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    [NAME] => “FSU Countries Fleets Require Huge Investment”
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Exciting Market… 
– Mr McCarthy, what is your view of the prospectives of your business in Russia? Why do you think it makes sense for your company to work here?
– Since 1984, the Eurofin Group has been successful in developing shipping finance and investment business in areas that had previously been difficult for international banks to penetrate, either through local regulation or because of an inability to overcome the “political risk” associated generally with developing and emerging economies. Our group has the skills and experience to act as an intermediary between the lenders and borrowers and is able to undertake much of the research and development work that banks are reluctant to assume. 
We see the countries of the Former Soviet Union – especially its most important component, Russia – as a region where we can apply those skills to mutual advantage.
Overall the fleets of the FSU countries are large, but elderly. It will require a huge investment, both of loan and equity capital to renew the ageing fleet over the coming years. We came to this conclusion after a study of only a limited section of the fleet. In reality, if the pure river and fishing fleets are included, the numbers are much bigger.
– What is your audience by and large?
– Yes, we have concluded business in the region, and we are close to securing further mandates, but for reasons of client confidentiality we would prefer not to disclose details.
We are prepared to look at any project across the full range of shipping activities, including port and infrastructure development. We expect, however, that our most fruitful sector when it comes to arranging finance will be the small – medium size shipping company that is seeking to expand its fleet and can demonstrate good corporate governance and international business experience. For the very well known companies like Sovcomflot who already have their direct international banking relationships, we can help with, for example, mergers and acquisition by introducing companies or major projects that would fit into their corporate development ideas. 
In terms of sectors, by far the largest sector by number of vessels employed is the multi-purpose/general cargo short sea sector and we do not see this changing, except perhaps for increased containerisation. The Russian fleet has a surprisingly small dry-bulk carrier sector and we feel that there are a number of companies, both shipping and commodity, where we can help to develop this side of the business. We have recently seen a dramatic downturn in the dry-cargo markets and this may present opportunities for Russian owners and commodity companies to enter into joint ventures with companies that are over-extended, or even outright purchases of distressed shipping assets. Here Russia may have a real advantage because of its control of cargoes. 
It goes without saying that the offshore service sector is a very important growth area.
…But Bankers Make No Exceptions
– As we could see, big bankers who could have brought their funds into the industry, prefer talking about insufficient transparency, lack of information and so on. What could you tell them to get them into doing business here?
– It would be better to turn the question round and say what can the Russian owners say to the banks that will convince them to lend? Companies like Sovcomflot, Primorsk shipping company, FESCO etc., do not have any problems, but they present their businesses in a way that is accepted internationally. 
We should not expect a bank to lower its due diligence standards and its requirement for best case corporate governance, just because the company is Russian. Neither should we expect them to take the time to send expensive executives out to instruct the Russian owners in what to do and how to do it. 
For a start, if a Russian owner wants to borrow from a Western European Bank, he should, ideally have a simple, consolidated corporate structure with accounts independently audited to IFRS standards by an internationally known and respected firm of accountants. If IFRS cannot be done, then a consolidated set of financial data that is trusted and easily recognisable from the fully disclosed activities of the company is vital. In this respect, Russian companies are no different from companies throughout the rest of the world. It is not an anti-Russian thing, just recognition of how international financing business is conducted. Russian companies are not at a disadvantage because they are Russian, but if they want to compete internationally for finance, they must adopt the same standards as their international competitors. The principals of the company should also be prepared to divulge their business histories. Again this is not specifically anti-Russian, but just part of the anti corruption regulations (known as “Know Your Customer” or “KYC”) that all international banks have to comply with for all new clients.
Having said that, it is easy for international banks to become complacent and assume that certain countries will not feature in their loan portfolios. If a loan officer has two identical proposals, one from a Russian and one from a Greek but only has time to look at one of them, invariably he will discard the Russian and look at the Greek. We have to overcome this institutionalised bias, and it is something I try to do every time I speak to a bank. 
Russia has a strong and proud maritime history and its seafaring skills are second to none. The volume of lending business is there, the amounts involved are huge and the fees and interest margins are attractive. All of these factors are interesting to banks, and we must keep this message constantly in their minds. It would help if there was an active marketing organisation for Russian Shipping that promotes the business in a professional and consistent way like, for example, the Chamber of Shipping in the UK, or the Union of Greek Shipowners. The chart above comes from some research I did myself by studying the Russian Register and looking at the fleets of as many individual companies as I could find. It took several months, and it would have been so much easier if the information could have been sourced from just one place.
We recently had the conference in St. Petersburg, and it was disappointing that so few Russian organisations were represented, both on the presentation and delegation sides. Yet we had a number of important banks who were prepared to visit the city who would have welcomed the opportunity to meet and talk to potential clients. 
– In particular, what are the main features which differ doing business in Russia from doing business in, let’s say, Turkey and Greece? I mean all possible matters – clients, regulation, and even the weather! 
– Good question. I once visited a shipyard in Nizhny Novgorod in January and I must say that I would not choose to do it again, but this is not a reason to avoid business, more a question of taking the right clothes!
The industry is spread throughout a vast country, so marketing trips need to be carefully planned. If I wanted to meet a client in Moscow, one in St. Petersburg, another in Arkhangelsk and a fourth in Murmansk, the trip would be prohibitive in terms of cost, but more importantly in terms of time. In Greece, however, a banker can see almost everybody he wants in Athens. But we cannot change geography.
I would also say that sometimes it is not too easy to make the right contacts by telephone or E-mail, so Russian shipowners could do a lot, at very little effort to make themselves easier to contact, and make sure their websites are up to date and informative.
Sadly, fluency in Russian is not a top priority amongst international shipping bankers, and I shamefully include myself in that category. So having somebody in the company with fluency in English is important as most banks throughout the world conduct international business in the English language. 
On first contact, a Greek or Turkish owner will show the banker a full fleet list, a list of charterers and operating costs, company history and major strengths. So immediately a potential lender will have a good idea of the structure of the client even before negotiations on a particular project begin. Thereafter, the client will have a clear idea of what he wants from the bank and how to negotiate terms. In my experience, Russian shipowners frequently start from the opposite direction – e.g. here is a ship, how much can you lend me? An exaggeration of course, but made to illustrate the fact that correct presentation is important to get the lender at least interested enough to listen. 
I think that when Russian owners have been able to prove there is a solid shipping finance business, the banks themselves will consider posting a representative in Moscow, St. Petersburg or Vladivostok. But they will only do this when the business base is producing enough revenue to justify it. Most banks are represented in Greece, and many in Istanbul. 
The other very important factor is the nature of the business. Greeks are highly experienced in exactly the types of deals that the big banks like to do; ocean going bulk carriers and tankers. Small ships and short-sea shipping have different dynamics; smaller values requiring a higher deal turnover to achieve the lending volumes that big banks require; fewer long term charters and so on. There is a significant selling job to do to make the banks aware of the profitability of these trades and the very large turnover in terms of ships bought and sold, charters concluded etc. 
Comparing with the other major shipping centres, most of the major brokers produce weekly or monthly sale and purchase market reports. On a daily basis, we can see what is happening in the chartering markets just by looking at Lloyd’s List. I have not seen any similar data emanating from Russia. Transparency is not just about balance sheets, it is also about markets.
Financiers In Queue? Maybe…	 
– Russian shipowners. Do they need external financing? Do they realize all the profits of it? Are they ready to accept it, can they meet all those requirements established by the banks? What must they do so that the bankers call them every day asking “What can we do for your business, Sir?”
– There are three main reasons why external financing would help Russian shipowners. 1) It is generally cheaper. 2) International banks have much higher lending capacity. 3) The international bank shipping departments have great depth of experience of international shipping and capital markets and structuring skills that may not be so advanced in the domestic banking market.
It is one thing to ask a local bank to provide USD 2 million for a 15-year old river-sea trader, quite another to ask for a USD 175 million facility to assist with a 15 vessel short-sea shipping fleet renewal programme, or USD 50 million to finance the development into modern 2nd hand container ships. Frankly, if the owner only wants to stay in his small, enclosed world of old coasters, then there is no reason to look outside of Russia and its surrounding countries for debt. But to attract the levels of financing needed to expand and become an important international player, the owners have no choice but to make themselves attractive to the lenders by the way they conduct their business and in the way they present themselves to the outside world.
When the big banks see that this is happening, for sure they will telephone and offer their services. You can hardly get into Sovcomflot’s office these days without having to push through a queue of bankers!
– As I guess there are some steps which the government should do to make the process of getting external financing for the shipowners easier? 
– The type of question I am more frequently asked than anything else is, “Why should we lend in Russia when we see what happened to Shell with Gazprom in Sakhalin and BP with TNK?”
Irrespective of the rights and wrongs of each situation, and I am sure there are valid arguments on both sides, the western perception is that the Russian Government, or powerful individuals in some way used State Institutions and Legal Process to apply undue pressure on the western companies in ways which would be illegal and totally unjustifiable in most industrialised democracies. 
It may be said that these are strategic industries, but if business is private and organised under generally accepted business rules and laws, then disputes should be settled within a reliable and proven legal framework. A western lender will make no difference between Russia’s oil industries and its medium sized shipowners. The application of the law should apply equally to all. Most businesses, banks included, are very adept at dealing with and solving problems. All they ask is a clear and consistent set of rules within which they can have confidence to operate.
We can take this argument into a more academic sphere; that of the Russian Mortgage. Where a ship is trading within Russian territorial waters, or within the river system, it needs Russian Flag. Many non-Russian lenders have yet to be convinced that a Russian ship mortgage is a reliable piece of security that can be enforced within a predictable time and in accordance with an established procedure and a certain outcome. Certainly steps have been taken to improve this; the Russian International Register and Dual Registration for example are important steps forward and are becoming increasingly acceptable. But more work can be done on this.
I would feel optimistic about presenting a client to an international bank where we can present him, his company and his transaction on an equal basis to any other company. There are enough banks now that have expressed interest in lending to Russian projects, whether it be in shipping, ports, rail infrastructure etc., to make it a worthwhile exercise. But not with one hand tied behind my back because I do not have the full story.
But Not Now 
– And, of course, the crisis. Has it influenced the sphere you are in? Will it bring any threats to Russian shipping industry, I mean the financial issues?
– The answer to both parts of this question is clearly YES. The bank liquidity crisis has forced all banks to review their lending activities, and most of them have simply withdrawn from the market for the time being. The recent sudden and dramatic fall in shipping markets, particularly the dry-bulk sector, only adds to the difficulties.
In times of financial instability, the banks tend to re-trench and withdraw to their domestic markets where they understand the risk best and where it is important that they are seen to be supportive of local people and local economies.
They become even more selective and aggressive in the types of deals they do, the terms they impose and the margins they charge. So right now a new client from an unfamiliar market probably has little or no chance of getting a deal done.
But this situation will not last forever. Markets change, usually faster than most analysts predict. The world will go on and it is important that owners make sure they are ahead of the game and be prepared to exploit the situation when it turns in their favour.
Interviewed by Ivan Stupachenko
    [~DETAIL_TEXT] => 
Exciting Market… 
– Mr McCarthy, what is your view of the prospectives of your business in Russia? Why do you think it makes sense for your company to work here?
– Since 1984, the Eurofin Group has been successful in developing shipping finance and investment business in areas that had previously been difficult for international banks to penetrate, either through local regulation or because of an inability to overcome the “political risk” associated generally with developing and emerging economies. Our group has the skills and experience to act as an intermediary between the lenders and borrowers and is able to undertake much of the research and development work that banks are reluctant to assume. 
We see the countries of the Former Soviet Union – especially its most important component, Russia – as a region where we can apply those skills to mutual advantage.
Overall the fleets of the FSU countries are large, but elderly. It will require a huge investment, both of loan and equity capital to renew the ageing fleet over the coming years. We came to this conclusion after a study of only a limited section of the fleet. In reality, if the pure river and fishing fleets are included, the numbers are much bigger.
– What is your audience by and large?
– Yes, we have concluded business in the region, and we are close to securing further mandates, but for reasons of client confidentiality we would prefer not to disclose details.
We are prepared to look at any project across the full range of shipping activities, including port and infrastructure development. We expect, however, that our most fruitful sector when it comes to arranging finance will be the small – medium size shipping company that is seeking to expand its fleet and can demonstrate good corporate governance and international business experience. For the very well known companies like Sovcomflot who already have their direct international banking relationships, we can help with, for example, mergers and acquisition by introducing companies or major projects that would fit into their corporate development ideas. 
In terms of sectors, by far the largest sector by number of vessels employed is the multi-purpose/general cargo short sea sector and we do not see this changing, except perhaps for increased containerisation. The Russian fleet has a surprisingly small dry-bulk carrier sector and we feel that there are a number of companies, both shipping and commodity, where we can help to develop this side of the business. We have recently seen a dramatic downturn in the dry-cargo markets and this may present opportunities for Russian owners and commodity companies to enter into joint ventures with companies that are over-extended, or even outright purchases of distressed shipping assets. Here Russia may have a real advantage because of its control of cargoes. 
It goes without saying that the offshore service sector is a very important growth area.
…But Bankers Make No Exceptions
– As we could see, big bankers who could have brought their funds into the industry, prefer talking about insufficient transparency, lack of information and so on. What could you tell them to get them into doing business here?
– It would be better to turn the question round and say what can the Russian owners say to the banks that will convince them to lend? Companies like Sovcomflot, Primorsk shipping company, FESCO etc., do not have any problems, but they present their businesses in a way that is accepted internationally. 
We should not expect a bank to lower its due diligence standards and its requirement for best case corporate governance, just because the company is Russian. Neither should we expect them to take the time to send expensive executives out to instruct the Russian owners in what to do and how to do it. 
For a start, if a Russian owner wants to borrow from a Western European Bank, he should, ideally have a simple, consolidated corporate structure with accounts independently audited to IFRS standards by an internationally known and respected firm of accountants. If IFRS cannot be done, then a consolidated set of financial data that is trusted and easily recognisable from the fully disclosed activities of the company is vital. In this respect, Russian companies are no different from companies throughout the rest of the world. It is not an anti-Russian thing, just recognition of how international financing business is conducted. Russian companies are not at a disadvantage because they are Russian, but if they want to compete internationally for finance, they must adopt the same standards as their international competitors. The principals of the company should also be prepared to divulge their business histories. Again this is not specifically anti-Russian, but just part of the anti corruption regulations (known as “Know Your Customer” or “KYC”) that all international banks have to comply with for all new clients.
Having said that, it is easy for international banks to become complacent and assume that certain countries will not feature in their loan portfolios. If a loan officer has two identical proposals, one from a Russian and one from a Greek but only has time to look at one of them, invariably he will discard the Russian and look at the Greek. We have to overcome this institutionalised bias, and it is something I try to do every time I speak to a bank. 
Russia has a strong and proud maritime history and its seafaring skills are second to none. The volume of lending business is there, the amounts involved are huge and the fees and interest margins are attractive. All of these factors are interesting to banks, and we must keep this message constantly in their minds. It would help if there was an active marketing organisation for Russian Shipping that promotes the business in a professional and consistent way like, for example, the Chamber of Shipping in the UK, or the Union of Greek Shipowners. The chart above comes from some research I did myself by studying the Russian Register and looking at the fleets of as many individual companies as I could find. It took several months, and it would have been so much easier if the information could have been sourced from just one place.
We recently had the conference in St. Petersburg, and it was disappointing that so few Russian organisations were represented, both on the presentation and delegation sides. Yet we had a number of important banks who were prepared to visit the city who would have welcomed the opportunity to meet and talk to potential clients. 
– In particular, what are the main features which differ doing business in Russia from doing business in, let’s say, Turkey and Greece? I mean all possible matters – clients, regulation, and even the weather! 
– Good question. I once visited a shipyard in Nizhny Novgorod in January and I must say that I would not choose to do it again, but this is not a reason to avoid business, more a question of taking the right clothes!
The industry is spread throughout a vast country, so marketing trips need to be carefully planned. If I wanted to meet a client in Moscow, one in St. Petersburg, another in Arkhangelsk and a fourth in Murmansk, the trip would be prohibitive in terms of cost, but more importantly in terms of time. In Greece, however, a banker can see almost everybody he wants in Athens. But we cannot change geography.
I would also say that sometimes it is not too easy to make the right contacts by telephone or E-mail, so Russian shipowners could do a lot, at very little effort to make themselves easier to contact, and make sure their websites are up to date and informative.
Sadly, fluency in Russian is not a top priority amongst international shipping bankers, and I shamefully include myself in that category. So having somebody in the company with fluency in English is important as most banks throughout the world conduct international business in the English language. 
On first contact, a Greek or Turkish owner will show the banker a full fleet list, a list of charterers and operating costs, company history and major strengths. So immediately a potential lender will have a good idea of the structure of the client even before negotiations on a particular project begin. Thereafter, the client will have a clear idea of what he wants from the bank and how to negotiate terms. In my experience, Russian shipowners frequently start from the opposite direction – e.g. here is a ship, how much can you lend me? An exaggeration of course, but made to illustrate the fact that correct presentation is important to get the lender at least interested enough to listen. 
I think that when Russian owners have been able to prove there is a solid shipping finance business, the banks themselves will consider posting a representative in Moscow, St. Petersburg or Vladivostok. But they will only do this when the business base is producing enough revenue to justify it. Most banks are represented in Greece, and many in Istanbul. 
The other very important factor is the nature of the business. Greeks are highly experienced in exactly the types of deals that the big banks like to do; ocean going bulk carriers and tankers. Small ships and short-sea shipping have different dynamics; smaller values requiring a higher deal turnover to achieve the lending volumes that big banks require; fewer long term charters and so on. There is a significant selling job to do to make the banks aware of the profitability of these trades and the very large turnover in terms of ships bought and sold, charters concluded etc. 
Comparing with the other major shipping centres, most of the major brokers produce weekly or monthly sale and purchase market reports. On a daily basis, we can see what is happening in the chartering markets just by looking at Lloyd’s List. I have not seen any similar data emanating from Russia. Transparency is not just about balance sheets, it is also about markets.
Financiers In Queue? Maybe…	 
– Russian shipowners. Do they need external financing? Do they realize all the profits of it? Are they ready to accept it, can they meet all those requirements established by the banks? What must they do so that the bankers call them every day asking “What can we do for your business, Sir?”
– There are three main reasons why external financing would help Russian shipowners. 1) It is generally cheaper. 2) International banks have much higher lending capacity. 3) The international bank shipping departments have great depth of experience of international shipping and capital markets and structuring skills that may not be so advanced in the domestic banking market.
It is one thing to ask a local bank to provide USD 2 million for a 15-year old river-sea trader, quite another to ask for a USD 175 million facility to assist with a 15 vessel short-sea shipping fleet renewal programme, or USD 50 million to finance the development into modern 2nd hand container ships. Frankly, if the owner only wants to stay in his small, enclosed world of old coasters, then there is no reason to look outside of Russia and its surrounding countries for debt. But to attract the levels of financing needed to expand and become an important international player, the owners have no choice but to make themselves attractive to the lenders by the way they conduct their business and in the way they present themselves to the outside world.
When the big banks see that this is happening, for sure they will telephone and offer their services. You can hardly get into Sovcomflot’s office these days without having to push through a queue of bankers!
– As I guess there are some steps which the government should do to make the process of getting external financing for the shipowners easier? 
– The type of question I am more frequently asked than anything else is, “Why should we lend in Russia when we see what happened to Shell with Gazprom in Sakhalin and BP with TNK?”
Irrespective of the rights and wrongs of each situation, and I am sure there are valid arguments on both sides, the western perception is that the Russian Government, or powerful individuals in some way used State Institutions and Legal Process to apply undue pressure on the western companies in ways which would be illegal and totally unjustifiable in most industrialised democracies. 
It may be said that these are strategic industries, but if business is private and organised under generally accepted business rules and laws, then disputes should be settled within a reliable and proven legal framework. A western lender will make no difference between Russia’s oil industries and its medium sized shipowners. The application of the law should apply equally to all. Most businesses, banks included, are very adept at dealing with and solving problems. All they ask is a clear and consistent set of rules within which they can have confidence to operate.
We can take this argument into a more academic sphere; that of the Russian Mortgage. Where a ship is trading within Russian territorial waters, or within the river system, it needs Russian Flag. Many non-Russian lenders have yet to be convinced that a Russian ship mortgage is a reliable piece of security that can be enforced within a predictable time and in accordance with an established procedure and a certain outcome. Certainly steps have been taken to improve this; the Russian International Register and Dual Registration for example are important steps forward and are becoming increasingly acceptable. But more work can be done on this.
I would feel optimistic about presenting a client to an international bank where we can present him, his company and his transaction on an equal basis to any other company. There are enough banks now that have expressed interest in lending to Russian projects, whether it be in shipping, ports, rail infrastructure etc., to make it a worthwhile exercise. But not with one hand tied behind my back because I do not have the full story.
But Not Now 
– And, of course, the crisis. Has it influenced the sphere you are in? Will it bring any threats to Russian shipping industry, I mean the financial issues?
– The answer to both parts of this question is clearly YES. The bank liquidity crisis has forced all banks to review their lending activities, and most of them have simply withdrawn from the market for the time being. The recent sudden and dramatic fall in shipping markets, particularly the dry-bulk sector, only adds to the difficulties.
In times of financial instability, the banks tend to re-trench and withdraw to their domestic markets where they understand the risk best and where it is important that they are seen to be supportive of local people and local economies.
They become even more selective and aggressive in the types of deals they do, the terms they impose and the margins they charge. So right now a new client from an unfamiliar market probably has little or no chance of getting a deal done.
But this situation will not last forever. Markets change, usually faster than most analysts predict. The world will go on and it is important that owners make sure they are ahead of the game and be prepared to exploit the situation when it turns in their favour.
Interviewed by Ivan Stupachenko
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    [PREVIEW_TEXT] => Alan McCarthy from the Eurofin Group has undoubtedly a full right to be named a true lover of Russia. It’s really worth seeing him trying to get bankers into the necessity to work with Russian small and medium shipowners closer, despite the well-known difficulties which wait for everybody wishing to do their business here. Where his huge belief in Russia comes from, he explains in an interview to The RZD-Partner International.
    [~PREVIEW_TEXT] => Alan McCarthy from the Eurofin Group has undoubtedly a full right to be named a true lover of Russia. It’s really worth seeing him trying to get bankers into the necessity to work with Russian small and medium shipowners closer, despite the well-known difficulties which wait for everybody wishing to do their business here. Where his huge belief in Russia comes from, he explains in an interview to The RZD-Partner International.
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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2008/4/17.jpg" border="1" alt="Alan McCarthy" title="Alan McCarthy" hspace="5" width="120" height="150" align="left" />Alan McCarthy from the Eurofin Group has undoubtedly a full right to be named a true lover of Russia. It’s really worth seeing him trying to get bankers into the necessity to work with Russian small and medium shipowners closer, despite the well-known difficulties which wait for everybody wishing to do their business here. Where his huge belief in Russia comes from, he explains in an interview to The RZD-Partner International.
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Exciting Market… 
– Mr McCarthy, what is your view of the prospectives of your business in Russia? Why do you think it makes sense for your company to work here?
– Since 1984, the Eurofin Group has been successful in developing shipping finance and investment business in areas that had previously been difficult for international banks to penetrate, either through local regulation or because of an inability to overcome the “political risk” associated generally with developing and emerging economies. Our group has the skills and experience to act as an intermediary between the lenders and borrowers and is able to undertake much of the research and development work that banks are reluctant to assume. 
We see the countries of the Former Soviet Union – especially its most important component, Russia – as a region where we can apply those skills to mutual advantage.
Overall the fleets of the FSU countries are large, but elderly. It will require a huge investment, both of loan and equity capital to renew the ageing fleet over the coming years. We came to this conclusion after a study of only a limited section of the fleet. In reality, if the pure river and fishing fleets are included, the numbers are much bigger.
– What is your audience by and large?
– Yes, we have concluded business in the region, and we are close to securing further mandates, but for reasons of client confidentiality we would prefer not to disclose details.
We are prepared to look at any project across the full range of shipping activities, including port and infrastructure development. We expect, however, that our most fruitful sector when it comes to arranging finance will be the small – medium size shipping company that is seeking to expand its fleet and can demonstrate good corporate governance and international business experience. For the very well known companies like Sovcomflot who already have their direct international banking relationships, we can help with, for example, mergers and acquisition by introducing companies or major projects that would fit into their corporate development ideas. 
In terms of sectors, by far the largest sector by number of vessels employed is the multi-purpose/general cargo short sea sector and we do not see this changing, except perhaps for increased containerisation. The Russian fleet has a surprisingly small dry-bulk carrier sector and we feel that there are a number of companies, both shipping and commodity, where we can help to develop this side of the business. We have recently seen a dramatic downturn in the dry-cargo markets and this may present opportunities for Russian owners and commodity companies to enter into joint ventures with companies that are over-extended, or even outright purchases of distressed shipping assets. Here Russia may have a real advantage because of its control of cargoes. 
It goes without saying that the offshore service sector is a very important growth area.
…But Bankers Make No Exceptions
– As we could see, big bankers who could have brought their funds into the industry, prefer talking about insufficient transparency, lack of information and so on. What could you tell them to get them into doing business here?
– It would be better to turn the question round and say what can the Russian owners say to the banks that will convince them to lend? Companies like Sovcomflot, Primorsk shipping company, FESCO etc., do not have any problems, but they present their businesses in a way that is accepted internationally. 
We should not expect a bank to lower its due diligence standards and its requirement for best case corporate governance, just because the company is Russian. Neither should we expect them to take the time to send expensive executives out to instruct the Russian owners in what to do and how to do it. 
For a start, if a Russian owner wants to borrow from a Western European Bank, he should, ideally have a simple, consolidated corporate structure with accounts independently audited to IFRS standards by an internationally known and respected firm of accountants. If IFRS cannot be done, then a consolidated set of financial data that is trusted and easily recognisable from the fully disclosed activities of the company is vital. In this respect, Russian companies are no different from companies throughout the rest of the world. It is not an anti-Russian thing, just recognition of how international financing business is conducted. Russian companies are not at a disadvantage because they are Russian, but if they want to compete internationally for finance, they must adopt the same standards as their international competitors. The principals of the company should also be prepared to divulge their business histories. Again this is not specifically anti-Russian, but just part of the anti corruption regulations (known as “Know Your Customer” or “KYC”) that all international banks have to comply with for all new clients.
Having said that, it is easy for international banks to become complacent and assume that certain countries will not feature in their loan portfolios. If a loan officer has two identical proposals, one from a Russian and one from a Greek but only has time to look at one of them, invariably he will discard the Russian and look at the Greek. We have to overcome this institutionalised bias, and it is something I try to do every time I speak to a bank. 
Russia has a strong and proud maritime history and its seafaring skills are second to none. The volume of lending business is there, the amounts involved are huge and the fees and interest margins are attractive. All of these factors are interesting to banks, and we must keep this message constantly in their minds. It would help if there was an active marketing organisation for Russian Shipping that promotes the business in a professional and consistent way like, for example, the Chamber of Shipping in the UK, or the Union of Greek Shipowners. The chart above comes from some research I did myself by studying the Russian Register and looking at the fleets of as many individual companies as I could find. It took several months, and it would have been so much easier if the information could have been sourced from just one place.
We recently had the conference in St. Petersburg, and it was disappointing that so few Russian organisations were represented, both on the presentation and delegation sides. Yet we had a number of important banks who were prepared to visit the city who would have welcomed the opportunity to meet and talk to potential clients. 
– In particular, what are the main features which differ doing business in Russia from doing business in, let’s say, Turkey and Greece? I mean all possible matters – clients, regulation, and even the weather! 
– Good question. I once visited a shipyard in Nizhny Novgorod in January and I must say that I would not choose to do it again, but this is not a reason to avoid business, more a question of taking the right clothes!
The industry is spread throughout a vast country, so marketing trips need to be carefully planned. If I wanted to meet a client in Moscow, one in St. Petersburg, another in Arkhangelsk and a fourth in Murmansk, the trip would be prohibitive in terms of cost, but more importantly in terms of time. In Greece, however, a banker can see almost everybody he wants in Athens. But we cannot change geography.
I would also say that sometimes it is not too easy to make the right contacts by telephone or E-mail, so Russian shipowners could do a lot, at very little effort to make themselves easier to contact, and make sure their websites are up to date and informative.
Sadly, fluency in Russian is not a top priority amongst international shipping bankers, and I shamefully include myself in that category. So having somebody in the company with fluency in English is important as most banks throughout the world conduct international business in the English language. 
On first contact, a Greek or Turkish owner will show the banker a full fleet list, a list of charterers and operating costs, company history and major strengths. So immediately a potential lender will have a good idea of the structure of the client even before negotiations on a particular project begin. Thereafter, the client will have a clear idea of what he wants from the bank and how to negotiate terms. In my experience, Russian shipowners frequently start from the opposite direction – e.g. here is a ship, how much can you lend me? An exaggeration of course, but made to illustrate the fact that correct presentation is important to get the lender at least interested enough to listen. 
I think that when Russian owners have been able to prove there is a solid shipping finance business, the banks themselves will consider posting a representative in Moscow, St. Petersburg or Vladivostok. But they will only do this when the business base is producing enough revenue to justify it. Most banks are represented in Greece, and many in Istanbul. 
The other very important factor is the nature of the business. Greeks are highly experienced in exactly the types of deals that the big banks like to do; ocean going bulk carriers and tankers. Small ships and short-sea shipping have different dynamics; smaller values requiring a higher deal turnover to achieve the lending volumes that big banks require; fewer long term charters and so on. There is a significant selling job to do to make the banks aware of the profitability of these trades and the very large turnover in terms of ships bought and sold, charters concluded etc. 
Comparing with the other major shipping centres, most of the major brokers produce weekly or monthly sale and purchase market reports. On a daily basis, we can see what is happening in the chartering markets just by looking at Lloyd’s List. I have not seen any similar data emanating from Russia. Transparency is not just about balance sheets, it is also about markets.
Financiers In Queue? Maybe…	 
– Russian shipowners. Do they need external financing? Do they realize all the profits of it? Are they ready to accept it, can they meet all those requirements established by the banks? What must they do so that the bankers call them every day asking “What can we do for your business, Sir?”
– There are three main reasons why external financing would help Russian shipowners. 1) It is generally cheaper. 2) International banks have much higher lending capacity. 3) The international bank shipping departments have great depth of experience of international shipping and capital markets and structuring skills that may not be so advanced in the domestic banking market.
It is one thing to ask a local bank to provide USD 2 million for a 15-year old river-sea trader, quite another to ask for a USD 175 million facility to assist with a 15 vessel short-sea shipping fleet renewal programme, or USD 50 million to finance the development into modern 2nd hand container ships. Frankly, if the owner only wants to stay in his small, enclosed world of old coasters, then there is no reason to look outside of Russia and its surrounding countries for debt. But to attract the levels of financing needed to expand and become an important international player, the owners have no choice but to make themselves attractive to the lenders by the way they conduct their business and in the way they present themselves to the outside world.
When the big banks see that this is happening, for sure they will telephone and offer their services. You can hardly get into Sovcomflot’s office these days without having to push through a queue of bankers!
– As I guess there are some steps which the government should do to make the process of getting external financing for the shipowners easier? 
– The type of question I am more frequently asked than anything else is, “Why should we lend in Russia when we see what happened to Shell with Gazprom in Sakhalin and BP with TNK?”
Irrespective of the rights and wrongs of each situation, and I am sure there are valid arguments on both sides, the western perception is that the Russian Government, or powerful individuals in some way used State Institutions and Legal Process to apply undue pressure on the western companies in ways which would be illegal and totally unjustifiable in most industrialised democracies. 
It may be said that these are strategic industries, but if business is private and organised under generally accepted business rules and laws, then disputes should be settled within a reliable and proven legal framework. A western lender will make no difference between Russia’s oil industries and its medium sized shipowners. The application of the law should apply equally to all. Most businesses, banks included, are very adept at dealing with and solving problems. All they ask is a clear and consistent set of rules within which they can have confidence to operate.
We can take this argument into a more academic sphere; that of the Russian Mortgage. Where a ship is trading within Russian territorial waters, or within the river system, it needs Russian Flag. Many non-Russian lenders have yet to be convinced that a Russian ship mortgage is a reliable piece of security that can be enforced within a predictable time and in accordance with an established procedure and a certain outcome. Certainly steps have been taken to improve this; the Russian International Register and Dual Registration for example are important steps forward and are becoming increasingly acceptable. But more work can be done on this.
I would feel optimistic about presenting a client to an international bank where we can present him, his company and his transaction on an equal basis to any other company. There are enough banks now that have expressed interest in lending to Russian projects, whether it be in shipping, ports, rail infrastructure etc., to make it a worthwhile exercise. But not with one hand tied behind my back because I do not have the full story.
But Not Now 
– And, of course, the crisis. Has it influenced the sphere you are in? Will it bring any threats to Russian shipping industry, I mean the financial issues?
– The answer to both parts of this question is clearly YES. The bank liquidity crisis has forced all banks to review their lending activities, and most of them have simply withdrawn from the market for the time being. The recent sudden and dramatic fall in shipping markets, particularly the dry-bulk sector, only adds to the difficulties.
In times of financial instability, the banks tend to re-trench and withdraw to their domestic markets where they understand the risk best and where it is important that they are seen to be supportive of local people and local economies.
They become even more selective and aggressive in the types of deals they do, the terms they impose and the margins they charge. So right now a new client from an unfamiliar market probably has little or no chance of getting a deal done.
But this situation will not last forever. Markets change, usually faster than most analysts predict. The world will go on and it is important that owners make sure they are ahead of the game and be prepared to exploit the situation when it turns in their favour.
Interviewed by Ivan Stupachenko
    [~DETAIL_TEXT] => 
Exciting Market… 
– Mr McCarthy, what is your view of the prospectives of your business in Russia? Why do you think it makes sense for your company to work here?
– Since 1984, the Eurofin Group has been successful in developing shipping finance and investment business in areas that had previously been difficult for international banks to penetrate, either through local regulation or because of an inability to overcome the “political risk” associated generally with developing and emerging economies. Our group has the skills and experience to act as an intermediary between the lenders and borrowers and is able to undertake much of the research and development work that banks are reluctant to assume. 
We see the countries of the Former Soviet Union – especially its most important component, Russia – as a region where we can apply those skills to mutual advantage.
Overall the fleets of the FSU countries are large, but elderly. It will require a huge investment, both of loan and equity capital to renew the ageing fleet over the coming years. We came to this conclusion after a study of only a limited section of the fleet. In reality, if the pure river and fishing fleets are included, the numbers are much bigger.
– What is your audience by and large?
– Yes, we have concluded business in the region, and we are close to securing further mandates, but for reasons of client confidentiality we would prefer not to disclose details.
We are prepared to look at any project across the full range of shipping activities, including port and infrastructure development. We expect, however, that our most fruitful sector when it comes to arranging finance will be the small – medium size shipping company that is seeking to expand its fleet and can demonstrate good corporate governance and international business experience. For the very well known companies like Sovcomflot who already have their direct international banking relationships, we can help with, for example, mergers and acquisition by introducing companies or major projects that would fit into their corporate development ideas. 
In terms of sectors, by far the largest sector by number of vessels employed is the multi-purpose/general cargo short sea sector and we do not see this changing, except perhaps for increased containerisation. The Russian fleet has a surprisingly small dry-bulk carrier sector and we feel that there are a number of companies, both shipping and commodity, where we can help to develop this side of the business. We have recently seen a dramatic downturn in the dry-cargo markets and this may present opportunities for Russian owners and commodity companies to enter into joint ventures with companies that are over-extended, or even outright purchases of distressed shipping assets. Here Russia may have a real advantage because of its control of cargoes. 
It goes without saying that the offshore service sector is a very important growth area.
…But Bankers Make No Exceptions
– As we could see, big bankers who could have brought their funds into the industry, prefer talking about insufficient transparency, lack of information and so on. What could you tell them to get them into doing business here?
– It would be better to turn the question round and say what can the Russian owners say to the banks that will convince them to lend? Companies like Sovcomflot, Primorsk shipping company, FESCO etc., do not have any problems, but they present their businesses in a way that is accepted internationally. 
We should not expect a bank to lower its due diligence standards and its requirement for best case corporate governance, just because the company is Russian. Neither should we expect them to take the time to send expensive executives out to instruct the Russian owners in what to do and how to do it. 
For a start, if a Russian owner wants to borrow from a Western European Bank, he should, ideally have a simple, consolidated corporate structure with accounts independently audited to IFRS standards by an internationally known and respected firm of accountants. If IFRS cannot be done, then a consolidated set of financial data that is trusted and easily recognisable from the fully disclosed activities of the company is vital. In this respect, Russian companies are no different from companies throughout the rest of the world. It is not an anti-Russian thing, just recognition of how international financing business is conducted. Russian companies are not at a disadvantage because they are Russian, but if they want to compete internationally for finance, they must adopt the same standards as their international competitors. The principals of the company should also be prepared to divulge their business histories. Again this is not specifically anti-Russian, but just part of the anti corruption regulations (known as “Know Your Customer” or “KYC”) that all international banks have to comply with for all new clients.
Having said that, it is easy for international banks to become complacent and assume that certain countries will not feature in their loan portfolios. If a loan officer has two identical proposals, one from a Russian and one from a Greek but only has time to look at one of them, invariably he will discard the Russian and look at the Greek. We have to overcome this institutionalised bias, and it is something I try to do every time I speak to a bank. 
Russia has a strong and proud maritime history and its seafaring skills are second to none. The volume of lending business is there, the amounts involved are huge and the fees and interest margins are attractive. All of these factors are interesting to banks, and we must keep this message constantly in their minds. It would help if there was an active marketing organisation for Russian Shipping that promotes the business in a professional and consistent way like, for example, the Chamber of Shipping in the UK, or the Union of Greek Shipowners. The chart above comes from some research I did myself by studying the Russian Register and looking at the fleets of as many individual companies as I could find. It took several months, and it would have been so much easier if the information could have been sourced from just one place.
We recently had the conference in St. Petersburg, and it was disappointing that so few Russian organisations were represented, both on the presentation and delegation sides. Yet we had a number of important banks who were prepared to visit the city who would have welcomed the opportunity to meet and talk to potential clients. 
– In particular, what are the main features which differ doing business in Russia from doing business in, let’s say, Turkey and Greece? I mean all possible matters – clients, regulation, and even the weather! 
– Good question. I once visited a shipyard in Nizhny Novgorod in January and I must say that I would not choose to do it again, but this is not a reason to avoid business, more a question of taking the right clothes!
The industry is spread throughout a vast country, so marketing trips need to be carefully planned. If I wanted to meet a client in Moscow, one in St. Petersburg, another in Arkhangelsk and a fourth in Murmansk, the trip would be prohibitive in terms of cost, but more importantly in terms of time. In Greece, however, a banker can see almost everybody he wants in Athens. But we cannot change geography.
I would also say that sometimes it is not too easy to make the right contacts by telephone or E-mail, so Russian shipowners could do a lot, at very little effort to make themselves easier to contact, and make sure their websites are up to date and informative.
Sadly, fluency in Russian is not a top priority amongst international shipping bankers, and I shamefully include myself in that category. So having somebody in the company with fluency in English is important as most banks throughout the world conduct international business in the English language. 
On first contact, a Greek or Turkish owner will show the banker a full fleet list, a list of charterers and operating costs, company history and major strengths. So immediately a potential lender will have a good idea of the structure of the client even before negotiations on a particular project begin. Thereafter, the client will have a clear idea of what he wants from the bank and how to negotiate terms. In my experience, Russian shipowners frequently start from the opposite direction – e.g. here is a ship, how much can you lend me? An exaggeration of course, but made to illustrate the fact that correct presentation is important to get the lender at least interested enough to listen. 
I think that when Russian owners have been able to prove there is a solid shipping finance business, the banks themselves will consider posting a representative in Moscow, St. Petersburg or Vladivostok. But they will only do this when the business base is producing enough revenue to justify it. Most banks are represented in Greece, and many in Istanbul. 
The other very important factor is the nature of the business. Greeks are highly experienced in exactly the types of deals that the big banks like to do; ocean going bulk carriers and tankers. Small ships and short-sea shipping have different dynamics; smaller values requiring a higher deal turnover to achieve the lending volumes that big banks require; fewer long term charters and so on. There is a significant selling job to do to make the banks aware of the profitability of these trades and the very large turnover in terms of ships bought and sold, charters concluded etc. 
Comparing with the other major shipping centres, most of the major brokers produce weekly or monthly sale and purchase market reports. On a daily basis, we can see what is happening in the chartering markets just by looking at Lloyd’s List. I have not seen any similar data emanating from Russia. Transparency is not just about balance sheets, it is also about markets.
Financiers In Queue? Maybe…	 
– Russian shipowners. Do they need external financing? Do they realize all the profits of it? Are they ready to accept it, can they meet all those requirements established by the banks? What must they do so that the bankers call them every day asking “What can we do for your business, Sir?”
– There are three main reasons why external financing would help Russian shipowners. 1) It is generally cheaper. 2) International banks have much higher lending capacity. 3) The international bank shipping departments have great depth of experience of international shipping and capital markets and structuring skills that may not be so advanced in the domestic banking market.
It is one thing to ask a local bank to provide USD 2 million for a 15-year old river-sea trader, quite another to ask for a USD 175 million facility to assist with a 15 vessel short-sea shipping fleet renewal programme, or USD 50 million to finance the development into modern 2nd hand container ships. Frankly, if the owner only wants to stay in his small, enclosed world of old coasters, then there is no reason to look outside of Russia and its surrounding countries for debt. But to attract the levels of financing needed to expand and become an important international player, the owners have no choice but to make themselves attractive to the lenders by the way they conduct their business and in the way they present themselves to the outside world.
When the big banks see that this is happening, for sure they will telephone and offer their services. You can hardly get into Sovcomflot’s office these days without having to push through a queue of bankers!
– As I guess there are some steps which the government should do to make the process of getting external financing for the shipowners easier? 
– The type of question I am more frequently asked than anything else is, “Why should we lend in Russia when we see what happened to Shell with Gazprom in Sakhalin and BP with TNK?”
Irrespective of the rights and wrongs of each situation, and I am sure there are valid arguments on both sides, the western perception is that the Russian Government, or powerful individuals in some way used State Institutions and Legal Process to apply undue pressure on the western companies in ways which would be illegal and totally unjustifiable in most industrialised democracies. 
It may be said that these are strategic industries, but if business is private and organised under generally accepted business rules and laws, then disputes should be settled within a reliable and proven legal framework. A western lender will make no difference between Russia’s oil industries and its medium sized shipowners. The application of the law should apply equally to all. Most businesses, banks included, are very adept at dealing with and solving problems. All they ask is a clear and consistent set of rules within which they can have confidence to operate.
We can take this argument into a more academic sphere; that of the Russian Mortgage. Where a ship is trading within Russian territorial waters, or within the river system, it needs Russian Flag. Many non-Russian lenders have yet to be convinced that a Russian ship mortgage is a reliable piece of security that can be enforced within a predictable time and in accordance with an established procedure and a certain outcome. Certainly steps have been taken to improve this; the Russian International Register and Dual Registration for example are important steps forward and are becoming increasingly acceptable. But more work can be done on this.
I would feel optimistic about presenting a client to an international bank where we can present him, his company and his transaction on an equal basis to any other company. There are enough banks now that have expressed interest in lending to Russian projects, whether it be in shipping, ports, rail infrastructure etc., to make it a worthwhile exercise. But not with one hand tied behind my back because I do not have the full story.
But Not Now 
– And, of course, the crisis. Has it influenced the sphere you are in? Will it bring any threats to Russian shipping industry, I mean the financial issues?
– The answer to both parts of this question is clearly YES. The bank liquidity crisis has forced all banks to review their lending activities, and most of them have simply withdrawn from the market for the time being. The recent sudden and dramatic fall in shipping markets, particularly the dry-bulk sector, only adds to the difficulties.
In times of financial instability, the banks tend to re-trench and withdraw to their domestic markets where they understand the risk best and where it is important that they are seen to be supportive of local people and local economies.
They become even more selective and aggressive in the types of deals they do, the terms they impose and the margins they charge. So right now a new client from an unfamiliar market probably has little or no chance of getting a deal done.
But this situation will not last forever. Markets change, usually faster than most analysts predict. The world will go on and it is important that owners make sure they are ahead of the game and be prepared to exploit the situation when it turns in their favour.
Interviewed by Ivan Stupachenko
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Reality and market forecasts
Analysts are paying special attention to Asian destinations – because Moscow is the only hub connecting Europe and Asia – and the routes America-Asia across Krasnoyarsk. If these advantages are used, the Russian freight transportation market may grow pretty fast. Denis Ilyin, senior vice-president for strategy and commerce at AirBridgeCargo air company, forecasts that the share of the Russian Federation in world air logistics may increase from 1.4% to 8% (USD 8.4 billion) by 2015 and to 16% (USD 25.6 billion) by 2030.
Transportation by special cargo plane is growing. There are 479 planes of this type – An-124-100, Il-76, An-12, and C-130 (1.4% of planes operating of the global market). Meanwhile, the growth of transportation volumes will make for larger demand for airplanes of this type. So, approximately 52 cargo planes of AN-124 type will be required to service 39% of transportation volumes in Russia. Mr Ilyin forecasts that the Russian market in regular freight transportation will require 76 cargo planes up to 2020, including 25 planes of the Boeing 747 family. To compare: Russian air companies currently operate 21 cargo planes of 10-30, 30-100 and 100+ ton types.
A problem with cargo planes…
Cargo airplanes of An-124-100 (“Ruslan”) and Il-76 families used to be exploited in military transport aviation only, and sometimes for humanitarian operations. In the early 1990’s these planes started to be used to transport heavy and oversized cargo. As a result, Russia occupied the leading position in the heavy freight transportation market – its share was approximately 75%.
In 2006, the recommencement of serial production of An-124 was considered unattractive although, in 2007, Russia and Ukraine nevertheless signed an agreement to restart serial production. It was announced that Volga-Dnepr company (incorporates AirBridgeCargo) planned to purchase up to 100 units of the modernised An-124-100M-150 up to 2030. The first two planes are to be delivered in 2010.
In June 2008, the United Aircraft Corporation (UAC) and Ernst & Young completed the development of a business plan to recommence manufacturing of An-124 planes (“Ruslan”). According to the document, to start production of the plane it was necessary to get confirmed orders for at least 40 units. “Today there is the demand for airplanes, until 2030 air companies will need 71 liners,” says Viktor Livanov, member of the UAC board. If there are enough orders, one or two aircraft will be constructed each year by Aviastar plant in Ulyuanovsk (Russia) from 2012.     
Volga-Dnepr has confirmed its order for twelve An-124-100 planes in the UAC (the company currently operates 10 such units), and fifteen Il-76TD-90VD aircraft (the federal programme envisages modernisation of this type of plane) to 2015.  Antonov Aviation Scientific and Technical Complex (Ukraine) ordered five airplanes. They are to be finished by 2012 (three of them – on an optional basis). The company uses seven such airplanes. In addition, Voronezh enterprise “Polyot” (Flight) is going to purchase 10 planes until 2015 (applying the 5+5 scheme); it has eight such units in use. Thus, the total order of three leading freight companies operating An-124 “Ruslan” is for 27 new aircraft.
In spring 2007, Antonov Aviation Scientific and Technical Complex aircraft corporation completed certification tests on the modernised An-124-100M-150 plane with an enlarged capacity of 150 tons, having re-equipped three “Ruslans”. The production programme of Aviastar-JV envisages modernisation of 15 “Ruslans” up to 2015. Market players consider that this is the most favourable way to tackle the shortage.
… and other Russian projects
Nowadays, Russian aircraft manufacturers are developing several projects which may fulfill the requirements of Russian air freight companies.
Since 1990, heavy planes of IL-96 type have been constructed by OAO Voronezh Aircraft Constructing Union (VASO). In 1993, they were modernised to passenger IL-96 M and cargo IL-96 T planes, however, their manufacture never started. In 2007, flight testing of IL-96-400T began. The maximum commercial loading of this aircraft amounts to 92 tons. Atlant-Union was the first customer – it purchased two planes and ordered three more units in 2007. Aeroflot-Cargo bought six such aircraft (the company’s park now includes six IL-96 and six MD-11F planes). Ilyushin Finance Corporation (IFC) is developing a new, modernised IL-196 (the project is to be completed in 2010-2012) and its characteristics are better than those of a Boeing 777.
ZAO Aviastar-JV started serial production of medium-range narrow-bodied passenger and cargo versions of TU-204 in 1990 (42 units have been assembled so far). Passenger and cargo versions of the plane are being used in China, Cuba, and Egypt. Aviastar-TU air company has been using two TU-204C planes since May 2000. They service freight transportation for domestic and international lines on the routes of companies TNT and DHL.
The UAC plans to construct 84 TU-204 planes of different modifications till 2012, and there are contracts and warrant certificates for 70 aircraft already. 40 units are to be given to IFC, which will sell them to Russian Airlines-400, Vladivostok-Avia, Moscovia, AirBridge Cargo and to some foreign air companies. “Market analysis shows that demand for TU-204 aircraft will be 250-300 units to 2015,” claimed Tatyana Skvortsova, a representative of OAO Tupolev. “This is the capacity of the domestic and external market for the freight modified TU-204 planes.”
Nowadays, seven airplanes for regional and short-distance transportation are being tested. They are the Sukhoi SuperJet 100, An-140, Tu-334, Il-114, An-38, Su-80GP, An-148. Although only a transport modification of Il-114T with a 7-ton carrying capacity was tested in 1996, it is considered by the UAC as a commercial freight aircraft (no orders for this plane have been made so far). Theoretically, there are freight versions of all other aircraft. Some of them have cargo-passenger modifications (envisaging fast conversion of the passenger cabin into a cargo compartment).
Although there are plenty of projects, Russia’s commercial cargo aircraft production rate is falling behind the plans and demands of the market. The results of 2007 showed that the figures envisaged by the federal target programme “Civil aircraft development in Russia in 2002-2010 and to 2015” were only 30% fulfilled. Instead of two or four Il-96 and ten or twelve Tu-204, only two Il-96 were manufactured (one of them is still being tested, so it is not yet sold), and three TU-204 were delivered to customers. In 2008 it is planned to manufacture three Il-96-400T and eight TU-204 and to start serial production of AN-148 (four aircraft). Whether these plans will come to fruition is still unknown. One can hope for fulfillment of the “Civil Aviation” sub-programme of the federal target programme “Modernisation of Russian transport system (2002-2010)” which envisages, based on state support, delivery of at least 56 new mainline and regional cargo planes – developed and manufactured in the Russian Federation – to air companies. Although, another document – reference “On Civil Aircraft Renewal and Measures to Improve State Regulation to Support Airworthiness of Aircraft” – states that the Russian aircraft hungars will require 80 new cargo planes until 2010.
It is interesting that, in June 2007, Sergey Ivanov, the First Vice Prime Minister of Russia, set the Russian aircraft industry a target of occupying third place in the world in terms of civil airliner and freight plane production by 2025. Thus, its share in the international market must increase from 1% to 10%. By that time, 300 aircraft are to be manufactured per annum (in 2006 only five civilian planes were produced).
Foreign Aircraft
While Russian aircraft producers are facing difficulties, air companies are buying foreign planes to compensate for the shortage. For example, Aeroflot-Cargo received four DC-10-40F planes from its parent company. At the same time, Aeroflot increased the freight capacity of its passenger flights by purchasing new planes from the A320 family. In addition, Aeroflot-Cargo bought two MD-11 aircraft from Finnair in 2007.
In 2007-2008 Volga-Dnepr added three new B747-400ERF aircraft to its fleet. This made AirBridge Cargo the first and the only Russian operator of long-distance cargo Boeing 747 aircraft. Now the fleet of AirBridge Cargo consists of seven aircraft, including three Boeing 747-400ERF jets. In 2010-2013, the company plans to add five more Boeing 8F aircraft to its fleet. 


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Reality and market forecasts
Analysts are paying special attention to Asian destinations – because Moscow is the only hub connecting Europe and Asia – and the routes America-Asia across Krasnoyarsk. If these advantages are used, the Russian freight transportation market may grow pretty fast. Denis Ilyin, senior vice-president for strategy and commerce at AirBridgeCargo air company, forecasts that the share of the Russian Federation in world air logistics may increase from 1.4% to 8% (USD 8.4 billion) by 2015 and to 16% (USD 25.6 billion) by 2030.
Transportation by special cargo plane is growing. There are 479 planes of this type – An-124-100, Il-76, An-12, and C-130 (1.4% of planes operating of the global market). Meanwhile, the growth of transportation volumes will make for larger demand for airplanes of this type. So, approximately 52 cargo planes of AN-124 type will be required to service 39% of transportation volumes in Russia. Mr Ilyin forecasts that the Russian market in regular freight transportation will require 76 cargo planes up to 2020, including 25 planes of the Boeing 747 family. To compare: Russian air companies currently operate 21 cargo planes of 10-30, 30-100 and 100+ ton types.
A problem with cargo planes…
Cargo airplanes of An-124-100 (“Ruslan”) and Il-76 families used to be exploited in military transport aviation only, and sometimes for humanitarian operations. In the early 1990’s these planes started to be used to transport heavy and oversized cargo. As a result, Russia occupied the leading position in the heavy freight transportation market – its share was approximately 75%.
In 2006, the recommencement of serial production of An-124 was considered unattractive although, in 2007, Russia and Ukraine nevertheless signed an agreement to restart serial production. It was announced that Volga-Dnepr company (incorporates AirBridgeCargo) planned to purchase up to 100 units of the modernised An-124-100M-150 up to 2030. The first two planes are to be delivered in 2010.
In June 2008, the United Aircraft Corporation (UAC) and Ernst & Young completed the development of a business plan to recommence manufacturing of An-124 planes (“Ruslan”). According to the document, to start production of the plane it was necessary to get confirmed orders for at least 40 units. “Today there is the demand for airplanes, until 2030 air companies will need 71 liners,” says Viktor Livanov, member of the UAC board. If there are enough orders, one or two aircraft will be constructed each year by Aviastar plant in Ulyuanovsk (Russia) from 2012.     
Volga-Dnepr has confirmed its order for twelve An-124-100 planes in the UAC (the company currently operates 10 such units), and fifteen Il-76TD-90VD aircraft (the federal programme envisages modernisation of this type of plane) to 2015.  Antonov Aviation Scientific and Technical Complex (Ukraine) ordered five airplanes. They are to be finished by 2012 (three of them – on an optional basis). The company uses seven such airplanes. In addition, Voronezh enterprise “Polyot” (Flight) is going to purchase 10 planes until 2015 (applying the 5+5 scheme); it has eight such units in use. Thus, the total order of three leading freight companies operating An-124 “Ruslan” is for 27 new aircraft.
In spring 2007, Antonov Aviation Scientific and Technical Complex aircraft corporation completed certification tests on the modernised An-124-100M-150 plane with an enlarged capacity of 150 tons, having re-equipped three “Ruslans”. The production programme of Aviastar-JV envisages modernisation of 15 “Ruslans” up to 2015. Market players consider that this is the most favourable way to tackle the shortage.
… and other Russian projects
Nowadays, Russian aircraft manufacturers are developing several projects which may fulfill the requirements of Russian air freight companies.
Since 1990, heavy planes of IL-96 type have been constructed by OAO Voronezh Aircraft Constructing Union (VASO). In 1993, they were modernised to passenger IL-96 M and cargo IL-96 T planes, however, their manufacture never started. In 2007, flight testing of IL-96-400T began. The maximum commercial loading of this aircraft amounts to 92 tons. Atlant-Union was the first customer – it purchased two planes and ordered three more units in 2007. Aeroflot-Cargo bought six such aircraft (the company’s park now includes six IL-96 and six MD-11F planes). Ilyushin Finance Corporation (IFC) is developing a new, modernised IL-196 (the project is to be completed in 2010-2012) and its characteristics are better than those of a Boeing 777.
ZAO Aviastar-JV started serial production of medium-range narrow-bodied passenger and cargo versions of TU-204 in 1990 (42 units have been assembled so far). Passenger and cargo versions of the plane are being used in China, Cuba, and Egypt. Aviastar-TU air company has been using two TU-204C planes since May 2000. They service freight transportation for domestic and international lines on the routes of companies TNT and DHL.
The UAC plans to construct 84 TU-204 planes of different modifications till 2012, and there are contracts and warrant certificates for 70 aircraft already. 40 units are to be given to IFC, which will sell them to Russian Airlines-400, Vladivostok-Avia, Moscovia, AirBridge Cargo and to some foreign air companies. “Market analysis shows that demand for TU-204 aircraft will be 250-300 units to 2015,” claimed Tatyana Skvortsova, a representative of OAO Tupolev. “This is the capacity of the domestic and external market for the freight modified TU-204 planes.”
Nowadays, seven airplanes for regional and short-distance transportation are being tested. They are the Sukhoi SuperJet 100, An-140, Tu-334, Il-114, An-38, Su-80GP, An-148. Although only a transport modification of Il-114T with a 7-ton carrying capacity was tested in 1996, it is considered by the UAC as a commercial freight aircraft (no orders for this plane have been made so far). Theoretically, there are freight versions of all other aircraft. Some of them have cargo-passenger modifications (envisaging fast conversion of the passenger cabin into a cargo compartment).
Although there are plenty of projects, Russia’s commercial cargo aircraft production rate is falling behind the plans and demands of the market. The results of 2007 showed that the figures envisaged by the federal target programme “Civil aircraft development in Russia in 2002-2010 and to 2015” were only 30% fulfilled. Instead of two or four Il-96 and ten or twelve Tu-204, only two Il-96 were manufactured (one of them is still being tested, so it is not yet sold), and three TU-204 were delivered to customers. In 2008 it is planned to manufacture three Il-96-400T and eight TU-204 and to start serial production of AN-148 (four aircraft). Whether these plans will come to fruition is still unknown. One can hope for fulfillment of the “Civil Aviation” sub-programme of the federal target programme “Modernisation of Russian transport system (2002-2010)” which envisages, based on state support, delivery of at least 56 new mainline and regional cargo planes – developed and manufactured in the Russian Federation – to air companies. Although, another document – reference “On Civil Aircraft Renewal and Measures to Improve State Regulation to Support Airworthiness of Aircraft” – states that the Russian aircraft hungars will require 80 new cargo planes until 2010.
It is interesting that, in June 2007, Sergey Ivanov, the First Vice Prime Minister of Russia, set the Russian aircraft industry a target of occupying third place in the world in terms of civil airliner and freight plane production by 2025. Thus, its share in the international market must increase from 1% to 10%. By that time, 300 aircraft are to be manufactured per annum (in 2006 only five civilian planes were produced).
Foreign Aircraft
While Russian aircraft producers are facing difficulties, air companies are buying foreign planes to compensate for the shortage. For example, Aeroflot-Cargo received four DC-10-40F planes from its parent company. At the same time, Aeroflot increased the freight capacity of its passenger flights by purchasing new planes from the A320 family. In addition, Aeroflot-Cargo bought two MD-11 aircraft from Finnair in 2007.
In 2007-2008 Volga-Dnepr added three new B747-400ERF aircraft to its fleet. This made AirBridge Cargo the first and the only Russian operator of long-distance cargo Boeing 747 aircraft. Now the fleet of AirBridge Cargo consists of seven aircraft, including three Boeing 747-400ERF jets. In 2010-2013, the company plans to add five more Boeing 8F aircraft to its fleet. 


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            [SECTION_META_DESCRIPTION] => <img src="/ufiles/image/rus/partner/2008/4/14.jpg" border="1" alt=" " hspace="5" width="120" height="150" align="left" />In spite of the world economy recession, experts are optimistic about the global and Russian freight transportation markets. Russian market players believe that its annual growth is 5-7% and that this trend will continue till 2025.
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    [DETAIL_TEXT] => 
Reality and market forecasts
Analysts are paying special attention to Asian destinations – because Moscow is the only hub connecting Europe and Asia – and the routes America-Asia across Krasnoyarsk. If these advantages are used, the Russian freight transportation market may grow pretty fast. Denis Ilyin, senior vice-president for strategy and commerce at AirBridgeCargo air company, forecasts that the share of the Russian Federation in world air logistics may increase from 1.4% to 8% (USD 8.4 billion) by 2015 and to 16% (USD 25.6 billion) by 2030.
Transportation by special cargo plane is growing. There are 479 planes of this type – An-124-100, Il-76, An-12, and C-130 (1.4% of planes operating of the global market). Meanwhile, the growth of transportation volumes will make for larger demand for airplanes of this type. So, approximately 52 cargo planes of AN-124 type will be required to service 39% of transportation volumes in Russia. Mr Ilyin forecasts that the Russian market in regular freight transportation will require 76 cargo planes up to 2020, including 25 planes of the Boeing 747 family. To compare: Russian air companies currently operate 21 cargo planes of 10-30, 30-100 and 100+ ton types.
A problem with cargo planes…
Cargo airplanes of An-124-100 (“Ruslan”) and Il-76 families used to be exploited in military transport aviation only, and sometimes for humanitarian operations. In the early 1990’s these planes started to be used to transport heavy and oversized cargo. As a result, Russia occupied the leading position in the heavy freight transportation market – its share was approximately 75%.
In 2006, the recommencement of serial production of An-124 was considered unattractive although, in 2007, Russia and Ukraine nevertheless signed an agreement to restart serial production. It was announced that Volga-Dnepr company (incorporates AirBridgeCargo) planned to purchase up to 100 units of the modernised An-124-100M-150 up to 2030. The first two planes are to be delivered in 2010.
In June 2008, the United Aircraft Corporation (UAC) and Ernst & Young completed the development of a business plan to recommence manufacturing of An-124 planes (“Ruslan”). According to the document, to start production of the plane it was necessary to get confirmed orders for at least 40 units. “Today there is the demand for airplanes, until 2030 air companies will need 71 liners,” says Viktor Livanov, member of the UAC board. If there are enough orders, one or two aircraft will be constructed each year by Aviastar plant in Ulyuanovsk (Russia) from 2012.     
Volga-Dnepr has confirmed its order for twelve An-124-100 planes in the UAC (the company currently operates 10 such units), and fifteen Il-76TD-90VD aircraft (the federal programme envisages modernisation of this type of plane) to 2015.  Antonov Aviation Scientific and Technical Complex (Ukraine) ordered five airplanes. They are to be finished by 2012 (three of them – on an optional basis). The company uses seven such airplanes. In addition, Voronezh enterprise “Polyot” (Flight) is going to purchase 10 planes until 2015 (applying the 5+5 scheme); it has eight such units in use. Thus, the total order of three leading freight companies operating An-124 “Ruslan” is for 27 new aircraft.
In spring 2007, Antonov Aviation Scientific and Technical Complex aircraft corporation completed certification tests on the modernised An-124-100M-150 plane with an enlarged capacity of 150 tons, having re-equipped three “Ruslans”. The production programme of Aviastar-JV envisages modernisation of 15 “Ruslans” up to 2015. Market players consider that this is the most favourable way to tackle the shortage.
… and other Russian projects
Nowadays, Russian aircraft manufacturers are developing several projects which may fulfill the requirements of Russian air freight companies.
Since 1990, heavy planes of IL-96 type have been constructed by OAO Voronezh Aircraft Constructing Union (VASO). In 1993, they were modernised to passenger IL-96 M and cargo IL-96 T planes, however, their manufacture never started. In 2007, flight testing of IL-96-400T began. The maximum commercial loading of this aircraft amounts to 92 tons. Atlant-Union was the first customer – it purchased two planes and ordered three more units in 2007. Aeroflot-Cargo bought six such aircraft (the company’s park now includes six IL-96 and six MD-11F planes). Ilyushin Finance Corporation (IFC) is developing a new, modernised IL-196 (the project is to be completed in 2010-2012) and its characteristics are better than those of a Boeing 777.
ZAO Aviastar-JV started serial production of medium-range narrow-bodied passenger and cargo versions of TU-204 in 1990 (42 units have been assembled so far). Passenger and cargo versions of the plane are being used in China, Cuba, and Egypt. Aviastar-TU air company has been using two TU-204C planes since May 2000. They service freight transportation for domestic and international lines on the routes of companies TNT and DHL.
The UAC plans to construct 84 TU-204 planes of different modifications till 2012, and there are contracts and warrant certificates for 70 aircraft already. 40 units are to be given to IFC, which will sell them to Russian Airlines-400, Vladivostok-Avia, Moscovia, AirBridge Cargo and to some foreign air companies. “Market analysis shows that demand for TU-204 aircraft will be 250-300 units to 2015,” claimed Tatyana Skvortsova, a representative of OAO Tupolev. “This is the capacity of the domestic and external market for the freight modified TU-204 planes.”
Nowadays, seven airplanes for regional and short-distance transportation are being tested. They are the Sukhoi SuperJet 100, An-140, Tu-334, Il-114, An-38, Su-80GP, An-148. Although only a transport modification of Il-114T with a 7-ton carrying capacity was tested in 1996, it is considered by the UAC as a commercial freight aircraft (no orders for this plane have been made so far). Theoretically, there are freight versions of all other aircraft. Some of them have cargo-passenger modifications (envisaging fast conversion of the passenger cabin into a cargo compartment).
Although there are plenty of projects, Russia’s commercial cargo aircraft production rate is falling behind the plans and demands of the market. The results of 2007 showed that the figures envisaged by the federal target programme “Civil aircraft development in Russia in 2002-2010 and to 2015” were only 30% fulfilled. Instead of two or four Il-96 and ten or twelve Tu-204, only two Il-96 were manufactured (one of them is still being tested, so it is not yet sold), and three TU-204 were delivered to customers. In 2008 it is planned to manufacture three Il-96-400T and eight TU-204 and to start serial production of AN-148 (four aircraft). Whether these plans will come to fruition is still unknown. One can hope for fulfillment of the “Civil Aviation” sub-programme of the federal target programme “Modernisation of Russian transport system (2002-2010)” which envisages, based on state support, delivery of at least 56 new mainline and regional cargo planes – developed and manufactured in the Russian Federation – to air companies. Although, another document – reference “On Civil Aircraft Renewal and Measures to Improve State Regulation to Support Airworthiness of Aircraft” – states that the Russian aircraft hungars will require 80 new cargo planes until 2010.
It is interesting that, in June 2007, Sergey Ivanov, the First Vice Prime Minister of Russia, set the Russian aircraft industry a target of occupying third place in the world in terms of civil airliner and freight plane production by 2025. Thus, its share in the international market must increase from 1% to 10%. By that time, 300 aircraft are to be manufactured per annum (in 2006 only five civilian planes were produced).
Foreign Aircraft
While Russian aircraft producers are facing difficulties, air companies are buying foreign planes to compensate for the shortage. For example, Aeroflot-Cargo received four DC-10-40F planes from its parent company. At the same time, Aeroflot increased the freight capacity of its passenger flights by purchasing new planes from the A320 family. In addition, Aeroflot-Cargo bought two MD-11 aircraft from Finnair in 2007.
In 2007-2008 Volga-Dnepr added three new B747-400ERF aircraft to its fleet. This made AirBridge Cargo the first and the only Russian operator of long-distance cargo Boeing 747 aircraft. Now the fleet of AirBridge Cargo consists of seven aircraft, including three Boeing 747-400ERF jets. In 2010-2013, the company plans to add five more Boeing 8F aircraft to its fleet. 


    [~DETAIL_TEXT] => 
Reality and market forecasts
Analysts are paying special attention to Asian destinations – because Moscow is the only hub connecting Europe and Asia – and the routes America-Asia across Krasnoyarsk. If these advantages are used, the Russian freight transportation market may grow pretty fast. Denis Ilyin, senior vice-president for strategy and commerce at AirBridgeCargo air company, forecasts that the share of the Russian Federation in world air logistics may increase from 1.4% to 8% (USD 8.4 billion) by 2015 and to 16% (USD 25.6 billion) by 2030.
Transportation by special cargo plane is growing. There are 479 planes of this type – An-124-100, Il-76, An-12, and C-130 (1.4% of planes operating of the global market). Meanwhile, the growth of transportation volumes will make for larger demand for airplanes of this type. So, approximately 52 cargo planes of AN-124 type will be required to service 39% of transportation volumes in Russia. Mr Ilyin forecasts that the Russian market in regular freight transportation will require 76 cargo planes up to 2020, including 25 planes of the Boeing 747 family. To compare: Russian air companies currently operate 21 cargo planes of 10-30, 30-100 and 100+ ton types.
A problem with cargo planes…
Cargo airplanes of An-124-100 (“Ruslan”) and Il-76 families used to be exploited in military transport aviation only, and sometimes for humanitarian operations. In the early 1990’s these planes started to be used to transport heavy and oversized cargo. As a result, Russia occupied the leading position in the heavy freight transportation market – its share was approximately 75%.
In 2006, the recommencement of serial production of An-124 was considered unattractive although, in 2007, Russia and Ukraine nevertheless signed an agreement to restart serial production. It was announced that Volga-Dnepr company (incorporates AirBridgeCargo) planned to purchase up to 100 units of the modernised An-124-100M-150 up to 2030. The first two planes are to be delivered in 2010.
In June 2008, the United Aircraft Corporation (UAC) and Ernst & Young completed the development of a business plan to recommence manufacturing of An-124 planes (“Ruslan”). According to the document, to start production of the plane it was necessary to get confirmed orders for at least 40 units. “Today there is the demand for airplanes, until 2030 air companies will need 71 liners,” says Viktor Livanov, member of the UAC board. If there are enough orders, one or two aircraft will be constructed each year by Aviastar plant in Ulyuanovsk (Russia) from 2012.     
Volga-Dnepr has confirmed its order for twelve An-124-100 planes in the UAC (the company currently operates 10 such units), and fifteen Il-76TD-90VD aircraft (the federal programme envisages modernisation of this type of plane) to 2015.  Antonov Aviation Scientific and Technical Complex (Ukraine) ordered five airplanes. They are to be finished by 2012 (three of them – on an optional basis). The company uses seven such airplanes. In addition, Voronezh enterprise “Polyot” (Flight) is going to purchase 10 planes until 2015 (applying the 5+5 scheme); it has eight such units in use. Thus, the total order of three leading freight companies operating An-124 “Ruslan” is for 27 new aircraft.
In spring 2007, Antonov Aviation Scientific and Technical Complex aircraft corporation completed certification tests on the modernised An-124-100M-150 plane with an enlarged capacity of 150 tons, having re-equipped three “Ruslans”. The production programme of Aviastar-JV envisages modernisation of 15 “Ruslans” up to 2015. Market players consider that this is the most favourable way to tackle the shortage.
… and other Russian projects
Nowadays, Russian aircraft manufacturers are developing several projects which may fulfill the requirements of Russian air freight companies.
Since 1990, heavy planes of IL-96 type have been constructed by OAO Voronezh Aircraft Constructing Union (VASO). In 1993, they were modernised to passenger IL-96 M and cargo IL-96 T planes, however, their manufacture never started. In 2007, flight testing of IL-96-400T began. The maximum commercial loading of this aircraft amounts to 92 tons. Atlant-Union was the first customer – it purchased two planes and ordered three more units in 2007. Aeroflot-Cargo bought six such aircraft (the company’s park now includes six IL-96 and six MD-11F planes). Ilyushin Finance Corporation (IFC) is developing a new, modernised IL-196 (the project is to be completed in 2010-2012) and its characteristics are better than those of a Boeing 777.
ZAO Aviastar-JV started serial production of medium-range narrow-bodied passenger and cargo versions of TU-204 in 1990 (42 units have been assembled so far). Passenger and cargo versions of the plane are being used in China, Cuba, and Egypt. Aviastar-TU air company has been using two TU-204C planes since May 2000. They service freight transportation for domestic and international lines on the routes of companies TNT and DHL.
The UAC plans to construct 84 TU-204 planes of different modifications till 2012, and there are contracts and warrant certificates for 70 aircraft already. 40 units are to be given to IFC, which will sell them to Russian Airlines-400, Vladivostok-Avia, Moscovia, AirBridge Cargo and to some foreign air companies. “Market analysis shows that demand for TU-204 aircraft will be 250-300 units to 2015,” claimed Tatyana Skvortsova, a representative of OAO Tupolev. “This is the capacity of the domestic and external market for the freight modified TU-204 planes.”
Nowadays, seven airplanes for regional and short-distance transportation are being tested. They are the Sukhoi SuperJet 100, An-140, Tu-334, Il-114, An-38, Su-80GP, An-148. Although only a transport modification of Il-114T with a 7-ton carrying capacity was tested in 1996, it is considered by the UAC as a commercial freight aircraft (no orders for this plane have been made so far). Theoretically, there are freight versions of all other aircraft. Some of them have cargo-passenger modifications (envisaging fast conversion of the passenger cabin into a cargo compartment).
Although there are plenty of projects, Russia’s commercial cargo aircraft production rate is falling behind the plans and demands of the market. The results of 2007 showed that the figures envisaged by the federal target programme “Civil aircraft development in Russia in 2002-2010 and to 2015” were only 30% fulfilled. Instead of two or four Il-96 and ten or twelve Tu-204, only two Il-96 were manufactured (one of them is still being tested, so it is not yet sold), and three TU-204 were delivered to customers. In 2008 it is planned to manufacture three Il-96-400T and eight TU-204 and to start serial production of AN-148 (four aircraft). Whether these plans will come to fruition is still unknown. One can hope for fulfillment of the “Civil Aviation” sub-programme of the federal target programme “Modernisation of Russian transport system (2002-2010)” which envisages, based on state support, delivery of at least 56 new mainline and regional cargo planes – developed and manufactured in the Russian Federation – to air companies. Although, another document – reference “On Civil Aircraft Renewal and Measures to Improve State Regulation to Support Airworthiness of Aircraft” – states that the Russian aircraft hungars will require 80 new cargo planes until 2010.
It is interesting that, in June 2007, Sergey Ivanov, the First Vice Prime Minister of Russia, set the Russian aircraft industry a target of occupying third place in the world in terms of civil airliner and freight plane production by 2025. Thus, its share in the international market must increase from 1% to 10%. By that time, 300 aircraft are to be manufactured per annum (in 2006 only five civilian planes were produced).
Foreign Aircraft
While Russian aircraft producers are facing difficulties, air companies are buying foreign planes to compensate for the shortage. For example, Aeroflot-Cargo received four DC-10-40F planes from its parent company. At the same time, Aeroflot increased the freight capacity of its passenger flights by purchasing new planes from the A320 family. In addition, Aeroflot-Cargo bought two MD-11 aircraft from Finnair in 2007.
In 2007-2008 Volga-Dnepr added three new B747-400ERF aircraft to its fleet. This made AirBridge Cargo the first and the only Russian operator of long-distance cargo Boeing 747 aircraft. Now the fleet of AirBridge Cargo consists of seven aircraft, including three Boeing 747-400ERF jets. In 2010-2013, the company plans to add five more Boeing 8F aircraft to its fleet. 


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FEEL THE DIFFERENCE 
In connection with the gradual decrease in industrial production a similar tendency for smaller demand for transportation services can be observed. In OAO RZD they have already confirmed that the developing economic situation is noticeably reflected in the work of this branch of the economy. 
As we know, railway loads are dominated by bituminous coal, oil and petroleum products, metals, scrap metal, mineral fertilisers and cement. Nowadays a decrease in demand for transportation of a lot of goods can be seen. Comparing the period from January to September 2008 with that of 2007, the biggest decreases in loading were observed only in 3 areas - wood 13%, cement 8.4% and grain 8.7%.  The situation with grain has improved, but in September (again, compared with the same month in 2007) this list was enlarged with the loading volume for construction industry cargoes falling 1.8%, and 4.1 % for ferrous metals. Also, cement and wood have further confirmed the decrease – 18.9% and 15.4% respectively. And in October the state of affairs became even worse - cement decreased 22.5%, ferrous metals and scrap metals 12% each, wood cargoes 10.6%, and chemical and mineral fertilisers 12.3 %.   
One cannot say that it was only the crisis that slightly damaged the transportation picture in all industries without exception. In many respects reasons were objective. For example, the fall in loads of cement was caused by reduced demand for the production of OAO “EUROCEMENT Group” enterprises, due to the fact that its prices were higher than the cost of imported products, so, because of that, commodity markets were lost. The situation with wood cargoes is not yet connected with the “financial fever” either. The reason is a reduction in exports caused by the fact that the customs duty for the raw wood has been repeatedly increased and is now up 25% compared with April 1st, 2008.  
Also, coal and oil are still staying on stable enough positions. The first grows due to an increase in deliveries of coal on the Western-Siberian, Krasnoyarsk and Eastern-Siberian railways to heat power plants and for housing and communal services, and also because of a growth in extraction volumes.
Perhaps metallurgy and the manufacturing of mineral fertilisers can be mentioned as the first industries to presently feel the unfavourable situation. 
IN EXPECTATION OF THE WORST
 It is reasonable to expect that the general decline would not avoid hitting the stevedoring business as well. According to the ASOP (Association of Russian merchant ports), the Russian commercial seaports’ freight traffic fell 5.4% in September 2008 compared with the same month in 2007 (though total growth over 9 months was 1.6%). The decrease has its roots in the reduction of bulk-oil trans-shipment cargo volumes down to  89.7% by September, 2007. Despite a 2 % increase in “dry goods” transit turnover in September, their growth rates have noticeably decreased. Proceeding from the results this September compared with September 2007, the total exports have decreased 9.8% and imports have grown 11.8%. (And we must notice that the import rate has been growing increasingly rapidly during the course of the nine-month period). 
As a whole, the September numbers given by ASOP, in comparison with last year, also confirm a noticeable decrease in the main cargoes: coal and coke – 4.078.400 tons against 4.833.700 for the first autumn month of the last year; mineral fertilisers – 954.700 tons against 1.019.600; wood – 591.200 tons against 975.300; “And though today so far the consequences of the world financial crisis have not directly reflected on goods shipment turnover in Russian ports, we nevertheless expect a decrease in the result indexes of our work in the fourth quarter, and accordingly, for the whole year, because of the negative impact of the crisis,” A. Shimansky has agreed.
FOLLOWING THE LAWS OF NATURAL SELECTION
“First of all the crisis will hit small companies with an unstable financial and organisational structure,” predicts Igor Asaturov, First Cargo Company’s Prime Assistant to the General Director for Commerce.  “Those who cannot stand it will be absorbed by larger companies. It is natural selection”. 
OAO “Far East Transport Group” states that small operators have already started selling their rolling stock and steadier companies are suppressing a desire to expand their park. “Now all operators are facing the fact that their calculations regarding the return on investment in the rolling stock, which had been based on expectations of certain demand for transportation, now need to be revised,” Irina Chiganashkina, the Technical Director of OAO “Far East Transport Group” adds. The Financial Director of OAO “TransLes” Evgeny Drachev has noted that, in times of global recession, the majority of transport companies which focused on foreign trade activities are forced to delay realisation of their long-term investment programs on purchasing new rolling stock because they had underestimated the influence of macroeconomic risks.
IS THE WAGON HALF EMPTY OR HALF FULL?
So far nobody is able to give definite forecasts regarding the further development of the situation. But nevertheless, despite the large number of negative and sometimes even fatal phenomena, the crisis in the financial-economic system has positive sides as well. It should not be forgotten that crises can have a constructive impact in the form of removing obvious skews in price lists, in tariff policy and in the sphere of services. Regarding such skews, there are already more than enough of them. A rather important factor will be the ability of operators to provide a flexible pricing policy, reacting swiftly to either increasing or falling demand. Experts think that transportation tariffs will come nearer to the Tariff Regulation 1001, and occasionally may fall even lower because, really, a wagon leasing fee should correspond to the level of the production market. The First Cargo Company has already stolen a march. “We have decided to give a 30% discount to domestic producers of cement, following the negative dynamics of this product’s prices,” I. Asaturov has revealed. “It is possible that we shall reconsider rates for other situations as well. Everything will depend on market conditions.” Other companies adhere to a similar standpoint too. 
The Association of Sea Commercial Ports (ASOP) has also stated that, although at present they are not considering a reduction of rates for loading-unloading services, nevertheless an opportunity for their revision on the basis of market conditions is not excluded in the future. However, this question refers more to the competence of the Federal Tariff Service. 
There is big interest in the potential for a long-awaited fall in the prices of wagons. In fact at the moment demand for new rolling stock is practically frozen, if not worse. Factory supply substantially exceeds real requirements. Accordingly, the goods become cheaper. For tank-wagons their price has already fallen more than 30% alone. A similar picture can be expected with other types of wagons too. Unofficial figures hold that some manufacturers of wagons have confirmed an intention to reduce their production costs. But another opinion regarding it exists as well. Thus, as the Chief Expert of UCB OOO “TransFin-M” Vadim Zakharov has said, wagon sales from Russian factories will not decrease seriously, in view of the OAO RZD’s program of replacing its rolling stock park until 2015. 
Furthermore, recently The First Cargo Company has announced its intention to purchase a significant part of its mobile park in the course of 2009, a demand which will be met by Russian factories. The conclusion is that demand for rolling stock will remain high. “Another point here is that the market stimulates clients to go to another segment – the secondary market, thus to acquire second-hand wagons,” Mr V. Zakharov has noted. 
OAO RZD Is Sure In Its Financial Abilities 
As a result of the crisis, the position of OAO Russian Railways is attracting special interest from operators, cargo owners and the financial community. It is necessary to note that the President of the Company, Vladimir Yakunin, was the first transport industry figure to comment during the press conference about RZD’s five-year anniversary on the possible consequences of the financial market compression and announced measures taken at the beginning of October. It means that the financial collapse developing quite quickly on share markets and the freeze on credit was not unexpected by the carrier. And it is no wonder because for the last few years RZD has been communicating very closely with the investment bank community, rating agencies and consulting companies, allowing the Company to expect a possible future development in financial spheres and to be prepared for various scenarios.  
The first consequence was a change of date for the “Refservice” and “TransContainer” IPO. The success of primary allocation of shares is based on two main factors – availability of free funds for possible investors and also the quality and potential of their target. The fact that “TransContainer’s” financial figures are attractive became evident after the operator sold a part of its package to the European Bank for Reconstruction and Development. But, as regards free fund availability for investors, it is a problem today. “We are not going to sell expensive things cheaply,” Mr V. Yakunin has declared.
It is most likely that the second consequence will be a reduction of RZD’s large-scale investment program. In 2009-2010 it will be approximately 10 to 15% of the previously planned volumes, which is about 100 billion roubles. As regards certain projects, there is no clarity in the company yet as to whether their time frames will be changed, or if they will be cancelled. 
But, regarding liquidity, the company currently does not have a problem at all. It is necessary to note that OAO RZD has been carrying out a cautious policy in the sphere of borrowing, so its debt/EBITDA ratio is only 1,1. 
However, for the sake of fairness, it is necessary to recall that rating agency “Standard and Poor’s” has put RZD’s rating in the “on revision” category. It happened after the company became a shareholder of the problematic investment bank “KIT Finance”. Analysts of the agency noted that the “creditability of the bank was, most likely, very low, so in future it could require support in the form of payments in capital, or guarantees” given by RZD. After the situation is cleared up, most likely within three months, the rating of the carrier can be removed from the “Credit Watch” category. 
Generally speaking for RZD, “Standard and Poor’s” praises the “high financial parameters of the company and its readiness to implement a moderate financial policy” but mentions as negative factors the strengthening of competition in Russia’s railway business, low transparency of tariff regulation, its intermediate-term investment program, and also its “growing participation in the banking sector”.  
By Victoria Merkusheva
and Ivan Stupachenko 
viewpoint
Igor Asaturov,
The First Deputy General Director For Commerce and Production OAO “The First Cargo Company”: 
– As we know, now in connection with the financial crisis one can observe production volumes falling in a number of industries, in particular in metallurgy. However we consider these fluctuations to be temporary. In the long term, the market will be restored, if, certainly, global negative changes in bank sector do not occur. Anyway, we do not feel the influence of the crisis ourselves yet. The need for gondo;a cars remains very high and our services are in demand. The volume of transportations from January to September grew 26% in comparison with the volumes for January to August, whereas in January to August it increased only 4% in comparison with January – July. So, the growth rate has not fallen and we are planning to come nearer to the index of 100 million tons by the end of the year.  
It would not be absolutely correct to regard the crisis as an improvement factor. But it can play a certain positive role in terms of price regulation, for example for wagons. Today, rolling stock prices have been already stabilised and the market is expecting them to fall.

Grigory Primak.
General Director of ZAO “Rail Leasing”:  
– Certainly, the crisis has affected demand for transportation services. But, just as before, transportation volumes are influenced more by seasonal demand for certain kinds of cargoes. This tendency can be tracked using the example of building materials. Between January and August 2008, 30.5 million tons of cement was transported by railway, which is 4.9% more than for the same period in 2007. But, due to reduced construction volumes, the production of cement began to fall in August, and has reached 5.4 million tons, which is 2.4% less than in July. In September-October construction on many sites was completely frozen, leading to the demand for this kind of production falling rapidly which is already being called a consequence of the crisis. At the same time transportation of coal and coke in the domestic market grew, despite the crisis. In the first nine months of this year 145.2 million tons was transported, that is 8% more than during the same period last year.  
Oleg Trudov,
Deputy General Director, Institute of Natural Monopolies Problems:
– In the fourth quarter of this year we do not expect a decrease in goods transit turnover in relation to the same period in 2007 because many domestic manufacturers are still involved in big export contracts they concluded before the end of the year. However, general indexes of goods transit turnover growth will be lower in the whole year report for 2008 than for the last 9 months. It is connected with the fact that some export freight traffic can be redirected via internal routes. Thus the average distance of total transportation will decrease. It is possible that, from 2009, export contracts may not be extended for our manufacturers, against a general background of reduction in foreign customer demand for Russian products and raw materials. It will inevitably lead to a decrease in loading volumes in the first months of 2009. A fall in goods transit turnover may be even more crucial, because the correlation between loading and goods transit turnover is less than 1, and the summarised cargo transportations distance for export purposes is longer than it is for internal deliveries. Previously made forecasts regarding goods transit turnover should be reconsidered. And, bearing in mind that the profit margin for exporting cargos is more than for internal deliveries, one can conclude that the income rate of railway market participants may fall more considerably than the cargo turnover index. It could lead to a reduction of sources willing to finance both RZD and private operator investment projects.

Vadim Zakharov.
Chief Expert, UCB OOO “TransFin-M”:
– Demand dictates supply and, consequently, it influences the growth of prices. The current situation is that many manufacturers, both in Russia and in the CIS, who had been very reluctant to give us quotas for wagons in the past two years, are now approaching us. Though so far in small quantities they are offering real, “live” wagons. And their pricing policy has become more flexible. We have already gone out of the habit to enjoy it, so no doubt the crisis will change our situation internally to a certain extent.
 
Alexey Kuzmin, 
The Head of Representation in St. Petersburg, ZAO  “SREI Leasing”:
– Obviously, the lack of liquidity and, consequently, the increasing expense of financial resources, lead to the essential reduction of leasing operations on the market. Because of this, lease-givers are forced not only to raise leasing service fees but also to toughen the requirements for potential clients. Usually it can be seen in increasing the amounts to be paid in advance, and in more detailed consideration of a lessee’s financial history. Leasing service fees will grow and gradually decrease within all new deals. It is obvious, because the leasing fees are influenced first of all by the cost of financing by banks. We predict volumes of purchasing rolling stock to be decreased but I think that lessees will not abandon their plans completely. They will postpone their projects for a certain time, most likely, from the end of this year to next year. 
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FEEL THE DIFFERENCE 
In connection with the gradual decrease in industrial production a similar tendency for smaller demand for transportation services can be observed. In OAO RZD they have already confirmed that the developing economic situation is noticeably reflected in the work of this branch of the economy. 
As we know, railway loads are dominated by bituminous coal, oil and petroleum products, metals, scrap metal, mineral fertilisers and cement. Nowadays a decrease in demand for transportation of a lot of goods can be seen. Comparing the period from January to September 2008 with that of 2007, the biggest decreases in loading were observed only in 3 areas - wood 13%, cement 8.4% and grain 8.7%.  The situation with grain has improved, but in September (again, compared with the same month in 2007) this list was enlarged with the loading volume for construction industry cargoes falling 1.8%, and 4.1 % for ferrous metals. Also, cement and wood have further confirmed the decrease – 18.9% and 15.4% respectively. And in October the state of affairs became even worse - cement decreased 22.5%, ferrous metals and scrap metals 12% each, wood cargoes 10.6%, and chemical and mineral fertilisers 12.3 %.   
One cannot say that it was only the crisis that slightly damaged the transportation picture in all industries without exception. In many respects reasons were objective. For example, the fall in loads of cement was caused by reduced demand for the production of OAO “EUROCEMENT Group” enterprises, due to the fact that its prices were higher than the cost of imported products, so, because of that, commodity markets were lost. The situation with wood cargoes is not yet connected with the “financial fever” either. The reason is a reduction in exports caused by the fact that the customs duty for the raw wood has been repeatedly increased and is now up 25% compared with April 1st, 2008.  
Also, coal and oil are still staying on stable enough positions. The first grows due to an increase in deliveries of coal on the Western-Siberian, Krasnoyarsk and Eastern-Siberian railways to heat power plants and for housing and communal services, and also because of a growth in extraction volumes.
Perhaps metallurgy and the manufacturing of mineral fertilisers can be mentioned as the first industries to presently feel the unfavourable situation. 
IN EXPECTATION OF THE WORST
 It is reasonable to expect that the general decline would not avoid hitting the stevedoring business as well. According to the ASOP (Association of Russian merchant ports), the Russian commercial seaports’ freight traffic fell 5.4% in September 2008 compared with the same month in 2007 (though total growth over 9 months was 1.6%). The decrease has its roots in the reduction of bulk-oil trans-shipment cargo volumes down to  89.7% by September, 2007. Despite a 2 % increase in “dry goods” transit turnover in September, their growth rates have noticeably decreased. Proceeding from the results this September compared with September 2007, the total exports have decreased 9.8% and imports have grown 11.8%. (And we must notice that the import rate has been growing increasingly rapidly during the course of the nine-month period). 
As a whole, the September numbers given by ASOP, in comparison with last year, also confirm a noticeable decrease in the main cargoes: coal and coke – 4.078.400 tons against 4.833.700 for the first autumn month of the last year; mineral fertilisers – 954.700 tons against 1.019.600; wood – 591.200 tons against 975.300; “And though today so far the consequences of the world financial crisis have not directly reflected on goods shipment turnover in Russian ports, we nevertheless expect a decrease in the result indexes of our work in the fourth quarter, and accordingly, for the whole year, because of the negative impact of the crisis,” A. Shimansky has agreed.
FOLLOWING THE LAWS OF NATURAL SELECTION
“First of all the crisis will hit small companies with an unstable financial and organisational structure,” predicts Igor Asaturov, First Cargo Company’s Prime Assistant to the General Director for Commerce.  “Those who cannot stand it will be absorbed by larger companies. It is natural selection”. 
OAO “Far East Transport Group” states that small operators have already started selling their rolling stock and steadier companies are suppressing a desire to expand their park. “Now all operators are facing the fact that their calculations regarding the return on investment in the rolling stock, which had been based on expectations of certain demand for transportation, now need to be revised,” Irina Chiganashkina, the Technical Director of OAO “Far East Transport Group” adds. The Financial Director of OAO “TransLes” Evgeny Drachev has noted that, in times of global recession, the majority of transport companies which focused on foreign trade activities are forced to delay realisation of their long-term investment programs on purchasing new rolling stock because they had underestimated the influence of macroeconomic risks.
IS THE WAGON HALF EMPTY OR HALF FULL?
So far nobody is able to give definite forecasts regarding the further development of the situation. But nevertheless, despite the large number of negative and sometimes even fatal phenomena, the crisis in the financial-economic system has positive sides as well. It should not be forgotten that crises can have a constructive impact in the form of removing obvious skews in price lists, in tariff policy and in the sphere of services. Regarding such skews, there are already more than enough of them. A rather important factor will be the ability of operators to provide a flexible pricing policy, reacting swiftly to either increasing or falling demand. Experts think that transportation tariffs will come nearer to the Tariff Regulation 1001, and occasionally may fall even lower because, really, a wagon leasing fee should correspond to the level of the production market. The First Cargo Company has already stolen a march. “We have decided to give a 30% discount to domestic producers of cement, following the negative dynamics of this product’s prices,” I. Asaturov has revealed. “It is possible that we shall reconsider rates for other situations as well. Everything will depend on market conditions.” Other companies adhere to a similar standpoint too. 
The Association of Sea Commercial Ports (ASOP) has also stated that, although at present they are not considering a reduction of rates for loading-unloading services, nevertheless an opportunity for their revision on the basis of market conditions is not excluded in the future. However, this question refers more to the competence of the Federal Tariff Service. 
There is big interest in the potential for a long-awaited fall in the prices of wagons. In fact at the moment demand for new rolling stock is practically frozen, if not worse. Factory supply substantially exceeds real requirements. Accordingly, the goods become cheaper. For tank-wagons their price has already fallen more than 30% alone. A similar picture can be expected with other types of wagons too. Unofficial figures hold that some manufacturers of wagons have confirmed an intention to reduce their production costs. But another opinion regarding it exists as well. Thus, as the Chief Expert of UCB OOO “TransFin-M” Vadim Zakharov has said, wagon sales from Russian factories will not decrease seriously, in view of the OAO RZD’s program of replacing its rolling stock park until 2015. 
Furthermore, recently The First Cargo Company has announced its intention to purchase a significant part of its mobile park in the course of 2009, a demand which will be met by Russian factories. The conclusion is that demand for rolling stock will remain high. “Another point here is that the market stimulates clients to go to another segment – the secondary market, thus to acquire second-hand wagons,” Mr V. Zakharov has noted. 
OAO RZD Is Sure In Its Financial Abilities 
As a result of the crisis, the position of OAO Russian Railways is attracting special interest from operators, cargo owners and the financial community. It is necessary to note that the President of the Company, Vladimir Yakunin, was the first transport industry figure to comment during the press conference about RZD’s five-year anniversary on the possible consequences of the financial market compression and announced measures taken at the beginning of October. It means that the financial collapse developing quite quickly on share markets and the freeze on credit was not unexpected by the carrier. And it is no wonder because for the last few years RZD has been communicating very closely with the investment bank community, rating agencies and consulting companies, allowing the Company to expect a possible future development in financial spheres and to be prepared for various scenarios.  
The first consequence was a change of date for the “Refservice” and “TransContainer” IPO. The success of primary allocation of shares is based on two main factors – availability of free funds for possible investors and also the quality and potential of their target. The fact that “TransContainer’s” financial figures are attractive became evident after the operator sold a part of its package to the European Bank for Reconstruction and Development. But, as regards free fund availability for investors, it is a problem today. “We are not going to sell expensive things cheaply,” Mr V. Yakunin has declared.
It is most likely that the second consequence will be a reduction of RZD’s large-scale investment program. In 2009-2010 it will be approximately 10 to 15% of the previously planned volumes, which is about 100 billion roubles. As regards certain projects, there is no clarity in the company yet as to whether their time frames will be changed, or if they will be cancelled. 
But, regarding liquidity, the company currently does not have a problem at all. It is necessary to note that OAO RZD has been carrying out a cautious policy in the sphere of borrowing, so its debt/EBITDA ratio is only 1,1. 
However, for the sake of fairness, it is necessary to recall that rating agency “Standard and Poor’s” has put RZD’s rating in the “on revision” category. It happened after the company became a shareholder of the problematic investment bank “KIT Finance”. Analysts of the agency noted that the “creditability of the bank was, most likely, very low, so in future it could require support in the form of payments in capital, or guarantees” given by RZD. After the situation is cleared up, most likely within three months, the rating of the carrier can be removed from the “Credit Watch” category. 
Generally speaking for RZD, “Standard and Poor’s” praises the “high financial parameters of the company and its readiness to implement a moderate financial policy” but mentions as negative factors the strengthening of competition in Russia’s railway business, low transparency of tariff regulation, its intermediate-term investment program, and also its “growing participation in the banking sector”.  
By Victoria Merkusheva
and Ivan Stupachenko 
viewpoint
Igor Asaturov,
The First Deputy General Director For Commerce and Production OAO “The First Cargo Company”: 
– As we know, now in connection with the financial crisis one can observe production volumes falling in a number of industries, in particular in metallurgy. However we consider these fluctuations to be temporary. In the long term, the market will be restored, if, certainly, global negative changes in bank sector do not occur. Anyway, we do not feel the influence of the crisis ourselves yet. The need for gondo;a cars remains very high and our services are in demand. The volume of transportations from January to September grew 26% in comparison with the volumes for January to August, whereas in January to August it increased only 4% in comparison with January – July. So, the growth rate has not fallen and we are planning to come nearer to the index of 100 million tons by the end of the year.  
It would not be absolutely correct to regard the crisis as an improvement factor. But it can play a certain positive role in terms of price regulation, for example for wagons. Today, rolling stock prices have been already stabilised and the market is expecting them to fall.

Grigory Primak.
General Director of ZAO “Rail Leasing”:  
– Certainly, the crisis has affected demand for transportation services. But, just as before, transportation volumes are influenced more by seasonal demand for certain kinds of cargoes. This tendency can be tracked using the example of building materials. Between January and August 2008, 30.5 million tons of cement was transported by railway, which is 4.9% more than for the same period in 2007. But, due to reduced construction volumes, the production of cement began to fall in August, and has reached 5.4 million tons, which is 2.4% less than in July. In September-October construction on many sites was completely frozen, leading to the demand for this kind of production falling rapidly which is already being called a consequence of the crisis. At the same time transportation of coal and coke in the domestic market grew, despite the crisis. In the first nine months of this year 145.2 million tons was transported, that is 8% more than during the same period last year.  
Oleg Trudov,
Deputy General Director, Institute of Natural Monopolies Problems:
– In the fourth quarter of this year we do not expect a decrease in goods transit turnover in relation to the same period in 2007 because many domestic manufacturers are still involved in big export contracts they concluded before the end of the year. However, general indexes of goods transit turnover growth will be lower in the whole year report for 2008 than for the last 9 months. It is connected with the fact that some export freight traffic can be redirected via internal routes. Thus the average distance of total transportation will decrease. It is possible that, from 2009, export contracts may not be extended for our manufacturers, against a general background of reduction in foreign customer demand for Russian products and raw materials. It will inevitably lead to a decrease in loading volumes in the first months of 2009. A fall in goods transit turnover may be even more crucial, because the correlation between loading and goods transit turnover is less than 1, and the summarised cargo transportations distance for export purposes is longer than it is for internal deliveries. Previously made forecasts regarding goods transit turnover should be reconsidered. And, bearing in mind that the profit margin for exporting cargos is more than for internal deliveries, one can conclude that the income rate of railway market participants may fall more considerably than the cargo turnover index. It could lead to a reduction of sources willing to finance both RZD and private operator investment projects.

Vadim Zakharov.
Chief Expert, UCB OOO “TransFin-M”:
– Demand dictates supply and, consequently, it influences the growth of prices. The current situation is that many manufacturers, both in Russia and in the CIS, who had been very reluctant to give us quotas for wagons in the past two years, are now approaching us. Though so far in small quantities they are offering real, “live” wagons. And their pricing policy has become more flexible. We have already gone out of the habit to enjoy it, so no doubt the crisis will change our situation internally to a certain extent.
 
Alexey Kuzmin, 
The Head of Representation in St. Petersburg, ZAO  “SREI Leasing”:
– Obviously, the lack of liquidity and, consequently, the increasing expense of financial resources, lead to the essential reduction of leasing operations on the market. Because of this, lease-givers are forced not only to raise leasing service fees but also to toughen the requirements for potential clients. Usually it can be seen in increasing the amounts to be paid in advance, and in more detailed consideration of a lessee’s financial history. Leasing service fees will grow and gradually decrease within all new deals. It is obvious, because the leasing fees are influenced first of all by the cost of financing by banks. We predict volumes of purchasing rolling stock to be decreased but I think that lessees will not abandon their plans completely. They will postpone their projects for a certain time, most likely, from the end of this year to next year. 
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    [~PREVIEW_TEXT] => The world financial crisis has affected Russia’s railway business. Changes in production volumes caused by a reduction in the ability to pay for demanded metals, oil, mineral fertilisers and other cargoes on both external and home markets have had a direct influence on the turnover of OAО RZD. Another consequence could be a fall in prices for rolling stock due to decreasing demand.
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            [SECTION_META_DESCRIPTION] => The world financial crisis has affected Russia’s railway business. Changes in production volumes caused by a reduction in the ability to pay for demanded metals, oil, mineral fertilisers and other cargoes on both external and home markets have had a direct influence on the turnover of OAО RZD. Another consequence could be a fall in prices for rolling stock due to decreasing demand.
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FEEL THE DIFFERENCE 
In connection with the gradual decrease in industrial production a similar tendency for smaller demand for transportation services can be observed. In OAO RZD they have already confirmed that the developing economic situation is noticeably reflected in the work of this branch of the economy. 
As we know, railway loads are dominated by bituminous coal, oil and petroleum products, metals, scrap metal, mineral fertilisers and cement. Nowadays a decrease in demand for transportation of a lot of goods can be seen. Comparing the period from January to September 2008 with that of 2007, the biggest decreases in loading were observed only in 3 areas - wood 13%, cement 8.4% and grain 8.7%.  The situation with grain has improved, but in September (again, compared with the same month in 2007) this list was enlarged with the loading volume for construction industry cargoes falling 1.8%, and 4.1 % for ferrous metals. Also, cement and wood have further confirmed the decrease – 18.9% and 15.4% respectively. And in October the state of affairs became even worse - cement decreased 22.5%, ferrous metals and scrap metals 12% each, wood cargoes 10.6%, and chemical and mineral fertilisers 12.3 %.   
One cannot say that it was only the crisis that slightly damaged the transportation picture in all industries without exception. In many respects reasons were objective. For example, the fall in loads of cement was caused by reduced demand for the production of OAO “EUROCEMENT Group” enterprises, due to the fact that its prices were higher than the cost of imported products, so, because of that, commodity markets were lost. The situation with wood cargoes is not yet connected with the “financial fever” either. The reason is a reduction in exports caused by the fact that the customs duty for the raw wood has been repeatedly increased and is now up 25% compared with April 1st, 2008.  
Also, coal and oil are still staying on stable enough positions. The first grows due to an increase in deliveries of coal on the Western-Siberian, Krasnoyarsk and Eastern-Siberian railways to heat power plants and for housing and communal services, and also because of a growth in extraction volumes.
Perhaps metallurgy and the manufacturing of mineral fertilisers can be mentioned as the first industries to presently feel the unfavourable situation. 
IN EXPECTATION OF THE WORST
 It is reasonable to expect that the general decline would not avoid hitting the stevedoring business as well. According to the ASOP (Association of Russian merchant ports), the Russian commercial seaports’ freight traffic fell 5.4% in September 2008 compared with the same month in 2007 (though total growth over 9 months was 1.6%). The decrease has its roots in the reduction of bulk-oil trans-shipment cargo volumes down to  89.7% by September, 2007. Despite a 2 % increase in “dry goods” transit turnover in September, their growth rates have noticeably decreased. Proceeding from the results this September compared with September 2007, the total exports have decreased 9.8% and imports have grown 11.8%. (And we must notice that the import rate has been growing increasingly rapidly during the course of the nine-month period). 
As a whole, the September numbers given by ASOP, in comparison with last year, also confirm a noticeable decrease in the main cargoes: coal and coke – 4.078.400 tons against 4.833.700 for the first autumn month of the last year; mineral fertilisers – 954.700 tons against 1.019.600; wood – 591.200 tons against 975.300; “And though today so far the consequences of the world financial crisis have not directly reflected on goods shipment turnover in Russian ports, we nevertheless expect a decrease in the result indexes of our work in the fourth quarter, and accordingly, for the whole year, because of the negative impact of the crisis,” A. Shimansky has agreed.
FOLLOWING THE LAWS OF NATURAL SELECTION
“First of all the crisis will hit small companies with an unstable financial and organisational structure,” predicts Igor Asaturov, First Cargo Company’s Prime Assistant to the General Director for Commerce.  “Those who cannot stand it will be absorbed by larger companies. It is natural selection”. 
OAO “Far East Transport Group” states that small operators have already started selling their rolling stock and steadier companies are suppressing a desire to expand their park. “Now all operators are facing the fact that their calculations regarding the return on investment in the rolling stock, which had been based on expectations of certain demand for transportation, now need to be revised,” Irina Chiganashkina, the Technical Director of OAO “Far East Transport Group” adds. The Financial Director of OAO “TransLes” Evgeny Drachev has noted that, in times of global recession, the majority of transport companies which focused on foreign trade activities are forced to delay realisation of their long-term investment programs on purchasing new rolling stock because they had underestimated the influence of macroeconomic risks.
IS THE WAGON HALF EMPTY OR HALF FULL?
So far nobody is able to give definite forecasts regarding the further development of the situation. But nevertheless, despite the large number of negative and sometimes even fatal phenomena, the crisis in the financial-economic system has positive sides as well. It should not be forgotten that crises can have a constructive impact in the form of removing obvious skews in price lists, in tariff policy and in the sphere of services. Regarding such skews, there are already more than enough of them. A rather important factor will be the ability of operators to provide a flexible pricing policy, reacting swiftly to either increasing or falling demand. Experts think that transportation tariffs will come nearer to the Tariff Regulation 1001, and occasionally may fall even lower because, really, a wagon leasing fee should correspond to the level of the production market. The First Cargo Company has already stolen a march. “We have decided to give a 30% discount to domestic producers of cement, following the negative dynamics of this product’s prices,” I. Asaturov has revealed. “It is possible that we shall reconsider rates for other situations as well. Everything will depend on market conditions.” Other companies adhere to a similar standpoint too. 
The Association of Sea Commercial Ports (ASOP) has also stated that, although at present they are not considering a reduction of rates for loading-unloading services, nevertheless an opportunity for their revision on the basis of market conditions is not excluded in the future. However, this question refers more to the competence of the Federal Tariff Service. 
There is big interest in the potential for a long-awaited fall in the prices of wagons. In fact at the moment demand for new rolling stock is practically frozen, if not worse. Factory supply substantially exceeds real requirements. Accordingly, the goods become cheaper. For tank-wagons their price has already fallen more than 30% alone. A similar picture can be expected with other types of wagons too. Unofficial figures hold that some manufacturers of wagons have confirmed an intention to reduce their production costs. But another opinion regarding it exists as well. Thus, as the Chief Expert of UCB OOO “TransFin-M” Vadim Zakharov has said, wagon sales from Russian factories will not decrease seriously, in view of the OAO RZD’s program of replacing its rolling stock park until 2015. 
Furthermore, recently The First Cargo Company has announced its intention to purchase a significant part of its mobile park in the course of 2009, a demand which will be met by Russian factories. The conclusion is that demand for rolling stock will remain high. “Another point here is that the market stimulates clients to go to another segment – the secondary market, thus to acquire second-hand wagons,” Mr V. Zakharov has noted. 
OAO RZD Is Sure In Its Financial Abilities 
As a result of the crisis, the position of OAO Russian Railways is attracting special interest from operators, cargo owners and the financial community. It is necessary to note that the President of the Company, Vladimir Yakunin, was the first transport industry figure to comment during the press conference about RZD’s five-year anniversary on the possible consequences of the financial market compression and announced measures taken at the beginning of October. It means that the financial collapse developing quite quickly on share markets and the freeze on credit was not unexpected by the carrier. And it is no wonder because for the last few years RZD has been communicating very closely with the investment bank community, rating agencies and consulting companies, allowing the Company to expect a possible future development in financial spheres and to be prepared for various scenarios.  
The first consequence was a change of date for the “Refservice” and “TransContainer” IPO. The success of primary allocation of shares is based on two main factors – availability of free funds for possible investors and also the quality and potential of their target. The fact that “TransContainer’s” financial figures are attractive became evident after the operator sold a part of its package to the European Bank for Reconstruction and Development. But, as regards free fund availability for investors, it is a problem today. “We are not going to sell expensive things cheaply,” Mr V. Yakunin has declared.
It is most likely that the second consequence will be a reduction of RZD’s large-scale investment program. In 2009-2010 it will be approximately 10 to 15% of the previously planned volumes, which is about 100 billion roubles. As regards certain projects, there is no clarity in the company yet as to whether their time frames will be changed, or if they will be cancelled. 
But, regarding liquidity, the company currently does not have a problem at all. It is necessary to note that OAO RZD has been carrying out a cautious policy in the sphere of borrowing, so its debt/EBITDA ratio is only 1,1. 
However, for the sake of fairness, it is necessary to recall that rating agency “Standard and Poor’s” has put RZD’s rating in the “on revision” category. It happened after the company became a shareholder of the problematic investment bank “KIT Finance”. Analysts of the agency noted that the “creditability of the bank was, most likely, very low, so in future it could require support in the form of payments in capital, or guarantees” given by RZD. After the situation is cleared up, most likely within three months, the rating of the carrier can be removed from the “Credit Watch” category. 
Generally speaking for RZD, “Standard and Poor’s” praises the “high financial parameters of the company and its readiness to implement a moderate financial policy” but mentions as negative factors the strengthening of competition in Russia’s railway business, low transparency of tariff regulation, its intermediate-term investment program, and also its “growing participation in the banking sector”.  
By Victoria Merkusheva
and Ivan Stupachenko 
viewpoint
Igor Asaturov,
The First Deputy General Director For Commerce and Production OAO “The First Cargo Company”: 
– As we know, now in connection with the financial crisis one can observe production volumes falling in a number of industries, in particular in metallurgy. However we consider these fluctuations to be temporary. In the long term, the market will be restored, if, certainly, global negative changes in bank sector do not occur. Anyway, we do not feel the influence of the crisis ourselves yet. The need for gondo;a cars remains very high and our services are in demand. The volume of transportations from January to September grew 26% in comparison with the volumes for January to August, whereas in January to August it increased only 4% in comparison with January – July. So, the growth rate has not fallen and we are planning to come nearer to the index of 100 million tons by the end of the year.  
It would not be absolutely correct to regard the crisis as an improvement factor. But it can play a certain positive role in terms of price regulation, for example for wagons. Today, rolling stock prices have been already stabilised and the market is expecting them to fall.

Grigory Primak.
General Director of ZAO “Rail Leasing”:  
– Certainly, the crisis has affected demand for transportation services. But, just as before, transportation volumes are influenced more by seasonal demand for certain kinds of cargoes. This tendency can be tracked using the example of building materials. Between January and August 2008, 30.5 million tons of cement was transported by railway, which is 4.9% more than for the same period in 2007. But, due to reduced construction volumes, the production of cement began to fall in August, and has reached 5.4 million tons, which is 2.4% less than in July. In September-October construction on many sites was completely frozen, leading to the demand for this kind of production falling rapidly which is already being called a consequence of the crisis. At the same time transportation of coal and coke in the domestic market grew, despite the crisis. In the first nine months of this year 145.2 million tons was transported, that is 8% more than during the same period last year.  
Oleg Trudov,
Deputy General Director, Institute of Natural Monopolies Problems:
– In the fourth quarter of this year we do not expect a decrease in goods transit turnover in relation to the same period in 2007 because many domestic manufacturers are still involved in big export contracts they concluded before the end of the year. However, general indexes of goods transit turnover growth will be lower in the whole year report for 2008 than for the last 9 months. It is connected with the fact that some export freight traffic can be redirected via internal routes. Thus the average distance of total transportation will decrease. It is possible that, from 2009, export contracts may not be extended for our manufacturers, against a general background of reduction in foreign customer demand for Russian products and raw materials. It will inevitably lead to a decrease in loading volumes in the first months of 2009. A fall in goods transit turnover may be even more crucial, because the correlation between loading and goods transit turnover is less than 1, and the summarised cargo transportations distance for export purposes is longer than it is for internal deliveries. Previously made forecasts regarding goods transit turnover should be reconsidered. And, bearing in mind that the profit margin for exporting cargos is more than for internal deliveries, one can conclude that the income rate of railway market participants may fall more considerably than the cargo turnover index. It could lead to a reduction of sources willing to finance both RZD and private operator investment projects.

Vadim Zakharov.
Chief Expert, UCB OOO “TransFin-M”:
– Demand dictates supply and, consequently, it influences the growth of prices. The current situation is that many manufacturers, both in Russia and in the CIS, who had been very reluctant to give us quotas for wagons in the past two years, are now approaching us. Though so far in small quantities they are offering real, “live” wagons. And their pricing policy has become more flexible. We have already gone out of the habit to enjoy it, so no doubt the crisis will change our situation internally to a certain extent.
 
Alexey Kuzmin, 
The Head of Representation in St. Petersburg, ZAO  “SREI Leasing”:
– Obviously, the lack of liquidity and, consequently, the increasing expense of financial resources, lead to the essential reduction of leasing operations on the market. Because of this, lease-givers are forced not only to raise leasing service fees but also to toughen the requirements for potential clients. Usually it can be seen in increasing the amounts to be paid in advance, and in more detailed consideration of a lessee’s financial history. Leasing service fees will grow and gradually decrease within all new deals. It is obvious, because the leasing fees are influenced first of all by the cost of financing by banks. We predict volumes of purchasing rolling stock to be decreased but I think that lessees will not abandon their plans completely. They will postpone their projects for a certain time, most likely, from the end of this year to next year. 
    [~DETAIL_TEXT] => 
FEEL THE DIFFERENCE 
In connection with the gradual decrease in industrial production a similar tendency for smaller demand for transportation services can be observed. In OAO RZD they have already confirmed that the developing economic situation is noticeably reflected in the work of this branch of the economy. 
As we know, railway loads are dominated by bituminous coal, oil and petroleum products, metals, scrap metal, mineral fertilisers and cement. Nowadays a decrease in demand for transportation of a lot of goods can be seen. Comparing the period from January to September 2008 with that of 2007, the biggest decreases in loading were observed only in 3 areas - wood 13%, cement 8.4% and grain 8.7%.  The situation with grain has improved, but in September (again, compared with the same month in 2007) this list was enlarged with the loading volume for construction industry cargoes falling 1.8%, and 4.1 % for ferrous metals. Also, cement and wood have further confirmed the decrease – 18.9% and 15.4% respectively. And in October the state of affairs became even worse - cement decreased 22.5%, ferrous metals and scrap metals 12% each, wood cargoes 10.6%, and chemical and mineral fertilisers 12.3 %.   
One cannot say that it was only the crisis that slightly damaged the transportation picture in all industries without exception. In many respects reasons were objective. For example, the fall in loads of cement was caused by reduced demand for the production of OAO “EUROCEMENT Group” enterprises, due to the fact that its prices were higher than the cost of imported products, so, because of that, commodity markets were lost. The situation with wood cargoes is not yet connected with the “financial fever” either. The reason is a reduction in exports caused by the fact that the customs duty for the raw wood has been repeatedly increased and is now up 25% compared with April 1st, 2008.  
Also, coal and oil are still staying on stable enough positions. The first grows due to an increase in deliveries of coal on the Western-Siberian, Krasnoyarsk and Eastern-Siberian railways to heat power plants and for housing and communal services, and also because of a growth in extraction volumes.
Perhaps metallurgy and the manufacturing of mineral fertilisers can be mentioned as the first industries to presently feel the unfavourable situation. 
IN EXPECTATION OF THE WORST
 It is reasonable to expect that the general decline would not avoid hitting the stevedoring business as well. According to the ASOP (Association of Russian merchant ports), the Russian commercial seaports’ freight traffic fell 5.4% in September 2008 compared with the same month in 2007 (though total growth over 9 months was 1.6%). The decrease has its roots in the reduction of bulk-oil trans-shipment cargo volumes down to  89.7% by September, 2007. Despite a 2 % increase in “dry goods” transit turnover in September, their growth rates have noticeably decreased. Proceeding from the results this September compared with September 2007, the total exports have decreased 9.8% and imports have grown 11.8%. (And we must notice that the import rate has been growing increasingly rapidly during the course of the nine-month period). 
As a whole, the September numbers given by ASOP, in comparison with last year, also confirm a noticeable decrease in the main cargoes: coal and coke – 4.078.400 tons against 4.833.700 for the first autumn month of the last year; mineral fertilisers – 954.700 tons against 1.019.600; wood – 591.200 tons against 975.300; “And though today so far the consequences of the world financial crisis have not directly reflected on goods shipment turnover in Russian ports, we nevertheless expect a decrease in the result indexes of our work in the fourth quarter, and accordingly, for the whole year, because of the negative impact of the crisis,” A. Shimansky has agreed.
FOLLOWING THE LAWS OF NATURAL SELECTION
“First of all the crisis will hit small companies with an unstable financial and organisational structure,” predicts Igor Asaturov, First Cargo Company’s Prime Assistant to the General Director for Commerce.  “Those who cannot stand it will be absorbed by larger companies. It is natural selection”. 
OAO “Far East Transport Group” states that small operators have already started selling their rolling stock and steadier companies are suppressing a desire to expand their park. “Now all operators are facing the fact that their calculations regarding the return on investment in the rolling stock, which had been based on expectations of certain demand for transportation, now need to be revised,” Irina Chiganashkina, the Technical Director of OAO “Far East Transport Group” adds. The Financial Director of OAO “TransLes” Evgeny Drachev has noted that, in times of global recession, the majority of transport companies which focused on foreign trade activities are forced to delay realisation of their long-term investment programs on purchasing new rolling stock because they had underestimated the influence of macroeconomic risks.
IS THE WAGON HALF EMPTY OR HALF FULL?
So far nobody is able to give definite forecasts regarding the further development of the situation. But nevertheless, despite the large number of negative and sometimes even fatal phenomena, the crisis in the financial-economic system has positive sides as well. It should not be forgotten that crises can have a constructive impact in the form of removing obvious skews in price lists, in tariff policy and in the sphere of services. Regarding such skews, there are already more than enough of them. A rather important factor will be the ability of operators to provide a flexible pricing policy, reacting swiftly to either increasing or falling demand. Experts think that transportation tariffs will come nearer to the Tariff Regulation 1001, and occasionally may fall even lower because, really, a wagon leasing fee should correspond to the level of the production market. The First Cargo Company has already stolen a march. “We have decided to give a 30% discount to domestic producers of cement, following the negative dynamics of this product’s prices,” I. Asaturov has revealed. “It is possible that we shall reconsider rates for other situations as well. Everything will depend on market conditions.” Other companies adhere to a similar standpoint too. 
The Association of Sea Commercial Ports (ASOP) has also stated that, although at present they are not considering a reduction of rates for loading-unloading services, nevertheless an opportunity for their revision on the basis of market conditions is not excluded in the future. However, this question refers more to the competence of the Federal Tariff Service. 
There is big interest in the potential for a long-awaited fall in the prices of wagons. In fact at the moment demand for new rolling stock is practically frozen, if not worse. Factory supply substantially exceeds real requirements. Accordingly, the goods become cheaper. For tank-wagons their price has already fallen more than 30% alone. A similar picture can be expected with other types of wagons too. Unofficial figures hold that some manufacturers of wagons have confirmed an intention to reduce their production costs. But another opinion regarding it exists as well. Thus, as the Chief Expert of UCB OOO “TransFin-M” Vadim Zakharov has said, wagon sales from Russian factories will not decrease seriously, in view of the OAO RZD’s program of replacing its rolling stock park until 2015. 
Furthermore, recently The First Cargo Company has announced its intention to purchase a significant part of its mobile park in the course of 2009, a demand which will be met by Russian factories. The conclusion is that demand for rolling stock will remain high. “Another point here is that the market stimulates clients to go to another segment – the secondary market, thus to acquire second-hand wagons,” Mr V. Zakharov has noted. 
OAO RZD Is Sure In Its Financial Abilities 
As a result of the crisis, the position of OAO Russian Railways is attracting special interest from operators, cargo owners and the financial community. It is necessary to note that the President of the Company, Vladimir Yakunin, was the first transport industry figure to comment during the press conference about RZD’s five-year anniversary on the possible consequences of the financial market compression and announced measures taken at the beginning of October. It means that the financial collapse developing quite quickly on share markets and the freeze on credit was not unexpected by the carrier. And it is no wonder because for the last few years RZD has been communicating very closely with the investment bank community, rating agencies and consulting companies, allowing the Company to expect a possible future development in financial spheres and to be prepared for various scenarios.  
The first consequence was a change of date for the “Refservice” and “TransContainer” IPO. The success of primary allocation of shares is based on two main factors – availability of free funds for possible investors and also the quality and potential of their target. The fact that “TransContainer’s” financial figures are attractive became evident after the operator sold a part of its package to the European Bank for Reconstruction and Development. But, as regards free fund availability for investors, it is a problem today. “We are not going to sell expensive things cheaply,” Mr V. Yakunin has declared.
It is most likely that the second consequence will be a reduction of RZD’s large-scale investment program. In 2009-2010 it will be approximately 10 to 15% of the previously planned volumes, which is about 100 billion roubles. As regards certain projects, there is no clarity in the company yet as to whether their time frames will be changed, or if they will be cancelled. 
But, regarding liquidity, the company currently does not have a problem at all. It is necessary to note that OAO RZD has been carrying out a cautious policy in the sphere of borrowing, so its debt/EBITDA ratio is only 1,1. 
However, for the sake of fairness, it is necessary to recall that rating agency “Standard and Poor’s” has put RZD’s rating in the “on revision” category. It happened after the company became a shareholder of the problematic investment bank “KIT Finance”. Analysts of the agency noted that the “creditability of the bank was, most likely, very low, so in future it could require support in the form of payments in capital, or guarantees” given by RZD. After the situation is cleared up, most likely within three months, the rating of the carrier can be removed from the “Credit Watch” category. 
Generally speaking for RZD, “Standard and Poor’s” praises the “high financial parameters of the company and its readiness to implement a moderate financial policy” but mentions as negative factors the strengthening of competition in Russia’s railway business, low transparency of tariff regulation, its intermediate-term investment program, and also its “growing participation in the banking sector”.  
By Victoria Merkusheva
and Ivan Stupachenko 
viewpoint
Igor Asaturov,
The First Deputy General Director For Commerce and Production OAO “The First Cargo Company”: 
– As we know, now in connection with the financial crisis one can observe production volumes falling in a number of industries, in particular in metallurgy. However we consider these fluctuations to be temporary. In the long term, the market will be restored, if, certainly, global negative changes in bank sector do not occur. Anyway, we do not feel the influence of the crisis ourselves yet. The need for gondo;a cars remains very high and our services are in demand. The volume of transportations from January to September grew 26% in comparison with the volumes for January to August, whereas in January to August it increased only 4% in comparison with January – July. So, the growth rate has not fallen and we are planning to come nearer to the index of 100 million tons by the end of the year.  
It would not be absolutely correct to regard the crisis as an improvement factor. But it can play a certain positive role in terms of price regulation, for example for wagons. Today, rolling stock prices have been already stabilised and the market is expecting them to fall.

Grigory Primak.
General Director of ZAO “Rail Leasing”:  
– Certainly, the crisis has affected demand for transportation services. But, just as before, transportation volumes are influenced more by seasonal demand for certain kinds of cargoes. This tendency can be tracked using the example of building materials. Between January and August 2008, 30.5 million tons of cement was transported by railway, which is 4.9% more than for the same period in 2007. But, due to reduced construction volumes, the production of cement began to fall in August, and has reached 5.4 million tons, which is 2.4% less than in July. In September-October construction on many sites was completely frozen, leading to the demand for this kind of production falling rapidly which is already being called a consequence of the crisis. At the same time transportation of coal and coke in the domestic market grew, despite the crisis. In the first nine months of this year 145.2 million tons was transported, that is 8% more than during the same period last year.  
Oleg Trudov,
Deputy General Director, Institute of Natural Monopolies Problems:
– In the fourth quarter of this year we do not expect a decrease in goods transit turnover in relation to the same period in 2007 because many domestic manufacturers are still involved in big export contracts they concluded before the end of the year. However, general indexes of goods transit turnover growth will be lower in the whole year report for 2008 than for the last 9 months. It is connected with the fact that some export freight traffic can be redirected via internal routes. Thus the average distance of total transportation will decrease. It is possible that, from 2009, export contracts may not be extended for our manufacturers, against a general background of reduction in foreign customer demand for Russian products and raw materials. It will inevitably lead to a decrease in loading volumes in the first months of 2009. A fall in goods transit turnover may be even more crucial, because the correlation between loading and goods transit turnover is less than 1, and the summarised cargo transportations distance for export purposes is longer than it is for internal deliveries. Previously made forecasts regarding goods transit turnover should be reconsidered. And, bearing in mind that the profit margin for exporting cargos is more than for internal deliveries, one can conclude that the income rate of railway market participants may fall more considerably than the cargo turnover index. It could lead to a reduction of sources willing to finance both RZD and private operator investment projects.

Vadim Zakharov.
Chief Expert, UCB OOO “TransFin-M”:
– Demand dictates supply and, consequently, it influences the growth of prices. The current situation is that many manufacturers, both in Russia and in the CIS, who had been very reluctant to give us quotas for wagons in the past two years, are now approaching us. Though so far in small quantities they are offering real, “live” wagons. And their pricing policy has become more flexible. We have already gone out of the habit to enjoy it, so no doubt the crisis will change our situation internally to a certain extent.
 
Alexey Kuzmin, 
The Head of Representation in St. Petersburg, ZAO  “SREI Leasing”:
– Obviously, the lack of liquidity and, consequently, the increasing expense of financial resources, lead to the essential reduction of leasing operations on the market. Because of this, lease-givers are forced not only to raise leasing service fees but also to toughen the requirements for potential clients. Usually it can be seen in increasing the amounts to be paid in advance, and in more detailed consideration of a lessee’s financial history. Leasing service fees will grow and gradually decrease within all new deals. It is obvious, because the leasing fees are influenced first of all by the cost of financing by banks. We predict volumes of purchasing rolling stock to be decreased but I think that lessees will not abandon their plans completely. They will postpone their projects for a certain time, most likely, from the end of this year to next year. 
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Kazakhstan: Throughput Grew by 7% 
In Kazakhstan the throughput of non-transport enterprises and commercial transportation entrepreneurs reached 306.27 billion tonne-kilometres (t/km) in January-October 2008, 7% up year-on-year.
The throughput of railways increased by 10.2% to 179.59 billion t/km and that of road transport grew by 2.3% to 51.14 billion t/km.
The throughput of mainline pipelines amounted to 74.84 billion t/km (2.5% growth), including oil pipelines, which made 36.84 billion t/km (4.7% growth), and gas pipelines, which hit 37.99 billion t/km (0.5% growth).
The throughput of air transport fell by 15.9% to 56.82 million t/km.
Since the beginning of navigation, the river transport throughput amounted to 47.68 million t/km, 4.3% down year-on-year.
In the first 10 months of 2008, passenger turnover was 103.27 billion passenger-kilometres (1.7% growth year-on-year).
Eesti Raudtee: Record Decline 
Eesti Raudtee (Estonian Railways) transported 21.59 million tons of cargo in the first 10 months of 2008, which is 32% less compared with the same period in 2007, when 31.74 million tons was carried.
In January-October 2008, oil products made up the larger share of the transported volume – 15.1 million tons. Also, the company transported 18,300 TEU to Russia and Asian countries.
In October 2008, Estonian Railways carried 2.24 million tons of cargo (a 13.4% decline), including 1.51 million tons of oil products.
Investment Will Save Us From A Crisis  
At its meeting held on November 13, 2008, the RF Government discussed the issue of railway development and reform. In particular, they examined the problem of investments in OAO RZD.
OAO RZD and the Ministry of Transport suggested to the RF Government three options in terms of investment programmes for discussion. After the meeting Igor Levitin, Russian Transport Minister, said the Government reviewed the “toughest” variant envisaging a decrease of transportation volume by 6% and revenue reduction of approximately RUR 75 billion.
Simultaneously it was decided to make no reduction in the investment programmes of OAO RZD. The Transport Minister said that this especially concerns the programmes of infrastructure and rolling stock repair and renewal. As was said at the meeting, the physical volume of the programmes must remain the same as planned.
To keep the planned volumes in spite of the obvious lack of means to carry out investment programmes, the Government recommended OAO RZD find a way to purchase the necessary materials and utilities at least 20% cheaper than nowadays.
As was planned before, next year approximately 50,000 units of rolling stock will be purchased by OAO RZD, the First Cargo Company and private operators. Both the First Cargo Company and private operators have already confirmed their purchasing intentions.
At the same time, as Igor Levitin says, while OAO RZD can take out a loan to buy rolling stock, private companies will need state support for that.
Zero VAT Rate for Ukrainian Road Hauliers     
On November 12, 2008, the Ukrainian Cabinet approved implementation of a zero VAT rate for international road hauliers. 
Joseph Vinsky, the country’s Minister of Transport and Communication, said that the decision was fixed in the bill “On Putting Amendments to the Law “On the VAT”.
In his words, Ukrainian international road hauliers have to work under tough competition. Annually they lost 110-140 million hryvnias (14.65-18.65 million euros) by paying VAT, which made them unable to compete with companies from other countries, where VAT is not applied to this activity.
Russian Railways: Freight Transportation Volume Increased
In January-October 2008, the volume of freight transportation along Russian railways grew by 1.2% to more than 1.12 billion tons, including 246 million tons of coal (+5.1%), 11 million tons of coke (+4.5%), 193.6 million tons of oil and oil products (+0.5%), 92.2 million tons of iron and manganese ore (+0.8%), 70.2 million tons of ferrous metals (+1.2%), 23.2 million tons of ferrous metal scrap (+3.4%), 37.6 million tons of chemicals and mineral fertilisers (+1.3%), 175.6 million tons of construction materials (+3.8%), 32 million tons of cement (-10.4%), and 48.8 million tons of timber (-12%).
In those ten months, the throughput increased by 4.6% to 1.72 billion tariff tonne-kilometres. The most significant growth in throughput took place on the Zabaikalskaya railway (+12.2%), the Krasnoyarskaya railway (+11.9%), and East-Siberian railway (+11.3%).
Meanwhile, in October 2008, transportation volumes fell by 4.4% year-on-year to 112.3 million tons.
Cooperation for Common Welfare
Chinese language will be allowed to be used to fill in the single CIM/SMGS invoice used for organising container transit transportation by railway from China to Europe via Russia. So, the document may be completed in China without further re-registration.
Such an arrangement was achieved by Alexander Misharin, Deputy Transport Minister of Russia, and Hu Yadong, Vice Minister of Ministry of Railways of the People’s Republic of China, at the 12th meeting of the Russian-Chinese subcommittee for cooperation in the transport sector. Representatives of Russia and China also stressed that much had been done to launch block trains from China to Russia and European countries. Due to the joint efforts of Russian and Chinese railways, block trains were launched on the following routes: China (Beijing) – Mongolia – Russia – Germany (Hamburg), China (Shenzhen) – Russia – Czechia, China- Russia – South Eastern European countries, Beijing – Manchuria – Moscow, Tianjin – Manchuria – Moscow among others.
Russian Ports: Results of First Nine Months
In January-September 2008, the handling volume in Russian ports grew by 1.6% year-on-year to 340.9 million tons. During the period the ports handled 145.7 million tons of dry cargoes, including 24.5 million tons of freight in large capacity containers.
The throughput of liquid bulk fell by 1.7% to 195.2 million tons.
The share of export freight was 257 million tons, that of import cargo – 32.9 million tons, transit – 28.7 million tons and coastal trade – 22.3 million tons, which accounted for 75%, 10%, 8% and 7% respectively.
Russian sea terminals operating in the North-Western basin increased throughput by 3.1% to 161.4 million tons. The ports of the Far Eastern basin handled 61.26 million tons, 3.3% up year-on-year. Meanwhile, the ports of the Southern basin saw throughput fall by 1.1% to 118.24 million tons.
LDz Cargo: More Oil Products and Coal
LDz Cargo, a daughter company of Latvijas dzelzcels (LDz, Latvian Railway), transported 40.882 million tons of cargo in January-September 2008, 6.3% up year-on-year.
The amount of import freight carried via port stations grew by 11.3% to 30.568 million tons, and total import transportation increased by 8.1% to 34.022 million tons. Land transit (mainly to Estonia) fell by 2.6% to 3.62 million tons.
The share of oil products in the transported volume is still high – 14.473 million tons, 0.1% up year-on-year. Coal is in second place – 12.899 million tons (24.7% growth).
There was a sharp growth in transportation of chemicals (to 1.976 million tons, +55%), grain and cereals (857,000 tons, +25.7%), ferrous metals (2.207 million tons, +8.2%), and mineral fertilisers (3.796 million tons, -11.3%).
Ukrzaliznytsya: Transportation Growth Rate Is Falling
In January – October 2008, Ukrzaliznytsya (Ukrainian railways) increased the volume of freight transportation by 3.2% in comparison with the same period the previous year. In the first ten months the throughput grew by 3.6%.
Ukrainian railways carried 438.4 million tons of cargo – more than 55% of the total volume transported in Ukraine in January-October. The throughput of Ukrzaliznytsya amounted to 224.78 billion tonne-kilometres or 53.4% of the total throughput of Ukrainian transport. Meanwhile, the rate of growth in transportation by railway is falling. Ukrzaliznytsya increased freight transportation volume by 7.5% in Q1 of 2008 and by 6.7% in the first half of the year. In the first three quarters, the growth fell to +5.4% only. According to the results of the first 10 months, the rate of growth of railway transportation fell to +3.6%.
Cargoes on the Way to Lithuania 
In the first three quarters of 2008 Lietuvos gelezinkeliai (Lithuanian railways) transported 42.3 million tons of cargo, 6.3% up year-on-year.
International transportation grew by 0.2% to 30.6 million tons. Domestic transportation (mainly oil products of Mazeikiu nafta) increased by 26% to 11.7 million tons.
During the period, Lietuvos gelezinkeliai carried 17 million tons of oil and oil products, 8 million tons of mineral fertilisers, 2.9 million tons of metals, 2.7 million tons of coal and coke and 1.4 million tons of grain.
Over 134 Million Tons Carried in Azerbaijan in 9 Months 
The volume of freight transportation in Azerbaijan in January-September 2008 amounted to 134.5 million tons, 11.4% up year-on-year.
The share of private transport enterprises was 69.1%, and that of state companies was 30.9%.
20.8 million tons of cargoes (including transit) was carried by railway, 0.7% down year-on-year.
The Republic’s sea transport carried 8.5 million tons of different freight (12.6% growth). The share of oil and oil products in the volume carried by sea transport was 67.6% and that of dry cargoes was 32.4%.
The volume of freight carried by road transport amounted to 62.4 million tons (7.2% growth).
34.7 million tons of oil was transported by oil pipelines (a 19.8% increase), including 26 million tons carried by the Baku-Tbilisi-Jeihan oil pipeline. In the first 9 months of 2008, the gas pipelines transported 8.1 million tons of gas (62% growth), and the share of Baku-Tbilisi-Erzerum in the volume was 29.2%.
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Kazakhstan: Throughput Grew by 7% 
In Kazakhstan the throughput of non-transport enterprises and commercial transportation entrepreneurs reached 306.27 billion tonne-kilometres (t/km) in January-October 2008, 7% up year-on-year.
The throughput of railways increased by 10.2% to 179.59 billion t/km and that of road transport grew by 2.3% to 51.14 billion t/km.
The throughput of mainline pipelines amounted to 74.84 billion t/km (2.5% growth), including oil pipelines, which made 36.84 billion t/km (4.7% growth), and gas pipelines, which hit 37.99 billion t/km (0.5% growth).
The throughput of air transport fell by 15.9% to 56.82 million t/km.
Since the beginning of navigation, the river transport throughput amounted to 47.68 million t/km, 4.3% down year-on-year.
In the first 10 months of 2008, passenger turnover was 103.27 billion passenger-kilometres (1.7% growth year-on-year).
Eesti Raudtee: Record Decline 
Eesti Raudtee (Estonian Railways) transported 21.59 million tons of cargo in the first 10 months of 2008, which is 32% less compared with the same period in 2007, when 31.74 million tons was carried.
In January-October 2008, oil products made up the larger share of the transported volume – 15.1 million tons. Also, the company transported 18,300 TEU to Russia and Asian countries.
In October 2008, Estonian Railways carried 2.24 million tons of cargo (a 13.4% decline), including 1.51 million tons of oil products.
Investment Will Save Us From A Crisis  
At its meeting held on November 13, 2008, the RF Government discussed the issue of railway development and reform. In particular, they examined the problem of investments in OAO RZD.
OAO RZD and the Ministry of Transport suggested to the RF Government three options in terms of investment programmes for discussion. After the meeting Igor Levitin, Russian Transport Minister, said the Government reviewed the “toughest” variant envisaging a decrease of transportation volume by 6% and revenue reduction of approximately RUR 75 billion.
Simultaneously it was decided to make no reduction in the investment programmes of OAO RZD. The Transport Minister said that this especially concerns the programmes of infrastructure and rolling stock repair and renewal. As was said at the meeting, the physical volume of the programmes must remain the same as planned.
To keep the planned volumes in spite of the obvious lack of means to carry out investment programmes, the Government recommended OAO RZD find a way to purchase the necessary materials and utilities at least 20% cheaper than nowadays.
As was planned before, next year approximately 50,000 units of rolling stock will be purchased by OAO RZD, the First Cargo Company and private operators. Both the First Cargo Company and private operators have already confirmed their purchasing intentions.
At the same time, as Igor Levitin says, while OAO RZD can take out a loan to buy rolling stock, private companies will need state support for that.
Zero VAT Rate for Ukrainian Road Hauliers     
On November 12, 2008, the Ukrainian Cabinet approved implementation of a zero VAT rate for international road hauliers. 
Joseph Vinsky, the country’s Minister of Transport and Communication, said that the decision was fixed in the bill “On Putting Amendments to the Law “On the VAT”.
In his words, Ukrainian international road hauliers have to work under tough competition. Annually they lost 110-140 million hryvnias (14.65-18.65 million euros) by paying VAT, which made them unable to compete with companies from other countries, where VAT is not applied to this activity.
Russian Railways: Freight Transportation Volume Increased
In January-October 2008, the volume of freight transportation along Russian railways grew by 1.2% to more than 1.12 billion tons, including 246 million tons of coal (+5.1%), 11 million tons of coke (+4.5%), 193.6 million tons of oil and oil products (+0.5%), 92.2 million tons of iron and manganese ore (+0.8%), 70.2 million tons of ferrous metals (+1.2%), 23.2 million tons of ferrous metal scrap (+3.4%), 37.6 million tons of chemicals and mineral fertilisers (+1.3%), 175.6 million tons of construction materials (+3.8%), 32 million tons of cement (-10.4%), and 48.8 million tons of timber (-12%).
In those ten months, the throughput increased by 4.6% to 1.72 billion tariff tonne-kilometres. The most significant growth in throughput took place on the Zabaikalskaya railway (+12.2%), the Krasnoyarskaya railway (+11.9%), and East-Siberian railway (+11.3%).
Meanwhile, in October 2008, transportation volumes fell by 4.4% year-on-year to 112.3 million tons.
Cooperation for Common Welfare
Chinese language will be allowed to be used to fill in the single CIM/SMGS invoice used for organising container transit transportation by railway from China to Europe via Russia. So, the document may be completed in China without further re-registration.
Such an arrangement was achieved by Alexander Misharin, Deputy Transport Minister of Russia, and Hu Yadong, Vice Minister of Ministry of Railways of the People’s Republic of China, at the 12th meeting of the Russian-Chinese subcommittee for cooperation in the transport sector. Representatives of Russia and China also stressed that much had been done to launch block trains from China to Russia and European countries. Due to the joint efforts of Russian and Chinese railways, block trains were launched on the following routes: China (Beijing) – Mongolia – Russia – Germany (Hamburg), China (Shenzhen) – Russia – Czechia, China- Russia – South Eastern European countries, Beijing – Manchuria – Moscow, Tianjin – Manchuria – Moscow among others.
Russian Ports: Results of First Nine Months
In January-September 2008, the handling volume in Russian ports grew by 1.6% year-on-year to 340.9 million tons. During the period the ports handled 145.7 million tons of dry cargoes, including 24.5 million tons of freight in large capacity containers.
The throughput of liquid bulk fell by 1.7% to 195.2 million tons.
The share of export freight was 257 million tons, that of import cargo – 32.9 million tons, transit – 28.7 million tons and coastal trade – 22.3 million tons, which accounted for 75%, 10%, 8% and 7% respectively.
Russian sea terminals operating in the North-Western basin increased throughput by 3.1% to 161.4 million tons. The ports of the Far Eastern basin handled 61.26 million tons, 3.3% up year-on-year. Meanwhile, the ports of the Southern basin saw throughput fall by 1.1% to 118.24 million tons.
LDz Cargo: More Oil Products and Coal
LDz Cargo, a daughter company of Latvijas dzelzcels (LDz, Latvian Railway), transported 40.882 million tons of cargo in January-September 2008, 6.3% up year-on-year.
The amount of import freight carried via port stations grew by 11.3% to 30.568 million tons, and total import transportation increased by 8.1% to 34.022 million tons. Land transit (mainly to Estonia) fell by 2.6% to 3.62 million tons.
The share of oil products in the transported volume is still high – 14.473 million tons, 0.1% up year-on-year. Coal is in second place – 12.899 million tons (24.7% growth).
There was a sharp growth in transportation of chemicals (to 1.976 million tons, +55%), grain and cereals (857,000 tons, +25.7%), ferrous metals (2.207 million tons, +8.2%), and mineral fertilisers (3.796 million tons, -11.3%).
Ukrzaliznytsya: Transportation Growth Rate Is Falling
In January – October 2008, Ukrzaliznytsya (Ukrainian railways) increased the volume of freight transportation by 3.2% in comparison with the same period the previous year. In the first ten months the throughput grew by 3.6%.
Ukrainian railways carried 438.4 million tons of cargo – more than 55% of the total volume transported in Ukraine in January-October. The throughput of Ukrzaliznytsya amounted to 224.78 billion tonne-kilometres or 53.4% of the total throughput of Ukrainian transport. Meanwhile, the rate of growth in transportation by railway is falling. Ukrzaliznytsya increased freight transportation volume by 7.5% in Q1 of 2008 and by 6.7% in the first half of the year. In the first three quarters, the growth fell to +5.4% only. According to the results of the first 10 months, the rate of growth of railway transportation fell to +3.6%.
Cargoes on the Way to Lithuania 
In the first three quarters of 2008 Lietuvos gelezinkeliai (Lithuanian railways) transported 42.3 million tons of cargo, 6.3% up year-on-year.
International transportation grew by 0.2% to 30.6 million tons. Domestic transportation (mainly oil products of Mazeikiu nafta) increased by 26% to 11.7 million tons.
During the period, Lietuvos gelezinkeliai carried 17 million tons of oil and oil products, 8 million tons of mineral fertilisers, 2.9 million tons of metals, 2.7 million tons of coal and coke and 1.4 million tons of grain.
Over 134 Million Tons Carried in Azerbaijan in 9 Months 
The volume of freight transportation in Azerbaijan in January-September 2008 amounted to 134.5 million tons, 11.4% up year-on-year.
The share of private transport enterprises was 69.1%, and that of state companies was 30.9%.
20.8 million tons of cargoes (including transit) was carried by railway, 0.7% down year-on-year.
The Republic’s sea transport carried 8.5 million tons of different freight (12.6% growth). The share of oil and oil products in the volume carried by sea transport was 67.6% and that of dry cargoes was 32.4%.
The volume of freight carried by road transport amounted to 62.4 million tons (7.2% growth).
34.7 million tons of oil was transported by oil pipelines (a 19.8% increase), including 26 million tons carried by the Baku-Tbilisi-Jeihan oil pipeline. In the first 9 months of 2008, the gas pipelines transported 8.1 million tons of gas (62% growth), and the share of Baku-Tbilisi-Erzerum in the volume was 29.2%.
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Kazakhstan: Throughput Grew by 7% 
In Kazakhstan the throughput of non-transport enterprises and commercial transportation entrepreneurs reached 306.27 billion tonne-kilometres (t/km) in January-October 2008, 7% up year-on-year.
The throughput of railways increased by 10.2% to 179.59 billion t/km and that of road transport grew by 2.3% to 51.14 billion t/km.
The throughput of mainline pipelines amounted to 74.84 billion t/km (2.5% growth), including oil pipelines, which made 36.84 billion t/km (4.7% growth), and gas pipelines, which hit 37.99 billion t/km (0.5% growth).
The throughput of air transport fell by 15.9% to 56.82 million t/km.
Since the beginning of navigation, the river transport throughput amounted to 47.68 million t/km, 4.3% down year-on-year.
In the first 10 months of 2008, passenger turnover was 103.27 billion passenger-kilometres (1.7% growth year-on-year).
Eesti Raudtee: Record Decline 
Eesti Raudtee (Estonian Railways) transported 21.59 million tons of cargo in the first 10 months of 2008, which is 32% less compared with the same period in 2007, when 31.74 million tons was carried.
In January-October 2008, oil products made up the larger share of the transported volume – 15.1 million tons. Also, the company transported 18,300 TEU to Russia and Asian countries.
In October 2008, Estonian Railways carried 2.24 million tons of cargo (a 13.4% decline), including 1.51 million tons of oil products.
Investment Will Save Us From A Crisis  
At its meeting held on November 13, 2008, the RF Government discussed the issue of railway development and reform. In particular, they examined the problem of investments in OAO RZD.
OAO RZD and the Ministry of Transport suggested to the RF Government three options in terms of investment programmes for discussion. After the meeting Igor Levitin, Russian Transport Minister, said the Government reviewed the “toughest” variant envisaging a decrease of transportation volume by 6% and revenue reduction of approximately RUR 75 billion.
Simultaneously it was decided to make no reduction in the investment programmes of OAO RZD. The Transport Minister said that this especially concerns the programmes of infrastructure and rolling stock repair and renewal. As was said at the meeting, the physical volume of the programmes must remain the same as planned.
To keep the planned volumes in spite of the obvious lack of means to carry out investment programmes, the Government recommended OAO RZD find a way to purchase the necessary materials and utilities at least 20% cheaper than nowadays.
As was planned before, next year approximately 50,000 units of rolling stock will be purchased by OAO RZD, the First Cargo Company and private operators. Both the First Cargo Company and private operators have already confirmed their purchasing intentions.
At the same time, as Igor Levitin says, while OAO RZD can take out a loan to buy rolling stock, private companies will need state support for that.
Zero VAT Rate for Ukrainian Road Hauliers     
On November 12, 2008, the Ukrainian Cabinet approved implementation of a zero VAT rate for international road hauliers. 
Joseph Vinsky, the country’s Minister of Transport and Communication, said that the decision was fixed in the bill “On Putting Amendments to the Law “On the VAT”.
In his words, Ukrainian international road hauliers have to work under tough competition. Annually they lost 110-140 million hryvnias (14.65-18.65 million euros) by paying VAT, which made them unable to compete with companies from other countries, where VAT is not applied to this activity.
Russian Railways: Freight Transportation Volume Increased
In January-October 2008, the volume of freight transportation along Russian railways grew by 1.2% to more than 1.12 billion tons, including 246 million tons of coal (+5.1%), 11 million tons of coke (+4.5%), 193.6 million tons of oil and oil products (+0.5%), 92.2 million tons of iron and manganese ore (+0.8%), 70.2 million tons of ferrous metals (+1.2%), 23.2 million tons of ferrous metal scrap (+3.4%), 37.6 million tons of chemicals and mineral fertilisers (+1.3%), 175.6 million tons of construction materials (+3.8%), 32 million tons of cement (-10.4%), and 48.8 million tons of timber (-12%).
In those ten months, the throughput increased by 4.6% to 1.72 billion tariff tonne-kilometres. The most significant growth in throughput took place on the Zabaikalskaya railway (+12.2%), the Krasnoyarskaya railway (+11.9%), and East-Siberian railway (+11.3%).
Meanwhile, in October 2008, transportation volumes fell by 4.4% year-on-year to 112.3 million tons.
Cooperation for Common Welfare
Chinese language will be allowed to be used to fill in the single CIM/SMGS invoice used for organising container transit transportation by railway from China to Europe via Russia. So, the document may be completed in China without further re-registration.
Such an arrangement was achieved by Alexander Misharin, Deputy Transport Minister of Russia, and Hu Yadong, Vice Minister of Ministry of Railways of the People’s Republic of China, at the 12th meeting of the Russian-Chinese subcommittee for cooperation in the transport sector. Representatives of Russia and China also stressed that much had been done to launch block trains from China to Russia and European countries. Due to the joint efforts of Russian and Chinese railways, block trains were launched on the following routes: China (Beijing) – Mongolia – Russia – Germany (Hamburg), China (Shenzhen) – Russia – Czechia, China- Russia – South Eastern European countries, Beijing – Manchuria – Moscow, Tianjin – Manchuria – Moscow among others.
Russian Ports: Results of First Nine Months
In January-September 2008, the handling volume in Russian ports grew by 1.6% year-on-year to 340.9 million tons. During the period the ports handled 145.7 million tons of dry cargoes, including 24.5 million tons of freight in large capacity containers.
The throughput of liquid bulk fell by 1.7% to 195.2 million tons.
The share of export freight was 257 million tons, that of import cargo – 32.9 million tons, transit – 28.7 million tons and coastal trade – 22.3 million tons, which accounted for 75%, 10%, 8% and 7% respectively.
Russian sea terminals operating in the North-Western basin increased throughput by 3.1% to 161.4 million tons. The ports of the Far Eastern basin handled 61.26 million tons, 3.3% up year-on-year. Meanwhile, the ports of the Southern basin saw throughput fall by 1.1% to 118.24 million tons.
LDz Cargo: More Oil Products and Coal
LDz Cargo, a daughter company of Latvijas dzelzcels (LDz, Latvian Railway), transported 40.882 million tons of cargo in January-September 2008, 6.3% up year-on-year.
The amount of import freight carried via port stations grew by 11.3% to 30.568 million tons, and total import transportation increased by 8.1% to 34.022 million tons. Land transit (mainly to Estonia) fell by 2.6% to 3.62 million tons.
The share of oil products in the transported volume is still high – 14.473 million tons, 0.1% up year-on-year. Coal is in second place – 12.899 million tons (24.7% growth).
There was a sharp growth in transportation of chemicals (to 1.976 million tons, +55%), grain and cereals (857,000 tons, +25.7%), ferrous metals (2.207 million tons, +8.2%), and mineral fertilisers (3.796 million tons, -11.3%).
Ukrzaliznytsya: Transportation Growth Rate Is Falling
In January – October 2008, Ukrzaliznytsya (Ukrainian railways) increased the volume of freight transportation by 3.2% in comparison with the same period the previous year. In the first ten months the throughput grew by 3.6%.
Ukrainian railways carried 438.4 million tons of cargo – more than 55% of the total volume transported in Ukraine in January-October. The throughput of Ukrzaliznytsya amounted to 224.78 billion tonne-kilometres or 53.4% of the total throughput of Ukrainian transport. Meanwhile, the rate of growth in transportation by railway is falling. Ukrzaliznytsya increased freight transportation volume by 7.5% in Q1 of 2008 and by 6.7% in the first half of the year. In the first three quarters, the growth fell to +5.4% only. According to the results of the first 10 months, the rate of growth of railway transportation fell to +3.6%.
Cargoes on the Way to Lithuania 
In the first three quarters of 2008 Lietuvos gelezinkeliai (Lithuanian railways) transported 42.3 million tons of cargo, 6.3% up year-on-year.
International transportation grew by 0.2% to 30.6 million tons. Domestic transportation (mainly oil products of Mazeikiu nafta) increased by 26% to 11.7 million tons.
During the period, Lietuvos gelezinkeliai carried 17 million tons of oil and oil products, 8 million tons of mineral fertilisers, 2.9 million tons of metals, 2.7 million tons of coal and coke and 1.4 million tons of grain.
Over 134 Million Tons Carried in Azerbaijan in 9 Months 
The volume of freight transportation in Azerbaijan in January-September 2008 amounted to 134.5 million tons, 11.4% up year-on-year.
The share of private transport enterprises was 69.1%, and that of state companies was 30.9%.
20.8 million tons of cargoes (including transit) was carried by railway, 0.7% down year-on-year.
The Republic’s sea transport carried 8.5 million tons of different freight (12.6% growth). The share of oil and oil products in the volume carried by sea transport was 67.6% and that of dry cargoes was 32.4%.
The volume of freight carried by road transport amounted to 62.4 million tons (7.2% growth).
34.7 million tons of oil was transported by oil pipelines (a 19.8% increase), including 26 million tons carried by the Baku-Tbilisi-Jeihan oil pipeline. In the first 9 months of 2008, the gas pipelines transported 8.1 million tons of gas (62% growth), and the share of Baku-Tbilisi-Erzerum in the volume was 29.2%.
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Kazakhstan: Throughput Grew by 7% 
In Kazakhstan the throughput of non-transport enterprises and commercial transportation entrepreneurs reached 306.27 billion tonne-kilometres (t/km) in January-October 2008, 7% up year-on-year.
The throughput of railways increased by 10.2% to 179.59 billion t/km and that of road transport grew by 2.3% to 51.14 billion t/km.
The throughput of mainline pipelines amounted to 74.84 billion t/km (2.5% growth), including oil pipelines, which made 36.84 billion t/km (4.7% growth), and gas pipelines, which hit 37.99 billion t/km (0.5% growth).
The throughput of air transport fell by 15.9% to 56.82 million t/km.
Since the beginning of navigation, the river transport throughput amounted to 47.68 million t/km, 4.3% down year-on-year.
In the first 10 months of 2008, passenger turnover was 103.27 billion passenger-kilometres (1.7% growth year-on-year).
Eesti Raudtee: Record Decline 
Eesti Raudtee (Estonian Railways) transported 21.59 million tons of cargo in the first 10 months of 2008, which is 32% less compared with the same period in 2007, when 31.74 million tons was carried.
In January-October 2008, oil products made up the larger share of the transported volume – 15.1 million tons. Also, the company transported 18,300 TEU to Russia and Asian countries.
In October 2008, Estonian Railways carried 2.24 million tons of cargo (a 13.4% decline), including 1.51 million tons of oil products.
Investment Will Save Us From A Crisis  
At its meeting held on November 13, 2008, the RF Government discussed the issue of railway development and reform. In particular, they examined the problem of investments in OAO RZD.
OAO RZD and the Ministry of Transport suggested to the RF Government three options in terms of investment programmes for discussion. After the meeting Igor Levitin, Russian Transport Minister, said the Government reviewed the “toughest” variant envisaging a decrease of transportation volume by 6% and revenue reduction of approximately RUR 75 billion.
Simultaneously it was decided to make no reduction in the investment programmes of OAO RZD. The Transport Minister said that this especially concerns the programmes of infrastructure and rolling stock repair and renewal. As was said at the meeting, the physical volume of the programmes must remain the same as planned.
To keep the planned volumes in spite of the obvious lack of means to carry out investment programmes, the Government recommended OAO RZD find a way to purchase the necessary materials and utilities at least 20% cheaper than nowadays.
As was planned before, next year approximately 50,000 units of rolling stock will be purchased by OAO RZD, the First Cargo Company and private operators. Both the First Cargo Company and private operators have already confirmed their purchasing intentions.
At the same time, as Igor Levitin says, while OAO RZD can take out a loan to buy rolling stock, private companies will need state support for that.
Zero VAT Rate for Ukrainian Road Hauliers     
On November 12, 2008, the Ukrainian Cabinet approved implementation of a zero VAT rate for international road hauliers. 
Joseph Vinsky, the country’s Minister of Transport and Communication, said that the decision was fixed in the bill “On Putting Amendments to the Law “On the VAT”.
In his words, Ukrainian international road hauliers have to work under tough competition. Annually they lost 110-140 million hryvnias (14.65-18.65 million euros) by paying VAT, which made them unable to compete with companies from other countries, where VAT is not applied to this activity.
Russian Railways: Freight Transportation Volume Increased
In January-October 2008, the volume of freight transportation along Russian railways grew by 1.2% to more than 1.12 billion tons, including 246 million tons of coal (+5.1%), 11 million tons of coke (+4.5%), 193.6 million tons of oil and oil products (+0.5%), 92.2 million tons of iron and manganese ore (+0.8%), 70.2 million tons of ferrous metals (+1.2%), 23.2 million tons of ferrous metal scrap (+3.4%), 37.6 million tons of chemicals and mineral fertilisers (+1.3%), 175.6 million tons of construction materials (+3.8%), 32 million tons of cement (-10.4%), and 48.8 million tons of timber (-12%).
In those ten months, the throughput increased by 4.6% to 1.72 billion tariff tonne-kilometres. The most significant growth in throughput took place on the Zabaikalskaya railway (+12.2%), the Krasnoyarskaya railway (+11.9%), and East-Siberian railway (+11.3%).
Meanwhile, in October 2008, transportation volumes fell by 4.4% year-on-year to 112.3 million tons.
Cooperation for Common Welfare
Chinese language will be allowed to be used to fill in the single CIM/SMGS invoice used for organising container transit transportation by railway from China to Europe via Russia. So, the document may be completed in China without further re-registration.
Such an arrangement was achieved by Alexander Misharin, Deputy Transport Minister of Russia, and Hu Yadong, Vice Minister of Ministry of Railways of the People’s Republic of China, at the 12th meeting of the Russian-Chinese subcommittee for cooperation in the transport sector. Representatives of Russia and China also stressed that much had been done to launch block trains from China to Russia and European countries. Due to the joint efforts of Russian and Chinese railways, block trains were launched on the following routes: China (Beijing) – Mongolia – Russia – Germany (Hamburg), China (Shenzhen) – Russia – Czechia, China- Russia – South Eastern European countries, Beijing – Manchuria – Moscow, Tianjin – Manchuria – Moscow among others.
Russian Ports: Results of First Nine Months
In January-September 2008, the handling volume in Russian ports grew by 1.6% year-on-year to 340.9 million tons. During the period the ports handled 145.7 million tons of dry cargoes, including 24.5 million tons of freight in large capacity containers.
The throughput of liquid bulk fell by 1.7% to 195.2 million tons.
The share of export freight was 257 million tons, that of import cargo – 32.9 million tons, transit – 28.7 million tons and coastal trade – 22.3 million tons, which accounted for 75%, 10%, 8% and 7% respectively.
Russian sea terminals operating in the North-Western basin increased throughput by 3.1% to 161.4 million tons. The ports of the Far Eastern basin handled 61.26 million tons, 3.3% up year-on-year. Meanwhile, the ports of the Southern basin saw throughput fall by 1.1% to 118.24 million tons.
LDz Cargo: More Oil Products and Coal
LDz Cargo, a daughter company of Latvijas dzelzcels (LDz, Latvian Railway), transported 40.882 million tons of cargo in January-September 2008, 6.3% up year-on-year.
The amount of import freight carried via port stations grew by 11.3% to 30.568 million tons, and total import transportation increased by 8.1% to 34.022 million tons. Land transit (mainly to Estonia) fell by 2.6% to 3.62 million tons.
The share of oil products in the transported volume is still high – 14.473 million tons, 0.1% up year-on-year. Coal is in second place – 12.899 million tons (24.7% growth).
There was a sharp growth in transportation of chemicals (to 1.976 million tons, +55%), grain and cereals (857,000 tons, +25.7%), ferrous metals (2.207 million tons, +8.2%), and mineral fertilisers (3.796 million tons, -11.3%).
Ukrzaliznytsya: Transportation Growth Rate Is Falling
In January – October 2008, Ukrzaliznytsya (Ukrainian railways) increased the volume of freight transportation by 3.2% in comparison with the same period the previous year. In the first ten months the throughput grew by 3.6%.
Ukrainian railways carried 438.4 million tons of cargo – more than 55% of the total volume transported in Ukraine in January-October. The throughput of Ukrzaliznytsya amounted to 224.78 billion tonne-kilometres or 53.4% of the total throughput of Ukrainian transport. Meanwhile, the rate of growth in transportation by railway is falling. Ukrzaliznytsya increased freight transportation volume by 7.5% in Q1 of 2008 and by 6.7% in the first half of the year. In the first three quarters, the growth fell to +5.4% only. According to the results of the first 10 months, the rate of growth of railway transportation fell to +3.6%.
Cargoes on the Way to Lithuania 
In the first three quarters of 2008 Lietuvos gelezinkeliai (Lithuanian railways) transported 42.3 million tons of cargo, 6.3% up year-on-year.
International transportation grew by 0.2% to 30.6 million tons. Domestic transportation (mainly oil products of Mazeikiu nafta) increased by 26% to 11.7 million tons.
During the period, Lietuvos gelezinkeliai carried 17 million tons of oil and oil products, 8 million tons of mineral fertilisers, 2.9 million tons of metals, 2.7 million tons of coal and coke and 1.4 million tons of grain.
Over 134 Million Tons Carried in Azerbaijan in 9 Months 
The volume of freight transportation in Azerbaijan in January-September 2008 amounted to 134.5 million tons, 11.4% up year-on-year.
The share of private transport enterprises was 69.1%, and that of state companies was 30.9%.
20.8 million tons of cargoes (including transit) was carried by railway, 0.7% down year-on-year.
The Republic’s sea transport carried 8.5 million tons of different freight (12.6% growth). The share of oil and oil products in the volume carried by sea transport was 67.6% and that of dry cargoes was 32.4%.
The volume of freight carried by road transport amounted to 62.4 million tons (7.2% growth).
34.7 million tons of oil was transported by oil pipelines (a 19.8% increase), including 26 million tons carried by the Baku-Tbilisi-Jeihan oil pipeline. In the first 9 months of 2008, the gas pipelines transported 8.1 million tons of gas (62% growth), and the share of Baku-Tbilisi-Erzerum in the volume was 29.2%.
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The RF Ministry of Transport coordinates and controls the activities of the subordinate Federal Aeronautical Service, Federal Service for Supervision in the Transport Sphere, Federal Agency for Air Transport, Federal Road Agency, Federal Agency for Railway Transport and Federal Agency for Sea and River Transport.
The structural sub-units of the Ministry are departments of the Ministry’s basic activities. 
In their jurisdiction, the departments revise the material of the federal service and the federal agencies subordinated to the Ministry; develop their work for different Bills or other necessary documents that are to go to the State Duma of the Russian Federation (via the department in charge of financial activity); and simultaneously with the Bill of the Law on the federal budget. 
 
 
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            [ELEMENT_DETAIL_PICTURE_FILE_TITLE] => Ministry of Transport
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Construction Site of the Century 
During the course of its more than thirty-year history, the Baikal-Amur Mainline (BAM) has kept its most enviable trait – its potential. BAM was assigned to become a shorter option than the Trans-Siberian Railway from the central part of the USSR to the Pacific Ocean, but not only that. This transport artery was meant to provide access to northern territories of the country, where a huge deposit of raw minerals and plenty of wood resources were concentrated. 
Now this initiative of transport development in North-East Siberia (from Baikal to Amur, and then on to Yakutia, Chukotka and Kamchatka) is already more than a century old. 
In fact, the construction of BAM started in the 1930s, before the Second World War. However, during the Stalingrad Battle (1942-1943) the rails laid were dismantled and taken to Volga region for the purpose of restoring roads destroyed in battle. The works were restarted only in April 1972, when construction of the line BAM-Tynda, known as Small BAM, had begun. In two years The CPSU Central Committee and The Council of Ministers of the USSR adopted the decision to build the Baikal-Amur Mainline railroad. Construction of the 3,145-km mainline from the city of Ust-Kut up to the city Komsomolsk-On-Amur was entrusted to the Ministry of Railways and the Ministry of Transport Construction. 
Also, it was projected to lay the second 680 km of railroad, in addition to the already-operational western part of BAM Taishet-Lena, and to build a single-line 400 km BAM railroad Tynda – Berkakit. In November 1977, the BAM-Tynda line was put into operation. The scheduled movement of trains from Tynda to Berkakit was started soon after. So, part of the Baikal-Amur Mainline railroad started operating in January, 1981. In October 1984, the railway-laying on the main railroad was completed and the ongoing scheduled movement of trains was started along the whole length of the mainline railroad. The length of BAM from Tayshet to Soviet Harbour (Khabarovsk territory) is more than 5,500 km.
A new goal connected with BAM was introduced to the country. The railroad had to be built on to Yakutsk, then to Magadan, and after that further on to Chukotka and Kamchatka. 
However, with the disintegration of the USSR, the state plans for the development of the territories adjoining BAM were scrapped. The economic crisis of the nineties, followed by an almost complete industrial failure and collapse in transportation volumes, made the mainline irrelevant.  
The absence of a comprehensive state approach to the development of the North has negatively affected the social and economic situation of those regions. It showed up in a mass outflow of the population, high rates of unemployment, increasing mortality rates and a falling birth rate. Volumes of cargo transportation on the mainline fell to only 45-50 % of its designed capacity.  
Treasury of Minerals 
According to the Ministry of Natural Resources and Ecology of the Russian Federation, total estimated worth of minerals in the land around BAM is more than 600 billion dollars. In 1949, the unique Udokanskoye deposit of copper sandstone was found. It is considered that, together with other research opportunities discovered north of the Transsib, it was exactly the reason for the choice of BAM rail line’s present location. 
After the governmental decision to begin the construction of BAM in north-east Siberia, intensive geological works were started. Their completion coincided exactly with the moment the potential of raw minerals deposit was declared. First of all, it was oil, gas, coal, copper, gold, tin, rare metals, vanadium, molybdenum, potash salts and chrysolite-asbestos. Large stocks of iron ores, apatite, lead and zinc have been found there too. 
For example, by the beginning of the millennium, 33 deposits of hydrocarbonic stocks were discovered in the BAM area. The most significant one today is the Kovyktinskoye gas condensate stock deposit, with more than 276 billion cubic metres of gas discovered and more than 11 million tons of condensate. It is expected that the gas will be flowing from this deposit area to China for several decades to come. 
Experts say that the Nepsko-Botuobinskaya oil and gas multi-stocks zone is also of great interest. As estimated, there are 26 deposits of oil condensate within its borders. The largest of them is Verkhnechonskoye, with discovered deposits of almost 160 million tons of oil. 
Large stocks of coal are located in the Elginskoye field in Yakutia. On the territory of Chita Oblast, the Apsatskoye deposit of coked coals can be found, with a volume of more than 1 billion tons. The deposits of gold in Sukhoy Log, Irkutsk Oblast, are still the largest in Russia. 
The Ministry of Natural Resources and Ecology of the Russian Federation has stated that, to realise only the most significant projects for developing mineral resources in the BAM zone, about 10 billion dollars of investment should be made. The cost of work on this legendary railroad project is approximately the same.  
Strategy of Breaking Through
 “I shall not be afraid to make bold statements - that in 2008 BAM will receive its second life,” says Alexey Vorotilkin, Vice-President of OAO RZD (before June, 2008 the Director of East Siberian Railway). “Only this year, investment in the infrastructure of North-Baikal Branch of the East-Siberian Railway (part of BAM) will be 9 billion roubles”. 
A step-by-step program of BAM infrastructure development has been worked out on the East Siberian Railway. During the first stage until 2010, it is planned to increase throughput on the railroad to up to 14 pairs of trains a day. The investment will be more than 15 billion roubles. Funds will be allocated for the construction of new lines, laying railroads and renovation of infrastructure buildings. 
The second step of the program, which is outlined until 2013 with almost 14 billion roubles in investment, assumes an increase in throughput to up to 24 pairs of trains a day. At this stage, completion of reconstruction of the First Korshunovsky and the Baikal tunnels is planned. The need to increase the capacity of the electric supply system at a number of sites and construct a high-voltage electric line (500 kW) is under consideration now as well. To resolve these problems, OAO RZD plans to attract 16.5 billion roubles from the Investment Fund of the Russian Federation. 
Further development of BAM infrastructure to 2030, with 27.5 billion roubles of investment, will provide the required throughput, with redirection of some freight traffic from the Trans-Siberian Railway.  
The East Siberian Railway is planning to build about 3,000 km of new railroads, as part of its implementation of the Strategy for Railway Transport Development up to 2030. The ‘towards BAM’ railway lines are on the list of most significant projects. They go to the Apsatskoye deposit of coked coal and Chineyskoye deposit of polymetallic ores. Realisation of another project – building a bypass railway between the New Uoyan and Mogaon stations – will allow redirection of transit trains to BAM from the Trans-Siberian Railway around the barriers. 
BAM Requires State Support
In May 2007, The Council of Federation (the upper chamber of the Russian Parliament) held a special session of the Commission on Natural Monopolies. They were led by Nikolay Ryzhkov, the Chairman of the Council of Federation and a former head of the government of the USSR. The topic was the current state of affairs and prospects for the development of the adjoining BAM territories. “We believe that there will be a time when all our decisions and our speeches find their way to the country’s leaders. And serious measures on development of this unique territory along this unique road will be undertaken,” Mr. Ryzhkov noted. 
“It would be desirable to see the state get involved in the region of BAM,” the now former governor of Irkutsk area Alexander Tishanin has openly said. – “Maximal use of the resource potential in Eastern Siberia is not only a good idea, it is a geopolitical duty.” 
Representatives of OAO RZD have also given their reasons for the state to necessarily participate in the development of this railroad. It is necessary to invest more than 61 billion roubles until 2020 on just works to increase BAM’s throughput, with companies contributing 2 billion roubles from 2007 until 2009. Also the railway representatives have emphasised the idea that one cannot expect the railroad, which goes through uninhabited and sparsely populated territories, to simply develop itself. 
It was in June 2008, that the Udokanskoye Deposit situation moved closer to a positive outcome. The company “Russian Copper” (a joint venture of OAO RZD, the Ural Mining and Metallurgical Company and the Bank for Development and Foreign Economic Affairs (Vnesheconombank)) has applied to the Federal Subsoil Use Agency of the Russian Federation to participate in the competition for the development of the Udokanskoye copper deposit. The President of OAO RZD, Vladimir Yakunin, has said that, if they win the competition, the total amount of investment within 17 years will be 1.9 billion dollars. Realisation of the project will allow the railway transport company to increase loading of BAM by 1.5 million tons a year exclusively as a result of the gas concentrate and copper from the Udokanskoye deposit.   
It is possible that the project for realisation of the program for the development of the Elginskoye coal field will not be postponed anymore. In June, the group of companies “Mechel” has announced the start of construction of the railway to the Elginskoye deposit. The estimated cost of the project is 900 million dollars, says the group. Builders should lay almost 260 km of new railroad in the line Ulak-Elga and modernise about 60 km of that built at the beginning of 2000. The first train with coal should depart from the deposit’s station in 2010. The predicted volume of transportation is 30 million tons a year.  
OOO “Golden East Siberia” offers a project of building a cement plant and wood-processing complex in the BAM area on the territory of the Mujsky region in the Republic of Buryatiya. Funding, which the company and investors are ready to put into the construction of the cement plant, amounts to 130 million euros. Construction of the wood-processing complex will allow the production of 500,000 cubic metres of raw wood logs, 170,000 cubic metres of pressed wood chips and 70,000 cubic metres of veneer sheets annually.  
Light at the End of the Korshunovsky Tunnel 
By the end of June this year, builders put into operation the second Korshunovsky 950-metre tunnel on the East-Siberian Railway (the branch of OAO RZD). It is located near the western side of the Korshunikha-Angarsk station.
“The necessity to build the second Korshunovsky tunnel is dictated by time,” the Chief Engineer of the East-Siberian Railway Alexander Skachkov has noted. “The number of cargo and passenger transportations on BAM grows, there are new requirements to provide higher speed and a better level of train traffic safety.” About ten companies took part in the construction of the second Korshunovsky tunnel, which started at the beginning of 2004. 3.3 billion roubles was spent building it. Application of new technologies allows a considerable reduction in the level of vibration caused by trains moving through the tunnel. The new tunnel is ready to take 18 pairs of trains, at a speed of more than 60 km per hour. The first tunnel had allowed trains to go at a speed of not more than 40 km per hour.  
Cargoes Are Requiring “Green Light” in the Seaports of Vanino and Soviet Harbour 
The latest investment decisions of OAO RZD regarding renovation of Komsomolsk-on-Amur – the Soviet Harbour (Eastern part of BAM) road and construction of a new Kuznetsovsky tunnel have become “a balm on the soul” for those exporters who send their cargoes to the countries of Asia and the Pacific Ocean region through the seaports of Vanino and Soviet Harbour.
In 2008, works started in order to remove the narrowest sector on the way to the last point of BAM, that is the Vaninо- Soviet Harbour transportation-industrial crossway. It was announced on the Far East Railway that the construction of roads to the new Kuznetsovsky tunnel was already ongoing. 
The Oune – Vysokogornaya road section, where the 413-metre Kuznetsovsky tunnel is located, was built in 1945, according to wartime standards. The spot is marked with landslides and small-radius curves. The tunnel cannot carry bulky goods or run trains of more than 3,600 tons in weight. As a result, today the throughput of The Oune – Vysokogornaya is 12 million tons a year.  
A new 3.9 km tunnel, which will be built on a roundabout railway line, is expected to be put into operation in five to six years. Its construction will cost 15 billion roubles.
The Far East Railway says that, from 2008 to 2016, 60 billion roubles’ worth of works will be carried out on the site Komsomolsk-on Amur - the Soviet Harbour. A great deal of works on development of stations and restoration of crossings is planned by OAO RZD in its project to be done together with the building of the roundabout railway Oune –Vysokogornaya and the new Kuznetsovsky tunnel. However, putting the new Kuznetsovsky tunnel into operation cannot solve all cargo throughput problems at the point of approaching the Port of Vanino and the Soviet Harbour port. 
The forecast of the Far East Marine Sea Fleet Scientific Research Institute is that, by 2020, the minimum cargo turnover of the Vanino-Soviet Harbour transportation-industrial crossway will be at least 53 million tons, and a maximal figure may be even up to 80. Analysts connect prospects of seaports with the forecasted growth in exports of coal and ore from the Siberian and Far East deposits to countries in the Asian and Pacific Ocean regions. Throughput of the present “narrow” spot will grow to up to 30 million tons after putting the new Kuznetsovskaya tunnel into operation.
In Conclusion
With the intensive industrial development of northern areas of the People’s Republic of China, the facilities of Russian Railways, first of all the Trans-Siberian Railway, will be much in demand. BAM, which had been projected as a self-sufficient railway mainline with its own cargo base, can become a good assistant to the overloaded Trans-Siberian Railway. 
Leila Mustafaeva
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Construction Site of the Century 
During the course of its more than thirty-year history, the Baikal-Amur Mainline (BAM) has kept its most enviable trait – its potential. BAM was assigned to become a shorter option than the Trans-Siberian Railway from the central part of the USSR to the Pacific Ocean, but not only that. This transport artery was meant to provide access to northern territories of the country, where a huge deposit of raw minerals and plenty of wood resources were concentrated. 
Now this initiative of transport development in North-East Siberia (from Baikal to Amur, and then on to Yakutia, Chukotka and Kamchatka) is already more than a century old. 
In fact, the construction of BAM started in the 1930s, before the Second World War. However, during the Stalingrad Battle (1942-1943) the rails laid were dismantled and taken to Volga region for the purpose of restoring roads destroyed in battle. The works were restarted only in April 1972, when construction of the line BAM-Tynda, known as Small BAM, had begun. In two years The CPSU Central Committee and The Council of Ministers of the USSR adopted the decision to build the Baikal-Amur Mainline railroad. Construction of the 3,145-km mainline from the city of Ust-Kut up to the city Komsomolsk-On-Amur was entrusted to the Ministry of Railways and the Ministry of Transport Construction. 
Also, it was projected to lay the second 680 km of railroad, in addition to the already-operational western part of BAM Taishet-Lena, and to build a single-line 400 km BAM railroad Tynda – Berkakit. In November 1977, the BAM-Tynda line was put into operation. The scheduled movement of trains from Tynda to Berkakit was started soon after. So, part of the Baikal-Amur Mainline railroad started operating in January, 1981. In October 1984, the railway-laying on the main railroad was completed and the ongoing scheduled movement of trains was started along the whole length of the mainline railroad. The length of BAM from Tayshet to Soviet Harbour (Khabarovsk territory) is more than 5,500 km.
A new goal connected with BAM was introduced to the country. The railroad had to be built on to Yakutsk, then to Magadan, and after that further on to Chukotka and Kamchatka. 
However, with the disintegration of the USSR, the state plans for the development of the territories adjoining BAM were scrapped. The economic crisis of the nineties, followed by an almost complete industrial failure and collapse in transportation volumes, made the mainline irrelevant.  
The absence of a comprehensive state approach to the development of the North has negatively affected the social and economic situation of those regions. It showed up in a mass outflow of the population, high rates of unemployment, increasing mortality rates and a falling birth rate. Volumes of cargo transportation on the mainline fell to only 45-50 % of its designed capacity.  
Treasury of Minerals 
According to the Ministry of Natural Resources and Ecology of the Russian Federation, total estimated worth of minerals in the land around BAM is more than 600 billion dollars. In 1949, the unique Udokanskoye deposit of copper sandstone was found. It is considered that, together with other research opportunities discovered north of the Transsib, it was exactly the reason for the choice of BAM rail line’s present location. 
After the governmental decision to begin the construction of BAM in north-east Siberia, intensive geological works were started. Their completion coincided exactly with the moment the potential of raw minerals deposit was declared. First of all, it was oil, gas, coal, copper, gold, tin, rare metals, vanadium, molybdenum, potash salts and chrysolite-asbestos. Large stocks of iron ores, apatite, lead and zinc have been found there too. 
For example, by the beginning of the millennium, 33 deposits of hydrocarbonic stocks were discovered in the BAM area. The most significant one today is the Kovyktinskoye gas condensate stock deposit, with more than 276 billion cubic metres of gas discovered and more than 11 million tons of condensate. It is expected that the gas will be flowing from this deposit area to China for several decades to come. 
Experts say that the Nepsko-Botuobinskaya oil and gas multi-stocks zone is also of great interest. As estimated, there are 26 deposits of oil condensate within its borders. The largest of them is Verkhnechonskoye, with discovered deposits of almost 160 million tons of oil. 
Large stocks of coal are located in the Elginskoye field in Yakutia. On the territory of Chita Oblast, the Apsatskoye deposit of coked coals can be found, with a volume of more than 1 billion tons. The deposits of gold in Sukhoy Log, Irkutsk Oblast, are still the largest in Russia. 
The Ministry of Natural Resources and Ecology of the Russian Federation has stated that, to realise only the most significant projects for developing mineral resources in the BAM zone, about 10 billion dollars of investment should be made. The cost of work on this legendary railroad project is approximately the same.  
Strategy of Breaking Through
 “I shall not be afraid to make bold statements - that in 2008 BAM will receive its second life,” says Alexey Vorotilkin, Vice-President of OAO RZD (before June, 2008 the Director of East Siberian Railway). “Only this year, investment in the infrastructure of North-Baikal Branch of the East-Siberian Railway (part of BAM) will be 9 billion roubles”. 
A step-by-step program of BAM infrastructure development has been worked out on the East Siberian Railway. During the first stage until 2010, it is planned to increase throughput on the railroad to up to 14 pairs of trains a day. The investment will be more than 15 billion roubles. Funds will be allocated for the construction of new lines, laying railroads and renovation of infrastructure buildings. 
The second step of the program, which is outlined until 2013 with almost 14 billion roubles in investment, assumes an increase in throughput to up to 24 pairs of trains a day. At this stage, completion of reconstruction of the First Korshunovsky and the Baikal tunnels is planned. The need to increase the capacity of the electric supply system at a number of sites and construct a high-voltage electric line (500 kW) is under consideration now as well. To resolve these problems, OAO RZD plans to attract 16.5 billion roubles from the Investment Fund of the Russian Federation. 
Further development of BAM infrastructure to 2030, with 27.5 billion roubles of investment, will provide the required throughput, with redirection of some freight traffic from the Trans-Siberian Railway.  
The East Siberian Railway is planning to build about 3,000 km of new railroads, as part of its implementation of the Strategy for Railway Transport Development up to 2030. The ‘towards BAM’ railway lines are on the list of most significant projects. They go to the Apsatskoye deposit of coked coal and Chineyskoye deposit of polymetallic ores. Realisation of another project – building a bypass railway between the New Uoyan and Mogaon stations – will allow redirection of transit trains to BAM from the Trans-Siberian Railway around the barriers. 
BAM Requires State Support
In May 2007, The Council of Federation (the upper chamber of the Russian Parliament) held a special session of the Commission on Natural Monopolies. They were led by Nikolay Ryzhkov, the Chairman of the Council of Federation and a former head of the government of the USSR. The topic was the current state of affairs and prospects for the development of the adjoining BAM territories. “We believe that there will be a time when all our decisions and our speeches find their way to the country’s leaders. And serious measures on development of this unique territory along this unique road will be undertaken,” Mr. Ryzhkov noted. 
“It would be desirable to see the state get involved in the region of BAM,” the now former governor of Irkutsk area Alexander Tishanin has openly said. – “Maximal use of the resource potential in Eastern Siberia is not only a good idea, it is a geopolitical duty.” 
Representatives of OAO RZD have also given their reasons for the state to necessarily participate in the development of this railroad. It is necessary to invest more than 61 billion roubles until 2020 on just works to increase BAM’s throughput, with companies contributing 2 billion roubles from 2007 until 2009. Also the railway representatives have emphasised the idea that one cannot expect the railroad, which goes through uninhabited and sparsely populated territories, to simply develop itself. 
It was in June 2008, that the Udokanskoye Deposit situation moved closer to a positive outcome. The company “Russian Copper” (a joint venture of OAO RZD, the Ural Mining and Metallurgical Company and the Bank for Development and Foreign Economic Affairs (Vnesheconombank)) has applied to the Federal Subsoil Use Agency of the Russian Federation to participate in the competition for the development of the Udokanskoye copper deposit. The President of OAO RZD, Vladimir Yakunin, has said that, if they win the competition, the total amount of investment within 17 years will be 1.9 billion dollars. Realisation of the project will allow the railway transport company to increase loading of BAM by 1.5 million tons a year exclusively as a result of the gas concentrate and copper from the Udokanskoye deposit.   
It is possible that the project for realisation of the program for the development of the Elginskoye coal field will not be postponed anymore. In June, the group of companies “Mechel” has announced the start of construction of the railway to the Elginskoye deposit. The estimated cost of the project is 900 million dollars, says the group. Builders should lay almost 260 km of new railroad in the line Ulak-Elga and modernise about 60 km of that built at the beginning of 2000. The first train with coal should depart from the deposit’s station in 2010. The predicted volume of transportation is 30 million tons a year.  
OOO “Golden East Siberia” offers a project of building a cement plant and wood-processing complex in the BAM area on the territory of the Mujsky region in the Republic of Buryatiya. Funding, which the company and investors are ready to put into the construction of the cement plant, amounts to 130 million euros. Construction of the wood-processing complex will allow the production of 500,000 cubic metres of raw wood logs, 170,000 cubic metres of pressed wood chips and 70,000 cubic metres of veneer sheets annually.  
Light at the End of the Korshunovsky Tunnel 
By the end of June this year, builders put into operation the second Korshunovsky 950-metre tunnel on the East-Siberian Railway (the branch of OAO RZD). It is located near the western side of the Korshunikha-Angarsk station.
“The necessity to build the second Korshunovsky tunnel is dictated by time,” the Chief Engineer of the East-Siberian Railway Alexander Skachkov has noted. “The number of cargo and passenger transportations on BAM grows, there are new requirements to provide higher speed and a better level of train traffic safety.” About ten companies took part in the construction of the second Korshunovsky tunnel, which started at the beginning of 2004. 3.3 billion roubles was spent building it. Application of new technologies allows a considerable reduction in the level of vibration caused by trains moving through the tunnel. The new tunnel is ready to take 18 pairs of trains, at a speed of more than 60 km per hour. The first tunnel had allowed trains to go at a speed of not more than 40 km per hour.  
Cargoes Are Requiring “Green Light” in the Seaports of Vanino and Soviet Harbour 
The latest investment decisions of OAO RZD regarding renovation of Komsomolsk-on-Amur – the Soviet Harbour (Eastern part of BAM) road and construction of a new Kuznetsovsky tunnel have become “a balm on the soul” for those exporters who send their cargoes to the countries of Asia and the Pacific Ocean region through the seaports of Vanino and Soviet Harbour.
In 2008, works started in order to remove the narrowest sector on the way to the last point of BAM, that is the Vaninо- Soviet Harbour transportation-industrial crossway. It was announced on the Far East Railway that the construction of roads to the new Kuznetsovsky tunnel was already ongoing. 
The Oune – Vysokogornaya road section, where the 413-metre Kuznetsovsky tunnel is located, was built in 1945, according to wartime standards. The spot is marked with landslides and small-radius curves. The tunnel cannot carry bulky goods or run trains of more than 3,600 tons in weight. As a result, today the throughput of The Oune – Vysokogornaya is 12 million tons a year.  
A new 3.9 km tunnel, which will be built on a roundabout railway line, is expected to be put into operation in five to six years. Its construction will cost 15 billion roubles.
The Far East Railway says that, from 2008 to 2016, 60 billion roubles’ worth of works will be carried out on the site Komsomolsk-on Amur - the Soviet Harbour. A great deal of works on development of stations and restoration of crossings is planned by OAO RZD in its project to be done together with the building of the roundabout railway Oune –Vysokogornaya and the new Kuznetsovsky tunnel. However, putting the new Kuznetsovsky tunnel into operation cannot solve all cargo throughput problems at the point of approaching the Port of Vanino and the Soviet Harbour port. 
The forecast of the Far East Marine Sea Fleet Scientific Research Institute is that, by 2020, the minimum cargo turnover of the Vanino-Soviet Harbour transportation-industrial crossway will be at least 53 million tons, and a maximal figure may be even up to 80. Analysts connect prospects of seaports with the forecasted growth in exports of coal and ore from the Siberian and Far East deposits to countries in the Asian and Pacific Ocean regions. Throughput of the present “narrow” spot will grow to up to 30 million tons after putting the new Kuznetsovskaya tunnel into operation.
In Conclusion
With the intensive industrial development of northern areas of the People’s Republic of China, the facilities of Russian Railways, first of all the Trans-Siberian Railway, will be much in demand. BAM, which had been projected as a self-sufficient railway mainline with its own cargo base, can become a good assistant to the overloaded Trans-Siberian Railway. 
Leila Mustafaeva
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    [~PREVIEW_TEXT] => The Baikal-Amur Mainline railroad (from East Siberia to Far East) runs through an area rich in mineral resources desired in the People’s Republic of China. In 2007-2008, OAO RZD and a number of private companies have undertaken efforts to modernise BAM. One can see evidence of the fact that, in the near future, BAM will come out of its present poor state to become one of the busiest railroads in Russia.
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Construction Site of the Century 
During the course of its more than thirty-year history, the Baikal-Amur Mainline (BAM) has kept its most enviable trait – its potential. BAM was assigned to become a shorter option than the Trans-Siberian Railway from the central part of the USSR to the Pacific Ocean, but not only that. This transport artery was meant to provide access to northern territories of the country, where a huge deposit of raw minerals and plenty of wood resources were concentrated. 
Now this initiative of transport development in North-East Siberia (from Baikal to Amur, and then on to Yakutia, Chukotka and Kamchatka) is already more than a century old. 
In fact, the construction of BAM started in the 1930s, before the Second World War. However, during the Stalingrad Battle (1942-1943) the rails laid were dismantled and taken to Volga region for the purpose of restoring roads destroyed in battle. The works were restarted only in April 1972, when construction of the line BAM-Tynda, known as Small BAM, had begun. In two years The CPSU Central Committee and The Council of Ministers of the USSR adopted the decision to build the Baikal-Amur Mainline railroad. Construction of the 3,145-km mainline from the city of Ust-Kut up to the city Komsomolsk-On-Amur was entrusted to the Ministry of Railways and the Ministry of Transport Construction. 
Also, it was projected to lay the second 680 km of railroad, in addition to the already-operational western part of BAM Taishet-Lena, and to build a single-line 400 km BAM railroad Tynda – Berkakit. In November 1977, the BAM-Tynda line was put into operation. The scheduled movement of trains from Tynda to Berkakit was started soon after. So, part of the Baikal-Amur Mainline railroad started operating in January, 1981. In October 1984, the railway-laying on the main railroad was completed and the ongoing scheduled movement of trains was started along the whole length of the mainline railroad. The length of BAM from Tayshet to Soviet Harbour (Khabarovsk territory) is more than 5,500 km.
A new goal connected with BAM was introduced to the country. The railroad had to be built on to Yakutsk, then to Magadan, and after that further on to Chukotka and Kamchatka. 
However, with the disintegration of the USSR, the state plans for the development of the territories adjoining BAM were scrapped. The economic crisis of the nineties, followed by an almost complete industrial failure and collapse in transportation volumes, made the mainline irrelevant.  
The absence of a comprehensive state approach to the development of the North has negatively affected the social and economic situation of those regions. It showed up in a mass outflow of the population, high rates of unemployment, increasing mortality rates and a falling birth rate. Volumes of cargo transportation on the mainline fell to only 45-50 % of its designed capacity.  
Treasury of Minerals 
According to the Ministry of Natural Resources and Ecology of the Russian Federation, total estimated worth of minerals in the land around BAM is more than 600 billion dollars. In 1949, the unique Udokanskoye deposit of copper sandstone was found. It is considered that, together with other research opportunities discovered north of the Transsib, it was exactly the reason for the choice of BAM rail line’s present location. 
After the governmental decision to begin the construction of BAM in north-east Siberia, intensive geological works were started. Their completion coincided exactly with the moment the potential of raw minerals deposit was declared. First of all, it was oil, gas, coal, copper, gold, tin, rare metals, vanadium, molybdenum, potash salts and chrysolite-asbestos. Large stocks of iron ores, apatite, lead and zinc have been found there too. 
For example, by the beginning of the millennium, 33 deposits of hydrocarbonic stocks were discovered in the BAM area. The most significant one today is the Kovyktinskoye gas condensate stock deposit, with more than 276 billion cubic metres of gas discovered and more than 11 million tons of condensate. It is expected that the gas will be flowing from this deposit area to China for several decades to come. 
Experts say that the Nepsko-Botuobinskaya oil and gas multi-stocks zone is also of great interest. As estimated, there are 26 deposits of oil condensate within its borders. The largest of them is Verkhnechonskoye, with discovered deposits of almost 160 million tons of oil. 
Large stocks of coal are located in the Elginskoye field in Yakutia. On the territory of Chita Oblast, the Apsatskoye deposit of coked coals can be found, with a volume of more than 1 billion tons. The deposits of gold in Sukhoy Log, Irkutsk Oblast, are still the largest in Russia. 
The Ministry of Natural Resources and Ecology of the Russian Federation has stated that, to realise only the most significant projects for developing mineral resources in the BAM zone, about 10 billion dollars of investment should be made. The cost of work on this legendary railroad project is approximately the same.  
Strategy of Breaking Through
 “I shall not be afraid to make bold statements - that in 2008 BAM will receive its second life,” says Alexey Vorotilkin, Vice-President of OAO RZD (before June, 2008 the Director of East Siberian Railway). “Only this year, investment in the infrastructure of North-Baikal Branch of the East-Siberian Railway (part of BAM) will be 9 billion roubles”. 
A step-by-step program of BAM infrastructure development has been worked out on the East Siberian Railway. During the first stage until 2010, it is planned to increase throughput on the railroad to up to 14 pairs of trains a day. The investment will be more than 15 billion roubles. Funds will be allocated for the construction of new lines, laying railroads and renovation of infrastructure buildings. 
The second step of the program, which is outlined until 2013 with almost 14 billion roubles in investment, assumes an increase in throughput to up to 24 pairs of trains a day. At this stage, completion of reconstruction of the First Korshunovsky and the Baikal tunnels is planned. The need to increase the capacity of the electric supply system at a number of sites and construct a high-voltage electric line (500 kW) is under consideration now as well. To resolve these problems, OAO RZD plans to attract 16.5 billion roubles from the Investment Fund of the Russian Federation. 
Further development of BAM infrastructure to 2030, with 27.5 billion roubles of investment, will provide the required throughput, with redirection of some freight traffic from the Trans-Siberian Railway.  
The East Siberian Railway is planning to build about 3,000 km of new railroads, as part of its implementation of the Strategy for Railway Transport Development up to 2030. The ‘towards BAM’ railway lines are on the list of most significant projects. They go to the Apsatskoye deposit of coked coal and Chineyskoye deposit of polymetallic ores. Realisation of another project – building a bypass railway between the New Uoyan and Mogaon stations – will allow redirection of transit trains to BAM from the Trans-Siberian Railway around the barriers. 
BAM Requires State Support
In May 2007, The Council of Federation (the upper chamber of the Russian Parliament) held a special session of the Commission on Natural Monopolies. They were led by Nikolay Ryzhkov, the Chairman of the Council of Federation and a former head of the government of the USSR. The topic was the current state of affairs and prospects for the development of the adjoining BAM territories. “We believe that there will be a time when all our decisions and our speeches find their way to the country’s leaders. And serious measures on development of this unique territory along this unique road will be undertaken,” Mr. Ryzhkov noted. 
“It would be desirable to see the state get involved in the region of BAM,” the now former governor of Irkutsk area Alexander Tishanin has openly said. – “Maximal use of the resource potential in Eastern Siberia is not only a good idea, it is a geopolitical duty.” 
Representatives of OAO RZD have also given their reasons for the state to necessarily participate in the development of this railroad. It is necessary to invest more than 61 billion roubles until 2020 on just works to increase BAM’s throughput, with companies contributing 2 billion roubles from 2007 until 2009. Also the railway representatives have emphasised the idea that one cannot expect the railroad, which goes through uninhabited and sparsely populated territories, to simply develop itself. 
It was in June 2008, that the Udokanskoye Deposit situation moved closer to a positive outcome. The company “Russian Copper” (a joint venture of OAO RZD, the Ural Mining and Metallurgical Company and the Bank for Development and Foreign Economic Affairs (Vnesheconombank)) has applied to the Federal Subsoil Use Agency of the Russian Federation to participate in the competition for the development of the Udokanskoye copper deposit. The President of OAO RZD, Vladimir Yakunin, has said that, if they win the competition, the total amount of investment within 17 years will be 1.9 billion dollars. Realisation of the project will allow the railway transport company to increase loading of BAM by 1.5 million tons a year exclusively as a result of the gas concentrate and copper from the Udokanskoye deposit.   
It is possible that the project for realisation of the program for the development of the Elginskoye coal field will not be postponed anymore. In June, the group of companies “Mechel” has announced the start of construction of the railway to the Elginskoye deposit. The estimated cost of the project is 900 million dollars, says the group. Builders should lay almost 260 km of new railroad in the line Ulak-Elga and modernise about 60 km of that built at the beginning of 2000. The first train with coal should depart from the deposit’s station in 2010. The predicted volume of transportation is 30 million tons a year.  
OOO “Golden East Siberia” offers a project of building a cement plant and wood-processing complex in the BAM area on the territory of the Mujsky region in the Republic of Buryatiya. Funding, which the company and investors are ready to put into the construction of the cement plant, amounts to 130 million euros. Construction of the wood-processing complex will allow the production of 500,000 cubic metres of raw wood logs, 170,000 cubic metres of pressed wood chips and 70,000 cubic metres of veneer sheets annually.  
Light at the End of the Korshunovsky Tunnel 
By the end of June this year, builders put into operation the second Korshunovsky 950-metre tunnel on the East-Siberian Railway (the branch of OAO RZD). It is located near the western side of the Korshunikha-Angarsk station.
“The necessity to build the second Korshunovsky tunnel is dictated by time,” the Chief Engineer of the East-Siberian Railway Alexander Skachkov has noted. “The number of cargo and passenger transportations on BAM grows, there are new requirements to provide higher speed and a better level of train traffic safety.” About ten companies took part in the construction of the second Korshunovsky tunnel, which started at the beginning of 2004. 3.3 billion roubles was spent building it. Application of new technologies allows a considerable reduction in the level of vibration caused by trains moving through the tunnel. The new tunnel is ready to take 18 pairs of trains, at a speed of more than 60 km per hour. The first tunnel had allowed trains to go at a speed of not more than 40 km per hour.  
Cargoes Are Requiring “Green Light” in the Seaports of Vanino and Soviet Harbour 
The latest investment decisions of OAO RZD regarding renovation of Komsomolsk-on-Amur – the Soviet Harbour (Eastern part of BAM) road and construction of a new Kuznetsovsky tunnel have become “a balm on the soul” for those exporters who send their cargoes to the countries of Asia and the Pacific Ocean region through the seaports of Vanino and Soviet Harbour.
In 2008, works started in order to remove the narrowest sector on the way to the last point of BAM, that is the Vaninо- Soviet Harbour transportation-industrial crossway. It was announced on the Far East Railway that the construction of roads to the new Kuznetsovsky tunnel was already ongoing. 
The Oune – Vysokogornaya road section, where the 413-metre Kuznetsovsky tunnel is located, was built in 1945, according to wartime standards. The spot is marked with landslides and small-radius curves. The tunnel cannot carry bulky goods or run trains of more than 3,600 tons in weight. As a result, today the throughput of The Oune – Vysokogornaya is 12 million tons a year.  
A new 3.9 km tunnel, which will be built on a roundabout railway line, is expected to be put into operation in five to six years. Its construction will cost 15 billion roubles.
The Far East Railway says that, from 2008 to 2016, 60 billion roubles’ worth of works will be carried out on the site Komsomolsk-on Amur - the Soviet Harbour. A great deal of works on development of stations and restoration of crossings is planned by OAO RZD in its project to be done together with the building of the roundabout railway Oune –Vysokogornaya and the new Kuznetsovsky tunnel. However, putting the new Kuznetsovsky tunnel into operation cannot solve all cargo throughput problems at the point of approaching the Port of Vanino and the Soviet Harbour port. 
The forecast of the Far East Marine Sea Fleet Scientific Research Institute is that, by 2020, the minimum cargo turnover of the Vanino-Soviet Harbour transportation-industrial crossway will be at least 53 million tons, and a maximal figure may be even up to 80. Analysts connect prospects of seaports with the forecasted growth in exports of coal and ore from the Siberian and Far East deposits to countries in the Asian and Pacific Ocean regions. Throughput of the present “narrow” spot will grow to up to 30 million tons after putting the new Kuznetsovskaya tunnel into operation.
In Conclusion
With the intensive industrial development of northern areas of the People’s Republic of China, the facilities of Russian Railways, first of all the Trans-Siberian Railway, will be much in demand. BAM, which had been projected as a self-sufficient railway mainline with its own cargo base, can become a good assistant to the overloaded Trans-Siberian Railway. 
Leila Mustafaeva
    [~DETAIL_TEXT] => 
Construction Site of the Century 
During the course of its more than thirty-year history, the Baikal-Amur Mainline (BAM) has kept its most enviable trait – its potential. BAM was assigned to become a shorter option than the Trans-Siberian Railway from the central part of the USSR to the Pacific Ocean, but not only that. This transport artery was meant to provide access to northern territories of the country, where a huge deposit of raw minerals and plenty of wood resources were concentrated. 
Now this initiative of transport development in North-East Siberia (from Baikal to Amur, and then on to Yakutia, Chukotka and Kamchatka) is already more than a century old. 
In fact, the construction of BAM started in the 1930s, before the Second World War. However, during the Stalingrad Battle (1942-1943) the rails laid were dismantled and taken to Volga region for the purpose of restoring roads destroyed in battle. The works were restarted only in April 1972, when construction of the line BAM-Tynda, known as Small BAM, had begun. In two years The CPSU Central Committee and The Council of Ministers of the USSR adopted the decision to build the Baikal-Amur Mainline railroad. Construction of the 3,145-km mainline from the city of Ust-Kut up to the city Komsomolsk-On-Amur was entrusted to the Ministry of Railways and the Ministry of Transport Construction. 
Also, it was projected to lay the second 680 km of railroad, in addition to the already-operational western part of BAM Taishet-Lena, and to build a single-line 400 km BAM railroad Tynda – Berkakit. In November 1977, the BAM-Tynda line was put into operation. The scheduled movement of trains from Tynda to Berkakit was started soon after. So, part of the Baikal-Amur Mainline railroad started operating in January, 1981. In October 1984, the railway-laying on the main railroad was completed and the ongoing scheduled movement of trains was started along the whole length of the mainline railroad. The length of BAM from Tayshet to Soviet Harbour (Khabarovsk territory) is more than 5,500 km.
A new goal connected with BAM was introduced to the country. The railroad had to be built on to Yakutsk, then to Magadan, and after that further on to Chukotka and Kamchatka. 
However, with the disintegration of the USSR, the state plans for the development of the territories adjoining BAM were scrapped. The economic crisis of the nineties, followed by an almost complete industrial failure and collapse in transportation volumes, made the mainline irrelevant.  
The absence of a comprehensive state approach to the development of the North has negatively affected the social and economic situation of those regions. It showed up in a mass outflow of the population, high rates of unemployment, increasing mortality rates and a falling birth rate. Volumes of cargo transportation on the mainline fell to only 45-50 % of its designed capacity.  
Treasury of Minerals 
According to the Ministry of Natural Resources and Ecology of the Russian Federation, total estimated worth of minerals in the land around BAM is more than 600 billion dollars. In 1949, the unique Udokanskoye deposit of copper sandstone was found. It is considered that, together with other research opportunities discovered north of the Transsib, it was exactly the reason for the choice of BAM rail line’s present location. 
After the governmental decision to begin the construction of BAM in north-east Siberia, intensive geological works were started. Their completion coincided exactly with the moment the potential of raw minerals deposit was declared. First of all, it was oil, gas, coal, copper, gold, tin, rare metals, vanadium, molybdenum, potash salts and chrysolite-asbestos. Large stocks of iron ores, apatite, lead and zinc have been found there too. 
For example, by the beginning of the millennium, 33 deposits of hydrocarbonic stocks were discovered in the BAM area. The most significant one today is the Kovyktinskoye gas condensate stock deposit, with more than 276 billion cubic metres of gas discovered and more than 11 million tons of condensate. It is expected that the gas will be flowing from this deposit area to China for several decades to come. 
Experts say that the Nepsko-Botuobinskaya oil and gas multi-stocks zone is also of great interest. As estimated, there are 26 deposits of oil condensate within its borders. The largest of them is Verkhnechonskoye, with discovered deposits of almost 160 million tons of oil. 
Large stocks of coal are located in the Elginskoye field in Yakutia. On the territory of Chita Oblast, the Apsatskoye deposit of coked coals can be found, with a volume of more than 1 billion tons. The deposits of gold in Sukhoy Log, Irkutsk Oblast, are still the largest in Russia. 
The Ministry of Natural Resources and Ecology of the Russian Federation has stated that, to realise only the most significant projects for developing mineral resources in the BAM zone, about 10 billion dollars of investment should be made. The cost of work on this legendary railroad project is approximately the same.  
Strategy of Breaking Through
 “I shall not be afraid to make bold statements - that in 2008 BAM will receive its second life,” says Alexey Vorotilkin, Vice-President of OAO RZD (before June, 2008 the Director of East Siberian Railway). “Only this year, investment in the infrastructure of North-Baikal Branch of the East-Siberian Railway (part of BAM) will be 9 billion roubles”. 
A step-by-step program of BAM infrastructure development has been worked out on the East Siberian Railway. During the first stage until 2010, it is planned to increase throughput on the railroad to up to 14 pairs of trains a day. The investment will be more than 15 billion roubles. Funds will be allocated for the construction of new lines, laying railroads and renovation of infrastructure buildings. 
The second step of the program, which is outlined until 2013 with almost 14 billion roubles in investment, assumes an increase in throughput to up to 24 pairs of trains a day. At this stage, completion of reconstruction of the First Korshunovsky and the Baikal tunnels is planned. The need to increase the capacity of the electric supply system at a number of sites and construct a high-voltage electric line (500 kW) is under consideration now as well. To resolve these problems, OAO RZD plans to attract 16.5 billion roubles from the Investment Fund of the Russian Federation. 
Further development of BAM infrastructure to 2030, with 27.5 billion roubles of investment, will provide the required throughput, with redirection of some freight traffic from the Trans-Siberian Railway.  
The East Siberian Railway is planning to build about 3,000 km of new railroads, as part of its implementation of the Strategy for Railway Transport Development up to 2030. The ‘towards BAM’ railway lines are on the list of most significant projects. They go to the Apsatskoye deposit of coked coal and Chineyskoye deposit of polymetallic ores. Realisation of another project – building a bypass railway between the New Uoyan and Mogaon stations – will allow redirection of transit trains to BAM from the Trans-Siberian Railway around the barriers. 
BAM Requires State Support
In May 2007, The Council of Federation (the upper chamber of the Russian Parliament) held a special session of the Commission on Natural Monopolies. They were led by Nikolay Ryzhkov, the Chairman of the Council of Federation and a former head of the government of the USSR. The topic was the current state of affairs and prospects for the development of the adjoining BAM territories. “We believe that there will be a time when all our decisions and our speeches find their way to the country’s leaders. And serious measures on development of this unique territory along this unique road will be undertaken,” Mr. Ryzhkov noted. 
“It would be desirable to see the state get involved in the region of BAM,” the now former governor of Irkutsk area Alexander Tishanin has openly said. – “Maximal use of the resource potential in Eastern Siberia is not only a good idea, it is a geopolitical duty.” 
Representatives of OAO RZD have also given their reasons for the state to necessarily participate in the development of this railroad. It is necessary to invest more than 61 billion roubles until 2020 on just works to increase BAM’s throughput, with companies contributing 2 billion roubles from 2007 until 2009. Also the railway representatives have emphasised the idea that one cannot expect the railroad, which goes through uninhabited and sparsely populated territories, to simply develop itself. 
It was in June 2008, that the Udokanskoye Deposit situation moved closer to a positive outcome. The company “Russian Copper” (a joint venture of OAO RZD, the Ural Mining and Metallurgical Company and the Bank for Development and Foreign Economic Affairs (Vnesheconombank)) has applied to the Federal Subsoil Use Agency of the Russian Federation to participate in the competition for the development of the Udokanskoye copper deposit. The President of OAO RZD, Vladimir Yakunin, has said that, if they win the competition, the total amount of investment within 17 years will be 1.9 billion dollars. Realisation of the project will allow the railway transport company to increase loading of BAM by 1.5 million tons a year exclusively as a result of the gas concentrate and copper from the Udokanskoye deposit.   
It is possible that the project for realisation of the program for the development of the Elginskoye coal field will not be postponed anymore. In June, the group of companies “Mechel” has announced the start of construction of the railway to the Elginskoye deposit. The estimated cost of the project is 900 million dollars, says the group. Builders should lay almost 260 km of new railroad in the line Ulak-Elga and modernise about 60 km of that built at the beginning of 2000. The first train with coal should depart from the deposit’s station in 2010. The predicted volume of transportation is 30 million tons a year.  
OOO “Golden East Siberia” offers a project of building a cement plant and wood-processing complex in the BAM area on the territory of the Mujsky region in the Republic of Buryatiya. Funding, which the company and investors are ready to put into the construction of the cement plant, amounts to 130 million euros. Construction of the wood-processing complex will allow the production of 500,000 cubic metres of raw wood logs, 170,000 cubic metres of pressed wood chips and 70,000 cubic metres of veneer sheets annually.  
Light at the End of the Korshunovsky Tunnel 
By the end of June this year, builders put into operation the second Korshunovsky 950-metre tunnel on the East-Siberian Railway (the branch of OAO RZD). It is located near the western side of the Korshunikha-Angarsk station.
“The necessity to build the second Korshunovsky tunnel is dictated by time,” the Chief Engineer of the East-Siberian Railway Alexander Skachkov has noted. “The number of cargo and passenger transportations on BAM grows, there are new requirements to provide higher speed and a better level of train traffic safety.” About ten companies took part in the construction of the second Korshunovsky tunnel, which started at the beginning of 2004. 3.3 billion roubles was spent building it. Application of new technologies allows a considerable reduction in the level of vibration caused by trains moving through the tunnel. The new tunnel is ready to take 18 pairs of trains, at a speed of more than 60 km per hour. The first tunnel had allowed trains to go at a speed of not more than 40 km per hour.  
Cargoes Are Requiring “Green Light” in the Seaports of Vanino and Soviet Harbour 
The latest investment decisions of OAO RZD regarding renovation of Komsomolsk-on-Amur – the Soviet Harbour (Eastern part of BAM) road and construction of a new Kuznetsovsky tunnel have become “a balm on the soul” for those exporters who send their cargoes to the countries of Asia and the Pacific Ocean region through the seaports of Vanino and Soviet Harbour.
In 2008, works started in order to remove the narrowest sector on the way to the last point of BAM, that is the Vaninо- Soviet Harbour transportation-industrial crossway. It was announced on the Far East Railway that the construction of roads to the new Kuznetsovsky tunnel was already ongoing. 
The Oune – Vysokogornaya road section, where the 413-metre Kuznetsovsky tunnel is located, was built in 1945, according to wartime standards. The spot is marked with landslides and small-radius curves. The tunnel cannot carry bulky goods or run trains of more than 3,600 tons in weight. As a result, today the throughput of The Oune – Vysokogornaya is 12 million tons a year.  
A new 3.9 km tunnel, which will be built on a roundabout railway line, is expected to be put into operation in five to six years. Its construction will cost 15 billion roubles.
The Far East Railway says that, from 2008 to 2016, 60 billion roubles’ worth of works will be carried out on the site Komsomolsk-on Amur - the Soviet Harbour. A great deal of works on development of stations and restoration of crossings is planned by OAO RZD in its project to be done together with the building of the roundabout railway Oune –Vysokogornaya and the new Kuznetsovsky tunnel. However, putting the new Kuznetsovsky tunnel into operation cannot solve all cargo throughput problems at the point of approaching the Port of Vanino and the Soviet Harbour port. 
The forecast of the Far East Marine Sea Fleet Scientific Research Institute is that, by 2020, the minimum cargo turnover of the Vanino-Soviet Harbour transportation-industrial crossway will be at least 53 million tons, and a maximal figure may be even up to 80. Analysts connect prospects of seaports with the forecasted growth in exports of coal and ore from the Siberian and Far East deposits to countries in the Asian and Pacific Ocean regions. Throughput of the present “narrow” spot will grow to up to 30 million tons after putting the new Kuznetsovskaya tunnel into operation.
In Conclusion
With the intensive industrial development of northern areas of the People’s Republic of China, the facilities of Russian Railways, first of all the Trans-Siberian Railway, will be much in demand. BAM, which had been projected as a self-sufficient railway mainline with its own cargo base, can become a good assistant to the overloaded Trans-Siberian Railway. 
Leila Mustafaeva
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Will Transit Transportation via the Transsib Become Cheaper?
At the 17th plenary session of the International Association “Coordinating Council on Transsiberian Transportation” (CCTT) Vladimir Yakunin, President of OAO RZD, asked all members of the Association to cut prices on their services by 10% next year. 
“We must get ready properly to overcome the consequences of the financial crisis. And the tariffs should decline along the whole chain of companies participating in container transportation,” specified Mr Yakunin.
In particular, the top management of FESCO Logistic supported the offer of the President of OAO RZD. They said that the company is ready to reduce charter rates as well as the tariffs on rolling stock usage.
It was decided to create a working group to discuss acting tariffs on container transportation and examine their possible deregulation in part concerning transit.
Speaking about formation of a cargo flow along the Transsiberian route, Mr Yakunin noted that transportation of foreign trade cargo in containers is growing by 30-35% per annum.
“In the first six months of this year, 348,000 TEU was carried via the Transsib to the Far Eastern ports and the railway stations in East Siberia, which is 26% more in comparison with a similar period in the previous year,” said Mr Yakunin.
Such a significant growth occurred due to the increase in import and export freight transportation between Russia and countries in the Asian and Pacific region.
Finmeccanica And Russian Railways Will Develop ITARUS Systems Together     
The Presidents of Russian Railways and Finmeccanica, Vladimir Yakunin and Pier Francesco Guarguaglini, signed a cooperation agreement on November 7, 2008, in the prese­n­-
­ce of Russian President Dmitriy Medvedev and Italian Prime Minister Silvio Berlusconi at an inter-governmental summit. 
The agreement concerns joint development of the innovative ITARUS-ATS (rail signalling), ITARUS-COM (professional communications) and ITARUS-MONITORING (satellite technology) systems for the rail transport sector. The new systems will be developed on major rail routes within the Russian Federation before being introduced to foreign markets.
The two companies approved a schedule for introduction of the ITARUS systems, involving the signing of a contact between NIIAS – a subsidiary of RZD – and Ansaldo STS. This envisages the creation of a test site in 2009-2010 for the innovative ITARUS-ATS signaling system and further work on the system on one of Russia’s rail routes from 2010. The ITARUS-ATS technology will also be used for management and safety of the transport system for the 2014 Olympics in Sochi. The new safety and satellite systems will enhance the safety and reliability as well as the technical specifications and economics of rail transportation, while simultaneously cutting operating and maintenance costs.  
Russian Railways and Renfe Operado raSign Cooperation Agreement 
Russian Railways signed a cooperation agreement with the Spanish railway company Renfe Operadora on October 23, 2008. The parties agreed to develop technical cooperation in various areas, such as sharing experience in operating high-speed lines and the selection, production, operation and maintenance of high-speed rolling stock. 
The two companies are also interested in issues concerning the operation of passenger and freight rail services, logistics, systems and management programmes for operating railways, the industrial aspects of production, the maintenance and upgrading of rolling stock and traffic safety. 
A joint committee will be established to coordinate joint activities and hold meetings to discuss the results of the two companies’ collaboration. The committee will hold its annual meetings alternately in Russia and Spain. The term of the agreement is six years.
Kazakhstan and China to Launch JV for Container Transportation by Railway 
Kazakhstan and China plan to create an automated information system at border railway stations Dostyk and Alashankou. It will allow Kazakh and Chinese railways to exchange the data necessary for transport invoicing.
At a meeting of  Wen Jiabao, Prime Minister of the Chinese State Council, and Karim Maximov, Prime Minister of Kazakhstan, a memorandum of cooperation between the Chinese Ministry of Railways and JSC NC Kazakhstan Temir Zholy was signed. The document envisages activation of works to construct a second railway border crossing between Kazakhstan and China via Korgas (Kazakhstan) and Horgos (China) in accordance with the arrangements agreed during an official visit by Nursultan Nazarbaev, President of the Republic of Kazakhstan, to the People’s Republic of China.
In particular, the parties are going to agree in January 2009 where the railways join at the border and define where wagons are removed to another gauge. Also, the parties approved the launch of a joint Chinese-Kazakh enterprise specialising in container transportation by rail, further growth of container transportation volumes via the Dostyk-Alashankou border crossing and organisation of block through trains on the routes China – the SCO member states and China – European countries.
The memorandum was signed by Askar Mamin, President of JSC NC Kazakstan Temir Zholy, and Liu Zhijun, China’s Minister of Railways.
Customs Union Gets Legislative Base
On October 28 Dmitry Medvedev, Russia’s President, signed federal laws “On Ratification of the Agreement on a Single Customs Territory Creation and Customs Union Forming”, “On Ratification of the Agreement on the Customs Union Commission”, and “On Ratification of the Protocol of the Order of the Coming into Force of International Agreements Aimed at Formation of the Contractual and Legislative Base of the Customs Union, Withdrawing from Them and Joining Them”. They are targeted at forming a customs union, a single customs territory and a legislative base for the customs union in the framework of the Eurasian Economic Community (EurAsEC). 
The agreement on creating a single customs territory and customs union was signed in a meeting of the EurAsEC in Dushanbe on October 6, 2007. It is intended to further the trade and economic integration of the Russian Federation, the Republic of Byelorussia and the Republic of Kazakhstan, to unite the parties’ customs territories into a single customs territory and form a customs union in the EurAsEC.
The agreement on the Customs Union Commission is aimed at forming the contractual and legislative base of the customs union in the EurAsEC’s framework. The agreement sets up the Customs Union Commission, which is the only active regulating body of the Union. The major task of the Commission is to provide proper conditions for the customs union’s functioning and development.
Stage by stage the Commission will get some of the state bodies’ powers and the right to make decisions that are binding for all parties.
These laws were adopted by the Russian State Duma on October 8, 2008, and approved by the Council of Federation on October 15, 2008.
International North-South Transport Corridor: Where Do We Take Money and Cargoes From? 
Representatives of railways of Azerbaijan, Russia, and Iran on October 8, 2008, signed a protocol on the results of their meeting on launching a project to create a North-South railway corridor. The project envisages the launch of a joint venture with headquarters in Moscow to attract investment for creation of the international transport corridor. It was also decided to create a joint working group to attract cargoes to the corridor, discuss tariffs and railway communication marketing.
The project envisages creation of a universal railway corridor from Europe via Russia, Azerbaijan and Iran to India and the South-East Asian states. The project is estimated at USD 400 million. Most of the works are to be done in Iran because the country has no railway line to the border with Azerbaijan. Some works for the sum of USD 35-40 million are to be fulfilled in Azerbaijan.  
In Azerbaijan, it is planned to build an 8.5 km-long railway line to Astara station, a station equipped with systems to change wheel sets and border and customs infrastructure. Also, a border railway bridge is to be constructed. The project will be carried out on equal terms with Iran.
At the first stage, 5 million tons of freight will be transported via the corridor per annum. According to forecasts, later the figure will grow to 10-15 million tons annually.  
RUR 500 Billion Poured Into Developing Southern Railways  
OAO RZD is going to invest more than RUR 500 billion into railway development in Russia’s Southern Federal Region until 2030, said Vladimir Tkachuk, Head of Investment at the North-Caucasus Railway – an affiliate of OAO RZD.
60% of that will be spent on construction of new railway lines and 40% on developing the existing railway facilities.
In 2008, the investment volume is to be RUR 29.3 billion. Mr Tkachuk emphasised that part of the investment will be spent on making railway crossings Rostov-on-Don and Krasnodar to the Black Sea coast and Stavropolsky Krai less loaded. “To do it, we are developing the second freight line via Volgograd and Salsk, bypassing Krasnodar, to join it with port railway junctions at the 9th Kilometre – Yurovsky – Anapa – Temryuk – Kavkaz section. There will be a large sorting and accumulating junction,” he said.
According to forecasts, the throughput of the port stations of the North-Caucasus Railway will amount to 120 million tons in 2015. Last year it was 59.7 million tons.
Russian Railways Places RUR 15 Billion Series 09 Bond 
On 19 November, 2008, Russian Railways fully placed a five-year semi-annual non-convertible RUR 15 billion Series 09 bond by open subscription on Moscow’s MICEX stock exchange. The bond carries a coupon rate of 13.5% and a put option for early redemption after 18 months. 
The issue was arranged by Vneshtorgbank, Gazprombank, Sberbank, TransCreditBank and Troika Dialog and assigned state registration number 4-09-65045-D. 
The following Russian Railways bonds are outstanding: 03 Series for RUR 4 billion, maturing in December 2009, Series 05 (RUR 10 billion, maturing in January 2009), 06 Series (RUR 10 billion, maturing in November 2010), Series 07 (RUR 5 billion, maturing in November 2012) and Series 08 (RUR 20 billion, maturing in November 2011).
 
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Will Transit Transportation via the Transsib Become Cheaper?
At the 17th plenary session of the International Association “Coordinating Council on Transsiberian Transportation” (CCTT) Vladimir Yakunin, President of OAO RZD, asked all members of the Association to cut prices on their services by 10% next year. 
“We must get ready properly to overcome the consequences of the financial crisis. And the tariffs should decline along the whole chain of companies participating in container transportation,” specified Mr Yakunin.
In particular, the top management of FESCO Logistic supported the offer of the President of OAO RZD. They said that the company is ready to reduce charter rates as well as the tariffs on rolling stock usage.
It was decided to create a working group to discuss acting tariffs on container transportation and examine their possible deregulation in part concerning transit.
Speaking about formation of a cargo flow along the Transsiberian route, Mr Yakunin noted that transportation of foreign trade cargo in containers is growing by 30-35% per annum.
“In the first six months of this year, 348,000 TEU was carried via the Transsib to the Far Eastern ports and the railway stations in East Siberia, which is 26% more in comparison with a similar period in the previous year,” said Mr Yakunin.
Such a significant growth occurred due to the increase in import and export freight transportation between Russia and countries in the Asian and Pacific region.
Finmeccanica And Russian Railways Will Develop ITARUS Systems Together     
The Presidents of Russian Railways and Finmeccanica, Vladimir Yakunin and Pier Francesco Guarguaglini, signed a cooperation agreement on November 7, 2008, in the prese­n­-
­ce of Russian President Dmitriy Medvedev and Italian Prime Minister Silvio Berlusconi at an inter-governmental summit. 
The agreement concerns joint development of the innovative ITARUS-ATS (rail signalling), ITARUS-COM (professional communications) and ITARUS-MONITORING (satellite technology) systems for the rail transport sector. The new systems will be developed on major rail routes within the Russian Federation before being introduced to foreign markets.
The two companies approved a schedule for introduction of the ITARUS systems, involving the signing of a contact between NIIAS – a subsidiary of RZD – and Ansaldo STS. This envisages the creation of a test site in 2009-2010 for the innovative ITARUS-ATS signaling system and further work on the system on one of Russia’s rail routes from 2010. The ITARUS-ATS technology will also be used for management and safety of the transport system for the 2014 Olympics in Sochi. The new safety and satellite systems will enhance the safety and reliability as well as the technical specifications and economics of rail transportation, while simultaneously cutting operating and maintenance costs.  
Russian Railways and Renfe Operado raSign Cooperation Agreement 
Russian Railways signed a cooperation agreement with the Spanish railway company Renfe Operadora on October 23, 2008. The parties agreed to develop technical cooperation in various areas, such as sharing experience in operating high-speed lines and the selection, production, operation and maintenance of high-speed rolling stock. 
The two companies are also interested in issues concerning the operation of passenger and freight rail services, logistics, systems and management programmes for operating railways, the industrial aspects of production, the maintenance and upgrading of rolling stock and traffic safety. 
A joint committee will be established to coordinate joint activities and hold meetings to discuss the results of the two companies’ collaboration. The committee will hold its annual meetings alternately in Russia and Spain. The term of the agreement is six years.
Kazakhstan and China to Launch JV for Container Transportation by Railway 
Kazakhstan and China plan to create an automated information system at border railway stations Dostyk and Alashankou. It will allow Kazakh and Chinese railways to exchange the data necessary for transport invoicing.
At a meeting of  Wen Jiabao, Prime Minister of the Chinese State Council, and Karim Maximov, Prime Minister of Kazakhstan, a memorandum of cooperation between the Chinese Ministry of Railways and JSC NC Kazakhstan Temir Zholy was signed. The document envisages activation of works to construct a second railway border crossing between Kazakhstan and China via Korgas (Kazakhstan) and Horgos (China) in accordance with the arrangements agreed during an official visit by Nursultan Nazarbaev, President of the Republic of Kazakhstan, to the People’s Republic of China.
In particular, the parties are going to agree in January 2009 where the railways join at the border and define where wagons are removed to another gauge. Also, the parties approved the launch of a joint Chinese-Kazakh enterprise specialising in container transportation by rail, further growth of container transportation volumes via the Dostyk-Alashankou border crossing and organisation of block through trains on the routes China – the SCO member states and China – European countries.
The memorandum was signed by Askar Mamin, President of JSC NC Kazakstan Temir Zholy, and Liu Zhijun, China’s Minister of Railways.
Customs Union Gets Legislative Base
On October 28 Dmitry Medvedev, Russia’s President, signed federal laws “On Ratification of the Agreement on a Single Customs Territory Creation and Customs Union Forming”, “On Ratification of the Agreement on the Customs Union Commission”, and “On Ratification of the Protocol of the Order of the Coming into Force of International Agreements Aimed at Formation of the Contractual and Legislative Base of the Customs Union, Withdrawing from Them and Joining Them”. They are targeted at forming a customs union, a single customs territory and a legislative base for the customs union in the framework of the Eurasian Economic Community (EurAsEC). 
The agreement on creating a single customs territory and customs union was signed in a meeting of the EurAsEC in Dushanbe on October 6, 2007. It is intended to further the trade and economic integration of the Russian Federation, the Republic of Byelorussia and the Republic of Kazakhstan, to unite the parties’ customs territories into a single customs territory and form a customs union in the EurAsEC.
The agreement on the Customs Union Commission is aimed at forming the contractual and legislative base of the customs union in the EurAsEC’s framework. The agreement sets up the Customs Union Commission, which is the only active regulating body of the Union. The major task of the Commission is to provide proper conditions for the customs union’s functioning and development.
Stage by stage the Commission will get some of the state bodies’ powers and the right to make decisions that are binding for all parties.
These laws were adopted by the Russian State Duma on October 8, 2008, and approved by the Council of Federation on October 15, 2008.
International North-South Transport Corridor: Where Do We Take Money and Cargoes From? 
Representatives of railways of Azerbaijan, Russia, and Iran on October 8, 2008, signed a protocol on the results of their meeting on launching a project to create a North-South railway corridor. The project envisages the launch of a joint venture with headquarters in Moscow to attract investment for creation of the international transport corridor. It was also decided to create a joint working group to attract cargoes to the corridor, discuss tariffs and railway communication marketing.
The project envisages creation of a universal railway corridor from Europe via Russia, Azerbaijan and Iran to India and the South-East Asian states. The project is estimated at USD 400 million. Most of the works are to be done in Iran because the country has no railway line to the border with Azerbaijan. Some works for the sum of USD 35-40 million are to be fulfilled in Azerbaijan.  
In Azerbaijan, it is planned to build an 8.5 km-long railway line to Astara station, a station equipped with systems to change wheel sets and border and customs infrastructure. Also, a border railway bridge is to be constructed. The project will be carried out on equal terms with Iran.
At the first stage, 5 million tons of freight will be transported via the corridor per annum. According to forecasts, later the figure will grow to 10-15 million tons annually.  
RUR 500 Billion Poured Into Developing Southern Railways  
OAO RZD is going to invest more than RUR 500 billion into railway development in Russia’s Southern Federal Region until 2030, said Vladimir Tkachuk, Head of Investment at the North-Caucasus Railway – an affiliate of OAO RZD.
60% of that will be spent on construction of new railway lines and 40% on developing the existing railway facilities.
In 2008, the investment volume is to be RUR 29.3 billion. Mr Tkachuk emphasised that part of the investment will be spent on making railway crossings Rostov-on-Don and Krasnodar to the Black Sea coast and Stavropolsky Krai less loaded. “To do it, we are developing the second freight line via Volgograd and Salsk, bypassing Krasnodar, to join it with port railway junctions at the 9th Kilometre – Yurovsky – Anapa – Temryuk – Kavkaz section. There will be a large sorting and accumulating junction,” he said.
According to forecasts, the throughput of the port stations of the North-Caucasus Railway will amount to 120 million tons in 2015. Last year it was 59.7 million tons.
Russian Railways Places RUR 15 Billion Series 09 Bond 
On 19 November, 2008, Russian Railways fully placed a five-year semi-annual non-convertible RUR 15 billion Series 09 bond by open subscription on Moscow’s MICEX stock exchange. The bond carries a coupon rate of 13.5% and a put option for early redemption after 18 months. 
The issue was arranged by Vneshtorgbank, Gazprombank, Sberbank, TransCreditBank and Troika Dialog and assigned state registration number 4-09-65045-D. 
The following Russian Railways bonds are outstanding: 03 Series for RUR 4 billion, maturing in December 2009, Series 05 (RUR 10 billion, maturing in January 2009), 06 Series (RUR 10 billion, maturing in November 2010), Series 07 (RUR 5 billion, maturing in November 2012) and Series 08 (RUR 20 billion, maturing in November 2011).
 
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Will Transit Transportation via the Transsib Become Cheaper?
At the 17th plenary session of the International Association “Coordinating Council on Transsiberian Transportation” (CCTT) Vladimir Yakunin, President of OAO RZD, asked all members of the Association to cut prices on their services by 10% next year. 
“We must get ready properly to overcome the consequences of the financial crisis. And the tariffs should decline along the whole chain of companies participating in container transportation,” specified Mr Yakunin.
In particular, the top management of FESCO Logistic supported the offer of the President of OAO RZD. They said that the company is ready to reduce charter rates as well as the tariffs on rolling stock usage.
It was decided to create a working group to discuss acting tariffs on container transportation and examine their possible deregulation in part concerning transit.
Speaking about formation of a cargo flow along the Transsiberian route, Mr Yakunin noted that transportation of foreign trade cargo in containers is growing by 30-35% per annum.
“In the first six months of this year, 348,000 TEU was carried via the Transsib to the Far Eastern ports and the railway stations in East Siberia, which is 26% more in comparison with a similar period in the previous year,” said Mr Yakunin.
Such a significant growth occurred due to the increase in import and export freight transportation between Russia and countries in the Asian and Pacific region.
Finmeccanica And Russian Railways Will Develop ITARUS Systems Together     
The Presidents of Russian Railways and Finmeccanica, Vladimir Yakunin and Pier Francesco Guarguaglini, signed a cooperation agreement on November 7, 2008, in the prese­n­-
­ce of Russian President Dmitriy Medvedev and Italian Prime Minister Silvio Berlusconi at an inter-governmental summit. 
The agreement concerns joint development of the innovative ITARUS-ATS (rail signalling), ITARUS-COM (professional communications) and ITARUS-MONITORING (satellite technology) systems for the rail transport sector. The new systems will be developed on major rail routes within the Russian Federation before being introduced to foreign markets.
The two companies approved a schedule for introduction of the ITARUS systems, involving the signing of a contact between NIIAS – a subsidiary of RZD – and Ansaldo STS. This envisages the creation of a test site in 2009-2010 for the innovative ITARUS-ATS signaling system and further work on the system on one of Russia’s rail routes from 2010. The ITARUS-ATS technology will also be used for management and safety of the transport system for the 2014 Olympics in Sochi. The new safety and satellite systems will enhance the safety and reliability as well as the technical specifications and economics of rail transportation, while simultaneously cutting operating and maintenance costs.  
Russian Railways and Renfe Operado raSign Cooperation Agreement 
Russian Railways signed a cooperation agreement with the Spanish railway company Renfe Operadora on October 23, 2008. The parties agreed to develop technical cooperation in various areas, such as sharing experience in operating high-speed lines and the selection, production, operation and maintenance of high-speed rolling stock. 
The two companies are also interested in issues concerning the operation of passenger and freight rail services, logistics, systems and management programmes for operating railways, the industrial aspects of production, the maintenance and upgrading of rolling stock and traffic safety. 
A joint committee will be established to coordinate joint activities and hold meetings to discuss the results of the two companies’ collaboration. The committee will hold its annual meetings alternately in Russia and Spain. The term of the agreement is six years.
Kazakhstan and China to Launch JV for Container Transportation by Railway 
Kazakhstan and China plan to create an automated information system at border railway stations Dostyk and Alashankou. It will allow Kazakh and Chinese railways to exchange the data necessary for transport invoicing.
At a meeting of  Wen Jiabao, Prime Minister of the Chinese State Council, and Karim Maximov, Prime Minister of Kazakhstan, a memorandum of cooperation between the Chinese Ministry of Railways and JSC NC Kazakhstan Temir Zholy was signed. The document envisages activation of works to construct a second railway border crossing between Kazakhstan and China via Korgas (Kazakhstan) and Horgos (China) in accordance with the arrangements agreed during an official visit by Nursultan Nazarbaev, President of the Republic of Kazakhstan, to the People’s Republic of China.
In particular, the parties are going to agree in January 2009 where the railways join at the border and define where wagons are removed to another gauge. Also, the parties approved the launch of a joint Chinese-Kazakh enterprise specialising in container transportation by rail, further growth of container transportation volumes via the Dostyk-Alashankou border crossing and organisation of block through trains on the routes China – the SCO member states and China – European countries.
The memorandum was signed by Askar Mamin, President of JSC NC Kazakstan Temir Zholy, and Liu Zhijun, China’s Minister of Railways.
Customs Union Gets Legislative Base
On October 28 Dmitry Medvedev, Russia’s President, signed federal laws “On Ratification of the Agreement on a Single Customs Territory Creation and Customs Union Forming”, “On Ratification of the Agreement on the Customs Union Commission”, and “On Ratification of the Protocol of the Order of the Coming into Force of International Agreements Aimed at Formation of the Contractual and Legislative Base of the Customs Union, Withdrawing from Them and Joining Them”. They are targeted at forming a customs union, a single customs territory and a legislative base for the customs union in the framework of the Eurasian Economic Community (EurAsEC). 
The agreement on creating a single customs territory and customs union was signed in a meeting of the EurAsEC in Dushanbe on October 6, 2007. It is intended to further the trade and economic integration of the Russian Federation, the Republic of Byelorussia and the Republic of Kazakhstan, to unite the parties’ customs territories into a single customs territory and form a customs union in the EurAsEC.
The agreement on the Customs Union Commission is aimed at forming the contractual and legislative base of the customs union in the EurAsEC’s framework. The agreement sets up the Customs Union Commission, which is the only active regulating body of the Union. The major task of the Commission is to provide proper conditions for the customs union’s functioning and development.
Stage by stage the Commission will get some of the state bodies’ powers and the right to make decisions that are binding for all parties.
These laws were adopted by the Russian State Duma on October 8, 2008, and approved by the Council of Federation on October 15, 2008.
International North-South Transport Corridor: Where Do We Take Money and Cargoes From? 
Representatives of railways of Azerbaijan, Russia, and Iran on October 8, 2008, signed a protocol on the results of their meeting on launching a project to create a North-South railway corridor. The project envisages the launch of a joint venture with headquarters in Moscow to attract investment for creation of the international transport corridor. It was also decided to create a joint working group to attract cargoes to the corridor, discuss tariffs and railway communication marketing.
The project envisages creation of a universal railway corridor from Europe via Russia, Azerbaijan and Iran to India and the South-East Asian states. The project is estimated at USD 400 million. Most of the works are to be done in Iran because the country has no railway line to the border with Azerbaijan. Some works for the sum of USD 35-40 million are to be fulfilled in Azerbaijan.  
In Azerbaijan, it is planned to build an 8.5 km-long railway line to Astara station, a station equipped with systems to change wheel sets and border and customs infrastructure. Also, a border railway bridge is to be constructed. The project will be carried out on equal terms with Iran.
At the first stage, 5 million tons of freight will be transported via the corridor per annum. According to forecasts, later the figure will grow to 10-15 million tons annually.  
RUR 500 Billion Poured Into Developing Southern Railways  
OAO RZD is going to invest more than RUR 500 billion into railway development in Russia’s Southern Federal Region until 2030, said Vladimir Tkachuk, Head of Investment at the North-Caucasus Railway – an affiliate of OAO RZD.
60% of that will be spent on construction of new railway lines and 40% on developing the existing railway facilities.
In 2008, the investment volume is to be RUR 29.3 billion. Mr Tkachuk emphasised that part of the investment will be spent on making railway crossings Rostov-on-Don and Krasnodar to the Black Sea coast and Stavropolsky Krai less loaded. “To do it, we are developing the second freight line via Volgograd and Salsk, bypassing Krasnodar, to join it with port railway junctions at the 9th Kilometre – Yurovsky – Anapa – Temryuk – Kavkaz section. There will be a large sorting and accumulating junction,” he said.
According to forecasts, the throughput of the port stations of the North-Caucasus Railway will amount to 120 million tons in 2015. Last year it was 59.7 million tons.
Russian Railways Places RUR 15 Billion Series 09 Bond 
On 19 November, 2008, Russian Railways fully placed a five-year semi-annual non-convertible RUR 15 billion Series 09 bond by open subscription on Moscow’s MICEX stock exchange. The bond carries a coupon rate of 13.5% and a put option for early redemption after 18 months. 
The issue was arranged by Vneshtorgbank, Gazprombank, Sberbank, TransCreditBank and Troika Dialog and assigned state registration number 4-09-65045-D. 
The following Russian Railways bonds are outstanding: 03 Series for RUR 4 billion, maturing in December 2009, Series 05 (RUR 10 billion, maturing in January 2009), 06 Series (RUR 10 billion, maturing in November 2010), Series 07 (RUR 5 billion, maturing in November 2012) and Series 08 (RUR 20 billion, maturing in November 2011).
 
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Will Transit Transportation via the Transsib Become Cheaper?
At the 17th plenary session of the International Association “Coordinating Council on Transsiberian Transportation” (CCTT) Vladimir Yakunin, President of OAO RZD, asked all members of the Association to cut prices on their services by 10% next year. 
“We must get ready properly to overcome the consequences of the financial crisis. And the tariffs should decline along the whole chain of companies participating in container transportation,” specified Mr Yakunin.
In particular, the top management of FESCO Logistic supported the offer of the President of OAO RZD. They said that the company is ready to reduce charter rates as well as the tariffs on rolling stock usage.
It was decided to create a working group to discuss acting tariffs on container transportation and examine their possible deregulation in part concerning transit.
Speaking about formation of a cargo flow along the Transsiberian route, Mr Yakunin noted that transportation of foreign trade cargo in containers is growing by 30-35% per annum.
“In the first six months of this year, 348,000 TEU was carried via the Transsib to the Far Eastern ports and the railway stations in East Siberia, which is 26% more in comparison with a similar period in the previous year,” said Mr Yakunin.
Such a significant growth occurred due to the increase in import and export freight transportation between Russia and countries in the Asian and Pacific region.
Finmeccanica And Russian Railways Will Develop ITARUS Systems Together     
The Presidents of Russian Railways and Finmeccanica, Vladimir Yakunin and Pier Francesco Guarguaglini, signed a cooperation agreement on November 7, 2008, in the prese­n­-
­ce of Russian President Dmitriy Medvedev and Italian Prime Minister Silvio Berlusconi at an inter-governmental summit. 
The agreement concerns joint development of the innovative ITARUS-ATS (rail signalling), ITARUS-COM (professional communications) and ITARUS-MONITORING (satellite technology) systems for the rail transport sector. The new systems will be developed on major rail routes within the Russian Federation before being introduced to foreign markets.
The two companies approved a schedule for introduction of the ITARUS systems, involving the signing of a contact between NIIAS – a subsidiary of RZD – and Ansaldo STS. This envisages the creation of a test site in 2009-2010 for the innovative ITARUS-ATS signaling system and further work on the system on one of Russia’s rail routes from 2010. The ITARUS-ATS technology will also be used for management and safety of the transport system for the 2014 Olympics in Sochi. The new safety and satellite systems will enhance the safety and reliability as well as the technical specifications and economics of rail transportation, while simultaneously cutting operating and maintenance costs.  
Russian Railways and Renfe Operado raSign Cooperation Agreement 
Russian Railways signed a cooperation agreement with the Spanish railway company Renfe Operadora on October 23, 2008. The parties agreed to develop technical cooperation in various areas, such as sharing experience in operating high-speed lines and the selection, production, operation and maintenance of high-speed rolling stock. 
The two companies are also interested in issues concerning the operation of passenger and freight rail services, logistics, systems and management programmes for operating railways, the industrial aspects of production, the maintenance and upgrading of rolling stock and traffic safety. 
A joint committee will be established to coordinate joint activities and hold meetings to discuss the results of the two companies’ collaboration. The committee will hold its annual meetings alternately in Russia and Spain. The term of the agreement is six years.
Kazakhstan and China to Launch JV for Container Transportation by Railway 
Kazakhstan and China plan to create an automated information system at border railway stations Dostyk and Alashankou. It will allow Kazakh and Chinese railways to exchange the data necessary for transport invoicing.
At a meeting of  Wen Jiabao, Prime Minister of the Chinese State Council, and Karim Maximov, Prime Minister of Kazakhstan, a memorandum of cooperation between the Chinese Ministry of Railways and JSC NC Kazakhstan Temir Zholy was signed. The document envisages activation of works to construct a second railway border crossing between Kazakhstan and China via Korgas (Kazakhstan) and Horgos (China) in accordance with the arrangements agreed during an official visit by Nursultan Nazarbaev, President of the Republic of Kazakhstan, to the People’s Republic of China.
In particular, the parties are going to agree in January 2009 where the railways join at the border and define where wagons are removed to another gauge. Also, the parties approved the launch of a joint Chinese-Kazakh enterprise specialising in container transportation by rail, further growth of container transportation volumes via the Dostyk-Alashankou border crossing and organisation of block through trains on the routes China – the SCO member states and China – European countries.
The memorandum was signed by Askar Mamin, President of JSC NC Kazakstan Temir Zholy, and Liu Zhijun, China’s Minister of Railways.
Customs Union Gets Legislative Base
On October 28 Dmitry Medvedev, Russia’s President, signed federal laws “On Ratification of the Agreement on a Single Customs Territory Creation and Customs Union Forming”, “On Ratification of the Agreement on the Customs Union Commission”, and “On Ratification of the Protocol of the Order of the Coming into Force of International Agreements Aimed at Formation of the Contractual and Legislative Base of the Customs Union, Withdrawing from Them and Joining Them”. They are targeted at forming a customs union, a single customs territory and a legislative base for the customs union in the framework of the Eurasian Economic Community (EurAsEC). 
The agreement on creating a single customs territory and customs union was signed in a meeting of the EurAsEC in Dushanbe on October 6, 2007. It is intended to further the trade and economic integration of the Russian Federation, the Republic of Byelorussia and the Republic of Kazakhstan, to unite the parties’ customs territories into a single customs territory and form a customs union in the EurAsEC.
The agreement on the Customs Union Commission is aimed at forming the contractual and legislative base of the customs union in the EurAsEC’s framework. The agreement sets up the Customs Union Commission, which is the only active regulating body of the Union. The major task of the Commission is to provide proper conditions for the customs union’s functioning and development.
Stage by stage the Commission will get some of the state bodies’ powers and the right to make decisions that are binding for all parties.
These laws were adopted by the Russian State Duma on October 8, 2008, and approved by the Council of Federation on October 15, 2008.
International North-South Transport Corridor: Where Do We Take Money and Cargoes From? 
Representatives of railways of Azerbaijan, Russia, and Iran on October 8, 2008, signed a protocol on the results of their meeting on launching a project to create a North-South railway corridor. The project envisages the launch of a joint venture with headquarters in Moscow to attract investment for creation of the international transport corridor. It was also decided to create a joint working group to attract cargoes to the corridor, discuss tariffs and railway communication marketing.
The project envisages creation of a universal railway corridor from Europe via Russia, Azerbaijan and Iran to India and the South-East Asian states. The project is estimated at USD 400 million. Most of the works are to be done in Iran because the country has no railway line to the border with Azerbaijan. Some works for the sum of USD 35-40 million are to be fulfilled in Azerbaijan.  
In Azerbaijan, it is planned to build an 8.5 km-long railway line to Astara station, a station equipped with systems to change wheel sets and border and customs infrastructure. Also, a border railway bridge is to be constructed. The project will be carried out on equal terms with Iran.
At the first stage, 5 million tons of freight will be transported via the corridor per annum. According to forecasts, later the figure will grow to 10-15 million tons annually.  
RUR 500 Billion Poured Into Developing Southern Railways  
OAO RZD is going to invest more than RUR 500 billion into railway development in Russia’s Southern Federal Region until 2030, said Vladimir Tkachuk, Head of Investment at the North-Caucasus Railway – an affiliate of OAO RZD.
60% of that will be spent on construction of new railway lines and 40% on developing the existing railway facilities.
In 2008, the investment volume is to be RUR 29.3 billion. Mr Tkachuk emphasised that part of the investment will be spent on making railway crossings Rostov-on-Don and Krasnodar to the Black Sea coast and Stavropolsky Krai less loaded. “To do it, we are developing the second freight line via Volgograd and Salsk, bypassing Krasnodar, to join it with port railway junctions at the 9th Kilometre – Yurovsky – Anapa – Temryuk – Kavkaz section. There will be a large sorting and accumulating junction,” he said.
According to forecasts, the throughput of the port stations of the North-Caucasus Railway will amount to 120 million tons in 2015. Last year it was 59.7 million tons.
Russian Railways Places RUR 15 Billion Series 09 Bond 
On 19 November, 2008, Russian Railways fully placed a five-year semi-annual non-convertible RUR 15 billion Series 09 bond by open subscription on Moscow’s MICEX stock exchange. The bond carries a coupon rate of 13.5% and a put option for early redemption after 18 months. 
The issue was arranged by Vneshtorgbank, Gazprombank, Sberbank, TransCreditBank and Troika Dialog and assigned state registration number 4-09-65045-D. 
The following Russian Railways bonds are outstanding: 03 Series for RUR 4 billion, maturing in December 2009, Series 05 (RUR 10 billion, maturing in January 2009), 06 Series (RUR 10 billion, maturing in November 2010), Series 07 (RUR 5 billion, maturing in November 2012) and Series 08 (RUR 20 billion, maturing in November 2011).
 
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How It All Started
Last April’s events aggravated political relations between the two countries, which was among the main reasons why Russian Minister of Transport Igor Levitin has announced a new national policy to export mineral oil only through Russian ports. Last July, some Russian traders said offcials demanded exporters reduce by 50 % their black oil, coal and metals deliveries through Estonia. Before that a quarter of mineral oil was exported from Russia through Estonian ports, which amounted to about 25 million tons annually. The largest Russian holdings – Gaspromneft, TNK-ВР and the Surgutneftegaz’ plant in Kirishi – were the main suppliers. Also, traditionally Estonia was the largest reloading point for Russian wood, metals, coal and chemical cargoes. 
Meanwhile, within the past few years, goods traffic from the Russian Northwest towards the Baltics has been growing steadily. For example, the value of goods transported last year increased 1.5 times (up to USD 2.5 billion). Rail transportation volume from Russia to the Baltics was 54.43 million tons. A warming of Russian-Latvian relations is considered to be one of the reasons for the positive development. 
As regards Estonian transit, because Russian transit bulk-oil traffic was redirected to Russia’s own North-Western ports, practically a 30 % reduction in total transportation took place as a result by the end of 2007. Despite this, 26.4 million tons of cargo was transported through the Estonian border. Estonian analysts have stated the amount of losses their country has suffered in connection with the bronze night to be 6.8 billion crones (USD 547 million) in the last year alone. By the way, according to the Estonian side, the state carrier’s transportation volume fell 40% in 2007. Mario Lambing, an expert  in Economic Analysis Management at the Ministry of Economics and Communications, says that considering the number of people involved in the transit sector and additional costs created by them, a 30-40 % reduction of transportation volume means the loss of up to 2,000 jobs. Its influence on the gross national product of the country is 1-2 % which is two to four billion crones (USD 241.3 million). Actually, Estonia has managed to avoid last year’s expected wave of bankruptcies in transport companies, but nevertheless, at least two operators closed down – Stivideerimise OU and AS Talstok. Also, one of the largest operators with Russian capital, Spacecom, has stopped its activity on Estonian territory.  
Thus, it appears the very recent hopes of Russia’s Baltic neighbours for tariff unification according to WTO requirements and, presumably following it, new prospects for cooperation, have been dashed – at least, in the case of Estonia. 
We shall remember that cargo transportation prices, both on Russian domestic routes and towards border points, should become the same in Russia from January 1, 2009. And just recently the Marketing Director of Estonian port Sillamae Andrey Birov has noted that, with this unification of tariffs, all three Baltic national railways will be of even greater interest to Russian transport and logistics companies. In particular, he said the most favourable routes can be the ones through Sillamyae, as the average tariff on the Estonian railway for cargo transportations between Narva/Ivangorod and Sillamae is EUR 1.5 per tonne, which is EUR 1.5 to EUR 3 less than in other Estonian ports. It particularly makes sense considering the fact that a free zone makes a terminal operator free from customs duties and taxes for transit cargoes.
Oil Rivers Will Soon Run Dry
However, according to all available information, the total amount of cargo going through the port of Tallinn fell 26.6% in the first eight months of 2008, in comparison with the same period last year. Bulk cargoes (mineral oil) deliveries via the Estonian port decreased 15% for this period in comparison with last year’s and amounted to only 13.61 million tonnes. As the Head of Estonian railways Kaido Simmermann says, now the state wants to give more and more attention to the transit of non-strategic goods from Russia, including container traffic. And it is connected with a steady decrease in the volume of Russian mineral oil transit and, in the end, its probable termination.  Mr Simmermann says that it is inevitable, because he thinks that in about three or four years there will not be even the volumes that exist today (or there will be some but an absolutely insignificant amount). 
Particularly in connection with the declared readiness of the Ust-Luga port for black oil transit for the beginning to middle of 2009, some black oil deliveries from the Kirishi refinery of Surgutneftegaz will most likely go through there. Besides, this year the transit of Russian coal has been practically stopped, in spite of the fact that since 2005 a new terminal for it has been operating in Tallinn port. 
Thus, given the gloomy forecasts for Estonia, talks about the prospects for container cargo transportation have been started again in the republic, especially given the broadening of the 1435 mm track. But the prospects of this project are disputable. 
Estonia is now proceeding with the reconstruction of the Tartu-Valga rail section (in 2008-2009 Eesti Raudtee (Estonian Railways) will pay USD 35 million to renew 11 crossings and replace 66 km of tracks). 
Representatives of the Estonian railways see new horizons behind the development of this project to connect Estonia, Latvia and Lithuania with Poland and Germany. Also, if you trust what is being said, already today there is a daily shortage of about 200 fitting platforms due to the growth in container transportation. However, very few experts see broad opportunities for a narrow track. Development works at RailBaltika are moving ahead quite slowly and, moreover, they have been speaking about expansion of the container business in Estonia for at least the past five or six years.
Besides, recently cargo-senders have felt considerably the lack of stable conditions in working with the Estonian carrier. Everything varies on the Estonian railway, from tariffs to the form of ownership. Now it has been declared that Eesti Raudtee will be divided into two separate enterprises – AS EVR Infra and AS EVR Cargo. Both “daughters” will remain entirely the property of the state. The first one will have an authorised capital of USD10 million and will be responsible for infrastructure maintenance and development. The second one will have capital of USD1 million and will be engaged in cargo transportation. The authorised capital of Eesti Raudtee is about USD 40 million.
According to the plans, the reorganised structures will start operation from January 1, 2009. A general decision regarding the reform was taken by the government of the country a year ago already, after returning Eesti Raudtee from the hands of a private company which had not fulfilled its obligations. Apparently, after dividing the Estonian railroad into two enterprises, some shares in one of them may be sold. Such an opportunity is not ruled out either by Eesti Raudtee management or representatives of the government. 
In particular, Juhan Parts, Minister of Economic Affairs and Communications, notes that, once the infrastructure is an unconditional monopoly, then it is possible to say about cargoes transportation that it is quite a usual market activity, therefore there are no special arguments why this company should belong exclusively to the state. 
On the other hand, not excluding the possibility of such a sale, Kaido Simmermann complains that today Eesti Raudtee’s goods traffic is considerably reduced, there are problems with the national economy, so unfortunately it is difficult to see how someone will rush to buy Eesti Raudtee shares in such conditions.
Nowadays the volume of transportation by Estonian railway continues to constantly fall, and it amounts in still the same 40 % of the 2007 indexes. Also company revenues are falling considerably and repair and reconstruction of routes require large resources. In this respect, selling some of the shares in roads could improve the situation a little. However, it is most likely that it will not be possible to speak about potential buyers until next spring, with the same going for discussing whether all AS EVR Cargo’s shares or only some will be put for sale.
Will Cargoes Come from the East?
Meanwhile Estonia has turned its sights to the East in search of new partners. At the beginning of 2008, the Tallinn port concluded a contract on cooperation with the Chinese port of Ningbo. The agreement on intentions to build a container terminal in Muuga with a capacity of up to 3 million TEU a year has been reached between the two port administrations, however, it is not yet a guarantee for future freight traffic from China. It is planned that the terminal will be used as a distribution centre for Chinese goods in the Baltic region and will start serving Russia, Scandinavia and the Baltics.
However, nobody has yet held official negotiations with Chinese cargo owners. So far representatives from worldwide liner operators have been sceptical  about the estimates for declared volumes of transit through the new terminal at the port of Tallinn. “If the distribution centre is built, it is most likely that the Chinese will begin to use the ‘Sea – Sea’ system,” the Chairman of the Board of Estonian Logistics and Transit Association Andreas Kuusman considers. “Cargoes from Tallinn can be sent either to Europe, or to Russia.” The Muuga CT member of the Board Sergey Artyomov’s opinion is absolutely the opposite. He thinks that cargoes in the ”Sea-Sea” chain will hardly go to the Russian Federation in the near future because the port of Saint Petersburg is not coping even with existing demands. It is certainly possible to unload ocean vessels in Tallinn using the new terminal, which would be able to accept greater loads, and to send cargoes further to Ust-Luga, but then a 10-hour trip will not be an advantage for a cargo owner. “Such logistics will require one more stevedore operator andone more agent, so it will be an expensive chain,” Mr Artyomov thinks.
Nevertheless, both countries’ heads of government see a good future in the cooperation of Ningbo and the port of Tallinn. Cooperation between countries in the sphere of transport and logistics was considered recently in Beijing at a meeting of heads of government. The Prime Minister of China, Wen Jiabao, has called for Estonian companies to work on the big Chinese market. The Chinese Prime Minister has also declared that his country intends to invest in a logistics centre in the Tallinn Muuga port zone and promote Estonian imports for the purpose of keeping Estonia’s foreign trade balanced. As Marko Rajd, Tallinn port’s Financial Director, has declared earlier, it is clear that the port will never regain its former maximum volume. “Definitely, some goods are lost to Estonia forever but the port of Tallinn is doing everything it can to find new opportunities for growth and to restore the interrupted freight traffic in coordination with operators,” notes Mr Rajd. 
But, despite great hopes on the Estonian side for Chinese cargoes, experts are far from being assured that China can create its container base on Estonian territory. Probably, there will be some small investments but one can hardly expect any global business development to follow them there, especially if it considers Russia. 
By Yana Torina
    [~DETAIL_TEXT] => 
How It All Started
Last April’s events aggravated political relations between the two countries, which was among the main reasons why Russian Minister of Transport Igor Levitin has announced a new national policy to export mineral oil only through Russian ports. Last July, some Russian traders said offcials demanded exporters reduce by 50 % their black oil, coal and metals deliveries through Estonia. Before that a quarter of mineral oil was exported from Russia through Estonian ports, which amounted to about 25 million tons annually. The largest Russian holdings – Gaspromneft, TNK-ВР and the Surgutneftegaz’ plant in Kirishi – were the main suppliers. Also, traditionally Estonia was the largest reloading point for Russian wood, metals, coal and chemical cargoes. 
Meanwhile, within the past few years, goods traffic from the Russian Northwest towards the Baltics has been growing steadily. For example, the value of goods transported last year increased 1.5 times (up to USD 2.5 billion). Rail transportation volume from Russia to the Baltics was 54.43 million tons. A warming of Russian-Latvian relations is considered to be one of the reasons for the positive development. 
As regards Estonian transit, because Russian transit bulk-oil traffic was redirected to Russia’s own North-Western ports, practically a 30 % reduction in total transportation took place as a result by the end of 2007. Despite this, 26.4 million tons of cargo was transported through the Estonian border. Estonian analysts have stated the amount of losses their country has suffered in connection with the bronze night to be 6.8 billion crones (USD 547 million) in the last year alone. By the way, according to the Estonian side, the state carrier’s transportation volume fell 40% in 2007. Mario Lambing, an expert  in Economic Analysis Management at the Ministry of Economics and Communications, says that considering the number of people involved in the transit sector and additional costs created by them, a 30-40 % reduction of transportation volume means the loss of up to 2,000 jobs. Its influence on the gross national product of the country is 1-2 % which is two to four billion crones (USD 241.3 million). Actually, Estonia has managed to avoid last year’s expected wave of bankruptcies in transport companies, but nevertheless, at least two operators closed down – Stivideerimise OU and AS Talstok. Also, one of the largest operators with Russian capital, Spacecom, has stopped its activity on Estonian territory.  
Thus, it appears the very recent hopes of Russia’s Baltic neighbours for tariff unification according to WTO requirements and, presumably following it, new prospects for cooperation, have been dashed – at least, in the case of Estonia. 
We shall remember that cargo transportation prices, both on Russian domestic routes and towards border points, should become the same in Russia from January 1, 2009. And just recently the Marketing Director of Estonian port Sillamae Andrey Birov has noted that, with this unification of tariffs, all three Baltic national railways will be of even greater interest to Russian transport and logistics companies. In particular, he said the most favourable routes can be the ones through Sillamyae, as the average tariff on the Estonian railway for cargo transportations between Narva/Ivangorod and Sillamae is EUR 1.5 per tonne, which is EUR 1.5 to EUR 3 less than in other Estonian ports. It particularly makes sense considering the fact that a free zone makes a terminal operator free from customs duties and taxes for transit cargoes.
Oil Rivers Will Soon Run Dry
However, according to all available information, the total amount of cargo going through the port of Tallinn fell 26.6% in the first eight months of 2008, in comparison with the same period last year. Bulk cargoes (mineral oil) deliveries via the Estonian port decreased 15% for this period in comparison with last year’s and amounted to only 13.61 million tonnes. As the Head of Estonian railways Kaido Simmermann says, now the state wants to give more and more attention to the transit of non-strategic goods from Russia, including container traffic. And it is connected with a steady decrease in the volume of Russian mineral oil transit and, in the end, its probable termination.  Mr Simmermann says that it is inevitable, because he thinks that in about three or four years there will not be even the volumes that exist today (or there will be some but an absolutely insignificant amount). 
Particularly in connection with the declared readiness of the Ust-Luga port for black oil transit for the beginning to middle of 2009, some black oil deliveries from the Kirishi refinery of Surgutneftegaz will most likely go through there. Besides, this year the transit of Russian coal has been practically stopped, in spite of the fact that since 2005 a new terminal for it has been operating in Tallinn port. 
Thus, given the gloomy forecasts for Estonia, talks about the prospects for container cargo transportation have been started again in the republic, especially given the broadening of the 1435 mm track. But the prospects of this project are disputable. 
Estonia is now proceeding with the reconstruction of the Tartu-Valga rail section (in 2008-2009 Eesti Raudtee (Estonian Railways) will pay USD 35 million to renew 11 crossings and replace 66 km of tracks). 
Representatives of the Estonian railways see new horizons behind the development of this project to connect Estonia, Latvia and Lithuania with Poland and Germany. Also, if you trust what is being said, already today there is a daily shortage of about 200 fitting platforms due to the growth in container transportation. However, very few experts see broad opportunities for a narrow track. Development works at RailBaltika are moving ahead quite slowly and, moreover, they have been speaking about expansion of the container business in Estonia for at least the past five or six years.
Besides, recently cargo-senders have felt considerably the lack of stable conditions in working with the Estonian carrier. Everything varies on the Estonian railway, from tariffs to the form of ownership. Now it has been declared that Eesti Raudtee will be divided into two separate enterprises – AS EVR Infra and AS EVR Cargo. Both “daughters” will remain entirely the property of the state. The first one will have an authorised capital of USD10 million and will be responsible for infrastructure maintenance and development. The second one will have capital of USD1 million and will be engaged in cargo transportation. The authorised capital of Eesti Raudtee is about USD 40 million.
According to the plans, the reorganised structures will start operation from January 1, 2009. A general decision regarding the reform was taken by the government of the country a year ago already, after returning Eesti Raudtee from the hands of a private company which had not fulfilled its obligations. Apparently, after dividing the Estonian railroad into two enterprises, some shares in one of them may be sold. Such an opportunity is not ruled out either by Eesti Raudtee management or representatives of the government. 
In particular, Juhan Parts, Minister of Economic Affairs and Communications, notes that, once the infrastructure is an unconditional monopoly, then it is possible to say about cargoes transportation that it is quite a usual market activity, therefore there are no special arguments why this company should belong exclusively to the state. 
On the other hand, not excluding the possibility of such a sale, Kaido Simmermann complains that today Eesti Raudtee’s goods traffic is considerably reduced, there are problems with the national economy, so unfortunately it is difficult to see how someone will rush to buy Eesti Raudtee shares in such conditions.
Nowadays the volume of transportation by Estonian railway continues to constantly fall, and it amounts in still the same 40 % of the 2007 indexes. Also company revenues are falling considerably and repair and reconstruction of routes require large resources. In this respect, selling some of the shares in roads could improve the situation a little. However, it is most likely that it will not be possible to speak about potential buyers until next spring, with the same going for discussing whether all AS EVR Cargo’s shares or only some will be put for sale.
Will Cargoes Come from the East?
Meanwhile Estonia has turned its sights to the East in search of new partners. At the beginning of 2008, the Tallinn port concluded a contract on cooperation with the Chinese port of Ningbo. The agreement on intentions to build a container terminal in Muuga with a capacity of up to 3 million TEU a year has been reached between the two port administrations, however, it is not yet a guarantee for future freight traffic from China. It is planned that the terminal will be used as a distribution centre for Chinese goods in the Baltic region and will start serving Russia, Scandinavia and the Baltics.
However, nobody has yet held official negotiations with Chinese cargo owners. So far representatives from worldwide liner operators have been sceptical  about the estimates for declared volumes of transit through the new terminal at the port of Tallinn. “If the distribution centre is built, it is most likely that the Chinese will begin to use the ‘Sea – Sea’ system,” the Chairman of the Board of Estonian Logistics and Transit Association Andreas Kuusman considers. “Cargoes from Tallinn can be sent either to Europe, or to Russia.” The Muuga CT member of the Board Sergey Artyomov’s opinion is absolutely the opposite. He thinks that cargoes in the ”Sea-Sea” chain will hardly go to the Russian Federation in the near future because the port of Saint Petersburg is not coping even with existing demands. It is certainly possible to unload ocean vessels in Tallinn using the new terminal, which would be able to accept greater loads, and to send cargoes further to Ust-Luga, but then a 10-hour trip will not be an advantage for a cargo owner. “Such logistics will require one more stevedore operator andone more agent, so it will be an expensive chain,” Mr Artyomov thinks.
Nevertheless, both countries’ heads of government see a good future in the cooperation of Ningbo and the port of Tallinn. Cooperation between countries in the sphere of transport and logistics was considered recently in Beijing at a meeting of heads of government. The Prime Minister of China, Wen Jiabao, has called for Estonian companies to work on the big Chinese market. The Chinese Prime Minister has also declared that his country intends to invest in a logistics centre in the Tallinn Muuga port zone and promote Estonian imports for the purpose of keeping Estonia’s foreign trade balanced. As Marko Rajd, Tallinn port’s Financial Director, has declared earlier, it is clear that the port will never regain its former maximum volume. “Definitely, some goods are lost to Estonia forever but the port of Tallinn is doing everything it can to find new opportunities for growth and to restore the interrupted freight traffic in coordination with operators,” notes Mr Rajd. 
But, despite great hopes on the Estonian side for Chinese cargoes, experts are far from being assured that China can create its container base on Estonian territory. Probably, there will be some small investments but one can hardly expect any global business development to follow them there, especially if it considers Russia. 
By Yana Torina
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How It All Started
Last April’s events aggravated political relations between the two countries, which was among the main reasons why Russian Minister of Transport Igor Levitin has announced a new national policy to export mineral oil only through Russian ports. Last July, some Russian traders said offcials demanded exporters reduce by 50 % their black oil, coal and metals deliveries through Estonia. Before that a quarter of mineral oil was exported from Russia through Estonian ports, which amounted to about 25 million tons annually. The largest Russian holdings – Gaspromneft, TNK-ВР and the Surgutneftegaz’ plant in Kirishi – were the main suppliers. Also, traditionally Estonia was the largest reloading point for Russian wood, metals, coal and chemical cargoes. 
Meanwhile, within the past few years, goods traffic from the Russian Northwest towards the Baltics has been growing steadily. For example, the value of goods transported last year increased 1.5 times (up to USD 2.5 billion). Rail transportation volume from Russia to the Baltics was 54.43 million tons. A warming of Russian-Latvian relations is considered to be one of the reasons for the positive development. 
As regards Estonian transit, because Russian transit bulk-oil traffic was redirected to Russia’s own North-Western ports, practically a 30 % reduction in total transportation took place as a result by the end of 2007. Despite this, 26.4 million tons of cargo was transported through the Estonian border. Estonian analysts have stated the amount of losses their country has suffered in connection with the bronze night to be 6.8 billion crones (USD 547 million) in the last year alone. By the way, according to the Estonian side, the state carrier’s transportation volume fell 40% in 2007. Mario Lambing, an expert  in Economic Analysis Management at the Ministry of Economics and Communications, says that considering the number of people involved in the transit sector and additional costs created by them, a 30-40 % reduction of transportation volume means the loss of up to 2,000 jobs. Its influence on the gross national product of the country is 1-2 % which is two to four billion crones (USD 241.3 million). Actually, Estonia has managed to avoid last year’s expected wave of bankruptcies in transport companies, but nevertheless, at least two operators closed down – Stivideerimise OU and AS Talstok. Also, one of the largest operators with Russian capital, Spacecom, has stopped its activity on Estonian territory.  
Thus, it appears the very recent hopes of Russia’s Baltic neighbours for tariff unification according to WTO requirements and, presumably following it, new prospects for cooperation, have been dashed – at least, in the case of Estonia. 
We shall remember that cargo transportation prices, both on Russian domestic routes and towards border points, should become the same in Russia from January 1, 2009. And just recently the Marketing Director of Estonian port Sillamae Andrey Birov has noted that, with this unification of tariffs, all three Baltic national railways will be of even greater interest to Russian transport and logistics companies. In particular, he said the most favourable routes can be the ones through Sillamyae, as the average tariff on the Estonian railway for cargo transportations between Narva/Ivangorod and Sillamae is EUR 1.5 per tonne, which is EUR 1.5 to EUR 3 less than in other Estonian ports. It particularly makes sense considering the fact that a free zone makes a terminal operator free from customs duties and taxes for transit cargoes.
Oil Rivers Will Soon Run Dry
However, according to all available information, the total amount of cargo going through the port of Tallinn fell 26.6% in the first eight months of 2008, in comparison with the same period last year. Bulk cargoes (mineral oil) deliveries via the Estonian port decreased 15% for this period in comparison with last year’s and amounted to only 13.61 million tonnes. As the Head of Estonian railways Kaido Simmermann says, now the state wants to give more and more attention to the transit of non-strategic goods from Russia, including container traffic. And it is connected with a steady decrease in the volume of Russian mineral oil transit and, in the end, its probable termination.  Mr Simmermann says that it is inevitable, because he thinks that in about three or four years there will not be even the volumes that exist today (or there will be some but an absolutely insignificant amount). 
Particularly in connection with the declared readiness of the Ust-Luga port for black oil transit for the beginning to middle of 2009, some black oil deliveries from the Kirishi refinery of Surgutneftegaz will most likely go through there. Besides, this year the transit of Russian coal has been practically stopped, in spite of the fact that since 2005 a new terminal for it has been operating in Tallinn port. 
Thus, given the gloomy forecasts for Estonia, talks about the prospects for container cargo transportation have been started again in the republic, especially given the broadening of the 1435 mm track. But the prospects of this project are disputable. 
Estonia is now proceeding with the reconstruction of the Tartu-Valga rail section (in 2008-2009 Eesti Raudtee (Estonian Railways) will pay USD 35 million to renew 11 crossings and replace 66 km of tracks). 
Representatives of the Estonian railways see new horizons behind the development of this project to connect Estonia, Latvia and Lithuania with Poland and Germany. Also, if you trust what is being said, already today there is a daily shortage of about 200 fitting platforms due to the growth in container transportation. However, very few experts see broad opportunities for a narrow track. Development works at RailBaltika are moving ahead quite slowly and, moreover, they have been speaking about expansion of the container business in Estonia for at least the past five or six years.
Besides, recently cargo-senders have felt considerably the lack of stable conditions in working with the Estonian carrier. Everything varies on the Estonian railway, from tariffs to the form of ownership. Now it has been declared that Eesti Raudtee will be divided into two separate enterprises – AS EVR Infra and AS EVR Cargo. Both “daughters” will remain entirely the property of the state. The first one will have an authorised capital of USD10 million and will be responsible for infrastructure maintenance and development. The second one will have capital of USD1 million and will be engaged in cargo transportation. The authorised capital of Eesti Raudtee is about USD 40 million.
According to the plans, the reorganised structures will start operation from January 1, 2009. A general decision regarding the reform was taken by the government of the country a year ago already, after returning Eesti Raudtee from the hands of a private company which had not fulfilled its obligations. Apparently, after dividing the Estonian railroad into two enterprises, some shares in one of them may be sold. Such an opportunity is not ruled out either by Eesti Raudtee management or representatives of the government. 
In particular, Juhan Parts, Minister of Economic Affairs and Communications, notes that, once the infrastructure is an unconditional monopoly, then it is possible to say about cargoes transportation that it is quite a usual market activity, therefore there are no special arguments why this company should belong exclusively to the state. 
On the other hand, not excluding the possibility of such a sale, Kaido Simmermann complains that today Eesti Raudtee’s goods traffic is considerably reduced, there are problems with the national economy, so unfortunately it is difficult to see how someone will rush to buy Eesti Raudtee shares in such conditions.
Nowadays the volume of transportation by Estonian railway continues to constantly fall, and it amounts in still the same 40 % of the 2007 indexes. Also company revenues are falling considerably and repair and reconstruction of routes require large resources. In this respect, selling some of the shares in roads could improve the situation a little. However, it is most likely that it will not be possible to speak about potential buyers until next spring, with the same going for discussing whether all AS EVR Cargo’s shares or only some will be put for sale.
Will Cargoes Come from the East?
Meanwhile Estonia has turned its sights to the East in search of new partners. At the beginning of 2008, the Tallinn port concluded a contract on cooperation with the Chinese port of Ningbo. The agreement on intentions to build a container terminal in Muuga with a capacity of up to 3 million TEU a year has been reached between the two port administrations, however, it is not yet a guarantee for future freight traffic from China. It is planned that the terminal will be used as a distribution centre for Chinese goods in the Baltic region and will start serving Russia, Scandinavia and the Baltics.
However, nobody has yet held official negotiations with Chinese cargo owners. So far representatives from worldwide liner operators have been sceptical  about the estimates for declared volumes of transit through the new terminal at the port of Tallinn. “If the distribution centre is built, it is most likely that the Chinese will begin to use the ‘Sea – Sea’ system,” the Chairman of the Board of Estonian Logistics and Transit Association Andreas Kuusman considers. “Cargoes from Tallinn can be sent either to Europe, or to Russia.” The Muuga CT member of the Board Sergey Artyomov’s opinion is absolutely the opposite. He thinks that cargoes in the ”Sea-Sea” chain will hardly go to the Russian Federation in the near future because the port of Saint Petersburg is not coping even with existing demands. It is certainly possible to unload ocean vessels in Tallinn using the new terminal, which would be able to accept greater loads, and to send cargoes further to Ust-Luga, but then a 10-hour trip will not be an advantage for a cargo owner. “Such logistics will require one more stevedore operator andone more agent, so it will be an expensive chain,” Mr Artyomov thinks.
Nevertheless, both countries’ heads of government see a good future in the cooperation of Ningbo and the port of Tallinn. Cooperation between countries in the sphere of transport and logistics was considered recently in Beijing at a meeting of heads of government. The Prime Minister of China, Wen Jiabao, has called for Estonian companies to work on the big Chinese market. The Chinese Prime Minister has also declared that his country intends to invest in a logistics centre in the Tallinn Muuga port zone and promote Estonian imports for the purpose of keeping Estonia’s foreign trade balanced. As Marko Rajd, Tallinn port’s Financial Director, has declared earlier, it is clear that the port will never regain its former maximum volume. “Definitely, some goods are lost to Estonia forever but the port of Tallinn is doing everything it can to find new opportunities for growth and to restore the interrupted freight traffic in coordination with operators,” notes Mr Rajd. 
But, despite great hopes on the Estonian side for Chinese cargoes, experts are far from being assured that China can create its container base on Estonian territory. Probably, there will be some small investments but one can hardly expect any global business development to follow them there, especially if it considers Russia. 
By Yana Torina
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How It All Started
Last April’s events aggravated political relations between the two countries, which was among the main reasons why Russian Minister of Transport Igor Levitin has announced a new national policy to export mineral oil only through Russian ports. Last July, some Russian traders said offcials demanded exporters reduce by 50 % their black oil, coal and metals deliveries through Estonia. Before that a quarter of mineral oil was exported from Russia through Estonian ports, which amounted to about 25 million tons annually. The largest Russian holdings – Gaspromneft, TNK-ВР and the Surgutneftegaz’ plant in Kirishi – were the main suppliers. Also, traditionally Estonia was the largest reloading point for Russian wood, metals, coal and chemical cargoes. 
Meanwhile, within the past few years, goods traffic from the Russian Northwest towards the Baltics has been growing steadily. For example, the value of goods transported last year increased 1.5 times (up to USD 2.5 billion). Rail transportation volume from Russia to the Baltics was 54.43 million tons. A warming of Russian-Latvian relations is considered to be one of the reasons for the positive development. 
As regards Estonian transit, because Russian transit bulk-oil traffic was redirected to Russia’s own North-Western ports, practically a 30 % reduction in total transportation took place as a result by the end of 2007. Despite this, 26.4 million tons of cargo was transported through the Estonian border. Estonian analysts have stated the amount of losses their country has suffered in connection with the bronze night to be 6.8 billion crones (USD 547 million) in the last year alone. By the way, according to the Estonian side, the state carrier’s transportation volume fell 40% in 2007. Mario Lambing, an expert  in Economic Analysis Management at the Ministry of Economics and Communications, says that considering the number of people involved in the transit sector and additional costs created by them, a 30-40 % reduction of transportation volume means the loss of up to 2,000 jobs. Its influence on the gross national product of the country is 1-2 % which is two to four billion crones (USD 241.3 million). Actually, Estonia has managed to avoid last year’s expected wave of bankruptcies in transport companies, but nevertheless, at least two operators closed down – Stivideerimise OU and AS Talstok. Also, one of the largest operators with Russian capital, Spacecom, has stopped its activity on Estonian territory.  
Thus, it appears the very recent hopes of Russia’s Baltic neighbours for tariff unification according to WTO requirements and, presumably following it, new prospects for cooperation, have been dashed – at least, in the case of Estonia. 
We shall remember that cargo transportation prices, both on Russian domestic routes and towards border points, should become the same in Russia from January 1, 2009. And just recently the Marketing Director of Estonian port Sillamae Andrey Birov has noted that, with this unification of tariffs, all three Baltic national railways will be of even greater interest to Russian transport and logistics companies. In particular, he said the most favourable routes can be the ones through Sillamyae, as the average tariff on the Estonian railway for cargo transportations between Narva/Ivangorod and Sillamae is EUR 1.5 per tonne, which is EUR 1.5 to EUR 3 less than in other Estonian ports. It particularly makes sense considering the fact that a free zone makes a terminal operator free from customs duties and taxes for transit cargoes.
Oil Rivers Will Soon Run Dry
However, according to all available information, the total amount of cargo going through the port of Tallinn fell 26.6% in the first eight months of 2008, in comparison with the same period last year. Bulk cargoes (mineral oil) deliveries via the Estonian port decreased 15% for this period in comparison with last year’s and amounted to only 13.61 million tonnes. As the Head of Estonian railways Kaido Simmermann says, now the state wants to give more and more attention to the transit of non-strategic goods from Russia, including container traffic. And it is connected with a steady decrease in the volume of Russian mineral oil transit and, in the end, its probable termination.  Mr Simmermann says that it is inevitable, because he thinks that in about three or four years there will not be even the volumes that exist today (or there will be some but an absolutely insignificant amount). 
Particularly in connection with the declared readiness of the Ust-Luga port for black oil transit for the beginning to middle of 2009, some black oil deliveries from the Kirishi refinery of Surgutneftegaz will most likely go through there. Besides, this year the transit of Russian coal has been practically stopped, in spite of the fact that since 2005 a new terminal for it has been operating in Tallinn port. 
Thus, given the gloomy forecasts for Estonia, talks about the prospects for container cargo transportation have been started again in the republic, especially given the broadening of the 1435 mm track. But the prospects of this project are disputable. 
Estonia is now proceeding with the reconstruction of the Tartu-Valga rail section (in 2008-2009 Eesti Raudtee (Estonian Railways) will pay USD 35 million to renew 11 crossings and replace 66 km of tracks). 
Representatives of the Estonian railways see new horizons behind the development of this project to connect Estonia, Latvia and Lithuania with Poland and Germany. Also, if you trust what is being said, already today there is a daily shortage of about 200 fitting platforms due to the growth in container transportation. However, very few experts see broad opportunities for a narrow track. Development works at RailBaltika are moving ahead quite slowly and, moreover, they have been speaking about expansion of the container business in Estonia for at least the past five or six years.
Besides, recently cargo-senders have felt considerably the lack of stable conditions in working with the Estonian carrier. Everything varies on the Estonian railway, from tariffs to the form of ownership. Now it has been declared that Eesti Raudtee will be divided into two separate enterprises – AS EVR Infra and AS EVR Cargo. Both “daughters” will remain entirely the property of the state. The first one will have an authorised capital of USD10 million and will be responsible for infrastructure maintenance and development. The second one will have capital of USD1 million and will be engaged in cargo transportation. The authorised capital of Eesti Raudtee is about USD 40 million.
According to the plans, the reorganised structures will start operation from January 1, 2009. A general decision regarding the reform was taken by the government of the country a year ago already, after returning Eesti Raudtee from the hands of a private company which had not fulfilled its obligations. Apparently, after dividing the Estonian railroad into two enterprises, some shares in one of them may be sold. Such an opportunity is not ruled out either by Eesti Raudtee management or representatives of the government. 
In particular, Juhan Parts, Minister of Economic Affairs and Communications, notes that, once the infrastructure is an unconditional monopoly, then it is possible to say about cargoes transportation that it is quite a usual market activity, therefore there are no special arguments why this company should belong exclusively to the state. 
On the other hand, not excluding the possibility of such a sale, Kaido Simmermann complains that today Eesti Raudtee’s goods traffic is considerably reduced, there are problems with the national economy, so unfortunately it is difficult to see how someone will rush to buy Eesti Raudtee shares in such conditions.
Nowadays the volume of transportation by Estonian railway continues to constantly fall, and it amounts in still the same 40 % of the 2007 indexes. Also company revenues are falling considerably and repair and reconstruction of routes require large resources. In this respect, selling some of the shares in roads could improve the situation a little. However, it is most likely that it will not be possible to speak about potential buyers until next spring, with the same going for discussing whether all AS EVR Cargo’s shares or only some will be put for sale.
Will Cargoes Come from the East?
Meanwhile Estonia has turned its sights to the East in search of new partners. At the beginning of 2008, the Tallinn port concluded a contract on cooperation with the Chinese port of Ningbo. The agreement on intentions to build a container terminal in Muuga with a capacity of up to 3 million TEU a year has been reached between the two port administrations, however, it is not yet a guarantee for future freight traffic from China. It is planned that the terminal will be used as a distribution centre for Chinese goods in the Baltic region and will start serving Russia, Scandinavia and the Baltics.
However, nobody has yet held official negotiations with Chinese cargo owners. So far representatives from worldwide liner operators have been sceptical  about the estimates for declared volumes of transit through the new terminal at the port of Tallinn. “If the distribution centre is built, it is most likely that the Chinese will begin to use the ‘Sea – Sea’ system,” the Chairman of the Board of Estonian Logistics and Transit Association Andreas Kuusman considers. “Cargoes from Tallinn can be sent either to Europe, or to Russia.” The Muuga CT member of the Board Sergey Artyomov’s opinion is absolutely the opposite. He thinks that cargoes in the ”Sea-Sea” chain will hardly go to the Russian Federation in the near future because the port of Saint Petersburg is not coping even with existing demands. It is certainly possible to unload ocean vessels in Tallinn using the new terminal, which would be able to accept greater loads, and to send cargoes further to Ust-Luga, but then a 10-hour trip will not be an advantage for a cargo owner. “Such logistics will require one more stevedore operator andone more agent, so it will be an expensive chain,” Mr Artyomov thinks.
Nevertheless, both countries’ heads of government see a good future in the cooperation of Ningbo and the port of Tallinn. Cooperation between countries in the sphere of transport and logistics was considered recently in Beijing at a meeting of heads of government. The Prime Minister of China, Wen Jiabao, has called for Estonian companies to work on the big Chinese market. The Chinese Prime Minister has also declared that his country intends to invest in a logistics centre in the Tallinn Muuga port zone and promote Estonian imports for the purpose of keeping Estonia’s foreign trade balanced. As Marko Rajd, Tallinn port’s Financial Director, has declared earlier, it is clear that the port will never regain its former maximum volume. “Definitely, some goods are lost to Estonia forever but the port of Tallinn is doing everything it can to find new opportunities for growth and to restore the interrupted freight traffic in coordination with operators,” notes Mr Rajd. 
But, despite great hopes on the Estonian side for Chinese cargoes, experts are far from being assured that China can create its container base on Estonian territory. Probably, there will be some small investments but one can hardly expect any global business development to follow them there, especially if it considers Russia. 
By Yana Torina
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Will Containers Replace Oil Products?
According to the evaluations of specialists, transit in Latvia makes up more than 90% of all cargoes in the ports of the Republic and more than 90% on the railways. Thus, in 2007 the throughput of Latvian ports amounted to 62.434 million tons, and 59.496 million tons in 2006. 
52.164 million tons of freight was carried on the railway network in 2007, and 48.731 million tons in 2006. 52 million tons of cargo was carried to Russia by road last year. Andris Maldups, Director of Transit Policy Department of the Latvian Ministry of Communications, considers that about USD 14 is left in the Republic from each ton of cargo. 
Non-official data states that in the best years for transit, when Russian oil was carried along the pipeline to Ventspils, the revenue from transit amounted to 27% of the country’s budget of USD 1.5 billion. Nowadays it is less than 10% of a budget of USD 5.5 billion. At present, the share of Russian cargoes on Latvian railways is about 50% of the annual throughput of 52 million tons.
However, due to the Russian policy aimed at re-directing cargo flows to national ports, and its port capacities development, Latvia has lost a significant part of profitable cargoes such as oil and metals. Eric Shmuksts, Chairman of the Board of LDz Cargo (a daughter company of Latvijas Dzelzcels), forecasts the reduction of these cargoes in future. In his opinion, the Latvian railway company will transport less oil and oil products than coal, which is now second in the transportation hierarchy. 
Analysing future oil export transportation by railway from Russia via Latvia, most experts think that after the next stage of Russian north-western harbour developments, the decline in Latvia will start in 2010. That is why Latvijas Dzelzcels is preparing to cooperate closer with Byelorussia, Lithuania and Kazakhstan in oil and oil products transportation.
Staking Their Future 
Understanding that powerful freight-creating potential is arising at the East, the Latvians do not want to miss their “geographical chance” and are beginning to actively fight for future freight flows. And they are sure that there will be much more cargo than their neighbour – the Russian Federation – can handle in its ports. 
On the other hand, Latvia must fight for the cargoes carried from Europe to Russia. For example, at the end of October the first ferry with 800 cars (the Peugeot 308) was unloaded with the help of French logistics company GEFCO in the port of Riga. Then the cars were carried to Moscow partly by railway and partly by road. It was a test call at the Latvian port. The French recognise that if the trial is a success, about 20,000 – 30,000 cars may be carried via Latvia to Russia annually.
In the middle of October, Latvian logistics company Schenker and Kazakh company HTL Trans Service concluded a contract on cooperation, including an agreement on regular transportation of industrial products and foodstuffs by “Baltica-Transit” train to Middle Asia and Kazakhstan. In future the train may be loaded with goods made in China coming the other way. This theme is widely discussed. Moreover, it is what the Latvian railway, as well as ports, have staked their future on. 
Lost Revenue
In the words of Mr Shmuksts from Latvijas Dzelzcels, transit is the basic activity. Local domestic transportation accounts for less than 10% of the whole volume. According to a number of estimates, Russian exports of oil products will dwindle to nothing. Meanwhile, transportation of coal grows by 20-25% a month due to high demand on the European market, even though it is not a profitable cargo. Baltic states would like to transport cargoes with high added value. Take the containers that are already being delivered to the port for example. At the customs warehouses they are separated into single lots, thus a cargo with added value appears, which is profitable for the state.
First of all, container transportation is under discussion. On the initiative of Ainars Shlesers, Latvian Minister of Communications, the specialists of the Ministry are developing a way to increase transit of containers to 5 million TEU by 2020. But the most important target is to increase the turnover to 2 million TEU per annum by 2013. But the reaction of Latvian specialists is negative. They consider the project too ambitious because there is a lack of port and railway capacities in the three largest harbours in Latvia. Georg Lansmanis, adviser to the Minister of Communications of Latvia, considers that “to get the future freight flows, we must develop our infrastructure to a proper level.”
Latvijas Dzelzcels Speeds Up
Ugis Magonis, Chairman of the Board of Latvijas Dzelzcels, has announced several times that the company plans to double throughput to 100 million tons in the next three to five years. The railway has the potential capacities for that, although the lack of double-track gauge on the main line from the border to ports and low carrying capacity of some unloading stations in the capital require renovation and serious investment. The railway is actively carrying out projects to reconstruct and modernise its infrastructure and the priorities are the most difficult facilities and those most important for transit. The list of such projects includes reconstruction of a Latvian transport junction, including the leading East-West railway corridor to the three state ports, railway approaches to the ports, unloading stations and port railway facilities.
Recently it was published that until 2013 the national railway company plans to invest about 540 million lats (USD 1.058 billion) into infrastructure development. While being carried out (when the means from the EU funds have been received and the technical documentation has been developed), some projects may be suddenly abandoned by, for example, the Ministry of Communications, and the investment redirected to projects considered more important. That is why the enumeration of real projects is complicated.
Next year Latvijas Dzelzcels plans to invest approximately 100 million lats (USD 196 million) into enterprise reconstruction and development, of which approximately 59 million lats (USD 115 million) is for reconstruction, and about 39 million lats for development (USD 76 million). In the words of Maris Riekstins, a specialist at the company, a part of the means are planned in the company’s budget, the rest is to be received from the state budget and EU funds. In fact, most of the company’s projects are 52% financed by the EU and 48% by the national budget, which includes both railway money and state grants.
The railway reconstruction projects envisage modernisation and implementation of new technologies. The largest project is rebuilding tracks along most of the railroad (East-West transport corridor). Track replacement and repair are fulfilled according to the traffic density on different sectors of the railway (36 million lats (USD 70.5 million) is to be spent this year).
The second largest project, which may be completed next year, is modernisation of signal systems. The project is estimated at 89 million lats (USD 178 million), of which approximately 27 million lats (USD 53 million) will be invested in 2009. 
The development programmes envisage a pack of measures to increase the carrying capacity of the East-West corridor as well as other corridors leading to Latvian ports. In particular, construction of a second track at the Skrivery-Krustpils sector of the Riga-Krustpils line is to be started. This year approximately 6 million lats (USD 12 million) is to be invested in the project. The Indra station is to be modernised (the Latvian – Byelorussian border crossing) and creation of a double-track railway discussed. Next year a number of measures will be taken to repair the company’s rolling stock and implement computer technologies.
The company’s road to containerisation requires significant investment into purchase of flat wagons for container transportation. Experts consider that an additional USD 260 million is needed for that. Credit may be attracted but then railwaymen need guarantees from forwarders about available containerised cargoes. In addition, the orders and supplies of flat wagons from Ukrainian producers have not yet been organised.
For the Ships to Call at the Harbour
The port of Riga is preparing a programme of harbour development. Also, an analysis of the port’s work has been ordered. It includes possible future cargo flows as well as the activities of its direct competitors in the Baltic Sea. Vladimir Makarov, Director of Marketing and Development Department of the port of Riga, told a correspondent of “The RZD-Partner International” that the document will help develop a long-term strategy for the enterprise’s development. Now the port is counting on the current cargo flows and striving to create the basis for attraction of large cargo volumes.
Nowadays the port of Riga handles oil products, coal, cars and containers. This year the planned throughput is 29 million tons, 4.5 million tons more than the previous year.
The opinion held by port specialists is that container transportation will develop. “Until 2015 the containerisation in the RF will grow three- or fourfold and its terminals will fail to cope with the volume that will flood to Russia. That is why Latvia will get a piece of the pie, since some of this freight will be handled via the ports of the Baltic states,” considers Mr Makarov. 
Also, according to the plan of the Ministry of Communications, the container turnover of Latvian ports is to grow to 2 million TEU by 2013. 850,000 – 1 million TEU of this volume is to be handled by that time in Riga, 300,000 TEU in Ventspils, and up to 450,000 TEU in Liepaja. The portmen consider these plans a little bit unrealistic.
Nowadays only one terminal – Baltic Container Terminal Limited (BCT) – is operating in the port of Riga. Due to the lack of capacity, it cannot service any more cargo than it does now. Also, BCT is oriented for storing “boxes” instead of high-speed service.  
In 2009, it is planned to construct another terminal in the port of Riga and the capacity of its first stage will amount to 500,000 TEU per annum. It is a project of the Russian National Container Company. In the opinion of Mr Makarov, the first vessels loaded with containers will arrive at Riga at the end of 2009. 
Also, MAN-TESS company, which specialises in servicing oil products and general cargoes, is developing and analysing possible schemes to handle containers, and new cranes are being purchased to service feeder vessels from Hamburg and Rotterdam. This line will operate properly at the beginning of the next year. 
As for financing the projects to be carried out by the port, it is planned to invest USD 20 million into railway port infrastructure and more than USD 312 million into development of berths and channel deepening, said Leonid Loginov, administrator of Riga free port.
Latvia Needs a State Plan
Until now Latvia has had no clear-cut plans and concepts of transit development at state level. There is an indistinct governmental document “On Transport Development to 2013” and a strategy of the Ministry of Communications to 2013. (This date is connected with the distribution of the funds from Europe until 2013). Specialists at the Ministry, in cooperation with transporters, created a project of common development of the country’s ports, which has been sent for revision by the Council of the ports of the Republic. Without such a project, the Latvian ports will hardly succeed in attracting funds from the EU because the money can be received only if the state gives certain guarantees. Thus, the Latvian Government must formulate its position on port development. It may happen in the coming months in which case approximately USD 195 million will be invested in port infrastructure– channel deepening, wharf and pier modernisation and development of separate territories and access railways.    
A working group on transit development, headed by the Minister of Communications, started work in Latvia. Orientation towards the container business requires a serious analysis of the work of the ports, their capacities and perspectives and competitiveness in the region. Also, Latvian-Russian and Latvian-Kazakh working groups were launched to hold negotiations on tariffs and the possible creation of a single linear operator to transport containers from the Chinese north-west to Latvia. Until the readiness to transport Chinese cargoes on the China – Kazakhstan – Russia – Latvia line is demonstrated (there was one test trip of the train last spring, which proved difficult), it will be rather tricky to come to an agreement with Chinese cargo owners. Mr Maldups considers that forecasted and transparent logistics is especially important for forwarders. 
By Natalya Don
viewpoint
Andris Maldpus, 
Director of Transit Policy Department, Ministry of Communications of Latvia:
– The major advantage of the Latvian Republic is northern ice-free ports in the Baltic Sea. The new priority of the state is development of ports and railways. The Government is now developing documents which will allow the Republic to invest millions of euros into port and railway infrastructure improvement, mainly to attract containerised cargoes.
 
 
Andris Lubans, 
Chairman of the Board, Autotransport Directorate of Latvia:
– In my opinion, Latvian road carriers could develop at the expense of transit in future. We understand that Russia longs to develop its infrastructure capacities, for example, in ports, and handle a larger share of goods there. Obviously, there will be much more cargo than Russian ports can service. And it is worth Latvia participating in the struggle for the freight from Europe destined for Russia. Also, we should target the cargo flows which will be launched from China to Europe in the future. 
 
 
Georg Lansmanis,
Adviser to the Latvian Minister of Communications:
– Different transport structures of the Republic are considering several projects for possible containeri-sation in the region. We are aiming for containerisation, and for that we are creating work groups to cooperate with Russia, Kazakhstan, China, Turkmenistan and other countries. We want to provide business with such conditions in Latvian ports that the state would become attractive for large Western companies engaged in container transportation.
We have succeeded in attracting such market players as the National Container Company. The share of Russian capital in the building of a new terminal in Riga port is 50% with the Latvian capital supplying the other half.
By the way, more than EUR 100 million was invested in the infrastructure of each of the country’s three leading ports in the last few years. The railway junction in Liepaja was set in order. A lot was done in Riga. And scaled projects are being carried out. However, all 56 wagons of a train can be simultaneously serviced only in the port of Ventspils.
As for usage of the railway, one of the most important projects for us is the launch of a block train on the route China-Kazakhstan-Russia-Latvia. At the moment we have only verbal agreements with partners to create a single line operator, headed by specialists of all railway companies participating in the project.
I have to admit that now, unfortunately, the tariff on a container delivery to Moscow is extremely high – up to EUR 2,000. We hope a meeting of the Latvian-Russian work group will be held in Moscow in November, at which we will raise the question of unifying railway tariffs for cargo going to Latvian ports. 
    [~DETAIL_TEXT] => 
Will Containers Replace Oil Products?
According to the evaluations of specialists, transit in Latvia makes up more than 90% of all cargoes in the ports of the Republic and more than 90% on the railways. Thus, in 2007 the throughput of Latvian ports amounted to 62.434 million tons, and 59.496 million tons in 2006. 
52.164 million tons of freight was carried on the railway network in 2007, and 48.731 million tons in 2006. 52 million tons of cargo was carried to Russia by road last year. Andris Maldups, Director of Transit Policy Department of the Latvian Ministry of Communications, considers that about USD 14 is left in the Republic from each ton of cargo. 
Non-official data states that in the best years for transit, when Russian oil was carried along the pipeline to Ventspils, the revenue from transit amounted to 27% of the country’s budget of USD 1.5 billion. Nowadays it is less than 10% of a budget of USD 5.5 billion. At present, the share of Russian cargoes on Latvian railways is about 50% of the annual throughput of 52 million tons.
However, due to the Russian policy aimed at re-directing cargo flows to national ports, and its port capacities development, Latvia has lost a significant part of profitable cargoes such as oil and metals. Eric Shmuksts, Chairman of the Board of LDz Cargo (a daughter company of Latvijas Dzelzcels), forecasts the reduction of these cargoes in future. In his opinion, the Latvian railway company will transport less oil and oil products than coal, which is now second in the transportation hierarchy. 
Analysing future oil export transportation by railway from Russia via Latvia, most experts think that after the next stage of Russian north-western harbour developments, the decline in Latvia will start in 2010. That is why Latvijas Dzelzcels is preparing to cooperate closer with Byelorussia, Lithuania and Kazakhstan in oil and oil products transportation.
Staking Their Future 
Understanding that powerful freight-creating potential is arising at the East, the Latvians do not want to miss their “geographical chance” and are beginning to actively fight for future freight flows. And they are sure that there will be much more cargo than their neighbour – the Russian Federation – can handle in its ports. 
On the other hand, Latvia must fight for the cargoes carried from Europe to Russia. For example, at the end of October the first ferry with 800 cars (the Peugeot 308) was unloaded with the help of French logistics company GEFCO in the port of Riga. Then the cars were carried to Moscow partly by railway and partly by road. It was a test call at the Latvian port. The French recognise that if the trial is a success, about 20,000 – 30,000 cars may be carried via Latvia to Russia annually.
In the middle of October, Latvian logistics company Schenker and Kazakh company HTL Trans Service concluded a contract on cooperation, including an agreement on regular transportation of industrial products and foodstuffs by “Baltica-Transit” train to Middle Asia and Kazakhstan. In future the train may be loaded with goods made in China coming the other way. This theme is widely discussed. Moreover, it is what the Latvian railway, as well as ports, have staked their future on. 
Lost Revenue
In the words of Mr Shmuksts from Latvijas Dzelzcels, transit is the basic activity. Local domestic transportation accounts for less than 10% of the whole volume. According to a number of estimates, Russian exports of oil products will dwindle to nothing. Meanwhile, transportation of coal grows by 20-25% a month due to high demand on the European market, even though it is not a profitable cargo. Baltic states would like to transport cargoes with high added value. Take the containers that are already being delivered to the port for example. At the customs warehouses they are separated into single lots, thus a cargo with added value appears, which is profitable for the state.
First of all, container transportation is under discussion. On the initiative of Ainars Shlesers, Latvian Minister of Communications, the specialists of the Ministry are developing a way to increase transit of containers to 5 million TEU by 2020. But the most important target is to increase the turnover to 2 million TEU per annum by 2013. But the reaction of Latvian specialists is negative. They consider the project too ambitious because there is a lack of port and railway capacities in the three largest harbours in Latvia. Georg Lansmanis, adviser to the Minister of Communications of Latvia, considers that “to get the future freight flows, we must develop our infrastructure to a proper level.”
Latvijas Dzelzcels Speeds Up
Ugis Magonis, Chairman of the Board of Latvijas Dzelzcels, has announced several times that the company plans to double throughput to 100 million tons in the next three to five years. The railway has the potential capacities for that, although the lack of double-track gauge on the main line from the border to ports and low carrying capacity of some unloading stations in the capital require renovation and serious investment. The railway is actively carrying out projects to reconstruct and modernise its infrastructure and the priorities are the most difficult facilities and those most important for transit. The list of such projects includes reconstruction of a Latvian transport junction, including the leading East-West railway corridor to the three state ports, railway approaches to the ports, unloading stations and port railway facilities.
Recently it was published that until 2013 the national railway company plans to invest about 540 million lats (USD 1.058 billion) into infrastructure development. While being carried out (when the means from the EU funds have been received and the technical documentation has been developed), some projects may be suddenly abandoned by, for example, the Ministry of Communications, and the investment redirected to projects considered more important. That is why the enumeration of real projects is complicated.
Next year Latvijas Dzelzcels plans to invest approximately 100 million lats (USD 196 million) into enterprise reconstruction and development, of which approximately 59 million lats (USD 115 million) is for reconstruction, and about 39 million lats for development (USD 76 million). In the words of Maris Riekstins, a specialist at the company, a part of the means are planned in the company’s budget, the rest is to be received from the state budget and EU funds. In fact, most of the company’s projects are 52% financed by the EU and 48% by the national budget, which includes both railway money and state grants.
The railway reconstruction projects envisage modernisation and implementation of new technologies. The largest project is rebuilding tracks along most of the railroad (East-West transport corridor). Track replacement and repair are fulfilled according to the traffic density on different sectors of the railway (36 million lats (USD 70.5 million) is to be spent this year).
The second largest project, which may be completed next year, is modernisation of signal systems. The project is estimated at 89 million lats (USD 178 million), of which approximately 27 million lats (USD 53 million) will be invested in 2009. 
The development programmes envisage a pack of measures to increase the carrying capacity of the East-West corridor as well as other corridors leading to Latvian ports. In particular, construction of a second track at the Skrivery-Krustpils sector of the Riga-Krustpils line is to be started. This year approximately 6 million lats (USD 12 million) is to be invested in the project. The Indra station is to be modernised (the Latvian – Byelorussian border crossing) and creation of a double-track railway discussed. Next year a number of measures will be taken to repair the company’s rolling stock and implement computer technologies.
The company’s road to containerisation requires significant investment into purchase of flat wagons for container transportation. Experts consider that an additional USD 260 million is needed for that. Credit may be attracted but then railwaymen need guarantees from forwarders about available containerised cargoes. In addition, the orders and supplies of flat wagons from Ukrainian producers have not yet been organised.
For the Ships to Call at the Harbour
The port of Riga is preparing a programme of harbour development. Also, an analysis of the port’s work has been ordered. It includes possible future cargo flows as well as the activities of its direct competitors in the Baltic Sea. Vladimir Makarov, Director of Marketing and Development Department of the port of Riga, told a correspondent of “The RZD-Partner International” that the document will help develop a long-term strategy for the enterprise’s development. Now the port is counting on the current cargo flows and striving to create the basis for attraction of large cargo volumes.
Nowadays the port of Riga handles oil products, coal, cars and containers. This year the planned throughput is 29 million tons, 4.5 million tons more than the previous year.
The opinion held by port specialists is that container transportation will develop. “Until 2015 the containerisation in the RF will grow three- or fourfold and its terminals will fail to cope with the volume that will flood to Russia. That is why Latvia will get a piece of the pie, since some of this freight will be handled via the ports of the Baltic states,” considers Mr Makarov. 
Also, according to the plan of the Ministry of Communications, the container turnover of Latvian ports is to grow to 2 million TEU by 2013. 850,000 – 1 million TEU of this volume is to be handled by that time in Riga, 300,000 TEU in Ventspils, and up to 450,000 TEU in Liepaja. The portmen consider these plans a little bit unrealistic.
Nowadays only one terminal – Baltic Container Terminal Limited (BCT) – is operating in the port of Riga. Due to the lack of capacity, it cannot service any more cargo than it does now. Also, BCT is oriented for storing “boxes” instead of high-speed service.  
In 2009, it is planned to construct another terminal in the port of Riga and the capacity of its first stage will amount to 500,000 TEU per annum. It is a project of the Russian National Container Company. In the opinion of Mr Makarov, the first vessels loaded with containers will arrive at Riga at the end of 2009. 
Also, MAN-TESS company, which specialises in servicing oil products and general cargoes, is developing and analysing possible schemes to handle containers, and new cranes are being purchased to service feeder vessels from Hamburg and Rotterdam. This line will operate properly at the beginning of the next year. 
As for financing the projects to be carried out by the port, it is planned to invest USD 20 million into railway port infrastructure and more than USD 312 million into development of berths and channel deepening, said Leonid Loginov, administrator of Riga free port.
Latvia Needs a State Plan
Until now Latvia has had no clear-cut plans and concepts of transit development at state level. There is an indistinct governmental document “On Transport Development to 2013” and a strategy of the Ministry of Communications to 2013. (This date is connected with the distribution of the funds from Europe until 2013). Specialists at the Ministry, in cooperation with transporters, created a project of common development of the country’s ports, which has been sent for revision by the Council of the ports of the Republic. Without such a project, the Latvian ports will hardly succeed in attracting funds from the EU because the money can be received only if the state gives certain guarantees. Thus, the Latvian Government must formulate its position on port development. It may happen in the coming months in which case approximately USD 195 million will be invested in port infrastructure– channel deepening, wharf and pier modernisation and development of separate territories and access railways.    
A working group on transit development, headed by the Minister of Communications, started work in Latvia. Orientation towards the container business requires a serious analysis of the work of the ports, their capacities and perspectives and competitiveness in the region. Also, Latvian-Russian and Latvian-Kazakh working groups were launched to hold negotiations on tariffs and the possible creation of a single linear operator to transport containers from the Chinese north-west to Latvia. Until the readiness to transport Chinese cargoes on the China – Kazakhstan – Russia – Latvia line is demonstrated (there was one test trip of the train last spring, which proved difficult), it will be rather tricky to come to an agreement with Chinese cargo owners. Mr Maldups considers that forecasted and transparent logistics is especially important for forwarders. 
By Natalya Don
viewpoint
Andris Maldpus, 
Director of Transit Policy Department, Ministry of Communications of Latvia:
– The major advantage of the Latvian Republic is northern ice-free ports in the Baltic Sea. The new priority of the state is development of ports and railways. The Government is now developing documents which will allow the Republic to invest millions of euros into port and railway infrastructure improvement, mainly to attract containerised cargoes.
 
 
Andris Lubans, 
Chairman of the Board, Autotransport Directorate of Latvia:
– In my opinion, Latvian road carriers could develop at the expense of transit in future. We understand that Russia longs to develop its infrastructure capacities, for example, in ports, and handle a larger share of goods there. Obviously, there will be much more cargo than Russian ports can service. And it is worth Latvia participating in the struggle for the freight from Europe destined for Russia. Also, we should target the cargo flows which will be launched from China to Europe in the future. 
 
 
Georg Lansmanis,
Adviser to the Latvian Minister of Communications:
– Different transport structures of the Republic are considering several projects for possible containeri-sation in the region. We are aiming for containerisation, and for that we are creating work groups to cooperate with Russia, Kazakhstan, China, Turkmenistan and other countries. We want to provide business with such conditions in Latvian ports that the state would become attractive for large Western companies engaged in container transportation.
We have succeeded in attracting such market players as the National Container Company. The share of Russian capital in the building of a new terminal in Riga port is 50% with the Latvian capital supplying the other half.
By the way, more than EUR 100 million was invested in the infrastructure of each of the country’s three leading ports in the last few years. The railway junction in Liepaja was set in order. A lot was done in Riga. And scaled projects are being carried out. However, all 56 wagons of a train can be simultaneously serviced only in the port of Ventspils.
As for usage of the railway, one of the most important projects for us is the launch of a block train on the route China-Kazakhstan-Russia-Latvia. At the moment we have only verbal agreements with partners to create a single line operator, headed by specialists of all railway companies participating in the project.
I have to admit that now, unfortunately, the tariff on a container delivery to Moscow is extremely high – up to EUR 2,000. We hope a meeting of the Latvian-Russian work group will be held in Moscow in November, at which we will raise the question of unifying railway tariffs for cargo going to Latvian ports. 
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Will Containers Replace Oil Products?
According to the evaluations of specialists, transit in Latvia makes up more than 90% of all cargoes in the ports of the Republic and more than 90% on the railways. Thus, in 2007 the throughput of Latvian ports amounted to 62.434 million tons, and 59.496 million tons in 2006. 
52.164 million tons of freight was carried on the railway network in 2007, and 48.731 million tons in 2006. 52 million tons of cargo was carried to Russia by road last year. Andris Maldups, Director of Transit Policy Department of the Latvian Ministry of Communications, considers that about USD 14 is left in the Republic from each ton of cargo. 
Non-official data states that in the best years for transit, when Russian oil was carried along the pipeline to Ventspils, the revenue from transit amounted to 27% of the country’s budget of USD 1.5 billion. Nowadays it is less than 10% of a budget of USD 5.5 billion. At present, the share of Russian cargoes on Latvian railways is about 50% of the annual throughput of 52 million tons.
However, due to the Russian policy aimed at re-directing cargo flows to national ports, and its port capacities development, Latvia has lost a significant part of profitable cargoes such as oil and metals. Eric Shmuksts, Chairman of the Board of LDz Cargo (a daughter company of Latvijas Dzelzcels), forecasts the reduction of these cargoes in future. In his opinion, the Latvian railway company will transport less oil and oil products than coal, which is now second in the transportation hierarchy. 
Analysing future oil export transportation by railway from Russia via Latvia, most experts think that after the next stage of Russian north-western harbour developments, the decline in Latvia will start in 2010. That is why Latvijas Dzelzcels is preparing to cooperate closer with Byelorussia, Lithuania and Kazakhstan in oil and oil products transportation.
Staking Their Future 
Understanding that powerful freight-creating potential is arising at the East, the Latvians do not want to miss their “geographical chance” and are beginning to actively fight for future freight flows. And they are sure that there will be much more cargo than their neighbour – the Russian Federation – can handle in its ports. 
On the other hand, Latvia must fight for the cargoes carried from Europe to Russia. For example, at the end of October the first ferry with 800 cars (the Peugeot 308) was unloaded with the help of French logistics company GEFCO in the port of Riga. Then the cars were carried to Moscow partly by railway and partly by road. It was a test call at the Latvian port. The French recognise that if the trial is a success, about 20,000 – 30,000 cars may be carried via Latvia to Russia annually.
In the middle of October, Latvian logistics company Schenker and Kazakh company HTL Trans Service concluded a contract on cooperation, including an agreement on regular transportation of industrial products and foodstuffs by “Baltica-Transit” train to Middle Asia and Kazakhstan. In future the train may be loaded with goods made in China coming the other way. This theme is widely discussed. Moreover, it is what the Latvian railway, as well as ports, have staked their future on. 
Lost Revenue
In the words of Mr Shmuksts from Latvijas Dzelzcels, transit is the basic activity. Local domestic transportation accounts for less than 10% of the whole volume. According to a number of estimates, Russian exports of oil products will dwindle to nothing. Meanwhile, transportation of coal grows by 20-25% a month due to high demand on the European market, even though it is not a profitable cargo. Baltic states would like to transport cargoes with high added value. Take the containers that are already being delivered to the port for example. At the customs warehouses they are separated into single lots, thus a cargo with added value appears, which is profitable for the state.
First of all, container transportation is under discussion. On the initiative of Ainars Shlesers, Latvian Minister of Communications, the specialists of the Ministry are developing a way to increase transit of containers to 5 million TEU by 2020. But the most important target is to increase the turnover to 2 million TEU per annum by 2013. But the reaction of Latvian specialists is negative. They consider the project too ambitious because there is a lack of port and railway capacities in the three largest harbours in Latvia. Georg Lansmanis, adviser to the Minister of Communications of Latvia, considers that “to get the future freight flows, we must develop our infrastructure to a proper level.”
Latvijas Dzelzcels Speeds Up
Ugis Magonis, Chairman of the Board of Latvijas Dzelzcels, has announced several times that the company plans to double throughput to 100 million tons in the next three to five years. The railway has the potential capacities for that, although the lack of double-track gauge on the main line from the border to ports and low carrying capacity of some unloading stations in the capital require renovation and serious investment. The railway is actively carrying out projects to reconstruct and modernise its infrastructure and the priorities are the most difficult facilities and those most important for transit. The list of such projects includes reconstruction of a Latvian transport junction, including the leading East-West railway corridor to the three state ports, railway approaches to the ports, unloading stations and port railway facilities.
Recently it was published that until 2013 the national railway company plans to invest about 540 million lats (USD 1.058 billion) into infrastructure development. While being carried out (when the means from the EU funds have been received and the technical documentation has been developed), some projects may be suddenly abandoned by, for example, the Ministry of Communications, and the investment redirected to projects considered more important. That is why the enumeration of real projects is complicated.
Next year Latvijas Dzelzcels plans to invest approximately 100 million lats (USD 196 million) into enterprise reconstruction and development, of which approximately 59 million lats (USD 115 million) is for reconstruction, and about 39 million lats for development (USD 76 million). In the words of Maris Riekstins, a specialist at the company, a part of the means are planned in the company’s budget, the rest is to be received from the state budget and EU funds. In fact, most of the company’s projects are 52% financed by the EU and 48% by the national budget, which includes both railway money and state grants.
The railway reconstruction projects envisage modernisation and implementation of new technologies. The largest project is rebuilding tracks along most of the railroad (East-West transport corridor). Track replacement and repair are fulfilled according to the traffic density on different sectors of the railway (36 million lats (USD 70.5 million) is to be spent this year).
The second largest project, which may be completed next year, is modernisation of signal systems. The project is estimated at 89 million lats (USD 178 million), of which approximately 27 million lats (USD 53 million) will be invested in 2009. 
The development programmes envisage a pack of measures to increase the carrying capacity of the East-West corridor as well as other corridors leading to Latvian ports. In particular, construction of a second track at the Skrivery-Krustpils sector of the Riga-Krustpils line is to be started. This year approximately 6 million lats (USD 12 million) is to be invested in the project. The Indra station is to be modernised (the Latvian – Byelorussian border crossing) and creation of a double-track railway discussed. Next year a number of measures will be taken to repair the company’s rolling stock and implement computer technologies.
The company’s road to containerisation requires significant investment into purchase of flat wagons for container transportation. Experts consider that an additional USD 260 million is needed for that. Credit may be attracted but then railwaymen need guarantees from forwarders about available containerised cargoes. In addition, the orders and supplies of flat wagons from Ukrainian producers have not yet been organised.
For the Ships to Call at the Harbour
The port of Riga is preparing a programme of harbour development. Also, an analysis of the port’s work has been ordered. It includes possible future cargo flows as well as the activities of its direct competitors in the Baltic Sea. Vladimir Makarov, Director of Marketing and Development Department of the port of Riga, told a correspondent of “The RZD-Partner International” that the document will help develop a long-term strategy for the enterprise’s development. Now the port is counting on the current cargo flows and striving to create the basis for attraction of large cargo volumes.
Nowadays the port of Riga handles oil products, coal, cars and containers. This year the planned throughput is 29 million tons, 4.5 million tons more than the previous year.
The opinion held by port specialists is that container transportation will develop. “Until 2015 the containerisation in the RF will grow three- or fourfold and its terminals will fail to cope with the volume that will flood to Russia. That is why Latvia will get a piece of the pie, since some of this freight will be handled via the ports of the Baltic states,” considers Mr Makarov. 
Also, according to the plan of the Ministry of Communications, the container turnover of Latvian ports is to grow to 2 million TEU by 2013. 850,000 – 1 million TEU of this volume is to be handled by that time in Riga, 300,000 TEU in Ventspils, and up to 450,000 TEU in Liepaja. The portmen consider these plans a little bit unrealistic.
Nowadays only one terminal – Baltic Container Terminal Limited (BCT) – is operating in the port of Riga. Due to the lack of capacity, it cannot service any more cargo than it does now. Also, BCT is oriented for storing “boxes” instead of high-speed service.  
In 2009, it is planned to construct another terminal in the port of Riga and the capacity of its first stage will amount to 500,000 TEU per annum. It is a project of the Russian National Container Company. In the opinion of Mr Makarov, the first vessels loaded with containers will arrive at Riga at the end of 2009. 
Also, MAN-TESS company, which specialises in servicing oil products and general cargoes, is developing and analysing possible schemes to handle containers, and new cranes are being purchased to service feeder vessels from Hamburg and Rotterdam. This line will operate properly at the beginning of the next year. 
As for financing the projects to be carried out by the port, it is planned to invest USD 20 million into railway port infrastructure and more than USD 312 million into development of berths and channel deepening, said Leonid Loginov, administrator of Riga free port.
Latvia Needs a State Plan
Until now Latvia has had no clear-cut plans and concepts of transit development at state level. There is an indistinct governmental document “On Transport Development to 2013” and a strategy of the Ministry of Communications to 2013. (This date is connected with the distribution of the funds from Europe until 2013). Specialists at the Ministry, in cooperation with transporters, created a project of common development of the country’s ports, which has been sent for revision by the Council of the ports of the Republic. Without such a project, the Latvian ports will hardly succeed in attracting funds from the EU because the money can be received only if the state gives certain guarantees. Thus, the Latvian Government must formulate its position on port development. It may happen in the coming months in which case approximately USD 195 million will be invested in port infrastructure– channel deepening, wharf and pier modernisation and development of separate territories and access railways.    
A working group on transit development, headed by the Minister of Communications, started work in Latvia. Orientation towards the container business requires a serious analysis of the work of the ports, their capacities and perspectives and competitiveness in the region. Also, Latvian-Russian and Latvian-Kazakh working groups were launched to hold negotiations on tariffs and the possible creation of a single linear operator to transport containers from the Chinese north-west to Latvia. Until the readiness to transport Chinese cargoes on the China – Kazakhstan – Russia – Latvia line is demonstrated (there was one test trip of the train last spring, which proved difficult), it will be rather tricky to come to an agreement with Chinese cargo owners. Mr Maldups considers that forecasted and transparent logistics is especially important for forwarders. 
By Natalya Don
viewpoint
Andris Maldpus, 
Director of Transit Policy Department, Ministry of Communications of Latvia:
– The major advantage of the Latvian Republic is northern ice-free ports in the Baltic Sea. The new priority of the state is development of ports and railways. The Government is now developing documents which will allow the Republic to invest millions of euros into port and railway infrastructure improvement, mainly to attract containerised cargoes.
 
 
Andris Lubans, 
Chairman of the Board, Autotransport Directorate of Latvia:
– In my opinion, Latvian road carriers could develop at the expense of transit in future. We understand that Russia longs to develop its infrastructure capacities, for example, in ports, and handle a larger share of goods there. Obviously, there will be much more cargo than Russian ports can service. And it is worth Latvia participating in the struggle for the freight from Europe destined for Russia. Also, we should target the cargo flows which will be launched from China to Europe in the future. 
 
 
Georg Lansmanis,
Adviser to the Latvian Minister of Communications:
– Different transport structures of the Republic are considering several projects for possible containeri-sation in the region. We are aiming for containerisation, and for that we are creating work groups to cooperate with Russia, Kazakhstan, China, Turkmenistan and other countries. We want to provide business with such conditions in Latvian ports that the state would become attractive for large Western companies engaged in container transportation.
We have succeeded in attracting such market players as the National Container Company. The share of Russian capital in the building of a new terminal in Riga port is 50% with the Latvian capital supplying the other half.
By the way, more than EUR 100 million was invested in the infrastructure of each of the country’s three leading ports in the last few years. The railway junction in Liepaja was set in order. A lot was done in Riga. And scaled projects are being carried out. However, all 56 wagons of a train can be simultaneously serviced only in the port of Ventspils.
As for usage of the railway, one of the most important projects for us is the launch of a block train on the route China-Kazakhstan-Russia-Latvia. At the moment we have only verbal agreements with partners to create a single line operator, headed by specialists of all railway companies participating in the project.
I have to admit that now, unfortunately, the tariff on a container delivery to Moscow is extremely high – up to EUR 2,000. We hope a meeting of the Latvian-Russian work group will be held in Moscow in November, at which we will raise the question of unifying railway tariffs for cargo going to Latvian ports. 
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Will Containers Replace Oil Products?
According to the evaluations of specialists, transit in Latvia makes up more than 90% of all cargoes in the ports of the Republic and more than 90% on the railways. Thus, in 2007 the throughput of Latvian ports amounted to 62.434 million tons, and 59.496 million tons in 2006. 
52.164 million tons of freight was carried on the railway network in 2007, and 48.731 million tons in 2006. 52 million tons of cargo was carried to Russia by road last year. Andris Maldups, Director of Transit Policy Department of the Latvian Ministry of Communications, considers that about USD 14 is left in the Republic from each ton of cargo. 
Non-official data states that in the best years for transit, when Russian oil was carried along the pipeline to Ventspils, the revenue from transit amounted to 27% of the country’s budget of USD 1.5 billion. Nowadays it is less than 10% of a budget of USD 5.5 billion. At present, the share of Russian cargoes on Latvian railways is about 50% of the annual throughput of 52 million tons.
However, due to the Russian policy aimed at re-directing cargo flows to national ports, and its port capacities development, Latvia has lost a significant part of profitable cargoes such as oil and metals. Eric Shmuksts, Chairman of the Board of LDz Cargo (a daughter company of Latvijas Dzelzcels), forecasts the reduction of these cargoes in future. In his opinion, the Latvian railway company will transport less oil and oil products than coal, which is now second in the transportation hierarchy. 
Analysing future oil export transportation by railway from Russia via Latvia, most experts think that after the next stage of Russian north-western harbour developments, the decline in Latvia will start in 2010. That is why Latvijas Dzelzcels is preparing to cooperate closer with Byelorussia, Lithuania and Kazakhstan in oil and oil products transportation.
Staking Their Future 
Understanding that powerful freight-creating potential is arising at the East, the Latvians do not want to miss their “geographical chance” and are beginning to actively fight for future freight flows. And they are sure that there will be much more cargo than their neighbour – the Russian Federation – can handle in its ports. 
On the other hand, Latvia must fight for the cargoes carried from Europe to Russia. For example, at the end of October the first ferry with 800 cars (the Peugeot 308) was unloaded with the help of French logistics company GEFCO in the port of Riga. Then the cars were carried to Moscow partly by railway and partly by road. It was a test call at the Latvian port. The French recognise that if the trial is a success, about 20,000 – 30,000 cars may be carried via Latvia to Russia annually.
In the middle of October, Latvian logistics company Schenker and Kazakh company HTL Trans Service concluded a contract on cooperation, including an agreement on regular transportation of industrial products and foodstuffs by “Baltica-Transit” train to Middle Asia and Kazakhstan. In future the train may be loaded with goods made in China coming the other way. This theme is widely discussed. Moreover, it is what the Latvian railway, as well as ports, have staked their future on. 
Lost Revenue
In the words of Mr Shmuksts from Latvijas Dzelzcels, transit is the basic activity. Local domestic transportation accounts for less than 10% of the whole volume. According to a number of estimates, Russian exports of oil products will dwindle to nothing. Meanwhile, transportation of coal grows by 20-25% a month due to high demand on the European market, even though it is not a profitable cargo. Baltic states would like to transport cargoes with high added value. Take the containers that are already being delivered to the port for example. At the customs warehouses they are separated into single lots, thus a cargo with added value appears, which is profitable for the state.
First of all, container transportation is under discussion. On the initiative of Ainars Shlesers, Latvian Minister of Communications, the specialists of the Ministry are developing a way to increase transit of containers to 5 million TEU by 2020. But the most important target is to increase the turnover to 2 million TEU per annum by 2013. But the reaction of Latvian specialists is negative. They consider the project too ambitious because there is a lack of port and railway capacities in the three largest harbours in Latvia. Georg Lansmanis, adviser to the Minister of Communications of Latvia, considers that “to get the future freight flows, we must develop our infrastructure to a proper level.”
Latvijas Dzelzcels Speeds Up
Ugis Magonis, Chairman of the Board of Latvijas Dzelzcels, has announced several times that the company plans to double throughput to 100 million tons in the next three to five years. The railway has the potential capacities for that, although the lack of double-track gauge on the main line from the border to ports and low carrying capacity of some unloading stations in the capital require renovation and serious investment. The railway is actively carrying out projects to reconstruct and modernise its infrastructure and the priorities are the most difficult facilities and those most important for transit. The list of such projects includes reconstruction of a Latvian transport junction, including the leading East-West railway corridor to the three state ports, railway approaches to the ports, unloading stations and port railway facilities.
Recently it was published that until 2013 the national railway company plans to invest about 540 million lats (USD 1.058 billion) into infrastructure development. While being carried out (when the means from the EU funds have been received and the technical documentation has been developed), some projects may be suddenly abandoned by, for example, the Ministry of Communications, and the investment redirected to projects considered more important. That is why the enumeration of real projects is complicated.
Next year Latvijas Dzelzcels plans to invest approximately 100 million lats (USD 196 million) into enterprise reconstruction and development, of which approximately 59 million lats (USD 115 million) is for reconstruction, and about 39 million lats for development (USD 76 million). In the words of Maris Riekstins, a specialist at the company, a part of the means are planned in the company’s budget, the rest is to be received from the state budget and EU funds. In fact, most of the company’s projects are 52% financed by the EU and 48% by the national budget, which includes both railway money and state grants.
The railway reconstruction projects envisage modernisation and implementation of new technologies. The largest project is rebuilding tracks along most of the railroad (East-West transport corridor). Track replacement and repair are fulfilled according to the traffic density on different sectors of the railway (36 million lats (USD 70.5 million) is to be spent this year).
The second largest project, which may be completed next year, is modernisation of signal systems. The project is estimated at 89 million lats (USD 178 million), of which approximately 27 million lats (USD 53 million) will be invested in 2009. 
The development programmes envisage a pack of measures to increase the carrying capacity of the East-West corridor as well as other corridors leading to Latvian ports. In particular, construction of a second track at the Skrivery-Krustpils sector of the Riga-Krustpils line is to be started. This year approximately 6 million lats (USD 12 million) is to be invested in the project. The Indra station is to be modernised (the Latvian – Byelorussian border crossing) and creation of a double-track railway discussed. Next year a number of measures will be taken to repair the company’s rolling stock and implement computer technologies.
The company’s road to containerisation requires significant investment into purchase of flat wagons for container transportation. Experts consider that an additional USD 260 million is needed for that. Credit may be attracted but then railwaymen need guarantees from forwarders about available containerised cargoes. In addition, the orders and supplies of flat wagons from Ukrainian producers have not yet been organised.
For the Ships to Call at the Harbour
The port of Riga is preparing a programme of harbour development. Also, an analysis of the port’s work has been ordered. It includes possible future cargo flows as well as the activities of its direct competitors in the Baltic Sea. Vladimir Makarov, Director of Marketing and Development Department of the port of Riga, told a correspondent of “The RZD-Partner International” that the document will help develop a long-term strategy for the enterprise’s development. Now the port is counting on the current cargo flows and striving to create the basis for attraction of large cargo volumes.
Nowadays the port of Riga handles oil products, coal, cars and containers. This year the planned throughput is 29 million tons, 4.5 million tons more than the previous year.
The opinion held by port specialists is that container transportation will develop. “Until 2015 the containerisation in the RF will grow three- or fourfold and its terminals will fail to cope with the volume that will flood to Russia. That is why Latvia will get a piece of the pie, since some of this freight will be handled via the ports of the Baltic states,” considers Mr Makarov. 
Also, according to the plan of the Ministry of Communications, the container turnover of Latvian ports is to grow to 2 million TEU by 2013. 850,000 – 1 million TEU of this volume is to be handled by that time in Riga, 300,000 TEU in Ventspils, and up to 450,000 TEU in Liepaja. The portmen consider these plans a little bit unrealistic.
Nowadays only one terminal – Baltic Container Terminal Limited (BCT) – is operating in the port of Riga. Due to the lack of capacity, it cannot service any more cargo than it does now. Also, BCT is oriented for storing “boxes” instead of high-speed service.  
In 2009, it is planned to construct another terminal in the port of Riga and the capacity of its first stage will amount to 500,000 TEU per annum. It is a project of the Russian National Container Company. In the opinion of Mr Makarov, the first vessels loaded with containers will arrive at Riga at the end of 2009. 
Also, MAN-TESS company, which specialises in servicing oil products and general cargoes, is developing and analysing possible schemes to handle containers, and new cranes are being purchased to service feeder vessels from Hamburg and Rotterdam. This line will operate properly at the beginning of the next year. 
As for financing the projects to be carried out by the port, it is planned to invest USD 20 million into railway port infrastructure and more than USD 312 million into development of berths and channel deepening, said Leonid Loginov, administrator of Riga free port.
Latvia Needs a State Plan
Until now Latvia has had no clear-cut plans and concepts of transit development at state level. There is an indistinct governmental document “On Transport Development to 2013” and a strategy of the Ministry of Communications to 2013. (This date is connected with the distribution of the funds from Europe until 2013). Specialists at the Ministry, in cooperation with transporters, created a project of common development of the country’s ports, which has been sent for revision by the Council of the ports of the Republic. Without such a project, the Latvian ports will hardly succeed in attracting funds from the EU because the money can be received only if the state gives certain guarantees. Thus, the Latvian Government must formulate its position on port development. It may happen in the coming months in which case approximately USD 195 million will be invested in port infrastructure– channel deepening, wharf and pier modernisation and development of separate territories and access railways.    
A working group on transit development, headed by the Minister of Communications, started work in Latvia. Orientation towards the container business requires a serious analysis of the work of the ports, their capacities and perspectives and competitiveness in the region. Also, Latvian-Russian and Latvian-Kazakh working groups were launched to hold negotiations on tariffs and the possible creation of a single linear operator to transport containers from the Chinese north-west to Latvia. Until the readiness to transport Chinese cargoes on the China – Kazakhstan – Russia – Latvia line is demonstrated (there was one test trip of the train last spring, which proved difficult), it will be rather tricky to come to an agreement with Chinese cargo owners. Mr Maldups considers that forecasted and transparent logistics is especially important for forwarders. 
By Natalya Don
viewpoint
Andris Maldpus, 
Director of Transit Policy Department, Ministry of Communications of Latvia:
– The major advantage of the Latvian Republic is northern ice-free ports in the Baltic Sea. The new priority of the state is development of ports and railways. The Government is now developing documents which will allow the Republic to invest millions of euros into port and railway infrastructure improvement, mainly to attract containerised cargoes.
 
 
Andris Lubans, 
Chairman of the Board, Autotransport Directorate of Latvia:
– In my opinion, Latvian road carriers could develop at the expense of transit in future. We understand that Russia longs to develop its infrastructure capacities, for example, in ports, and handle a larger share of goods there. Obviously, there will be much more cargo than Russian ports can service. And it is worth Latvia participating in the struggle for the freight from Europe destined for Russia. Also, we should target the cargo flows which will be launched from China to Europe in the future. 
 
 
Georg Lansmanis,
Adviser to the Latvian Minister of Communications:
– Different transport structures of the Republic are considering several projects for possible containeri-sation in the region. We are aiming for containerisation, and for that we are creating work groups to cooperate with Russia, Kazakhstan, China, Turkmenistan and other countries. We want to provide business with such conditions in Latvian ports that the state would become attractive for large Western companies engaged in container transportation.
We have succeeded in attracting such market players as the National Container Company. The share of Russian capital in the building of a new terminal in Riga port is 50% with the Latvian capital supplying the other half.
By the way, more than EUR 100 million was invested in the infrastructure of each of the country’s three leading ports in the last few years. The railway junction in Liepaja was set in order. A lot was done in Riga. And scaled projects are being carried out. However, all 56 wagons of a train can be simultaneously serviced only in the port of Ventspils.
As for usage of the railway, one of the most important projects for us is the launch of a block train on the route China-Kazakhstan-Russia-Latvia. At the moment we have only verbal agreements with partners to create a single line operator, headed by specialists of all railway companies participating in the project.
I have to admit that now, unfortunately, the tariff on a container delivery to Moscow is extremely high – up to EUR 2,000. We hope a meeting of the Latvian-Russian work group will be held in Moscow in November, at which we will raise the question of unifying railway tariffs for cargo going to Latvian ports. 
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Challenges in timber transport and possibilities in other business sectors 
– Mr Kuitunen, which VR projects concerning Russia are the most urgent now?
– Thank you for the question. We are satisfied with the way Russian and Finnish cooperation is developing. It is a very good period for our countries now: both passenger and cargo turnover are growing and the percentage increase is in double digits. We consider it a nice result. Also, there are several promising projects in the passenger transport sector, first of all, in organising high-speed railway communication. We have great hopes for it. I am pleased to say that there is also growth in freight transportation.
– What is the ratio of export to import and in two-way cargo turnover now? Is there is a forecast of how the structure of trade flows will change in the near future?
– Traditionally, Russian exports make up most of it: transportation to Finland represents about 90%, in January-August the share of our export transportation fell a little to 7%.
As for forecasts, nowadays, the structure of the two-sided turnover is being changed. Everyone knows that Russian non-processed timber made up the lion’s share until recently (about 50%), so the issue of further development of the situation with increasing export duties on Russian logs remains urgent for us. Considering the development of the situation, we will make forecasts and regulate the traffic of cargo flows.
– What then is the structure of two-way transportation nowadays? And if log transportation volumes fall after the duties become heavy, what cargo will replace it?
– Over a year has passed since the first increase in duties on logs and now chemicals make a larger share of the total volume of railway freight turnover – in fact, nearly half of the two-way transportation volume. Timber makes about 38% (mainly, non-processed), and the rest, 20%, is goods from the metal-working industry. The share of raw materials for metallurgical production is also high.
Naturally, considering the current situation, new cargoes must be found to avoid a decrease in two-way transportation volume. In my opinion, cars and containers are the solution. 
– Much is being done to increase containerised cargo transportation – block trains run, there are specialised joint ventures. What else, in your opinion, must be done to improve the quality of this service?
– As for block trains, the weekly dispatches from Finnish ports to Moscow and Saint Petersburg must be replaced by daily ones as soon as possible. Moreover, a new up-to-date port Vuosaari (a suburb of Helsinki) is to be put into operation in November, and I think the volume of railway and port traffic in Helsinki will increase owing to these new capacities. The new port specialises in handling containers and ro-ro. 
Nowadays, the major receiving ports for transit cargo destined for the Russian Federation are Kotka and Kokkola. About 400,000 cars are handled via the port of Kotka annually. Also the port of Hanko is very important in car transportation.
– To which Russian cities apart from Saint Petersburg and Moscow would VR-Group Ltd like to launch a regular transport service?
– As for boxes, all Russian large towns are interesting from the standpoint of transport cooperation – for example Ekaterinburg, Nizhny Novgorod, Novosibirsk and others. There are a lot of cities we are interested in. Speaking of car transportation, Russian demand will show us the most interesting regions.
– You mentioned transportation of the second most important freight for two-way cargo turnover – cars. What does the future hold for this sector?
– The Russian market is a capacious one. According to forecasts, about 1 million cars will be transported to Russia this year. The share of transit via Finland in this segment is just several per cent and we are trying to increase the share of transit cars carried via the territory of Finland by rail to a third. And we have everything necessary for it. As you know, last July a car terminal was launched in Mikhnevo, near Moscow. Now we are waiting for the possibility of customs clearance there. 
I think, the preparation is complete and now is the time for real work.
– So, the development of this transportation is a matter of time?
– Yes, and naturally, the matter of our work. It’s high time we set to work!     
Passenger Transportation: Speed Grows
– At what stage is the project of Russian-Finnish international passenger communication now?
– We plan high-speed railway passenger communication between Russian and Finland (Saint Petersburg and Helsinki) will be put into operation by 2010. We believe that the passenger transportation volume will grow three-fold.  Joint venture KarelianTrains has already ordered trains from Alstom Transport company. The contract amounted to EUR 120 million. The first pilot train is to be delivered in 2009 and the trains are expected to go into operation in 2010.
18 Pendolino trains are being used in Finland but they are different from the trains we are waiting for. The new ones will be adapted also to Russian current feed system.  
On the whole, we have great hopes for the project, since passenger transportation is one of the most dynamically developing sectors for our holding company. In 2007, the growth in the sector was 4.5%, which is a historical high. And passenger transportation volume between Russia and Finland increased 18.4% last year.
– Is development of high-speed railway transportation between Helsinki and Moscow a possibility as well?
– This is an interesting route. However, considering the large distance between Moscow and Saint Petersburg, even if a high-speed railway is constructed there, a train will hardly be as competitive on the line as on Saint Petersburg – Helsinki, where the travel time will fall from 6 to 3.5 hours.
To Work As Well As Possible
– Finnish railways are reforming their system rather cautiously. Are structural changes necessary in the situation when, after joining the EU, railway transportation become more and more international? Is it possible that foreign freight operators will appear on Finnish railways, in your opinion?
– I would not say that our reform is cautious. The Finnish system meets the requirements of EU directives. We consider the strategy for our company’s development effective and we are going to service our clients as well as possible regardless of the number of operators in the Finnish market. As for the possible access of European operators, we are ready for competition, although no foreign enterprises have appeared. We should remember that, according to the EU legislation, this is normal. Railway agency Rautatievirasto gives operators – non-residents – access to the Finnish infrastructure. The agency controls safety on the railways and develops sectoral norms. It answers to the Ministry of Transport and Communication. To start work on the tracks in Finland, foreign companies must comply with a number of criteria, in particular, having certain financial assets, their own rolling stock, and a safety certificate.
If there is such an operator then, in accordance with the EU directives, he will get access to the infrastructure of VR.
– Is VR Group in turn interested in enlarging its activities in Europe?
– There will be hardly any large projects in this direction in the near future. Our country adjoins 1520 area and this limits interaction with most EU states to some degree. However now we are not going to build a railway with the European standard gauge. At the same time, we are observing the changes in external railway transportation markets.
– Regarding European (and other) trends, a number of large railway companies, including VR Group, operate railway as well as road transport. Is this developing multi-modality the norm or a single instance?
– I think it is an effect of the system. In future, most transport companies will be multi-modal. If we take the experience of Finland, VR Group is incorporated into Pohjolan Liikenne concern, which is one of the largest automobile companies in Finland. It provides long-distance passenger transportation (including by express buses) as well as delivery of piece and mass cargoes in Finland and abroad. In 2007, the turnover of road freight transportation grew by 10% year-on-year to 10.8 million tons.
Returning to the question about VR’s activity in external markets, our car enterprises operate in Eastern European countries (the Czech Republic, Slovakia, and Hungary).
In the long term, we plan to concentrate on providing high-level services in the transport and logistics sector. Following our strategy, we sold our business of cargo transportation by tank trucks in 2007. Also, the IT system was renewed, allowing us to follow the flow of goods at every stage of transportation.
On the one hand, available road transport modes make it possible to provide door-to-door delivery. On the other hand, our division is an independent company with its own logistic chains, and railway transportation may not be a part of it. In addition, in the near future we are going to be more active in building our own terminals. Really, a client should give his cargo to a company without thinking by which transport mode it will be delivered to its destination.
Transit: All Elements Must Work Efficiently
– VR group and its Finnish partners are making efforts to participate effectively in joint programmes with the Russian Federation that target transit transportation development. Are these projects efficient?
– Transportation along the Transsib, in which Finland participates, has almost disappeared. A stable and moderate tariff policy is required to develop the route. I believe that the marketing constituent of the route must be activated too. As for the freight base, there is a lot of potential in Japan and Korea. From the standpoint of transit territory, Kazakhstan is very promising.
– Who must be engaged in transit positioning on the international market, in your opinion? Nowadays, the idea of launching a single transit operator is being discussed in Russia. He is supposed to fulfill the marketing function…
– Here we deal with a standard marketing system of direct interaction with a client. It is a difficult job. The product is a good one and it should be sold more actively. VR and OAO RZD and the Coordinating Council on Transsiberian Transportation must be engaged in it. Now we are content with our cooperation with OAO RZD. We believe that the work in the sector will be efficient.
– Does the current tariff on transit transportation meet requirements? As a rule, the customs service, rather than high tariffs, is considered the main reason for the lack of Russian transit…
– Both the tariff and customs constituents of transportation are important. It is necessary that all the elements of the system work effectively. Naturally, tariffs must be at such a level that all participants can make a profit. Still, I would like to emphasise once again, the tariff must be moderate and stable. I believe that the current rate must be analysed thoroughly.
– Mr Kuitunen, the stability you have mentioned is a characteristic feature of Finnish business, as well as of their mentality as a whole. Is it difficult for you to interact with Russian enterprises, which have gone through so much change in recent years?
– Traditionally, we interact with Russia very closely and I consider the professional level of our Russian colleagues in the railway transport sector to be very high. I’ve been following the railway reforms in Russia –  it is being carried out perfectly and in a timely way. I think that any country could be proud of such railway reform, especially taking into account the size of OAO RZD. And I like working with the Russians.
    [~DETAIL_TEXT] => 
Challenges in timber transport and possibilities in other business sectors 
– Mr Kuitunen, which VR projects concerning Russia are the most urgent now?
– Thank you for the question. We are satisfied with the way Russian and Finnish cooperation is developing. It is a very good period for our countries now: both passenger and cargo turnover are growing and the percentage increase is in double digits. We consider it a nice result. Also, there are several promising projects in the passenger transport sector, first of all, in organising high-speed railway communication. We have great hopes for it. I am pleased to say that there is also growth in freight transportation.
– What is the ratio of export to import and in two-way cargo turnover now? Is there is a forecast of how the structure of trade flows will change in the near future?
– Traditionally, Russian exports make up most of it: transportation to Finland represents about 90%, in January-August the share of our export transportation fell a little to 7%.
As for forecasts, nowadays, the structure of the two-sided turnover is being changed. Everyone knows that Russian non-processed timber made up the lion’s share until recently (about 50%), so the issue of further development of the situation with increasing export duties on Russian logs remains urgent for us. Considering the development of the situation, we will make forecasts and regulate the traffic of cargo flows.
– What then is the structure of two-way transportation nowadays? And if log transportation volumes fall after the duties become heavy, what cargo will replace it?
– Over a year has passed since the first increase in duties on logs and now chemicals make a larger share of the total volume of railway freight turnover – in fact, nearly half of the two-way transportation volume. Timber makes about 38% (mainly, non-processed), and the rest, 20%, is goods from the metal-working industry. The share of raw materials for metallurgical production is also high.
Naturally, considering the current situation, new cargoes must be found to avoid a decrease in two-way transportation volume. In my opinion, cars and containers are the solution. 
– Much is being done to increase containerised cargo transportation – block trains run, there are specialised joint ventures. What else, in your opinion, must be done to improve the quality of this service?
– As for block trains, the weekly dispatches from Finnish ports to Moscow and Saint Petersburg must be replaced by daily ones as soon as possible. Moreover, a new up-to-date port Vuosaari (a suburb of Helsinki) is to be put into operation in November, and I think the volume of railway and port traffic in Helsinki will increase owing to these new capacities. The new port specialises in handling containers and ro-ro. 
Nowadays, the major receiving ports for transit cargo destined for the Russian Federation are Kotka and Kokkola. About 400,000 cars are handled via the port of Kotka annually. Also the port of Hanko is very important in car transportation.
– To which Russian cities apart from Saint Petersburg and Moscow would VR-Group Ltd like to launch a regular transport service?
– As for boxes, all Russian large towns are interesting from the standpoint of transport cooperation – for example Ekaterinburg, Nizhny Novgorod, Novosibirsk and others. There are a lot of cities we are interested in. Speaking of car transportation, Russian demand will show us the most interesting regions.
– You mentioned transportation of the second most important freight for two-way cargo turnover – cars. What does the future hold for this sector?
– The Russian market is a capacious one. According to forecasts, about 1 million cars will be transported to Russia this year. The share of transit via Finland in this segment is just several per cent and we are trying to increase the share of transit cars carried via the territory of Finland by rail to a third. And we have everything necessary for it. As you know, last July a car terminal was launched in Mikhnevo, near Moscow. Now we are waiting for the possibility of customs clearance there. 
I think, the preparation is complete and now is the time for real work.
– So, the development of this transportation is a matter of time?
– Yes, and naturally, the matter of our work. It’s high time we set to work!     
Passenger Transportation: Speed Grows
– At what stage is the project of Russian-Finnish international passenger communication now?
– We plan high-speed railway passenger communication between Russian and Finland (Saint Petersburg and Helsinki) will be put into operation by 2010. We believe that the passenger transportation volume will grow three-fold.  Joint venture KarelianTrains has already ordered trains from Alstom Transport company. The contract amounted to EUR 120 million. The first pilot train is to be delivered in 2009 and the trains are expected to go into operation in 2010.
18 Pendolino trains are being used in Finland but they are different from the trains we are waiting for. The new ones will be adapted also to Russian current feed system.  
On the whole, we have great hopes for the project, since passenger transportation is one of the most dynamically developing sectors for our holding company. In 2007, the growth in the sector was 4.5%, which is a historical high. And passenger transportation volume between Russia and Finland increased 18.4% last year.
– Is development of high-speed railway transportation between Helsinki and Moscow a possibility as well?
– This is an interesting route. However, considering the large distance between Moscow and Saint Petersburg, even if a high-speed railway is constructed there, a train will hardly be as competitive on the line as on Saint Petersburg – Helsinki, where the travel time will fall from 6 to 3.5 hours.
To Work As Well As Possible
– Finnish railways are reforming their system rather cautiously. Are structural changes necessary in the situation when, after joining the EU, railway transportation become more and more international? Is it possible that foreign freight operators will appear on Finnish railways, in your opinion?
– I would not say that our reform is cautious. The Finnish system meets the requirements of EU directives. We consider the strategy for our company’s development effective and we are going to service our clients as well as possible regardless of the number of operators in the Finnish market. As for the possible access of European operators, we are ready for competition, although no foreign enterprises have appeared. We should remember that, according to the EU legislation, this is normal. Railway agency Rautatievirasto gives operators – non-residents – access to the Finnish infrastructure. The agency controls safety on the railways and develops sectoral norms. It answers to the Ministry of Transport and Communication. To start work on the tracks in Finland, foreign companies must comply with a number of criteria, in particular, having certain financial assets, their own rolling stock, and a safety certificate.
If there is such an operator then, in accordance with the EU directives, he will get access to the infrastructure of VR.
– Is VR Group in turn interested in enlarging its activities in Europe?
– There will be hardly any large projects in this direction in the near future. Our country adjoins 1520 area and this limits interaction with most EU states to some degree. However now we are not going to build a railway with the European standard gauge. At the same time, we are observing the changes in external railway transportation markets.
– Regarding European (and other) trends, a number of large railway companies, including VR Group, operate railway as well as road transport. Is this developing multi-modality the norm or a single instance?
– I think it is an effect of the system. In future, most transport companies will be multi-modal. If we take the experience of Finland, VR Group is incorporated into Pohjolan Liikenne concern, which is one of the largest automobile companies in Finland. It provides long-distance passenger transportation (including by express buses) as well as delivery of piece and mass cargoes in Finland and abroad. In 2007, the turnover of road freight transportation grew by 10% year-on-year to 10.8 million tons.
Returning to the question about VR’s activity in external markets, our car enterprises operate in Eastern European countries (the Czech Republic, Slovakia, and Hungary).
In the long term, we plan to concentrate on providing high-level services in the transport and logistics sector. Following our strategy, we sold our business of cargo transportation by tank trucks in 2007. Also, the IT system was renewed, allowing us to follow the flow of goods at every stage of transportation.
On the one hand, available road transport modes make it possible to provide door-to-door delivery. On the other hand, our division is an independent company with its own logistic chains, and railway transportation may not be a part of it. In addition, in the near future we are going to be more active in building our own terminals. Really, a client should give his cargo to a company without thinking by which transport mode it will be delivered to its destination.
Transit: All Elements Must Work Efficiently
– VR group and its Finnish partners are making efforts to participate effectively in joint programmes with the Russian Federation that target transit transportation development. Are these projects efficient?
– Transportation along the Transsib, in which Finland participates, has almost disappeared. A stable and moderate tariff policy is required to develop the route. I believe that the marketing constituent of the route must be activated too. As for the freight base, there is a lot of potential in Japan and Korea. From the standpoint of transit territory, Kazakhstan is very promising.
– Who must be engaged in transit positioning on the international market, in your opinion? Nowadays, the idea of launching a single transit operator is being discussed in Russia. He is supposed to fulfill the marketing function…
– Here we deal with a standard marketing system of direct interaction with a client. It is a difficult job. The product is a good one and it should be sold more actively. VR and OAO RZD and the Coordinating Council on Transsiberian Transportation must be engaged in it. Now we are content with our cooperation with OAO RZD. We believe that the work in the sector will be efficient.
– Does the current tariff on transit transportation meet requirements? As a rule, the customs service, rather than high tariffs, is considered the main reason for the lack of Russian transit…
– Both the tariff and customs constituents of transportation are important. It is necessary that all the elements of the system work effectively. Naturally, tariffs must be at such a level that all participants can make a profit. Still, I would like to emphasise once again, the tariff must be moderate and stable. I believe that the current rate must be analysed thoroughly.
– Mr Kuitunen, the stability you have mentioned is a characteristic feature of Finnish business, as well as of their mentality as a whole. Is it difficult for you to interact with Russian enterprises, which have gone through so much change in recent years?
– Traditionally, we interact with Russia very closely and I consider the professional level of our Russian colleagues in the railway transport sector to be very high. I’ve been following the railway reforms in Russia –  it is being carried out perfectly and in a timely way. I think that any country could be proud of such railway reform, especially taking into account the size of OAO RZD. And I like working with the Russians.
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    [PREVIEW_TEXT] => There are a number of changes in the activities of VR Group. These are changes in the structure of cargo turnover, partly caused by the volumes of timber transport, as well as passenger transportation growth, which will increase in the future with the Helsinki – Saint Petersburg line. We asked Henri Kuitunen, President and CEO of VR-Group Ltd, to talk about its work and ambitious Finnish projects.
    [~PREVIEW_TEXT] => There are a number of changes in the activities of VR Group. These are changes in the structure of cargo turnover, partly caused by the volumes of timber transport, as well as passenger transportation growth, which will increase in the future with the Helsinki – Saint Petersburg line. We asked Henri Kuitunen, President and CEO of VR-Group Ltd, to talk about its work and ambitious Finnish projects.
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Challenges in timber transport and possibilities in other business sectors 
– Mr Kuitunen, which VR projects concerning Russia are the most urgent now?
– Thank you for the question. We are satisfied with the way Russian and Finnish cooperation is developing. It is a very good period for our countries now: both passenger and cargo turnover are growing and the percentage increase is in double digits. We consider it a nice result. Also, there are several promising projects in the passenger transport sector, first of all, in organising high-speed railway communication. We have great hopes for it. I am pleased to say that there is also growth in freight transportation.
– What is the ratio of export to import and in two-way cargo turnover now? Is there is a forecast of how the structure of trade flows will change in the near future?
– Traditionally, Russian exports make up most of it: transportation to Finland represents about 90%, in January-August the share of our export transportation fell a little to 7%.
As for forecasts, nowadays, the structure of the two-sided turnover is being changed. Everyone knows that Russian non-processed timber made up the lion’s share until recently (about 50%), so the issue of further development of the situation with increasing export duties on Russian logs remains urgent for us. Considering the development of the situation, we will make forecasts and regulate the traffic of cargo flows.
– What then is the structure of two-way transportation nowadays? And if log transportation volumes fall after the duties become heavy, what cargo will replace it?
– Over a year has passed since the first increase in duties on logs and now chemicals make a larger share of the total volume of railway freight turnover – in fact, nearly half of the two-way transportation volume. Timber makes about 38% (mainly, non-processed), and the rest, 20%, is goods from the metal-working industry. The share of raw materials for metallurgical production is also high.
Naturally, considering the current situation, new cargoes must be found to avoid a decrease in two-way transportation volume. In my opinion, cars and containers are the solution. 
– Much is being done to increase containerised cargo transportation – block trains run, there are specialised joint ventures. What else, in your opinion, must be done to improve the quality of this service?
– As for block trains, the weekly dispatches from Finnish ports to Moscow and Saint Petersburg must be replaced by daily ones as soon as possible. Moreover, a new up-to-date port Vuosaari (a suburb of Helsinki) is to be put into operation in November, and I think the volume of railway and port traffic in Helsinki will increase owing to these new capacities. The new port specialises in handling containers and ro-ro. 
Nowadays, the major receiving ports for transit cargo destined for the Russian Federation are Kotka and Kokkola. About 400,000 cars are handled via the port of Kotka annually. Also the port of Hanko is very important in car transportation.
– To which Russian cities apart from Saint Petersburg and Moscow would VR-Group Ltd like to launch a regular transport service?
– As for boxes, all Russian large towns are interesting from the standpoint of transport cooperation – for example Ekaterinburg, Nizhny Novgorod, Novosibirsk and others. There are a lot of cities we are interested in. Speaking of car transportation, Russian demand will show us the most interesting regions.
– You mentioned transportation of the second most important freight for two-way cargo turnover – cars. What does the future hold for this sector?
– The Russian market is a capacious one. According to forecasts, about 1 million cars will be transported to Russia this year. The share of transit via Finland in this segment is just several per cent and we are trying to increase the share of transit cars carried via the territory of Finland by rail to a third. And we have everything necessary for it. As you know, last July a car terminal was launched in Mikhnevo, near Moscow. Now we are waiting for the possibility of customs clearance there. 
I think, the preparation is complete and now is the time for real work.
– So, the development of this transportation is a matter of time?
– Yes, and naturally, the matter of our work. It’s high time we set to work!     
Passenger Transportation: Speed Grows
– At what stage is the project of Russian-Finnish international passenger communication now?
– We plan high-speed railway passenger communication between Russian and Finland (Saint Petersburg and Helsinki) will be put into operation by 2010. We believe that the passenger transportation volume will grow three-fold.  Joint venture KarelianTrains has already ordered trains from Alstom Transport company. The contract amounted to EUR 120 million. The first pilot train is to be delivered in 2009 and the trains are expected to go into operation in 2010.
18 Pendolino trains are being used in Finland but they are different from the trains we are waiting for. The new ones will be adapted also to Russian current feed system.  
On the whole, we have great hopes for the project, since passenger transportation is one of the most dynamically developing sectors for our holding company. In 2007, the growth in the sector was 4.5%, which is a historical high. And passenger transportation volume between Russia and Finland increased 18.4% last year.
– Is development of high-speed railway transportation between Helsinki and Moscow a possibility as well?
– This is an interesting route. However, considering the large distance between Moscow and Saint Petersburg, even if a high-speed railway is constructed there, a train will hardly be as competitive on the line as on Saint Petersburg – Helsinki, where the travel time will fall from 6 to 3.5 hours.
To Work As Well As Possible
– Finnish railways are reforming their system rather cautiously. Are structural changes necessary in the situation when, after joining the EU, railway transportation become more and more international? Is it possible that foreign freight operators will appear on Finnish railways, in your opinion?
– I would not say that our reform is cautious. The Finnish system meets the requirements of EU directives. We consider the strategy for our company’s development effective and we are going to service our clients as well as possible regardless of the number of operators in the Finnish market. As for the possible access of European operators, we are ready for competition, although no foreign enterprises have appeared. We should remember that, according to the EU legislation, this is normal. Railway agency Rautatievirasto gives operators – non-residents – access to the Finnish infrastructure. The agency controls safety on the railways and develops sectoral norms. It answers to the Ministry of Transport and Communication. To start work on the tracks in Finland, foreign companies must comply with a number of criteria, in particular, having certain financial assets, their own rolling stock, and a safety certificate.
If there is such an operator then, in accordance with the EU directives, he will get access to the infrastructure of VR.
– Is VR Group in turn interested in enlarging its activities in Europe?
– There will be hardly any large projects in this direction in the near future. Our country adjoins 1520 area and this limits interaction with most EU states to some degree. However now we are not going to build a railway with the European standard gauge. At the same time, we are observing the changes in external railway transportation markets.
– Regarding European (and other) trends, a number of large railway companies, including VR Group, operate railway as well as road transport. Is this developing multi-modality the norm or a single instance?
– I think it is an effect of the system. In future, most transport companies will be multi-modal. If we take the experience of Finland, VR Group is incorporated into Pohjolan Liikenne concern, which is one of the largest automobile companies in Finland. It provides long-distance passenger transportation (including by express buses) as well as delivery of piece and mass cargoes in Finland and abroad. In 2007, the turnover of road freight transportation grew by 10% year-on-year to 10.8 million tons.
Returning to the question about VR’s activity in external markets, our car enterprises operate in Eastern European countries (the Czech Republic, Slovakia, and Hungary).
In the long term, we plan to concentrate on providing high-level services in the transport and logistics sector. Following our strategy, we sold our business of cargo transportation by tank trucks in 2007. Also, the IT system was renewed, allowing us to follow the flow of goods at every stage of transportation.
On the one hand, available road transport modes make it possible to provide door-to-door delivery. On the other hand, our division is an independent company with its own logistic chains, and railway transportation may not be a part of it. In addition, in the near future we are going to be more active in building our own terminals. Really, a client should give his cargo to a company without thinking by which transport mode it will be delivered to its destination.
Transit: All Elements Must Work Efficiently
– VR group and its Finnish partners are making efforts to participate effectively in joint programmes with the Russian Federation that target transit transportation development. Are these projects efficient?
– Transportation along the Transsib, in which Finland participates, has almost disappeared. A stable and moderate tariff policy is required to develop the route. I believe that the marketing constituent of the route must be activated too. As for the freight base, there is a lot of potential in Japan and Korea. From the standpoint of transit territory, Kazakhstan is very promising.
– Who must be engaged in transit positioning on the international market, in your opinion? Nowadays, the idea of launching a single transit operator is being discussed in Russia. He is supposed to fulfill the marketing function…
– Here we deal with a standard marketing system of direct interaction with a client. It is a difficult job. The product is a good one and it should be sold more actively. VR and OAO RZD and the Coordinating Council on Transsiberian Transportation must be engaged in it. Now we are content with our cooperation with OAO RZD. We believe that the work in the sector will be efficient.
– Does the current tariff on transit transportation meet requirements? As a rule, the customs service, rather than high tariffs, is considered the main reason for the lack of Russian transit…
– Both the tariff and customs constituents of transportation are important. It is necessary that all the elements of the system work effectively. Naturally, tariffs must be at such a level that all participants can make a profit. Still, I would like to emphasise once again, the tariff must be moderate and stable. I believe that the current rate must be analysed thoroughly.
– Mr Kuitunen, the stability you have mentioned is a characteristic feature of Finnish business, as well as of their mentality as a whole. Is it difficult for you to interact with Russian enterprises, which have gone through so much change in recent years?
– Traditionally, we interact with Russia very closely and I consider the professional level of our Russian colleagues in the railway transport sector to be very high. I’ve been following the railway reforms in Russia –  it is being carried out perfectly and in a timely way. I think that any country could be proud of such railway reform, especially taking into account the size of OAO RZD. And I like working with the Russians.
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Challenges in timber transport and possibilities in other business sectors 
– Mr Kuitunen, which VR projects concerning Russia are the most urgent now?
– Thank you for the question. We are satisfied with the way Russian and Finnish cooperation is developing. It is a very good period for our countries now: both passenger and cargo turnover are growing and the percentage increase is in double digits. We consider it a nice result. Also, there are several promising projects in the passenger transport sector, first of all, in organising high-speed railway communication. We have great hopes for it. I am pleased to say that there is also growth in freight transportation.
– What is the ratio of export to import and in two-way cargo turnover now? Is there is a forecast of how the structure of trade flows will change in the near future?
– Traditionally, Russian exports make up most of it: transportation to Finland represents about 90%, in January-August the share of our export transportation fell a little to 7%.
As for forecasts, nowadays, the structure of the two-sided turnover is being changed. Everyone knows that Russian non-processed timber made up the lion’s share until recently (about 50%), so the issue of further development of the situation with increasing export duties on Russian logs remains urgent for us. Considering the development of the situation, we will make forecasts and regulate the traffic of cargo flows.
– What then is the structure of two-way transportation nowadays? And if log transportation volumes fall after the duties become heavy, what cargo will replace it?
– Over a year has passed since the first increase in duties on logs and now chemicals make a larger share of the total volume of railway freight turnover – in fact, nearly half of the two-way transportation volume. Timber makes about 38% (mainly, non-processed), and the rest, 20%, is goods from the metal-working industry. The share of raw materials for metallurgical production is also high.
Naturally, considering the current situation, new cargoes must be found to avoid a decrease in two-way transportation volume. In my opinion, cars and containers are the solution. 
– Much is being done to increase containerised cargo transportation – block trains run, there are specialised joint ventures. What else, in your opinion, must be done to improve the quality of this service?
– As for block trains, the weekly dispatches from Finnish ports to Moscow and Saint Petersburg must be replaced by daily ones as soon as possible. Moreover, a new up-to-date port Vuosaari (a suburb of Helsinki) is to be put into operation in November, and I think the volume of railway and port traffic in Helsinki will increase owing to these new capacities. The new port specialises in handling containers and ro-ro. 
Nowadays, the major receiving ports for transit cargo destined for the Russian Federation are Kotka and Kokkola. About 400,000 cars are handled via the port of Kotka annually. Also the port of Hanko is very important in car transportation.
– To which Russian cities apart from Saint Petersburg and Moscow would VR-Group Ltd like to launch a regular transport service?
– As for boxes, all Russian large towns are interesting from the standpoint of transport cooperation – for example Ekaterinburg, Nizhny Novgorod, Novosibirsk and others. There are a lot of cities we are interested in. Speaking of car transportation, Russian demand will show us the most interesting regions.
– You mentioned transportation of the second most important freight for two-way cargo turnover – cars. What does the future hold for this sector?
– The Russian market is a capacious one. According to forecasts, about 1 million cars will be transported to Russia this year. The share of transit via Finland in this segment is just several per cent and we are trying to increase the share of transit cars carried via the territory of Finland by rail to a third. And we have everything necessary for it. As you know, last July a car terminal was launched in Mikhnevo, near Moscow. Now we are waiting for the possibility of customs clearance there. 
I think, the preparation is complete and now is the time for real work.
– So, the development of this transportation is a matter of time?
– Yes, and naturally, the matter of our work. It’s high time we set to work!     
Passenger Transportation: Speed Grows
– At what stage is the project of Russian-Finnish international passenger communication now?
– We plan high-speed railway passenger communication between Russian and Finland (Saint Petersburg and Helsinki) will be put into operation by 2010. We believe that the passenger transportation volume will grow three-fold.  Joint venture KarelianTrains has already ordered trains from Alstom Transport company. The contract amounted to EUR 120 million. The first pilot train is to be delivered in 2009 and the trains are expected to go into operation in 2010.
18 Pendolino trains are being used in Finland but they are different from the trains we are waiting for. The new ones will be adapted also to Russian current feed system.  
On the whole, we have great hopes for the project, since passenger transportation is one of the most dynamically developing sectors for our holding company. In 2007, the growth in the sector was 4.5%, which is a historical high. And passenger transportation volume between Russia and Finland increased 18.4% last year.
– Is development of high-speed railway transportation between Helsinki and Moscow a possibility as well?
– This is an interesting route. However, considering the large distance between Moscow and Saint Petersburg, even if a high-speed railway is constructed there, a train will hardly be as competitive on the line as on Saint Petersburg – Helsinki, where the travel time will fall from 6 to 3.5 hours.
To Work As Well As Possible
– Finnish railways are reforming their system rather cautiously. Are structural changes necessary in the situation when, after joining the EU, railway transportation become more and more international? Is it possible that foreign freight operators will appear on Finnish railways, in your opinion?
– I would not say that our reform is cautious. The Finnish system meets the requirements of EU directives. We consider the strategy for our company’s development effective and we are going to service our clients as well as possible regardless of the number of operators in the Finnish market. As for the possible access of European operators, we are ready for competition, although no foreign enterprises have appeared. We should remember that, according to the EU legislation, this is normal. Railway agency Rautatievirasto gives operators – non-residents – access to the Finnish infrastructure. The agency controls safety on the railways and develops sectoral norms. It answers to the Ministry of Transport and Communication. To start work on the tracks in Finland, foreign companies must comply with a number of criteria, in particular, having certain financial assets, their own rolling stock, and a safety certificate.
If there is such an operator then, in accordance with the EU directives, he will get access to the infrastructure of VR.
– Is VR Group in turn interested in enlarging its activities in Europe?
– There will be hardly any large projects in this direction in the near future. Our country adjoins 1520 area and this limits interaction with most EU states to some degree. However now we are not going to build a railway with the European standard gauge. At the same time, we are observing the changes in external railway transportation markets.
– Regarding European (and other) trends, a number of large railway companies, including VR Group, operate railway as well as road transport. Is this developing multi-modality the norm or a single instance?
– I think it is an effect of the system. In future, most transport companies will be multi-modal. If we take the experience of Finland, VR Group is incorporated into Pohjolan Liikenne concern, which is one of the largest automobile companies in Finland. It provides long-distance passenger transportation (including by express buses) as well as delivery of piece and mass cargoes in Finland and abroad. In 2007, the turnover of road freight transportation grew by 10% year-on-year to 10.8 million tons.
Returning to the question about VR’s activity in external markets, our car enterprises operate in Eastern European countries (the Czech Republic, Slovakia, and Hungary).
In the long term, we plan to concentrate on providing high-level services in the transport and logistics sector. Following our strategy, we sold our business of cargo transportation by tank trucks in 2007. Also, the IT system was renewed, allowing us to follow the flow of goods at every stage of transportation.
On the one hand, available road transport modes make it possible to provide door-to-door delivery. On the other hand, our division is an independent company with its own logistic chains, and railway transportation may not be a part of it. In addition, in the near future we are going to be more active in building our own terminals. Really, a client should give his cargo to a company without thinking by which transport mode it will be delivered to its destination.
Transit: All Elements Must Work Efficiently
– VR group and its Finnish partners are making efforts to participate effectively in joint programmes with the Russian Federation that target transit transportation development. Are these projects efficient?
– Transportation along the Transsib, in which Finland participates, has almost disappeared. A stable and moderate tariff policy is required to develop the route. I believe that the marketing constituent of the route must be activated too. As for the freight base, there is a lot of potential in Japan and Korea. From the standpoint of transit territory, Kazakhstan is very promising.
– Who must be engaged in transit positioning on the international market, in your opinion? Nowadays, the idea of launching a single transit operator is being discussed in Russia. He is supposed to fulfill the marketing function…
– Here we deal with a standard marketing system of direct interaction with a client. It is a difficult job. The product is a good one and it should be sold more actively. VR and OAO RZD and the Coordinating Council on Transsiberian Transportation must be engaged in it. Now we are content with our cooperation with OAO RZD. We believe that the work in the sector will be efficient.
– Does the current tariff on transit transportation meet requirements? As a rule, the customs service, rather than high tariffs, is considered the main reason for the lack of Russian transit…
– Both the tariff and customs constituents of transportation are important. It is necessary that all the elements of the system work effectively. Naturally, tariffs must be at such a level that all participants can make a profit. Still, I would like to emphasise once again, the tariff must be moderate and stable. I believe that the current rate must be analysed thoroughly.
– Mr Kuitunen, the stability you have mentioned is a characteristic feature of Finnish business, as well as of their mentality as a whole. Is it difficult for you to interact with Russian enterprises, which have gone through so much change in recent years?
– Traditionally, we interact with Russia very closely and I consider the professional level of our Russian colleagues in the railway transport sector to be very high. I’ve been following the railway reforms in Russia –  it is being carried out perfectly and in a timely way. I think that any country could be proud of such railway reform, especially taking into account the size of OAO RZD. And I like working with the Russians.
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