in 2010 they fulfilled their two-year needs,’ comment on the situation specialists at Freight One. The demand for gondola cars after the crisis was so high that operators faced difficulties when giving their orders to wagon building enterprises. In the words of top managers at Metalinvesttrans, ‘last year, gondola cars were distributed among clients long before their production was completed.’

A Logical Rise
It is worth noting that prices for rolling stock changed significantly in this period. In July – August 2008, a gondola car cost RUR 2.5 million, in October of the same year the price dropped to RUR 2 million, and in the first half of 2009 the average price in this segment was RUR 1.1-1.2 million. Some operators considered it the reason for concluding a number of contracts on rolling stock supply, which helped the sector to survive. In particular, the production volume of such enterprises as Uralvagon and Altaivagon increased several times over after October 2009. There was a similar situation at the Ukrainian wagon-building plants.
Meanwhile, at the beginning of 2010, prices started to grow and those for some types of rolling stock had already reached pre-crisis levels in June. The reason for the increase in prices was the influence of metallurgical companies on the wagon-building sector. A lot of them managed to get preferential loans from the state during the crisis. Unlike machine-building enterprises, only 75-80% of their capacities were used. 
Thus, the pre-crisis shortage of heavy wagon casting became even worse. Simultaneously, in early 2010, metallurgical holding companies began to raise prices for rolled metal, and the increase reached 20-30% in May. It caused growth in the cost of components. And they make up the lion’s share of the wagon’s final cost – not less than 84-86%.
No wonder prices for rolling stock started to grow again. ‘The cost of new gondola cars has increased by 60% since the beginning of the year. Now, it has reached a record level – RUR 2.1 million,’ say specialists at Freight One. Their colleagues from Metalinvesttrans (MIT) agree. ‘Last year, prices for railway rolling stock grew very fast, the cost of a new gondola car in 2010 increased by 62% from RUR 1.3 million to RUR 2.1 million (regardless of the VAT)’, says Alexey Tyufaev, Head of Logistic and Planning Department at the MIT.
Operators also think that the basic reasons for the growth in prices for the production of the wagon building sector were objective factors, not just the wishes of machine-building enterprises to compensate for the profit lost during the crisis. 
‘The major factor influencing the prices for gondola cars is the cost of heavy wagon casting, i.e. solebars and bolsters. For example, in January 2010, heavy wagon casting necessary for production of one railcar cost approximately RUR 135,000, and in January 2011 – RUR 540,000. People say in such cases, ‘no comment’ – the cost of the casting grew four-fold during the year,’ emphasises Mr Tyufaev. In his words, there were two major drivers for a gondola car cost increases last year. ‘From the market viewpoint, it is the balance of demand and supply, i.e. the high demand for gondola cars across the 1520 area. 
From the rolling stock cost price viewpoint, it is the price of the heavy wagon casting,’ he concludes. Specialists at Freight One share his opinion, ‘Partly, one of the reasons was the shortage of heavy wagon casting, the demand for which exceeds producers’ capacities three-fold.’ Casting is needed for new wagon manufacturing as well as for scheduled repair. After 50,000 wagons from the public park were moved to the market, it became very popular.

Pushing rates upwards
The last increase in the prices for rolling stock was ahead of the most pessimistic forecasts, and step by step, wagon profitability is turning to zero. ‘Nobody doubts that the transportation price must be a market-based one. However, at the end of 2010, wagon profitability was behind the rates of rolling stock cost growth,’ considers Nikolay Koshelev, Director of Wagon Economy Department at firm Transgarant. 
Mr Tyufaev shares his opinion. ‘Sector experts and research institutes have often spoken about the trend of the decline in a gondola car’s efficiency, i.e. amid the increase in the number of wagons in the country, the loading volume and throughput reduce in comparison with the pre-crisis 2006 - 2007 years and 2008. Thus, in 2006 and in 2007, a smaller park serviced a larger railway transportation volume, but the shortage of gondola cars has not disappeared in 2010-2011,’ he emphasises.
According to information from companies, in the first quarter of 2011, demand for new gondola cars has exceeded supply. Consequently, manufacturers’ prices continue to increase, and this pushes operators’ rates upwards. As a result, the rental rates on a gondola car have grown since the beginning of the year. ‘Nowadays, the average cost of a gondola car rent is RUR 1,500-1,600,’ says Dmitry Nikolaev, Head of Transportation Department at 3P. On average, this figure has increased by RUR 400 since December 2010.
The deficit was brought about to some degree by artificial reasons. Another important factor stimulating the demand for universal rolling stock and allowing wagon producers to change prices is the ageing of the railcar park. ‘In the last two years, only the tank wagon park has been rejuvenated, since Freight One and other railcar owners purchased new wagons. 
The gondola car park needs significant renewal,’ believe specialists at Freight One. Despite the active manufacturing of gondola cars, the existing wagon-building capacities are not enough to compensate for the shortage of this type of rolling stock, caused by deterioration of the inventory park and the abrupt decline in wagon manufacturing in 2009. ‘More and more wagons are falling out of use, and railcar-building enterprises are failing to produce enough rolling stock even if 100% of their producing capacities are loaded,’ he believes. 
According to the data of RZD, almost half of the present-day gondola car park was to be written off in 2010, i.e. about 200,000 units. Naturally, some of them belong to the CIS and the Baltic states, but the number itself makes everyone believe in the problem of a universal rolling stock deficit. 

Role of Regulators
Operators forecast that the market in the gondola cars sector must level off this year. ‘It will happen once new wagons are put into operation, and then the worn-out park will be disposed of without difficulty,’ considers Dmitry Nikolaev, Head of Transportation Department at 3P. Specialists at Brunswick Rail say that it is too early to speak about balance in this segment. 
‘The growth in prices for gondola cars continues in 2011, so we cannot speak about balance yet – the demand exceeds the supply until now. And this will continue until either additional casting capacities are put into operation or the market is opened for the global import of railway casting. The second important factor is making wagons work more efficiently by forming new route structure, something that was damaged during the process of transferring the public park to RZD’s daughter companies,’ assures Andrey Tsyganov, Lead Analyst at Brunswick Rail. 
According to analysts, in 2011 operators and leasing companies will purchase about 60,000 railcars, which will allow an equitable volume of the worn-out park to be written off. The question is whether it will help solve the problem of rolling stock shortage if no measures are taken to regulate and optimise the empty run. 
By Maria Shevchenko

viewpoint
Mikhail Burmistrov,
CEO of INFOLine-Analytics:
– In 2006-2010, Russian rolling stock owners and RZD purchased over 150,000 gondola cars. Of that, 34.2% was bought by RZD (in the fourth quarter of 2010 most of the gondola cars purchased in the last five years were given to the authorised capital of Freight Two) and Freight One. The share of leasing companies in the total volume of gondola cars purchased in Russia in 2006-2010 was 50%, and in 2010 this figure was 60%. Due to the increase in prices for rolling stock, the share of gondola cars bought using leasing schemes will increase in 2011-2012. 

Andrey Tsyganov,
Lead Analyst of Brunswick Rail:
– On the one hand, the cost of a gondola car was influenced by the increasing demand for rolling stock. Buying new wagons, consignors and operators strive to minimise tariff and logistics risks, which appeared after RZD’s park was given to the authorised capital of Freight One and Freight Two. On the other hand, wagon builders raised their prices because the cost of components had increased: in 2010 steel became 20% more expensive, prices for heavy railway casting rose more than three-fold.

Andrey Konoplev,
CEO of VTB-Leasing
– Nowadays, the production capacities of railway machine-building plants are limited. In 2010, they actively enlarged their production volume and set a record in December – 10,700 wagons (of all types). The forwarders’ and operators’ needs for rolling stock park renewal and enlargement (taking deferred demand into account) exceeded the supply, which led to wagon cost increases. Unfortunately, the characteristics of rolling stock have remained practically unchanged.
Measures taken to enlarge the existing capacities of the plants and put new ones into operation, in our opinion, will help to fulfill the demand for gondola cars, and the demand and supply will level off by the end of 2011. If this factor does not stabilise the prices for rolling stock, it will at least slow down their increase.
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    [DETAIL_TEXT] => – What are the most typical characteristics of the pharmaceutical market in Russia, Western Europe and Baltic Region states?

Arkadius Grabietz: 
The Russian pharmaceutical market for a long time had been under strong control of the Soviet government. It’s one of the reasons why it develops slowly now, and now about 70% of products sold in Russia are imported. The most developed branch is pharmaceuticals distribution which is concentrated in the hands of big wholesalers such as Protek and SIA International. 
Still, the market potential is great and the deficiency of production capacities within the country is perceptible. Large international manufacturers realise this. For example, Novartis, Novo Nordisk, Sanofi Aventis and Swiss Nycomed are investing in production facilities in Russia. The Russian Ministry of Industry and Trade supports these activities and provides funds to attract more foreign direct investments. 

Karlis Soika: 
The Latvian pharmaceutical industry is still under the control of large wholesalers. As a result, currently there are no 3PL services (third-party logistics services) providers in the market. Our company is ready to develop this branch. Kuehne + Nagel are carrying on negotiations with big manufacturers on this topic. On the other hand, the market is monopolised. There is no deficiency in production capacities in Latvia, but most of them are managed and controlled by one company, that’s the only real competitor to internationals. 

– What about the peculiarities of 3PL-provider operations in the Baltic region and Western Europe?

Priit Põldar: 
A special feature of the pharmaceutical industry in Estonia is that most of the manufacturers deliver goods only on the basis of advance payment. Sometimes this makes them rather difficult to sell. 

Egidijus Kazukauskas: 
There are several globally recognised 3PL providers working in Lithuania, but most of them don’t have local offices to manage logistics issues. Pharmaceutical products are distributed by about six wholesale companies that gained the appropriate licenses. Two global producers and two local companies launched their factories in the country. Only a few wholesalers deal with imports to Lithuania. Import shipment contracts can be awarded via international tenders, while exporters are chosen at a local level.  
Pharmaceutical cargoes require special conditions: temperature control, fast transit, high service standards available 24/7. To be able to prevent delay and spoilage of goods at any stage of delivery, an operator has to be in close contact with suppliers, producers and officials. Industry-specific logistics solutions and sound knowledge of the products are essential today. 
It’s remarkable that the volumes of pharmaceutical cargoes that Kuehne + Nagel transport by air have grown steadily over the last few years. 
In the first half of 2010, we had about 10 air shipments per month, and now over 50-70 departures per month. In 2010, our airfreight increased by 89%, and overland transportation by 30%. Generally about 22% of all our cargoes are transported by air. Next year we expect a 35% increase in our handling volumes. 

Karlis Soika: 
The range of services regularly provided by both Latvian and international operators is quite narrow. However, every operator is able to offer a much wider choice to his client, such as flexible delivery schedule, permanent monitoring and stock control. 
Tobias Jerschke: In Poland the pharmaceutical sector is regulated by both legislative regulations and Ministry of Public Health policy. The Ministry is responsible for Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP). GDP means tracing supply chains from manufacturer to end consumer. 

Promising, but overregulated 
– What are the main differences in the businesses of 3PL providers in Russia and the Baltic region?

Arkadius Grabietz: 
The main difference is the strength of bureaucratic power in Russia. The procedure for licensing a pharmaceutical business can take several months; all this time a company has no right to start operating. The Russian population is bigger and distances are longer. Logistics operator should be familiar with different transportation channels and be able to use intermodal and combined logistical support structures. It’s important to keep in touch with experts to satisfy the requests of manufacturers. The ability to offer individual approaches and extra services is of great importance: for example, temperature-controlled warehousing, freight management services, or packaging. 

Karlis Soika: 
Pharmaceutical sectors in the Baltic countries don’t differ much. I agree that it’s rather complicated to enter the Russian market due to over-regulation and enormous bureaucracy. In Latvia it takes only five weeks to obtain a pharmaceutical licence. In Russia the same procedure might take several months, sometimes with no chance of success, even though the processing time is specified by legislation. 
EU states have more trust in business. In Latvia, the market is driven mostly by private investments, while in Russia, great funds are provided by government. The relevant legislation is totally different in Russia and Baltic states, as well as the situation in terms of production capacities.
 
– Describe the difficulties that your company met entering the new market?

Priit Põldar: 
German or Swiss companies normally don’t meet any obstacles when entering the Estonian pharmacy market. We offer good conditions for local manufacturers: a global logistics network, sophisticated IT solutions, and partners you can trust within the country, as well as value-added services such as medication return and utilisation.

Arkadius Grabietz: 
To enter the Russian market, a new 3PL provider has to meet numerous and complex requirements specified by Russian legislation and play by local rules. Moreover, a company should have reliable partners and good relations with the authorities. 
The Russian government has strong controls over the industry, pricing is regulated. Wholesalers also put pressure on the market; some of them have really good distribution networks that make them strong competitors for a new 3PL provider. To survive the competition, a new player should be ready to offer high-level and diverse services. 
Egidijus Kazukauskas: I’d like to note that logistics operators in Lithuania lack sophisticated IT solutions for freight management. Professionals with a good knowledge of local infrastructure, transportation market and business culture are also small in number. 

– What are your forecasts for logistics development in the pharmaceutical industry? 

Egidijus Kazukauskas: 
In Lithuania the retail market is dominated by four pharmacy chains, not all of which outsource logistics issues to specialised operators. If these companies start expanding their activities to other Baltic countries or Russia, they will bring their logistics operators with them, as it’s difficult to find specialist operators in the local markets. In this case 3PL providers will face stronger competition and would be able to win business only by offering industry-specific and sophisticated logistics solutions. 
Also we expect that imports of generic pharmaceuticals will rise significantly. This would stimulate small producers to increase capacities; as a result, demand for logistic services would grow. 

Tobias Jerschke: 
In Poland the pharmaceutical industry is showing impressive growth which makes the country more and more attractive for foreign investment. In 2009, it was valued at USD 2.5 billion. In 2008, the pharmacy market capacity gained 11.5% and reached USD 8.2 billion. In 2009-2010, the growth rates were estimated at 7.5%, and we are sure the rise will continue.

Arkadius Grabietz: 
We see the Russian pharmaceutical market as very promising, as the population of the country is large and local production capacities are scarce. We expect that current budget funding of production development will bring results, as well as a federal information campaign on health care and mortality reduction that persuades people to take more appropriate medicines. The recovery of the Russian economy after the crisis and the ruble strengthening against the dollar will reinforce the positions of local producers. Research and development funding will encourage foreign companies to invest in this industry. 
We expect the country will face an upturn within the pharmaceutical industry. All these factors will stimulate demand for special logistics solutions, and 3PL providers demonstrate better results in this field than wholesalers. 

Karlis Soika: 
Latvia, due to its geographic location, may become a transit country for Russian freight, so logistics providers should be ready to handle transit cargoes as well as local goods. In theory, the Russian pharmaceutical market has more potential for development. The question is whether the country is prepared for fundamental changes, and is it able to adapt to them so fast, as the Baltic markets did. 
By Maria Shevchenko
    [~DETAIL_TEXT] => – What are the most typical characteristics of the pharmaceutical market in Russia, Western Europe and Baltic Region states?

Arkadius Grabietz: 
The Russian pharmaceutical market for a long time had been under strong control of the Soviet government. It’s one of the reasons why it develops slowly now, and now about 70% of products sold in Russia are imported. The most developed branch is pharmaceuticals distribution which is concentrated in the hands of big wholesalers such as Protek and SIA International. 
Still, the market potential is great and the deficiency of production capacities within the country is perceptible. Large international manufacturers realise this. For example, Novartis, Novo Nordisk, Sanofi Aventis and Swiss Nycomed are investing in production facilities in Russia. The Russian Ministry of Industry and Trade supports these activities and provides funds to attract more foreign direct investments. 

Karlis Soika: 
The Latvian pharmaceutical industry is still under the control of large wholesalers. As a result, currently there are no 3PL services (third-party logistics services) providers in the market. Our company is ready to develop this branch. Kuehne + Nagel are carrying on negotiations with big manufacturers on this topic. On the other hand, the market is monopolised. There is no deficiency in production capacities in Latvia, but most of them are managed and controlled by one company, that’s the only real competitor to internationals. 

– What about the peculiarities of 3PL-provider operations in the Baltic region and Western Europe?

Priit Põldar: 
A special feature of the pharmaceutical industry in Estonia is that most of the manufacturers deliver goods only on the basis of advance payment. Sometimes this makes them rather difficult to sell. 

Egidijus Kazukauskas: 
There are several globally recognised 3PL providers working in Lithuania, but most of them don’t have local offices to manage logistics issues. Pharmaceutical products are distributed by about six wholesale companies that gained the appropriate licenses. Two global producers and two local companies launched their factories in the country. Only a few wholesalers deal with imports to Lithuania. Import shipment contracts can be awarded via international tenders, while exporters are chosen at a local level.  
Pharmaceutical cargoes require special conditions: temperature control, fast transit, high service standards available 24/7. To be able to prevent delay and spoilage of goods at any stage of delivery, an operator has to be in close contact with suppliers, producers and officials. Industry-specific logistics solutions and sound knowledge of the products are essential today. 
It’s remarkable that the volumes of pharmaceutical cargoes that Kuehne + Nagel transport by air have grown steadily over the last few years. 
In the first half of 2010, we had about 10 air shipments per month, and now over 50-70 departures per month. In 2010, our airfreight increased by 89%, and overland transportation by 30%. Generally about 22% of all our cargoes are transported by air. Next year we expect a 35% increase in our handling volumes. 

Karlis Soika: 
The range of services regularly provided by both Latvian and international operators is quite narrow. However, every operator is able to offer a much wider choice to his client, such as flexible delivery schedule, permanent monitoring and stock control. 
Tobias Jerschke: In Poland the pharmaceutical sector is regulated by both legislative regulations and Ministry of Public Health policy. The Ministry is responsible for Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP). GDP means tracing supply chains from manufacturer to end consumer. 

Promising, but overregulated 
– What are the main differences in the businesses of 3PL providers in Russia and the Baltic region?

Arkadius Grabietz: 
The main difference is the strength of bureaucratic power in Russia. The procedure for licensing a pharmaceutical business can take several months; all this time a company has no right to start operating. The Russian population is bigger and distances are longer. Logistics operator should be familiar with different transportation channels and be able to use intermodal and combined logistical support structures. It’s important to keep in touch with experts to satisfy the requests of manufacturers. The ability to offer individual approaches and extra services is of great importance: for example, temperature-controlled warehousing, freight management services, or packaging. 

Karlis Soika: 
Pharmaceutical sectors in the Baltic countries don’t differ much. I agree that it’s rather complicated to enter the Russian market due to over-regulation and enormous bureaucracy. In Latvia it takes only five weeks to obtain a pharmaceutical licence. In Russia the same procedure might take several months, sometimes with no chance of success, even though the processing time is specified by legislation. 
EU states have more trust in business. In Latvia, the market is driven mostly by private investments, while in Russia, great funds are provided by government. The relevant legislation is totally different in Russia and Baltic states, as well as the situation in terms of production capacities.
 
– Describe the difficulties that your company met entering the new market?

Priit Põldar: 
German or Swiss companies normally don’t meet any obstacles when entering the Estonian pharmacy market. We offer good conditions for local manufacturers: a global logistics network, sophisticated IT solutions, and partners you can trust within the country, as well as value-added services such as medication return and utilisation.

Arkadius Grabietz: 
To enter the Russian market, a new 3PL provider has to meet numerous and complex requirements specified by Russian legislation and play by local rules. Moreover, a company should have reliable partners and good relations with the authorities. 
The Russian government has strong controls over the industry, pricing is regulated. Wholesalers also put pressure on the market; some of them have really good distribution networks that make them strong competitors for a new 3PL provider. To survive the competition, a new player should be ready to offer high-level and diverse services. 
Egidijus Kazukauskas: I’d like to note that logistics operators in Lithuania lack sophisticated IT solutions for freight management. Professionals with a good knowledge of local infrastructure, transportation market and business culture are also small in number. 

– What are your forecasts for logistics development in the pharmaceutical industry? 

Egidijus Kazukauskas: 
In Lithuania the retail market is dominated by four pharmacy chains, not all of which outsource logistics issues to specialised operators. If these companies start expanding their activities to other Baltic countries or Russia, they will bring their logistics operators with them, as it’s difficult to find specialist operators in the local markets. In this case 3PL providers will face stronger competition and would be able to win business only by offering industry-specific and sophisticated logistics solutions. 
Also we expect that imports of generic pharmaceuticals will rise significantly. This would stimulate small producers to increase capacities; as a result, demand for logistic services would grow. 

Tobias Jerschke: 
In Poland the pharmaceutical industry is showing impressive growth which makes the country more and more attractive for foreign investment. In 2009, it was valued at USD 2.5 billion. In 2008, the pharmacy market capacity gained 11.5% and reached USD 8.2 billion. In 2009-2010, the growth rates were estimated at 7.5%, and we are sure the rise will continue.

Arkadius Grabietz: 
We see the Russian pharmaceutical market as very promising, as the population of the country is large and local production capacities are scarce. We expect that current budget funding of production development will bring results, as well as a federal information campaign on health care and mortality reduction that persuades people to take more appropriate medicines. The recovery of the Russian economy after the crisis and the ruble strengthening against the dollar will reinforce the positions of local producers. Research and development funding will encourage foreign companies to invest in this industry. 
We expect the country will face an upturn within the pharmaceutical industry. All these factors will stimulate demand for special logistics solutions, and 3PL providers demonstrate better results in this field than wholesalers. 

Karlis Soika: 
Latvia, due to its geographic location, may become a transit country for Russian freight, so logistics providers should be ready to handle transit cargoes as well as local goods. In theory, the Russian pharmaceutical market has more potential for development. The question is whether the country is prepared for fundamental changes, and is it able to adapt to them so fast, as the Baltic markets did. 
By Maria Shevchenko
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    [DETAIL_TEXT] => – What are the most typical characteristics of the pharmaceutical market in Russia, Western Europe and Baltic Region states?

Arkadius Grabietz: 
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Still, the market potential is great and the deficiency of production capacities within the country is perceptible. Large international manufacturers realise this. For example, Novartis, Novo Nordisk, Sanofi Aventis and Swiss Nycomed are investing in production facilities in Russia. The Russian Ministry of Industry and Trade supports these activities and provides funds to attract more foreign direct investments. 

Karlis Soika: 
The Latvian pharmaceutical industry is still under the control of large wholesalers. As a result, currently there are no 3PL services (third-party logistics services) providers in the market. Our company is ready to develop this branch. Kuehne + Nagel are carrying on negotiations with big manufacturers on this topic. On the other hand, the market is monopolised. There is no deficiency in production capacities in Latvia, but most of them are managed and controlled by one company, that’s the only real competitor to internationals. 

– What about the peculiarities of 3PL-provider operations in the Baltic region and Western Europe?

Priit Põldar: 
A special feature of the pharmaceutical industry in Estonia is that most of the manufacturers deliver goods only on the basis of advance payment. Sometimes this makes them rather difficult to sell. 

Egidijus Kazukauskas: 
There are several globally recognised 3PL providers working in Lithuania, but most of them don’t have local offices to manage logistics issues. Pharmaceutical products are distributed by about six wholesale companies that gained the appropriate licenses. Two global producers and two local companies launched their factories in the country. Only a few wholesalers deal with imports to Lithuania. Import shipment contracts can be awarded via international tenders, while exporters are chosen at a local level.  
Pharmaceutical cargoes require special conditions: temperature control, fast transit, high service standards available 24/7. To be able to prevent delay and spoilage of goods at any stage of delivery, an operator has to be in close contact with suppliers, producers and officials. Industry-specific logistics solutions and sound knowledge of the products are essential today. 
It’s remarkable that the volumes of pharmaceutical cargoes that Kuehne + Nagel transport by air have grown steadily over the last few years. 
In the first half of 2010, we had about 10 air shipments per month, and now over 50-70 departures per month. In 2010, our airfreight increased by 89%, and overland transportation by 30%. Generally about 22% of all our cargoes are transported by air. Next year we expect a 35% increase in our handling volumes. 

Karlis Soika: 
The range of services regularly provided by both Latvian and international operators is quite narrow. However, every operator is able to offer a much wider choice to his client, such as flexible delivery schedule, permanent monitoring and stock control. 
Tobias Jerschke: In Poland the pharmaceutical sector is regulated by both legislative regulations and Ministry of Public Health policy. The Ministry is responsible for Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP). GDP means tracing supply chains from manufacturer to end consumer. 

Promising, but overregulated 
– What are the main differences in the businesses of 3PL providers in Russia and the Baltic region?

Arkadius Grabietz: 
The main difference is the strength of bureaucratic power in Russia. The procedure for licensing a pharmaceutical business can take several months; all this time a company has no right to start operating. The Russian population is bigger and distances are longer. Logistics operator should be familiar with different transportation channels and be able to use intermodal and combined logistical support structures. It’s important to keep in touch with experts to satisfy the requests of manufacturers. The ability to offer individual approaches and extra services is of great importance: for example, temperature-controlled warehousing, freight management services, or packaging. 

Karlis Soika: 
Pharmaceutical sectors in the Baltic countries don’t differ much. I agree that it’s rather complicated to enter the Russian market due to over-regulation and enormous bureaucracy. In Latvia it takes only five weeks to obtain a pharmaceutical licence. In Russia the same procedure might take several months, sometimes with no chance of success, even though the processing time is specified by legislation. 
EU states have more trust in business. In Latvia, the market is driven mostly by private investments, while in Russia, great funds are provided by government. The relevant legislation is totally different in Russia and Baltic states, as well as the situation in terms of production capacities.
 
– Describe the difficulties that your company met entering the new market?

Priit Põldar: 
German or Swiss companies normally don’t meet any obstacles when entering the Estonian pharmacy market. We offer good conditions for local manufacturers: a global logistics network, sophisticated IT solutions, and partners you can trust within the country, as well as value-added services such as medication return and utilisation.

Arkadius Grabietz: 
To enter the Russian market, a new 3PL provider has to meet numerous and complex requirements specified by Russian legislation and play by local rules. Moreover, a company should have reliable partners and good relations with the authorities. 
The Russian government has strong controls over the industry, pricing is regulated. Wholesalers also put pressure on the market; some of them have really good distribution networks that make them strong competitors for a new 3PL provider. To survive the competition, a new player should be ready to offer high-level and diverse services. 
Egidijus Kazukauskas: I’d like to note that logistics operators in Lithuania lack sophisticated IT solutions for freight management. Professionals with a good knowledge of local infrastructure, transportation market and business culture are also small in number. 

– What are your forecasts for logistics development in the pharmaceutical industry? 

Egidijus Kazukauskas: 
In Lithuania the retail market is dominated by four pharmacy chains, not all of which outsource logistics issues to specialised operators. If these companies start expanding their activities to other Baltic countries or Russia, they will bring their logistics operators with them, as it’s difficult to find specialist operators in the local markets. In this case 3PL providers will face stronger competition and would be able to win business only by offering industry-specific and sophisticated logistics solutions. 
Also we expect that imports of generic pharmaceuticals will rise significantly. This would stimulate small producers to increase capacities; as a result, demand for logistic services would grow. 

Tobias Jerschke: 
In Poland the pharmaceutical industry is showing impressive growth which makes the country more and more attractive for foreign investment. In 2009, it was valued at USD 2.5 billion. In 2008, the pharmacy market capacity gained 11.5% and reached USD 8.2 billion. In 2009-2010, the growth rates were estimated at 7.5%, and we are sure the rise will continue.

Arkadius Grabietz: 
We see the Russian pharmaceutical market as very promising, as the population of the country is large and local production capacities are scarce. We expect that current budget funding of production development will bring results, as well as a federal information campaign on health care and mortality reduction that persuades people to take more appropriate medicines. The recovery of the Russian economy after the crisis and the ruble strengthening against the dollar will reinforce the positions of local producers. Research and development funding will encourage foreign companies to invest in this industry. 
We expect the country will face an upturn within the pharmaceutical industry. All these factors will stimulate demand for special logistics solutions, and 3PL providers demonstrate better results in this field than wholesalers. 

Karlis Soika: 
Latvia, due to its geographic location, may become a transit country for Russian freight, so logistics providers should be ready to handle transit cargoes as well as local goods. In theory, the Russian pharmaceutical market has more potential for development. The question is whether the country is prepared for fundamental changes, and is it able to adapt to them so fast, as the Baltic markets did. 
By Maria Shevchenko
    [~DETAIL_TEXT] => – What are the most typical characteristics of the pharmaceutical market in Russia, Western Europe and Baltic Region states?

Arkadius Grabietz: 
The Russian pharmaceutical market for a long time had been under strong control of the Soviet government. It’s one of the reasons why it develops slowly now, and now about 70% of products sold in Russia are imported. The most developed branch is pharmaceuticals distribution which is concentrated in the hands of big wholesalers such as Protek and SIA International. 
Still, the market potential is great and the deficiency of production capacities within the country is perceptible. Large international manufacturers realise this. For example, Novartis, Novo Nordisk, Sanofi Aventis and Swiss Nycomed are investing in production facilities in Russia. The Russian Ministry of Industry and Trade supports these activities and provides funds to attract more foreign direct investments. 

Karlis Soika: 
The Latvian pharmaceutical industry is still under the control of large wholesalers. As a result, currently there are no 3PL services (third-party logistics services) providers in the market. Our company is ready to develop this branch. Kuehne + Nagel are carrying on negotiations with big manufacturers on this topic. On the other hand, the market is monopolised. There is no deficiency in production capacities in Latvia, but most of them are managed and controlled by one company, that’s the only real competitor to internationals. 

– What about the peculiarities of 3PL-provider operations in the Baltic region and Western Europe?

Priit Põldar: 
A special feature of the pharmaceutical industry in Estonia is that most of the manufacturers deliver goods only on the basis of advance payment. Sometimes this makes them rather difficult to sell. 

Egidijus Kazukauskas: 
There are several globally recognised 3PL providers working in Lithuania, but most of them don’t have local offices to manage logistics issues. Pharmaceutical products are distributed by about six wholesale companies that gained the appropriate licenses. Two global producers and two local companies launched their factories in the country. Only a few wholesalers deal with imports to Lithuania. Import shipment contracts can be awarded via international tenders, while exporters are chosen at a local level.  
Pharmaceutical cargoes require special conditions: temperature control, fast transit, high service standards available 24/7. To be able to prevent delay and spoilage of goods at any stage of delivery, an operator has to be in close contact with suppliers, producers and officials. Industry-specific logistics solutions and sound knowledge of the products are essential today. 
It’s remarkable that the volumes of pharmaceutical cargoes that Kuehne + Nagel transport by air have grown steadily over the last few years. 
In the first half of 2010, we had about 10 air shipments per month, and now over 50-70 departures per month. In 2010, our airfreight increased by 89%, and overland transportation by 30%. Generally about 22% of all our cargoes are transported by air. Next year we expect a 35% increase in our handling volumes. 

Karlis Soika: 
The range of services regularly provided by both Latvian and international operators is quite narrow. However, every operator is able to offer a much wider choice to his client, such as flexible delivery schedule, permanent monitoring and stock control. 
Tobias Jerschke: In Poland the pharmaceutical sector is regulated by both legislative regulations and Ministry of Public Health policy. The Ministry is responsible for Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP). GDP means tracing supply chains from manufacturer to end consumer. 

Promising, but overregulated 
– What are the main differences in the businesses of 3PL providers in Russia and the Baltic region?

Arkadius Grabietz: 
The main difference is the strength of bureaucratic power in Russia. The procedure for licensing a pharmaceutical business can take several months; all this time a company has no right to start operating. The Russian population is bigger and distances are longer. Logistics operator should be familiar with different transportation channels and be able to use intermodal and combined logistical support structures. It’s important to keep in touch with experts to satisfy the requests of manufacturers. The ability to offer individual approaches and extra services is of great importance: for example, temperature-controlled warehousing, freight management services, or packaging. 

Karlis Soika: 
Pharmaceutical sectors in the Baltic countries don’t differ much. I agree that it’s rather complicated to enter the Russian market due to over-regulation and enormous bureaucracy. In Latvia it takes only five weeks to obtain a pharmaceutical licence. In Russia the same procedure might take several months, sometimes with no chance of success, even though the processing time is specified by legislation. 
EU states have more trust in business. In Latvia, the market is driven mostly by private investments, while in Russia, great funds are provided by government. The relevant legislation is totally different in Russia and Baltic states, as well as the situation in terms of production capacities.
 
– Describe the difficulties that your company met entering the new market?

Priit Põldar: 
German or Swiss companies normally don’t meet any obstacles when entering the Estonian pharmacy market. We offer good conditions for local manufacturers: a global logistics network, sophisticated IT solutions, and partners you can trust within the country, as well as value-added services such as medication return and utilisation.

Arkadius Grabietz: 
To enter the Russian market, a new 3PL provider has to meet numerous and complex requirements specified by Russian legislation and play by local rules. Moreover, a company should have reliable partners and good relations with the authorities. 
The Russian government has strong controls over the industry, pricing is regulated. Wholesalers also put pressure on the market; some of them have really good distribution networks that make them strong competitors for a new 3PL provider. To survive the competition, a new player should be ready to offer high-level and diverse services. 
Egidijus Kazukauskas: I’d like to note that logistics operators in Lithuania lack sophisticated IT solutions for freight management. Professionals with a good knowledge of local infrastructure, transportation market and business culture are also small in number. 

– What are your forecasts for logistics development in the pharmaceutical industry? 

Egidijus Kazukauskas: 
In Lithuania the retail market is dominated by four pharmacy chains, not all of which outsource logistics issues to specialised operators. If these companies start expanding their activities to other Baltic countries or Russia, they will bring their logistics operators with them, as it’s difficult to find specialist operators in the local markets. In this case 3PL providers will face stronger competition and would be able to win business only by offering industry-specific and sophisticated logistics solutions. 
Also we expect that imports of generic pharmaceuticals will rise significantly. This would stimulate small producers to increase capacities; as a result, demand for logistic services would grow. 

Tobias Jerschke: 
In Poland the pharmaceutical industry is showing impressive growth which makes the country more and more attractive for foreign investment. In 2009, it was valued at USD 2.5 billion. In 2008, the pharmacy market capacity gained 11.5% and reached USD 8.2 billion. In 2009-2010, the growth rates were estimated at 7.5%, and we are sure the rise will continue.

Arkadius Grabietz: 
We see the Russian pharmaceutical market as very promising, as the population of the country is large and local production capacities are scarce. We expect that current budget funding of production development will bring results, as well as a federal information campaign on health care and mortality reduction that persuades people to take more appropriate medicines. The recovery of the Russian economy after the crisis and the ruble strengthening against the dollar will reinforce the positions of local producers. Research and development funding will encourage foreign companies to invest in this industry. 
We expect the country will face an upturn within the pharmaceutical industry. All these factors will stimulate demand for special logistics solutions, and 3PL providers demonstrate better results in this field than wholesalers. 

Karlis Soika: 
Latvia, due to its geographic location, may become a transit country for Russian freight, so logistics providers should be ready to handle transit cargoes as well as local goods. In theory, the Russian pharmaceutical market has more potential for development. The question is whether the country is prepared for fundamental changes, and is it able to adapt to them so fast, as the Baltic markets did. 
By Maria Shevchenko
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Goal: To be among the top three 
The RZD’s new daughter company was registered in Yekaterinburg. Last year at the end of September it started its economic activities. The planned, authorized capital of Freight Two amounts to 46,6 billion rubles with more than 150,000 freight cars and 200 million rubles from the parent company. 
The inventory stock transfer started last year and would be completed at the 3rd quarter 2011. As a result the stock of company will exceed 180,000 freight cars (including more than 20,000 units, which are leased by RZD now). As experts predicted, the company’s market share in 2015 will make up 22%.  
Among the strategic objectives of its founding set by RZD were: to be among the top three Russian operators, to guarantee the increase of the parent’s holding cost and prepare for IPO 2 years after the build-up. At the present time more than 50,000 freight cars have been transferred to the possession of Freight Two. The company leased them to Freight One (First Cargo Company) and other operators. Freight Two will receive about 60,000 freight cars before the end of March, and probably some of them will also be leased. 
However, it has been promised that the company will manage part of the given stock from the second quarter. Freight Two plans to organize the necessary commercial infrastructure by September, so authorized capital stock will be formed. According to the estimates of First Deputy Director of Freight One Igor Asaturov, after Freight Two starts its work, RZD’s share of freight cars in common stock will come down from 30% to 7%. During the first period Freight Two will have about 16% of stock, and Freight One’s will amount about 21-22% (at least in the current year).
‘We have already experienced Freight One, so we’ll experience Freight Two too’.
Besides the transferred freight cars (which are far from being new), Freight Two will be completed with new rolling stock. In November last year, Freight Two has already closed a deal for 5 years with CJSC Tikhvin Railway Car Building Plant (it starts rolling-stock production this year). They concluded an agreement ‘about cooperation in the field with adoption of innovation in railway engineering’. 
According to this contract, Freight Two is ready to buy during the next 2 years freight cars, including cars on the innovative bogie Barber S-2-R. The exact volumes in the medium- and long-term perspective of rolling stock and TVSZ component purchases are still uncertain. It will be clear in the near future.
Moreover it was declared that Freight Two was founded as a universal network rolling stock operator, focusing on carriage and block trains of coal, ore, mineral construction materials and timber goods. But in December Vitaliy Evdokimenko, general director of Freight Two, said that his company plans to buy 3,600 tanks a year from 2013 and, by 2015, to take at least 5% of the oil transportation market. We asked the representatives of operator companies if they were concerned about Freight Two’s appearance, and most of them answered: “We have already experienced Freight One, so we’ll experience Freight Two too”. But at the same time a lot of them pointed out that there will be an escalation of competition and redistribution in the sphere of influence. 
The Market Council consider that the phase of intensive investment of private capital into rolling stock will actually be completed after the liquidation of inventory stock and the further sale of Freight One. Taking into account the possibilities, in the Target model of transportation to 2015, locomotives will become the new focus for investment. It is not ruled out that, after completion of the reform in 2015, there will be 3-4 large operator companies left, including Freight One and Freight Two. But it will be in the future.

Under the protection of antimonopoly bodies
The thing that causes inconvenience by small RZD’s customers is the lack of inventory stock and of the possibility to send the cargoes according to the tariffs in Tariff Regulation #10-01 (what means that increase of transport loading is unavoidable). The Federal Antimonopoly Service stands up for them. It worked out the regulations of interaction for RZD with Freight One and Freight Two in placing freight cars at cargo shippers’ disposal. According to this regulation the daughter companies are to give their rolling stock to the holding, if it has the proper requests from customers. 
And the price of this transportation can’t be for the cargo owner more than the tariff in Price list. But this mechanism is entirely unprofitable for RZD’s daughter companies. Salman Babaev, General Director of JSC Freight One, said that he isn’t ready to give freight cars to the mother company.  Nevertheless if the regulation is accepted, the ‘daughters’ won’t have any other choice. The build-up of Freight Two (and the future appearance of carrier without freight cars) aggravated a lot problems facing the market now, and forced regulators and RZD to speed up the process of finding the solutions. 
Just like that, they resumed the work at the base federal laws. The representatives of operator companies note, that in conditions when the carrier has no cars, their liability to the market grows automatically. In this regard, review of the law ‘About railway transport in Russian federation’ becomes urgent as never before: inclusion of new rules and regulations on operators’ rights and obligations. Such amendments have already been elaborated at the Ministry of Transport. At the beginning of the year other important documents about the cooperation between carrier and client were passed. 
The work on this document lasted more than a year, and actually it’s a list of criteria, on what grounds it will be possible to refuse the transportation to the cargo owner. But more likely it will be valid only in case of regulations’ adoption about the placing at RZD’s disposal of Freight One’s and Freight Two’s rolling stock (it isn’t provided in the list as ground for refuse as lack of freight cars). Strongly are resolved the problems in managing private rolling stock and minimization of growing empty runs.
So work on the Transportation rules of the private empty cars is at the final stage thanks to the active participation of operators. On the basis of Freight One is developed and given trial runs information program, what makes it possible to minimize the empty running of private cars. Corporate Transportation Services offered a mechanism for agent contract conclusion, which helps to manage the consolidated rolling stock of private operators.
In this way 2011 can be the year of constructive discussion on the hot topics of rolling stock management.
There is no way to step back: the inventory stock will stop existing and so there is a little time to solve the problems of all attendants to these processes. 
By Nadezhda Vtorushina

viewpoint
Vitaliy Evdokimenko,
General Director First Cargo Company:
– The company will manage the rolling stock by itself, at the end of the formation stage of commercial infrastructure and after the forming of a production sales network. Furthermore, we don’t exclude the possibility of using agents for the sale of our services. The question of rendering transport services with the use of Corporate Transportation Services to the cargo owners has been discussed. All these measures should provide for the gradual entry of the company to the market.

Valeriy Shpakov,
General Director “New transportation company” (Group of Companies Globaltrans):
– We forecast competition escalation, but we don’t link it to Freight Two’s build-up. The point is that the quantity of freight cars in RZD’s network didn’t change after Freight Two’s appearance. Only the owner has changed. Moreover, we have an absolutely clear understanding that the main goal of the build-up of the railway cargo Company is the solution of the guarantees problem by the export and import of production for cargo shippers. On the competitive advantages of market’s participants depend the directions, on what and with what cargo type they will work.

Vladimir Prokofyev,
President of Association of the carriers and rolling stock operators, General Director of BaltTransService:
– Taking into account that Freight One became the most important and hard-to-get stock (first of all tanks and gondola cars), Freight Two became mainly the part of stock that is difficult to route, i.e. covered cars. In this connection I think that the profitability of Freight Two will be a little less than Freight One’s. But on the other hand it isn’t ruled out that the competition struggle will become aggravated in some sectors, where specialized rolling stock (covered cars, boxcars) operate.
    [~DETAIL_TEXT] => 
Goal: To be among the top three 
The RZD’s new daughter company was registered in Yekaterinburg. Last year at the end of September it started its economic activities. The planned, authorized capital of Freight Two amounts to 46,6 billion rubles with more than 150,000 freight cars and 200 million rubles from the parent company. 
The inventory stock transfer started last year and would be completed at the 3rd quarter 2011. As a result the stock of company will exceed 180,000 freight cars (including more than 20,000 units, which are leased by RZD now). As experts predicted, the company’s market share in 2015 will make up 22%.  
Among the strategic objectives of its founding set by RZD were: to be among the top three Russian operators, to guarantee the increase of the parent’s holding cost and prepare for IPO 2 years after the build-up. At the present time more than 50,000 freight cars have been transferred to the possession of Freight Two. The company leased them to Freight One (First Cargo Company) and other operators. Freight Two will receive about 60,000 freight cars before the end of March, and probably some of them will also be leased. 
However, it has been promised that the company will manage part of the given stock from the second quarter. Freight Two plans to organize the necessary commercial infrastructure by September, so authorized capital stock will be formed. According to the estimates of First Deputy Director of Freight One Igor Asaturov, after Freight Two starts its work, RZD’s share of freight cars in common stock will come down from 30% to 7%. During the first period Freight Two will have about 16% of stock, and Freight One’s will amount about 21-22% (at least in the current year).
‘We have already experienced Freight One, so we’ll experience Freight Two too’.
Besides the transferred freight cars (which are far from being new), Freight Two will be completed with new rolling stock. In November last year, Freight Two has already closed a deal for 5 years with CJSC Tikhvin Railway Car Building Plant (it starts rolling-stock production this year). They concluded an agreement ‘about cooperation in the field with adoption of innovation in railway engineering’. 
According to this contract, Freight Two is ready to buy during the next 2 years freight cars, including cars on the innovative bogie Barber S-2-R. The exact volumes in the medium- and long-term perspective of rolling stock and TVSZ component purchases are still uncertain. It will be clear in the near future.
Moreover it was declared that Freight Two was founded as a universal network rolling stock operator, focusing on carriage and block trains of coal, ore, mineral construction materials and timber goods. But in December Vitaliy Evdokimenko, general director of Freight Two, said that his company plans to buy 3,600 tanks a year from 2013 and, by 2015, to take at least 5% of the oil transportation market. We asked the representatives of operator companies if they were concerned about Freight Two’s appearance, and most of them answered: “We have already experienced Freight One, so we’ll experience Freight Two too”. But at the same time a lot of them pointed out that there will be an escalation of competition and redistribution in the sphere of influence. 
The Market Council consider that the phase of intensive investment of private capital into rolling stock will actually be completed after the liquidation of inventory stock and the further sale of Freight One. Taking into account the possibilities, in the Target model of transportation to 2015, locomotives will become the new focus for investment. It is not ruled out that, after completion of the reform in 2015, there will be 3-4 large operator companies left, including Freight One and Freight Two. But it will be in the future.

Under the protection of antimonopoly bodies
The thing that causes inconvenience by small RZD’s customers is the lack of inventory stock and of the possibility to send the cargoes according to the tariffs in Tariff Regulation #10-01 (what means that increase of transport loading is unavoidable). The Federal Antimonopoly Service stands up for them. It worked out the regulations of interaction for RZD with Freight One and Freight Two in placing freight cars at cargo shippers’ disposal. According to this regulation the daughter companies are to give their rolling stock to the holding, if it has the proper requests from customers. 
And the price of this transportation can’t be for the cargo owner more than the tariff in Price list. But this mechanism is entirely unprofitable for RZD’s daughter companies. Salman Babaev, General Director of JSC Freight One, said that he isn’t ready to give freight cars to the mother company.  Nevertheless if the regulation is accepted, the ‘daughters’ won’t have any other choice. The build-up of Freight Two (and the future appearance of carrier without freight cars) aggravated a lot problems facing the market now, and forced regulators and RZD to speed up the process of finding the solutions. 
Just like that, they resumed the work at the base federal laws. The representatives of operator companies note, that in conditions when the carrier has no cars, their liability to the market grows automatically. In this regard, review of the law ‘About railway transport in Russian federation’ becomes urgent as never before: inclusion of new rules and regulations on operators’ rights and obligations. Such amendments have already been elaborated at the Ministry of Transport. At the beginning of the year other important documents about the cooperation between carrier and client were passed. 
The work on this document lasted more than a year, and actually it’s a list of criteria, on what grounds it will be possible to refuse the transportation to the cargo owner. But more likely it will be valid only in case of regulations’ adoption about the placing at RZD’s disposal of Freight One’s and Freight Two’s rolling stock (it isn’t provided in the list as ground for refuse as lack of freight cars). Strongly are resolved the problems in managing private rolling stock and minimization of growing empty runs.
So work on the Transportation rules of the private empty cars is at the final stage thanks to the active participation of operators. On the basis of Freight One is developed and given trial runs information program, what makes it possible to minimize the empty running of private cars. Corporate Transportation Services offered a mechanism for agent contract conclusion, which helps to manage the consolidated rolling stock of private operators.
In this way 2011 can be the year of constructive discussion on the hot topics of rolling stock management.
There is no way to step back: the inventory stock will stop existing and so there is a little time to solve the problems of all attendants to these processes. 
By Nadezhda Vtorushina

viewpoint
Vitaliy Evdokimenko,
General Director First Cargo Company:
– The company will manage the rolling stock by itself, at the end of the formation stage of commercial infrastructure and after the forming of a production sales network. Furthermore, we don’t exclude the possibility of using agents for the sale of our services. The question of rendering transport services with the use of Corporate Transportation Services to the cargo owners has been discussed. All these measures should provide for the gradual entry of the company to the market.

Valeriy Shpakov,
General Director “New transportation company” (Group of Companies Globaltrans):
– We forecast competition escalation, but we don’t link it to Freight Two’s build-up. The point is that the quantity of freight cars in RZD’s network didn’t change after Freight Two’s appearance. Only the owner has changed. Moreover, we have an absolutely clear understanding that the main goal of the build-up of the railway cargo Company is the solution of the guarantees problem by the export and import of production for cargo shippers. On the competitive advantages of market’s participants depend the directions, on what and with what cargo type they will work.

Vladimir Prokofyev,
President of Association of the carriers and rolling stock operators, General Director of BaltTransService:
– Taking into account that Freight One became the most important and hard-to-get stock (first of all tanks and gondola cars), Freight Two became mainly the part of stock that is difficult to route, i.e. covered cars. In this connection I think that the profitability of Freight Two will be a little less than Freight One’s. But on the other hand it isn’t ruled out that the competition struggle will become aggravated in some sectors, where specialized rolling stock (covered cars, boxcars) operate.
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            [ELEMENT_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/22.jpg" border="1" alt=" " hspace="5" width="200" height="264" align="left" />Last year in the Russian Federation another daughter company of JSC RZD was founded -  Freight Two (Second Cargo Company). This sparked a countdown to the final and definitive transition of inventory stock (freight cars that belonged to the state carrier and infrastructure owner – RZD) to the private sector. It is exactly that what many customers were concerned about.
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Goal: To be among the top three 
The RZD’s new daughter company was registered in Yekaterinburg. Last year at the end of September it started its economic activities. The planned, authorized capital of Freight Two amounts to 46,6 billion rubles with more than 150,000 freight cars and 200 million rubles from the parent company. 
The inventory stock transfer started last year and would be completed at the 3rd quarter 2011. As a result the stock of company will exceed 180,000 freight cars (including more than 20,000 units, which are leased by RZD now). As experts predicted, the company’s market share in 2015 will make up 22%.  
Among the strategic objectives of its founding set by RZD were: to be among the top three Russian operators, to guarantee the increase of the parent’s holding cost and prepare for IPO 2 years after the build-up. At the present time more than 50,000 freight cars have been transferred to the possession of Freight Two. The company leased them to Freight One (First Cargo Company) and other operators. Freight Two will receive about 60,000 freight cars before the end of March, and probably some of them will also be leased. 
However, it has been promised that the company will manage part of the given stock from the second quarter. Freight Two plans to organize the necessary commercial infrastructure by September, so authorized capital stock will be formed. According to the estimates of First Deputy Director of Freight One Igor Asaturov, after Freight Two starts its work, RZD’s share of freight cars in common stock will come down from 30% to 7%. During the first period Freight Two will have about 16% of stock, and Freight One’s will amount about 21-22% (at least in the current year).
‘We have already experienced Freight One, so we’ll experience Freight Two too’.
Besides the transferred freight cars (which are far from being new), Freight Two will be completed with new rolling stock. In November last year, Freight Two has already closed a deal for 5 years with CJSC Tikhvin Railway Car Building Plant (it starts rolling-stock production this year). They concluded an agreement ‘about cooperation in the field with adoption of innovation in railway engineering’. 
According to this contract, Freight Two is ready to buy during the next 2 years freight cars, including cars on the innovative bogie Barber S-2-R. The exact volumes in the medium- and long-term perspective of rolling stock and TVSZ component purchases are still uncertain. It will be clear in the near future.
Moreover it was declared that Freight Two was founded as a universal network rolling stock operator, focusing on carriage and block trains of coal, ore, mineral construction materials and timber goods. But in December Vitaliy Evdokimenko, general director of Freight Two, said that his company plans to buy 3,600 tanks a year from 2013 and, by 2015, to take at least 5% of the oil transportation market. We asked the representatives of operator companies if they were concerned about Freight Two’s appearance, and most of them answered: “We have already experienced Freight One, so we’ll experience Freight Two too”. But at the same time a lot of them pointed out that there will be an escalation of competition and redistribution in the sphere of influence. 
The Market Council consider that the phase of intensive investment of private capital into rolling stock will actually be completed after the liquidation of inventory stock and the further sale of Freight One. Taking into account the possibilities, in the Target model of transportation to 2015, locomotives will become the new focus for investment. It is not ruled out that, after completion of the reform in 2015, there will be 3-4 large operator companies left, including Freight One and Freight Two. But it will be in the future.

Under the protection of antimonopoly bodies
The thing that causes inconvenience by small RZD’s customers is the lack of inventory stock and of the possibility to send the cargoes according to the tariffs in Tariff Regulation #10-01 (what means that increase of transport loading is unavoidable). The Federal Antimonopoly Service stands up for them. It worked out the regulations of interaction for RZD with Freight One and Freight Two in placing freight cars at cargo shippers’ disposal. According to this regulation the daughter companies are to give their rolling stock to the holding, if it has the proper requests from customers. 
And the price of this transportation can’t be for the cargo owner more than the tariff in Price list. But this mechanism is entirely unprofitable for RZD’s daughter companies. Salman Babaev, General Director of JSC Freight One, said that he isn’t ready to give freight cars to the mother company.  Nevertheless if the regulation is accepted, the ‘daughters’ won’t have any other choice. The build-up of Freight Two (and the future appearance of carrier without freight cars) aggravated a lot problems facing the market now, and forced regulators and RZD to speed up the process of finding the solutions. 
Just like that, they resumed the work at the base federal laws. The representatives of operator companies note, that in conditions when the carrier has no cars, their liability to the market grows automatically. In this regard, review of the law ‘About railway transport in Russian federation’ becomes urgent as never before: inclusion of new rules and regulations on operators’ rights and obligations. Such amendments have already been elaborated at the Ministry of Transport. At the beginning of the year other important documents about the cooperation between carrier and client were passed. 
The work on this document lasted more than a year, and actually it’s a list of criteria, on what grounds it will be possible to refuse the transportation to the cargo owner. But more likely it will be valid only in case of regulations’ adoption about the placing at RZD’s disposal of Freight One’s and Freight Two’s rolling stock (it isn’t provided in the list as ground for refuse as lack of freight cars). Strongly are resolved the problems in managing private rolling stock and minimization of growing empty runs.
So work on the Transportation rules of the private empty cars is at the final stage thanks to the active participation of operators. On the basis of Freight One is developed and given trial runs information program, what makes it possible to minimize the empty running of private cars. Corporate Transportation Services offered a mechanism for agent contract conclusion, which helps to manage the consolidated rolling stock of private operators.
In this way 2011 can be the year of constructive discussion on the hot topics of rolling stock management.
There is no way to step back: the inventory stock will stop existing and so there is a little time to solve the problems of all attendants to these processes. 
By Nadezhda Vtorushina

viewpoint
Vitaliy Evdokimenko,
General Director First Cargo Company:
– The company will manage the rolling stock by itself, at the end of the formation stage of commercial infrastructure and after the forming of a production sales network. Furthermore, we don’t exclude the possibility of using agents for the sale of our services. The question of rendering transport services with the use of Corporate Transportation Services to the cargo owners has been discussed. All these measures should provide for the gradual entry of the company to the market.

Valeriy Shpakov,
General Director “New transportation company” (Group of Companies Globaltrans):
– We forecast competition escalation, but we don’t link it to Freight Two’s build-up. The point is that the quantity of freight cars in RZD’s network didn’t change after Freight Two’s appearance. Only the owner has changed. Moreover, we have an absolutely clear understanding that the main goal of the build-up of the railway cargo Company is the solution of the guarantees problem by the export and import of production for cargo shippers. On the competitive advantages of market’s participants depend the directions, on what and with what cargo type they will work.

Vladimir Prokofyev,
President of Association of the carriers and rolling stock operators, General Director of BaltTransService:
– Taking into account that Freight One became the most important and hard-to-get stock (first of all tanks and gondola cars), Freight Two became mainly the part of stock that is difficult to route, i.e. covered cars. In this connection I think that the profitability of Freight Two will be a little less than Freight One’s. But on the other hand it isn’t ruled out that the competition struggle will become aggravated in some sectors, where specialized rolling stock (covered cars, boxcars) operate.
    [~DETAIL_TEXT] => 
Goal: To be among the top three 
The RZD’s new daughter company was registered in Yekaterinburg. Last year at the end of September it started its economic activities. The planned, authorized capital of Freight Two amounts to 46,6 billion rubles with more than 150,000 freight cars and 200 million rubles from the parent company. 
The inventory stock transfer started last year and would be completed at the 3rd quarter 2011. As a result the stock of company will exceed 180,000 freight cars (including more than 20,000 units, which are leased by RZD now). As experts predicted, the company’s market share in 2015 will make up 22%.  
Among the strategic objectives of its founding set by RZD were: to be among the top three Russian operators, to guarantee the increase of the parent’s holding cost and prepare for IPO 2 years after the build-up. At the present time more than 50,000 freight cars have been transferred to the possession of Freight Two. The company leased them to Freight One (First Cargo Company) and other operators. Freight Two will receive about 60,000 freight cars before the end of March, and probably some of them will also be leased. 
However, it has been promised that the company will manage part of the given stock from the second quarter. Freight Two plans to organize the necessary commercial infrastructure by September, so authorized capital stock will be formed. According to the estimates of First Deputy Director of Freight One Igor Asaturov, after Freight Two starts its work, RZD’s share of freight cars in common stock will come down from 30% to 7%. During the first period Freight Two will have about 16% of stock, and Freight One’s will amount about 21-22% (at least in the current year).
‘We have already experienced Freight One, so we’ll experience Freight Two too’.
Besides the transferred freight cars (which are far from being new), Freight Two will be completed with new rolling stock. In November last year, Freight Two has already closed a deal for 5 years with CJSC Tikhvin Railway Car Building Plant (it starts rolling-stock production this year). They concluded an agreement ‘about cooperation in the field with adoption of innovation in railway engineering’. 
According to this contract, Freight Two is ready to buy during the next 2 years freight cars, including cars on the innovative bogie Barber S-2-R. The exact volumes in the medium- and long-term perspective of rolling stock and TVSZ component purchases are still uncertain. It will be clear in the near future.
Moreover it was declared that Freight Two was founded as a universal network rolling stock operator, focusing on carriage and block trains of coal, ore, mineral construction materials and timber goods. But in December Vitaliy Evdokimenko, general director of Freight Two, said that his company plans to buy 3,600 tanks a year from 2013 and, by 2015, to take at least 5% of the oil transportation market. We asked the representatives of operator companies if they were concerned about Freight Two’s appearance, and most of them answered: “We have already experienced Freight One, so we’ll experience Freight Two too”. But at the same time a lot of them pointed out that there will be an escalation of competition and redistribution in the sphere of influence. 
The Market Council consider that the phase of intensive investment of private capital into rolling stock will actually be completed after the liquidation of inventory stock and the further sale of Freight One. Taking into account the possibilities, in the Target model of transportation to 2015, locomotives will become the new focus for investment. It is not ruled out that, after completion of the reform in 2015, there will be 3-4 large operator companies left, including Freight One and Freight Two. But it will be in the future.

Under the protection of antimonopoly bodies
The thing that causes inconvenience by small RZD’s customers is the lack of inventory stock and of the possibility to send the cargoes according to the tariffs in Tariff Regulation #10-01 (what means that increase of transport loading is unavoidable). The Federal Antimonopoly Service stands up for them. It worked out the regulations of interaction for RZD with Freight One and Freight Two in placing freight cars at cargo shippers’ disposal. According to this regulation the daughter companies are to give their rolling stock to the holding, if it has the proper requests from customers. 
And the price of this transportation can’t be for the cargo owner more than the tariff in Price list. But this mechanism is entirely unprofitable for RZD’s daughter companies. Salman Babaev, General Director of JSC Freight One, said that he isn’t ready to give freight cars to the mother company.  Nevertheless if the regulation is accepted, the ‘daughters’ won’t have any other choice. The build-up of Freight Two (and the future appearance of carrier without freight cars) aggravated a lot problems facing the market now, and forced regulators and RZD to speed up the process of finding the solutions. 
Just like that, they resumed the work at the base federal laws. The representatives of operator companies note, that in conditions when the carrier has no cars, their liability to the market grows automatically. In this regard, review of the law ‘About railway transport in Russian federation’ becomes urgent as never before: inclusion of new rules and regulations on operators’ rights and obligations. Such amendments have already been elaborated at the Ministry of Transport. At the beginning of the year other important documents about the cooperation between carrier and client were passed. 
The work on this document lasted more than a year, and actually it’s a list of criteria, on what grounds it will be possible to refuse the transportation to the cargo owner. But more likely it will be valid only in case of regulations’ adoption about the placing at RZD’s disposal of Freight One’s and Freight Two’s rolling stock (it isn’t provided in the list as ground for refuse as lack of freight cars). Strongly are resolved the problems in managing private rolling stock and minimization of growing empty runs.
So work on the Transportation rules of the private empty cars is at the final stage thanks to the active participation of operators. On the basis of Freight One is developed and given trial runs information program, what makes it possible to minimize the empty running of private cars. Corporate Transportation Services offered a mechanism for agent contract conclusion, which helps to manage the consolidated rolling stock of private operators.
In this way 2011 can be the year of constructive discussion on the hot topics of rolling stock management.
There is no way to step back: the inventory stock will stop existing and so there is a little time to solve the problems of all attendants to these processes. 
By Nadezhda Vtorushina

viewpoint
Vitaliy Evdokimenko,
General Director First Cargo Company:
– The company will manage the rolling stock by itself, at the end of the formation stage of commercial infrastructure and after the forming of a production sales network. Furthermore, we don’t exclude the possibility of using agents for the sale of our services. The question of rendering transport services with the use of Corporate Transportation Services to the cargo owners has been discussed. All these measures should provide for the gradual entry of the company to the market.

Valeriy Shpakov,
General Director “New transportation company” (Group of Companies Globaltrans):
– We forecast competition escalation, but we don’t link it to Freight Two’s build-up. The point is that the quantity of freight cars in RZD’s network didn’t change after Freight Two’s appearance. Only the owner has changed. Moreover, we have an absolutely clear understanding that the main goal of the build-up of the railway cargo Company is the solution of the guarantees problem by the export and import of production for cargo shippers. On the competitive advantages of market’s participants depend the directions, on what and with what cargo type they will work.

Vladimir Prokofyev,
President of Association of the carriers and rolling stock operators, General Director of BaltTransService:
– Taking into account that Freight One became the most important and hard-to-get stock (first of all tanks and gondola cars), Freight Two became mainly the part of stock that is difficult to route, i.e. covered cars. In this connection I think that the profitability of Freight Two will be a little less than Freight One’s. But on the other hand it isn’t ruled out that the competition struggle will become aggravated in some sectors, where specialized rolling stock (covered cars, boxcars) operate.
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VTB Capital: Globaltrans will buy 5,000 railcars in 15 months to avoid price growth 
 ‘Globaltrans, Russia’s largest private operator, plans to purchase 5,000 gondola cars in the next 15 months to avoid additional growth in prices for rolling stock,’ wrote VTB Capital in its review, created using information received in individual meetings with the company’s top-managers at the ‘Russia Calling!’ Forum at the beginning of October. 
‘Prices for gondola cars have leapt by 30% since the beginning of the year. Nowadays, they amount to $55,000-60,000,’  explained the investment company.
According to VTB Capital’s information, in the short-term, Globaltrans will concentrate on ‘organic growth’. Meanwhile, the operator works hard to improve the efficiency of its transportation. In particular, the empty run coefficient fell from 42% at the end of H1 to 38-39% in September. The forecast for 2010 was 40%. ‘It is a good result for a the post-crisis year, especially if we consider the 20% enlargement of the park and significant changes in logistics,’ wrote VTB Capital.

STM is going to create a next generation diesel locomotive 
A meeting of a scientific and technical council took place in Yekaterinburg on October 26, 2010. It was devoted to development of a next generation shunting diesel locomotive with a hybrid power supply unit. The meeting was initiated by Sinara – Transport Machines (STM, incorporated into Sinara group of companies). 
Representatives of leading institutes and enterprises developing and manufacturing new equipment took part in the meeting.
In the words of Vladimir Melnikov, CEO of Sinara – Transport Machines, nowadays the company’s specialists are examining the technical solutions for a hybrid power supply unit for next generations diesel locomotives offered by Russian leading manufacturers. ‘The company’s target is to develop a shunting locomotive with the best technical, ergonomic, and ecological characteristics of this class,’ emphasised 
Mr Melnikov.

295 electric locomotives for Kazakhstan railways
On October 26, Locomotive JSC (a subsidiary of National Company “Kazakhstan Temir Zholy” (KTZ) JSC) and Electrovoz Kurastyru Zauyty LLP (a joint venture of Kazakhstan Temir Zholy, Transmashholding (TMH) and French Alstom Transport) signed in Paris a contract for the delivery of freight and passenger electric locomotives. 
The signing ceremony took place in the presence of the President of France Nicolas Sarkozy and the President of the Republic of Kazakhstan Nursultan Nazarbaev. The President of Kazakhstan Temir Zholy Askar Mamin, the Director General of Transmashholding Andrey Andreev and the President of Alstom Transport Philipp Mellier also participated in the event.
In accordance with the contract, by 2021 Kazakhstan railways will receive a total of 295 electric locomotives – 200 of which are KZ8A main line freight alternating current electric locomotives and 95 KZ4A passenger alternating current electric locomotives.
The contract envisages the foundation of an assembly plant on the territory of Kazakhstan. Components for electric locomotives will be produced in Kazakhstan and in Russia.
Prototype models of the electric locomotives are due to emerge in 2012, the first delivery is planned for 2013.
Setting up electric locomotive production in Kazakhstan is the first international project, which is implemented within the frame of Transmashholding and Alstom Transport strategic partnership. 

Freight Two plans to take a 5% share of oil transportation market in Russia by 2015	
Freight Two (a daughter company of RZD) planned to purchase up to 14,000 tank wagons by 2015 and win a 5% share of oil transportation market in Russia, said Vitaly Evdokimenko, CEO of Freight Two, at a meeting of consignors and RZD representatives in Ekaterinburg in late October. 
In his words, nowadays the company has no tank wagons. The Head of Freight Two said that the company was going to buy 4,000 gondola cars and 4,000 wagons of other types in 2011. The subsidiary of RZD intends to purchase 77,000 railcars over five years. Now, it is holding negotiations with wagon building enterprises, in particular with Uralvagonzavod, Tikhvin Wagon Building Plant, and Tatravagonka.
In the words of Mr Evdokimenko, by 2015, the company’s park will amount to 215,000 units. Of that, about 20,000 railcars will operate on the territory of the CIS and the Baltic states.
‘The market cost of the assets given to the authorised capital is RUR 46.2 billion. At the beginning of 2011, it will amount to approximately RUR 67 billion. I think, the company’s costs will grow several times over by 2015, which will allow to attract private investors,’ he said.

Sovcomflot and United Shipbuilding Corporation sign an agreement	
SCF Group and Zvezda-DSME, the JV between United Shipbuilding Corporation (USC) and Daewoo Shipbuilding & Marine Engineering Co. Ltd (DSME), completed negotiations and signed agreements for the construction of a series of tankers designed for the transportation of crude oil and oil products. 
The agreements envisage the construction of six vessels between 2012 and 2014, including two LR2 product carriers (117,800 dwt, ice class 1C according to international classification) and four Aframax tankers, designed to carry crude oil (120,600 dwt). The agreements include an owner’s option for the construction of six more Aframax and LR2 ships.
The President of USC Roman Trotsenko noted: “During the construction of the first two tankers at DSME yard, in the Republic of Korea, intensive training of the JV ‘Zvezda-DSME’ personnel will take place. The process of mastering modern shipbuilding technologies by Russian specialists will be arranged. Part of the block hull construction of the third and the fourth tankers will be performed at the new yard ‘Zvezda-DSME’. The fifth and the sixth tankers will be entirely constructed in Russia. The personnel training programme and mastering of modern shipbuilding technologies will allow, in time, the construction of ships and marine equipment to start at the new yard ‘Zvezda-DSME.’
The first tanker built for Sovcomflot Group, as part of a joint project ‘Zvezda-DSME’, is expected to be delivered for operation in the middle of 2012.

TransGroup and Freight One may launch a JV to transport chemicals
TransGroup and Freight One are discussing a possible partnership in the liquid chemicals transportation sector, said Maxim Liksutov, Chairman of the Board of Directors of TransGroup AS, at the High Speed Rail World 2010 forum in Madrid in November, 2010. 
Some clients of Freight One have such cargo, but the company lacks specialist tank wagons. Meanwhile, TransGroup has some experience in transportation of this type, Mr Liksutov explained.
Speaking of the forms of partnership, Mr Liksov told that a JV is possible as well as Freight One’s entrance into the capital of one of TransGroup’s profile companies. In particular, Neftetransport, one of Russian largest operators specialising in chemicals transportation, is incorporated in the holding company. There are approximately 10,000 railcars in its park; of that, about 5,000 railcars belong to the company.
In the words of Mr Liksutov, it is too early to speak about possible shareholdings in the JV. ‘Freight One wants to understand whether the segment is of interest,’ he said.

BT Signaling BV buys stake in Russian Railways subsidiary
On December 13, Russian Railways and BT Signaling BV signed an agreement on BT Signaling BV’s purchase of up to 50% minus 2 ordinary shares in United Electrical Engineering Plants (Elteza) from RZD. The agreement was signed on behalf of Russian Railways by company president Vladimir Yakunin, and on behalf of BT Signaling BV by Pierre Beaudoin, CEO of Bombardier Inc. 
Speaking at the signing ceremony, RZD President Vladimir Yakunin said: ‘Russian Railways has enjoyed a long and productive working relationship with Bombardier Transportation. For Russian Railways, it’s crucially important to attract a global-level company to create a joint venture. We fully appreciate that the market of Elteza’s products is an intense, highly competitive environment. Bombardier won the tender fairly. We, in turn, will fulfill all our obligations under the agreement.’
According to the agreement, Bombardier Transportation will offer Elteza licences, and also support the handover and adaptation of technology necessary for the production of modern railway signalling, interlocking and blocking systems.
Working with Bombardier, a global leader in rail technology, as a partner in the design, production and installation of railway signaling, interlocking and blocking systems is in line with Elteza’s strategic development goals, and will enable Russian Railways to improve the efficiency and safety of railway transport through the use of modern high-tech telemechanics and automatics systems in Russian production. The sale of the stake in Elteza is expected to be finalised in the first quarter of 2011, if all conditions set out in the agreement are met, including the receipt of approval from state authorities.

Transgarant buys 100 new covered wagons from SDS-Mash
In November 2010, Transgarant and SDS-Mash holding company signed a contract on the railway operator’s purchase of 100 new covered wagons with a car body volume of 138 m3 (11-280 model produced by Altaivagon). 
All the wagons were delivered in December 2010.
In the words of Alexei Grom, Managing Director of Transgarant, the new wagons will be used for paper and consumer goods transportation in the framework of long-term contracts with Mondy Business Paper Syktyvkarsky LPK and Nurminen Logistics.
Nowadays, Transgarant manages a park of 15,837 railcars. Of that, the number of covered wagons is 1,147 units.

RZD plans to buy 1,250 locomotives in 2011-2013
‘The locomotive fleet has traditionally been one of the key elements of the network’s operations. Its efficiency and reliability dictates not only the rhythm and results of the company’s work, but also the quality of freight and passenger services,’ Vladimir Yakunin, President of RZD, said.
He added that current reforms of the locomotive fleet should lead to substantially improved operational efficiency, with a 16% increase in locomotive productivity by 2015.
‘Russian Railways is now switching to new principles of partnership with railway equipment producers, harmonised with European standards. These are focused on comprehensive safety parameters, operational readiness, and lifecycle cost of equipment, which will define the company’s technical policies in its relations with workers and producers’, Mr Yakunin said.
For example, the electric passenger locomotive EP20 is being developed at Transmashholding’s Novocherkassk Electric Locomotive Plant, in conjunction with Alstom. In November 2010, the Sinara Group and Siemens finished work on a test model of a next-generation 2ES10 electric freight locomotive. In total, Russian Railways plans to buy 1,250 locomotives between 2011 and 2013 at a cost of over 112 billion rubles.
Russian Railways currently has more than 13,000 locomotives in use.
    [~DETAIL_TEXT] => 
VTB Capital: Globaltrans will buy 5,000 railcars in 15 months to avoid price growth 
 ‘Globaltrans, Russia’s largest private operator, plans to purchase 5,000 gondola cars in the next 15 months to avoid additional growth in prices for rolling stock,’ wrote VTB Capital in its review, created using information received in individual meetings with the company’s top-managers at the ‘Russia Calling!’ Forum at the beginning of October. 
‘Prices for gondola cars have leapt by 30% since the beginning of the year. Nowadays, they amount to $55,000-60,000,’  explained the investment company.
According to VTB Capital’s information, in the short-term, Globaltrans will concentrate on ‘organic growth’. Meanwhile, the operator works hard to improve the efficiency of its transportation. In particular, the empty run coefficient fell from 42% at the end of H1 to 38-39% in September. The forecast for 2010 was 40%. ‘It is a good result for a the post-crisis year, especially if we consider the 20% enlargement of the park and significant changes in logistics,’ wrote VTB Capital.

STM is going to create a next generation diesel locomotive 
A meeting of a scientific and technical council took place in Yekaterinburg on October 26, 2010. It was devoted to development of a next generation shunting diesel locomotive with a hybrid power supply unit. The meeting was initiated by Sinara – Transport Machines (STM, incorporated into Sinara group of companies). 
Representatives of leading institutes and enterprises developing and manufacturing new equipment took part in the meeting.
In the words of Vladimir Melnikov, CEO of Sinara – Transport Machines, nowadays the company’s specialists are examining the technical solutions for a hybrid power supply unit for next generations diesel locomotives offered by Russian leading manufacturers. ‘The company’s target is to develop a shunting locomotive with the best technical, ergonomic, and ecological characteristics of this class,’ emphasised 
Mr Melnikov.

295 electric locomotives for Kazakhstan railways
On October 26, Locomotive JSC (a subsidiary of National Company “Kazakhstan Temir Zholy” (KTZ) JSC) and Electrovoz Kurastyru Zauyty LLP (a joint venture of Kazakhstan Temir Zholy, Transmashholding (TMH) and French Alstom Transport) signed in Paris a contract for the delivery of freight and passenger electric locomotives. 
The signing ceremony took place in the presence of the President of France Nicolas Sarkozy and the President of the Republic of Kazakhstan Nursultan Nazarbaev. The President of Kazakhstan Temir Zholy Askar Mamin, the Director General of Transmashholding Andrey Andreev and the President of Alstom Transport Philipp Mellier also participated in the event.
In accordance with the contract, by 2021 Kazakhstan railways will receive a total of 295 electric locomotives – 200 of which are KZ8A main line freight alternating current electric locomotives and 95 KZ4A passenger alternating current electric locomotives.
The contract envisages the foundation of an assembly plant on the territory of Kazakhstan. Components for electric locomotives will be produced in Kazakhstan and in Russia.
Prototype models of the electric locomotives are due to emerge in 2012, the first delivery is planned for 2013.
Setting up electric locomotive production in Kazakhstan is the first international project, which is implemented within the frame of Transmashholding and Alstom Transport strategic partnership. 

Freight Two plans to take a 5% share of oil transportation market in Russia by 2015	
Freight Two (a daughter company of RZD) planned to purchase up to 14,000 tank wagons by 2015 and win a 5% share of oil transportation market in Russia, said Vitaly Evdokimenko, CEO of Freight Two, at a meeting of consignors and RZD representatives in Ekaterinburg in late October. 
In his words, nowadays the company has no tank wagons. The Head of Freight Two said that the company was going to buy 4,000 gondola cars and 4,000 wagons of other types in 2011. The subsidiary of RZD intends to purchase 77,000 railcars over five years. Now, it is holding negotiations with wagon building enterprises, in particular with Uralvagonzavod, Tikhvin Wagon Building Plant, and Tatravagonka.
In the words of Mr Evdokimenko, by 2015, the company’s park will amount to 215,000 units. Of that, about 20,000 railcars will operate on the territory of the CIS and the Baltic states.
‘The market cost of the assets given to the authorised capital is RUR 46.2 billion. At the beginning of 2011, it will amount to approximately RUR 67 billion. I think, the company’s costs will grow several times over by 2015, which will allow to attract private investors,’ he said.

Sovcomflot and United Shipbuilding Corporation sign an agreement	
SCF Group and Zvezda-DSME, the JV between United Shipbuilding Corporation (USC) and Daewoo Shipbuilding & Marine Engineering Co. Ltd (DSME), completed negotiations and signed agreements for the construction of a series of tankers designed for the transportation of crude oil and oil products. 
The agreements envisage the construction of six vessels between 2012 and 2014, including two LR2 product carriers (117,800 dwt, ice class 1C according to international classification) and four Aframax tankers, designed to carry crude oil (120,600 dwt). The agreements include an owner’s option for the construction of six more Aframax and LR2 ships.
The President of USC Roman Trotsenko noted: “During the construction of the first two tankers at DSME yard, in the Republic of Korea, intensive training of the JV ‘Zvezda-DSME’ personnel will take place. The process of mastering modern shipbuilding technologies by Russian specialists will be arranged. Part of the block hull construction of the third and the fourth tankers will be performed at the new yard ‘Zvezda-DSME’. The fifth and the sixth tankers will be entirely constructed in Russia. The personnel training programme and mastering of modern shipbuilding technologies will allow, in time, the construction of ships and marine equipment to start at the new yard ‘Zvezda-DSME.’
The first tanker built for Sovcomflot Group, as part of a joint project ‘Zvezda-DSME’, is expected to be delivered for operation in the middle of 2012.

TransGroup and Freight One may launch a JV to transport chemicals
TransGroup and Freight One are discussing a possible partnership in the liquid chemicals transportation sector, said Maxim Liksutov, Chairman of the Board of Directors of TransGroup AS, at the High Speed Rail World 2010 forum in Madrid in November, 2010. 
Some clients of Freight One have such cargo, but the company lacks specialist tank wagons. Meanwhile, TransGroup has some experience in transportation of this type, Mr Liksutov explained.
Speaking of the forms of partnership, Mr Liksov told that a JV is possible as well as Freight One’s entrance into the capital of one of TransGroup’s profile companies. In particular, Neftetransport, one of Russian largest operators specialising in chemicals transportation, is incorporated in the holding company. There are approximately 10,000 railcars in its park; of that, about 5,000 railcars belong to the company.
In the words of Mr Liksutov, it is too early to speak about possible shareholdings in the JV. ‘Freight One wants to understand whether the segment is of interest,’ he said.

BT Signaling BV buys stake in Russian Railways subsidiary
On December 13, Russian Railways and BT Signaling BV signed an agreement on BT Signaling BV’s purchase of up to 50% minus 2 ordinary shares in United Electrical Engineering Plants (Elteza) from RZD. The agreement was signed on behalf of Russian Railways by company president Vladimir Yakunin, and on behalf of BT Signaling BV by Pierre Beaudoin, CEO of Bombardier Inc. 
Speaking at the signing ceremony, RZD President Vladimir Yakunin said: ‘Russian Railways has enjoyed a long and productive working relationship with Bombardier Transportation. For Russian Railways, it’s crucially important to attract a global-level company to create a joint venture. We fully appreciate that the market of Elteza’s products is an intense, highly competitive environment. Bombardier won the tender fairly. We, in turn, will fulfill all our obligations under the agreement.’
According to the agreement, Bombardier Transportation will offer Elteza licences, and also support the handover and adaptation of technology necessary for the production of modern railway signalling, interlocking and blocking systems.
Working with Bombardier, a global leader in rail technology, as a partner in the design, production and installation of railway signaling, interlocking and blocking systems is in line with Elteza’s strategic development goals, and will enable Russian Railways to improve the efficiency and safety of railway transport through the use of modern high-tech telemechanics and automatics systems in Russian production. The sale of the stake in Elteza is expected to be finalised in the first quarter of 2011, if all conditions set out in the agreement are met, including the receipt of approval from state authorities.

Transgarant buys 100 new covered wagons from SDS-Mash
In November 2010, Transgarant and SDS-Mash holding company signed a contract on the railway operator’s purchase of 100 new covered wagons with a car body volume of 138 m3 (11-280 model produced by Altaivagon). 
All the wagons were delivered in December 2010.
In the words of Alexei Grom, Managing Director of Transgarant, the new wagons will be used for paper and consumer goods transportation in the framework of long-term contracts with Mondy Business Paper Syktyvkarsky LPK and Nurminen Logistics.
Nowadays, Transgarant manages a park of 15,837 railcars. Of that, the number of covered wagons is 1,147 units.

RZD plans to buy 1,250 locomotives in 2011-2013
‘The locomotive fleet has traditionally been one of the key elements of the network’s operations. Its efficiency and reliability dictates not only the rhythm and results of the company’s work, but also the quality of freight and passenger services,’ Vladimir Yakunin, President of RZD, said.
He added that current reforms of the locomotive fleet should lead to substantially improved operational efficiency, with a 16% increase in locomotive productivity by 2015.
‘Russian Railways is now switching to new principles of partnership with railway equipment producers, harmonised with European standards. These are focused on comprehensive safety parameters, operational readiness, and lifecycle cost of equipment, which will define the company’s technical policies in its relations with workers and producers’, Mr Yakunin said.
For example, the electric passenger locomotive EP20 is being developed at Transmashholding’s Novocherkassk Electric Locomotive Plant, in conjunction with Alstom. In November 2010, the Sinara Group and Siemens finished work on a test model of a next-generation 2ES10 electric freight locomotive. In total, Russian Railways plans to buy 1,250 locomotives between 2011 and 2013 at a cost of over 112 billion rubles.
Russian Railways currently has more than 13,000 locomotives in use.
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VTB Capital: Globaltrans will buy 5,000 railcars in 15 months to avoid price growth 
 ‘Globaltrans, Russia’s largest private operator, plans to purchase 5,000 gondola cars in the next 15 months to avoid additional growth in prices for rolling stock,’ wrote VTB Capital in its review, created using information received in individual meetings with the company’s top-managers at the ‘Russia Calling!’ Forum at the beginning of October. 
‘Prices for gondola cars have leapt by 30% since the beginning of the year. Nowadays, they amount to $55,000-60,000,’  explained the investment company.
According to VTB Capital’s information, in the short-term, Globaltrans will concentrate on ‘organic growth’. Meanwhile, the operator works hard to improve the efficiency of its transportation. In particular, the empty run coefficient fell from 42% at the end of H1 to 38-39% in September. The forecast for 2010 was 40%. ‘It is a good result for a the post-crisis year, especially if we consider the 20% enlargement of the park and significant changes in logistics,’ wrote VTB Capital.

STM is going to create a next generation diesel locomotive 
A meeting of a scientific and technical council took place in Yekaterinburg on October 26, 2010. It was devoted to development of a next generation shunting diesel locomotive with a hybrid power supply unit. The meeting was initiated by Sinara – Transport Machines (STM, incorporated into Sinara group of companies). 
Representatives of leading institutes and enterprises developing and manufacturing new equipment took part in the meeting.
In the words of Vladimir Melnikov, CEO of Sinara – Transport Machines, nowadays the company’s specialists are examining the technical solutions for a hybrid power supply unit for next generations diesel locomotives offered by Russian leading manufacturers. ‘The company’s target is to develop a shunting locomotive with the best technical, ergonomic, and ecological characteristics of this class,’ emphasised 
Mr Melnikov.

295 electric locomotives for Kazakhstan railways
On October 26, Locomotive JSC (a subsidiary of National Company “Kazakhstan Temir Zholy” (KTZ) JSC) and Electrovoz Kurastyru Zauyty LLP (a joint venture of Kazakhstan Temir Zholy, Transmashholding (TMH) and French Alstom Transport) signed in Paris a contract for the delivery of freight and passenger electric locomotives. 
The signing ceremony took place in the presence of the President of France Nicolas Sarkozy and the President of the Republic of Kazakhstan Nursultan Nazarbaev. The President of Kazakhstan Temir Zholy Askar Mamin, the Director General of Transmashholding Andrey Andreev and the President of Alstom Transport Philipp Mellier also participated in the event.
In accordance with the contract, by 2021 Kazakhstan railways will receive a total of 295 electric locomotives – 200 of which are KZ8A main line freight alternating current electric locomotives and 95 KZ4A passenger alternating current electric locomotives.
The contract envisages the foundation of an assembly plant on the territory of Kazakhstan. Components for electric locomotives will be produced in Kazakhstan and in Russia.
Prototype models of the electric locomotives are due to emerge in 2012, the first delivery is planned for 2013.
Setting up electric locomotive production in Kazakhstan is the first international project, which is implemented within the frame of Transmashholding and Alstom Transport strategic partnership. 

Freight Two plans to take a 5% share of oil transportation market in Russia by 2015	
Freight Two (a daughter company of RZD) planned to purchase up to 14,000 tank wagons by 2015 and win a 5% share of oil transportation market in Russia, said Vitaly Evdokimenko, CEO of Freight Two, at a meeting of consignors and RZD representatives in Ekaterinburg in late October. 
In his words, nowadays the company has no tank wagons. The Head of Freight Two said that the company was going to buy 4,000 gondola cars and 4,000 wagons of other types in 2011. The subsidiary of RZD intends to purchase 77,000 railcars over five years. Now, it is holding negotiations with wagon building enterprises, in particular with Uralvagonzavod, Tikhvin Wagon Building Plant, and Tatravagonka.
In the words of Mr Evdokimenko, by 2015, the company’s park will amount to 215,000 units. Of that, about 20,000 railcars will operate on the territory of the CIS and the Baltic states.
‘The market cost of the assets given to the authorised capital is RUR 46.2 billion. At the beginning of 2011, it will amount to approximately RUR 67 billion. I think, the company’s costs will grow several times over by 2015, which will allow to attract private investors,’ he said.

Sovcomflot and United Shipbuilding Corporation sign an agreement	
SCF Group and Zvezda-DSME, the JV between United Shipbuilding Corporation (USC) and Daewoo Shipbuilding & Marine Engineering Co. Ltd (DSME), completed negotiations and signed agreements for the construction of a series of tankers designed for the transportation of crude oil and oil products. 
The agreements envisage the construction of six vessels between 2012 and 2014, including two LR2 product carriers (117,800 dwt, ice class 1C according to international classification) and four Aframax tankers, designed to carry crude oil (120,600 dwt). The agreements include an owner’s option for the construction of six more Aframax and LR2 ships.
The President of USC Roman Trotsenko noted: “During the construction of the first two tankers at DSME yard, in the Republic of Korea, intensive training of the JV ‘Zvezda-DSME’ personnel will take place. The process of mastering modern shipbuilding technologies by Russian specialists will be arranged. Part of the block hull construction of the third and the fourth tankers will be performed at the new yard ‘Zvezda-DSME’. The fifth and the sixth tankers will be entirely constructed in Russia. The personnel training programme and mastering of modern shipbuilding technologies will allow, in time, the construction of ships and marine equipment to start at the new yard ‘Zvezda-DSME.’
The first tanker built for Sovcomflot Group, as part of a joint project ‘Zvezda-DSME’, is expected to be delivered for operation in the middle of 2012.

TransGroup and Freight One may launch a JV to transport chemicals
TransGroup and Freight One are discussing a possible partnership in the liquid chemicals transportation sector, said Maxim Liksutov, Chairman of the Board of Directors of TransGroup AS, at the High Speed Rail World 2010 forum in Madrid in November, 2010. 
Some clients of Freight One have such cargo, but the company lacks specialist tank wagons. Meanwhile, TransGroup has some experience in transportation of this type, Mr Liksutov explained.
Speaking of the forms of partnership, Mr Liksov told that a JV is possible as well as Freight One’s entrance into the capital of one of TransGroup’s profile companies. In particular, Neftetransport, one of Russian largest operators specialising in chemicals transportation, is incorporated in the holding company. There are approximately 10,000 railcars in its park; of that, about 5,000 railcars belong to the company.
In the words of Mr Liksutov, it is too early to speak about possible shareholdings in the JV. ‘Freight One wants to understand whether the segment is of interest,’ he said.

BT Signaling BV buys stake in Russian Railways subsidiary
On December 13, Russian Railways and BT Signaling BV signed an agreement on BT Signaling BV’s purchase of up to 50% minus 2 ordinary shares in United Electrical Engineering Plants (Elteza) from RZD. The agreement was signed on behalf of Russian Railways by company president Vladimir Yakunin, and on behalf of BT Signaling BV by Pierre Beaudoin, CEO of Bombardier Inc. 
Speaking at the signing ceremony, RZD President Vladimir Yakunin said: ‘Russian Railways has enjoyed a long and productive working relationship with Bombardier Transportation. For Russian Railways, it’s crucially important to attract a global-level company to create a joint venture. We fully appreciate that the market of Elteza’s products is an intense, highly competitive environment. Bombardier won the tender fairly. We, in turn, will fulfill all our obligations under the agreement.’
According to the agreement, Bombardier Transportation will offer Elteza licences, and also support the handover and adaptation of technology necessary for the production of modern railway signalling, interlocking and blocking systems.
Working with Bombardier, a global leader in rail technology, as a partner in the design, production and installation of railway signaling, interlocking and blocking systems is in line with Elteza’s strategic development goals, and will enable Russian Railways to improve the efficiency and safety of railway transport through the use of modern high-tech telemechanics and automatics systems in Russian production. The sale of the stake in Elteza is expected to be finalised in the first quarter of 2011, if all conditions set out in the agreement are met, including the receipt of approval from state authorities.

Transgarant buys 100 new covered wagons from SDS-Mash
In November 2010, Transgarant and SDS-Mash holding company signed a contract on the railway operator’s purchase of 100 new covered wagons with a car body volume of 138 m3 (11-280 model produced by Altaivagon). 
All the wagons were delivered in December 2010.
In the words of Alexei Grom, Managing Director of Transgarant, the new wagons will be used for paper and consumer goods transportation in the framework of long-term contracts with Mondy Business Paper Syktyvkarsky LPK and Nurminen Logistics.
Nowadays, Transgarant manages a park of 15,837 railcars. Of that, the number of covered wagons is 1,147 units.

RZD plans to buy 1,250 locomotives in 2011-2013
‘The locomotive fleet has traditionally been one of the key elements of the network’s operations. Its efficiency and reliability dictates not only the rhythm and results of the company’s work, but also the quality of freight and passenger services,’ Vladimir Yakunin, President of RZD, said.
He added that current reforms of the locomotive fleet should lead to substantially improved operational efficiency, with a 16% increase in locomotive productivity by 2015.
‘Russian Railways is now switching to new principles of partnership with railway equipment producers, harmonised with European standards. These are focused on comprehensive safety parameters, operational readiness, and lifecycle cost of equipment, which will define the company’s technical policies in its relations with workers and producers’, Mr Yakunin said.
For example, the electric passenger locomotive EP20 is being developed at Transmashholding’s Novocherkassk Electric Locomotive Plant, in conjunction with Alstom. In November 2010, the Sinara Group and Siemens finished work on a test model of a next-generation 2ES10 electric freight locomotive. In total, Russian Railways plans to buy 1,250 locomotives between 2011 and 2013 at a cost of over 112 billion rubles.
Russian Railways currently has more than 13,000 locomotives in use.
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VTB Capital: Globaltrans will buy 5,000 railcars in 15 months to avoid price growth 
 ‘Globaltrans, Russia’s largest private operator, plans to purchase 5,000 gondola cars in the next 15 months to avoid additional growth in prices for rolling stock,’ wrote VTB Capital in its review, created using information received in individual meetings with the company’s top-managers at the ‘Russia Calling!’ Forum at the beginning of October. 
‘Prices for gondola cars have leapt by 30% since the beginning of the year. Nowadays, they amount to $55,000-60,000,’  explained the investment company.
According to VTB Capital’s information, in the short-term, Globaltrans will concentrate on ‘organic growth’. Meanwhile, the operator works hard to improve the efficiency of its transportation. In particular, the empty run coefficient fell from 42% at the end of H1 to 38-39% in September. The forecast for 2010 was 40%. ‘It is a good result for a the post-crisis year, especially if we consider the 20% enlargement of the park and significant changes in logistics,’ wrote VTB Capital.

STM is going to create a next generation diesel locomotive 
A meeting of a scientific and technical council took place in Yekaterinburg on October 26, 2010. It was devoted to development of a next generation shunting diesel locomotive with a hybrid power supply unit. The meeting was initiated by Sinara – Transport Machines (STM, incorporated into Sinara group of companies). 
Representatives of leading institutes and enterprises developing and manufacturing new equipment took part in the meeting.
In the words of Vladimir Melnikov, CEO of Sinara – Transport Machines, nowadays the company’s specialists are examining the technical solutions for a hybrid power supply unit for next generations diesel locomotives offered by Russian leading manufacturers. ‘The company’s target is to develop a shunting locomotive with the best technical, ergonomic, and ecological characteristics of this class,’ emphasised 
Mr Melnikov.

295 electric locomotives for Kazakhstan railways
On October 26, Locomotive JSC (a subsidiary of National Company “Kazakhstan Temir Zholy” (KTZ) JSC) and Electrovoz Kurastyru Zauyty LLP (a joint venture of Kazakhstan Temir Zholy, Transmashholding (TMH) and French Alstom Transport) signed in Paris a contract for the delivery of freight and passenger electric locomotives. 
The signing ceremony took place in the presence of the President of France Nicolas Sarkozy and the President of the Republic of Kazakhstan Nursultan Nazarbaev. The President of Kazakhstan Temir Zholy Askar Mamin, the Director General of Transmashholding Andrey Andreev and the President of Alstom Transport Philipp Mellier also participated in the event.
In accordance with the contract, by 2021 Kazakhstan railways will receive a total of 295 electric locomotives – 200 of which are KZ8A main line freight alternating current electric locomotives and 95 KZ4A passenger alternating current electric locomotives.
The contract envisages the foundation of an assembly plant on the territory of Kazakhstan. Components for electric locomotives will be produced in Kazakhstan and in Russia.
Prototype models of the electric locomotives are due to emerge in 2012, the first delivery is planned for 2013.
Setting up electric locomotive production in Kazakhstan is the first international project, which is implemented within the frame of Transmashholding and Alstom Transport strategic partnership. 

Freight Two plans to take a 5% share of oil transportation market in Russia by 2015	
Freight Two (a daughter company of RZD) planned to purchase up to 14,000 tank wagons by 2015 and win a 5% share of oil transportation market in Russia, said Vitaly Evdokimenko, CEO of Freight Two, at a meeting of consignors and RZD representatives in Ekaterinburg in late October. 
In his words, nowadays the company has no tank wagons. The Head of Freight Two said that the company was going to buy 4,000 gondola cars and 4,000 wagons of other types in 2011. The subsidiary of RZD intends to purchase 77,000 railcars over five years. Now, it is holding negotiations with wagon building enterprises, in particular with Uralvagonzavod, Tikhvin Wagon Building Plant, and Tatravagonka.
In the words of Mr Evdokimenko, by 2015, the company’s park will amount to 215,000 units. Of that, about 20,000 railcars will operate on the territory of the CIS and the Baltic states.
‘The market cost of the assets given to the authorised capital is RUR 46.2 billion. At the beginning of 2011, it will amount to approximately RUR 67 billion. I think, the company’s costs will grow several times over by 2015, which will allow to attract private investors,’ he said.

Sovcomflot and United Shipbuilding Corporation sign an agreement	
SCF Group and Zvezda-DSME, the JV between United Shipbuilding Corporation (USC) and Daewoo Shipbuilding & Marine Engineering Co. Ltd (DSME), completed negotiations and signed agreements for the construction of a series of tankers designed for the transportation of crude oil and oil products. 
The agreements envisage the construction of six vessels between 2012 and 2014, including two LR2 product carriers (117,800 dwt, ice class 1C according to international classification) and four Aframax tankers, designed to carry crude oil (120,600 dwt). The agreements include an owner’s option for the construction of six more Aframax and LR2 ships.
The President of USC Roman Trotsenko noted: “During the construction of the first two tankers at DSME yard, in the Republic of Korea, intensive training of the JV ‘Zvezda-DSME’ personnel will take place. The process of mastering modern shipbuilding technologies by Russian specialists will be arranged. Part of the block hull construction of the third and the fourth tankers will be performed at the new yard ‘Zvezda-DSME’. The fifth and the sixth tankers will be entirely constructed in Russia. The personnel training programme and mastering of modern shipbuilding technologies will allow, in time, the construction of ships and marine equipment to start at the new yard ‘Zvezda-DSME.’
The first tanker built for Sovcomflot Group, as part of a joint project ‘Zvezda-DSME’, is expected to be delivered for operation in the middle of 2012.

TransGroup and Freight One may launch a JV to transport chemicals
TransGroup and Freight One are discussing a possible partnership in the liquid chemicals transportation sector, said Maxim Liksutov, Chairman of the Board of Directors of TransGroup AS, at the High Speed Rail World 2010 forum in Madrid in November, 2010. 
Some clients of Freight One have such cargo, but the company lacks specialist tank wagons. Meanwhile, TransGroup has some experience in transportation of this type, Mr Liksutov explained.
Speaking of the forms of partnership, Mr Liksov told that a JV is possible as well as Freight One’s entrance into the capital of one of TransGroup’s profile companies. In particular, Neftetransport, one of Russian largest operators specialising in chemicals transportation, is incorporated in the holding company. There are approximately 10,000 railcars in its park; of that, about 5,000 railcars belong to the company.
In the words of Mr Liksutov, it is too early to speak about possible shareholdings in the JV. ‘Freight One wants to understand whether the segment is of interest,’ he said.

BT Signaling BV buys stake in Russian Railways subsidiary
On December 13, Russian Railways and BT Signaling BV signed an agreement on BT Signaling BV’s purchase of up to 50% minus 2 ordinary shares in United Electrical Engineering Plants (Elteza) from RZD. The agreement was signed on behalf of Russian Railways by company president Vladimir Yakunin, and on behalf of BT Signaling BV by Pierre Beaudoin, CEO of Bombardier Inc. 
Speaking at the signing ceremony, RZD President Vladimir Yakunin said: ‘Russian Railways has enjoyed a long and productive working relationship with Bombardier Transportation. For Russian Railways, it’s crucially important to attract a global-level company to create a joint venture. We fully appreciate that the market of Elteza’s products is an intense, highly competitive environment. Bombardier won the tender fairly. We, in turn, will fulfill all our obligations under the agreement.’
According to the agreement, Bombardier Transportation will offer Elteza licences, and also support the handover and adaptation of technology necessary for the production of modern railway signalling, interlocking and blocking systems.
Working with Bombardier, a global leader in rail technology, as a partner in the design, production and installation of railway signaling, interlocking and blocking systems is in line with Elteza’s strategic development goals, and will enable Russian Railways to improve the efficiency and safety of railway transport through the use of modern high-tech telemechanics and automatics systems in Russian production. The sale of the stake in Elteza is expected to be finalised in the first quarter of 2011, if all conditions set out in the agreement are met, including the receipt of approval from state authorities.

Transgarant buys 100 new covered wagons from SDS-Mash
In November 2010, Transgarant and SDS-Mash holding company signed a contract on the railway operator’s purchase of 100 new covered wagons with a car body volume of 138 m3 (11-280 model produced by Altaivagon). 
All the wagons were delivered in December 2010.
In the words of Alexei Grom, Managing Director of Transgarant, the new wagons will be used for paper and consumer goods transportation in the framework of long-term contracts with Mondy Business Paper Syktyvkarsky LPK and Nurminen Logistics.
Nowadays, Transgarant manages a park of 15,837 railcars. Of that, the number of covered wagons is 1,147 units.

RZD plans to buy 1,250 locomotives in 2011-2013
‘The locomotive fleet has traditionally been one of the key elements of the network’s operations. Its efficiency and reliability dictates not only the rhythm and results of the company’s work, but also the quality of freight and passenger services,’ Vladimir Yakunin, President of RZD, said.
He added that current reforms of the locomotive fleet should lead to substantially improved operational efficiency, with a 16% increase in locomotive productivity by 2015.
‘Russian Railways is now switching to new principles of partnership with railway equipment producers, harmonised with European standards. These are focused on comprehensive safety parameters, operational readiness, and lifecycle cost of equipment, which will define the company’s technical policies in its relations with workers and producers’, Mr Yakunin said.
For example, the electric passenger locomotive EP20 is being developed at Transmashholding’s Novocherkassk Electric Locomotive Plant, in conjunction with Alstom. In November 2010, the Sinara Group and Siemens finished work on a test model of a next-generation 2ES10 electric freight locomotive. In total, Russian Railways plans to buy 1,250 locomotives between 2011 and 2013 at a cost of over 112 billion rubles.
Russian Railways currently has more than 13,000 locomotives in use.
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Oil stimulates transit
The Northern Sea Route is a sea lane between the north-western and Far Eastern ports of Russia through the Arctic Sea, which is used for trans-national transit transportation.
Despite the active promotion of the route, the leading international freight forwarders did not mention it for a long time. In particular, it was a surprise for Ekaterina Merkulova, Head of the Public Consulting Department of Audit-Consulting ‘Business – Systems Development’ CJSC, to find out that there is no NSR as a possible variant of the delivery of transit cargo on a map of world traffic flows, published in the US in 2010.
According to one of the sea carriers, the client needs to understand of what the product is made. The problem is that Russia has not adequately positioned the NSR on the global market. Yes, transit via the NSR shortens the path by 30% compared with the route via the Suez Canal. But this is not enough to attract transit cargo. And such a point of view had to be taken into consideration.
Previously the development of the route was first associated with transit and this brought additional investments, but now the focus has changed. And providing cargo transportation is in first place, being formed with the development of the natural resources of the northern shelf. Transit is now considered an associated service. The interest in the NSR has increased with the signing in 2011 of the agreement between Rosneft JSC and British Petroleum Corporation (BP) for joint work on offshore projects in the Arctic. 
As Vladimir Putin, Russian Prime Minister, announced, these projects were supported by the Russian government. In this regard, experts expect real progress in this direction. A memorandum on cooperation in the Arctic was signed by Rosneft and BP in 2006. But it provided no more than a search for areas of joint interest. A special agreement to conduct exploration and drilling of wells was needed. Once signed, additional traffic flows appeared.
Another reason for the interest is that the real inflow of goods turned out to be higher than that predicted by experts. Particularly, in 2005 the traffic volume of 2011 was predicted to be 7 million tons by Central Marine Reseach & Design Institute (CNIIMF). However, according to Dmitry Dmitrenko, Governor of Murmansk region, in 2011, according to the signed contracts, NSR workload could reach 9 million tons (6 million tons going east and 3 million tons west). Correspondingly, in 2016 the volume of traffic could reach 18.8 million tons, which is again higher than previous forecasts. New data is based on the fact that the NSR is turning from a route for delivery of goods to the northern cities of Russia into a strategic route for the transportation of Russian hydrocarbons and for offshore field development. This requires additional measures to provide the transportation.
It should be mentioned that the previously existing, ‘Concept of Development of the Northern Sea Route’, developed CNIIMF, required amendments. It should be also mentioned that it proposed the stabilisation of the main parameters of the Arctic marine transport system in the initial phase (2003-2005) and the increase of traffic in the second phase (2006-2010) to such an extent that it could create the financial and economic conditions for the sustainable development of the route. 
And the purpose of the third phase (2011-2015) was to complete the transition to commercial use of the Northern Sea Route with renovation of the entire infrastructure of the system paid for out of the revenues created from its work. While the performance of the technical parameters of the concept was successful, the revenue aspect of the NSR was seriously overestimated. 
Experimental passages made in the autumn of 2010 demonstrated that. This was the passage of the tanker SCF Baltica of 70,000 tons deadweight of gas condensate from Murmansk in China, which, according to Leonid Michelson, Chairman of the Board of Novatek JSC (cargo owner), showed the viability of the idea of delivering energy resources from the Barents and Kara Sea to markets of the Asia-Pacific region. As Vyacheslav Ruksha, General Director of Rosatomflot, noticed, the optimal cost of icebreaking services is comparable with the cost of transportation via the Suez Canal. The bonus for clients is that the transportation time via the NSR is shorter than that of the Suez Canal.
As Mr Michelson says, the cost of transporting one ton of cargo via the Southern Route from the White Sea to the Asia-Pacific region using the Suez Canal is not more than $50. In the next year, the company expects to save at least 10-15% on the transportation of condensate to the markets in the Asia-Pacific region using the NSR .
Quite good results have emerged in the passage from Kirkenes to China of large Norwegian bulk carrier Nordic Barents with iron ore concentrate. The trip lasted 22 days instead of 42 days and ended safely. However, as the Chairman of the Norwegian Tschudi Shipping Company (the owner of Felix Tschudi ship) says, before the passage it was extremely difficult to persuade the insurance company with which the ship owners were partnering, that the risks of transition through the Arctic sea ice fitted acceptable parameters. Atomflot had to give a guarantee, citing its experience of ice channeling. 
The difficulty is that the practices and the safety rules of navigation are not the same thing from a legal point of view. Without them, the cost structure can’t be calculated.  It is clear, for example, that a ship which has got into the ice trap, eventually will be released from it. But who will have to pay for the rescues and in which cases?

Let’s protect the Arctic environment
The growth of traffic and involvement of large fleets has forced additional measures to be taken to guarantee the safety of transportation in the Arctic. According to the Ministry of Transport, that answered the questions, asked by Deputies of State Duma, first of all, the navigation rules via the NSR should be accepted, a project of which has already passed all ministries, but got stuck in the Ministry of Finance.
In the Ministry of Transport it is also recognised that navigational and hydrographic services for the route should be improved: in 2020 it is expected to complete the rollout of GLONASS / GPS control and correction stations along the traditional tracks of the NSR, which will allow ships to be tracked in the Arctic to within 10 metres.
In addition, it is necessary to build and upgrade a series of ice-class hydrographic vessels and to put into operation at least three multi-purpose nuclear icebreakers (ships that are able both to perform rescue functions and fight oil spills in the Arctic).
It is necessary to solve the problem of way bunkering along  the route. At the moment this can be done only at the port of Pevek. But, according to Igor Rusu, General Director of Rosmorport, it is not enough. There should be infrastructure that will provide transportation security in the intermediate ports. Otherwise the risks of environmental disasters in the Arctic are too high. Meanwhile, most of the ports on the Arctic coast, designed to serve the NSR, are in a deplorable state. Their work, except at Dudinka, is unprofitable. 
And in some ports (Amderma, Dixon) a full recovery is required. In the ports of Igarka, Dudinka, Dixon, Tiksi, Pevek, and Providence it is also needed to bring into operation the Global Maritime Distress and Safety System.
At least 46.5 billion rubles will need to be spent on measures related to security, according to experts. And in addition, funds for the provision of routes for vessels with a draft of more than 15 metres are needed. Otherwise, a large-capacity fleet will continue to operate with partial loading in the North, which reduces the efficiency of transportation. 
Mr Ruksha, General Director of Atomflot, has announced that tariffs on the ice channeling for large vessels with a cargo via the NSR could be $5 for a register-ton and for vessels without cargo - $2,5. So, the cost of ice channeling is closed to the cost of the passage of ships via the Suez Canal. A bonus for charter operators is the reduction in travel time.
Still it is difficult to persuade consignors of the competitiveness of such transportation in comparison with traditional passages through the Suez Canal: entrepreneurs are not satisfied with the administrative barriers that delay the departure of vessels that are the going via the Northern Sea Route. Tariffs for the ice channeling seem too high for them.

Constructing hubs
Interest in the NSR is developed not only by fleets, but also by ports, which can become hubs for transit. As Mr Dmitrienko considers, it is possible to carry out up to 60% of traffic by the Northern Sea Route from Murmansk. So at the moment it is necessary to strengthen the infrastructure of this port.  Investments of about 7 billion rubles are allocated for reconstruction of a part of the port by 2015. As Victor Morozov, General Director of  Murmansk Commercial Seaport JSC, mentioned, half of this sum will be invested by Rosmorflot.
Construction of a new line of berths is planned with the expectation that, in the short term, freight via the NSR will grow as a result of the Shtokman and Prirazlomnaya fields development, as well as the transportation of raw materials. In particular, of iron ore concentrate. As a result, the port is being prepared to increase its transhipment up to 5 million tons per year.
Nakhodka, Eastern port and Petropavlovsk-Kamchatsky are ready to fight for the status of the reference port in the Far East. As Andrew Gorodishtyan, Head of Vostochny Sea Port Administration, considers his port has advantages: it is located next to Spetsmornefteport in Kozmino bay, where an additional rescue fleet will be based. And this means that other ships that serve the NSR can be moored there.
Petropavlovsk-Kamchatsky port claims special status because one of the line icebreakers, according to Rosatomflote, will have to be based in the Eastern part of the NSR to facilitate rescue operations. And Petropavlovsk-Kamchatsky has a suitable location. In addition, as Igor Polchenko, President of Transit DV Group Companies, said, it can be used as a hub, where cargo can be transshipped from the ice-class vessels to larger vessels in order to be sent in the direction of America. 
By Andrey Lazarev

viewpoint
Viktor Ishayev, 
Plenipotentiary Representative of the President of the Russian Federation for the Far East Federal District
– Development of the Northern Sea Route depends not only on the improvement of transport ships, an icebreaker fleet and navigation systems, but also primarily on the development of port facilities. Sea port hubs are needed, for example, in Tiksi, Pevek, Anadyr and Petropavlovsk-Kamchatsky, or, generally speaking, in places where the development of ports will be followed by the development of territories. We should remember that the Arctic region is of strategic interest to Russia. In this regard, firstly we need to provide navigation for deliveries of goods to the Northern Territories, to provide the development of Arctic offshore oil and gas fields, and only after this is done will the infrastructure for international transit appear.



Igor Rusu, 
General Director of Rosmorport  
– As has been shown by an experimental ice channeling with the Sovcomflot tanker with gas condensate of Novatek, the Northern Sea Route has commercial appeal for the transportation of hydrocarbons. However, a program of infrastructure development that will ensure safe transportation of dangerous goods is needed for passages to become everyday. Firstly, an emergency system is needed to take care of situations, such as oil spills. The main thing is to define its parameters, and then think about investments. To ensure safety at the beginning of autumn 2010, a system of polar stations was put into operation. Rosmorport financed the purchase of modern complexes. But this is only the first step to form a security infrastructure.
    [~DETAIL_TEXT] => 
Oil stimulates transit
The Northern Sea Route is a sea lane between the north-western and Far Eastern ports of Russia through the Arctic Sea, which is used for trans-national transit transportation.
Despite the active promotion of the route, the leading international freight forwarders did not mention it for a long time. In particular, it was a surprise for Ekaterina Merkulova, Head of the Public Consulting Department of Audit-Consulting ‘Business – Systems Development’ CJSC, to find out that there is no NSR as a possible variant of the delivery of transit cargo on a map of world traffic flows, published in the US in 2010.
According to one of the sea carriers, the client needs to understand of what the product is made. The problem is that Russia has not adequately positioned the NSR on the global market. Yes, transit via the NSR shortens the path by 30% compared with the route via the Suez Canal. But this is not enough to attract transit cargo. And such a point of view had to be taken into consideration.
Previously the development of the route was first associated with transit and this brought additional investments, but now the focus has changed. And providing cargo transportation is in first place, being formed with the development of the natural resources of the northern shelf. Transit is now considered an associated service. The interest in the NSR has increased with the signing in 2011 of the agreement between Rosneft JSC and British Petroleum Corporation (BP) for joint work on offshore projects in the Arctic. 
As Vladimir Putin, Russian Prime Minister, announced, these projects were supported by the Russian government. In this regard, experts expect real progress in this direction. A memorandum on cooperation in the Arctic was signed by Rosneft and BP in 2006. But it provided no more than a search for areas of joint interest. A special agreement to conduct exploration and drilling of wells was needed. Once signed, additional traffic flows appeared.
Another reason for the interest is that the real inflow of goods turned out to be higher than that predicted by experts. Particularly, in 2005 the traffic volume of 2011 was predicted to be 7 million tons by Central Marine Reseach & Design Institute (CNIIMF). However, according to Dmitry Dmitrenko, Governor of Murmansk region, in 2011, according to the signed contracts, NSR workload could reach 9 million tons (6 million tons going east and 3 million tons west). Correspondingly, in 2016 the volume of traffic could reach 18.8 million tons, which is again higher than previous forecasts. New data is based on the fact that the NSR is turning from a route for delivery of goods to the northern cities of Russia into a strategic route for the transportation of Russian hydrocarbons and for offshore field development. This requires additional measures to provide the transportation.
It should be mentioned that the previously existing, ‘Concept of Development of the Northern Sea Route’, developed CNIIMF, required amendments. It should be also mentioned that it proposed the stabilisation of the main parameters of the Arctic marine transport system in the initial phase (2003-2005) and the increase of traffic in the second phase (2006-2010) to such an extent that it could create the financial and economic conditions for the sustainable development of the route. 
And the purpose of the third phase (2011-2015) was to complete the transition to commercial use of the Northern Sea Route with renovation of the entire infrastructure of the system paid for out of the revenues created from its work. While the performance of the technical parameters of the concept was successful, the revenue aspect of the NSR was seriously overestimated. 
Experimental passages made in the autumn of 2010 demonstrated that. This was the passage of the tanker SCF Baltica of 70,000 tons deadweight of gas condensate from Murmansk in China, which, according to Leonid Michelson, Chairman of the Board of Novatek JSC (cargo owner), showed the viability of the idea of delivering energy resources from the Barents and Kara Sea to markets of the Asia-Pacific region. As Vyacheslav Ruksha, General Director of Rosatomflot, noticed, the optimal cost of icebreaking services is comparable with the cost of transportation via the Suez Canal. The bonus for clients is that the transportation time via the NSR is shorter than that of the Suez Canal.
As Mr Michelson says, the cost of transporting one ton of cargo via the Southern Route from the White Sea to the Asia-Pacific region using the Suez Canal is not more than $50. In the next year, the company expects to save at least 10-15% on the transportation of condensate to the markets in the Asia-Pacific region using the NSR .
Quite good results have emerged in the passage from Kirkenes to China of large Norwegian bulk carrier Nordic Barents with iron ore concentrate. The trip lasted 22 days instead of 42 days and ended safely. However, as the Chairman of the Norwegian Tschudi Shipping Company (the owner of Felix Tschudi ship) says, before the passage it was extremely difficult to persuade the insurance company with which the ship owners were partnering, that the risks of transition through the Arctic sea ice fitted acceptable parameters. Atomflot had to give a guarantee, citing its experience of ice channeling. 
The difficulty is that the practices and the safety rules of navigation are not the same thing from a legal point of view. Without them, the cost structure can’t be calculated.  It is clear, for example, that a ship which has got into the ice trap, eventually will be released from it. But who will have to pay for the rescues and in which cases?

Let’s protect the Arctic environment
The growth of traffic and involvement of large fleets has forced additional measures to be taken to guarantee the safety of transportation in the Arctic. According to the Ministry of Transport, that answered the questions, asked by Deputies of State Duma, first of all, the navigation rules via the NSR should be accepted, a project of which has already passed all ministries, but got stuck in the Ministry of Finance.
In the Ministry of Transport it is also recognised that navigational and hydrographic services for the route should be improved: in 2020 it is expected to complete the rollout of GLONASS / GPS control and correction stations along the traditional tracks of the NSR, which will allow ships to be tracked in the Arctic to within 10 metres.
In addition, it is necessary to build and upgrade a series of ice-class hydrographic vessels and to put into operation at least three multi-purpose nuclear icebreakers (ships that are able both to perform rescue functions and fight oil spills in the Arctic).
It is necessary to solve the problem of way bunkering along  the route. At the moment this can be done only at the port of Pevek. But, according to Igor Rusu, General Director of Rosmorport, it is not enough. There should be infrastructure that will provide transportation security in the intermediate ports. Otherwise the risks of environmental disasters in the Arctic are too high. Meanwhile, most of the ports on the Arctic coast, designed to serve the NSR, are in a deplorable state. Their work, except at Dudinka, is unprofitable. 
And in some ports (Amderma, Dixon) a full recovery is required. In the ports of Igarka, Dudinka, Dixon, Tiksi, Pevek, and Providence it is also needed to bring into operation the Global Maritime Distress and Safety System.
At least 46.5 billion rubles will need to be spent on measures related to security, according to experts. And in addition, funds for the provision of routes for vessels with a draft of more than 15 metres are needed. Otherwise, a large-capacity fleet will continue to operate with partial loading in the North, which reduces the efficiency of transportation. 
Mr Ruksha, General Director of Atomflot, has announced that tariffs on the ice channeling for large vessels with a cargo via the NSR could be $5 for a register-ton and for vessels without cargo - $2,5. So, the cost of ice channeling is closed to the cost of the passage of ships via the Suez Canal. A bonus for charter operators is the reduction in travel time.
Still it is difficult to persuade consignors of the competitiveness of such transportation in comparison with traditional passages through the Suez Canal: entrepreneurs are not satisfied with the administrative barriers that delay the departure of vessels that are the going via the Northern Sea Route. Tariffs for the ice channeling seem too high for them.

Constructing hubs
Interest in the NSR is developed not only by fleets, but also by ports, which can become hubs for transit. As Mr Dmitrienko considers, it is possible to carry out up to 60% of traffic by the Northern Sea Route from Murmansk. So at the moment it is necessary to strengthen the infrastructure of this port.  Investments of about 7 billion rubles are allocated for reconstruction of a part of the port by 2015. As Victor Morozov, General Director of  Murmansk Commercial Seaport JSC, mentioned, half of this sum will be invested by Rosmorflot.
Construction of a new line of berths is planned with the expectation that, in the short term, freight via the NSR will grow as a result of the Shtokman and Prirazlomnaya fields development, as well as the transportation of raw materials. In particular, of iron ore concentrate. As a result, the port is being prepared to increase its transhipment up to 5 million tons per year.
Nakhodka, Eastern port and Petropavlovsk-Kamchatsky are ready to fight for the status of the reference port in the Far East. As Andrew Gorodishtyan, Head of Vostochny Sea Port Administration, considers his port has advantages: it is located next to Spetsmornefteport in Kozmino bay, where an additional rescue fleet will be based. And this means that other ships that serve the NSR can be moored there.
Petropavlovsk-Kamchatsky port claims special status because one of the line icebreakers, according to Rosatomflote, will have to be based in the Eastern part of the NSR to facilitate rescue operations. And Petropavlovsk-Kamchatsky has a suitable location. In addition, as Igor Polchenko, President of Transit DV Group Companies, said, it can be used as a hub, where cargo can be transshipped from the ice-class vessels to larger vessels in order to be sent in the direction of America. 
By Andrey Lazarev

viewpoint
Viktor Ishayev, 
Plenipotentiary Representative of the President of the Russian Federation for the Far East Federal District
– Development of the Northern Sea Route depends not only on the improvement of transport ships, an icebreaker fleet and navigation systems, but also primarily on the development of port facilities. Sea port hubs are needed, for example, in Tiksi, Pevek, Anadyr and Petropavlovsk-Kamchatsky, or, generally speaking, in places where the development of ports will be followed by the development of territories. We should remember that the Arctic region is of strategic interest to Russia. In this regard, firstly we need to provide navigation for deliveries of goods to the Northern Territories, to provide the development of Arctic offshore oil and gas fields, and only after this is done will the infrastructure for international transit appear.



Igor Rusu, 
General Director of Rosmorport  
– As has been shown by an experimental ice channeling with the Sovcomflot tanker with gas condensate of Novatek, the Northern Sea Route has commercial appeal for the transportation of hydrocarbons. However, a program of infrastructure development that will ensure safe transportation of dangerous goods is needed for passages to become everyday. Firstly, an emergency system is needed to take care of situations, such as oil spills. The main thing is to define its parameters, and then think about investments. To ensure safety at the beginning of autumn 2010, a system of polar stations was put into operation. Rosmorport financed the purchase of modern complexes. But this is only the first step to form a security infrastructure.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/19.jpg" border="1" alt=" " hspace="5" width="300" height="225" align="left" />Discussions at international conferences in the second half of 2010 in the North West and the Far East have shown that the approach to transportation via the Northern Sea Route (NSR) in Russia has changed. Nowadays this route is considered primarily as a route for the export of Russian hydrocarbons to the Asian markets, with transit an associated  service in the Arctic passage.
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    [DETAIL_TEXT] => 
Oil stimulates transit
The Northern Sea Route is a sea lane between the north-western and Far Eastern ports of Russia through the Arctic Sea, which is used for trans-national transit transportation.
Despite the active promotion of the route, the leading international freight forwarders did not mention it for a long time. In particular, it was a surprise for Ekaterina Merkulova, Head of the Public Consulting Department of Audit-Consulting ‘Business – Systems Development’ CJSC, to find out that there is no NSR as a possible variant of the delivery of transit cargo on a map of world traffic flows, published in the US in 2010.
According to one of the sea carriers, the client needs to understand of what the product is made. The problem is that Russia has not adequately positioned the NSR on the global market. Yes, transit via the NSR shortens the path by 30% compared with the route via the Suez Canal. But this is not enough to attract transit cargo. And such a point of view had to be taken into consideration.
Previously the development of the route was first associated with transit and this brought additional investments, but now the focus has changed. And providing cargo transportation is in first place, being formed with the development of the natural resources of the northern shelf. Transit is now considered an associated service. The interest in the NSR has increased with the signing in 2011 of the agreement between Rosneft JSC and British Petroleum Corporation (BP) for joint work on offshore projects in the Arctic. 
As Vladimir Putin, Russian Prime Minister, announced, these projects were supported by the Russian government. In this regard, experts expect real progress in this direction. A memorandum on cooperation in the Arctic was signed by Rosneft and BP in 2006. But it provided no more than a search for areas of joint interest. A special agreement to conduct exploration and drilling of wells was needed. Once signed, additional traffic flows appeared.
Another reason for the interest is that the real inflow of goods turned out to be higher than that predicted by experts. Particularly, in 2005 the traffic volume of 2011 was predicted to be 7 million tons by Central Marine Reseach & Design Institute (CNIIMF). However, according to Dmitry Dmitrenko, Governor of Murmansk region, in 2011, according to the signed contracts, NSR workload could reach 9 million tons (6 million tons going east and 3 million tons west). Correspondingly, in 2016 the volume of traffic could reach 18.8 million tons, which is again higher than previous forecasts. New data is based on the fact that the NSR is turning from a route for delivery of goods to the northern cities of Russia into a strategic route for the transportation of Russian hydrocarbons and for offshore field development. This requires additional measures to provide the transportation.
It should be mentioned that the previously existing, ‘Concept of Development of the Northern Sea Route’, developed CNIIMF, required amendments. It should be also mentioned that it proposed the stabilisation of the main parameters of the Arctic marine transport system in the initial phase (2003-2005) and the increase of traffic in the second phase (2006-2010) to such an extent that it could create the financial and economic conditions for the sustainable development of the route. 
And the purpose of the third phase (2011-2015) was to complete the transition to commercial use of the Northern Sea Route with renovation of the entire infrastructure of the system paid for out of the revenues created from its work. While the performance of the technical parameters of the concept was successful, the revenue aspect of the NSR was seriously overestimated. 
Experimental passages made in the autumn of 2010 demonstrated that. This was the passage of the tanker SCF Baltica of 70,000 tons deadweight of gas condensate from Murmansk in China, which, according to Leonid Michelson, Chairman of the Board of Novatek JSC (cargo owner), showed the viability of the idea of delivering energy resources from the Barents and Kara Sea to markets of the Asia-Pacific region. As Vyacheslav Ruksha, General Director of Rosatomflot, noticed, the optimal cost of icebreaking services is comparable with the cost of transportation via the Suez Canal. The bonus for clients is that the transportation time via the NSR is shorter than that of the Suez Canal.
As Mr Michelson says, the cost of transporting one ton of cargo via the Southern Route from the White Sea to the Asia-Pacific region using the Suez Canal is not more than $50. In the next year, the company expects to save at least 10-15% on the transportation of condensate to the markets in the Asia-Pacific region using the NSR .
Quite good results have emerged in the passage from Kirkenes to China of large Norwegian bulk carrier Nordic Barents with iron ore concentrate. The trip lasted 22 days instead of 42 days and ended safely. However, as the Chairman of the Norwegian Tschudi Shipping Company (the owner of Felix Tschudi ship) says, before the passage it was extremely difficult to persuade the insurance company with which the ship owners were partnering, that the risks of transition through the Arctic sea ice fitted acceptable parameters. Atomflot had to give a guarantee, citing its experience of ice channeling. 
The difficulty is that the practices and the safety rules of navigation are not the same thing from a legal point of view. Without them, the cost structure can’t be calculated.  It is clear, for example, that a ship which has got into the ice trap, eventually will be released from it. But who will have to pay for the rescues and in which cases?

Let’s protect the Arctic environment
The growth of traffic and involvement of large fleets has forced additional measures to be taken to guarantee the safety of transportation in the Arctic. According to the Ministry of Transport, that answered the questions, asked by Deputies of State Duma, first of all, the navigation rules via the NSR should be accepted, a project of which has already passed all ministries, but got stuck in the Ministry of Finance.
In the Ministry of Transport it is also recognised that navigational and hydrographic services for the route should be improved: in 2020 it is expected to complete the rollout of GLONASS / GPS control and correction stations along the traditional tracks of the NSR, which will allow ships to be tracked in the Arctic to within 10 metres.
In addition, it is necessary to build and upgrade a series of ice-class hydrographic vessels and to put into operation at least three multi-purpose nuclear icebreakers (ships that are able both to perform rescue functions and fight oil spills in the Arctic).
It is necessary to solve the problem of way bunkering along  the route. At the moment this can be done only at the port of Pevek. But, according to Igor Rusu, General Director of Rosmorport, it is not enough. There should be infrastructure that will provide transportation security in the intermediate ports. Otherwise the risks of environmental disasters in the Arctic are too high. Meanwhile, most of the ports on the Arctic coast, designed to serve the NSR, are in a deplorable state. Their work, except at Dudinka, is unprofitable. 
And in some ports (Amderma, Dixon) a full recovery is required. In the ports of Igarka, Dudinka, Dixon, Tiksi, Pevek, and Providence it is also needed to bring into operation the Global Maritime Distress and Safety System.
At least 46.5 billion rubles will need to be spent on measures related to security, according to experts. And in addition, funds for the provision of routes for vessels with a draft of more than 15 metres are needed. Otherwise, a large-capacity fleet will continue to operate with partial loading in the North, which reduces the efficiency of transportation. 
Mr Ruksha, General Director of Atomflot, has announced that tariffs on the ice channeling for large vessels with a cargo via the NSR could be $5 for a register-ton and for vessels without cargo - $2,5. So, the cost of ice channeling is closed to the cost of the passage of ships via the Suez Canal. A bonus for charter operators is the reduction in travel time.
Still it is difficult to persuade consignors of the competitiveness of such transportation in comparison with traditional passages through the Suez Canal: entrepreneurs are not satisfied with the administrative barriers that delay the departure of vessels that are the going via the Northern Sea Route. Tariffs for the ice channeling seem too high for them.

Constructing hubs
Interest in the NSR is developed not only by fleets, but also by ports, which can become hubs for transit. As Mr Dmitrienko considers, it is possible to carry out up to 60% of traffic by the Northern Sea Route from Murmansk. So at the moment it is necessary to strengthen the infrastructure of this port.  Investments of about 7 billion rubles are allocated for reconstruction of a part of the port by 2015. As Victor Morozov, General Director of  Murmansk Commercial Seaport JSC, mentioned, half of this sum will be invested by Rosmorflot.
Construction of a new line of berths is planned with the expectation that, in the short term, freight via the NSR will grow as a result of the Shtokman and Prirazlomnaya fields development, as well as the transportation of raw materials. In particular, of iron ore concentrate. As a result, the port is being prepared to increase its transhipment up to 5 million tons per year.
Nakhodka, Eastern port and Petropavlovsk-Kamchatsky are ready to fight for the status of the reference port in the Far East. As Andrew Gorodishtyan, Head of Vostochny Sea Port Administration, considers his port has advantages: it is located next to Spetsmornefteport in Kozmino bay, where an additional rescue fleet will be based. And this means that other ships that serve the NSR can be moored there.
Petropavlovsk-Kamchatsky port claims special status because one of the line icebreakers, according to Rosatomflote, will have to be based in the Eastern part of the NSR to facilitate rescue operations. And Petropavlovsk-Kamchatsky has a suitable location. In addition, as Igor Polchenko, President of Transit DV Group Companies, said, it can be used as a hub, where cargo can be transshipped from the ice-class vessels to larger vessels in order to be sent in the direction of America. 
By Andrey Lazarev

viewpoint
Viktor Ishayev, 
Plenipotentiary Representative of the President of the Russian Federation for the Far East Federal District
– Development of the Northern Sea Route depends not only on the improvement of transport ships, an icebreaker fleet and navigation systems, but also primarily on the development of port facilities. Sea port hubs are needed, for example, in Tiksi, Pevek, Anadyr and Petropavlovsk-Kamchatsky, or, generally speaking, in places where the development of ports will be followed by the development of territories. We should remember that the Arctic region is of strategic interest to Russia. In this regard, firstly we need to provide navigation for deliveries of goods to the Northern Territories, to provide the development of Arctic offshore oil and gas fields, and only after this is done will the infrastructure for international transit appear.



Igor Rusu, 
General Director of Rosmorport  
– As has been shown by an experimental ice channeling with the Sovcomflot tanker with gas condensate of Novatek, the Northern Sea Route has commercial appeal for the transportation of hydrocarbons. However, a program of infrastructure development that will ensure safe transportation of dangerous goods is needed for passages to become everyday. Firstly, an emergency system is needed to take care of situations, such as oil spills. The main thing is to define its parameters, and then think about investments. To ensure safety at the beginning of autumn 2010, a system of polar stations was put into operation. Rosmorport financed the purchase of modern complexes. But this is only the first step to form a security infrastructure.
    [~DETAIL_TEXT] => 
Oil stimulates transit
The Northern Sea Route is a sea lane between the north-western and Far Eastern ports of Russia through the Arctic Sea, which is used for trans-national transit transportation.
Despite the active promotion of the route, the leading international freight forwarders did not mention it for a long time. In particular, it was a surprise for Ekaterina Merkulova, Head of the Public Consulting Department of Audit-Consulting ‘Business – Systems Development’ CJSC, to find out that there is no NSR as a possible variant of the delivery of transit cargo on a map of world traffic flows, published in the US in 2010.
According to one of the sea carriers, the client needs to understand of what the product is made. The problem is that Russia has not adequately positioned the NSR on the global market. Yes, transit via the NSR shortens the path by 30% compared with the route via the Suez Canal. But this is not enough to attract transit cargo. And such a point of view had to be taken into consideration.
Previously the development of the route was first associated with transit and this brought additional investments, but now the focus has changed. And providing cargo transportation is in first place, being formed with the development of the natural resources of the northern shelf. Transit is now considered an associated service. The interest in the NSR has increased with the signing in 2011 of the agreement between Rosneft JSC and British Petroleum Corporation (BP) for joint work on offshore projects in the Arctic. 
As Vladimir Putin, Russian Prime Minister, announced, these projects were supported by the Russian government. In this regard, experts expect real progress in this direction. A memorandum on cooperation in the Arctic was signed by Rosneft and BP in 2006. But it provided no more than a search for areas of joint interest. A special agreement to conduct exploration and drilling of wells was needed. Once signed, additional traffic flows appeared.
Another reason for the interest is that the real inflow of goods turned out to be higher than that predicted by experts. Particularly, in 2005 the traffic volume of 2011 was predicted to be 7 million tons by Central Marine Reseach & Design Institute (CNIIMF). However, according to Dmitry Dmitrenko, Governor of Murmansk region, in 2011, according to the signed contracts, NSR workload could reach 9 million tons (6 million tons going east and 3 million tons west). Correspondingly, in 2016 the volume of traffic could reach 18.8 million tons, which is again higher than previous forecasts. New data is based on the fact that the NSR is turning from a route for delivery of goods to the northern cities of Russia into a strategic route for the transportation of Russian hydrocarbons and for offshore field development. This requires additional measures to provide the transportation.
It should be mentioned that the previously existing, ‘Concept of Development of the Northern Sea Route’, developed CNIIMF, required amendments. It should be also mentioned that it proposed the stabilisation of the main parameters of the Arctic marine transport system in the initial phase (2003-2005) and the increase of traffic in the second phase (2006-2010) to such an extent that it could create the financial and economic conditions for the sustainable development of the route. 
And the purpose of the third phase (2011-2015) was to complete the transition to commercial use of the Northern Sea Route with renovation of the entire infrastructure of the system paid for out of the revenues created from its work. While the performance of the technical parameters of the concept was successful, the revenue aspect of the NSR was seriously overestimated. 
Experimental passages made in the autumn of 2010 demonstrated that. This was the passage of the tanker SCF Baltica of 70,000 tons deadweight of gas condensate from Murmansk in China, which, according to Leonid Michelson, Chairman of the Board of Novatek JSC (cargo owner), showed the viability of the idea of delivering energy resources from the Barents and Kara Sea to markets of the Asia-Pacific region. As Vyacheslav Ruksha, General Director of Rosatomflot, noticed, the optimal cost of icebreaking services is comparable with the cost of transportation via the Suez Canal. The bonus for clients is that the transportation time via the NSR is shorter than that of the Suez Canal.
As Mr Michelson says, the cost of transporting one ton of cargo via the Southern Route from the White Sea to the Asia-Pacific region using the Suez Canal is not more than $50. In the next year, the company expects to save at least 10-15% on the transportation of condensate to the markets in the Asia-Pacific region using the NSR .
Quite good results have emerged in the passage from Kirkenes to China of large Norwegian bulk carrier Nordic Barents with iron ore concentrate. The trip lasted 22 days instead of 42 days and ended safely. However, as the Chairman of the Norwegian Tschudi Shipping Company (the owner of Felix Tschudi ship) says, before the passage it was extremely difficult to persuade the insurance company with which the ship owners were partnering, that the risks of transition through the Arctic sea ice fitted acceptable parameters. Atomflot had to give a guarantee, citing its experience of ice channeling. 
The difficulty is that the practices and the safety rules of navigation are not the same thing from a legal point of view. Without them, the cost structure can’t be calculated.  It is clear, for example, that a ship which has got into the ice trap, eventually will be released from it. But who will have to pay for the rescues and in which cases?

Let’s protect the Arctic environment
The growth of traffic and involvement of large fleets has forced additional measures to be taken to guarantee the safety of transportation in the Arctic. According to the Ministry of Transport, that answered the questions, asked by Deputies of State Duma, first of all, the navigation rules via the NSR should be accepted, a project of which has already passed all ministries, but got stuck in the Ministry of Finance.
In the Ministry of Transport it is also recognised that navigational and hydrographic services for the route should be improved: in 2020 it is expected to complete the rollout of GLONASS / GPS control and correction stations along the traditional tracks of the NSR, which will allow ships to be tracked in the Arctic to within 10 metres.
In addition, it is necessary to build and upgrade a series of ice-class hydrographic vessels and to put into operation at least three multi-purpose nuclear icebreakers (ships that are able both to perform rescue functions and fight oil spills in the Arctic).
It is necessary to solve the problem of way bunkering along  the route. At the moment this can be done only at the port of Pevek. But, according to Igor Rusu, General Director of Rosmorport, it is not enough. There should be infrastructure that will provide transportation security in the intermediate ports. Otherwise the risks of environmental disasters in the Arctic are too high. Meanwhile, most of the ports on the Arctic coast, designed to serve the NSR, are in a deplorable state. Their work, except at Dudinka, is unprofitable. 
And in some ports (Amderma, Dixon) a full recovery is required. In the ports of Igarka, Dudinka, Dixon, Tiksi, Pevek, and Providence it is also needed to bring into operation the Global Maritime Distress and Safety System.
At least 46.5 billion rubles will need to be spent on measures related to security, according to experts. And in addition, funds for the provision of routes for vessels with a draft of more than 15 metres are needed. Otherwise, a large-capacity fleet will continue to operate with partial loading in the North, which reduces the efficiency of transportation. 
Mr Ruksha, General Director of Atomflot, has announced that tariffs on the ice channeling for large vessels with a cargo via the NSR could be $5 for a register-ton and for vessels without cargo - $2,5. So, the cost of ice channeling is closed to the cost of the passage of ships via the Suez Canal. A bonus for charter operators is the reduction in travel time.
Still it is difficult to persuade consignors of the competitiveness of such transportation in comparison with traditional passages through the Suez Canal: entrepreneurs are not satisfied with the administrative barriers that delay the departure of vessels that are the going via the Northern Sea Route. Tariffs for the ice channeling seem too high for them.

Constructing hubs
Interest in the NSR is developed not only by fleets, but also by ports, which can become hubs for transit. As Mr Dmitrienko considers, it is possible to carry out up to 60% of traffic by the Northern Sea Route from Murmansk. So at the moment it is necessary to strengthen the infrastructure of this port.  Investments of about 7 billion rubles are allocated for reconstruction of a part of the port by 2015. As Victor Morozov, General Director of  Murmansk Commercial Seaport JSC, mentioned, half of this sum will be invested by Rosmorflot.
Construction of a new line of berths is planned with the expectation that, in the short term, freight via the NSR will grow as a result of the Shtokman and Prirazlomnaya fields development, as well as the transportation of raw materials. In particular, of iron ore concentrate. As a result, the port is being prepared to increase its transhipment up to 5 million tons per year.
Nakhodka, Eastern port and Petropavlovsk-Kamchatsky are ready to fight for the status of the reference port in the Far East. As Andrew Gorodishtyan, Head of Vostochny Sea Port Administration, considers his port has advantages: it is located next to Spetsmornefteport in Kozmino bay, where an additional rescue fleet will be based. And this means that other ships that serve the NSR can be moored there.
Petropavlovsk-Kamchatsky port claims special status because one of the line icebreakers, according to Rosatomflote, will have to be based in the Eastern part of the NSR to facilitate rescue operations. And Petropavlovsk-Kamchatsky has a suitable location. In addition, as Igor Polchenko, President of Transit DV Group Companies, said, it can be used as a hub, where cargo can be transshipped from the ice-class vessels to larger vessels in order to be sent in the direction of America. 
By Andrey Lazarev

viewpoint
Viktor Ishayev, 
Plenipotentiary Representative of the President of the Russian Federation for the Far East Federal District
– Development of the Northern Sea Route depends not only on the improvement of transport ships, an icebreaker fleet and navigation systems, but also primarily on the development of port facilities. Sea port hubs are needed, for example, in Tiksi, Pevek, Anadyr and Petropavlovsk-Kamchatsky, or, generally speaking, in places where the development of ports will be followed by the development of territories. We should remember that the Arctic region is of strategic interest to Russia. In this regard, firstly we need to provide navigation for deliveries of goods to the Northern Territories, to provide the development of Arctic offshore oil and gas fields, and only after this is done will the infrastructure for international transit appear.



Igor Rusu, 
General Director of Rosmorport  
– As has been shown by an experimental ice channeling with the Sovcomflot tanker with gas condensate of Novatek, the Northern Sea Route has commercial appeal for the transportation of hydrocarbons. However, a program of infrastructure development that will ensure safe transportation of dangerous goods is needed for passages to become everyday. Firstly, an emergency system is needed to take care of situations, such as oil spills. The main thing is to define its parameters, and then think about investments. To ensure safety at the beginning of autumn 2010, a system of polar stations was put into operation. Rosmorport financed the purchase of modern complexes. But this is only the first step to form a security infrastructure.
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Positive Results
The results of 2010 turned out to be even more optimistic than Russian Railways’ top management had forecasted. To remind, the preliminary forecast envisaged a 4% growth in comparison with the figures of 2009. Meanwhile, the rate of the economy’s development and the dynamics of companies recovering after the recession were so successful that already in March 2010 the forecast was reviewed and amounted to a 5% increase in loading volume. After that the forecasts made by RZD’s top managers were becoming more and more optimistic. Particularly, last November, the official forecast for loading volumes was +7.5% year-on-year, and the result of 2010 amounted to +8.8%.
All in all, approximately 1.2 billion tons of cargo was transported on the Russian railway network in 2010, and cargo turnover amounted to 2,010.6 billion tariff tonne-kilometres (+7.8%). To compare, the loading volume was 1.34 billion tons in 2007, and 1.304 billion tons in 2008. It is worth mentioning that the increase in loading volume was 9%, while the industrial production index, which reflects the real situation in the Russian economy, grew by almost 20% last year. Thus, RZD is getting behind in the fight for the freight base.   
Nevertheless, in comparison with the figures of the previous years, the achievements of 2010 seem to be rather promising. In 2007, cargo loading volumes grew by only 3% year-on-year, and in 2008 and 2009 it fell by 3% and 15% respectively compared with the previous periods. Consequently, although the results of 2010 were good, they could not compensate for the serious reduction that had taken place before. 
Vladimir Yakunin, President of RZD, paid special attention to this fact at the RZD Board’s meeting at the end of the year. ‘The crisis has not been overcome yet, so I’d rather not name this year a successful one. In 2010, we transported by 9% less cargo than in the pre-crisis period,’ he emphasised. 
There was a positive trend for all cargo classes. There was a 10.7% increase in the volume of cargoes of 1st class, a 6.5% and 7.6% growth in the volume of cargoes of 2nd and 3rd classes respectively. The dynamics of transportation volume growth were constantly increasing for all basic cargoes except grain. In particular, the situation in the high-yield cargoes segment was as follows: oil and petrochemicals grew by 10.8%, ferrous metals by 12.3%, metal structures by 16.7%, chemicals and soda by 16.2%. 
A similar situation appeared in the average-yield cargoes segment: chemicals and mineral fertilizers increased by 16%, ferrous metal scrap by 26.4%, coke by 19.7%, timber by 2.1% (grain was the only cargo which saw transportation volume fall, by 22%). It happened because of the moratorium on exports). The growth in low-yield cargo transportation volumes was not so significant. Nevertheless, coal loading volumes rose by 3.9%, those of construction materials by 11% and those of iron and manganese ores by 6.7%. Cement loading volumes increased by 14.3%.

Area of Success and Overload
On the whole, all the railways on RZD’s network improved their results in comparison with the previous year. The leaders were the Zabaikal Railway (more than a two-fold increase in comparison with the results of 2009), the Kaliningrad Railway (+22.3%), the Sverdlovsk Railway (+15.5%), the Northern Railway (+14.3%), the Far Eastern Railway (+13.6%), and the Privolzhsk Railway (+12.2%). 
The rest of the territorial branches of RZD improved their figures by less than 10%. As we see, the best results were achieved on the most eastern and western railways of RZD’s network, with the key affiliates forming the backbone of the freight base. On the whole, it was caused by the growth of international prices and the demand for Russian primary resources, actively exported by national extracting and processing companies. 
At the same time, the Zabaikal Railway was one of the leaders according to other figures as well. Thus, last year the Railway’s throughput amounted to 191.3 billion net tonne-kilometres, which exceeded the historic high reached there in 1988 (182.5 billion net tonne-kilometres). And this figure still remains one of the best results on the railway network. Zabaikal Railway was second on RZD’s network according to total throughput in 2010. 
Loading of oil and petrochemicals increased most of all there – their volume carried by the Railway grew by 35.7-fold in comparison with 2009. It became possible due to the transportation of oil from the Eastern Siberia – the Pacific Ocean pipeline (the ESPO pipeline) – from Skovorodino railway station to Kozmino port – the Railway carried up to 1.3 million tons of crude oil a month. It is worth noting that the Zabaikal Railway had hardly loaded oil before December 2009.
The increase in loading on the Kaliningrad Railway can be explained by the fact that European countries came out of the recession and the growing exports of raw materials via the port and railway capacities in the region. The weather played into the hands of the Kaliningrad region –the cold winter saw a part of the freight flow re-directed via its ports from other Baltic harbours, thus the Railway’s throughput increased significantly in early 2010.    
However, one of the most important factors which influenced cargo flow in 2010 was skewed transportation in the eastern direction. Two years running, the dynamics of the freight flow moving to the Far East demonstrated more than 20% growth. It was caused by the development of China consuming Russian steel and ferrous metals, an increase in the international price of coal and the construction of a number of large investment projects in the region. 
On the one hand, managers at RZD are glad that the cargo flow has increased and the port terminals are loaded. On the other hand, the carrying capacity of infrastructure in the far eastern direction has been exhausted. ‘The infrastructure’s capacity in the eastern area is already stretched to the limit,’ says Alexey Mironov, Head of the Traffic Management Central Directorate. 
‘On sections of the Transsib, the coefficient of carrying capacity from Mezhdurechensk to Taishet has amounted to 1; from Petrovsky Zavod to Karymskaya – 0.98; from Skovorodino to Arkhara – 0.9. There is a similar situation on the Baikal-Amur Mainline (the BAM) – the carrying capacity coefficient on the section from Lena-Vostochnaya to Severobaikalsk is 0.8, and from Komsomolsk-on-Amur to Vanino – 0.9.’ 
These sections of railway are overloaded now, thus, they are barriers to the proper organisation of the transport process. 
Due to the current situation, top managers at the Far Eastern Railway consider that one of the most significant aspects of the company’s investment policy is the development of the Northern latitudinal passage (Eastern BAM). ‘The existing carrying capacity in this direction is a factor restraining an increase in freight transportation volume. This problem can be solved by investing a significant sum of money, and one of our most important tasks is to find it,’ thinks Mikhail Zaichenko, Head of the Far Eastern Railway.

Black Gold Goes East
Analysing the results of 2010 from the standpoint of the basic cargoes, one can see that the situation seems promising for all general cargoes. As for oil bulk, in the recent years there appeared a tendency for crude oil transportation via RZD’s network to reduce, but the year of 2010 became an exception. Loading volumes increased due to oil from new fields and the re-direction of cargo flows from other transport modes. 
In particular, during the navigation period, railwaymen managed to attract some oil bulk volume from river transport. The situation in the charter market was favourable for this, and RZD offered better conditions as well. As a result, supply chains including a water link became unreasonable. As a result, 251.4 million tons of oil bulk was transported in 2010, a 10.8% increase in comparison with the results of the previous year. 
One of the tendencies mentioned by experts was the increase in crude oil transportation abroad by railway. In 2009, the railway’s share was about 10% of the total volume carried by all transport modes, and in 2010 this figure grew to 15%. Moreover, the basic directions of oil bulk flows changed. New chains appeared. 
On the one hand, they took some volume from the traditional export directions, and on the other hand, they attracted oil carried by sea to the countries of the Asia-Pacific Region from the states competing with Russia on the hydrocarbon market. In particular, oil loading volumes destined for the CIS plummeted. However, it was compensated for by the increase in transportation eastwards with the further oil loading into tankers in the port of Kozmino. As a result, the share of oil transportation in the Eastern area grew more than 13-fold – to 40% (in 2009 this figure was 3%). 
Thus, it is possible to say that, thanks to railwaymen, Russian oil companies managed to strengthen their position even amid unstable demand for the black gold in the Asia-Pacific Region.

Chemicals and Fertilisers: Stake on Export 
Mineral fertilisers, chemicals and soda producers’ best card in their fight against economic instability was the orientation towards international demand. Putting their stake on exports helped the companies to keep manufacturing and sales at pre-crisis levels. On the whole, cargo owners in this sector say that last year the loading volume of all types of chemicals and fertilisers grew by 16% in comparison with 2009. 
Meanwhile, the problems in the sector remained basically the same. In particular, there was a misbalance between internal and external demand for production. The crisis became one of the reasons why Russian producers have to export up to 70% of their production. There are other reasons as well. According to experts, the capacity of the domestic market is just 30% of the total volume of mineral fertilisers produced in Russia. 
This figure for chemicals and soda is slightly bigger – 40%. As a result, the low domestic demand cannot guarantee the sector’s stable work in case of international financial problems and consumption decline. Another problem was railway tariffs growth and the increase of the transport constituent in the final price of the product. For comparison, in August 2009, the prices for mineral fertilisers returned to the level of 2007, but in a year and a half the tariffs were adjusted several times, and they grew by more than 40%.
Last year, the situation changed little. ‘Nowadays, the cost of mineral fertiliser transportation is 20% more than in January-May 2010,’ says Sergey Momtsemlidze, Director of Uralkhim-Trans. However, members of the Russian Fertilisers Producers Association say that the authorities are carrying out a policy of restraint in railway tariff growth, giving direct support to RZD. ‘The size of the transport constituent depends on the prices for fertilisers which significantly vary according to the season and other conditions on the market,’ emphasises Igor Kaluzhsky, Executive Director of the Association. 

Ferrous Metal and Metal Scrap: Optimistic About the Future
Despite obvious instability, when the periods of sudden growth in loading volume were replaced by weeks of sharp falls, the black ferrous segment demonstrated moderate growth last year. According to RZD, in 2010, over 72 million tons of this cargo were transported via the railway network, i.e. 12% more in comparison with the previous year. 
The main factor behind the activity in the market was the recovery of the real sector of the economy, and consequently, the increase in demand for rolled metal products and goods made of cast iron, iron, and steel. Traditionally, the major customers were machine-building, construction and metal-work companies, as well as the fuel and energy sectors. According to the estimates of the RF Ministry of Economic Development, after the 14.7% decline in ferrous metallurgy production volume in 2009, there was an 11% rise in 2010.
The volume in an adjacent sector does not usually differ from the needs of metallurgical companies, which is why scrap supplies are always rigidly linked to the metallurgical sector. Consequently, the trends in scrap transportation coincide with the dynamics of ferrous metal manufacture. Fluctuations in ferrous metal scrap loading volumes are not often explained by objective reasons alone. 
Obviously, at the beginning of the year, major consumers of raw materials decided to make use of the market situation to cut costs. After the increase in customs duties and limitation of the number of border check points that export metal scrap, the import of raw materials became rather complicated. Meanwhile, the average price for a ton of metal scrap on the domestic market more than halved (from RUR 14,000-17,000 in 2008 to RUR 7,000-8,000 in early 2010), so most metal traders thought this made their business unprofitable.    
As a result, at the beginning of 2010, there was an abrupt decline in the monthly loading volume of ferrous metal scrap for national consumers (up to 44%). In the second half of February, prices started to grow, and in early spring the price for a ton of ferrous metal scrap was RUR 9,500-11,000. All these factors stimulated market activity and an increase in the loading volume. However, after the fast rise in March (6 million tons per month), later the situation became stable, and transportation via the railway network reduced to 2 million tons. 
On the whole, the total loading volume exceeded 20 million tons, a 26% increase in comparison with 2009. This year, the trends in this market will be defined by the state of the metallurgical sector, i.e. experts forecast there will be moderate growth (3-5%) and the role of domestic consumption will strengthen. 

Coal Mines: Waiting for Price Increase
Last year was not simple for coal transportation. It was impacted by the consequences of the accident at the ‘Raspadskaya’ mine and by the shrinking of the public wagon park. The latter seriously complicated rolling stock supply to transport this socially important cargo. On the whole, the sector showed a good growth rate, but it is good only in comparison with the disastrous results of 2009. In 2010, 286.3 million tons of coal (+4%) and 12.5 million tons of coke (+19.8%) were loaded. If these figures are compared with the results of 2008, one can see that coal loading volume in 2010 was 4% less, while that of coke grew by 3%.
After the tragedy at ‘Raspadskaya’, the coal sector faced another problem – traffic jams on the Russian railway network in the Far Eastern Region. They were caused by China – this country enlarged coal purchase volumes in early 2009, when international prices for coal dropped.
Finally, when traffic jams in the Russian east disappeared, it became clear that the volume extracted by the largest mine in the RF couldn’t, but should be, taken into account, because it produced a fifth of the coke for the metallurgical sector. According to experts’ estimations, the first consequences would hit in early 2011 – the decline in supply was to cause price growth. 
Unfortunately, the forecast started to come true last June, when the cost of coke increased by 20%. At the end of the year, adjacent sectors of Russian industry followed the example of coal companies. For example, Mechel announced that it would increase contract prices for coke by 10%. Experts consider that other coal companies will revise their price policy as well. Consequently, the cost of rolled metal in Russia may increase in 2011.  

Grain: Expecting Export Wonder
The plan was that grain export would allow participants in foreign economic activity to live a life of ease in 2010. However, it became clear at the beginning of 2010 that the market situation has significantly changed. World demand for Russian grain reduced, because the RF’s traditional contractors had an excess of their own wheat in 2009. Moreover, the crisis led to a worldwide decline in consumption of this product. 
Then, grain consumption started to stagnate inside Russia, which led to the formation of a significant carry-over at grain elevators. Some experts believed that, sooner or later, exports would draw the sector out of the crisis. Instead, a drought started in Russia, and grain on more than 10 million hectares died out because of the heat wave. A state of emergency was announced in 27 regions. All this led to implementation of a temporary embargo on wheat exports from Russia.
The main reasons for the embargo, which was extended to July 1, 2011, were the fear of another lean year and the need to redirect the flows of food and fodder grain (there was an excess of it in the south of Russia) to the regions that were suffering. ‘At first, transportation volume fell significantly, because the export flow out of Russia practically disappeared. On the other hand, significant freight flow developed from the Russian south to the regions that suffered with the drought. Also, there appeared flows from Western Siberia to the Volga,’ says Dmitry Rylko, CEO of the Agrarian Market Situation Institute.
To make domestic transportation more attractive, the Russian Government gave RZD RUR 2 billion of budget outlays to apply 50-70% discounts on grain transportation. Cargo owners noted, however, that the announced decreasing coefficient could be applied to only the infrastructure constituent of the tariff. I.e. the discount was calculated from 85% and did not exceed 15-25%.
Anyway, nowadays, the grain transportation market is alive. This year, much will depend on the inland market situation and on how soon the embargo is abolished.

Resume
RZD worked in complicated macro-economic conditions. The end of the crisis coincided with the final stage of Russian Railways reform and the separation of the wagon park into commercial structures. The consequences of these steps have been discussed frequently at all levels. That is why both cargo owners and operators count on regulators’ intervening in organising the transportation process to avoid traffic jams and rolling stock shortages. ‘In 2011, we expect that the market will move to a new balance. 
Firstly, the freight wagons deficit will inevitably fall, especially because of the significant increase in production capacities in the CIS (over 90,000 railcars were manufactured in 2010). Secondly, a new system of routes will start to form considering the new structure of rolling stock owners and Freight One and Freight Two reaching the planned transportation volume. 
This will stop the reduction of a cargo railcar efficiency and stabilise the demand for rolling stock,’ believes Dmitry Bovykin, Head of Marketing and Analytic Researches Department at Brunswick Rail. 
By Maria Shevchenko 

viewpoint
Dmitry Bovykin,
Head of Marketing and Analytic Research Department at Brunswick Rail:
– The main problem of 2010 for the sector was an abrupt transfer from survival to rapid growth. Companies, which failed to rearrange themselves and attract financial and human resources to provide growth, lost time and market share. 
The increase in transportation volume, changes in the railway market structure caused by the launch of Freight Two and the growth in effective tariffs on transportation (up to 30% for some cargoes and routes) all influenced the railway transportation market and demanded timely decisions from the top managers of their companies in order to adapt to the new conditions.




Viktor Kaigorodov,
Transport Department Head of Koks:
– The reform of RZD, particularly the transfer to work only with the private park , made our company change the technology of raw material (coal concentrate) delivery to produce and dispatch wagons with coke. Nowadays, 70% of wagons arrive at the plant loaded with coal concentrate and leave empty after being unloaded. Consequently, 70% of wagons to be loaded are to be delivered to the plant empty. 
This technology has led to an overloaded infrastructure, larger wagon turnover on the railway approaches, growth in the shunting locomotive park, and an increase of the transport constituent in the cost of the finished products. I.e. the transporters’ wagon park is not used efficiently, since to dispatch a similar volume of cargo we need more railcars. We offer the creation of a structure managing the entire wagon parks of all operators to solve these problems. 

Alexander Semenyutin,
Director of Transport and Logistics Company KCCW:
– Nowadays, the “small” problems of specialised rolling stock owners are not often discussed. However, there are hardly any market mechanisms to solve them. For example, universal wagons may be rented and there are transparent mechanisms of price formation, but tank wagons for harmful chemical compounds – liquefied gases, acids etc. – are a very specific rolling stock and nobody even thinks of buying it to rent out later. 
This situation has existed for a long time, but the current “big” problems make rolling stock supply time rather vague, and specialised wagons more and more often get stuck at terminal stations together with abandoned trains consisting of universal railcars. Now, a company needs 12-16 specialised wagons to work on the route, whereas earlier it used 10 such railcars. If there is a lack of a free park on the market and a transparent formation of prices for specialised machinery, such cargo owners are left to fend for themselves and have less and less chance of getting access to infrastructure for a fair price and with forecasted supply terms.
    [~DETAIL_TEXT] => 
Positive Results
The results of 2010 turned out to be even more optimistic than Russian Railways’ top management had forecasted. To remind, the preliminary forecast envisaged a 4% growth in comparison with the figures of 2009. Meanwhile, the rate of the economy’s development and the dynamics of companies recovering after the recession were so successful that already in March 2010 the forecast was reviewed and amounted to a 5% increase in loading volume. After that the forecasts made by RZD’s top managers were becoming more and more optimistic. Particularly, last November, the official forecast for loading volumes was +7.5% year-on-year, and the result of 2010 amounted to +8.8%.
All in all, approximately 1.2 billion tons of cargo was transported on the Russian railway network in 2010, and cargo turnover amounted to 2,010.6 billion tariff tonne-kilometres (+7.8%). To compare, the loading volume was 1.34 billion tons in 2007, and 1.304 billion tons in 2008. It is worth mentioning that the increase in loading volume was 9%, while the industrial production index, which reflects the real situation in the Russian economy, grew by almost 20% last year. Thus, RZD is getting behind in the fight for the freight base.   
Nevertheless, in comparison with the figures of the previous years, the achievements of 2010 seem to be rather promising. In 2007, cargo loading volumes grew by only 3% year-on-year, and in 2008 and 2009 it fell by 3% and 15% respectively compared with the previous periods. Consequently, although the results of 2010 were good, they could not compensate for the serious reduction that had taken place before. 
Vladimir Yakunin, President of RZD, paid special attention to this fact at the RZD Board’s meeting at the end of the year. ‘The crisis has not been overcome yet, so I’d rather not name this year a successful one. In 2010, we transported by 9% less cargo than in the pre-crisis period,’ he emphasised. 
There was a positive trend for all cargo classes. There was a 10.7% increase in the volume of cargoes of 1st class, a 6.5% and 7.6% growth in the volume of cargoes of 2nd and 3rd classes respectively. The dynamics of transportation volume growth were constantly increasing for all basic cargoes except grain. In particular, the situation in the high-yield cargoes segment was as follows: oil and petrochemicals grew by 10.8%, ferrous metals by 12.3%, metal structures by 16.7%, chemicals and soda by 16.2%. 
A similar situation appeared in the average-yield cargoes segment: chemicals and mineral fertilizers increased by 16%, ferrous metal scrap by 26.4%, coke by 19.7%, timber by 2.1% (grain was the only cargo which saw transportation volume fall, by 22%). It happened because of the moratorium on exports). The growth in low-yield cargo transportation volumes was not so significant. Nevertheless, coal loading volumes rose by 3.9%, those of construction materials by 11% and those of iron and manganese ores by 6.7%. Cement loading volumes increased by 14.3%.

Area of Success and Overload
On the whole, all the railways on RZD’s network improved their results in comparison with the previous year. The leaders were the Zabaikal Railway (more than a two-fold increase in comparison with the results of 2009), the Kaliningrad Railway (+22.3%), the Sverdlovsk Railway (+15.5%), the Northern Railway (+14.3%), the Far Eastern Railway (+13.6%), and the Privolzhsk Railway (+12.2%). 
The rest of the territorial branches of RZD improved their figures by less than 10%. As we see, the best results were achieved on the most eastern and western railways of RZD’s network, with the key affiliates forming the backbone of the freight base. On the whole, it was caused by the growth of international prices and the demand for Russian primary resources, actively exported by national extracting and processing companies. 
At the same time, the Zabaikal Railway was one of the leaders according to other figures as well. Thus, last year the Railway’s throughput amounted to 191.3 billion net tonne-kilometres, which exceeded the historic high reached there in 1988 (182.5 billion net tonne-kilometres). And this figure still remains one of the best results on the railway network. Zabaikal Railway was second on RZD’s network according to total throughput in 2010. 
Loading of oil and petrochemicals increased most of all there – their volume carried by the Railway grew by 35.7-fold in comparison with 2009. It became possible due to the transportation of oil from the Eastern Siberia – the Pacific Ocean pipeline (the ESPO pipeline) – from Skovorodino railway station to Kozmino port – the Railway carried up to 1.3 million tons of crude oil a month. It is worth noting that the Zabaikal Railway had hardly loaded oil before December 2009.
The increase in loading on the Kaliningrad Railway can be explained by the fact that European countries came out of the recession and the growing exports of raw materials via the port and railway capacities in the region. The weather played into the hands of the Kaliningrad region –the cold winter saw a part of the freight flow re-directed via its ports from other Baltic harbours, thus the Railway’s throughput increased significantly in early 2010.    
However, one of the most important factors which influenced cargo flow in 2010 was skewed transportation in the eastern direction. Two years running, the dynamics of the freight flow moving to the Far East demonstrated more than 20% growth. It was caused by the development of China consuming Russian steel and ferrous metals, an increase in the international price of coal and the construction of a number of large investment projects in the region. 
On the one hand, managers at RZD are glad that the cargo flow has increased and the port terminals are loaded. On the other hand, the carrying capacity of infrastructure in the far eastern direction has been exhausted. ‘The infrastructure’s capacity in the eastern area is already stretched to the limit,’ says Alexey Mironov, Head of the Traffic Management Central Directorate. 
‘On sections of the Transsib, the coefficient of carrying capacity from Mezhdurechensk to Taishet has amounted to 1; from Petrovsky Zavod to Karymskaya – 0.98; from Skovorodino to Arkhara – 0.9. There is a similar situation on the Baikal-Amur Mainline (the BAM) – the carrying capacity coefficient on the section from Lena-Vostochnaya to Severobaikalsk is 0.8, and from Komsomolsk-on-Amur to Vanino – 0.9.’ 
These sections of railway are overloaded now, thus, they are barriers to the proper organisation of the transport process. 
Due to the current situation, top managers at the Far Eastern Railway consider that one of the most significant aspects of the company’s investment policy is the development of the Northern latitudinal passage (Eastern BAM). ‘The existing carrying capacity in this direction is a factor restraining an increase in freight transportation volume. This problem can be solved by investing a significant sum of money, and one of our most important tasks is to find it,’ thinks Mikhail Zaichenko, Head of the Far Eastern Railway.

Black Gold Goes East
Analysing the results of 2010 from the standpoint of the basic cargoes, one can see that the situation seems promising for all general cargoes. As for oil bulk, in the recent years there appeared a tendency for crude oil transportation via RZD’s network to reduce, but the year of 2010 became an exception. Loading volumes increased due to oil from new fields and the re-direction of cargo flows from other transport modes. 
In particular, during the navigation period, railwaymen managed to attract some oil bulk volume from river transport. The situation in the charter market was favourable for this, and RZD offered better conditions as well. As a result, supply chains including a water link became unreasonable. As a result, 251.4 million tons of oil bulk was transported in 2010, a 10.8% increase in comparison with the results of the previous year. 
One of the tendencies mentioned by experts was the increase in crude oil transportation abroad by railway. In 2009, the railway’s share was about 10% of the total volume carried by all transport modes, and in 2010 this figure grew to 15%. Moreover, the basic directions of oil bulk flows changed. New chains appeared. 
On the one hand, they took some volume from the traditional export directions, and on the other hand, they attracted oil carried by sea to the countries of the Asia-Pacific Region from the states competing with Russia on the hydrocarbon market. In particular, oil loading volumes destined for the CIS plummeted. However, it was compensated for by the increase in transportation eastwards with the further oil loading into tankers in the port of Kozmino. As a result, the share of oil transportation in the Eastern area grew more than 13-fold – to 40% (in 2009 this figure was 3%). 
Thus, it is possible to say that, thanks to railwaymen, Russian oil companies managed to strengthen their position even amid unstable demand for the black gold in the Asia-Pacific Region.

Chemicals and Fertilisers: Stake on Export 
Mineral fertilisers, chemicals and soda producers’ best card in their fight against economic instability was the orientation towards international demand. Putting their stake on exports helped the companies to keep manufacturing and sales at pre-crisis levels. On the whole, cargo owners in this sector say that last year the loading volume of all types of chemicals and fertilisers grew by 16% in comparison with 2009. 
Meanwhile, the problems in the sector remained basically the same. In particular, there was a misbalance between internal and external demand for production. The crisis became one of the reasons why Russian producers have to export up to 70% of their production. There are other reasons as well. According to experts, the capacity of the domestic market is just 30% of the total volume of mineral fertilisers produced in Russia. 
This figure for chemicals and soda is slightly bigger – 40%. As a result, the low domestic demand cannot guarantee the sector’s stable work in case of international financial problems and consumption decline. Another problem was railway tariffs growth and the increase of the transport constituent in the final price of the product. For comparison, in August 2009, the prices for mineral fertilisers returned to the level of 2007, but in a year and a half the tariffs were adjusted several times, and they grew by more than 40%.
Last year, the situation changed little. ‘Nowadays, the cost of mineral fertiliser transportation is 20% more than in January-May 2010,’ says Sergey Momtsemlidze, Director of Uralkhim-Trans. However, members of the Russian Fertilisers Producers Association say that the authorities are carrying out a policy of restraint in railway tariff growth, giving direct support to RZD. ‘The size of the transport constituent depends on the prices for fertilisers which significantly vary according to the season and other conditions on the market,’ emphasises Igor Kaluzhsky, Executive Director of the Association. 

Ferrous Metal and Metal Scrap: Optimistic About the Future
Despite obvious instability, when the periods of sudden growth in loading volume were replaced by weeks of sharp falls, the black ferrous segment demonstrated moderate growth last year. According to RZD, in 2010, over 72 million tons of this cargo were transported via the railway network, i.e. 12% more in comparison with the previous year. 
The main factor behind the activity in the market was the recovery of the real sector of the economy, and consequently, the increase in demand for rolled metal products and goods made of cast iron, iron, and steel. Traditionally, the major customers were machine-building, construction and metal-work companies, as well as the fuel and energy sectors. According to the estimates of the RF Ministry of Economic Development, after the 14.7% decline in ferrous metallurgy production volume in 2009, there was an 11% rise in 2010.
The volume in an adjacent sector does not usually differ from the needs of metallurgical companies, which is why scrap supplies are always rigidly linked to the metallurgical sector. Consequently, the trends in scrap transportation coincide with the dynamics of ferrous metal manufacture. Fluctuations in ferrous metal scrap loading volumes are not often explained by objective reasons alone. 
Obviously, at the beginning of the year, major consumers of raw materials decided to make use of the market situation to cut costs. After the increase in customs duties and limitation of the number of border check points that export metal scrap, the import of raw materials became rather complicated. Meanwhile, the average price for a ton of metal scrap on the domestic market more than halved (from RUR 14,000-17,000 in 2008 to RUR 7,000-8,000 in early 2010), so most metal traders thought this made their business unprofitable.    
As a result, at the beginning of 2010, there was an abrupt decline in the monthly loading volume of ferrous metal scrap for national consumers (up to 44%). In the second half of February, prices started to grow, and in early spring the price for a ton of ferrous metal scrap was RUR 9,500-11,000. All these factors stimulated market activity and an increase in the loading volume. However, after the fast rise in March (6 million tons per month), later the situation became stable, and transportation via the railway network reduced to 2 million tons. 
On the whole, the total loading volume exceeded 20 million tons, a 26% increase in comparison with 2009. This year, the trends in this market will be defined by the state of the metallurgical sector, i.e. experts forecast there will be moderate growth (3-5%) and the role of domestic consumption will strengthen. 

Coal Mines: Waiting for Price Increase
Last year was not simple for coal transportation. It was impacted by the consequences of the accident at the ‘Raspadskaya’ mine and by the shrinking of the public wagon park. The latter seriously complicated rolling stock supply to transport this socially important cargo. On the whole, the sector showed a good growth rate, but it is good only in comparison with the disastrous results of 2009. In 2010, 286.3 million tons of coal (+4%) and 12.5 million tons of coke (+19.8%) were loaded. If these figures are compared with the results of 2008, one can see that coal loading volume in 2010 was 4% less, while that of coke grew by 3%.
After the tragedy at ‘Raspadskaya’, the coal sector faced another problem – traffic jams on the Russian railway network in the Far Eastern Region. They were caused by China – this country enlarged coal purchase volumes in early 2009, when international prices for coal dropped.
Finally, when traffic jams in the Russian east disappeared, it became clear that the volume extracted by the largest mine in the RF couldn’t, but should be, taken into account, because it produced a fifth of the coke for the metallurgical sector. According to experts’ estimations, the first consequences would hit in early 2011 – the decline in supply was to cause price growth. 
Unfortunately, the forecast started to come true last June, when the cost of coke increased by 20%. At the end of the year, adjacent sectors of Russian industry followed the example of coal companies. For example, Mechel announced that it would increase contract prices for coke by 10%. Experts consider that other coal companies will revise their price policy as well. Consequently, the cost of rolled metal in Russia may increase in 2011.  

Grain: Expecting Export Wonder
The plan was that grain export would allow participants in foreign economic activity to live a life of ease in 2010. However, it became clear at the beginning of 2010 that the market situation has significantly changed. World demand for Russian grain reduced, because the RF’s traditional contractors had an excess of their own wheat in 2009. Moreover, the crisis led to a worldwide decline in consumption of this product. 
Then, grain consumption started to stagnate inside Russia, which led to the formation of a significant carry-over at grain elevators. Some experts believed that, sooner or later, exports would draw the sector out of the crisis. Instead, a drought started in Russia, and grain on more than 10 million hectares died out because of the heat wave. A state of emergency was announced in 27 regions. All this led to implementation of a temporary embargo on wheat exports from Russia.
The main reasons for the embargo, which was extended to July 1, 2011, were the fear of another lean year and the need to redirect the flows of food and fodder grain (there was an excess of it in the south of Russia) to the regions that were suffering. ‘At first, transportation volume fell significantly, because the export flow out of Russia practically disappeared. On the other hand, significant freight flow developed from the Russian south to the regions that suffered with the drought. Also, there appeared flows from Western Siberia to the Volga,’ says Dmitry Rylko, CEO of the Agrarian Market Situation Institute.
To make domestic transportation more attractive, the Russian Government gave RZD RUR 2 billion of budget outlays to apply 50-70% discounts on grain transportation. Cargo owners noted, however, that the announced decreasing coefficient could be applied to only the infrastructure constituent of the tariff. I.e. the discount was calculated from 85% and did not exceed 15-25%.
Anyway, nowadays, the grain transportation market is alive. This year, much will depend on the inland market situation and on how soon the embargo is abolished.

Resume
RZD worked in complicated macro-economic conditions. The end of the crisis coincided with the final stage of Russian Railways reform and the separation of the wagon park into commercial structures. The consequences of these steps have been discussed frequently at all levels. That is why both cargo owners and operators count on regulators’ intervening in organising the transportation process to avoid traffic jams and rolling stock shortages. ‘In 2011, we expect that the market will move to a new balance. 
Firstly, the freight wagons deficit will inevitably fall, especially because of the significant increase in production capacities in the CIS (over 90,000 railcars were manufactured in 2010). Secondly, a new system of routes will start to form considering the new structure of rolling stock owners and Freight One and Freight Two reaching the planned transportation volume. 
This will stop the reduction of a cargo railcar efficiency and stabilise the demand for rolling stock,’ believes Dmitry Bovykin, Head of Marketing and Analytic Researches Department at Brunswick Rail. 
By Maria Shevchenko 

viewpoint
Dmitry Bovykin,
Head of Marketing and Analytic Research Department at Brunswick Rail:
– The main problem of 2010 for the sector was an abrupt transfer from survival to rapid growth. Companies, which failed to rearrange themselves and attract financial and human resources to provide growth, lost time and market share. 
The increase in transportation volume, changes in the railway market structure caused by the launch of Freight Two and the growth in effective tariffs on transportation (up to 30% for some cargoes and routes) all influenced the railway transportation market and demanded timely decisions from the top managers of their companies in order to adapt to the new conditions.




Viktor Kaigorodov,
Transport Department Head of Koks:
– The reform of RZD, particularly the transfer to work only with the private park , made our company change the technology of raw material (coal concentrate) delivery to produce and dispatch wagons with coke. Nowadays, 70% of wagons arrive at the plant loaded with coal concentrate and leave empty after being unloaded. Consequently, 70% of wagons to be loaded are to be delivered to the plant empty. 
This technology has led to an overloaded infrastructure, larger wagon turnover on the railway approaches, growth in the shunting locomotive park, and an increase of the transport constituent in the cost of the finished products. I.e. the transporters’ wagon park is not used efficiently, since to dispatch a similar volume of cargo we need more railcars. We offer the creation of a structure managing the entire wagon parks of all operators to solve these problems. 

Alexander Semenyutin,
Director of Transport and Logistics Company KCCW:
– Nowadays, the “small” problems of specialised rolling stock owners are not often discussed. However, there are hardly any market mechanisms to solve them. For example, universal wagons may be rented and there are transparent mechanisms of price formation, but tank wagons for harmful chemical compounds – liquefied gases, acids etc. – are a very specific rolling stock and nobody even thinks of buying it to rent out later. 
This situation has existed for a long time, but the current “big” problems make rolling stock supply time rather vague, and specialised wagons more and more often get stuck at terminal stations together with abandoned trains consisting of universal railcars. Now, a company needs 12-16 specialised wagons to work on the route, whereas earlier it used 10 such railcars. If there is a lack of a free park on the market and a transparent formation of prices for specialised machinery, such cargo owners are left to fend for themselves and have less and less chance of getting access to infrastructure for a fair price and with forecasted supply terms.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/17.jpg" border="1" alt=" " hspace="5" width="200" height="264" align="left" />The positive dynamics in the loading volumes of almost all key cargoes became the major result of RZD’s freight work in 2010. At the same time, the increase in cargo loading volume at across the whole network has demonstrated the fact that the Russian economy is overcoming the consequences of the financial crisis, but time is still needed for the recovery. That is why, despite some optimistic figures, the year of 2010 was judged “stable.”
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Positive Results
The results of 2010 turned out to be even more optimistic than Russian Railways’ top management had forecasted. To remind, the preliminary forecast envisaged a 4% growth in comparison with the figures of 2009. Meanwhile, the rate of the economy’s development and the dynamics of companies recovering after the recession were so successful that already in March 2010 the forecast was reviewed and amounted to a 5% increase in loading volume. After that the forecasts made by RZD’s top managers were becoming more and more optimistic. Particularly, last November, the official forecast for loading volumes was +7.5% year-on-year, and the result of 2010 amounted to +8.8%.
All in all, approximately 1.2 billion tons of cargo was transported on the Russian railway network in 2010, and cargo turnover amounted to 2,010.6 billion tariff tonne-kilometres (+7.8%). To compare, the loading volume was 1.34 billion tons in 2007, and 1.304 billion tons in 2008. It is worth mentioning that the increase in loading volume was 9%, while the industrial production index, which reflects the real situation in the Russian economy, grew by almost 20% last year. Thus, RZD is getting behind in the fight for the freight base.   
Nevertheless, in comparison with the figures of the previous years, the achievements of 2010 seem to be rather promising. In 2007, cargo loading volumes grew by only 3% year-on-year, and in 2008 and 2009 it fell by 3% and 15% respectively compared with the previous periods. Consequently, although the results of 2010 were good, they could not compensate for the serious reduction that had taken place before. 
Vladimir Yakunin, President of RZD, paid special attention to this fact at the RZD Board’s meeting at the end of the year. ‘The crisis has not been overcome yet, so I’d rather not name this year a successful one. In 2010, we transported by 9% less cargo than in the pre-crisis period,’ he emphasised. 
There was a positive trend for all cargo classes. There was a 10.7% increase in the volume of cargoes of 1st class, a 6.5% and 7.6% growth in the volume of cargoes of 2nd and 3rd classes respectively. The dynamics of transportation volume growth were constantly increasing for all basic cargoes except grain. In particular, the situation in the high-yield cargoes segment was as follows: oil and petrochemicals grew by 10.8%, ferrous metals by 12.3%, metal structures by 16.7%, chemicals and soda by 16.2%. 
A similar situation appeared in the average-yield cargoes segment: chemicals and mineral fertilizers increased by 16%, ferrous metal scrap by 26.4%, coke by 19.7%, timber by 2.1% (grain was the only cargo which saw transportation volume fall, by 22%). It happened because of the moratorium on exports). The growth in low-yield cargo transportation volumes was not so significant. Nevertheless, coal loading volumes rose by 3.9%, those of construction materials by 11% and those of iron and manganese ores by 6.7%. Cement loading volumes increased by 14.3%.

Area of Success and Overload
On the whole, all the railways on RZD’s network improved their results in comparison with the previous year. The leaders were the Zabaikal Railway (more than a two-fold increase in comparison with the results of 2009), the Kaliningrad Railway (+22.3%), the Sverdlovsk Railway (+15.5%), the Northern Railway (+14.3%), the Far Eastern Railway (+13.6%), and the Privolzhsk Railway (+12.2%). 
The rest of the territorial branches of RZD improved their figures by less than 10%. As we see, the best results were achieved on the most eastern and western railways of RZD’s network, with the key affiliates forming the backbone of the freight base. On the whole, it was caused by the growth of international prices and the demand for Russian primary resources, actively exported by national extracting and processing companies. 
At the same time, the Zabaikal Railway was one of the leaders according to other figures as well. Thus, last year the Railway’s throughput amounted to 191.3 billion net tonne-kilometres, which exceeded the historic high reached there in 1988 (182.5 billion net tonne-kilometres). And this figure still remains one of the best results on the railway network. Zabaikal Railway was second on RZD’s network according to total throughput in 2010. 
Loading of oil and petrochemicals increased most of all there – their volume carried by the Railway grew by 35.7-fold in comparison with 2009. It became possible due to the transportation of oil from the Eastern Siberia – the Pacific Ocean pipeline (the ESPO pipeline) – from Skovorodino railway station to Kozmino port – the Railway carried up to 1.3 million tons of crude oil a month. It is worth noting that the Zabaikal Railway had hardly loaded oil before December 2009.
The increase in loading on the Kaliningrad Railway can be explained by the fact that European countries came out of the recession and the growing exports of raw materials via the port and railway capacities in the region. The weather played into the hands of the Kaliningrad region –the cold winter saw a part of the freight flow re-directed via its ports from other Baltic harbours, thus the Railway’s throughput increased significantly in early 2010.    
However, one of the most important factors which influenced cargo flow in 2010 was skewed transportation in the eastern direction. Two years running, the dynamics of the freight flow moving to the Far East demonstrated more than 20% growth. It was caused by the development of China consuming Russian steel and ferrous metals, an increase in the international price of coal and the construction of a number of large investment projects in the region. 
On the one hand, managers at RZD are glad that the cargo flow has increased and the port terminals are loaded. On the other hand, the carrying capacity of infrastructure in the far eastern direction has been exhausted. ‘The infrastructure’s capacity in the eastern area is already stretched to the limit,’ says Alexey Mironov, Head of the Traffic Management Central Directorate. 
‘On sections of the Transsib, the coefficient of carrying capacity from Mezhdurechensk to Taishet has amounted to 1; from Petrovsky Zavod to Karymskaya – 0.98; from Skovorodino to Arkhara – 0.9. There is a similar situation on the Baikal-Amur Mainline (the BAM) – the carrying capacity coefficient on the section from Lena-Vostochnaya to Severobaikalsk is 0.8, and from Komsomolsk-on-Amur to Vanino – 0.9.’ 
These sections of railway are overloaded now, thus, they are barriers to the proper organisation of the transport process. 
Due to the current situation, top managers at the Far Eastern Railway consider that one of the most significant aspects of the company’s investment policy is the development of the Northern latitudinal passage (Eastern BAM). ‘The existing carrying capacity in this direction is a factor restraining an increase in freight transportation volume. This problem can be solved by investing a significant sum of money, and one of our most important tasks is to find it,’ thinks Mikhail Zaichenko, Head of the Far Eastern Railway.

Black Gold Goes East
Analysing the results of 2010 from the standpoint of the basic cargoes, one can see that the situation seems promising for all general cargoes. As for oil bulk, in the recent years there appeared a tendency for crude oil transportation via RZD’s network to reduce, but the year of 2010 became an exception. Loading volumes increased due to oil from new fields and the re-direction of cargo flows from other transport modes. 
In particular, during the navigation period, railwaymen managed to attract some oil bulk volume from river transport. The situation in the charter market was favourable for this, and RZD offered better conditions as well. As a result, supply chains including a water link became unreasonable. As a result, 251.4 million tons of oil bulk was transported in 2010, a 10.8% increase in comparison with the results of the previous year. 
One of the tendencies mentioned by experts was the increase in crude oil transportation abroad by railway. In 2009, the railway’s share was about 10% of the total volume carried by all transport modes, and in 2010 this figure grew to 15%. Moreover, the basic directions of oil bulk flows changed. New chains appeared. 
On the one hand, they took some volume from the traditional export directions, and on the other hand, they attracted oil carried by sea to the countries of the Asia-Pacific Region from the states competing with Russia on the hydrocarbon market. In particular, oil loading volumes destined for the CIS plummeted. However, it was compensated for by the increase in transportation eastwards with the further oil loading into tankers in the port of Kozmino. As a result, the share of oil transportation in the Eastern area grew more than 13-fold – to 40% (in 2009 this figure was 3%). 
Thus, it is possible to say that, thanks to railwaymen, Russian oil companies managed to strengthen their position even amid unstable demand for the black gold in the Asia-Pacific Region.

Chemicals and Fertilisers: Stake on Export 
Mineral fertilisers, chemicals and soda producers’ best card in their fight against economic instability was the orientation towards international demand. Putting their stake on exports helped the companies to keep manufacturing and sales at pre-crisis levels. On the whole, cargo owners in this sector say that last year the loading volume of all types of chemicals and fertilisers grew by 16% in comparison with 2009. 
Meanwhile, the problems in the sector remained basically the same. In particular, there was a misbalance between internal and external demand for production. The crisis became one of the reasons why Russian producers have to export up to 70% of their production. There are other reasons as well. According to experts, the capacity of the domestic market is just 30% of the total volume of mineral fertilisers produced in Russia. 
This figure for chemicals and soda is slightly bigger – 40%. As a result, the low domestic demand cannot guarantee the sector’s stable work in case of international financial problems and consumption decline. Another problem was railway tariffs growth and the increase of the transport constituent in the final price of the product. For comparison, in August 2009, the prices for mineral fertilisers returned to the level of 2007, but in a year and a half the tariffs were adjusted several times, and they grew by more than 40%.
Last year, the situation changed little. ‘Nowadays, the cost of mineral fertiliser transportation is 20% more than in January-May 2010,’ says Sergey Momtsemlidze, Director of Uralkhim-Trans. However, members of the Russian Fertilisers Producers Association say that the authorities are carrying out a policy of restraint in railway tariff growth, giving direct support to RZD. ‘The size of the transport constituent depends on the prices for fertilisers which significantly vary according to the season and other conditions on the market,’ emphasises Igor Kaluzhsky, Executive Director of the Association. 

Ferrous Metal and Metal Scrap: Optimistic About the Future
Despite obvious instability, when the periods of sudden growth in loading volume were replaced by weeks of sharp falls, the black ferrous segment demonstrated moderate growth last year. According to RZD, in 2010, over 72 million tons of this cargo were transported via the railway network, i.e. 12% more in comparison with the previous year. 
The main factor behind the activity in the market was the recovery of the real sector of the economy, and consequently, the increase in demand for rolled metal products and goods made of cast iron, iron, and steel. Traditionally, the major customers were machine-building, construction and metal-work companies, as well as the fuel and energy sectors. According to the estimates of the RF Ministry of Economic Development, after the 14.7% decline in ferrous metallurgy production volume in 2009, there was an 11% rise in 2010.
The volume in an adjacent sector does not usually differ from the needs of metallurgical companies, which is why scrap supplies are always rigidly linked to the metallurgical sector. Consequently, the trends in scrap transportation coincide with the dynamics of ferrous metal manufacture. Fluctuations in ferrous metal scrap loading volumes are not often explained by objective reasons alone. 
Obviously, at the beginning of the year, major consumers of raw materials decided to make use of the market situation to cut costs. After the increase in customs duties and limitation of the number of border check points that export metal scrap, the import of raw materials became rather complicated. Meanwhile, the average price for a ton of metal scrap on the domestic market more than halved (from RUR 14,000-17,000 in 2008 to RUR 7,000-8,000 in early 2010), so most metal traders thought this made their business unprofitable.    
As a result, at the beginning of 2010, there was an abrupt decline in the monthly loading volume of ferrous metal scrap for national consumers (up to 44%). In the second half of February, prices started to grow, and in early spring the price for a ton of ferrous metal scrap was RUR 9,500-11,000. All these factors stimulated market activity and an increase in the loading volume. However, after the fast rise in March (6 million tons per month), later the situation became stable, and transportation via the railway network reduced to 2 million tons. 
On the whole, the total loading volume exceeded 20 million tons, a 26% increase in comparison with 2009. This year, the trends in this market will be defined by the state of the metallurgical sector, i.e. experts forecast there will be moderate growth (3-5%) and the role of domestic consumption will strengthen. 

Coal Mines: Waiting for Price Increase
Last year was not simple for coal transportation. It was impacted by the consequences of the accident at the ‘Raspadskaya’ mine and by the shrinking of the public wagon park. The latter seriously complicated rolling stock supply to transport this socially important cargo. On the whole, the sector showed a good growth rate, but it is good only in comparison with the disastrous results of 2009. In 2010, 286.3 million tons of coal (+4%) and 12.5 million tons of coke (+19.8%) were loaded. If these figures are compared with the results of 2008, one can see that coal loading volume in 2010 was 4% less, while that of coke grew by 3%.
After the tragedy at ‘Raspadskaya’, the coal sector faced another problem – traffic jams on the Russian railway network in the Far Eastern Region. They were caused by China – this country enlarged coal purchase volumes in early 2009, when international prices for coal dropped.
Finally, when traffic jams in the Russian east disappeared, it became clear that the volume extracted by the largest mine in the RF couldn’t, but should be, taken into account, because it produced a fifth of the coke for the metallurgical sector. According to experts’ estimations, the first consequences would hit in early 2011 – the decline in supply was to cause price growth. 
Unfortunately, the forecast started to come true last June, when the cost of coke increased by 20%. At the end of the year, adjacent sectors of Russian industry followed the example of coal companies. For example, Mechel announced that it would increase contract prices for coke by 10%. Experts consider that other coal companies will revise their price policy as well. Consequently, the cost of rolled metal in Russia may increase in 2011.  

Grain: Expecting Export Wonder
The plan was that grain export would allow participants in foreign economic activity to live a life of ease in 2010. However, it became clear at the beginning of 2010 that the market situation has significantly changed. World demand for Russian grain reduced, because the RF’s traditional contractors had an excess of their own wheat in 2009. Moreover, the crisis led to a worldwide decline in consumption of this product. 
Then, grain consumption started to stagnate inside Russia, which led to the formation of a significant carry-over at grain elevators. Some experts believed that, sooner or later, exports would draw the sector out of the crisis. Instead, a drought started in Russia, and grain on more than 10 million hectares died out because of the heat wave. A state of emergency was announced in 27 regions. All this led to implementation of a temporary embargo on wheat exports from Russia.
The main reasons for the embargo, which was extended to July 1, 2011, were the fear of another lean year and the need to redirect the flows of food and fodder grain (there was an excess of it in the south of Russia) to the regions that were suffering. ‘At first, transportation volume fell significantly, because the export flow out of Russia practically disappeared. On the other hand, significant freight flow developed from the Russian south to the regions that suffered with the drought. Also, there appeared flows from Western Siberia to the Volga,’ says Dmitry Rylko, CEO of the Agrarian Market Situation Institute.
To make domestic transportation more attractive, the Russian Government gave RZD RUR 2 billion of budget outlays to apply 50-70% discounts on grain transportation. Cargo owners noted, however, that the announced decreasing coefficient could be applied to only the infrastructure constituent of the tariff. I.e. the discount was calculated from 85% and did not exceed 15-25%.
Anyway, nowadays, the grain transportation market is alive. This year, much will depend on the inland market situation and on how soon the embargo is abolished.

Resume
RZD worked in complicated macro-economic conditions. The end of the crisis coincided with the final stage of Russian Railways reform and the separation of the wagon park into commercial structures. The consequences of these steps have been discussed frequently at all levels. That is why both cargo owners and operators count on regulators’ intervening in organising the transportation process to avoid traffic jams and rolling stock shortages. ‘In 2011, we expect that the market will move to a new balance. 
Firstly, the freight wagons deficit will inevitably fall, especially because of the significant increase in production capacities in the CIS (over 90,000 railcars were manufactured in 2010). Secondly, a new system of routes will start to form considering the new structure of rolling stock owners and Freight One and Freight Two reaching the planned transportation volume. 
This will stop the reduction of a cargo railcar efficiency and stabilise the demand for rolling stock,’ believes Dmitry Bovykin, Head of Marketing and Analytic Researches Department at Brunswick Rail. 
By Maria Shevchenko 

viewpoint
Dmitry Bovykin,
Head of Marketing and Analytic Research Department at Brunswick Rail:
– The main problem of 2010 for the sector was an abrupt transfer from survival to rapid growth. Companies, which failed to rearrange themselves and attract financial and human resources to provide growth, lost time and market share. 
The increase in transportation volume, changes in the railway market structure caused by the launch of Freight Two and the growth in effective tariffs on transportation (up to 30% for some cargoes and routes) all influenced the railway transportation market and demanded timely decisions from the top managers of their companies in order to adapt to the new conditions.




Viktor Kaigorodov,
Transport Department Head of Koks:
– The reform of RZD, particularly the transfer to work only with the private park , made our company change the technology of raw material (coal concentrate) delivery to produce and dispatch wagons with coke. Nowadays, 70% of wagons arrive at the plant loaded with coal concentrate and leave empty after being unloaded. Consequently, 70% of wagons to be loaded are to be delivered to the plant empty. 
This technology has led to an overloaded infrastructure, larger wagon turnover on the railway approaches, growth in the shunting locomotive park, and an increase of the transport constituent in the cost of the finished products. I.e. the transporters’ wagon park is not used efficiently, since to dispatch a similar volume of cargo we need more railcars. We offer the creation of a structure managing the entire wagon parks of all operators to solve these problems. 

Alexander Semenyutin,
Director of Transport and Logistics Company KCCW:
– Nowadays, the “small” problems of specialised rolling stock owners are not often discussed. However, there are hardly any market mechanisms to solve them. For example, universal wagons may be rented and there are transparent mechanisms of price formation, but tank wagons for harmful chemical compounds – liquefied gases, acids etc. – are a very specific rolling stock and nobody even thinks of buying it to rent out later. 
This situation has existed for a long time, but the current “big” problems make rolling stock supply time rather vague, and specialised wagons more and more often get stuck at terminal stations together with abandoned trains consisting of universal railcars. Now, a company needs 12-16 specialised wagons to work on the route, whereas earlier it used 10 such railcars. If there is a lack of a free park on the market and a transparent formation of prices for specialised machinery, such cargo owners are left to fend for themselves and have less and less chance of getting access to infrastructure for a fair price and with forecasted supply terms.
    [~DETAIL_TEXT] => 
Positive Results
The results of 2010 turned out to be even more optimistic than Russian Railways’ top management had forecasted. To remind, the preliminary forecast envisaged a 4% growth in comparison with the figures of 2009. Meanwhile, the rate of the economy’s development and the dynamics of companies recovering after the recession were so successful that already in March 2010 the forecast was reviewed and amounted to a 5% increase in loading volume. After that the forecasts made by RZD’s top managers were becoming more and more optimistic. Particularly, last November, the official forecast for loading volumes was +7.5% year-on-year, and the result of 2010 amounted to +8.8%.
All in all, approximately 1.2 billion tons of cargo was transported on the Russian railway network in 2010, and cargo turnover amounted to 2,010.6 billion tariff tonne-kilometres (+7.8%). To compare, the loading volume was 1.34 billion tons in 2007, and 1.304 billion tons in 2008. It is worth mentioning that the increase in loading volume was 9%, while the industrial production index, which reflects the real situation in the Russian economy, grew by almost 20% last year. Thus, RZD is getting behind in the fight for the freight base.   
Nevertheless, in comparison with the figures of the previous years, the achievements of 2010 seem to be rather promising. In 2007, cargo loading volumes grew by only 3% year-on-year, and in 2008 and 2009 it fell by 3% and 15% respectively compared with the previous periods. Consequently, although the results of 2010 were good, they could not compensate for the serious reduction that had taken place before. 
Vladimir Yakunin, President of RZD, paid special attention to this fact at the RZD Board’s meeting at the end of the year. ‘The crisis has not been overcome yet, so I’d rather not name this year a successful one. In 2010, we transported by 9% less cargo than in the pre-crisis period,’ he emphasised. 
There was a positive trend for all cargo classes. There was a 10.7% increase in the volume of cargoes of 1st class, a 6.5% and 7.6% growth in the volume of cargoes of 2nd and 3rd classes respectively. The dynamics of transportation volume growth were constantly increasing for all basic cargoes except grain. In particular, the situation in the high-yield cargoes segment was as follows: oil and petrochemicals grew by 10.8%, ferrous metals by 12.3%, metal structures by 16.7%, chemicals and soda by 16.2%. 
A similar situation appeared in the average-yield cargoes segment: chemicals and mineral fertilizers increased by 16%, ferrous metal scrap by 26.4%, coke by 19.7%, timber by 2.1% (grain was the only cargo which saw transportation volume fall, by 22%). It happened because of the moratorium on exports). The growth in low-yield cargo transportation volumes was not so significant. Nevertheless, coal loading volumes rose by 3.9%, those of construction materials by 11% and those of iron and manganese ores by 6.7%. Cement loading volumes increased by 14.3%.

Area of Success and Overload
On the whole, all the railways on RZD’s network improved their results in comparison with the previous year. The leaders were the Zabaikal Railway (more than a two-fold increase in comparison with the results of 2009), the Kaliningrad Railway (+22.3%), the Sverdlovsk Railway (+15.5%), the Northern Railway (+14.3%), the Far Eastern Railway (+13.6%), and the Privolzhsk Railway (+12.2%). 
The rest of the territorial branches of RZD improved their figures by less than 10%. As we see, the best results were achieved on the most eastern and western railways of RZD’s network, with the key affiliates forming the backbone of the freight base. On the whole, it was caused by the growth of international prices and the demand for Russian primary resources, actively exported by national extracting and processing companies. 
At the same time, the Zabaikal Railway was one of the leaders according to other figures as well. Thus, last year the Railway’s throughput amounted to 191.3 billion net tonne-kilometres, which exceeded the historic high reached there in 1988 (182.5 billion net tonne-kilometres). And this figure still remains one of the best results on the railway network. Zabaikal Railway was second on RZD’s network according to total throughput in 2010. 
Loading of oil and petrochemicals increased most of all there – their volume carried by the Railway grew by 35.7-fold in comparison with 2009. It became possible due to the transportation of oil from the Eastern Siberia – the Pacific Ocean pipeline (the ESPO pipeline) – from Skovorodino railway station to Kozmino port – the Railway carried up to 1.3 million tons of crude oil a month. It is worth noting that the Zabaikal Railway had hardly loaded oil before December 2009.
The increase in loading on the Kaliningrad Railway can be explained by the fact that European countries came out of the recession and the growing exports of raw materials via the port and railway capacities in the region. The weather played into the hands of the Kaliningrad region –the cold winter saw a part of the freight flow re-directed via its ports from other Baltic harbours, thus the Railway’s throughput increased significantly in early 2010.    
However, one of the most important factors which influenced cargo flow in 2010 was skewed transportation in the eastern direction. Two years running, the dynamics of the freight flow moving to the Far East demonstrated more than 20% growth. It was caused by the development of China consuming Russian steel and ferrous metals, an increase in the international price of coal and the construction of a number of large investment projects in the region. 
On the one hand, managers at RZD are glad that the cargo flow has increased and the port terminals are loaded. On the other hand, the carrying capacity of infrastructure in the far eastern direction has been exhausted. ‘The infrastructure’s capacity in the eastern area is already stretched to the limit,’ says Alexey Mironov, Head of the Traffic Management Central Directorate. 
‘On sections of the Transsib, the coefficient of carrying capacity from Mezhdurechensk to Taishet has amounted to 1; from Petrovsky Zavod to Karymskaya – 0.98; from Skovorodino to Arkhara – 0.9. There is a similar situation on the Baikal-Amur Mainline (the BAM) – the carrying capacity coefficient on the section from Lena-Vostochnaya to Severobaikalsk is 0.8, and from Komsomolsk-on-Amur to Vanino – 0.9.’ 
These sections of railway are overloaded now, thus, they are barriers to the proper organisation of the transport process. 
Due to the current situation, top managers at the Far Eastern Railway consider that one of the most significant aspects of the company’s investment policy is the development of the Northern latitudinal passage (Eastern BAM). ‘The existing carrying capacity in this direction is a factor restraining an increase in freight transportation volume. This problem can be solved by investing a significant sum of money, and one of our most important tasks is to find it,’ thinks Mikhail Zaichenko, Head of the Far Eastern Railway.

Black Gold Goes East
Analysing the results of 2010 from the standpoint of the basic cargoes, one can see that the situation seems promising for all general cargoes. As for oil bulk, in the recent years there appeared a tendency for crude oil transportation via RZD’s network to reduce, but the year of 2010 became an exception. Loading volumes increased due to oil from new fields and the re-direction of cargo flows from other transport modes. 
In particular, during the navigation period, railwaymen managed to attract some oil bulk volume from river transport. The situation in the charter market was favourable for this, and RZD offered better conditions as well. As a result, supply chains including a water link became unreasonable. As a result, 251.4 million tons of oil bulk was transported in 2010, a 10.8% increase in comparison with the results of the previous year. 
One of the tendencies mentioned by experts was the increase in crude oil transportation abroad by railway. In 2009, the railway’s share was about 10% of the total volume carried by all transport modes, and in 2010 this figure grew to 15%. Moreover, the basic directions of oil bulk flows changed. New chains appeared. 
On the one hand, they took some volume from the traditional export directions, and on the other hand, they attracted oil carried by sea to the countries of the Asia-Pacific Region from the states competing with Russia on the hydrocarbon market. In particular, oil loading volumes destined for the CIS plummeted. However, it was compensated for by the increase in transportation eastwards with the further oil loading into tankers in the port of Kozmino. As a result, the share of oil transportation in the Eastern area grew more than 13-fold – to 40% (in 2009 this figure was 3%). 
Thus, it is possible to say that, thanks to railwaymen, Russian oil companies managed to strengthen their position even amid unstable demand for the black gold in the Asia-Pacific Region.

Chemicals and Fertilisers: Stake on Export 
Mineral fertilisers, chemicals and soda producers’ best card in their fight against economic instability was the orientation towards international demand. Putting their stake on exports helped the companies to keep manufacturing and sales at pre-crisis levels. On the whole, cargo owners in this sector say that last year the loading volume of all types of chemicals and fertilisers grew by 16% in comparison with 2009. 
Meanwhile, the problems in the sector remained basically the same. In particular, there was a misbalance between internal and external demand for production. The crisis became one of the reasons why Russian producers have to export up to 70% of their production. There are other reasons as well. According to experts, the capacity of the domestic market is just 30% of the total volume of mineral fertilisers produced in Russia. 
This figure for chemicals and soda is slightly bigger – 40%. As a result, the low domestic demand cannot guarantee the sector’s stable work in case of international financial problems and consumption decline. Another problem was railway tariffs growth and the increase of the transport constituent in the final price of the product. For comparison, in August 2009, the prices for mineral fertilisers returned to the level of 2007, but in a year and a half the tariffs were adjusted several times, and they grew by more than 40%.
Last year, the situation changed little. ‘Nowadays, the cost of mineral fertiliser transportation is 20% more than in January-May 2010,’ says Sergey Momtsemlidze, Director of Uralkhim-Trans. However, members of the Russian Fertilisers Producers Association say that the authorities are carrying out a policy of restraint in railway tariff growth, giving direct support to RZD. ‘The size of the transport constituent depends on the prices for fertilisers which significantly vary according to the season and other conditions on the market,’ emphasises Igor Kaluzhsky, Executive Director of the Association. 

Ferrous Metal and Metal Scrap: Optimistic About the Future
Despite obvious instability, when the periods of sudden growth in loading volume were replaced by weeks of sharp falls, the black ferrous segment demonstrated moderate growth last year. According to RZD, in 2010, over 72 million tons of this cargo were transported via the railway network, i.e. 12% more in comparison with the previous year. 
The main factor behind the activity in the market was the recovery of the real sector of the economy, and consequently, the increase in demand for rolled metal products and goods made of cast iron, iron, and steel. Traditionally, the major customers were machine-building, construction and metal-work companies, as well as the fuel and energy sectors. According to the estimates of the RF Ministry of Economic Development, after the 14.7% decline in ferrous metallurgy production volume in 2009, there was an 11% rise in 2010.
The volume in an adjacent sector does not usually differ from the needs of metallurgical companies, which is why scrap supplies are always rigidly linked to the metallurgical sector. Consequently, the trends in scrap transportation coincide with the dynamics of ferrous metal manufacture. Fluctuations in ferrous metal scrap loading volumes are not often explained by objective reasons alone. 
Obviously, at the beginning of the year, major consumers of raw materials decided to make use of the market situation to cut costs. After the increase in customs duties and limitation of the number of border check points that export metal scrap, the import of raw materials became rather complicated. Meanwhile, the average price for a ton of metal scrap on the domestic market more than halved (from RUR 14,000-17,000 in 2008 to RUR 7,000-8,000 in early 2010), so most metal traders thought this made their business unprofitable.    
As a result, at the beginning of 2010, there was an abrupt decline in the monthly loading volume of ferrous metal scrap for national consumers (up to 44%). In the second half of February, prices started to grow, and in early spring the price for a ton of ferrous metal scrap was RUR 9,500-11,000. All these factors stimulated market activity and an increase in the loading volume. However, after the fast rise in March (6 million tons per month), later the situation became stable, and transportation via the railway network reduced to 2 million tons. 
On the whole, the total loading volume exceeded 20 million tons, a 26% increase in comparison with 2009. This year, the trends in this market will be defined by the state of the metallurgical sector, i.e. experts forecast there will be moderate growth (3-5%) and the role of domestic consumption will strengthen. 

Coal Mines: Waiting for Price Increase
Last year was not simple for coal transportation. It was impacted by the consequences of the accident at the ‘Raspadskaya’ mine and by the shrinking of the public wagon park. The latter seriously complicated rolling stock supply to transport this socially important cargo. On the whole, the sector showed a good growth rate, but it is good only in comparison with the disastrous results of 2009. In 2010, 286.3 million tons of coal (+4%) and 12.5 million tons of coke (+19.8%) were loaded. If these figures are compared with the results of 2008, one can see that coal loading volume in 2010 was 4% less, while that of coke grew by 3%.
After the tragedy at ‘Raspadskaya’, the coal sector faced another problem – traffic jams on the Russian railway network in the Far Eastern Region. They were caused by China – this country enlarged coal purchase volumes in early 2009, when international prices for coal dropped.
Finally, when traffic jams in the Russian east disappeared, it became clear that the volume extracted by the largest mine in the RF couldn’t, but should be, taken into account, because it produced a fifth of the coke for the metallurgical sector. According to experts’ estimations, the first consequences would hit in early 2011 – the decline in supply was to cause price growth. 
Unfortunately, the forecast started to come true last June, when the cost of coke increased by 20%. At the end of the year, adjacent sectors of Russian industry followed the example of coal companies. For example, Mechel announced that it would increase contract prices for coke by 10%. Experts consider that other coal companies will revise their price policy as well. Consequently, the cost of rolled metal in Russia may increase in 2011.  

Grain: Expecting Export Wonder
The plan was that grain export would allow participants in foreign economic activity to live a life of ease in 2010. However, it became clear at the beginning of 2010 that the market situation has significantly changed. World demand for Russian grain reduced, because the RF’s traditional contractors had an excess of their own wheat in 2009. Moreover, the crisis led to a worldwide decline in consumption of this product. 
Then, grain consumption started to stagnate inside Russia, which led to the formation of a significant carry-over at grain elevators. Some experts believed that, sooner or later, exports would draw the sector out of the crisis. Instead, a drought started in Russia, and grain on more than 10 million hectares died out because of the heat wave. A state of emergency was announced in 27 regions. All this led to implementation of a temporary embargo on wheat exports from Russia.
The main reasons for the embargo, which was extended to July 1, 2011, were the fear of another lean year and the need to redirect the flows of food and fodder grain (there was an excess of it in the south of Russia) to the regions that were suffering. ‘At first, transportation volume fell significantly, because the export flow out of Russia practically disappeared. On the other hand, significant freight flow developed from the Russian south to the regions that suffered with the drought. Also, there appeared flows from Western Siberia to the Volga,’ says Dmitry Rylko, CEO of the Agrarian Market Situation Institute.
To make domestic transportation more attractive, the Russian Government gave RZD RUR 2 billion of budget outlays to apply 50-70% discounts on grain transportation. Cargo owners noted, however, that the announced decreasing coefficient could be applied to only the infrastructure constituent of the tariff. I.e. the discount was calculated from 85% and did not exceed 15-25%.
Anyway, nowadays, the grain transportation market is alive. This year, much will depend on the inland market situation and on how soon the embargo is abolished.

Resume
RZD worked in complicated macro-economic conditions. The end of the crisis coincided with the final stage of Russian Railways reform and the separation of the wagon park into commercial structures. The consequences of these steps have been discussed frequently at all levels. That is why both cargo owners and operators count on regulators’ intervening in organising the transportation process to avoid traffic jams and rolling stock shortages. ‘In 2011, we expect that the market will move to a new balance. 
Firstly, the freight wagons deficit will inevitably fall, especially because of the significant increase in production capacities in the CIS (over 90,000 railcars were manufactured in 2010). Secondly, a new system of routes will start to form considering the new structure of rolling stock owners and Freight One and Freight Two reaching the planned transportation volume. 
This will stop the reduction of a cargo railcar efficiency and stabilise the demand for rolling stock,’ believes Dmitry Bovykin, Head of Marketing and Analytic Researches Department at Brunswick Rail. 
By Maria Shevchenko 

viewpoint
Dmitry Bovykin,
Head of Marketing and Analytic Research Department at Brunswick Rail:
– The main problem of 2010 for the sector was an abrupt transfer from survival to rapid growth. Companies, which failed to rearrange themselves and attract financial and human resources to provide growth, lost time and market share. 
The increase in transportation volume, changes in the railway market structure caused by the launch of Freight Two and the growth in effective tariffs on transportation (up to 30% for some cargoes and routes) all influenced the railway transportation market and demanded timely decisions from the top managers of their companies in order to adapt to the new conditions.




Viktor Kaigorodov,
Transport Department Head of Koks:
– The reform of RZD, particularly the transfer to work only with the private park , made our company change the technology of raw material (coal concentrate) delivery to produce and dispatch wagons with coke. Nowadays, 70% of wagons arrive at the plant loaded with coal concentrate and leave empty after being unloaded. Consequently, 70% of wagons to be loaded are to be delivered to the plant empty. 
This technology has led to an overloaded infrastructure, larger wagon turnover on the railway approaches, growth in the shunting locomotive park, and an increase of the transport constituent in the cost of the finished products. I.e. the transporters’ wagon park is not used efficiently, since to dispatch a similar volume of cargo we need more railcars. We offer the creation of a structure managing the entire wagon parks of all operators to solve these problems. 

Alexander Semenyutin,
Director of Transport and Logistics Company KCCW:
– Nowadays, the “small” problems of specialised rolling stock owners are not often discussed. However, there are hardly any market mechanisms to solve them. For example, universal wagons may be rented and there are transparent mechanisms of price formation, but tank wagons for harmful chemical compounds – liquefied gases, acids etc. – are a very specific rolling stock and nobody even thinks of buying it to rent out later. 
This situation has existed for a long time, but the current “big” problems make rolling stock supply time rather vague, and specialised wagons more and more often get stuck at terminal stations together with abandoned trains consisting of universal railcars. Now, a company needs 12-16 specialised wagons to work on the route, whereas earlier it used 10 such railcars. If there is a lack of a free park on the market and a transparent formation of prices for specialised machinery, such cargo owners are left to fend for themselves and have less and less chance of getting access to infrastructure for a fair price and with forecasted supply terms.
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            [ELEMENT_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/17.jpg" border="1" alt=" " hspace="5" width="200" height="264" align="left" />The positive dynamics in the loading volumes of almost all key cargoes became the major result of RZD’s freight work in 2010. At the same time, the increase in cargo loading volume at across the whole network has demonstrated the fact that the Russian economy is overcoming the consequences of the financial crisis, but time is still needed for the recovery. That is why, despite some optimistic figures, the year of 2010 was judged “stable.”
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Head of RZD offers to limit empty run of cargo railcars	
Vladimir Yakunin, President of Russian Railways, considers it necessary to create administrative limits on cargo railcars’ empty run amid the shortage of universal rolling stock. 
‘It seems that amendments should be put into the law and the tariff regulation to make empty run of private wagons unprofitable in case there is a freight base to be transported,’ he said.
In the words of Mr Yakunin, one of the reasons for the lack of universal rolling stock is ‘colossal empty back run.’
‘If there is a deficit, a private company increases prices and receives higher revenues. This is a field for the work of the Federal Antimonopoly Service,’ the Head of RZD noted.
At the same time, Mr Yakunin emphasised that the largest subsidiaries of RZD – Freight One and Freight Two – work ‘in the framework of tariffs from Tariff Regulation №10-01’.

Eleven is enough 
The Federal Customs Service (FCS of Russia) suggests keeping 11 border crossings authorised to register export of oil and petrochemicals by road transport. The draft decree has been published on the web-site of the FCS.
They suggest leaving one border crossings for each border with the following states: Norway, Finland, Estonia, Lithuania, South Ossetia, Abkhazia, and Azerbaijan. There are supposed to be two such border crossings on the borders with Latvia and Mongolia.
The FCS explains that the list of border crossings was made in accordance with the present-day transport and logistic schemes of oil and petrochemicals supplies, and it will not have a negative impact on foreign trade activity development.

RF, Belarus, and Kazakhstan will unify tariffs on transit cargo transportation by January 1, 2013
Vladimir Putin, the Russian Premier, stated that tariffs on cargo transportation for the RF, Belarus, and Kazakhstan in the framework of the Common Economic Space would be unified before January 1, 2013. 
‘We agreed to unify inner and export-import tariff by January 1, 2013. It will be lower than the current transit tariff,’ Mr Putin said.
‘On January 1, 2015, there will be one more benefit for Kazakhstan and Byelorussian transporters – they will be allowed to use their own locomotives to transport goods via Russia’s railway network,’ said the Russian Premier.

RZD and Lietuvos gelezinkeliai conclude agreement on international cargo railway transportation organisation
At the 53rd meeting of the CIS Member States Council for Railway Transport held October, representatives of RZD and Lietuvos gelezinkeliai signed an agreement on international cargo railway transportation organisation. The document has a commercial, rather than technical character.
The agreement was signed by Elena Kunaeva, CEO of RZD’s Centre of Transport Service, and Stasis Gudvalis, Deputy CEO of the Freight Transportation Directorate of Lietuvos gelezinkeliai.

Ulan Bator – the Vostochny port: a new line launched	
On October 28, a goods train left Ulan Bator station bound for Russia’s Vostochny port for the first time, with 30 wagons carrying coal from Mongolia’s Tavan-Tolgoi mine, to be delivered to countries in the Asia-Pacific region. 
Up to this point, all freight routes from Mongolia via Russia went only to the West. The launch ceremony was attended by Russian Railways President Vladimir Yakunin, Mongolian Minister of Roads, Transport, Construction and City Planning Khaltmaa Battulga, and other officials.
Mr Yakunin said in his speech at the ceremony: ‘Today we are witnessing an historic event. This is the result of a colossal amount of work carried out jointly by Russia and Mongolia. We and our Mongolian colleagues have developed the whole transport chain – from creating a modern, powerful locomotive and rebuilding infrastructure to setting competitive tariffs. The launch of rail freight services from Mongolia to Far East ports is a clear demonstration of the potential for diversifying sales of Mongolian products on world markets.’
The Russian Railways president said the new route will allow coal to be delivered from mines in Mongolia to Japan and South Korea via Russia’s Far East ports, and also in the future via the developing port of Rajin. Through these measures, Mongolian freight is being given a reliable link to the coast.
The first ‘pilot’ train was led by a 2TE-116UM locomotive, specially built by Transmashholding to withstand the Mongolian climate, with a towing capacity of 6,000 tons. 

Russian State Duma rubber stamps agreement on advance information on goods in the Customs Union
In November 2010, Russian State Duma ratified the agreement on advance information on goods in the Customs Union. 
The agreement on provision and exchange of advance information on goods / vehicles brought into / out of the customs territory of the CU’s countries establishes rules, conditions and deadlines for submission to the customs authorities of the CU’s member-countries of advance information. Information includes goods to be brought into / out the CU’s customs territory, on the vehicles transporting these goods, time and place of arrival / departure of goods into the customs territory, and arrivals / departure of passengers in/out the customs territory of the Customs Union. The agreement provides for the exchange of information between the CU’s customs authorities.
The agreement establishes a list of items for which it is not required to provide advance information and regulates the actions of customs officials in obtaining advance information on goods/vehicles.

FTS adopted methods of cargo transportation tariff indexation
The Russian Federal Tariff Service (the FTS) adopted the methods of cargo transportation tariff indexation, which is based on a fundamentally new approach – the level of prices for RZD’s services is calculated taling into account long-term prospects, including investments with a long-term payback period. 
The document approved by the Board of the FTS is named “Methods to Calculate the Size of Economically Reasonable Expenses And Normative Profit Taken into Account at the Formation of Economically Justified Index to the Current Level of Tariffs, Dues and Fees for Cargo Transportation by Railway.” It has been created to develop Governmental decree №643 on price formation on railway transport approved in August 2009. The methods will become the basis for defining the level of indexation in 2012.
The main innovation is that the level of RZD’s tariffs will be calculated to fulfill the company’s financial needs in the next year and to earn money for the long-term investment programme. The current method may be characterised as a short-term one: the Government defines the level of tariffs and then calculates if it is necessary to give subsides to RZD. 
Last summer it was decided that in 2011 the indexation should not exceed 8%, after which there appeared the question of direct financial support from the state. The new methods define necessary indexation in advance and to avoid any subjective approach. 
The document contains one of a number of mechanisms to make investments into railway infrastructure attractive. For that, normative profit will be taken into consideration, thus, an investor will know the payback period and the return. It is especially important before the possible sale of RZD shares on the stock exchange in 2013-2015. If the state decides to implement a smaller increase in tariffs than the one envisaged by the methods, it must compensate the transporter for the profit lost.
Specialists at the Cargo Transportation Marketing and Tariff Policy Department of RZD, say that these methods allow the setting of transparent rules for tariff formation on railway transport for the mid-term, to receive a guaranteed source of investments – the net profit providing the reproduction of the company’s basic assets, and to have an evidence network of losses in RZD’s revenue caused by state regulation of tariffs on cargo transportation and budget decisions.

Russia looks to develop its transit potential
Russia must develop its transit potential, Deputy Prime Minister Sergei Ivanov announced at the 4th international Russia’s Transportation forum held in the middle of November 2010. 
As he pointed out, the country’s strategy for the development of its transportation complex up until 2030 provides for Russia’s integration into the global market of transportation services and the development of transit potential. “Considering this, we are paying special attention to the implementation of modern technologies for collaboration between various means of transportation and formation of the most efficient logistical routes. It is obvious that the level of logistics costs and risks determines Russia’s attractiveness for the development of  international trade flow. We must, therefore, create a new economic industry by realising the country’s transit potential,” Mr Ivanov explained

Whole Customs Union in the FEA-Info!
Customs documents of the Republic of Kazakhstan and Belarus are included in the FEA-Info electronic directory of Russian customs legislation.
Since the Customs Union was established, a huge amount of work to unify the legal and regulatory framework of Russia, Kazakhstan and Belarus has been done: a single import tariff has been introduced, also a common non-tariff regulation has been brought in, etc. Nevertheless, the process of creating a single customs area is still ongoing, and some differences exist. In order to easily navigate the Customs Codex of the Customs Union for the participants of foreign economic activity, and to learn quickly about all the innovations and changes, STM Company, the developer of the popular FEA-Info electronic directory specifically included two additional sections which are devoted to the customs documents of the Republic of Belarus and Kazakhstan. 
In addition, users of the FEA-Info are provided with certificates of goods of all three countries of the Customs Union. When choosing a particular product in the program, the user can see all the rules and differences in its registration in Russia, Kazakhstan and Belarus. For example, there are different rates of export duties in the three countries and the rate of VAT is different. Such information, which is available to all FEA participants who are the users of the program, makes it possible to optimise their work and reduce the risks associated with cargo transportation.

RZD constructed the 1st stage of the Karabula-Yarky railway
Acting as a general contractor RZD-Stroy, a subsidiary of Russian Railways, completed building the 1st stage of the Karabula-Yarky railway (Krasnoyarsk region). 
The length of tracks of in this first stage is 21.3 km. The volume of investments amounted to RUR 4.945 billion. All works were fulfilled in 19 months, twice as fast as had been planned.
The length of the 2nd stage is to amount to 22.7 km.
The forecasted cargo flow via the new railway line is 1.7 million tons per annum by 2015, and 2.1 million tons by 2020.
    [~DETAIL_TEXT] => 
Head of RZD offers to limit empty run of cargo railcars	
Vladimir Yakunin, President of Russian Railways, considers it necessary to create administrative limits on cargo railcars’ empty run amid the shortage of universal rolling stock. 
‘It seems that amendments should be put into the law and the tariff regulation to make empty run of private wagons unprofitable in case there is a freight base to be transported,’ he said.
In the words of Mr Yakunin, one of the reasons for the lack of universal rolling stock is ‘colossal empty back run.’
‘If there is a deficit, a private company increases prices and receives higher revenues. This is a field for the work of the Federal Antimonopoly Service,’ the Head of RZD noted.
At the same time, Mr Yakunin emphasised that the largest subsidiaries of RZD – Freight One and Freight Two – work ‘in the framework of tariffs from Tariff Regulation №10-01’.

Eleven is enough 
The Federal Customs Service (FCS of Russia) suggests keeping 11 border crossings authorised to register export of oil and petrochemicals by road transport. The draft decree has been published on the web-site of the FCS.
They suggest leaving one border crossings for each border with the following states: Norway, Finland, Estonia, Lithuania, South Ossetia, Abkhazia, and Azerbaijan. There are supposed to be two such border crossings on the borders with Latvia and Mongolia.
The FCS explains that the list of border crossings was made in accordance with the present-day transport and logistic schemes of oil and petrochemicals supplies, and it will not have a negative impact on foreign trade activity development.

RF, Belarus, and Kazakhstan will unify tariffs on transit cargo transportation by January 1, 2013
Vladimir Putin, the Russian Premier, stated that tariffs on cargo transportation for the RF, Belarus, and Kazakhstan in the framework of the Common Economic Space would be unified before January 1, 2013. 
‘We agreed to unify inner and export-import tariff by January 1, 2013. It will be lower than the current transit tariff,’ Mr Putin said.
‘On January 1, 2015, there will be one more benefit for Kazakhstan and Byelorussian transporters – they will be allowed to use their own locomotives to transport goods via Russia’s railway network,’ said the Russian Premier.

RZD and Lietuvos gelezinkeliai conclude agreement on international cargo railway transportation organisation
At the 53rd meeting of the CIS Member States Council for Railway Transport held October, representatives of RZD and Lietuvos gelezinkeliai signed an agreement on international cargo railway transportation organisation. The document has a commercial, rather than technical character.
The agreement was signed by Elena Kunaeva, CEO of RZD’s Centre of Transport Service, and Stasis Gudvalis, Deputy CEO of the Freight Transportation Directorate of Lietuvos gelezinkeliai.

Ulan Bator – the Vostochny port: a new line launched	
On October 28, a goods train left Ulan Bator station bound for Russia’s Vostochny port for the first time, with 30 wagons carrying coal from Mongolia’s Tavan-Tolgoi mine, to be delivered to countries in the Asia-Pacific region. 
Up to this point, all freight routes from Mongolia via Russia went only to the West. The launch ceremony was attended by Russian Railways President Vladimir Yakunin, Mongolian Minister of Roads, Transport, Construction and City Planning Khaltmaa Battulga, and other officials.
Mr Yakunin said in his speech at the ceremony: ‘Today we are witnessing an historic event. This is the result of a colossal amount of work carried out jointly by Russia and Mongolia. We and our Mongolian colleagues have developed the whole transport chain – from creating a modern, powerful locomotive and rebuilding infrastructure to setting competitive tariffs. The launch of rail freight services from Mongolia to Far East ports is a clear demonstration of the potential for diversifying sales of Mongolian products on world markets.’
The Russian Railways president said the new route will allow coal to be delivered from mines in Mongolia to Japan and South Korea via Russia’s Far East ports, and also in the future via the developing port of Rajin. Through these measures, Mongolian freight is being given a reliable link to the coast.
The first ‘pilot’ train was led by a 2TE-116UM locomotive, specially built by Transmashholding to withstand the Mongolian climate, with a towing capacity of 6,000 tons. 

Russian State Duma rubber stamps agreement on advance information on goods in the Customs Union
In November 2010, Russian State Duma ratified the agreement on advance information on goods in the Customs Union. 
The agreement on provision and exchange of advance information on goods / vehicles brought into / out of the customs territory of the CU’s countries establishes rules, conditions and deadlines for submission to the customs authorities of the CU’s member-countries of advance information. Information includes goods to be brought into / out the CU’s customs territory, on the vehicles transporting these goods, time and place of arrival / departure of goods into the customs territory, and arrivals / departure of passengers in/out the customs territory of the Customs Union. The agreement provides for the exchange of information between the CU’s customs authorities.
The agreement establishes a list of items for which it is not required to provide advance information and regulates the actions of customs officials in obtaining advance information on goods/vehicles.

FTS adopted methods of cargo transportation tariff indexation
The Russian Federal Tariff Service (the FTS) adopted the methods of cargo transportation tariff indexation, which is based on a fundamentally new approach – the level of prices for RZD’s services is calculated taling into account long-term prospects, including investments with a long-term payback period. 
The document approved by the Board of the FTS is named “Methods to Calculate the Size of Economically Reasonable Expenses And Normative Profit Taken into Account at the Formation of Economically Justified Index to the Current Level of Tariffs, Dues and Fees for Cargo Transportation by Railway.” It has been created to develop Governmental decree №643 on price formation on railway transport approved in August 2009. The methods will become the basis for defining the level of indexation in 2012.
The main innovation is that the level of RZD’s tariffs will be calculated to fulfill the company’s financial needs in the next year and to earn money for the long-term investment programme. The current method may be characterised as a short-term one: the Government defines the level of tariffs and then calculates if it is necessary to give subsides to RZD. 
Last summer it was decided that in 2011 the indexation should not exceed 8%, after which there appeared the question of direct financial support from the state. The new methods define necessary indexation in advance and to avoid any subjective approach. 
The document contains one of a number of mechanisms to make investments into railway infrastructure attractive. For that, normative profit will be taken into consideration, thus, an investor will know the payback period and the return. It is especially important before the possible sale of RZD shares on the stock exchange in 2013-2015. If the state decides to implement a smaller increase in tariffs than the one envisaged by the methods, it must compensate the transporter for the profit lost.
Specialists at the Cargo Transportation Marketing and Tariff Policy Department of RZD, say that these methods allow the setting of transparent rules for tariff formation on railway transport for the mid-term, to receive a guaranteed source of investments – the net profit providing the reproduction of the company’s basic assets, and to have an evidence network of losses in RZD’s revenue caused by state regulation of tariffs on cargo transportation and budget decisions.

Russia looks to develop its transit potential
Russia must develop its transit potential, Deputy Prime Minister Sergei Ivanov announced at the 4th international Russia’s Transportation forum held in the middle of November 2010. 
As he pointed out, the country’s strategy for the development of its transportation complex up until 2030 provides for Russia’s integration into the global market of transportation services and the development of transit potential. “Considering this, we are paying special attention to the implementation of modern technologies for collaboration between various means of transportation and formation of the most efficient logistical routes. It is obvious that the level of logistics costs and risks determines Russia’s attractiveness for the development of  international trade flow. We must, therefore, create a new economic industry by realising the country’s transit potential,” Mr Ivanov explained

Whole Customs Union in the FEA-Info!
Customs documents of the Republic of Kazakhstan and Belarus are included in the FEA-Info electronic directory of Russian customs legislation.
Since the Customs Union was established, a huge amount of work to unify the legal and regulatory framework of Russia, Kazakhstan and Belarus has been done: a single import tariff has been introduced, also a common non-tariff regulation has been brought in, etc. Nevertheless, the process of creating a single customs area is still ongoing, and some differences exist. In order to easily navigate the Customs Codex of the Customs Union for the participants of foreign economic activity, and to learn quickly about all the innovations and changes, STM Company, the developer of the popular FEA-Info electronic directory specifically included two additional sections which are devoted to the customs documents of the Republic of Belarus and Kazakhstan. 
In addition, users of the FEA-Info are provided with certificates of goods of all three countries of the Customs Union. When choosing a particular product in the program, the user can see all the rules and differences in its registration in Russia, Kazakhstan and Belarus. For example, there are different rates of export duties in the three countries and the rate of VAT is different. Such information, which is available to all FEA participants who are the users of the program, makes it possible to optimise their work and reduce the risks associated with cargo transportation.

RZD constructed the 1st stage of the Karabula-Yarky railway
Acting as a general contractor RZD-Stroy, a subsidiary of Russian Railways, completed building the 1st stage of the Karabula-Yarky railway (Krasnoyarsk region). 
The length of tracks of in this first stage is 21.3 km. The volume of investments amounted to RUR 4.945 billion. All works were fulfilled in 19 months, twice as fast as had been planned.
The length of the 2nd stage is to amount to 22.7 km.
The forecasted cargo flow via the new railway line is 1.7 million tons per annum by 2015, and 2.1 million tons by 2020.
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Head of RZD offers to limit empty run of cargo railcars	
Vladimir Yakunin, President of Russian Railways, considers it necessary to create administrative limits on cargo railcars’ empty run amid the shortage of universal rolling stock. 
‘It seems that amendments should be put into the law and the tariff regulation to make empty run of private wagons unprofitable in case there is a freight base to be transported,’ he said.
In the words of Mr Yakunin, one of the reasons for the lack of universal rolling stock is ‘colossal empty back run.’
‘If there is a deficit, a private company increases prices and receives higher revenues. This is a field for the work of the Federal Antimonopoly Service,’ the Head of RZD noted.
At the same time, Mr Yakunin emphasised that the largest subsidiaries of RZD – Freight One and Freight Two – work ‘in the framework of tariffs from Tariff Regulation №10-01’.

Eleven is enough 
The Federal Customs Service (FCS of Russia) suggests keeping 11 border crossings authorised to register export of oil and petrochemicals by road transport. The draft decree has been published on the web-site of the FCS.
They suggest leaving one border crossings for each border with the following states: Norway, Finland, Estonia, Lithuania, South Ossetia, Abkhazia, and Azerbaijan. There are supposed to be two such border crossings on the borders with Latvia and Mongolia.
The FCS explains that the list of border crossings was made in accordance with the present-day transport and logistic schemes of oil and petrochemicals supplies, and it will not have a negative impact on foreign trade activity development.

RF, Belarus, and Kazakhstan will unify tariffs on transit cargo transportation by January 1, 2013
Vladimir Putin, the Russian Premier, stated that tariffs on cargo transportation for the RF, Belarus, and Kazakhstan in the framework of the Common Economic Space would be unified before January 1, 2013. 
‘We agreed to unify inner and export-import tariff by January 1, 2013. It will be lower than the current transit tariff,’ Mr Putin said.
‘On January 1, 2015, there will be one more benefit for Kazakhstan and Byelorussian transporters – they will be allowed to use their own locomotives to transport goods via Russia’s railway network,’ said the Russian Premier.

RZD and Lietuvos gelezinkeliai conclude agreement on international cargo railway transportation organisation
At the 53rd meeting of the CIS Member States Council for Railway Transport held October, representatives of RZD and Lietuvos gelezinkeliai signed an agreement on international cargo railway transportation organisation. The document has a commercial, rather than technical character.
The agreement was signed by Elena Kunaeva, CEO of RZD’s Centre of Transport Service, and Stasis Gudvalis, Deputy CEO of the Freight Transportation Directorate of Lietuvos gelezinkeliai.

Ulan Bator – the Vostochny port: a new line launched	
On October 28, a goods train left Ulan Bator station bound for Russia’s Vostochny port for the first time, with 30 wagons carrying coal from Mongolia’s Tavan-Tolgoi mine, to be delivered to countries in the Asia-Pacific region. 
Up to this point, all freight routes from Mongolia via Russia went only to the West. The launch ceremony was attended by Russian Railways President Vladimir Yakunin, Mongolian Minister of Roads, Transport, Construction and City Planning Khaltmaa Battulga, and other officials.
Mr Yakunin said in his speech at the ceremony: ‘Today we are witnessing an historic event. This is the result of a colossal amount of work carried out jointly by Russia and Mongolia. We and our Mongolian colleagues have developed the whole transport chain – from creating a modern, powerful locomotive and rebuilding infrastructure to setting competitive tariffs. The launch of rail freight services from Mongolia to Far East ports is a clear demonstration of the potential for diversifying sales of Mongolian products on world markets.’
The Russian Railways president said the new route will allow coal to be delivered from mines in Mongolia to Japan and South Korea via Russia’s Far East ports, and also in the future via the developing port of Rajin. Through these measures, Mongolian freight is being given a reliable link to the coast.
The first ‘pilot’ train was led by a 2TE-116UM locomotive, specially built by Transmashholding to withstand the Mongolian climate, with a towing capacity of 6,000 tons. 

Russian State Duma rubber stamps agreement on advance information on goods in the Customs Union
In November 2010, Russian State Duma ratified the agreement on advance information on goods in the Customs Union. 
The agreement on provision and exchange of advance information on goods / vehicles brought into / out of the customs territory of the CU’s countries establishes rules, conditions and deadlines for submission to the customs authorities of the CU’s member-countries of advance information. Information includes goods to be brought into / out the CU’s customs territory, on the vehicles transporting these goods, time and place of arrival / departure of goods into the customs territory, and arrivals / departure of passengers in/out the customs territory of the Customs Union. The agreement provides for the exchange of information between the CU’s customs authorities.
The agreement establishes a list of items for which it is not required to provide advance information and regulates the actions of customs officials in obtaining advance information on goods/vehicles.

FTS adopted methods of cargo transportation tariff indexation
The Russian Federal Tariff Service (the FTS) adopted the methods of cargo transportation tariff indexation, which is based on a fundamentally new approach – the level of prices for RZD’s services is calculated taling into account long-term prospects, including investments with a long-term payback period. 
The document approved by the Board of the FTS is named “Methods to Calculate the Size of Economically Reasonable Expenses And Normative Profit Taken into Account at the Formation of Economically Justified Index to the Current Level of Tariffs, Dues and Fees for Cargo Transportation by Railway.” It has been created to develop Governmental decree №643 on price formation on railway transport approved in August 2009. The methods will become the basis for defining the level of indexation in 2012.
The main innovation is that the level of RZD’s tariffs will be calculated to fulfill the company’s financial needs in the next year and to earn money for the long-term investment programme. The current method may be characterised as a short-term one: the Government defines the level of tariffs and then calculates if it is necessary to give subsides to RZD. 
Last summer it was decided that in 2011 the indexation should not exceed 8%, after which there appeared the question of direct financial support from the state. The new methods define necessary indexation in advance and to avoid any subjective approach. 
The document contains one of a number of mechanisms to make investments into railway infrastructure attractive. For that, normative profit will be taken into consideration, thus, an investor will know the payback period and the return. It is especially important before the possible sale of RZD shares on the stock exchange in 2013-2015. If the state decides to implement a smaller increase in tariffs than the one envisaged by the methods, it must compensate the transporter for the profit lost.
Specialists at the Cargo Transportation Marketing and Tariff Policy Department of RZD, say that these methods allow the setting of transparent rules for tariff formation on railway transport for the mid-term, to receive a guaranteed source of investments – the net profit providing the reproduction of the company’s basic assets, and to have an evidence network of losses in RZD’s revenue caused by state regulation of tariffs on cargo transportation and budget decisions.

Russia looks to develop its transit potential
Russia must develop its transit potential, Deputy Prime Minister Sergei Ivanov announced at the 4th international Russia’s Transportation forum held in the middle of November 2010. 
As he pointed out, the country’s strategy for the development of its transportation complex up until 2030 provides for Russia’s integration into the global market of transportation services and the development of transit potential. “Considering this, we are paying special attention to the implementation of modern technologies for collaboration between various means of transportation and formation of the most efficient logistical routes. It is obvious that the level of logistics costs and risks determines Russia’s attractiveness for the development of  international trade flow. We must, therefore, create a new economic industry by realising the country’s transit potential,” Mr Ivanov explained

Whole Customs Union in the FEA-Info!
Customs documents of the Republic of Kazakhstan and Belarus are included in the FEA-Info electronic directory of Russian customs legislation.
Since the Customs Union was established, a huge amount of work to unify the legal and regulatory framework of Russia, Kazakhstan and Belarus has been done: a single import tariff has been introduced, also a common non-tariff regulation has been brought in, etc. Nevertheless, the process of creating a single customs area is still ongoing, and some differences exist. In order to easily navigate the Customs Codex of the Customs Union for the participants of foreign economic activity, and to learn quickly about all the innovations and changes, STM Company, the developer of the popular FEA-Info electronic directory specifically included two additional sections which are devoted to the customs documents of the Republic of Belarus and Kazakhstan. 
In addition, users of the FEA-Info are provided with certificates of goods of all three countries of the Customs Union. When choosing a particular product in the program, the user can see all the rules and differences in its registration in Russia, Kazakhstan and Belarus. For example, there are different rates of export duties in the three countries and the rate of VAT is different. Such information, which is available to all FEA participants who are the users of the program, makes it possible to optimise their work and reduce the risks associated with cargo transportation.

RZD constructed the 1st stage of the Karabula-Yarky railway
Acting as a general contractor RZD-Stroy, a subsidiary of Russian Railways, completed building the 1st stage of the Karabula-Yarky railway (Krasnoyarsk region). 
The length of tracks of in this first stage is 21.3 km. The volume of investments amounted to RUR 4.945 billion. All works were fulfilled in 19 months, twice as fast as had been planned.
The length of the 2nd stage is to amount to 22.7 km.
The forecasted cargo flow via the new railway line is 1.7 million tons per annum by 2015, and 2.1 million tons by 2020.
    [~DETAIL_TEXT] => 
Head of RZD offers to limit empty run of cargo railcars	
Vladimir Yakunin, President of Russian Railways, considers it necessary to create administrative limits on cargo railcars’ empty run amid the shortage of universal rolling stock. 
‘It seems that amendments should be put into the law and the tariff regulation to make empty run of private wagons unprofitable in case there is a freight base to be transported,’ he said.
In the words of Mr Yakunin, one of the reasons for the lack of universal rolling stock is ‘colossal empty back run.’
‘If there is a deficit, a private company increases prices and receives higher revenues. This is a field for the work of the Federal Antimonopoly Service,’ the Head of RZD noted.
At the same time, Mr Yakunin emphasised that the largest subsidiaries of RZD – Freight One and Freight Two – work ‘in the framework of tariffs from Tariff Regulation №10-01’.

Eleven is enough 
The Federal Customs Service (FCS of Russia) suggests keeping 11 border crossings authorised to register export of oil and petrochemicals by road transport. The draft decree has been published on the web-site of the FCS.
They suggest leaving one border crossings for each border with the following states: Norway, Finland, Estonia, Lithuania, South Ossetia, Abkhazia, and Azerbaijan. There are supposed to be two such border crossings on the borders with Latvia and Mongolia.
The FCS explains that the list of border crossings was made in accordance with the present-day transport and logistic schemes of oil and petrochemicals supplies, and it will not have a negative impact on foreign trade activity development.

RF, Belarus, and Kazakhstan will unify tariffs on transit cargo transportation by January 1, 2013
Vladimir Putin, the Russian Premier, stated that tariffs on cargo transportation for the RF, Belarus, and Kazakhstan in the framework of the Common Economic Space would be unified before January 1, 2013. 
‘We agreed to unify inner and export-import tariff by January 1, 2013. It will be lower than the current transit tariff,’ Mr Putin said.
‘On January 1, 2015, there will be one more benefit for Kazakhstan and Byelorussian transporters – they will be allowed to use their own locomotives to transport goods via Russia’s railway network,’ said the Russian Premier.

RZD and Lietuvos gelezinkeliai conclude agreement on international cargo railway transportation organisation
At the 53rd meeting of the CIS Member States Council for Railway Transport held October, representatives of RZD and Lietuvos gelezinkeliai signed an agreement on international cargo railway transportation organisation. The document has a commercial, rather than technical character.
The agreement was signed by Elena Kunaeva, CEO of RZD’s Centre of Transport Service, and Stasis Gudvalis, Deputy CEO of the Freight Transportation Directorate of Lietuvos gelezinkeliai.

Ulan Bator – the Vostochny port: a new line launched	
On October 28, a goods train left Ulan Bator station bound for Russia’s Vostochny port for the first time, with 30 wagons carrying coal from Mongolia’s Tavan-Tolgoi mine, to be delivered to countries in the Asia-Pacific region. 
Up to this point, all freight routes from Mongolia via Russia went only to the West. The launch ceremony was attended by Russian Railways President Vladimir Yakunin, Mongolian Minister of Roads, Transport, Construction and City Planning Khaltmaa Battulga, and other officials.
Mr Yakunin said in his speech at the ceremony: ‘Today we are witnessing an historic event. This is the result of a colossal amount of work carried out jointly by Russia and Mongolia. We and our Mongolian colleagues have developed the whole transport chain – from creating a modern, powerful locomotive and rebuilding infrastructure to setting competitive tariffs. The launch of rail freight services from Mongolia to Far East ports is a clear demonstration of the potential for diversifying sales of Mongolian products on world markets.’
The Russian Railways president said the new route will allow coal to be delivered from mines in Mongolia to Japan and South Korea via Russia’s Far East ports, and also in the future via the developing port of Rajin. Through these measures, Mongolian freight is being given a reliable link to the coast.
The first ‘pilot’ train was led by a 2TE-116UM locomotive, specially built by Transmashholding to withstand the Mongolian climate, with a towing capacity of 6,000 tons. 

Russian State Duma rubber stamps agreement on advance information on goods in the Customs Union
In November 2010, Russian State Duma ratified the agreement on advance information on goods in the Customs Union. 
The agreement on provision and exchange of advance information on goods / vehicles brought into / out of the customs territory of the CU’s countries establishes rules, conditions and deadlines for submission to the customs authorities of the CU’s member-countries of advance information. Information includes goods to be brought into / out the CU’s customs territory, on the vehicles transporting these goods, time and place of arrival / departure of goods into the customs territory, and arrivals / departure of passengers in/out the customs territory of the Customs Union. The agreement provides for the exchange of information between the CU’s customs authorities.
The agreement establishes a list of items for which it is not required to provide advance information and regulates the actions of customs officials in obtaining advance information on goods/vehicles.

FTS adopted methods of cargo transportation tariff indexation
The Russian Federal Tariff Service (the FTS) adopted the methods of cargo transportation tariff indexation, which is based on a fundamentally new approach – the level of prices for RZD’s services is calculated taling into account long-term prospects, including investments with a long-term payback period. 
The document approved by the Board of the FTS is named “Methods to Calculate the Size of Economically Reasonable Expenses And Normative Profit Taken into Account at the Formation of Economically Justified Index to the Current Level of Tariffs, Dues and Fees for Cargo Transportation by Railway.” It has been created to develop Governmental decree №643 on price formation on railway transport approved in August 2009. The methods will become the basis for defining the level of indexation in 2012.
The main innovation is that the level of RZD’s tariffs will be calculated to fulfill the company’s financial needs in the next year and to earn money for the long-term investment programme. The current method may be characterised as a short-term one: the Government defines the level of tariffs and then calculates if it is necessary to give subsides to RZD. 
Last summer it was decided that in 2011 the indexation should not exceed 8%, after which there appeared the question of direct financial support from the state. The new methods define necessary indexation in advance and to avoid any subjective approach. 
The document contains one of a number of mechanisms to make investments into railway infrastructure attractive. For that, normative profit will be taken into consideration, thus, an investor will know the payback period and the return. It is especially important before the possible sale of RZD shares on the stock exchange in 2013-2015. If the state decides to implement a smaller increase in tariffs than the one envisaged by the methods, it must compensate the transporter for the profit lost.
Specialists at the Cargo Transportation Marketing and Tariff Policy Department of RZD, say that these methods allow the setting of transparent rules for tariff formation on railway transport for the mid-term, to receive a guaranteed source of investments – the net profit providing the reproduction of the company’s basic assets, and to have an evidence network of losses in RZD’s revenue caused by state regulation of tariffs on cargo transportation and budget decisions.

Russia looks to develop its transit potential
Russia must develop its transit potential, Deputy Prime Minister Sergei Ivanov announced at the 4th international Russia’s Transportation forum held in the middle of November 2010. 
As he pointed out, the country’s strategy for the development of its transportation complex up until 2030 provides for Russia’s integration into the global market of transportation services and the development of transit potential. “Considering this, we are paying special attention to the implementation of modern technologies for collaboration between various means of transportation and formation of the most efficient logistical routes. It is obvious that the level of logistics costs and risks determines Russia’s attractiveness for the development of  international trade flow. We must, therefore, create a new economic industry by realising the country’s transit potential,” Mr Ivanov explained

Whole Customs Union in the FEA-Info!
Customs documents of the Republic of Kazakhstan and Belarus are included in the FEA-Info electronic directory of Russian customs legislation.
Since the Customs Union was established, a huge amount of work to unify the legal and regulatory framework of Russia, Kazakhstan and Belarus has been done: a single import tariff has been introduced, also a common non-tariff regulation has been brought in, etc. Nevertheless, the process of creating a single customs area is still ongoing, and some differences exist. In order to easily navigate the Customs Codex of the Customs Union for the participants of foreign economic activity, and to learn quickly about all the innovations and changes, STM Company, the developer of the popular FEA-Info electronic directory specifically included two additional sections which are devoted to the customs documents of the Republic of Belarus and Kazakhstan. 
In addition, users of the FEA-Info are provided with certificates of goods of all three countries of the Customs Union. When choosing a particular product in the program, the user can see all the rules and differences in its registration in Russia, Kazakhstan and Belarus. For example, there are different rates of export duties in the three countries and the rate of VAT is different. Such information, which is available to all FEA participants who are the users of the program, makes it possible to optimise their work and reduce the risks associated with cargo transportation.

RZD constructed the 1st stage of the Karabula-Yarky railway
Acting as a general contractor RZD-Stroy, a subsidiary of Russian Railways, completed building the 1st stage of the Karabula-Yarky railway (Krasnoyarsk region). 
The length of tracks of in this first stage is 21.3 km. The volume of investments amounted to RUR 4.945 billion. All works were fulfilled in 19 months, twice as fast as had been planned.
The length of the 2nd stage is to amount to 22.7 km.
The forecasted cargo flow via the new railway line is 1.7 million tons per annum by 2015, and 2.1 million tons by 2020.
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To sell first, and invest later
According to official data, the total volume of means envisaged by RZD’s 2011 investment programme amounts to RUR 350 billion, 11% more compared with 2010. Meanwhile, as Vladimir Yakunin, the company’s President, noted, its volume is significantly smaller than that of previous years. In his words, the volume of investment is similar to that in 2004.  
Of the sum planned for 2011, RUR 62.2 billion is set to be spent on transport infrastructure construction in preparation for the Olympic Games 2014 in Sochi. RUR 286.8 billion is to be invested into RZD’s own projects, including rail track repair and reconstruction, rolling stock renewal, etc. 
For comparison, RUR 84.6 billion was used for the Olympic projects realisation in 2010. The company spent RUR 230.4 billion on its own projects. In particular, it built such large objects as the Small Novorossiysk tunnel, railway approaches to ports on the southern coast of the Finnish Gulf, and continued the construction of the new Kuznetsovsky Tunnel in the Far East (it will remove limitations on cargo transportation via the Baikal-Amur Mainline to the ports of Vanino and Sovetskaya Gavan). Also, in the framework of the investment programme, the company put into operation a fast St Petersburg – Moscow – Nizhny Novgorod link and launched high-speed passenger trains ‘Allegro’ to service the St Petersburg – Helsinki line.
The 2011 investment programme is supposed to be financed from the money received after the company’s asset sale, and first of all after the sale of the shares in Freight One. 75% (minus one share) of the shareholding in Freight One is supposed to be sold. According to RZD’s assessments, this shareholding is worth $5-6.5 billion.
 ‘To secure the necessary investment sources, we will use the revenue from selling shareholdings in the company’s subsidiaries,’ comments the Head of Russian Railways. ‘The Board of Directors and the company’s Board set a target to provide at least RUR 132 billion of revenue from selling the shareholdings. I’d like to emphasise that this is a temporary measure, and its usage after 2011 will be limited.’
Meanwhile, the terms and form of the sale have not been approved yet. It was planned earlier that the control stake would have been sold before the second half of 2011. According to the latest information, the auction will start no earlier than the third quarter of 2011. Also, it is still not clear how much the potential buyers are ready to pay (especially if we take into account the preliminary sales scheme, according to which 50% plus one share will be united into one lot, and a 25% shareholding will be placed at the stock exchange). 
Experts say that in this case the number of potential buyers becomes smaller, and there appear additional problems in choosing the company, which in fact will gain control over Russia’s largest rolling stock owner. In the opinion of some analysts, even if the situation develops according to the most optimistic scenario, funds will be received by January 2012. 
RZD has other assets, which could be sold to get money for the investment programme’s realisation, but the situation with them is rather complicated. Experts point to the lack of information about the assets, so it is hardly possible to estimate the starting process and the terms of contract conclusion. In their opinion, there must be no problems if the preparation for the auction is qualitative, so RZD can receive the sum necessary to realise the investment programme. 

Of Two Evils, Choose the Lesser
Meanwhile, RZD’s investment programme for the next two years provides even more questions. To remind, it started in 2008 for a long – three-year – period. The figures for 2011 were approved by the RF Government, but the programme for 2012 and 2013 was sent back to be revised. In particular, it was decided to specify its parameters and sources of finance. The main debatable issue was the size of indexation of tariffs of freight transportation in 2012 and 2013.
In 2009-2010, tariff growth was restrained to support the economy in the crisis, and the state compensated RZD for revenue lost. No compensation was envisaged for 2012-2013, but according to the preliminary plan approved by the Government, the tariffs are to increase by just 7.4% in 2012, and by 6.4% in 2013 (an 8% growth in 2011).
According to specialists at RZD, in this situation, the holding company will suffer losses of RUR 11.5 billion and RUR 13.7 billion, and the parent company (which does not provide passenger transportation or operate wagons from 2011) – RUR 31.5 billion and RUR 35.8 billion. 
The volume of lost revenue is estimated at RUR 146.8 billion in 2012 and RUR 176.4 billion in 2013. In their turn, the specialists at RZD calculated an economically reasonable tariff level using the methods adopted by the Federal Tariff Service, which are similar to the empirically-based RAB methods. The company considers that the tariffs are to be increased by 23% in 2012 and by 7.5% in 2013. Then, RZD’s profit (considering its subsidiaries) will amount to RUR 108.2 billion and RUR 133.6 billion. Another variant – the Government will have to compensate for the lost revenue from the state budget.
‘RZD does not insist on a 23% increase in tariffs, but this level of indexation will provide the minimal fulfillment of the company’s investment programme in 2012 and a safe cargo transportation programme,’ commented Mr Yakunin. Otherwise, the company will have to cut expenditure and the investment programme, and this will do damage to the company’s work. In particular, just in 2012, RZD may cut track repair by 3,000 km, fire 42,000 employees (about 5% of the total number), and reduce locomotive purchases by 30%. And this, in turn, will cause safety risks and make infrastructure barriers even worse. 
Calculations made by specialists show that even if the economically reasonable tariffs are adopted and RZD’s investment programme volume remains the same, this will not stop the ageing of the basic assets and provide the railway infrastructure development required by the economy. That is why the investment programme includes projects of ‘renewal’ and ‘development’, and to carry them out, the company asks the state to give an additional RUR 447 billion before 2015.
This money should be given to the authorised capital of RZD, otherwise, as the company’s specialists say, it will not be able to transport approximately 100 million tons of cargo per annum by 2015. 
The major bottlenecks will be railway approaches to Russia’s north-western and southern ports, railway lines to the West-Siberian oil and gas complex, the Baikal-Amur Mainline and the Transsib, the Far Eastern ports, and the Moscow transport hub. At the same time, specialists at RZD emphasise that the state will get its investment back due to the positive effect of railway development on other sectors of the economy. According to their calculations, the additional flow of money to the state budget will exceed RUR 500 billion by 2021.
Nevertheless, the RF’s Ministry of Economic Development did not support RZD’s proposal of a larger tariff increase. ‘The volume of investment programme needed by RZD envisages a larger tariff increase than planned before. We consider it necessary to keep to a 7.4% tariff growth and to not revise the tariffs, because the tariffs of RZD represent the expenditures of companies from the whole of Russia,’ said Elvira Nabiullina, Russian Minister of Economic Development.    

Searching for a Compromise
Last January, RZD offered a compromise – an 11.7% tariff increase in 2012 and compensation of RUR 80 billion from the state budget (e.g. by means of infrastructure bonds placement). To remind, because of the tariff growth restraint, RZD received RUR 50 billion of state subsides in 2009 (tariffs increased by 8% instead of 14%), and RUR 23 billion in 2010 (+9.2% instead of 12.1%).
No decision has been made so far. Experts note that the approved tariff indexation exceeds inflation by 7.4%, and the economy will hardly manage a double-digit tariff increase. The RF Ministry of Economic Development considers that there are no reasons to revise the 7.4% tariff growth. The Ministry thinks that possible measures of state support to RZD can be discussed after the investment programme structuring is completed and the priority projects of infrastructure development are defined. Also, the Ministry considers that the additional sources for the enlargement of RZD’s investment programme in 2012-2013 may be private investments into infrastructure development, infrastructure bonds issue, and the sale of the company’s non-core assets. 
In turn, analysts think that the compromise offered by RZD (tariff indexation by 11.7% in 2012) is quite reasonable. ‘The Russian economy has not seen tariffs increased by more than 15% for a long time. A 23% growth may have negative consequences in other sectors of the economy and cause high inflation,’ explains Andrey Rozhkov, an analyst at IFC Metropol. Meanwhile, representatives of the business community say that 11.7% is too much for indexation of tariffs on services provided by railway transport that fulfills 80% of cargo transportation in Russia. The question remains open, but experts think that the Government will agree with the offer of the RF Ministry of Economic Development and find a way to realize RZD’s investment plan at the expense of the company’s own resources.
By Olga Dorbunova 

viewpoint
Vladimir Yakunin, 
President of RZD
– Unfortunately, unlike tariffs in the energy supply sector, railway tariffs on cargo transportation do not include an investment constituent.
State capital investments in the framework of the Federal Target Programmes are cut or delayed and new projects to be financed from the RF Investment Fund are not launched. We consider this policy wrong. All in all, it means the lack of proper understanding by the community and the state regulating bodies of how important infrastructure development is and what huge economic potential may be created. Significant investments are needed to upgrade and develop the Baikal-Amur Mainline and the Transsib, to create a Salekhard-Nadym line. 
According to our estimations, the lack of infrastructure investment will lead to the slower growth of transportation and a cut in gross domestic product increase, and annual losses to the budget system of about RUR 250 billion.
Also, we have to prepare infrastructure for global events and projects, in particular, for the Olympic Games in Sochi, the Students’ Games in Kazan, a summit of Asia-Pacific Economic Cooperation (APEC) in the Far East, the Football Championship in 2018, and the creation of an international financial centre in Moscow.

Elvira Nabiullina,
Minister of Economic Development of Russia
– The offers on the sources of finance for the 2012 and 2013 investment programme are to be adjusted. Such a task was given to us, and we will try to fulfill it together with RZD, the Transport Ministry and the Ministry of Finance in the near future. We are going to discuss the volume of subsidies for RZD as well as additional structuring of the investment programme. We think it is possible to allocate projects interesting from the viewpoint of attracting private investments from the market for their realisation. In this case, the need for subsidies will become smaller.
Now, the target model of railway transportation market development is being discussed, and a so-called “network contract” may become one of its elements. In this contract, the relations of the state and the infrastructure company (including possible subsidies) are formulated. In many countries, infrastructure is supported and subsidised in order not to lay these expenses on the shoulders of consignors and customers.
    [~DETAIL_TEXT] => 
To sell first, and invest later
According to official data, the total volume of means envisaged by RZD’s 2011 investment programme amounts to RUR 350 billion, 11% more compared with 2010. Meanwhile, as Vladimir Yakunin, the company’s President, noted, its volume is significantly smaller than that of previous years. In his words, the volume of investment is similar to that in 2004.  
Of the sum planned for 2011, RUR 62.2 billion is set to be spent on transport infrastructure construction in preparation for the Olympic Games 2014 in Sochi. RUR 286.8 billion is to be invested into RZD’s own projects, including rail track repair and reconstruction, rolling stock renewal, etc. 
For comparison, RUR 84.6 billion was used for the Olympic projects realisation in 2010. The company spent RUR 230.4 billion on its own projects. In particular, it built such large objects as the Small Novorossiysk tunnel, railway approaches to ports on the southern coast of the Finnish Gulf, and continued the construction of the new Kuznetsovsky Tunnel in the Far East (it will remove limitations on cargo transportation via the Baikal-Amur Mainline to the ports of Vanino and Sovetskaya Gavan). Also, in the framework of the investment programme, the company put into operation a fast St Petersburg – Moscow – Nizhny Novgorod link and launched high-speed passenger trains ‘Allegro’ to service the St Petersburg – Helsinki line.
The 2011 investment programme is supposed to be financed from the money received after the company’s asset sale, and first of all after the sale of the shares in Freight One. 75% (minus one share) of the shareholding in Freight One is supposed to be sold. According to RZD’s assessments, this shareholding is worth $5-6.5 billion.
 ‘To secure the necessary investment sources, we will use the revenue from selling shareholdings in the company’s subsidiaries,’ comments the Head of Russian Railways. ‘The Board of Directors and the company’s Board set a target to provide at least RUR 132 billion of revenue from selling the shareholdings. I’d like to emphasise that this is a temporary measure, and its usage after 2011 will be limited.’
Meanwhile, the terms and form of the sale have not been approved yet. It was planned earlier that the control stake would have been sold before the second half of 2011. According to the latest information, the auction will start no earlier than the third quarter of 2011. Also, it is still not clear how much the potential buyers are ready to pay (especially if we take into account the preliminary sales scheme, according to which 50% plus one share will be united into one lot, and a 25% shareholding will be placed at the stock exchange). 
Experts say that in this case the number of potential buyers becomes smaller, and there appear additional problems in choosing the company, which in fact will gain control over Russia’s largest rolling stock owner. In the opinion of some analysts, even if the situation develops according to the most optimistic scenario, funds will be received by January 2012. 
RZD has other assets, which could be sold to get money for the investment programme’s realisation, but the situation with them is rather complicated. Experts point to the lack of information about the assets, so it is hardly possible to estimate the starting process and the terms of contract conclusion. In their opinion, there must be no problems if the preparation for the auction is qualitative, so RZD can receive the sum necessary to realise the investment programme. 

Of Two Evils, Choose the Lesser
Meanwhile, RZD’s investment programme for the next two years provides even more questions. To remind, it started in 2008 for a long – three-year – period. The figures for 2011 were approved by the RF Government, but the programme for 2012 and 2013 was sent back to be revised. In particular, it was decided to specify its parameters and sources of finance. The main debatable issue was the size of indexation of tariffs of freight transportation in 2012 and 2013.
In 2009-2010, tariff growth was restrained to support the economy in the crisis, and the state compensated RZD for revenue lost. No compensation was envisaged for 2012-2013, but according to the preliminary plan approved by the Government, the tariffs are to increase by just 7.4% in 2012, and by 6.4% in 2013 (an 8% growth in 2011).
According to specialists at RZD, in this situation, the holding company will suffer losses of RUR 11.5 billion and RUR 13.7 billion, and the parent company (which does not provide passenger transportation or operate wagons from 2011) – RUR 31.5 billion and RUR 35.8 billion. 
The volume of lost revenue is estimated at RUR 146.8 billion in 2012 and RUR 176.4 billion in 2013. In their turn, the specialists at RZD calculated an economically reasonable tariff level using the methods adopted by the Federal Tariff Service, which are similar to the empirically-based RAB methods. The company considers that the tariffs are to be increased by 23% in 2012 and by 7.5% in 2013. Then, RZD’s profit (considering its subsidiaries) will amount to RUR 108.2 billion and RUR 133.6 billion. Another variant – the Government will have to compensate for the lost revenue from the state budget.
‘RZD does not insist on a 23% increase in tariffs, but this level of indexation will provide the minimal fulfillment of the company’s investment programme in 2012 and a safe cargo transportation programme,’ commented Mr Yakunin. Otherwise, the company will have to cut expenditure and the investment programme, and this will do damage to the company’s work. In particular, just in 2012, RZD may cut track repair by 3,000 km, fire 42,000 employees (about 5% of the total number), and reduce locomotive purchases by 30%. And this, in turn, will cause safety risks and make infrastructure barriers even worse. 
Calculations made by specialists show that even if the economically reasonable tariffs are adopted and RZD’s investment programme volume remains the same, this will not stop the ageing of the basic assets and provide the railway infrastructure development required by the economy. That is why the investment programme includes projects of ‘renewal’ and ‘development’, and to carry them out, the company asks the state to give an additional RUR 447 billion before 2015.
This money should be given to the authorised capital of RZD, otherwise, as the company’s specialists say, it will not be able to transport approximately 100 million tons of cargo per annum by 2015. 
The major bottlenecks will be railway approaches to Russia’s north-western and southern ports, railway lines to the West-Siberian oil and gas complex, the Baikal-Amur Mainline and the Transsib, the Far Eastern ports, and the Moscow transport hub. At the same time, specialists at RZD emphasise that the state will get its investment back due to the positive effect of railway development on other sectors of the economy. According to their calculations, the additional flow of money to the state budget will exceed RUR 500 billion by 2021.
Nevertheless, the RF’s Ministry of Economic Development did not support RZD’s proposal of a larger tariff increase. ‘The volume of investment programme needed by RZD envisages a larger tariff increase than planned before. We consider it necessary to keep to a 7.4% tariff growth and to not revise the tariffs, because the tariffs of RZD represent the expenditures of companies from the whole of Russia,’ said Elvira Nabiullina, Russian Minister of Economic Development.    

Searching for a Compromise
Last January, RZD offered a compromise – an 11.7% tariff increase in 2012 and compensation of RUR 80 billion from the state budget (e.g. by means of infrastructure bonds placement). To remind, because of the tariff growth restraint, RZD received RUR 50 billion of state subsides in 2009 (tariffs increased by 8% instead of 14%), and RUR 23 billion in 2010 (+9.2% instead of 12.1%).
No decision has been made so far. Experts note that the approved tariff indexation exceeds inflation by 7.4%, and the economy will hardly manage a double-digit tariff increase. The RF Ministry of Economic Development considers that there are no reasons to revise the 7.4% tariff growth. The Ministry thinks that possible measures of state support to RZD can be discussed after the investment programme structuring is completed and the priority projects of infrastructure development are defined. Also, the Ministry considers that the additional sources for the enlargement of RZD’s investment programme in 2012-2013 may be private investments into infrastructure development, infrastructure bonds issue, and the sale of the company’s non-core assets. 
In turn, analysts think that the compromise offered by RZD (tariff indexation by 11.7% in 2012) is quite reasonable. ‘The Russian economy has not seen tariffs increased by more than 15% for a long time. A 23% growth may have negative consequences in other sectors of the economy and cause high inflation,’ explains Andrey Rozhkov, an analyst at IFC Metropol. Meanwhile, representatives of the business community say that 11.7% is too much for indexation of tariffs on services provided by railway transport that fulfills 80% of cargo transportation in Russia. The question remains open, but experts think that the Government will agree with the offer of the RF Ministry of Economic Development and find a way to realize RZD’s investment plan at the expense of the company’s own resources.
By Olga Dorbunova 

viewpoint
Vladimir Yakunin, 
President of RZD
– Unfortunately, unlike tariffs in the energy supply sector, railway tariffs on cargo transportation do not include an investment constituent.
State capital investments in the framework of the Federal Target Programmes are cut or delayed and new projects to be financed from the RF Investment Fund are not launched. We consider this policy wrong. All in all, it means the lack of proper understanding by the community and the state regulating bodies of how important infrastructure development is and what huge economic potential may be created. Significant investments are needed to upgrade and develop the Baikal-Amur Mainline and the Transsib, to create a Salekhard-Nadym line. 
According to our estimations, the lack of infrastructure investment will lead to the slower growth of transportation and a cut in gross domestic product increase, and annual losses to the budget system of about RUR 250 billion.
Also, we have to prepare infrastructure for global events and projects, in particular, for the Olympic Games in Sochi, the Students’ Games in Kazan, a summit of Asia-Pacific Economic Cooperation (APEC) in the Far East, the Football Championship in 2018, and the creation of an international financial centre in Moscow.

Elvira Nabiullina,
Minister of Economic Development of Russia
– The offers on the sources of finance for the 2012 and 2013 investment programme are to be adjusted. Such a task was given to us, and we will try to fulfill it together with RZD, the Transport Ministry and the Ministry of Finance in the near future. We are going to discuss the volume of subsidies for RZD as well as additional structuring of the investment programme. We think it is possible to allocate projects interesting from the viewpoint of attracting private investments from the market for their realisation. In this case, the need for subsidies will become smaller.
Now, the target model of railway transportation market development is being discussed, and a so-called “network contract” may become one of its elements. In this contract, the relations of the state and the infrastructure company (including possible subsidies) are formulated. In many countries, infrastructure is supported and subsidised in order not to lay these expenses on the shoulders of consignors and customers.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/inter/2011/1/12.jpg" border="1" alt=" " hspace="5" width="300" height="199" align="left" />The Russian Government approved the 2011 investment programme of RZD (its volume, targets, sources of finance etc.) last December. Some experts doubt that realisation of its basic parameters is possible. However, there are even more questions about the company’s plans concerning the investment programme in 2012 and 2013.
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To sell first, and invest later
According to official data, the total volume of means envisaged by RZD’s 2011 investment programme amounts to RUR 350 billion, 11% more compared with 2010. Meanwhile, as Vladimir Yakunin, the company’s President, noted, its volume is significantly smaller than that of previous years. In his words, the volume of investment is similar to that in 2004.  
Of the sum planned for 2011, RUR 62.2 billion is set to be spent on transport infrastructure construction in preparation for the Olympic Games 2014 in Sochi. RUR 286.8 billion is to be invested into RZD’s own projects, including rail track repair and reconstruction, rolling stock renewal, etc. 
For comparison, RUR 84.6 billion was used for the Olympic projects realisation in 2010. The company spent RUR 230.4 billion on its own projects. In particular, it built such large objects as the Small Novorossiysk tunnel, railway approaches to ports on the southern coast of the Finnish Gulf, and continued the construction of the new Kuznetsovsky Tunnel in the Far East (it will remove limitations on cargo transportation via the Baikal-Amur Mainline to the ports of Vanino and Sovetskaya Gavan). Also, in the framework of the investment programme, the company put into operation a fast St Petersburg – Moscow – Nizhny Novgorod link and launched high-speed passenger trains ‘Allegro’ to service the St Petersburg – Helsinki line.
The 2011 investment programme is supposed to be financed from the money received after the company’s asset sale, and first of all after the sale of the shares in Freight One. 75% (minus one share) of the shareholding in Freight One is supposed to be sold. According to RZD’s assessments, this shareholding is worth $5-6.5 billion.
 ‘To secure the necessary investment sources, we will use the revenue from selling shareholdings in the company’s subsidiaries,’ comments the Head of Russian Railways. ‘The Board of Directors and the company’s Board set a target to provide at least RUR 132 billion of revenue from selling the shareholdings. I’d like to emphasise that this is a temporary measure, and its usage after 2011 will be limited.’
Meanwhile, the terms and form of the sale have not been approved yet. It was planned earlier that the control stake would have been sold before the second half of 2011. According to the latest information, the auction will start no earlier than the third quarter of 2011. Also, it is still not clear how much the potential buyers are ready to pay (especially if we take into account the preliminary sales scheme, according to which 50% plus one share will be united into one lot, and a 25% shareholding will be placed at the stock exchange). 
Experts say that in this case the number of potential buyers becomes smaller, and there appear additional problems in choosing the company, which in fact will gain control over Russia’s largest rolling stock owner. In the opinion of some analysts, even if the situation develops according to the most optimistic scenario, funds will be received by January 2012. 
RZD has other assets, which could be sold to get money for the investment programme’s realisation, but the situation with them is rather complicated. Experts point to the lack of information about the assets, so it is hardly possible to estimate the starting process and the terms of contract conclusion. In their opinion, there must be no problems if the preparation for the auction is qualitative, so RZD can receive the sum necessary to realise the investment programme. 

Of Two Evils, Choose the Lesser
Meanwhile, RZD’s investment programme for the next two years provides even more questions. To remind, it started in 2008 for a long – three-year – period. The figures for 2011 were approved by the RF Government, but the programme for 2012 and 2013 was sent back to be revised. In particular, it was decided to specify its parameters and sources of finance. The main debatable issue was the size of indexation of tariffs of freight transportation in 2012 and 2013.
In 2009-2010, tariff growth was restrained to support the economy in the crisis, and the state compensated RZD for revenue lost. No compensation was envisaged for 2012-2013, but according to the preliminary plan approved by the Government, the tariffs are to increase by just 7.4% in 2012, and by 6.4% in 2013 (an 8% growth in 2011).
According to specialists at RZD, in this situation, the holding company will suffer losses of RUR 11.5 billion and RUR 13.7 billion, and the parent company (which does not provide passenger transportation or operate wagons from 2011) – RUR 31.5 billion and RUR 35.8 billion. 
The volume of lost revenue is estimated at RUR 146.8 billion in 2012 and RUR 176.4 billion in 2013. In their turn, the specialists at RZD calculated an economically reasonable tariff level using the methods adopted by the Federal Tariff Service, which are similar to the empirically-based RAB methods. The company considers that the tariffs are to be increased by 23% in 2012 and by 7.5% in 2013. Then, RZD’s profit (considering its subsidiaries) will amount to RUR 108.2 billion and RUR 133.6 billion. Another variant – the Government will have to compensate for the lost revenue from the state budget.
‘RZD does not insist on a 23% increase in tariffs, but this level of indexation will provide the minimal fulfillment of the company’s investment programme in 2012 and a safe cargo transportation programme,’ commented Mr Yakunin. Otherwise, the company will have to cut expenditure and the investment programme, and this will do damage to the company’s work. In particular, just in 2012, RZD may cut track repair by 3,000 km, fire 42,000 employees (about 5% of the total number), and reduce locomotive purchases by 30%. And this, in turn, will cause safety risks and make infrastructure barriers even worse. 
Calculations made by specialists show that even if the economically reasonable tariffs are adopted and RZD’s investment programme volume remains the same, this will not stop the ageing of the basic assets and provide the railway infrastructure development required by the economy. That is why the investment programme includes projects of ‘renewal’ and ‘development’, and to carry them out, the company asks the state to give an additional RUR 447 billion before 2015.
This money should be given to the authorised capital of RZD, otherwise, as the company’s specialists say, it will not be able to transport approximately 100 million tons of cargo per annum by 2015. 
The major bottlenecks will be railway approaches to Russia’s north-western and southern ports, railway lines to the West-Siberian oil and gas complex, the Baikal-Amur Mainline and the Transsib, the Far Eastern ports, and the Moscow transport hub. At the same time, specialists at RZD emphasise that the state will get its investment back due to the positive effect of railway development on other sectors of the economy. According to their calculations, the additional flow of money to the state budget will exceed RUR 500 billion by 2021.
Nevertheless, the RF’s Ministry of Economic Development did not support RZD’s proposal of a larger tariff increase. ‘The volume of investment programme needed by RZD envisages a larger tariff increase than planned before. We consider it necessary to keep to a 7.4% tariff growth and to not revise the tariffs, because the tariffs of RZD represent the expenditures of companies from the whole of Russia,’ said Elvira Nabiullina, Russian Minister of Economic Development.    

Searching for a Compromise
Last January, RZD offered a compromise – an 11.7% tariff increase in 2012 and compensation of RUR 80 billion from the state budget (e.g. by means of infrastructure bonds placement). To remind, because of the tariff growth restraint, RZD received RUR 50 billion of state subsides in 2009 (tariffs increased by 8% instead of 14%), and RUR 23 billion in 2010 (+9.2% instead of 12.1%).
No decision has been made so far. Experts note that the approved tariff indexation exceeds inflation by 7.4%, and the economy will hardly manage a double-digit tariff increase. The RF Ministry of Economic Development considers that there are no reasons to revise the 7.4% tariff growth. The Ministry thinks that possible measures of state support to RZD can be discussed after the investment programme structuring is completed and the priority projects of infrastructure development are defined. Also, the Ministry considers that the additional sources for the enlargement of RZD’s investment programme in 2012-2013 may be private investments into infrastructure development, infrastructure bonds issue, and the sale of the company’s non-core assets. 
In turn, analysts think that the compromise offered by RZD (tariff indexation by 11.7% in 2012) is quite reasonable. ‘The Russian economy has not seen tariffs increased by more than 15% for a long time. A 23% growth may have negative consequences in other sectors of the economy and cause high inflation,’ explains Andrey Rozhkov, an analyst at IFC Metropol. Meanwhile, representatives of the business community say that 11.7% is too much for indexation of tariffs on services provided by railway transport that fulfills 80% of cargo transportation in Russia. The question remains open, but experts think that the Government will agree with the offer of the RF Ministry of Economic Development and find a way to realize RZD’s investment plan at the expense of the company’s own resources.
By Olga Dorbunova 

viewpoint
Vladimir Yakunin, 
President of RZD
– Unfortunately, unlike tariffs in the energy supply sector, railway tariffs on cargo transportation do not include an investment constituent.
State capital investments in the framework of the Federal Target Programmes are cut or delayed and new projects to be financed from the RF Investment Fund are not launched. We consider this policy wrong. All in all, it means the lack of proper understanding by the community and the state regulating bodies of how important infrastructure development is and what huge economic potential may be created. Significant investments are needed to upgrade and develop the Baikal-Amur Mainline and the Transsib, to create a Salekhard-Nadym line. 
According to our estimations, the lack of infrastructure investment will lead to the slower growth of transportation and a cut in gross domestic product increase, and annual losses to the budget system of about RUR 250 billion.
Also, we have to prepare infrastructure for global events and projects, in particular, for the Olympic Games in Sochi, the Students’ Games in Kazan, a summit of Asia-Pacific Economic Cooperation (APEC) in the Far East, the Football Championship in 2018, and the creation of an international financial centre in Moscow.

Elvira Nabiullina,
Minister of Economic Development of Russia
– The offers on the sources of finance for the 2012 and 2013 investment programme are to be adjusted. Such a task was given to us, and we will try to fulfill it together with RZD, the Transport Ministry and the Ministry of Finance in the near future. We are going to discuss the volume of subsidies for RZD as well as additional structuring of the investment programme. We think it is possible to allocate projects interesting from the viewpoint of attracting private investments from the market for their realisation. In this case, the need for subsidies will become smaller.
Now, the target model of railway transportation market development is being discussed, and a so-called “network contract” may become one of its elements. In this contract, the relations of the state and the infrastructure company (including possible subsidies) are formulated. In many countries, infrastructure is supported and subsidised in order not to lay these expenses on the shoulders of consignors and customers.
    [~DETAIL_TEXT] => 
To sell first, and invest later
According to official data, the total volume of means envisaged by RZD’s 2011 investment programme amounts to RUR 350 billion, 11% more compared with 2010. Meanwhile, as Vladimir Yakunin, the company’s President, noted, its volume is significantly smaller than that of previous years. In his words, the volume of investment is similar to that in 2004.  
Of the sum planned for 2011, RUR 62.2 billion is set to be spent on transport infrastructure construction in preparation for the Olympic Games 2014 in Sochi. RUR 286.8 billion is to be invested into RZD’s own projects, including rail track repair and reconstruction, rolling stock renewal, etc. 
For comparison, RUR 84.6 billion was used for the Olympic projects realisation in 2010. The company spent RUR 230.4 billion on its own projects. In particular, it built such large objects as the Small Novorossiysk tunnel, railway approaches to ports on the southern coast of the Finnish Gulf, and continued the construction of the new Kuznetsovsky Tunnel in the Far East (it will remove limitations on cargo transportation via the Baikal-Amur Mainline to the ports of Vanino and Sovetskaya Gavan). Also, in the framework of the investment programme, the company put into operation a fast St Petersburg – Moscow – Nizhny Novgorod link and launched high-speed passenger trains ‘Allegro’ to service the St Petersburg – Helsinki line.
The 2011 investment programme is supposed to be financed from the money received after the company’s asset sale, and first of all after the sale of the shares in Freight One. 75% (minus one share) of the shareholding in Freight One is supposed to be sold. According to RZD’s assessments, this shareholding is worth $5-6.5 billion.
 ‘To secure the necessary investment sources, we will use the revenue from selling shareholdings in the company’s subsidiaries,’ comments the Head of Russian Railways. ‘The Board of Directors and the company’s Board set a target to provide at least RUR 132 billion of revenue from selling the shareholdings. I’d like to emphasise that this is a temporary measure, and its usage after 2011 will be limited.’
Meanwhile, the terms and form of the sale have not been approved yet. It was planned earlier that the control stake would have been sold before the second half of 2011. According to the latest information, the auction will start no earlier than the third quarter of 2011. Also, it is still not clear how much the potential buyers are ready to pay (especially if we take into account the preliminary sales scheme, according to which 50% plus one share will be united into one lot, and a 25% shareholding will be placed at the stock exchange). 
Experts say that in this case the number of potential buyers becomes smaller, and there appear additional problems in choosing the company, which in fact will gain control over Russia’s largest rolling stock owner. In the opinion of some analysts, even if the situation develops according to the most optimistic scenario, funds will be received by January 2012. 
RZD has other assets, which could be sold to get money for the investment programme’s realisation, but the situation with them is rather complicated. Experts point to the lack of information about the assets, so it is hardly possible to estimate the starting process and the terms of contract conclusion. In their opinion, there must be no problems if the preparation for the auction is qualitative, so RZD can receive the sum necessary to realise the investment programme. 

Of Two Evils, Choose the Lesser
Meanwhile, RZD’s investment programme for the next two years provides even more questions. To remind, it started in 2008 for a long – three-year – period. The figures for 2011 were approved by the RF Government, but the programme for 2012 and 2013 was sent back to be revised. In particular, it was decided to specify its parameters and sources of finance. The main debatable issue was the size of indexation of tariffs of freight transportation in 2012 and 2013.
In 2009-2010, tariff growth was restrained to support the economy in the crisis, and the state compensated RZD for revenue lost. No compensation was envisaged for 2012-2013, but according to the preliminary plan approved by the Government, the tariffs are to increase by just 7.4% in 2012, and by 6.4% in 2013 (an 8% growth in 2011).
According to specialists at RZD, in this situation, the holding company will suffer losses of RUR 11.5 billion and RUR 13.7 billion, and the parent company (which does not provide passenger transportation or operate wagons from 2011) – RUR 31.5 billion and RUR 35.8 billion. 
The volume of lost revenue is estimated at RUR 146.8 billion in 2012 and RUR 176.4 billion in 2013. In their turn, the specialists at RZD calculated an economically reasonable tariff level using the methods adopted by the Federal Tariff Service, which are similar to the empirically-based RAB methods. The company considers that the tariffs are to be increased by 23% in 2012 and by 7.5% in 2013. Then, RZD’s profit (considering its subsidiaries) will amount to RUR 108.2 billion and RUR 133.6 billion. Another variant – the Government will have to compensate for the lost revenue from the state budget.
‘RZD does not insist on a 23% increase in tariffs, but this level of indexation will provide the minimal fulfillment of the company’s investment programme in 2012 and a safe cargo transportation programme,’ commented Mr Yakunin. Otherwise, the company will have to cut expenditure and the investment programme, and this will do damage to the company’s work. In particular, just in 2012, RZD may cut track repair by 3,000 km, fire 42,000 employees (about 5% of the total number), and reduce locomotive purchases by 30%. And this, in turn, will cause safety risks and make infrastructure barriers even worse. 
Calculations made by specialists show that even if the economically reasonable tariffs are adopted and RZD’s investment programme volume remains the same, this will not stop the ageing of the basic assets and provide the railway infrastructure development required by the economy. That is why the investment programme includes projects of ‘renewal’ and ‘development’, and to carry them out, the company asks the state to give an additional RUR 447 billion before 2015.
This money should be given to the authorised capital of RZD, otherwise, as the company’s specialists say, it will not be able to transport approximately 100 million tons of cargo per annum by 2015. 
The major bottlenecks will be railway approaches to Russia’s north-western and southern ports, railway lines to the West-Siberian oil and gas complex, the Baikal-Amur Mainline and the Transsib, the Far Eastern ports, and the Moscow transport hub. At the same time, specialists at RZD emphasise that the state will get its investment back due to the positive effect of railway development on other sectors of the economy. According to their calculations, the additional flow of money to the state budget will exceed RUR 500 billion by 2021.
Nevertheless, the RF’s Ministry of Economic Development did not support RZD’s proposal of a larger tariff increase. ‘The volume of investment programme needed by RZD envisages a larger tariff increase than planned before. We consider it necessary to keep to a 7.4% tariff growth and to not revise the tariffs, because the tariffs of RZD represent the expenditures of companies from the whole of Russia,’ said Elvira Nabiullina, Russian Minister of Economic Development.    

Searching for a Compromise
Last January, RZD offered a compromise – an 11.7% tariff increase in 2012 and compensation of RUR 80 billion from the state budget (e.g. by means of infrastructure bonds placement). To remind, because of the tariff growth restraint, RZD received RUR 50 billion of state subsides in 2009 (tariffs increased by 8% instead of 14%), and RUR 23 billion in 2010 (+9.2% instead of 12.1%).
No decision has been made so far. Experts note that the approved tariff indexation exceeds inflation by 7.4%, and the economy will hardly manage a double-digit tariff increase. The RF Ministry of Economic Development considers that there are no reasons to revise the 7.4% tariff growth. The Ministry thinks that possible measures of state support to RZD can be discussed after the investment programme structuring is completed and the priority projects of infrastructure development are defined. Also, the Ministry considers that the additional sources for the enlargement of RZD’s investment programme in 2012-2013 may be private investments into infrastructure development, infrastructure bonds issue, and the sale of the company’s non-core assets. 
In turn, analysts think that the compromise offered by RZD (tariff indexation by 11.7% in 2012) is quite reasonable. ‘The Russian economy has not seen tariffs increased by more than 15% for a long time. A 23% growth may have negative consequences in other sectors of the economy and cause high inflation,’ explains Andrey Rozhkov, an analyst at IFC Metropol. Meanwhile, representatives of the business community say that 11.7% is too much for indexation of tariffs on services provided by railway transport that fulfills 80% of cargo transportation in Russia. The question remains open, but experts think that the Government will agree with the offer of the RF Ministry of Economic Development and find a way to realize RZD’s investment plan at the expense of the company’s own resources.
By Olga Dorbunova 

viewpoint
Vladimir Yakunin, 
President of RZD
– Unfortunately, unlike tariffs in the energy supply sector, railway tariffs on cargo transportation do not include an investment constituent.
State capital investments in the framework of the Federal Target Programmes are cut or delayed and new projects to be financed from the RF Investment Fund are not launched. We consider this policy wrong. All in all, it means the lack of proper understanding by the community and the state regulating bodies of how important infrastructure development is and what huge economic potential may be created. Significant investments are needed to upgrade and develop the Baikal-Amur Mainline and the Transsib, to create a Salekhard-Nadym line. 
According to our estimations, the lack of infrastructure investment will lead to the slower growth of transportation and a cut in gross domestic product increase, and annual losses to the budget system of about RUR 250 billion.
Also, we have to prepare infrastructure for global events and projects, in particular, for the Olympic Games in Sochi, the Students’ Games in Kazan, a summit of Asia-Pacific Economic Cooperation (APEC) in the Far East, the Football Championship in 2018, and the creation of an international financial centre in Moscow.

Elvira Nabiullina,
Minister of Economic Development of Russia
– The offers on the sources of finance for the 2012 and 2013 investment programme are to be adjusted. Such a task was given to us, and we will try to fulfill it together with RZD, the Transport Ministry and the Ministry of Finance in the near future. We are going to discuss the volume of subsidies for RZD as well as additional structuring of the investment programme. We think it is possible to allocate projects interesting from the viewpoint of attracting private investments from the market for their realisation. In this case, the need for subsidies will become smaller.
Now, the target model of railway transportation market development is being discussed, and a so-called “network contract” may become one of its elements. In this contract, the relations of the state and the infrastructure company (including possible subsidies) are formulated. In many countries, infrastructure is supported and subsidised in order not to lay these expenses on the shoulders of consignors and customers.
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