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– Mr Erukaev, Russia is a big country, and the transport component significantly increases the price of goods often …



–  Yes, it is so. For example, consumer goods are so expensive in the Far Eastern region, as a rule, because of extremely costly logistics. Wholesalers deliver large consignments of goods (for example, in containers of Refservice), keep them for a long time at unequipped warehouses, and then each of them carries his goods to the destination point.

– What is this system like abroad?



– The scheme used by American, Canadian, or Japanese companies, and big network retailers in the west of Russia looks different: wholesalers deliver goods to regional or urban distribution centres (DC) and keep stocks of perishables there for 1– 2 days of commerce, and stocks of long– life commodities – for two weeks. Perishables are carried every day, other goods – 1– 2 times a week. DC are engaged in daily stocking and delivery of goods to the destination points of all suppliers.



– What are the benefits of this scheme?



– Expenses on distribution to final consumers reduces by 90%. For example, according to a Japanese logistics company, servicing a DC in Sendai in Miyagi Prefecture, after switching to this scheme, expenses on delivery from suppliers to shops fell from 30 yens for a notional pack to 3 yens. Suppliers’ and shops’ need for surplus stock of goods reduces. The speed of the turnover of goods increases, losses on written– off rotten and expired goods decrease.



– Have people got accustomed to work with a small stock fast?



– The transfer to this scheme requires changes in the vision of suppliers’ purchase managers and store managers. The former have to transfer to deliveries of smaller but more frequent consignments. This will increase the cost of transportation and require accurate planning. The latter should implement software to inform the DC every day about goods they sold. The game is worth the candle. The increase in the cost of transportation is compensated for by saving on stock maintenance, writing– off expired goods, and the capital frozen in the stock.



 –  And goods should be carried at the maximum speed and accuracy, shouldn't they?



–  It can be so expensive that it will be economically inefficient. The optimal transportation is when the profit from reduction of stocks and expenses on their maintenance exceed the rise in expenses on faster and more accurate transportation. 

In Russian practice, the accuracy of meeting the timeframes becomes a defining parameter of transportation. Naturally, the speed and the cost are important, but accuracy is more valuable. That’s why many retail networks switch their goods flows from the railways to road transport, which provides the most accurate delivery time, even if the timescale for transportation of a container by container train is shorter.  



– Are there figures confirming it?



– The 2013 statistics for more than 1,000 containers shows that the average time needed for the transportation of a container from Shanghai to Moscow via the Vostochny port is 18 days (from the container’s departure from the Chinese port to its delivery in Moscow). The timescale, however, varies from14 to 35 days. And it is the fastest and the most reliable route, because there is a shuttle container train linking Moscow and Vostochny. What can we say about transportation from Shanghai to Yekaterinburg or Chelyabinsk? The average timescale is increased by 50– 100%, and transportation is less regular. Meanwhile, transportation by truck from Vladivostok or Nakhodka to Moscow (including taking a container out of the port and reloading it on the truck) takes 12 days on average, and the timescale varies by 1– 2 days. 



– If consignees master “just in time” logistics schemes and learn to deal with zero stocks, will goods of the third tariff class (the most high– yielding) leave the railway?



– It is an objective process, and all developed economies have passed this stage. Railways can get this cargo flow back by reducing the delivery time and increasing the accuracy of meeting the timeframes, i.e. regular trains. This concerns the timescale of cargo handling at terminals of departure and arrival. For example, it takes 10– 12 days to deliver freight from Shanghai to Moscow by a container train (the time can vary by 2– 3 days). And the process of waiting for loading in the Vostochny port and getting the container at the Paveletskaya or Tuchkovo stations can be from 2– 4 weeks. A solution is enormous investment in the terminal and port infrastructure and an increase in the carrying capacity of the railway.

Interviewed by Marina Ermolenko   
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– Mr Erukaev, Russia is a big country, and the transport component significantly increases the price of goods often …



–  Yes, it is so. For example, consumer goods are so expensive in the Far Eastern region, as a rule, because of extremely costly logistics. Wholesalers deliver large consignments of goods (for example, in containers of Refservice), keep them for a long time at unequipped warehouses, and then each of them carries his goods to the destination point.

– What is this system like abroad?



– The scheme used by American, Canadian, or Japanese companies, and big network retailers in the west of Russia looks different: wholesalers deliver goods to regional or urban distribution centres (DC) and keep stocks of perishables there for 1– 2 days of commerce, and stocks of long– life commodities – for two weeks. Perishables are carried every day, other goods – 1– 2 times a week. DC are engaged in daily stocking and delivery of goods to the destination points of all suppliers.



– What are the benefits of this scheme?



– Expenses on distribution to final consumers reduces by 90%. For example, according to a Japanese logistics company, servicing a DC in Sendai in Miyagi Prefecture, after switching to this scheme, expenses on delivery from suppliers to shops fell from 30 yens for a notional pack to 3 yens. Suppliers’ and shops’ need for surplus stock of goods reduces. The speed of the turnover of goods increases, losses on written– off rotten and expired goods decrease.



– Have people got accustomed to work with a small stock fast?



– The transfer to this scheme requires changes in the vision of suppliers’ purchase managers and store managers. The former have to transfer to deliveries of smaller but more frequent consignments. This will increase the cost of transportation and require accurate planning. The latter should implement software to inform the DC every day about goods they sold. The game is worth the candle. The increase in the cost of transportation is compensated for by saving on stock maintenance, writing– off expired goods, and the capital frozen in the stock.



 –  And goods should be carried at the maximum speed and accuracy, shouldn't they?



–  It can be so expensive that it will be economically inefficient. The optimal transportation is when the profit from reduction of stocks and expenses on their maintenance exceed the rise in expenses on faster and more accurate transportation. 

In Russian practice, the accuracy of meeting the timeframes becomes a defining parameter of transportation. Naturally, the speed and the cost are important, but accuracy is more valuable. That’s why many retail networks switch their goods flows from the railways to road transport, which provides the most accurate delivery time, even if the timescale for transportation of a container by container train is shorter.  



– Are there figures confirming it?



– The 2013 statistics for more than 1,000 containers shows that the average time needed for the transportation of a container from Shanghai to Moscow via the Vostochny port is 18 days (from the container’s departure from the Chinese port to its delivery in Moscow). The timescale, however, varies from14 to 35 days. And it is the fastest and the most reliable route, because there is a shuttle container train linking Moscow and Vostochny. What can we say about transportation from Shanghai to Yekaterinburg or Chelyabinsk? The average timescale is increased by 50– 100%, and transportation is less regular. Meanwhile, transportation by truck from Vladivostok or Nakhodka to Moscow (including taking a container out of the port and reloading it on the truck) takes 12 days on average, and the timescale varies by 1– 2 days. 



– If consignees master “just in time” logistics schemes and learn to deal with zero stocks, will goods of the third tariff class (the most high– yielding) leave the railway?



– It is an objective process, and all developed economies have passed this stage. Railways can get this cargo flow back by reducing the delivery time and increasing the accuracy of meeting the timeframes, i.e. regular trains. This concerns the timescale of cargo handling at terminals of departure and arrival. For example, it takes 10– 12 days to deliver freight from Shanghai to Moscow by a container train (the time can vary by 2– 3 days). And the process of waiting for loading in the Vostochny port and getting the container at the Paveletskaya or Tuchkovo stations can be from 2– 4 weeks. A solution is enormous investment in the terminal and port infrastructure and an increase in the carrying capacity of the railway.

Interviewed by Marina Ermolenko   
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Victor Erukaev, CEO of RI Log logistics company, explains why goods <br />
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Victor Erukaev, CEO of RI Log logistics company, explains why goods <br />
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– What is this system like abroad?



– The scheme used by American, Canadian, or Japanese companies, and big network retailers in the west of Russia looks different: wholesalers deliver goods to regional or urban distribution centres (DC) and keep stocks of perishables there for 1– 2 days of commerce, and stocks of long– life commodities – for two weeks. Perishables are carried every day, other goods – 1– 2 times a week. DC are engaged in daily stocking and delivery of goods to the destination points of all suppliers.



– What are the benefits of this scheme?



– Expenses on distribution to final consumers reduces by 90%. For example, according to a Japanese logistics company, servicing a DC in Sendai in Miyagi Prefecture, after switching to this scheme, expenses on delivery from suppliers to shops fell from 30 yens for a notional pack to 3 yens. Suppliers’ and shops’ need for surplus stock of goods reduces. The speed of the turnover of goods increases, losses on written– off rotten and expired goods decrease.



– Have people got accustomed to work with a small stock fast?



– The transfer to this scheme requires changes in the vision of suppliers’ purchase managers and store managers. The former have to transfer to deliveries of smaller but more frequent consignments. This will increase the cost of transportation and require accurate planning. The latter should implement software to inform the DC every day about goods they sold. The game is worth the candle. The increase in the cost of transportation is compensated for by saving on stock maintenance, writing– off expired goods, and the capital frozen in the stock.



 –  And goods should be carried at the maximum speed and accuracy, shouldn't they?



–  It can be so expensive that it will be economically inefficient. The optimal transportation is when the profit from reduction of stocks and expenses on their maintenance exceed the rise in expenses on faster and more accurate transportation. 

In Russian practice, the accuracy of meeting the timeframes becomes a defining parameter of transportation. Naturally, the speed and the cost are important, but accuracy is more valuable. That’s why many retail networks switch their goods flows from the railways to road transport, which provides the most accurate delivery time, even if the timescale for transportation of a container by container train is shorter.  



– Are there figures confirming it?



– The 2013 statistics for more than 1,000 containers shows that the average time needed for the transportation of a container from Shanghai to Moscow via the Vostochny port is 18 days (from the container’s departure from the Chinese port to its delivery in Moscow). The timescale, however, varies from14 to 35 days. And it is the fastest and the most reliable route, because there is a shuttle container train linking Moscow and Vostochny. What can we say about transportation from Shanghai to Yekaterinburg or Chelyabinsk? The average timescale is increased by 50– 100%, and transportation is less regular. Meanwhile, transportation by truck from Vladivostok or Nakhodka to Moscow (including taking a container out of the port and reloading it on the truck) takes 12 days on average, and the timescale varies by 1– 2 days. 



– If consignees master “just in time” logistics schemes and learn to deal with zero stocks, will goods of the third tariff class (the most high– yielding) leave the railway?



– It is an objective process, and all developed economies have passed this stage. Railways can get this cargo flow back by reducing the delivery time and increasing the accuracy of meeting the timeframes, i.e. regular trains. This concerns the timescale of cargo handling at terminals of departure and arrival. For example, it takes 10– 12 days to deliver freight from Shanghai to Moscow by a container train (the time can vary by 2– 3 days). And the process of waiting for loading in the Vostochny port and getting the container at the Paveletskaya or Tuchkovo stations can be from 2– 4 weeks. A solution is enormous investment in the terminal and port infrastructure and an increase in the carrying capacity of the railway.

Interviewed by Marina Ermolenko   
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– Mr Erukaev, Russia is a big country, and the transport component significantly increases the price of goods often …



–  Yes, it is so. For example, consumer goods are so expensive in the Far Eastern region, as a rule, because of extremely costly logistics. Wholesalers deliver large consignments of goods (for example, in containers of Refservice), keep them for a long time at unequipped warehouses, and then each of them carries his goods to the destination point.

– What is this system like abroad?



– The scheme used by American, Canadian, or Japanese companies, and big network retailers in the west of Russia looks different: wholesalers deliver goods to regional or urban distribution centres (DC) and keep stocks of perishables there for 1– 2 days of commerce, and stocks of long– life commodities – for two weeks. Perishables are carried every day, other goods – 1– 2 times a week. DC are engaged in daily stocking and delivery of goods to the destination points of all suppliers.



– What are the benefits of this scheme?



– Expenses on distribution to final consumers reduces by 90%. For example, according to a Japanese logistics company, servicing a DC in Sendai in Miyagi Prefecture, after switching to this scheme, expenses on delivery from suppliers to shops fell from 30 yens for a notional pack to 3 yens. Suppliers’ and shops’ need for surplus stock of goods reduces. The speed of the turnover of goods increases, losses on written– off rotten and expired goods decrease.



– Have people got accustomed to work with a small stock fast?



– The transfer to this scheme requires changes in the vision of suppliers’ purchase managers and store managers. The former have to transfer to deliveries of smaller but more frequent consignments. This will increase the cost of transportation and require accurate planning. The latter should implement software to inform the DC every day about goods they sold. The game is worth the candle. The increase in the cost of transportation is compensated for by saving on stock maintenance, writing– off expired goods, and the capital frozen in the stock.



 –  And goods should be carried at the maximum speed and accuracy, shouldn't they?



–  It can be so expensive that it will be economically inefficient. The optimal transportation is when the profit from reduction of stocks and expenses on their maintenance exceed the rise in expenses on faster and more accurate transportation. 

In Russian practice, the accuracy of meeting the timeframes becomes a defining parameter of transportation. Naturally, the speed and the cost are important, but accuracy is more valuable. That’s why many retail networks switch their goods flows from the railways to road transport, which provides the most accurate delivery time, even if the timescale for transportation of a container by container train is shorter.  



– Are there figures confirming it?



– The 2013 statistics for more than 1,000 containers shows that the average time needed for the transportation of a container from Shanghai to Moscow via the Vostochny port is 18 days (from the container’s departure from the Chinese port to its delivery in Moscow). The timescale, however, varies from14 to 35 days. And it is the fastest and the most reliable route, because there is a shuttle container train linking Moscow and Vostochny. What can we say about transportation from Shanghai to Yekaterinburg or Chelyabinsk? The average timescale is increased by 50– 100%, and transportation is less regular. Meanwhile, transportation by truck from Vladivostok or Nakhodka to Moscow (including taking a container out of the port and reloading it on the truck) takes 12 days on average, and the timescale varies by 1– 2 days. 



– If consignees master “just in time” logistics schemes and learn to deal with zero stocks, will goods of the third tariff class (the most high– yielding) leave the railway?



– It is an objective process, and all developed economies have passed this stage. Railways can get this cargo flow back by reducing the delivery time and increasing the accuracy of meeting the timeframes, i.e. regular trains. This concerns the timescale of cargo handling at terminals of departure and arrival. For example, it takes 10– 12 days to deliver freight from Shanghai to Moscow by a container train (the time can vary by 2– 3 days). And the process of waiting for loading in the Vostochny port and getting the container at the Paveletskaya or Tuchkovo stations can be from 2– 4 weeks. A solution is enormous investment in the terminal and port infrastructure and an increase in the carrying capacity of the railway.

Interviewed by Marina Ermolenko   
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Three parametres are crucially important for any transportation: the timescale, the accuracy of meeting the timeframes, and the cost. Transportation of goods is a task to optimise the combination of these parameters, and the solution is the minimisation of expenses. 

Victor Erukaev, CEO of RI Log logistics company, explains why goods 

delivered “door-to-door” must arrive on time. 
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Victor Erukaev, CEO of RI Log logistics company, explains why goods 

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Victor Erukaev, CEO of RI Log logistics company, explains why goods <br />
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Victor Erukaev, CEO of RI Log logistics company, explains why goods <br />
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Price Fluctuations



The current year started relatively well for Russian companies that export their goods to China. In January the cost of exported goods amounted to $5.2 billion (+7.6% on January 2013), in February – $3.5 billion (+3.3% on February 2013). Besides, as experts point out, the second month’s figures were substantially depressed by the celebration of the Spring Festival, so a certain deficit of the China’s foreign trade is not surprising. The same happened in February 2012 and March 2013. 

At the first glance it looks like a breakthrough as last year exports fell by 10% in comparison with 2012. Still, if one considers supplies in terms of volume rather than cost, the situation turns out to be more ambiguous (fig. 1).

The supply of mineral fuel, oil and petrochemicals (that amounted to 67.89% of Russian exports in monetary terms) increased by 9.7%, or 61.18 million tons in physical terms. The aggregate cost of these supplies however decreased by 9.1% to 2012 and totaled $26.9 billion due to the decrease in global prices for energy products. 

Last year supplies of combustibles and lubricants and fuel (except crude oil) from Russia increased by 17.05% in physical terms as compared to 2012 and amounted to 36.83 million tons. Nevertheless, as global energy prices sank the Russian energy export shrank 21% and was estimated at $7.11 billion. Supplies of wood and woodwork also decreased by 2.6% to $2,792.05 million, and in physical terms by 1.3% or 17.28 million cubic meters.

Last year was also unfavorable for ore exports. Its supplies in physical terms amounted to 11.26 million tons (-18.7%), in monetary terms – $2.1 billion (-15.1%).

As Figure 1 shows, the dynamics of different items were not alike, and experts point out that price manipulations become more and more apparent in China’s commodity markets. Initially there is a massive influx of negative forecasts predicting a slowdown in a certain industry, followed by a price reduction, a lot of purchases are made at the lowest prices, and then the actual economic figures turn out to be not so bad. The coal, ore, metal, fertilizer and to a certain degree wood markets have been following this scenario for more than three years. In general, it is clear that Russian exports are getting still more focused on raw materials, and lower added value products are gaining share even within single goods categories. For instance, the export of potassium chloride decreased by 14.5%, and the supplies of compound fertilizers fell by 22.5%. 

As for iron, last year Russian supplies rose by 93.8%, to 239.42 thousand tons. However the share of the low added value goods (scrap metal, semi-finished products, cast iron) exported to China increased significantly, to 89.25% as compared to 54.10% in 2012, and the share of goods with high added value (hot rolled and cold rolled mill products, electrotechnical steel, alloys) sank to 10.75% from 42.86% in 2012.

One shall note that railway traffic looks relatively good against this background. According to Russian Railways’ data, the haulage to China via the stations of RZD’s eastern part of the network in 2013 decreased by 6% as compared to 2012, mainly due to oil shipments (note that all in all the export fell by 10%). This decrease was caused primarily by the switch of oil exports from railway transportation to the ESPO oil pipeline. 

The beginning of 2014 does not look optimistic. In January and February the volume of cargo transportation to China fell by 0.8% as compared to the same period of 2013 due to decreased demand for fertilizers and ore as well as ongoing transfer of oil exports to the ESPO pipeline.



What to Expect?



Nevertheless on the whole the consumption of Russian goods in China is consistently growing (fig. 2). Moreover, the Chinese authorities are sticking to the plans and previously set targets for economic policy and foresee GDP increasing to be +7.5% in 2014 (as compared to the estimated 3% in the USA and 2% in the EU). The goods markets of these countries show either a weak growth or a cool down. On the other hand China, even we take into account the recently increased instability of the economic growth and price manipulations, is becoming a very attractive partner. On the average experts forecast the Chinese import are set to grow by 7-9% on 2013. It is good news for Russian exporters, though one shall remember that for most suppliers it is a priority now to get access to Chinese markets. The change in the share of Russian companies in the total volume of imports to China (fig. 3) proves this very clearly.

Ivan Gepting, Deputy General Director, Sales at Kuzbasskaya Toplivnaya Company (Kuzbass Fuel Company) says, “The competition with coal supplies from Australia and South East Asia is becoming more and more intense. And it is very difficult to decrease the share of transportation expenses in the cost of the fuel, primarily due to the shipment distance. We have to cover 4,000 kilometers to reach the sea, while in Indonesia, for instance, this distance is usually around 500 km. In fact, our suppliers have to compensate for the logistics issues at the expense of extraction profitability, and they risk being driven out of the market in event of aggressive dumping by their rivals. It cannot be ruled out that along with the growth of consumption in China the volume of our export will decrease”.

The forestry industry faces similar problems. It was pointed out by Turanles CJSC, that Chinese partners rigidly downplay prices, benefitting from the increased activity of foreign suppliers.

Still there has been no significant change in the volume of exports so far. According to Philip Filchakov, General Manager at Association of Russian-Chinese Economic Cooperation, separate fluctuations have so far been within seasonal behavioral limits, but the constant growth of the yuan to dollar and the devaluation of the rouble shall strengthen the positions of Russian exporters. Still, as experience has shown, there is no such favorable situation in which we will not be able to harm ourselves. Transportation charges for some shipments come up to 100%, and the dynamics of shipping companies virtually coincides with the price dynamics at the relevant goods markets. If one takes into account also the recurrent problems with abandoned carriages at ports and border crossings, even maintaining the current volume of exports to China in 2014 will be a good outcome.

By Dmitry Khantsevich


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Price Fluctuations



The current year started relatively well for Russian companies that export their goods to China. In January the cost of exported goods amounted to $5.2 billion (+7.6% on January 2013), in February – $3.5 billion (+3.3% on February 2013). Besides, as experts point out, the second month’s figures were substantially depressed by the celebration of the Spring Festival, so a certain deficit of the China’s foreign trade is not surprising. The same happened in February 2012 and March 2013. 

At the first glance it looks like a breakthrough as last year exports fell by 10% in comparison with 2012. Still, if one considers supplies in terms of volume rather than cost, the situation turns out to be more ambiguous (fig. 1).

The supply of mineral fuel, oil and petrochemicals (that amounted to 67.89% of Russian exports in monetary terms) increased by 9.7%, or 61.18 million tons in physical terms. The aggregate cost of these supplies however decreased by 9.1% to 2012 and totaled $26.9 billion due to the decrease in global prices for energy products. 

Last year supplies of combustibles and lubricants and fuel (except crude oil) from Russia increased by 17.05% in physical terms as compared to 2012 and amounted to 36.83 million tons. Nevertheless, as global energy prices sank the Russian energy export shrank 21% and was estimated at $7.11 billion. Supplies of wood and woodwork also decreased by 2.6% to $2,792.05 million, and in physical terms by 1.3% or 17.28 million cubic meters.

Last year was also unfavorable for ore exports. Its supplies in physical terms amounted to 11.26 million tons (-18.7%), in monetary terms – $2.1 billion (-15.1%).

As Figure 1 shows, the dynamics of different items were not alike, and experts point out that price manipulations become more and more apparent in China’s commodity markets. Initially there is a massive influx of negative forecasts predicting a slowdown in a certain industry, followed by a price reduction, a lot of purchases are made at the lowest prices, and then the actual economic figures turn out to be not so bad. The coal, ore, metal, fertilizer and to a certain degree wood markets have been following this scenario for more than three years. In general, it is clear that Russian exports are getting still more focused on raw materials, and lower added value products are gaining share even within single goods categories. For instance, the export of potassium chloride decreased by 14.5%, and the supplies of compound fertilizers fell by 22.5%. 

As for iron, last year Russian supplies rose by 93.8%, to 239.42 thousand tons. However the share of the low added value goods (scrap metal, semi-finished products, cast iron) exported to China increased significantly, to 89.25% as compared to 54.10% in 2012, and the share of goods with high added value (hot rolled and cold rolled mill products, electrotechnical steel, alloys) sank to 10.75% from 42.86% in 2012.

One shall note that railway traffic looks relatively good against this background. According to Russian Railways’ data, the haulage to China via the stations of RZD’s eastern part of the network in 2013 decreased by 6% as compared to 2012, mainly due to oil shipments (note that all in all the export fell by 10%). This decrease was caused primarily by the switch of oil exports from railway transportation to the ESPO oil pipeline. 

The beginning of 2014 does not look optimistic. In January and February the volume of cargo transportation to China fell by 0.8% as compared to the same period of 2013 due to decreased demand for fertilizers and ore as well as ongoing transfer of oil exports to the ESPO pipeline.



What to Expect?



Nevertheless on the whole the consumption of Russian goods in China is consistently growing (fig. 2). Moreover, the Chinese authorities are sticking to the plans and previously set targets for economic policy and foresee GDP increasing to be +7.5% in 2014 (as compared to the estimated 3% in the USA and 2% in the EU). The goods markets of these countries show either a weak growth or a cool down. On the other hand China, even we take into account the recently increased instability of the economic growth and price manipulations, is becoming a very attractive partner. On the average experts forecast the Chinese import are set to grow by 7-9% on 2013. It is good news for Russian exporters, though one shall remember that for most suppliers it is a priority now to get access to Chinese markets. The change in the share of Russian companies in the total volume of imports to China (fig. 3) proves this very clearly.

Ivan Gepting, Deputy General Director, Sales at Kuzbasskaya Toplivnaya Company (Kuzbass Fuel Company) says, “The competition with coal supplies from Australia and South East Asia is becoming more and more intense. And it is very difficult to decrease the share of transportation expenses in the cost of the fuel, primarily due to the shipment distance. We have to cover 4,000 kilometers to reach the sea, while in Indonesia, for instance, this distance is usually around 500 km. In fact, our suppliers have to compensate for the logistics issues at the expense of extraction profitability, and they risk being driven out of the market in event of aggressive dumping by their rivals. It cannot be ruled out that along with the growth of consumption in China the volume of our export will decrease”.

The forestry industry faces similar problems. It was pointed out by Turanles CJSC, that Chinese partners rigidly downplay prices, benefitting from the increased activity of foreign suppliers.

Still there has been no significant change in the volume of exports so far. According to Philip Filchakov, General Manager at Association of Russian-Chinese Economic Cooperation, separate fluctuations have so far been within seasonal behavioral limits, but the constant growth of the yuan to dollar and the devaluation of the rouble shall strengthen the positions of Russian exporters. Still, as experience has shown, there is no such favorable situation in which we will not be able to harm ourselves. Transportation charges for some shipments come up to 100%, and the dynamics of shipping companies virtually coincides with the price dynamics at the relevant goods markets. If one takes into account also the recurrent problems with abandoned carriages at ports and border crossings, even maintaining the current volume of exports to China in 2014 will be a good outcome.

By Dmitry Khantsevich


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    [DETAIL_TEXT] => 
Price Fluctuations



The current year started relatively well for Russian companies that export their goods to China. In January the cost of exported goods amounted to $5.2 billion (+7.6% on January 2013), in February – $3.5 billion (+3.3% on February 2013). Besides, as experts point out, the second month’s figures were substantially depressed by the celebration of the Spring Festival, so a certain deficit of the China’s foreign trade is not surprising. The same happened in February 2012 and March 2013. 

At the first glance it looks like a breakthrough as last year exports fell by 10% in comparison with 2012. Still, if one considers supplies in terms of volume rather than cost, the situation turns out to be more ambiguous (fig. 1).

The supply of mineral fuel, oil and petrochemicals (that amounted to 67.89% of Russian exports in monetary terms) increased by 9.7%, or 61.18 million tons in physical terms. The aggregate cost of these supplies however decreased by 9.1% to 2012 and totaled $26.9 billion due to the decrease in global prices for energy products. 

Last year supplies of combustibles and lubricants and fuel (except crude oil) from Russia increased by 17.05% in physical terms as compared to 2012 and amounted to 36.83 million tons. Nevertheless, as global energy prices sank the Russian energy export shrank 21% and was estimated at $7.11 billion. Supplies of wood and woodwork also decreased by 2.6% to $2,792.05 million, and in physical terms by 1.3% or 17.28 million cubic meters.

Last year was also unfavorable for ore exports. Its supplies in physical terms amounted to 11.26 million tons (-18.7%), in monetary terms – $2.1 billion (-15.1%).

As Figure 1 shows, the dynamics of different items were not alike, and experts point out that price manipulations become more and more apparent in China’s commodity markets. Initially there is a massive influx of negative forecasts predicting a slowdown in a certain industry, followed by a price reduction, a lot of purchases are made at the lowest prices, and then the actual economic figures turn out to be not so bad. The coal, ore, metal, fertilizer and to a certain degree wood markets have been following this scenario for more than three years. In general, it is clear that Russian exports are getting still more focused on raw materials, and lower added value products are gaining share even within single goods categories. For instance, the export of potassium chloride decreased by 14.5%, and the supplies of compound fertilizers fell by 22.5%. 

As for iron, last year Russian supplies rose by 93.8%, to 239.42 thousand tons. However the share of the low added value goods (scrap metal, semi-finished products, cast iron) exported to China increased significantly, to 89.25% as compared to 54.10% in 2012, and the share of goods with high added value (hot rolled and cold rolled mill products, electrotechnical steel, alloys) sank to 10.75% from 42.86% in 2012.

One shall note that railway traffic looks relatively good against this background. According to Russian Railways’ data, the haulage to China via the stations of RZD’s eastern part of the network in 2013 decreased by 6% as compared to 2012, mainly due to oil shipments (note that all in all the export fell by 10%). This decrease was caused primarily by the switch of oil exports from railway transportation to the ESPO oil pipeline. 

The beginning of 2014 does not look optimistic. In January and February the volume of cargo transportation to China fell by 0.8% as compared to the same period of 2013 due to decreased demand for fertilizers and ore as well as ongoing transfer of oil exports to the ESPO pipeline.



What to Expect?



Nevertheless on the whole the consumption of Russian goods in China is consistently growing (fig. 2). Moreover, the Chinese authorities are sticking to the plans and previously set targets for economic policy and foresee GDP increasing to be +7.5% in 2014 (as compared to the estimated 3% in the USA and 2% in the EU). The goods markets of these countries show either a weak growth or a cool down. On the other hand China, even we take into account the recently increased instability of the economic growth and price manipulations, is becoming a very attractive partner. On the average experts forecast the Chinese import are set to grow by 7-9% on 2013. It is good news for Russian exporters, though one shall remember that for most suppliers it is a priority now to get access to Chinese markets. The change in the share of Russian companies in the total volume of imports to China (fig. 3) proves this very clearly.

Ivan Gepting, Deputy General Director, Sales at Kuzbasskaya Toplivnaya Company (Kuzbass Fuel Company) says, “The competition with coal supplies from Australia and South East Asia is becoming more and more intense. And it is very difficult to decrease the share of transportation expenses in the cost of the fuel, primarily due to the shipment distance. We have to cover 4,000 kilometers to reach the sea, while in Indonesia, for instance, this distance is usually around 500 km. In fact, our suppliers have to compensate for the logistics issues at the expense of extraction profitability, and they risk being driven out of the market in event of aggressive dumping by their rivals. It cannot be ruled out that along with the growth of consumption in China the volume of our export will decrease”.

The forestry industry faces similar problems. It was pointed out by Turanles CJSC, that Chinese partners rigidly downplay prices, benefitting from the increased activity of foreign suppliers.

Still there has been no significant change in the volume of exports so far. According to Philip Filchakov, General Manager at Association of Russian-Chinese Economic Cooperation, separate fluctuations have so far been within seasonal behavioral limits, but the constant growth of the yuan to dollar and the devaluation of the rouble shall strengthen the positions of Russian exporters. Still, as experience has shown, there is no such favorable situation in which we will not be able to harm ourselves. Transportation charges for some shipments come up to 100%, and the dynamics of shipping companies virtually coincides with the price dynamics at the relevant goods markets. If one takes into account also the recurrent problems with abandoned carriages at ports and border crossings, even maintaining the current volume of exports to China in 2014 will be a good outcome.

By Dmitry Khantsevich


    [~DETAIL_TEXT] => 
Price Fluctuations



The current year started relatively well for Russian companies that export their goods to China. In January the cost of exported goods amounted to $5.2 billion (+7.6% on January 2013), in February – $3.5 billion (+3.3% on February 2013). Besides, as experts point out, the second month’s figures were substantially depressed by the celebration of the Spring Festival, so a certain deficit of the China’s foreign trade is not surprising. The same happened in February 2012 and March 2013. 

At the first glance it looks like a breakthrough as last year exports fell by 10% in comparison with 2012. Still, if one considers supplies in terms of volume rather than cost, the situation turns out to be more ambiguous (fig. 1).

The supply of mineral fuel, oil and petrochemicals (that amounted to 67.89% of Russian exports in monetary terms) increased by 9.7%, or 61.18 million tons in physical terms. The aggregate cost of these supplies however decreased by 9.1% to 2012 and totaled $26.9 billion due to the decrease in global prices for energy products. 

Last year supplies of combustibles and lubricants and fuel (except crude oil) from Russia increased by 17.05% in physical terms as compared to 2012 and amounted to 36.83 million tons. Nevertheless, as global energy prices sank the Russian energy export shrank 21% and was estimated at $7.11 billion. Supplies of wood and woodwork also decreased by 2.6% to $2,792.05 million, and in physical terms by 1.3% or 17.28 million cubic meters.

Last year was also unfavorable for ore exports. Its supplies in physical terms amounted to 11.26 million tons (-18.7%), in monetary terms – $2.1 billion (-15.1%).

As Figure 1 shows, the dynamics of different items were not alike, and experts point out that price manipulations become more and more apparent in China’s commodity markets. Initially there is a massive influx of negative forecasts predicting a slowdown in a certain industry, followed by a price reduction, a lot of purchases are made at the lowest prices, and then the actual economic figures turn out to be not so bad. The coal, ore, metal, fertilizer and to a certain degree wood markets have been following this scenario for more than three years. In general, it is clear that Russian exports are getting still more focused on raw materials, and lower added value products are gaining share even within single goods categories. For instance, the export of potassium chloride decreased by 14.5%, and the supplies of compound fertilizers fell by 22.5%. 

As for iron, last year Russian supplies rose by 93.8%, to 239.42 thousand tons. However the share of the low added value goods (scrap metal, semi-finished products, cast iron) exported to China increased significantly, to 89.25% as compared to 54.10% in 2012, and the share of goods with high added value (hot rolled and cold rolled mill products, electrotechnical steel, alloys) sank to 10.75% from 42.86% in 2012.

One shall note that railway traffic looks relatively good against this background. According to Russian Railways’ data, the haulage to China via the stations of RZD’s eastern part of the network in 2013 decreased by 6% as compared to 2012, mainly due to oil shipments (note that all in all the export fell by 10%). This decrease was caused primarily by the switch of oil exports from railway transportation to the ESPO oil pipeline. 

The beginning of 2014 does not look optimistic. In January and February the volume of cargo transportation to China fell by 0.8% as compared to the same period of 2013 due to decreased demand for fertilizers and ore as well as ongoing transfer of oil exports to the ESPO pipeline.



What to Expect?



Nevertheless on the whole the consumption of Russian goods in China is consistently growing (fig. 2). Moreover, the Chinese authorities are sticking to the plans and previously set targets for economic policy and foresee GDP increasing to be +7.5% in 2014 (as compared to the estimated 3% in the USA and 2% in the EU). The goods markets of these countries show either a weak growth or a cool down. On the other hand China, even we take into account the recently increased instability of the economic growth and price manipulations, is becoming a very attractive partner. On the average experts forecast the Chinese import are set to grow by 7-9% on 2013. It is good news for Russian exporters, though one shall remember that for most suppliers it is a priority now to get access to Chinese markets. The change in the share of Russian companies in the total volume of imports to China (fig. 3) proves this very clearly.

Ivan Gepting, Deputy General Director, Sales at Kuzbasskaya Toplivnaya Company (Kuzbass Fuel Company) says, “The competition with coal supplies from Australia and South East Asia is becoming more and more intense. And it is very difficult to decrease the share of transportation expenses in the cost of the fuel, primarily due to the shipment distance. We have to cover 4,000 kilometers to reach the sea, while in Indonesia, for instance, this distance is usually around 500 km. In fact, our suppliers have to compensate for the logistics issues at the expense of extraction profitability, and they risk being driven out of the market in event of aggressive dumping by their rivals. It cannot be ruled out that along with the growth of consumption in China the volume of our export will decrease”.

The forestry industry faces similar problems. It was pointed out by Turanles CJSC, that Chinese partners rigidly downplay prices, benefitting from the increased activity of foreign suppliers.

Still there has been no significant change in the volume of exports so far. According to Philip Filchakov, General Manager at Association of Russian-Chinese Economic Cooperation, separate fluctuations have so far been within seasonal behavioral limits, but the constant growth of the yuan to dollar and the devaluation of the rouble shall strengthen the positions of Russian exporters. Still, as experience has shown, there is no such favorable situation in which we will not be able to harm ourselves. Transportation charges for some shipments come up to 100%, and the dynamics of shipping companies virtually coincides with the price dynamics at the relevant goods markets. If one takes into account also the recurrent problems with abandoned carriages at ports and border crossings, even maintaining the current volume of exports to China in 2014 will be a good outcome.

By Dmitry Khantsevich


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A growth of exports to China in 2014 was nothing of surprise. 

Despite certain difficulties, China is gradually becoming a world leader. Increasing supplies for a growing Chinese economy are a long-term trend. 

And it’s a good news for Russian vendors.
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A growth of exports to China in 2014 was nothing of surprise. 

Despite certain difficulties, China is gradually becoming a world leader. Increasing supplies for a growing Chinese economy are a long-term trend. 

And it’s a good news for Russian vendors.
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Megaproject for Mega Football Tournament





The FIFA World Cup will be held in Russia from June 8 till July 8 in 2018. Despite eight being considered a lucky number in the East, it is not worth hoping for the remoteness of the date and the symbolic numbers, warn representatives of the FIFA. Experts say that a rather chaotic process for the preparation to Euro-2012 resulted in the late readiness of most transport and sports facilities, thus creating high risks for the success of sport events. The scale of the future football championship does not let Russia lose time. The Institute of Econo­my and Transport Development (IERT) has developed the Concept of Railway Infrastructure Development in Russia in view of the 2018 FIFA World Cup. The Concept was ordered by RZD. Initially, a number of programme documents contained the basis for the principles of the development of the prospective network for express and high-speed passenger transportation. First of all, these documents were in the Bid Book for hosting the 2018 FIFA World Cup.        

In the words of Fyodor Pekhterev, Director General of IERT, hosting 64 matches in 13 cities with the capacity of stadiums varying from 45,000 to 90,000 visitors will require a mass transfer of fans and tourists between host cities in a short time. In this case the best type of fast, timely, all-weather, and safe transportation is express and high-speed passenger transportation by rail. Judging by the experience of hosting competitions of such level, it is one of the obligatory conditions for high-quality transport servicing of world championships. When carrying out the projects envisaged by the Concept, it is planned to organise passenger trains, where the time of journey between cities will vary from 2 to 5 hours. These will be run in the following areas: Central (Moscow, St Petersburg, Yaroslavl, Nizhny Novgorod), Southern (Rostov-on-Don, Krasnodar, Adler), and Privolzhsky (Nizhny Novgorod, Kazan, Saransk, Samara).

Moreover, it is proposed to reconstruct the railway station buildings at the Football World Cup host cities. Special attention should be paid to the development of urban and commuter all-weather passenger transportation with a high carrying capacity, including from the airport – city links, which is one of the FIFA’s requirements to preparation for the tournament. During the sports event, the total volume of passenger transportation can amount to 3.7 million people per month, and the total size of the traffic will be 365 aeroexpress train pairs a day.  

Vyacheslav Rybkin, CEO of Lengiprotrans OJSC, says that when upgrading the existing railway infrastructure to increase the speed of passenger trains to 160-200 kph, one should take into account the experience of launching the “Sapsan” and “Allegro” trains to remove the threat for trains of other types (cargo and commuter ones). According to the expert, the Concept envisages that these risks must be removed. In the opinion of Evgeny Alexeev, Head of the Department for Passenger Transportation Research at the Institute for Natural Monopolies (IPEM), the launch of express services will require abolishment of a part of freight, commuter, and long-distance train services. Express transportation will be popular only if it becomes regular. “In this case the modernisation of the infrastructure will be justified. The problem can be solved by building three (or four, if necessary) main tracks in inhabited suburban zones, and developing duplicate lines for cargo transportation. One should take into account that there are plenty of railway crossings on the lines. The construction of overhead roads and motorways with the most intensive traffic should be planned beforehand,” he notes.

According to preliminary calculations presented in the Concept, the investment in the railway infrastructure for the FIFA World Cup will significantly exceed the investment in facilities built by RZD for the Sochi Olympic Games, because of the unprecedented tasks according to the volume and complexity. In the words of Denis Nazarov, Senior Manager for Project Finance and PPP Russia and the CIS at Grant Tornton CJSC, utilisation of the lifecycle contract scheme will contribute to a significant decrease in construction expenses on the HSR (by 40%), attraction of foreign investment (up to 50% of the capital expenditure), and transfer technological risks to the contract, completing the project on time and superior in quality due to the contractor’s efficient motivation. The fundamental principles of the proposed PPP scheme based of the lifecycle contract are as follows: the infrastructure provider creates a HSR link, fulfilling design works, construction, and the utilisation of the line during the life cycle of the basic elements of the railway, i.e. about 25 years. In its turn, the state customer (RZD) begins to make payments for the availability of the operating line after it is put in operation. Then RZD makes periodical payments during 25 years. The payment depends on meeting functional requirements, such as “time en route”, “carrying capacity of the railway”, “number of accidents”, etc. The infrastructure provider assumes all technological risks and has more freedom to choose any innovative solutions. RZD assumes all political risks and guarantees payment for the railway during the contract.



Optimise Before You Construct 

       

To get the right to host the World Cup and get ready for the tournament are different things. Philippe Bovy, Professor and senior transport planning and mega-event mobility management expert, says that one should correlate plans and actual opportunities. In his opinion, the Concept of Russia – 2018 needs optimisation. “Its current version envisaging hosting football matches in 13 host-cities at 16 stadiums is not reliable logistically and financially. After thorough and objective estimation, the scale of the Concept should decrease from 13 to 8-10 host cities and from 16 to 9-11 stadiums,” he notes. This optimisation is determined by significant public investment in the urban and regional infrastructure to be allocated from the federal budget. 

Alexey Tikhonov, Head of RZD’s Department for Capital Construction noted during the presentation of the Concept at the meeting of RZD’s Research and Technical Council that the amount of existing railway infrastructure to be mo­dernised every year exceeds that of the 2011 operational programme. For Roszheldorproject OJSC the increase will be 120%, and for RZDstroy – threefold.

Taking into account the launch of special high-speed railways, there can be a tenfold increase for Roszheldorproject and RZDstroy. Today, it is difficult to evaluate whether producing capacities of industrial companies of RZDstroy are sufficient to develop the railway infrastructure for the 2018 World Cup. It will be clear only after the Concept is approved and the design documentation for infrastructure facilities is developed. A. Tikhonov supposes that the capacity of Russian companies operating in the construction industry will not be enough. In this case, one should discuss the issue of organising supplies from external companies. To cut expenses, it will be necessary to analyse variants connected with the closest location of inert materials, and companies producing reinforced concrete products and metal structure for construction facilities.    

Basing on the experience of preparing the infrastructure for the Olympic Games in Sochi, the expert mentions some difficulties arising at the realisation of such projects. These problems, connected with setting definite technical parameters for a new facility, with the choice of location. Some difficulties are caused by the allocation of plots of land, where there are a lot of land users with different types of land utilisation. “During modernisation projects for railway infrastructure in the framework of the Concept, there can arise questions about additional allocation of plots of land for facilities to be constructed. In this case RZD needs the support of relevant federal and regional authorities to speed up the decisions about renting these plots to the company, changing their functional purpose, and preparing them for the construction of facilities envisaged by the Concept. 

Taking into account the participation of the construction complex in carrying out the investment programme of RZD. It is worth noting that with the available human resources and machinery it is possible to efficiently organise work to carry out projects, but it can’t spend all the investment envisaged by the Concept by the beginning of the World Cup. To fulfill all the tasks set, RZD will have to attract external design and construction companies, which will require significant organisational work to coordinate and manage the activity of the participants in the project. Special attention should be paid to land and legal issues, because a lot of time is usually needed to solve them, which impacts on the term when project work is completed,” emphasises A. Tikhonov. This makes the company define the most efficient schemes for the organisation of works to carry out projects of the modernisation of existing railway infrastructure. ®

By Oksana Perepelitsa 
    [~DETAIL_TEXT] => 
Megaproject for Mega Football Tournament





The FIFA World Cup will be held in Russia from June 8 till July 8 in 2018. Despite eight being considered a lucky number in the East, it is not worth hoping for the remoteness of the date and the symbolic numbers, warn representatives of the FIFA. Experts say that a rather chaotic process for the preparation to Euro-2012 resulted in the late readiness of most transport and sports facilities, thus creating high risks for the success of sport events. The scale of the future football championship does not let Russia lose time. The Institute of Econo­my and Transport Development (IERT) has developed the Concept of Railway Infrastructure Development in Russia in view of the 2018 FIFA World Cup. The Concept was ordered by RZD. Initially, a number of programme documents contained the basis for the principles of the development of the prospective network for express and high-speed passenger transportation. First of all, these documents were in the Bid Book for hosting the 2018 FIFA World Cup.        

In the words of Fyodor Pekhterev, Director General of IERT, hosting 64 matches in 13 cities with the capacity of stadiums varying from 45,000 to 90,000 visitors will require a mass transfer of fans and tourists between host cities in a short time. In this case the best type of fast, timely, all-weather, and safe transportation is express and high-speed passenger transportation by rail. Judging by the experience of hosting competitions of such level, it is one of the obligatory conditions for high-quality transport servicing of world championships. When carrying out the projects envisaged by the Concept, it is planned to organise passenger trains, where the time of journey between cities will vary from 2 to 5 hours. These will be run in the following areas: Central (Moscow, St Petersburg, Yaroslavl, Nizhny Novgorod), Southern (Rostov-on-Don, Krasnodar, Adler), and Privolzhsky (Nizhny Novgorod, Kazan, Saransk, Samara).

Moreover, it is proposed to reconstruct the railway station buildings at the Football World Cup host cities. Special attention should be paid to the development of urban and commuter all-weather passenger transportation with a high carrying capacity, including from the airport – city links, which is one of the FIFA’s requirements to preparation for the tournament. During the sports event, the total volume of passenger transportation can amount to 3.7 million people per month, and the total size of the traffic will be 365 aeroexpress train pairs a day.  

Vyacheslav Rybkin, CEO of Lengiprotrans OJSC, says that when upgrading the existing railway infrastructure to increase the speed of passenger trains to 160-200 kph, one should take into account the experience of launching the “Sapsan” and “Allegro” trains to remove the threat for trains of other types (cargo and commuter ones). According to the expert, the Concept envisages that these risks must be removed. In the opinion of Evgeny Alexeev, Head of the Department for Passenger Transportation Research at the Institute for Natural Monopolies (IPEM), the launch of express services will require abolishment of a part of freight, commuter, and long-distance train services. Express transportation will be popular only if it becomes regular. “In this case the modernisation of the infrastructure will be justified. The problem can be solved by building three (or four, if necessary) main tracks in inhabited suburban zones, and developing duplicate lines for cargo transportation. One should take into account that there are plenty of railway crossings on the lines. The construction of overhead roads and motorways with the most intensive traffic should be planned beforehand,” he notes.

According to preliminary calculations presented in the Concept, the investment in the railway infrastructure for the FIFA World Cup will significantly exceed the investment in facilities built by RZD for the Sochi Olympic Games, because of the unprecedented tasks according to the volume and complexity. In the words of Denis Nazarov, Senior Manager for Project Finance and PPP Russia and the CIS at Grant Tornton CJSC, utilisation of the lifecycle contract scheme will contribute to a significant decrease in construction expenses on the HSR (by 40%), attraction of foreign investment (up to 50% of the capital expenditure), and transfer technological risks to the contract, completing the project on time and superior in quality due to the contractor’s efficient motivation. The fundamental principles of the proposed PPP scheme based of the lifecycle contract are as follows: the infrastructure provider creates a HSR link, fulfilling design works, construction, and the utilisation of the line during the life cycle of the basic elements of the railway, i.e. about 25 years. In its turn, the state customer (RZD) begins to make payments for the availability of the operating line after it is put in operation. Then RZD makes periodical payments during 25 years. The payment depends on meeting functional requirements, such as “time en route”, “carrying capacity of the railway”, “number of accidents”, etc. The infrastructure provider assumes all technological risks and has more freedom to choose any innovative solutions. RZD assumes all political risks and guarantees payment for the railway during the contract.



Optimise Before You Construct 

       

To get the right to host the World Cup and get ready for the tournament are different things. Philippe Bovy, Professor and senior transport planning and mega-event mobility management expert, says that one should correlate plans and actual opportunities. In his opinion, the Concept of Russia – 2018 needs optimisation. “Its current version envisaging hosting football matches in 13 host-cities at 16 stadiums is not reliable logistically and financially. After thorough and objective estimation, the scale of the Concept should decrease from 13 to 8-10 host cities and from 16 to 9-11 stadiums,” he notes. This optimisation is determined by significant public investment in the urban and regional infrastructure to be allocated from the federal budget. 

Alexey Tikhonov, Head of RZD’s Department for Capital Construction noted during the presentation of the Concept at the meeting of RZD’s Research and Technical Council that the amount of existing railway infrastructure to be mo­dernised every year exceeds that of the 2011 operational programme. For Roszheldorproject OJSC the increase will be 120%, and for RZDstroy – threefold.

Taking into account the launch of special high-speed railways, there can be a tenfold increase for Roszheldorproject and RZDstroy. Today, it is difficult to evaluate whether producing capacities of industrial companies of RZDstroy are sufficient to develop the railway infrastructure for the 2018 World Cup. It will be clear only after the Concept is approved and the design documentation for infrastructure facilities is developed. A. Tikhonov supposes that the capacity of Russian companies operating in the construction industry will not be enough. In this case, one should discuss the issue of organising supplies from external companies. To cut expenses, it will be necessary to analyse variants connected with the closest location of inert materials, and companies producing reinforced concrete products and metal structure for construction facilities.    

Basing on the experience of preparing the infrastructure for the Olympic Games in Sochi, the expert mentions some difficulties arising at the realisation of such projects. These problems, connected with setting definite technical parameters for a new facility, with the choice of location. Some difficulties are caused by the allocation of plots of land, where there are a lot of land users with different types of land utilisation. “During modernisation projects for railway infrastructure in the framework of the Concept, there can arise questions about additional allocation of plots of land for facilities to be constructed. In this case RZD needs the support of relevant federal and regional authorities to speed up the decisions about renting these plots to the company, changing their functional purpose, and preparing them for the construction of facilities envisaged by the Concept. 

Taking into account the participation of the construction complex in carrying out the investment programme of RZD. It is worth noting that with the available human resources and machinery it is possible to efficiently organise work to carry out projects, but it can’t spend all the investment envisaged by the Concept by the beginning of the World Cup. To fulfill all the tasks set, RZD will have to attract external design and construction companies, which will require significant organisational work to coordinate and manage the activity of the participants in the project. Special attention should be paid to land and legal issues, because a lot of time is usually needed to solve them, which impacts on the term when project work is completed,” emphasises A. Tikhonov. This makes the company define the most efficient schemes for the organisation of works to carry out projects of the modernisation of existing railway infrastructure. ®

By Oksana Perepelitsa 
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Megaproject for Mega Football Tournament





The FIFA World Cup will be held in Russia from June 8 till July 8 in 2018. Despite eight being considered a lucky number in the East, it is not worth hoping for the remoteness of the date and the symbolic numbers, warn representatives of the FIFA. Experts say that a rather chaotic process for the preparation to Euro-2012 resulted in the late readiness of most transport and sports facilities, thus creating high risks for the success of sport events. The scale of the future football championship does not let Russia lose time. The Institute of Econo­my and Transport Development (IERT) has developed the Concept of Railway Infrastructure Development in Russia in view of the 2018 FIFA World Cup. The Concept was ordered by RZD. Initially, a number of programme documents contained the basis for the principles of the development of the prospective network for express and high-speed passenger transportation. First of all, these documents were in the Bid Book for hosting the 2018 FIFA World Cup.        

In the words of Fyodor Pekhterev, Director General of IERT, hosting 64 matches in 13 cities with the capacity of stadiums varying from 45,000 to 90,000 visitors will require a mass transfer of fans and tourists between host cities in a short time. In this case the best type of fast, timely, all-weather, and safe transportation is express and high-speed passenger transportation by rail. Judging by the experience of hosting competitions of such level, it is one of the obligatory conditions for high-quality transport servicing of world championships. When carrying out the projects envisaged by the Concept, it is planned to organise passenger trains, where the time of journey between cities will vary from 2 to 5 hours. These will be run in the following areas: Central (Moscow, St Petersburg, Yaroslavl, Nizhny Novgorod), Southern (Rostov-on-Don, Krasnodar, Adler), and Privolzhsky (Nizhny Novgorod, Kazan, Saransk, Samara).

Moreover, it is proposed to reconstruct the railway station buildings at the Football World Cup host cities. Special attention should be paid to the development of urban and commuter all-weather passenger transportation with a high carrying capacity, including from the airport – city links, which is one of the FIFA’s requirements to preparation for the tournament. During the sports event, the total volume of passenger transportation can amount to 3.7 million people per month, and the total size of the traffic will be 365 aeroexpress train pairs a day.  

Vyacheslav Rybkin, CEO of Lengiprotrans OJSC, says that when upgrading the existing railway infrastructure to increase the speed of passenger trains to 160-200 kph, one should take into account the experience of launching the “Sapsan” and “Allegro” trains to remove the threat for trains of other types (cargo and commuter ones). According to the expert, the Concept envisages that these risks must be removed. In the opinion of Evgeny Alexeev, Head of the Department for Passenger Transportation Research at the Institute for Natural Monopolies (IPEM), the launch of express services will require abolishment of a part of freight, commuter, and long-distance train services. Express transportation will be popular only if it becomes regular. “In this case the modernisation of the infrastructure will be justified. The problem can be solved by building three (or four, if necessary) main tracks in inhabited suburban zones, and developing duplicate lines for cargo transportation. One should take into account that there are plenty of railway crossings on the lines. The construction of overhead roads and motorways with the most intensive traffic should be planned beforehand,” he notes.

According to preliminary calculations presented in the Concept, the investment in the railway infrastructure for the FIFA World Cup will significantly exceed the investment in facilities built by RZD for the Sochi Olympic Games, because of the unprecedented tasks according to the volume and complexity. In the words of Denis Nazarov, Senior Manager for Project Finance and PPP Russia and the CIS at Grant Tornton CJSC, utilisation of the lifecycle contract scheme will contribute to a significant decrease in construction expenses on the HSR (by 40%), attraction of foreign investment (up to 50% of the capital expenditure), and transfer technological risks to the contract, completing the project on time and superior in quality due to the contractor’s efficient motivation. The fundamental principles of the proposed PPP scheme based of the lifecycle contract are as follows: the infrastructure provider creates a HSR link, fulfilling design works, construction, and the utilisation of the line during the life cycle of the basic elements of the railway, i.e. about 25 years. In its turn, the state customer (RZD) begins to make payments for the availability of the operating line after it is put in operation. Then RZD makes periodical payments during 25 years. The payment depends on meeting functional requirements, such as “time en route”, “carrying capacity of the railway”, “number of accidents”, etc. The infrastructure provider assumes all technological risks and has more freedom to choose any innovative solutions. RZD assumes all political risks and guarantees payment for the railway during the contract.



Optimise Before You Construct 

       

To get the right to host the World Cup and get ready for the tournament are different things. Philippe Bovy, Professor and senior transport planning and mega-event mobility management expert, says that one should correlate plans and actual opportunities. In his opinion, the Concept of Russia – 2018 needs optimisation. “Its current version envisaging hosting football matches in 13 host-cities at 16 stadiums is not reliable logistically and financially. After thorough and objective estimation, the scale of the Concept should decrease from 13 to 8-10 host cities and from 16 to 9-11 stadiums,” he notes. This optimisation is determined by significant public investment in the urban and regional infrastructure to be allocated from the federal budget. 

Alexey Tikhonov, Head of RZD’s Department for Capital Construction noted during the presentation of the Concept at the meeting of RZD’s Research and Technical Council that the amount of existing railway infrastructure to be mo­dernised every year exceeds that of the 2011 operational programme. For Roszheldorproject OJSC the increase will be 120%, and for RZDstroy – threefold.

Taking into account the launch of special high-speed railways, there can be a tenfold increase for Roszheldorproject and RZDstroy. Today, it is difficult to evaluate whether producing capacities of industrial companies of RZDstroy are sufficient to develop the railway infrastructure for the 2018 World Cup. It will be clear only after the Concept is approved and the design documentation for infrastructure facilities is developed. A. Tikhonov supposes that the capacity of Russian companies operating in the construction industry will not be enough. In this case, one should discuss the issue of organising supplies from external companies. To cut expenses, it will be necessary to analyse variants connected with the closest location of inert materials, and companies producing reinforced concrete products and metal structure for construction facilities.    

Basing on the experience of preparing the infrastructure for the Olympic Games in Sochi, the expert mentions some difficulties arising at the realisation of such projects. These problems, connected with setting definite technical parameters for a new facility, with the choice of location. Some difficulties are caused by the allocation of plots of land, where there are a lot of land users with different types of land utilisation. “During modernisation projects for railway infrastructure in the framework of the Concept, there can arise questions about additional allocation of plots of land for facilities to be constructed. In this case RZD needs the support of relevant federal and regional authorities to speed up the decisions about renting these plots to the company, changing their functional purpose, and preparing them for the construction of facilities envisaged by the Concept. 

Taking into account the participation of the construction complex in carrying out the investment programme of RZD. It is worth noting that with the available human resources and machinery it is possible to efficiently organise work to carry out projects, but it can’t spend all the investment envisaged by the Concept by the beginning of the World Cup. To fulfill all the tasks set, RZD will have to attract external design and construction companies, which will require significant organisational work to coordinate and manage the activity of the participants in the project. Special attention should be paid to land and legal issues, because a lot of time is usually needed to solve them, which impacts on the term when project work is completed,” emphasises A. Tikhonov. This makes the company define the most efficient schemes for the organisation of works to carry out projects of the modernisation of existing railway infrastructure. ®

By Oksana Perepelitsa 
    [~DETAIL_TEXT] => 
Megaproject for Mega Football Tournament





The FIFA World Cup will be held in Russia from June 8 till July 8 in 2018. Despite eight being considered a lucky number in the East, it is not worth hoping for the remoteness of the date and the symbolic numbers, warn representatives of the FIFA. Experts say that a rather chaotic process for the preparation to Euro-2012 resulted in the late readiness of most transport and sports facilities, thus creating high risks for the success of sport events. The scale of the future football championship does not let Russia lose time. The Institute of Econo­my and Transport Development (IERT) has developed the Concept of Railway Infrastructure Development in Russia in view of the 2018 FIFA World Cup. The Concept was ordered by RZD. Initially, a number of programme documents contained the basis for the principles of the development of the prospective network for express and high-speed passenger transportation. First of all, these documents were in the Bid Book for hosting the 2018 FIFA World Cup.        

In the words of Fyodor Pekhterev, Director General of IERT, hosting 64 matches in 13 cities with the capacity of stadiums varying from 45,000 to 90,000 visitors will require a mass transfer of fans and tourists between host cities in a short time. In this case the best type of fast, timely, all-weather, and safe transportation is express and high-speed passenger transportation by rail. Judging by the experience of hosting competitions of such level, it is one of the obligatory conditions for high-quality transport servicing of world championships. When carrying out the projects envisaged by the Concept, it is planned to organise passenger trains, where the time of journey between cities will vary from 2 to 5 hours. These will be run in the following areas: Central (Moscow, St Petersburg, Yaroslavl, Nizhny Novgorod), Southern (Rostov-on-Don, Krasnodar, Adler), and Privolzhsky (Nizhny Novgorod, Kazan, Saransk, Samara).

Moreover, it is proposed to reconstruct the railway station buildings at the Football World Cup host cities. Special attention should be paid to the development of urban and commuter all-weather passenger transportation with a high carrying capacity, including from the airport – city links, which is one of the FIFA’s requirements to preparation for the tournament. During the sports event, the total volume of passenger transportation can amount to 3.7 million people per month, and the total size of the traffic will be 365 aeroexpress train pairs a day.  

Vyacheslav Rybkin, CEO of Lengiprotrans OJSC, says that when upgrading the existing railway infrastructure to increase the speed of passenger trains to 160-200 kph, one should take into account the experience of launching the “Sapsan” and “Allegro” trains to remove the threat for trains of other types (cargo and commuter ones). According to the expert, the Concept envisages that these risks must be removed. In the opinion of Evgeny Alexeev, Head of the Department for Passenger Transportation Research at the Institute for Natural Monopolies (IPEM), the launch of express services will require abolishment of a part of freight, commuter, and long-distance train services. Express transportation will be popular only if it becomes regular. “In this case the modernisation of the infrastructure will be justified. The problem can be solved by building three (or four, if necessary) main tracks in inhabited suburban zones, and developing duplicate lines for cargo transportation. One should take into account that there are plenty of railway crossings on the lines. The construction of overhead roads and motorways with the most intensive traffic should be planned beforehand,” he notes.

According to preliminary calculations presented in the Concept, the investment in the railway infrastructure for the FIFA World Cup will significantly exceed the investment in facilities built by RZD for the Sochi Olympic Games, because of the unprecedented tasks according to the volume and complexity. In the words of Denis Nazarov, Senior Manager for Project Finance and PPP Russia and the CIS at Grant Tornton CJSC, utilisation of the lifecycle contract scheme will contribute to a significant decrease in construction expenses on the HSR (by 40%), attraction of foreign investment (up to 50% of the capital expenditure), and transfer technological risks to the contract, completing the project on time and superior in quality due to the contractor’s efficient motivation. The fundamental principles of the proposed PPP scheme based of the lifecycle contract are as follows: the infrastructure provider creates a HSR link, fulfilling design works, construction, and the utilisation of the line during the life cycle of the basic elements of the railway, i.e. about 25 years. In its turn, the state customer (RZD) begins to make payments for the availability of the operating line after it is put in operation. Then RZD makes periodical payments during 25 years. The payment depends on meeting functional requirements, such as “time en route”, “carrying capacity of the railway”, “number of accidents”, etc. The infrastructure provider assumes all technological risks and has more freedom to choose any innovative solutions. RZD assumes all political risks and guarantees payment for the railway during the contract.



Optimise Before You Construct 

       

To get the right to host the World Cup and get ready for the tournament are different things. Philippe Bovy, Professor and senior transport planning and mega-event mobility management expert, says that one should correlate plans and actual opportunities. In his opinion, the Concept of Russia – 2018 needs optimisation. “Its current version envisaging hosting football matches in 13 host-cities at 16 stadiums is not reliable logistically and financially. After thorough and objective estimation, the scale of the Concept should decrease from 13 to 8-10 host cities and from 16 to 9-11 stadiums,” he notes. This optimisation is determined by significant public investment in the urban and regional infrastructure to be allocated from the federal budget. 

Alexey Tikhonov, Head of RZD’s Department for Capital Construction noted during the presentation of the Concept at the meeting of RZD’s Research and Technical Council that the amount of existing railway infrastructure to be mo­dernised every year exceeds that of the 2011 operational programme. For Roszheldorproject OJSC the increase will be 120%, and for RZDstroy – threefold.

Taking into account the launch of special high-speed railways, there can be a tenfold increase for Roszheldorproject and RZDstroy. Today, it is difficult to evaluate whether producing capacities of industrial companies of RZDstroy are sufficient to develop the railway infrastructure for the 2018 World Cup. It will be clear only after the Concept is approved and the design documentation for infrastructure facilities is developed. A. Tikhonov supposes that the capacity of Russian companies operating in the construction industry will not be enough. In this case, one should discuss the issue of organising supplies from external companies. To cut expenses, it will be necessary to analyse variants connected with the closest location of inert materials, and companies producing reinforced concrete products and metal structure for construction facilities.    

Basing on the experience of preparing the infrastructure for the Olympic Games in Sochi, the expert mentions some difficulties arising at the realisation of such projects. These problems, connected with setting definite technical parameters for a new facility, with the choice of location. Some difficulties are caused by the allocation of plots of land, where there are a lot of land users with different types of land utilisation. “During modernisation projects for railway infrastructure in the framework of the Concept, there can arise questions about additional allocation of plots of land for facilities to be constructed. In this case RZD needs the support of relevant federal and regional authorities to speed up the decisions about renting these plots to the company, changing their functional purpose, and preparing them for the construction of facilities envisaged by the Concept. 

Taking into account the participation of the construction complex in carrying out the investment programme of RZD. It is worth noting that with the available human resources and machinery it is possible to efficiently organise work to carry out projects, but it can’t spend all the investment envisaged by the Concept by the beginning of the World Cup. To fulfill all the tasks set, RZD will have to attract external design and construction companies, which will require significant organisational work to coordinate and manage the activity of the participants in the project. Special attention should be paid to land and legal issues, because a lot of time is usually needed to solve them, which impacts on the term when project work is completed,” emphasises A. Tikhonov. This makes the company define the most efficient schemes for the organisation of works to carry out projects of the modernisation of existing railway infrastructure. ®

By Oksana Perepelitsa 
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Price Matters



Experts supposed that the introduction of franchising for passenger transport in the UK would help private companies to improve the quality of their service, and they would become drivers of innovation in the industry. Therefore, Britain's railway system was divided into several parts, and the players were offered 25 franchises.

Today, companies participating in the tender, compete with each other according to different parameters, such as frequency of dispatches and the amount of rolling stock. If it is a highly profitable line such as commuter or long distance one, the winner is he who offers the largest amount he would pay the state during the time while the contract is valid. With regard to unprofitable lines in distant parts of the country, an important option is the subsidy from the state. If the company is working on an especially high-yielding route, it shares its income with the state. If not, the authorities cover up to 80% of losses.

The bidding process, which initially took place in two stages, has become more complex and expensive. It took only 13 months to sell the first franchise. Initially, the company had to pass the qualification, during which its financial condition was checked. At the second stage the company, which would take over the existing operations, was finally chosen. It is important that the process of bidding for the companies was not as expensive as it is today.

A special body called the SRA was responsible for franchising previously, today it is the duty of the Department of  Transport. A bid costs from about £ 5 million, but the stage of qualification is also very expensive. Preparation for participation in the competition requires a large sum of money, so to qualify for a franchise, you must first pass the exam for compliance with certain criteria. Participants may submit their innovative solutions to the Department, such as the mechanism of lowing prices for tickets, but this criterion is not taken into account when selecting the winner.

Therefore, the choice of the operator has become a mechanical process, and market players are more focused on getting the excess profits to be able to offer the highest bid. It is ironic that, for example, a company known in a number of incidents and in the management of old rail cars, can «beat» a younger player, offering modern, customer-friendly solutions.



System Doesn’t Work



The most demonstrative example of a system failure in Great Britain is the situation with the West Coast Mainline, the main railway line of the country, serving most of the passengers, about 31 million people each year. In 1997, the franchise was given to Virgin Rail Company for a 15 year period. In 2012, the Department of Transport announced a tender because this contract had been expired. And one of the largest operators in the country First Group, which offered the highest price, won it. 

The decision to give the line to a new company caused a wave of protest. Richard Branson, CEO of Virgin, even offered to work free for some time to enable the Department to reconsider its decision. The main claim of Mr Branson was the fact that the decision took into account only the financial figures, but not the quality of the service.

A similar situation was with infrastructure company Metronet, which cost the taxpayers £410 million. The company got into debt, while allowing security incidents, which resulted in a number of accidents.

Another example of an incorrect calculation was the situation with National Express, which operated the East Coast Mainline. The company was unable to make payments on the contract.

According to Mr Branson, First Group would be unable to work according to contract: it would not be able to return £5.5 billion to the state. And in case of failure it would have to pay £265 million as a penalty. But the main thing is that passengers would suffer. In British history, there were many such ambitious franchisees, and all of them failed. In the end, the Department decided to cancel the tender for the West Coast Mainline last October. Virgin will continue to manage the line until a new stage of the tender.

According to Patrick McLaughlin, Secretary for Transport, at the time of the next tender all errors will be taken into account. “The Franchise was a strong driver in the history of the railways in Great Britain. The new program is an important step to improve quality of service. During further bidding we will focus primarily on the passengers,» he said.

Experts from Roland Berger, who analysed the modern system of franchising in the UK, say that there are more specific proposals. Firstly, enter additional criteria (quality of rolling stock, pricing, service) and a more careful approach to the selection of the winner. Secondly, organise a small market franchises - this system has been successfully working in the segment of bus services in London. There are also proposals for a more flexible period of time of the franchise, and revision of the system of competition and structure that is responsible for making decisions.



In Need of Reform



Going back to the situation with bidding on the West Coast Mainline, it should be noted that an error in the tender, and the cancellation of the decision resulted in spending around £50 million of taxpayers’ money on compensation for companies that have made their bids. Thus, in the view of the Labor Party, the franchise system once again proved to be broken.

Is there any alternative to the current system of franchises? According to experts, a way out of the current situation could be the transfer of infrastructure management to the operators. This will provide long-term investment and, accordingly, reduce the tariffs for passengers. But drivers for long-term investments would not be profitable, if the franchise is too small. In these conditions, of course, big players such as Virgin could benefit. For small players joining the network will become impossible because of a lack of financial firepower.

More and more experts say that the best solution is re-nationalisation of railways. This is confirmed by a number of recent studies in this area. However, implementation of this shouldn't be expected. By the way, currently, most operators in the UK belong to other states (for example, to Deutsche Bahn). Obviously, their income is spent mainly on the maintenance of infrastructure in their countries.

As an argument in favor of nationalisation is the successful work of the East Coast Mainline, which today is a public company. Income derived from its work goes towards improvement of the quality of infrastructure. The problem is that two such notions as quantity and quality are diametrically opposed.

By Kristina Alexandrova
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Price Matters



Experts supposed that the introduction of franchising for passenger transport in the UK would help private companies to improve the quality of their service, and they would become drivers of innovation in the industry. Therefore, Britain's railway system was divided into several parts, and the players were offered 25 franchises.

Today, companies participating in the tender, compete with each other according to different parameters, such as frequency of dispatches and the amount of rolling stock. If it is a highly profitable line such as commuter or long distance one, the winner is he who offers the largest amount he would pay the state during the time while the contract is valid. With regard to unprofitable lines in distant parts of the country, an important option is the subsidy from the state. If the company is working on an especially high-yielding route, it shares its income with the state. If not, the authorities cover up to 80% of losses.

The bidding process, which initially took place in two stages, has become more complex and expensive. It took only 13 months to sell the first franchise. Initially, the company had to pass the qualification, during which its financial condition was checked. At the second stage the company, which would take over the existing operations, was finally chosen. It is important that the process of bidding for the companies was not as expensive as it is today.

A special body called the SRA was responsible for franchising previously, today it is the duty of the Department of  Transport. A bid costs from about £ 5 million, but the stage of qualification is also very expensive. Preparation for participation in the competition requires a large sum of money, so to qualify for a franchise, you must first pass the exam for compliance with certain criteria. Participants may submit their innovative solutions to the Department, such as the mechanism of lowing prices for tickets, but this criterion is not taken into account when selecting the winner.

Therefore, the choice of the operator has become a mechanical process, and market players are more focused on getting the excess profits to be able to offer the highest bid. It is ironic that, for example, a company known in a number of incidents and in the management of old rail cars, can «beat» a younger player, offering modern, customer-friendly solutions.



System Doesn’t Work



The most demonstrative example of a system failure in Great Britain is the situation with the West Coast Mainline, the main railway line of the country, serving most of the passengers, about 31 million people each year. In 1997, the franchise was given to Virgin Rail Company for a 15 year period. In 2012, the Department of Transport announced a tender because this contract had been expired. And one of the largest operators in the country First Group, which offered the highest price, won it. 

The decision to give the line to a new company caused a wave of protest. Richard Branson, CEO of Virgin, even offered to work free for some time to enable the Department to reconsider its decision. The main claim of Mr Branson was the fact that the decision took into account only the financial figures, but not the quality of the service.

A similar situation was with infrastructure company Metronet, which cost the taxpayers £410 million. The company got into debt, while allowing security incidents, which resulted in a number of accidents.

Another example of an incorrect calculation was the situation with National Express, which operated the East Coast Mainline. The company was unable to make payments on the contract.

According to Mr Branson, First Group would be unable to work according to contract: it would not be able to return £5.5 billion to the state. And in case of failure it would have to pay £265 million as a penalty. But the main thing is that passengers would suffer. In British history, there were many such ambitious franchisees, and all of them failed. In the end, the Department decided to cancel the tender for the West Coast Mainline last October. Virgin will continue to manage the line until a new stage of the tender.

According to Patrick McLaughlin, Secretary for Transport, at the time of the next tender all errors will be taken into account. “The Franchise was a strong driver in the history of the railways in Great Britain. The new program is an important step to improve quality of service. During further bidding we will focus primarily on the passengers,» he said.

Experts from Roland Berger, who analysed the modern system of franchising in the UK, say that there are more specific proposals. Firstly, enter additional criteria (quality of rolling stock, pricing, service) and a more careful approach to the selection of the winner. Secondly, organise a small market franchises - this system has been successfully working in the segment of bus services in London. There are also proposals for a more flexible period of time of the franchise, and revision of the system of competition and structure that is responsible for making decisions.



In Need of Reform



Going back to the situation with bidding on the West Coast Mainline, it should be noted that an error in the tender, and the cancellation of the decision resulted in spending around £50 million of taxpayers’ money on compensation for companies that have made their bids. Thus, in the view of the Labor Party, the franchise system once again proved to be broken.

Is there any alternative to the current system of franchises? According to experts, a way out of the current situation could be the transfer of infrastructure management to the operators. This will provide long-term investment and, accordingly, reduce the tariffs for passengers. But drivers for long-term investments would not be profitable, if the franchise is too small. In these conditions, of course, big players such as Virgin could benefit. For small players joining the network will become impossible because of a lack of financial firepower.

More and more experts say that the best solution is re-nationalisation of railways. This is confirmed by a number of recent studies in this area. However, implementation of this shouldn't be expected. By the way, currently, most operators in the UK belong to other states (for example, to Deutsche Bahn). Obviously, their income is spent mainly on the maintenance of infrastructure in their countries.

As an argument in favor of nationalisation is the successful work of the East Coast Mainline, which today is a public company. Income derived from its work goes towards improvement of the quality of infrastructure. The problem is that two such notions as quantity and quality are diametrically opposed.

By Kristina Alexandrova
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Price Matters



Experts supposed that the introduction of franchising for passenger transport in the UK would help private companies to improve the quality of their service, and they would become drivers of innovation in the industry. Therefore, Britain's railway system was divided into several parts, and the players were offered 25 franchises.

Today, companies participating in the tender, compete with each other according to different parameters, such as frequency of dispatches and the amount of rolling stock. If it is a highly profitable line such as commuter or long distance one, the winner is he who offers the largest amount he would pay the state during the time while the contract is valid. With regard to unprofitable lines in distant parts of the country, an important option is the subsidy from the state. If the company is working on an especially high-yielding route, it shares its income with the state. If not, the authorities cover up to 80% of losses.

The bidding process, which initially took place in two stages, has become more complex and expensive. It took only 13 months to sell the first franchise. Initially, the company had to pass the qualification, during which its financial condition was checked. At the second stage the company, which would take over the existing operations, was finally chosen. It is important that the process of bidding for the companies was not as expensive as it is today.

A special body called the SRA was responsible for franchising previously, today it is the duty of the Department of  Transport. A bid costs from about £ 5 million, but the stage of qualification is also very expensive. Preparation for participation in the competition requires a large sum of money, so to qualify for a franchise, you must first pass the exam for compliance with certain criteria. Participants may submit their innovative solutions to the Department, such as the mechanism of lowing prices for tickets, but this criterion is not taken into account when selecting the winner.

Therefore, the choice of the operator has become a mechanical process, and market players are more focused on getting the excess profits to be able to offer the highest bid. It is ironic that, for example, a company known in a number of incidents and in the management of old rail cars, can «beat» a younger player, offering modern, customer-friendly solutions.



System Doesn’t Work



The most demonstrative example of a system failure in Great Britain is the situation with the West Coast Mainline, the main railway line of the country, serving most of the passengers, about 31 million people each year. In 1997, the franchise was given to Virgin Rail Company for a 15 year period. In 2012, the Department of Transport announced a tender because this contract had been expired. And one of the largest operators in the country First Group, which offered the highest price, won it. 

The decision to give the line to a new company caused a wave of protest. Richard Branson, CEO of Virgin, even offered to work free for some time to enable the Department to reconsider its decision. The main claim of Mr Branson was the fact that the decision took into account only the financial figures, but not the quality of the service.

A similar situation was with infrastructure company Metronet, which cost the taxpayers £410 million. The company got into debt, while allowing security incidents, which resulted in a number of accidents.

Another example of an incorrect calculation was the situation with National Express, which operated the East Coast Mainline. The company was unable to make payments on the contract.

According to Mr Branson, First Group would be unable to work according to contract: it would not be able to return £5.5 billion to the state. And in case of failure it would have to pay £265 million as a penalty. But the main thing is that passengers would suffer. In British history, there were many such ambitious franchisees, and all of them failed. In the end, the Department decided to cancel the tender for the West Coast Mainline last October. Virgin will continue to manage the line until a new stage of the tender.

According to Patrick McLaughlin, Secretary for Transport, at the time of the next tender all errors will be taken into account. “The Franchise was a strong driver in the history of the railways in Great Britain. The new program is an important step to improve quality of service. During further bidding we will focus primarily on the passengers,» he said.

Experts from Roland Berger, who analysed the modern system of franchising in the UK, say that there are more specific proposals. Firstly, enter additional criteria (quality of rolling stock, pricing, service) and a more careful approach to the selection of the winner. Secondly, organise a small market franchises - this system has been successfully working in the segment of bus services in London. There are also proposals for a more flexible period of time of the franchise, and revision of the system of competition and structure that is responsible for making decisions.



In Need of Reform



Going back to the situation with bidding on the West Coast Mainline, it should be noted that an error in the tender, and the cancellation of the decision resulted in spending around £50 million of taxpayers’ money on compensation for companies that have made their bids. Thus, in the view of the Labor Party, the franchise system once again proved to be broken.

Is there any alternative to the current system of franchises? According to experts, a way out of the current situation could be the transfer of infrastructure management to the operators. This will provide long-term investment and, accordingly, reduce the tariffs for passengers. But drivers for long-term investments would not be profitable, if the franchise is too small. In these conditions, of course, big players such as Virgin could benefit. For small players joining the network will become impossible because of a lack of financial firepower.

More and more experts say that the best solution is re-nationalisation of railways. This is confirmed by a number of recent studies in this area. However, implementation of this shouldn't be expected. By the way, currently, most operators in the UK belong to other states (for example, to Deutsche Bahn). Obviously, their income is spent mainly on the maintenance of infrastructure in their countries.

As an argument in favor of nationalisation is the successful work of the East Coast Mainline, which today is a public company. Income derived from its work goes towards improvement of the quality of infrastructure. The problem is that two such notions as quantity and quality are diametrically opposed.

By Kristina Alexandrova
    [~DETAIL_TEXT] => 
Price Matters



Experts supposed that the introduction of franchising for passenger transport in the UK would help private companies to improve the quality of their service, and they would become drivers of innovation in the industry. Therefore, Britain's railway system was divided into several parts, and the players were offered 25 franchises.

Today, companies participating in the tender, compete with each other according to different parameters, such as frequency of dispatches and the amount of rolling stock. If it is a highly profitable line such as commuter or long distance one, the winner is he who offers the largest amount he would pay the state during the time while the contract is valid. With regard to unprofitable lines in distant parts of the country, an important option is the subsidy from the state. If the company is working on an especially high-yielding route, it shares its income with the state. If not, the authorities cover up to 80% of losses.

The bidding process, which initially took place in two stages, has become more complex and expensive. It took only 13 months to sell the first franchise. Initially, the company had to pass the qualification, during which its financial condition was checked. At the second stage the company, which would take over the existing operations, was finally chosen. It is important that the process of bidding for the companies was not as expensive as it is today.

A special body called the SRA was responsible for franchising previously, today it is the duty of the Department of  Transport. A bid costs from about £ 5 million, but the stage of qualification is also very expensive. Preparation for participation in the competition requires a large sum of money, so to qualify for a franchise, you must first pass the exam for compliance with certain criteria. Participants may submit their innovative solutions to the Department, such as the mechanism of lowing prices for tickets, but this criterion is not taken into account when selecting the winner.

Therefore, the choice of the operator has become a mechanical process, and market players are more focused on getting the excess profits to be able to offer the highest bid. It is ironic that, for example, a company known in a number of incidents and in the management of old rail cars, can «beat» a younger player, offering modern, customer-friendly solutions.



System Doesn’t Work



The most demonstrative example of a system failure in Great Britain is the situation with the West Coast Mainline, the main railway line of the country, serving most of the passengers, about 31 million people each year. In 1997, the franchise was given to Virgin Rail Company for a 15 year period. In 2012, the Department of Transport announced a tender because this contract had been expired. And one of the largest operators in the country First Group, which offered the highest price, won it. 

The decision to give the line to a new company caused a wave of protest. Richard Branson, CEO of Virgin, even offered to work free for some time to enable the Department to reconsider its decision. The main claim of Mr Branson was the fact that the decision took into account only the financial figures, but not the quality of the service.

A similar situation was with infrastructure company Metronet, which cost the taxpayers £410 million. The company got into debt, while allowing security incidents, which resulted in a number of accidents.

Another example of an incorrect calculation was the situation with National Express, which operated the East Coast Mainline. The company was unable to make payments on the contract.

According to Mr Branson, First Group would be unable to work according to contract: it would not be able to return £5.5 billion to the state. And in case of failure it would have to pay £265 million as a penalty. But the main thing is that passengers would suffer. In British history, there were many such ambitious franchisees, and all of them failed. In the end, the Department decided to cancel the tender for the West Coast Mainline last October. Virgin will continue to manage the line until a new stage of the tender.

According to Patrick McLaughlin, Secretary for Transport, at the time of the next tender all errors will be taken into account. “The Franchise was a strong driver in the history of the railways in Great Britain. The new program is an important step to improve quality of service. During further bidding we will focus primarily on the passengers,» he said.

Experts from Roland Berger, who analysed the modern system of franchising in the UK, say that there are more specific proposals. Firstly, enter additional criteria (quality of rolling stock, pricing, service) and a more careful approach to the selection of the winner. Secondly, organise a small market franchises - this system has been successfully working in the segment of bus services in London. There are also proposals for a more flexible period of time of the franchise, and revision of the system of competition and structure that is responsible for making decisions.



In Need of Reform



Going back to the situation with bidding on the West Coast Mainline, it should be noted that an error in the tender, and the cancellation of the decision resulted in spending around £50 million of taxpayers’ money on compensation for companies that have made their bids. Thus, in the view of the Labor Party, the franchise system once again proved to be broken.

Is there any alternative to the current system of franchises? According to experts, a way out of the current situation could be the transfer of infrastructure management to the operators. This will provide long-term investment and, accordingly, reduce the tariffs for passengers. But drivers for long-term investments would not be profitable, if the franchise is too small. In these conditions, of course, big players such as Virgin could benefit. For small players joining the network will become impossible because of a lack of financial firepower.

More and more experts say that the best solution is re-nationalisation of railways. This is confirmed by a number of recent studies in this area. However, implementation of this shouldn't be expected. By the way, currently, most operators in the UK belong to other states (for example, to Deutsche Bahn). Obviously, their income is spent mainly on the maintenance of infrastructure in their countries.

As an argument in favor of nationalisation is the successful work of the East Coast Mainline, which today is a public company. Income derived from its work goes towards improvement of the quality of infrastructure. The problem is that two such notions as quantity and quality are diametrically opposed.

By Kristina Alexandrova
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Applying Foreign Experience 



Such transnational industrial and construction companies such as DB International, Siemens, Alstom, Hyundai, Mitsubishi Electric, Vinci, Bombardier, Vossloh, Systra, Italferr, Bouygues, Salini Impregilo, Finmeccanica, Thales, etc. have expressed an interest in the project. Representatives of Siemens and Alstom have already stated that participation in the development of the Moscow – Kazan HSR seems a very good prospect for the German and French business community. In particular, according to Rolf Epstein, Director of Complex Transport Solutions Division of the “Mobility” department at Siemens, if the Russian Government supports the project, investors will express a big interest in it. “There are contractual obligations we are fulfilling,” he said. Jan Harder, a representative of Alstom Transport, showed interest in the project as well. Obviously, the participation of such large investors can speed up the project, besides, in the truest sense of the word: for example, Alstom – the producer of TGV – has experience of working with speeds of over 500 kph.

In their turn, representatives of sectoral departments promise investors state support. “We understand how this project is important for organising transport communication and increasing transport accessibility, and for the whole economic development of the country,” comments Alexey Tsydenov, Deputy Transport Minister of Russia, and evaluates the design maturity of the project as high. 

The transfer of the best global technologies has been an important trend in the transport machine building sector for several years. Currently, it envisages the transfer of invention patents, patent licensing, the launch of joint ventures, and joint development of innovations with leading foreign partners. There are successful examples of such cooperation in the producing capacities of the largest Russian producers. For example, Ural Locomotives LLC became a state-of-the-art production site for the Sinara group of companies and Siemens (Germany), where locomotives and next-generation electric trains, including the “Lastochka” high-speed electric train, are made.

Alstom Transport is a key partner and a shareholder of another Russian company – Transmashholding CJSC, and their largest joint project are the electric locomotives EP20 and 2ES5. Additionally, the companies completed the joint development of an RIC coach for international transportation. This rolling stock complies with both European and Russian regulatory bases. Specialists at Transmashholding say, however, that to commission Austrian developers to design a coach specially for Russia, or Tver engineers – a coach for Europe, it would be rather difficult because of the limited experience in applying foreign standards.    

Other market players point at some specific difficulties in this sector. In the opinion of some western partners, Russia has one the most complicated and expensive systems of certification and launching into manufacture. There are other problems coinciding with the Russian experience: the climate, security requirements, a different approach to the service. On the whole, however, cooperation in the wagon building sector brings a lot of benefits.

In the words of Maxim Kuzemchenko, Deputy CEO for Business Development at United Wagon Building Company LLC (UWC, a managing company of Tikhvin Wagon Building Plant CJSC), joint projects for production localisation in Russia are very interesting and very promising. “Decades will be needed to reach by ourselves the level of American, European, or Chinese technologies. That is why to fulfill the goals set for the sector, a leap forward by means of the transfer of technologies is needed,” he is sure. The Russian wagon building sector is interested in such technologies and materials, which have developed slowly here because of the limited competition in the sector, the conservatism of wagon builders and regulators, and a negative experience from previous implementations. Such products are bogies, brakes, wheels, new materials, automatic coupling nodes, and wagon electronics.



To Unify Requirements



Today, the average level of localisation of production in the wagon building sector is 80%. The construction of the Moscow – Kazan HSR can be one more opportunity for mutually beneficial cooperation between Russian and foreign companies. This time, not only the production of rolling stock, but also such hi-tech aspects as equipping track for high-speed traffic, implementation of state-of-the-art developments at production points, systems of automation, security, and communication, the localisation of the production of materials, metal products, and equipment can be within the scope of their interests. 

Taking into account the new HSR project, Russian companies included the state-of-the-art developments in their modernisation plans. According to Alexander Zaichenko, CEO of Malinovsky Works ZhBI Trading House, the company together with its German partners began the modernisation of the plant. “Our readiness to participate in the construction of high-speed railways and to pass tendering procedures and to begin joint work with our customer – RZD – is high,” he notes.

Darya Borisova, Senior Partner at McKinsey consulting company, believes that one of RZD’s fundamental rules in their work with contractors must be the provision of equal competition services. In her opinion, the project should be based on neutral technical and technological concepts, which will allow the expansion of the circle of potential participants and choice of the most efficient of them from the viewpoint of the ultimate goals of the project.

One should also take into account that work in Russia is a very useful experience for foreign companies. For example, they can research what changes take place in the permanent way during hard frost.

Localisation of knowledge is also very important for the transfer of innovative technologies and efficient mutual adaptation of that experience. For that, joint engineering centres are created in Russia. Not only Russian specialists adopt experience and technologies there, but representatives of foreign companies get information about the specifics of the work of Russian railways, and the requirements of the machinery. Ultimately, the localisation in the framework of the HSR project can contribute to the development of a state-of-the-art high-tech railway industry in Russia and create a powerful export potential to fulfill the needs of the whole “1520 space”. ®

By Oksana Perepelitsa   


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Applying Foreign Experience 



Such transnational industrial and construction companies such as DB International, Siemens, Alstom, Hyundai, Mitsubishi Electric, Vinci, Bombardier, Vossloh, Systra, Italferr, Bouygues, Salini Impregilo, Finmeccanica, Thales, etc. have expressed an interest in the project. Representatives of Siemens and Alstom have already stated that participation in the development of the Moscow – Kazan HSR seems a very good prospect for the German and French business community. In particular, according to Rolf Epstein, Director of Complex Transport Solutions Division of the “Mobility” department at Siemens, if the Russian Government supports the project, investors will express a big interest in it. “There are contractual obligations we are fulfilling,” he said. Jan Harder, a representative of Alstom Transport, showed interest in the project as well. Obviously, the participation of such large investors can speed up the project, besides, in the truest sense of the word: for example, Alstom – the producer of TGV – has experience of working with speeds of over 500 kph.

In their turn, representatives of sectoral departments promise investors state support. “We understand how this project is important for organising transport communication and increasing transport accessibility, and for the whole economic development of the country,” comments Alexey Tsydenov, Deputy Transport Minister of Russia, and evaluates the design maturity of the project as high. 

The transfer of the best global technologies has been an important trend in the transport machine building sector for several years. Currently, it envisages the transfer of invention patents, patent licensing, the launch of joint ventures, and joint development of innovations with leading foreign partners. There are successful examples of such cooperation in the producing capacities of the largest Russian producers. For example, Ural Locomotives LLC became a state-of-the-art production site for the Sinara group of companies and Siemens (Germany), where locomotives and next-generation electric trains, including the “Lastochka” high-speed electric train, are made.

Alstom Transport is a key partner and a shareholder of another Russian company – Transmashholding CJSC, and their largest joint project are the electric locomotives EP20 and 2ES5. Additionally, the companies completed the joint development of an RIC coach for international transportation. This rolling stock complies with both European and Russian regulatory bases. Specialists at Transmashholding say, however, that to commission Austrian developers to design a coach specially for Russia, or Tver engineers – a coach for Europe, it would be rather difficult because of the limited experience in applying foreign standards.    

Other market players point at some specific difficulties in this sector. In the opinion of some western partners, Russia has one the most complicated and expensive systems of certification and launching into manufacture. There are other problems coinciding with the Russian experience: the climate, security requirements, a different approach to the service. On the whole, however, cooperation in the wagon building sector brings a lot of benefits.

In the words of Maxim Kuzemchenko, Deputy CEO for Business Development at United Wagon Building Company LLC (UWC, a managing company of Tikhvin Wagon Building Plant CJSC), joint projects for production localisation in Russia are very interesting and very promising. “Decades will be needed to reach by ourselves the level of American, European, or Chinese technologies. That is why to fulfill the goals set for the sector, a leap forward by means of the transfer of technologies is needed,” he is sure. The Russian wagon building sector is interested in such technologies and materials, which have developed slowly here because of the limited competition in the sector, the conservatism of wagon builders and regulators, and a negative experience from previous implementations. Such products are bogies, brakes, wheels, new materials, automatic coupling nodes, and wagon electronics.



To Unify Requirements



Today, the average level of localisation of production in the wagon building sector is 80%. The construction of the Moscow – Kazan HSR can be one more opportunity for mutually beneficial cooperation between Russian and foreign companies. This time, not only the production of rolling stock, but also such hi-tech aspects as equipping track for high-speed traffic, implementation of state-of-the-art developments at production points, systems of automation, security, and communication, the localisation of the production of materials, metal products, and equipment can be within the scope of their interests. 

Taking into account the new HSR project, Russian companies included the state-of-the-art developments in their modernisation plans. According to Alexander Zaichenko, CEO of Malinovsky Works ZhBI Trading House, the company together with its German partners began the modernisation of the plant. “Our readiness to participate in the construction of high-speed railways and to pass tendering procedures and to begin joint work with our customer – RZD – is high,” he notes.

Darya Borisova, Senior Partner at McKinsey consulting company, believes that one of RZD’s fundamental rules in their work with contractors must be the provision of equal competition services. In her opinion, the project should be based on neutral technical and technological concepts, which will allow the expansion of the circle of potential participants and choice of the most efficient of them from the viewpoint of the ultimate goals of the project.

One should also take into account that work in Russia is a very useful experience for foreign companies. For example, they can research what changes take place in the permanent way during hard frost.

Localisation of knowledge is also very important for the transfer of innovative technologies and efficient mutual adaptation of that experience. For that, joint engineering centres are created in Russia. Not only Russian specialists adopt experience and technologies there, but representatives of foreign companies get information about the specifics of the work of Russian railways, and the requirements of the machinery. Ultimately, the localisation in the framework of the HSR project can contribute to the development of a state-of-the-art high-tech railway industry in Russia and create a powerful export potential to fulfill the needs of the whole “1520 space”. ®

By Oksana Perepelitsa   


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    [DETAIL_TEXT] => 
Applying Foreign Experience 



Such transnational industrial and construction companies such as DB International, Siemens, Alstom, Hyundai, Mitsubishi Electric, Vinci, Bombardier, Vossloh, Systra, Italferr, Bouygues, Salini Impregilo, Finmeccanica, Thales, etc. have expressed an interest in the project. Representatives of Siemens and Alstom have already stated that participation in the development of the Moscow – Kazan HSR seems a very good prospect for the German and French business community. In particular, according to Rolf Epstein, Director of Complex Transport Solutions Division of the “Mobility” department at Siemens, if the Russian Government supports the project, investors will express a big interest in it. “There are contractual obligations we are fulfilling,” he said. Jan Harder, a representative of Alstom Transport, showed interest in the project as well. Obviously, the participation of such large investors can speed up the project, besides, in the truest sense of the word: for example, Alstom – the producer of TGV – has experience of working with speeds of over 500 kph.

In their turn, representatives of sectoral departments promise investors state support. “We understand how this project is important for organising transport communication and increasing transport accessibility, and for the whole economic development of the country,” comments Alexey Tsydenov, Deputy Transport Minister of Russia, and evaluates the design maturity of the project as high. 

The transfer of the best global technologies has been an important trend in the transport machine building sector for several years. Currently, it envisages the transfer of invention patents, patent licensing, the launch of joint ventures, and joint development of innovations with leading foreign partners. There are successful examples of such cooperation in the producing capacities of the largest Russian producers. For example, Ural Locomotives LLC became a state-of-the-art production site for the Sinara group of companies and Siemens (Germany), where locomotives and next-generation electric trains, including the “Lastochka” high-speed electric train, are made.

Alstom Transport is a key partner and a shareholder of another Russian company – Transmashholding CJSC, and their largest joint project are the electric locomotives EP20 and 2ES5. Additionally, the companies completed the joint development of an RIC coach for international transportation. This rolling stock complies with both European and Russian regulatory bases. Specialists at Transmashholding say, however, that to commission Austrian developers to design a coach specially for Russia, or Tver engineers – a coach for Europe, it would be rather difficult because of the limited experience in applying foreign standards.    

Other market players point at some specific difficulties in this sector. In the opinion of some western partners, Russia has one the most complicated and expensive systems of certification and launching into manufacture. There are other problems coinciding with the Russian experience: the climate, security requirements, a different approach to the service. On the whole, however, cooperation in the wagon building sector brings a lot of benefits.

In the words of Maxim Kuzemchenko, Deputy CEO for Business Development at United Wagon Building Company LLC (UWC, a managing company of Tikhvin Wagon Building Plant CJSC), joint projects for production localisation in Russia are very interesting and very promising. “Decades will be needed to reach by ourselves the level of American, European, or Chinese technologies. That is why to fulfill the goals set for the sector, a leap forward by means of the transfer of technologies is needed,” he is sure. The Russian wagon building sector is interested in such technologies and materials, which have developed slowly here because of the limited competition in the sector, the conservatism of wagon builders and regulators, and a negative experience from previous implementations. Such products are bogies, brakes, wheels, new materials, automatic coupling nodes, and wagon electronics.



To Unify Requirements



Today, the average level of localisation of production in the wagon building sector is 80%. The construction of the Moscow – Kazan HSR can be one more opportunity for mutually beneficial cooperation between Russian and foreign companies. This time, not only the production of rolling stock, but also such hi-tech aspects as equipping track for high-speed traffic, implementation of state-of-the-art developments at production points, systems of automation, security, and communication, the localisation of the production of materials, metal products, and equipment can be within the scope of their interests. 

Taking into account the new HSR project, Russian companies included the state-of-the-art developments in their modernisation plans. According to Alexander Zaichenko, CEO of Malinovsky Works ZhBI Trading House, the company together with its German partners began the modernisation of the plant. “Our readiness to participate in the construction of high-speed railways and to pass tendering procedures and to begin joint work with our customer – RZD – is high,” he notes.

Darya Borisova, Senior Partner at McKinsey consulting company, believes that one of RZD’s fundamental rules in their work with contractors must be the provision of equal competition services. In her opinion, the project should be based on neutral technical and technological concepts, which will allow the expansion of the circle of potential participants and choice of the most efficient of them from the viewpoint of the ultimate goals of the project.

One should also take into account that work in Russia is a very useful experience for foreign companies. For example, they can research what changes take place in the permanent way during hard frost.

Localisation of knowledge is also very important for the transfer of innovative technologies and efficient mutual adaptation of that experience. For that, joint engineering centres are created in Russia. Not only Russian specialists adopt experience and technologies there, but representatives of foreign companies get information about the specifics of the work of Russian railways, and the requirements of the machinery. Ultimately, the localisation in the framework of the HSR project can contribute to the development of a state-of-the-art high-tech railway industry in Russia and create a powerful export potential to fulfill the needs of the whole “1520 space”. ®

By Oksana Perepelitsa   


    [~DETAIL_TEXT] => 
Applying Foreign Experience 



Such transnational industrial and construction companies such as DB International, Siemens, Alstom, Hyundai, Mitsubishi Electric, Vinci, Bombardier, Vossloh, Systra, Italferr, Bouygues, Salini Impregilo, Finmeccanica, Thales, etc. have expressed an interest in the project. Representatives of Siemens and Alstom have already stated that participation in the development of the Moscow – Kazan HSR seems a very good prospect for the German and French business community. In particular, according to Rolf Epstein, Director of Complex Transport Solutions Division of the “Mobility” department at Siemens, if the Russian Government supports the project, investors will express a big interest in it. “There are contractual obligations we are fulfilling,” he said. Jan Harder, a representative of Alstom Transport, showed interest in the project as well. Obviously, the participation of such large investors can speed up the project, besides, in the truest sense of the word: for example, Alstom – the producer of TGV – has experience of working with speeds of over 500 kph.

In their turn, representatives of sectoral departments promise investors state support. “We understand how this project is important for organising transport communication and increasing transport accessibility, and for the whole economic development of the country,” comments Alexey Tsydenov, Deputy Transport Minister of Russia, and evaluates the design maturity of the project as high. 

The transfer of the best global technologies has been an important trend in the transport machine building sector for several years. Currently, it envisages the transfer of invention patents, patent licensing, the launch of joint ventures, and joint development of innovations with leading foreign partners. There are successful examples of such cooperation in the producing capacities of the largest Russian producers. For example, Ural Locomotives LLC became a state-of-the-art production site for the Sinara group of companies and Siemens (Germany), where locomotives and next-generation electric trains, including the “Lastochka” high-speed electric train, are made.

Alstom Transport is a key partner and a shareholder of another Russian company – Transmashholding CJSC, and their largest joint project are the electric locomotives EP20 and 2ES5. Additionally, the companies completed the joint development of an RIC coach for international transportation. This rolling stock complies with both European and Russian regulatory bases. Specialists at Transmashholding say, however, that to commission Austrian developers to design a coach specially for Russia, or Tver engineers – a coach for Europe, it would be rather difficult because of the limited experience in applying foreign standards.    

Other market players point at some specific difficulties in this sector. In the opinion of some western partners, Russia has one the most complicated and expensive systems of certification and launching into manufacture. There are other problems coinciding with the Russian experience: the climate, security requirements, a different approach to the service. On the whole, however, cooperation in the wagon building sector brings a lot of benefits.

In the words of Maxim Kuzemchenko, Deputy CEO for Business Development at United Wagon Building Company LLC (UWC, a managing company of Tikhvin Wagon Building Plant CJSC), joint projects for production localisation in Russia are very interesting and very promising. “Decades will be needed to reach by ourselves the level of American, European, or Chinese technologies. That is why to fulfill the goals set for the sector, a leap forward by means of the transfer of technologies is needed,” he is sure. The Russian wagon building sector is interested in such technologies and materials, which have developed slowly here because of the limited competition in the sector, the conservatism of wagon builders and regulators, and a negative experience from previous implementations. Such products are bogies, brakes, wheels, new materials, automatic coupling nodes, and wagon electronics.



To Unify Requirements



Today, the average level of localisation of production in the wagon building sector is 80%. The construction of the Moscow – Kazan HSR can be one more opportunity for mutually beneficial cooperation between Russian and foreign companies. This time, not only the production of rolling stock, but also such hi-tech aspects as equipping track for high-speed traffic, implementation of state-of-the-art developments at production points, systems of automation, security, and communication, the localisation of the production of materials, metal products, and equipment can be within the scope of their interests. 

Taking into account the new HSR project, Russian companies included the state-of-the-art developments in their modernisation plans. According to Alexander Zaichenko, CEO of Malinovsky Works ZhBI Trading House, the company together with its German partners began the modernisation of the plant. “Our readiness to participate in the construction of high-speed railways and to pass tendering procedures and to begin joint work with our customer – RZD – is high,” he notes.

Darya Borisova, Senior Partner at McKinsey consulting company, believes that one of RZD’s fundamental rules in their work with contractors must be the provision of equal competition services. In her opinion, the project should be based on neutral technical and technological concepts, which will allow the expansion of the circle of potential participants and choice of the most efficient of them from the viewpoint of the ultimate goals of the project.

One should also take into account that work in Russia is a very useful experience for foreign companies. For example, they can research what changes take place in the permanent way during hard frost.

Localisation of knowledge is also very important for the transfer of innovative technologies and efficient mutual adaptation of that experience. For that, joint engineering centres are created in Russia. Not only Russian specialists adopt experience and technologies there, but representatives of foreign companies get information about the specifics of the work of Russian railways, and the requirements of the machinery. Ultimately, the localisation in the framework of the HSR project can contribute to the development of a state-of-the-art high-tech railway industry in Russia and create a powerful export potential to fulfill the needs of the whole “1520 space”. ®

By Oksana Perepelitsa   


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Welcome to HSR



–  Mr. Misharin, could you please tell us about the implementation of the national program for creation of a high-speed railways system in Russia.  What decisions were made recently, how is the preparation for the construction going now? 



– The process began at the beginning of the 20th century in Russia. It is known that on the line St. Petersburg–Moscow express train reached a speed of 110 km/h that time, and in the 1960’s the fastest Soviet train “Aurora” reached a speed of 160 km/h. It was obvious that for further improvement on the results it is necessary to build a special high-speed passenger railway. Therefore in 1975 the scientific and technical council of Ministry of Railways was developing its feasibility study. But it was postponed in the end.

Recently a number of steps for development of high-speed railway traffic was taken. Implementation of the HSR project is included in such major state documents, as the Forecast of social and economic development of Russia till 2030 and the Transport strategy till 2030.  Within that is the strategy, and also the general scheme of development of the railroads. It is planned to construct more than 4000 km of high-speed lines with an admissible speed up to 400 km/h and to start nearly 7000 km of lines for 200 km/h trains.  Also last year the prime minister of the country Dmitry Medvedev approved a plan of action for implementation of the first pilot HSR project Moscow–Kazan. 

These decisions allowed RZD JSC and its daughter company Skorostnye magistrali JSC (High-speed railways) to start development of investment appraisals for construction in easterly and southerly directions: Moscow – Kazan – Yekaterinburg and Moscow – Rostov-on-Don – Adler. Today the appraisals are ready, and the Moscow-Kazan project was approved by government. Now we have all the necessary documents with the description of the main directions, volumes of construction works and predicted passenger traffic levels.



– How will the delivery of this project be financed? Will private investors be involved? 



–  I will talk about the Moscow-Kazan HSR, but the developed model can be implemented in any other directions. The most important is that the concession legislation is provided. It was neither in Russia, nor in the USSR. But if we remember history, we will see that in the Russian Empire the railroads were constructed mostly by concession.  Today this mechanism is ready and understood by the government, the ministries and business.  It was tested through construction of toll roads and showed good results. Concessions can be also applied at construction of the railroads, but it should be noted that except for the state and the shareholder, there is one more very important participant of the market – a carrier. And we should take into account his rights and risks.

The project is divided into four stages: Moscow – Vladimir, Vladimir – Nizhny Novgorod, Nizhny Novgorod – Cheboksary, Cheboksary – Kazan. RZD JSC is going to build first one without any help. Here we plan to use funds from the national welfare (FNB) and Pension funds. 



–  What sources of financing will be used for implementation of this project? 



– It must be understood that the first part, Moscow–Vladimir is the most difficult one, because of the amount of earth removal and construction which will take place there. Therefore we work with the available technologies on a so-called corporate method with RZD JSC and FNB injecting authorized capital into the company and the subsequent repayment of preference shares. Such a mechanism was used during the project of reconstructing the BAM and the Trans-Siberian Mainline.  This scheme was tested, and last December we presented it to the profile ministries as the investment memorandum and soon we will receive their decision.

The results of the cost technical analysis were confirmed by a number of the largest independent consulting companies, such as “PricewaterhouseCoopers”, “McKinsey”, “Ernst & Young”, “Vegas Lex” and the Center for Strategic Development. As a result of exhaustive researches, the amount of capital investments in HSR construction between Moscow and Kazan set RUB 1.068 tn was considered reasonable. As we know, the majority of successful projects for HSR were implemented with major support from the state both regarding regulation and management of the process.

We have already started dialogue with potential investors.  These negotiations are going quite successfully.  Under the current conditions investors will gain income as a payment for access to infrastructure, and RZD JSC will operate this route. But I don’t exclude the appearance of an alternative carrier.  

That’s how we measured passenger traffic. According to forecasts, it will grow from 10,5 million people in 2020 to 24 million by 2050. These figures confirm that this project is profitable.



Multiplier effect



– How will HSR influence the regions where it runs? 



– The multiplier effect from implementation of the HSR project Moscow–Kazan is obvious. The highway will pass through the territory of Moscow, Vladimir, Nizhny Novgorod, and also the Republics of Chuvashia, Mari El and Tatarstan. Calculations made by leading institutes indicate a significant contribution from this project to increasing GDP. In just the first 11 years, from 2019 to 2030, the cumulative gain in GDP will be more than 7 trillion rubles, and the additional income to the nation’s finances will be about 2 trillion. The greatest effect, due to development of accompanying sectors of economics and enormous agglomerative processes, will be received by the Vladimir and Nizhny Novgorod regions with GRP gain for 75%. Besides, due to the increase of transport availability, there will be a strengthening of economic and business connections between the largest cities of the regions mentioned.

– Adoption of such global projects always requires serious public preparation. It happened in the 20th century with Transsib, and earlier – with Nikolayevskaya Road. As previous experience shows, negative public opinion can become one of the main risks for the implementation of large infrastructure projects. Therefore last December together with the All-Russian Public Opinion Research Center we conducted our own research and received more than impressive results. The idea of construction of this line is supported by 85% of people from those territories through which it will pass. Nearly 80% of people are ready to use HSR as their main form of transport. Moreover, the majority of the population considers such construction very important, even despite the huge financial costs.

But professional discussion of this project at expert level is also very important today. When we speak about implementation of such ambitious projects as HSR, and about the creation of a national high-speed railway network, it is necessary to learn to speak the same language. It is especially important to be sure that all our documents provide the whole package of measures. ®

By Oksana Perepelitsa 
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Welcome to HSR



–  Mr. Misharin, could you please tell us about the implementation of the national program for creation of a high-speed railways system in Russia.  What decisions were made recently, how is the preparation for the construction going now? 



– The process began at the beginning of the 20th century in Russia. It is known that on the line St. Petersburg–Moscow express train reached a speed of 110 km/h that time, and in the 1960’s the fastest Soviet train “Aurora” reached a speed of 160 km/h. It was obvious that for further improvement on the results it is necessary to build a special high-speed passenger railway. Therefore in 1975 the scientific and technical council of Ministry of Railways was developing its feasibility study. But it was postponed in the end.

Recently a number of steps for development of high-speed railway traffic was taken. Implementation of the HSR project is included in such major state documents, as the Forecast of social and economic development of Russia till 2030 and the Transport strategy till 2030.  Within that is the strategy, and also the general scheme of development of the railroads. It is planned to construct more than 4000 km of high-speed lines with an admissible speed up to 400 km/h and to start nearly 7000 km of lines for 200 km/h trains.  Also last year the prime minister of the country Dmitry Medvedev approved a plan of action for implementation of the first pilot HSR project Moscow–Kazan. 

These decisions allowed RZD JSC and its daughter company Skorostnye magistrali JSC (High-speed railways) to start development of investment appraisals for construction in easterly and southerly directions: Moscow – Kazan – Yekaterinburg and Moscow – Rostov-on-Don – Adler. Today the appraisals are ready, and the Moscow-Kazan project was approved by government. Now we have all the necessary documents with the description of the main directions, volumes of construction works and predicted passenger traffic levels.



– How will the delivery of this project be financed? Will private investors be involved? 



–  I will talk about the Moscow-Kazan HSR, but the developed model can be implemented in any other directions. The most important is that the concession legislation is provided. It was neither in Russia, nor in the USSR. But if we remember history, we will see that in the Russian Empire the railroads were constructed mostly by concession.  Today this mechanism is ready and understood by the government, the ministries and business.  It was tested through construction of toll roads and showed good results. Concessions can be also applied at construction of the railroads, but it should be noted that except for the state and the shareholder, there is one more very important participant of the market – a carrier. And we should take into account his rights and risks.

The project is divided into four stages: Moscow – Vladimir, Vladimir – Nizhny Novgorod, Nizhny Novgorod – Cheboksary, Cheboksary – Kazan. RZD JSC is going to build first one without any help. Here we plan to use funds from the national welfare (FNB) and Pension funds. 



–  What sources of financing will be used for implementation of this project? 



– It must be understood that the first part, Moscow–Vladimir is the most difficult one, because of the amount of earth removal and construction which will take place there. Therefore we work with the available technologies on a so-called corporate method with RZD JSC and FNB injecting authorized capital into the company and the subsequent repayment of preference shares. Such a mechanism was used during the project of reconstructing the BAM and the Trans-Siberian Mainline.  This scheme was tested, and last December we presented it to the profile ministries as the investment memorandum and soon we will receive their decision.

The results of the cost technical analysis were confirmed by a number of the largest independent consulting companies, such as “PricewaterhouseCoopers”, “McKinsey”, “Ernst & Young”, “Vegas Lex” and the Center for Strategic Development. As a result of exhaustive researches, the amount of capital investments in HSR construction between Moscow and Kazan set RUB 1.068 tn was considered reasonable. As we know, the majority of successful projects for HSR were implemented with major support from the state both regarding regulation and management of the process.

We have already started dialogue with potential investors.  These negotiations are going quite successfully.  Under the current conditions investors will gain income as a payment for access to infrastructure, and RZD JSC will operate this route. But I don’t exclude the appearance of an alternative carrier.  

That’s how we measured passenger traffic. According to forecasts, it will grow from 10,5 million people in 2020 to 24 million by 2050. These figures confirm that this project is profitable.



Multiplier effect



– How will HSR influence the regions where it runs? 



– The multiplier effect from implementation of the HSR project Moscow–Kazan is obvious. The highway will pass through the territory of Moscow, Vladimir, Nizhny Novgorod, and also the Republics of Chuvashia, Mari El and Tatarstan. Calculations made by leading institutes indicate a significant contribution from this project to increasing GDP. In just the first 11 years, from 2019 to 2030, the cumulative gain in GDP will be more than 7 trillion rubles, and the additional income to the nation’s finances will be about 2 trillion. The greatest effect, due to development of accompanying sectors of economics and enormous agglomerative processes, will be received by the Vladimir and Nizhny Novgorod regions with GRP gain for 75%. Besides, due to the increase of transport availability, there will be a strengthening of economic and business connections between the largest cities of the regions mentioned.

– Adoption of such global projects always requires serious public preparation. It happened in the 20th century with Transsib, and earlier – with Nikolayevskaya Road. As previous experience shows, negative public opinion can become one of the main risks for the implementation of large infrastructure projects. Therefore last December together with the All-Russian Public Opinion Research Center we conducted our own research and received more than impressive results. The idea of construction of this line is supported by 85% of people from those territories through which it will pass. Nearly 80% of people are ready to use HSR as their main form of transport. Moreover, the majority of the population considers such construction very important, even despite the huge financial costs.

But professional discussion of this project at expert level is also very important today. When we speak about implementation of such ambitious projects as HSR, and about the creation of a national high-speed railway network, it is necessary to learn to speak the same language. It is especially important to be sure that all our documents provide the whole package of measures. ®

By Oksana Perepelitsa 
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Welcome to HSR



–  Mr. Misharin, could you please tell us about the implementation of the national program for creation of a high-speed railways system in Russia.  What decisions were made recently, how is the preparation for the construction going now? 



– The process began at the beginning of the 20th century in Russia. It is known that on the line St. Petersburg–Moscow express train reached a speed of 110 km/h that time, and in the 1960’s the fastest Soviet train “Aurora” reached a speed of 160 km/h. It was obvious that for further improvement on the results it is necessary to build a special high-speed passenger railway. Therefore in 1975 the scientific and technical council of Ministry of Railways was developing its feasibility study. But it was postponed in the end.

Recently a number of steps for development of high-speed railway traffic was taken. Implementation of the HSR project is included in such major state documents, as the Forecast of social and economic development of Russia till 2030 and the Transport strategy till 2030.  Within that is the strategy, and also the general scheme of development of the railroads. It is planned to construct more than 4000 km of high-speed lines with an admissible speed up to 400 km/h and to start nearly 7000 km of lines for 200 km/h trains.  Also last year the prime minister of the country Dmitry Medvedev approved a plan of action for implementation of the first pilot HSR project Moscow–Kazan. 

These decisions allowed RZD JSC and its daughter company Skorostnye magistrali JSC (High-speed railways) to start development of investment appraisals for construction in easterly and southerly directions: Moscow – Kazan – Yekaterinburg and Moscow – Rostov-on-Don – Adler. Today the appraisals are ready, and the Moscow-Kazan project was approved by government. Now we have all the necessary documents with the description of the main directions, volumes of construction works and predicted passenger traffic levels.



– How will the delivery of this project be financed? Will private investors be involved? 



–  I will talk about the Moscow-Kazan HSR, but the developed model can be implemented in any other directions. The most important is that the concession legislation is provided. It was neither in Russia, nor in the USSR. But if we remember history, we will see that in the Russian Empire the railroads were constructed mostly by concession.  Today this mechanism is ready and understood by the government, the ministries and business.  It was tested through construction of toll roads and showed good results. Concessions can be also applied at construction of the railroads, but it should be noted that except for the state and the shareholder, there is one more very important participant of the market – a carrier. And we should take into account his rights and risks.

The project is divided into four stages: Moscow – Vladimir, Vladimir – Nizhny Novgorod, Nizhny Novgorod – Cheboksary, Cheboksary – Kazan. RZD JSC is going to build first one without any help. Here we plan to use funds from the national welfare (FNB) and Pension funds. 



–  What sources of financing will be used for implementation of this project? 



– It must be understood that the first part, Moscow–Vladimir is the most difficult one, because of the amount of earth removal and construction which will take place there. Therefore we work with the available technologies on a so-called corporate method with RZD JSC and FNB injecting authorized capital into the company and the subsequent repayment of preference shares. Such a mechanism was used during the project of reconstructing the BAM and the Trans-Siberian Mainline.  This scheme was tested, and last December we presented it to the profile ministries as the investment memorandum and soon we will receive their decision.

The results of the cost technical analysis were confirmed by a number of the largest independent consulting companies, such as “PricewaterhouseCoopers”, “McKinsey”, “Ernst & Young”, “Vegas Lex” and the Center for Strategic Development. As a result of exhaustive researches, the amount of capital investments in HSR construction between Moscow and Kazan set RUB 1.068 tn was considered reasonable. As we know, the majority of successful projects for HSR were implemented with major support from the state both regarding regulation and management of the process.

We have already started dialogue with potential investors.  These negotiations are going quite successfully.  Under the current conditions investors will gain income as a payment for access to infrastructure, and RZD JSC will operate this route. But I don’t exclude the appearance of an alternative carrier.  

That’s how we measured passenger traffic. According to forecasts, it will grow from 10,5 million people in 2020 to 24 million by 2050. These figures confirm that this project is profitable.



Multiplier effect



– How will HSR influence the regions where it runs? 



– The multiplier effect from implementation of the HSR project Moscow–Kazan is obvious. The highway will pass through the territory of Moscow, Vladimir, Nizhny Novgorod, and also the Republics of Chuvashia, Mari El and Tatarstan. Calculations made by leading institutes indicate a significant contribution from this project to increasing GDP. In just the first 11 years, from 2019 to 2030, the cumulative gain in GDP will be more than 7 trillion rubles, and the additional income to the nation’s finances will be about 2 trillion. The greatest effect, due to development of accompanying sectors of economics and enormous agglomerative processes, will be received by the Vladimir and Nizhny Novgorod regions with GRP gain for 75%. Besides, due to the increase of transport availability, there will be a strengthening of economic and business connections between the largest cities of the regions mentioned.

– Adoption of such global projects always requires serious public preparation. It happened in the 20th century with Transsib, and earlier – with Nikolayevskaya Road. As previous experience shows, negative public opinion can become one of the main risks for the implementation of large infrastructure projects. Therefore last December together with the All-Russian Public Opinion Research Center we conducted our own research and received more than impressive results. The idea of construction of this line is supported by 85% of people from those territories through which it will pass. Nearly 80% of people are ready to use HSR as their main form of transport. Moreover, the majority of the population considers such construction very important, even despite the huge financial costs.

But professional discussion of this project at expert level is also very important today. When we speak about implementation of such ambitious projects as HSR, and about the creation of a national high-speed railway network, it is necessary to learn to speak the same language. It is especially important to be sure that all our documents provide the whole package of measures. ®

By Oksana Perepelitsa 
    [~DETAIL_TEXT] => 
Welcome to HSR



–  Mr. Misharin, could you please tell us about the implementation of the national program for creation of a high-speed railways system in Russia.  What decisions were made recently, how is the preparation for the construction going now? 



– The process began at the beginning of the 20th century in Russia. It is known that on the line St. Petersburg–Moscow express train reached a speed of 110 km/h that time, and in the 1960’s the fastest Soviet train “Aurora” reached a speed of 160 km/h. It was obvious that for further improvement on the results it is necessary to build a special high-speed passenger railway. Therefore in 1975 the scientific and technical council of Ministry of Railways was developing its feasibility study. But it was postponed in the end.

Recently a number of steps for development of high-speed railway traffic was taken. Implementation of the HSR project is included in such major state documents, as the Forecast of social and economic development of Russia till 2030 and the Transport strategy till 2030.  Within that is the strategy, and also the general scheme of development of the railroads. It is planned to construct more than 4000 km of high-speed lines with an admissible speed up to 400 km/h and to start nearly 7000 km of lines for 200 km/h trains.  Also last year the prime minister of the country Dmitry Medvedev approved a plan of action for implementation of the first pilot HSR project Moscow–Kazan. 

These decisions allowed RZD JSC and its daughter company Skorostnye magistrali JSC (High-speed railways) to start development of investment appraisals for construction in easterly and southerly directions: Moscow – Kazan – Yekaterinburg and Moscow – Rostov-on-Don – Adler. Today the appraisals are ready, and the Moscow-Kazan project was approved by government. Now we have all the necessary documents with the description of the main directions, volumes of construction works and predicted passenger traffic levels.



– How will the delivery of this project be financed? Will private investors be involved? 



–  I will talk about the Moscow-Kazan HSR, but the developed model can be implemented in any other directions. The most important is that the concession legislation is provided. It was neither in Russia, nor in the USSR. But if we remember history, we will see that in the Russian Empire the railroads were constructed mostly by concession.  Today this mechanism is ready and understood by the government, the ministries and business.  It was tested through construction of toll roads and showed good results. Concessions can be also applied at construction of the railroads, but it should be noted that except for the state and the shareholder, there is one more very important participant of the market – a carrier. And we should take into account his rights and risks.

The project is divided into four stages: Moscow – Vladimir, Vladimir – Nizhny Novgorod, Nizhny Novgorod – Cheboksary, Cheboksary – Kazan. RZD JSC is going to build first one without any help. Here we plan to use funds from the national welfare (FNB) and Pension funds. 



–  What sources of financing will be used for implementation of this project? 



– It must be understood that the first part, Moscow–Vladimir is the most difficult one, because of the amount of earth removal and construction which will take place there. Therefore we work with the available technologies on a so-called corporate method with RZD JSC and FNB injecting authorized capital into the company and the subsequent repayment of preference shares. Such a mechanism was used during the project of reconstructing the BAM and the Trans-Siberian Mainline.  This scheme was tested, and last December we presented it to the profile ministries as the investment memorandum and soon we will receive their decision.

The results of the cost technical analysis were confirmed by a number of the largest independent consulting companies, such as “PricewaterhouseCoopers”, “McKinsey”, “Ernst & Young”, “Vegas Lex” and the Center for Strategic Development. As a result of exhaustive researches, the amount of capital investments in HSR construction between Moscow and Kazan set RUB 1.068 tn was considered reasonable. As we know, the majority of successful projects for HSR were implemented with major support from the state both regarding regulation and management of the process.

We have already started dialogue with potential investors.  These negotiations are going quite successfully.  Under the current conditions investors will gain income as a payment for access to infrastructure, and RZD JSC will operate this route. But I don’t exclude the appearance of an alternative carrier.  

That’s how we measured passenger traffic. According to forecasts, it will grow from 10,5 million people in 2020 to 24 million by 2050. These figures confirm that this project is profitable.



Multiplier effect



– How will HSR influence the regions where it runs? 



– The multiplier effect from implementation of the HSR project Moscow–Kazan is obvious. The highway will pass through the territory of Moscow, Vladimir, Nizhny Novgorod, and also the Republics of Chuvashia, Mari El and Tatarstan. Calculations made by leading institutes indicate a significant contribution from this project to increasing GDP. In just the first 11 years, from 2019 to 2030, the cumulative gain in GDP will be more than 7 trillion rubles, and the additional income to the nation’s finances will be about 2 trillion. The greatest effect, due to development of accompanying sectors of economics and enormous agglomerative processes, will be received by the Vladimir and Nizhny Novgorod regions with GRP gain for 75%. Besides, due to the increase of transport availability, there will be a strengthening of economic and business connections between the largest cities of the regions mentioned.

– Adoption of such global projects always requires serious public preparation. It happened in the 20th century with Transsib, and earlier – with Nikolayevskaya Road. As previous experience shows, negative public opinion can become one of the main risks for the implementation of large infrastructure projects. Therefore last December together with the All-Russian Public Opinion Research Center we conducted our own research and received more than impressive results. The idea of construction of this line is supported by 85% of people from those territories through which it will pass. Nearly 80% of people are ready to use HSR as their main form of transport. Moreover, the majority of the population considers such construction very important, even despite the huge financial costs.

But professional discussion of this project at expert level is also very important today. When we speak about implementation of such ambitious projects as HSR, and about the creation of a national high-speed railway network, it is necessary to learn to speak the same language. It is especially important to be sure that all our documents provide the whole package of measures. ®

By Oksana Perepelitsa 
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It’s Time to Think about High Speed



Back in 1991, Joseph Vranich, a transport analyst, pointed out in his book “Supertrains” the necessity of developing HSR in the U.S. Talking about the advantages of high-speed railways, he said that travelling by them is the safest form of transport. For example, in Japan the first high-speed trains were put into operation in 1964, and no train crash has occurred in that time. In France, TGV trains, which have transported 100 million passengers per annum, have had no fatal accidents.  

Joe Vranich also noted that despite the comparable prices of train and airplane tickets, passengers were not prepared to spend their time passing all the necessary procedures at an airport. Therefore, high-speed trains must become the best solution for them.  

The sum mentioned by the U.S. leader includes funds for the reconstruction of existing railways, although the priority is the construction of HSR. In spite of the need for them, however, some politicians ventured to argue against B. Obama’s initiative.

Mainly, the debate began about the amount of funding. Joe Biden, Vice President, said that the government planned to allocate at least $53 billion for HSR construction over the next six years. The speech by J. Biden confirmed the ambition of B. Obama. According to the Vice President, the construction of HSR would help the USA to become the leader in this sector in the near future.  

The final sum was announced at a conference under the aegis of the U.S. High-Speed Rail Association in New York in mid-October: $600 billion would be spent building the network by 2030. Apart from the construction of railway tracks, these funds will be invested in the creation of the entire infrastructure.

This sum was a shock for a country going through a recession. Local administrations did not welcome the plans of the federal authorities. For example, in 2009 Florida, Ohio, and Wisconsin states tried to reject the $8 billion proposed by B. Obama. And the initiative of Joe Biden was opposed vigorously. The Republican party said that the project named “the greatest since the time of Lincoln” by Joe Biden was just “madness”.



The Strategy to 2030



The construction of the 27,353 km long HSR network was divided into four stages. The plan was rather logical. According to it, the first stage is to begin in 2015, when high-speed lines will connect large cities in the states of Oregon, Washington, Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, Alabama, Georgia, North Carolina, South Carolina, and the existing Washington – New York line will be modernised. In 2020 these lines will be extended to smaller cities, and in 2025 works will start to link all of them to create a single enormous network by 2030, although bypassing Maine, Montana, Wyoming, North Dakota, South Dakota, where there is no need for high-speed railways. 

Such a large scale project needs thorough preliminary analysis. However, experts doubted calculations made, in particular, for the Californian HSR, as “the most unrealistic in the world.” In their report, the Transportation and Infrastructure Committee said once again that the project was too risky, and the prepared forecasts did not match the reality. The first allocation of $8 billion are invested in three programmes, or as they are named in the official document “three linked transport systems.” One of them, named “Core Express route” is built to create the basis of the future national HSR system with trains moving on special tracks at the speed of 201-401 kph. The second, named “Regional Corridors”, which will become the basis for the further development of HSR, envisages forming a system of trains at the speed of 145-201 kph. The Administration of the White House believes this can reduce the travel time. 

It is no secret, the USA invested heavily in the air transportation sector last decade; therefore railways do need a support now. Due to the development of a regional transport hub, the number of passengers wishing to travel by train instead of plane will grow. At least, this is the opinion of the experts who made the preliminary estimates. The third programme concerns “Developing Corridors” and trains moving at the speed of less than 145 kph. The main goal is to provide passengers from distant regions with access to the basic hubs of the HSR.



Too Fast and Risky… 



Ordinary Americans have a question: is the railway, in which the Government will invest so much, really high-speed? For example, the Chinese Maglev runs at 431 kph, the French TGV – 322 kph, and Japanese Shinkansen – 300 kph. I.e. the American Acela is now the slowest. 

Unlike Europe or Japan, the USA with its enormous area is not quite suitable for the development of HSR. It will be difficult to link cities all over the country into a single network. Moreover, passengers have got used to travelling by car, and many analysts agree that it would be better if B. Obama invested in motorways.

Some critics point out not only the economic aspect of the question, but at the fundamental cultural values. It can seem funny, but as U.S. High Speed Rail Association President and Chief Executive Officer Andy Kunz noted, “People say that Americans were born with car keys in their hands and driving is in our DNA,” but he disproved this statement at once, “If you look back to 1922 then 99% of Americans lived in cities and moved around on trains.”

One cannot say that there are no high-speed trains in the USA at all. For example, Acela Express, owned by Amtrak, regularly transports passengers from Washington to Boston via Philadelphia and New York. Covering 734 km in 7 hours on ordinary tracks, it is a serious competitor to airlines. About half of passengers travelling from Washington to New York prefer this very train. Acela transports 30 million people every year. The maximum speed of the train is 240 kph, although its average speed is 50% less. That’s why the Administration recognises that the whole HSR system is still embryonic. 

According to B. Obama’s plan, published on the official website of the Government in early February 2013, due to the development of high-speed infrastructure, about 80% people in the U.S. will have access to HSR in the next 25 years.

 “We, Americans, are proud that we think globally and build globally,” noted U.S. Transportation Secretary Ray LaHood. In his words, the development of HSR will increase the USA’s competitiveness in the economic conditions of the 21st century. Moreover, such an “investment in tomorrow” will create a lot of jobs, which will contribute to solving the problem of unemployment. According to preliminary calculations, approximately 300,000 jobs will be created during the construction and 450,000 after the system is put into operation.



… but Obama Is Steadfast



The American dream of speed is an insane project from all viewpoints, which has not been well thought through. If we analyse foreign experience, only the Tokyo – Osaka and Paris – Lyon lines are profitable. One can hardly claim that American HSR will show a good profit. If a passenger wants to travel long distance, he will prefer travelling by plane. Even with enormous national investment, HSR will hardly have more than 1% of the national passenger transportation market.

Americans, travelling short distances by car, are not likely to prefer high-speed trains to their vehicles. The journey time on the Kansas – St Louis – Chicago line will be less by only 10% if one chooses a high-speed train instead of a car. It will take a little less than an hour to get from Orlando to Tampa by railway, and 90 minutes by car. Americans will hardly pay a big sum for a train ticket to save just half an hour. The seeds of a project, which could backfire on B. Obama in the future, are sown.

 Another drawback of the HSR is that trains will use diesel fuel, which will have a negative impact on the environment. Although, even if they use electricity, the situation will improve only slightly. The Administration of the state of Florida expressed an opinion that it would be better not to build the Tampa – Orlando line for the sake of the environment, but B. Obama remained steadfast and allocated $1.25 billion for it.

Florida, as well as some other states, proposed to spend this grant on motorways, saying that many Americans, especially the older generation, had never used high-speed passenger trains, and they would not change their habits. 

However, it is possible to understand the U.S. President. China invested $292 billion in its national railways in the last five years. There are forecasts that in 2014 the Chinese high-speed railway network will be twice as big as that in the rest of the world. Therefore, the USA fears that it will fall further behind according to the quality of life and economic figures. HSR has shown its compatibility with the planned economy, but it is not clear whether the project will match the American development path and whether it will turn into a large scale financial disaster in the near future.

By Kristina Alexandrova 
    [~DETAIL_TEXT] => 
It’s Time to Think about High Speed



Back in 1991, Joseph Vranich, a transport analyst, pointed out in his book “Supertrains” the necessity of developing HSR in the U.S. Talking about the advantages of high-speed railways, he said that travelling by them is the safest form of transport. For example, in Japan the first high-speed trains were put into operation in 1964, and no train crash has occurred in that time. In France, TGV trains, which have transported 100 million passengers per annum, have had no fatal accidents.  

Joe Vranich also noted that despite the comparable prices of train and airplane tickets, passengers were not prepared to spend their time passing all the necessary procedures at an airport. Therefore, high-speed trains must become the best solution for them.  

The sum mentioned by the U.S. leader includes funds for the reconstruction of existing railways, although the priority is the construction of HSR. In spite of the need for them, however, some politicians ventured to argue against B. Obama’s initiative.

Mainly, the debate began about the amount of funding. Joe Biden, Vice President, said that the government planned to allocate at least $53 billion for HSR construction over the next six years. The speech by J. Biden confirmed the ambition of B. Obama. According to the Vice President, the construction of HSR would help the USA to become the leader in this sector in the near future.  

The final sum was announced at a conference under the aegis of the U.S. High-Speed Rail Association in New York in mid-October: $600 billion would be spent building the network by 2030. Apart from the construction of railway tracks, these funds will be invested in the creation of the entire infrastructure.

This sum was a shock for a country going through a recession. Local administrations did not welcome the plans of the federal authorities. For example, in 2009 Florida, Ohio, and Wisconsin states tried to reject the $8 billion proposed by B. Obama. And the initiative of Joe Biden was opposed vigorously. The Republican party said that the project named “the greatest since the time of Lincoln” by Joe Biden was just “madness”.



The Strategy to 2030



The construction of the 27,353 km long HSR network was divided into four stages. The plan was rather logical. According to it, the first stage is to begin in 2015, when high-speed lines will connect large cities in the states of Oregon, Washington, Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, Alabama, Georgia, North Carolina, South Carolina, and the existing Washington – New York line will be modernised. In 2020 these lines will be extended to smaller cities, and in 2025 works will start to link all of them to create a single enormous network by 2030, although bypassing Maine, Montana, Wyoming, North Dakota, South Dakota, where there is no need for high-speed railways. 

Such a large scale project needs thorough preliminary analysis. However, experts doubted calculations made, in particular, for the Californian HSR, as “the most unrealistic in the world.” In their report, the Transportation and Infrastructure Committee said once again that the project was too risky, and the prepared forecasts did not match the reality. The first allocation of $8 billion are invested in three programmes, or as they are named in the official document “three linked transport systems.” One of them, named “Core Express route” is built to create the basis of the future national HSR system with trains moving on special tracks at the speed of 201-401 kph. The second, named “Regional Corridors”, which will become the basis for the further development of HSR, envisages forming a system of trains at the speed of 145-201 kph. The Administration of the White House believes this can reduce the travel time. 

It is no secret, the USA invested heavily in the air transportation sector last decade; therefore railways do need a support now. Due to the development of a regional transport hub, the number of passengers wishing to travel by train instead of plane will grow. At least, this is the opinion of the experts who made the preliminary estimates. The third programme concerns “Developing Corridors” and trains moving at the speed of less than 145 kph. The main goal is to provide passengers from distant regions with access to the basic hubs of the HSR.



Too Fast and Risky… 



Ordinary Americans have a question: is the railway, in which the Government will invest so much, really high-speed? For example, the Chinese Maglev runs at 431 kph, the French TGV – 322 kph, and Japanese Shinkansen – 300 kph. I.e. the American Acela is now the slowest. 

Unlike Europe or Japan, the USA with its enormous area is not quite suitable for the development of HSR. It will be difficult to link cities all over the country into a single network. Moreover, passengers have got used to travelling by car, and many analysts agree that it would be better if B. Obama invested in motorways.

Some critics point out not only the economic aspect of the question, but at the fundamental cultural values. It can seem funny, but as U.S. High Speed Rail Association President and Chief Executive Officer Andy Kunz noted, “People say that Americans were born with car keys in their hands and driving is in our DNA,” but he disproved this statement at once, “If you look back to 1922 then 99% of Americans lived in cities and moved around on trains.”

One cannot say that there are no high-speed trains in the USA at all. For example, Acela Express, owned by Amtrak, regularly transports passengers from Washington to Boston via Philadelphia and New York. Covering 734 km in 7 hours on ordinary tracks, it is a serious competitor to airlines. About half of passengers travelling from Washington to New York prefer this very train. Acela transports 30 million people every year. The maximum speed of the train is 240 kph, although its average speed is 50% less. That’s why the Administration recognises that the whole HSR system is still embryonic. 

According to B. Obama’s plan, published on the official website of the Government in early February 2013, due to the development of high-speed infrastructure, about 80% people in the U.S. will have access to HSR in the next 25 years.

 “We, Americans, are proud that we think globally and build globally,” noted U.S. Transportation Secretary Ray LaHood. In his words, the development of HSR will increase the USA’s competitiveness in the economic conditions of the 21st century. Moreover, such an “investment in tomorrow” will create a lot of jobs, which will contribute to solving the problem of unemployment. According to preliminary calculations, approximately 300,000 jobs will be created during the construction and 450,000 after the system is put into operation.



… but Obama Is Steadfast



The American dream of speed is an insane project from all viewpoints, which has not been well thought through. If we analyse foreign experience, only the Tokyo – Osaka and Paris – Lyon lines are profitable. One can hardly claim that American HSR will show a good profit. If a passenger wants to travel long distance, he will prefer travelling by plane. Even with enormous national investment, HSR will hardly have more than 1% of the national passenger transportation market.

Americans, travelling short distances by car, are not likely to prefer high-speed trains to their vehicles. The journey time on the Kansas – St Louis – Chicago line will be less by only 10% if one chooses a high-speed train instead of a car. It will take a little less than an hour to get from Orlando to Tampa by railway, and 90 minutes by car. Americans will hardly pay a big sum for a train ticket to save just half an hour. The seeds of a project, which could backfire on B. Obama in the future, are sown.

 Another drawback of the HSR is that trains will use diesel fuel, which will have a negative impact on the environment. Although, even if they use electricity, the situation will improve only slightly. The Administration of the state of Florida expressed an opinion that it would be better not to build the Tampa – Orlando line for the sake of the environment, but B. Obama remained steadfast and allocated $1.25 billion for it.

Florida, as well as some other states, proposed to spend this grant on motorways, saying that many Americans, especially the older generation, had never used high-speed passenger trains, and they would not change their habits. 

However, it is possible to understand the U.S. President. China invested $292 billion in its national railways in the last five years. There are forecasts that in 2014 the Chinese high-speed railway network will be twice as big as that in the rest of the world. Therefore, the USA fears that it will fall further behind according to the quality of life and economic figures. HSR has shown its compatibility with the planned economy, but it is not clear whether the project will match the American development path and whether it will turn into a large scale financial disaster in the near future.

By Kristina Alexandrova 
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    [DETAIL_TEXT] => 
It’s Time to Think about High Speed



Back in 1991, Joseph Vranich, a transport analyst, pointed out in his book “Supertrains” the necessity of developing HSR in the U.S. Talking about the advantages of high-speed railways, he said that travelling by them is the safest form of transport. For example, in Japan the first high-speed trains were put into operation in 1964, and no train crash has occurred in that time. In France, TGV trains, which have transported 100 million passengers per annum, have had no fatal accidents.  

Joe Vranich also noted that despite the comparable prices of train and airplane tickets, passengers were not prepared to spend their time passing all the necessary procedures at an airport. Therefore, high-speed trains must become the best solution for them.  

The sum mentioned by the U.S. leader includes funds for the reconstruction of existing railways, although the priority is the construction of HSR. In spite of the need for them, however, some politicians ventured to argue against B. Obama’s initiative.

Mainly, the debate began about the amount of funding. Joe Biden, Vice President, said that the government planned to allocate at least $53 billion for HSR construction over the next six years. The speech by J. Biden confirmed the ambition of B. Obama. According to the Vice President, the construction of HSR would help the USA to become the leader in this sector in the near future.  

The final sum was announced at a conference under the aegis of the U.S. High-Speed Rail Association in New York in mid-October: $600 billion would be spent building the network by 2030. Apart from the construction of railway tracks, these funds will be invested in the creation of the entire infrastructure.

This sum was a shock for a country going through a recession. Local administrations did not welcome the plans of the federal authorities. For example, in 2009 Florida, Ohio, and Wisconsin states tried to reject the $8 billion proposed by B. Obama. And the initiative of Joe Biden was opposed vigorously. The Republican party said that the project named “the greatest since the time of Lincoln” by Joe Biden was just “madness”.



The Strategy to 2030



The construction of the 27,353 km long HSR network was divided into four stages. The plan was rather logical. According to it, the first stage is to begin in 2015, when high-speed lines will connect large cities in the states of Oregon, Washington, Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, Alabama, Georgia, North Carolina, South Carolina, and the existing Washington – New York line will be modernised. In 2020 these lines will be extended to smaller cities, and in 2025 works will start to link all of them to create a single enormous network by 2030, although bypassing Maine, Montana, Wyoming, North Dakota, South Dakota, where there is no need for high-speed railways. 

Such a large scale project needs thorough preliminary analysis. However, experts doubted calculations made, in particular, for the Californian HSR, as “the most unrealistic in the world.” In their report, the Transportation and Infrastructure Committee said once again that the project was too risky, and the prepared forecasts did not match the reality. The first allocation of $8 billion are invested in three programmes, or as they are named in the official document “three linked transport systems.” One of them, named “Core Express route” is built to create the basis of the future national HSR system with trains moving on special tracks at the speed of 201-401 kph. The second, named “Regional Corridors”, which will become the basis for the further development of HSR, envisages forming a system of trains at the speed of 145-201 kph. The Administration of the White House believes this can reduce the travel time. 

It is no secret, the USA invested heavily in the air transportation sector last decade; therefore railways do need a support now. Due to the development of a regional transport hub, the number of passengers wishing to travel by train instead of plane will grow. At least, this is the opinion of the experts who made the preliminary estimates. The third programme concerns “Developing Corridors” and trains moving at the speed of less than 145 kph. The main goal is to provide passengers from distant regions with access to the basic hubs of the HSR.



Too Fast and Risky… 



Ordinary Americans have a question: is the railway, in which the Government will invest so much, really high-speed? For example, the Chinese Maglev runs at 431 kph, the French TGV – 322 kph, and Japanese Shinkansen – 300 kph. I.e. the American Acela is now the slowest. 

Unlike Europe or Japan, the USA with its enormous area is not quite suitable for the development of HSR. It will be difficult to link cities all over the country into a single network. Moreover, passengers have got used to travelling by car, and many analysts agree that it would be better if B. Obama invested in motorways.

Some critics point out not only the economic aspect of the question, but at the fundamental cultural values. It can seem funny, but as U.S. High Speed Rail Association President and Chief Executive Officer Andy Kunz noted, “People say that Americans were born with car keys in their hands and driving is in our DNA,” but he disproved this statement at once, “If you look back to 1922 then 99% of Americans lived in cities and moved around on trains.”

One cannot say that there are no high-speed trains in the USA at all. For example, Acela Express, owned by Amtrak, regularly transports passengers from Washington to Boston via Philadelphia and New York. Covering 734 km in 7 hours on ordinary tracks, it is a serious competitor to airlines. About half of passengers travelling from Washington to New York prefer this very train. Acela transports 30 million people every year. The maximum speed of the train is 240 kph, although its average speed is 50% less. That’s why the Administration recognises that the whole HSR system is still embryonic. 

According to B. Obama’s plan, published on the official website of the Government in early February 2013, due to the development of high-speed infrastructure, about 80% people in the U.S. will have access to HSR in the next 25 years.

 “We, Americans, are proud that we think globally and build globally,” noted U.S. Transportation Secretary Ray LaHood. In his words, the development of HSR will increase the USA’s competitiveness in the economic conditions of the 21st century. Moreover, such an “investment in tomorrow” will create a lot of jobs, which will contribute to solving the problem of unemployment. According to preliminary calculations, approximately 300,000 jobs will be created during the construction and 450,000 after the system is put into operation.



… but Obama Is Steadfast



The American dream of speed is an insane project from all viewpoints, which has not been well thought through. If we analyse foreign experience, only the Tokyo – Osaka and Paris – Lyon lines are profitable. One can hardly claim that American HSR will show a good profit. If a passenger wants to travel long distance, he will prefer travelling by plane. Even with enormous national investment, HSR will hardly have more than 1% of the national passenger transportation market.

Americans, travelling short distances by car, are not likely to prefer high-speed trains to their vehicles. The journey time on the Kansas – St Louis – Chicago line will be less by only 10% if one chooses a high-speed train instead of a car. It will take a little less than an hour to get from Orlando to Tampa by railway, and 90 minutes by car. Americans will hardly pay a big sum for a train ticket to save just half an hour. The seeds of a project, which could backfire on B. Obama in the future, are sown.

 Another drawback of the HSR is that trains will use diesel fuel, which will have a negative impact on the environment. Although, even if they use electricity, the situation will improve only slightly. The Administration of the state of Florida expressed an opinion that it would be better not to build the Tampa – Orlando line for the sake of the environment, but B. Obama remained steadfast and allocated $1.25 billion for it.

Florida, as well as some other states, proposed to spend this grant on motorways, saying that many Americans, especially the older generation, had never used high-speed passenger trains, and they would not change their habits. 

However, it is possible to understand the U.S. President. China invested $292 billion in its national railways in the last five years. There are forecasts that in 2014 the Chinese high-speed railway network will be twice as big as that in the rest of the world. Therefore, the USA fears that it will fall further behind according to the quality of life and economic figures. HSR has shown its compatibility with the planned economy, but it is not clear whether the project will match the American development path and whether it will turn into a large scale financial disaster in the near future.

By Kristina Alexandrova 
    [~DETAIL_TEXT] => 
It’s Time to Think about High Speed



Back in 1991, Joseph Vranich, a transport analyst, pointed out in his book “Supertrains” the necessity of developing HSR in the U.S. Talking about the advantages of high-speed railways, he said that travelling by them is the safest form of transport. For example, in Japan the first high-speed trains were put into operation in 1964, and no train crash has occurred in that time. In France, TGV trains, which have transported 100 million passengers per annum, have had no fatal accidents.  

Joe Vranich also noted that despite the comparable prices of train and airplane tickets, passengers were not prepared to spend their time passing all the necessary procedures at an airport. Therefore, high-speed trains must become the best solution for them.  

The sum mentioned by the U.S. leader includes funds for the reconstruction of existing railways, although the priority is the construction of HSR. In spite of the need for them, however, some politicians ventured to argue against B. Obama’s initiative.

Mainly, the debate began about the amount of funding. Joe Biden, Vice President, said that the government planned to allocate at least $53 billion for HSR construction over the next six years. The speech by J. Biden confirmed the ambition of B. Obama. According to the Vice President, the construction of HSR would help the USA to become the leader in this sector in the near future.  

The final sum was announced at a conference under the aegis of the U.S. High-Speed Rail Association in New York in mid-October: $600 billion would be spent building the network by 2030. Apart from the construction of railway tracks, these funds will be invested in the creation of the entire infrastructure.

This sum was a shock for a country going through a recession. Local administrations did not welcome the plans of the federal authorities. For example, in 2009 Florida, Ohio, and Wisconsin states tried to reject the $8 billion proposed by B. Obama. And the initiative of Joe Biden was opposed vigorously. The Republican party said that the project named “the greatest since the time of Lincoln” by Joe Biden was just “madness”.



The Strategy to 2030



The construction of the 27,353 km long HSR network was divided into four stages. The plan was rather logical. According to it, the first stage is to begin in 2015, when high-speed lines will connect large cities in the states of Oregon, Washington, Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio, Alabama, Georgia, North Carolina, South Carolina, and the existing Washington – New York line will be modernised. In 2020 these lines will be extended to smaller cities, and in 2025 works will start to link all of them to create a single enormous network by 2030, although bypassing Maine, Montana, Wyoming, North Dakota, South Dakota, where there is no need for high-speed railways. 

Such a large scale project needs thorough preliminary analysis. However, experts doubted calculations made, in particular, for the Californian HSR, as “the most unrealistic in the world.” In their report, the Transportation and Infrastructure Committee said once again that the project was too risky, and the prepared forecasts did not match the reality. The first allocation of $8 billion are invested in three programmes, or as they are named in the official document “three linked transport systems.” One of them, named “Core Express route” is built to create the basis of the future national HSR system with trains moving on special tracks at the speed of 201-401 kph. The second, named “Regional Corridors”, which will become the basis for the further development of HSR, envisages forming a system of trains at the speed of 145-201 kph. The Administration of the White House believes this can reduce the travel time. 

It is no secret, the USA invested heavily in the air transportation sector last decade; therefore railways do need a support now. Due to the development of a regional transport hub, the number of passengers wishing to travel by train instead of plane will grow. At least, this is the opinion of the experts who made the preliminary estimates. The third programme concerns “Developing Corridors” and trains moving at the speed of less than 145 kph. The main goal is to provide passengers from distant regions with access to the basic hubs of the HSR.



Too Fast and Risky… 



Ordinary Americans have a question: is the railway, in which the Government will invest so much, really high-speed? For example, the Chinese Maglev runs at 431 kph, the French TGV – 322 kph, and Japanese Shinkansen – 300 kph. I.e. the American Acela is now the slowest. 

Unlike Europe or Japan, the USA with its enormous area is not quite suitable for the development of HSR. It will be difficult to link cities all over the country into a single network. Moreover, passengers have got used to travelling by car, and many analysts agree that it would be better if B. Obama invested in motorways.

Some critics point out not only the economic aspect of the question, but at the fundamental cultural values. It can seem funny, but as U.S. High Speed Rail Association President and Chief Executive Officer Andy Kunz noted, “People say that Americans were born with car keys in their hands and driving is in our DNA,” but he disproved this statement at once, “If you look back to 1922 then 99% of Americans lived in cities and moved around on trains.”

One cannot say that there are no high-speed trains in the USA at all. For example, Acela Express, owned by Amtrak, regularly transports passengers from Washington to Boston via Philadelphia and New York. Covering 734 km in 7 hours on ordinary tracks, it is a serious competitor to airlines. About half of passengers travelling from Washington to New York prefer this very train. Acela transports 30 million people every year. The maximum speed of the train is 240 kph, although its average speed is 50% less. That’s why the Administration recognises that the whole HSR system is still embryonic. 

According to B. Obama’s plan, published on the official website of the Government in early February 2013, due to the development of high-speed infrastructure, about 80% people in the U.S. will have access to HSR in the next 25 years.

 “We, Americans, are proud that we think globally and build globally,” noted U.S. Transportation Secretary Ray LaHood. In his words, the development of HSR will increase the USA’s competitiveness in the economic conditions of the 21st century. Moreover, such an “investment in tomorrow” will create a lot of jobs, which will contribute to solving the problem of unemployment. According to preliminary calculations, approximately 300,000 jobs will be created during the construction and 450,000 after the system is put into operation.



… but Obama Is Steadfast



The American dream of speed is an insane project from all viewpoints, which has not been well thought through. If we analyse foreign experience, only the Tokyo – Osaka and Paris – Lyon lines are profitable. One can hardly claim that American HSR will show a good profit. If a passenger wants to travel long distance, he will prefer travelling by plane. Even with enormous national investment, HSR will hardly have more than 1% of the national passenger transportation market.

Americans, travelling short distances by car, are not likely to prefer high-speed trains to their vehicles. The journey time on the Kansas – St Louis – Chicago line will be less by only 10% if one chooses a high-speed train instead of a car. It will take a little less than an hour to get from Orlando to Tampa by railway, and 90 minutes by car. Americans will hardly pay a big sum for a train ticket to save just half an hour. The seeds of a project, which could backfire on B. Obama in the future, are sown.

 Another drawback of the HSR is that trains will use diesel fuel, which will have a negative impact on the environment. Although, even if they use electricity, the situation will improve only slightly. The Administration of the state of Florida expressed an opinion that it would be better not to build the Tampa – Orlando line for the sake of the environment, but B. Obama remained steadfast and allocated $1.25 billion for it.

Florida, as well as some other states, proposed to spend this grant on motorways, saying that many Americans, especially the older generation, had never used high-speed passenger trains, and they would not change their habits. 

However, it is possible to understand the U.S. President. China invested $292 billion in its national railways in the last five years. There are forecasts that in 2014 the Chinese high-speed railway network will be twice as big as that in the rest of the world. Therefore, the USA fears that it will fall further behind according to the quality of life and economic figures. HSR has shown its compatibility with the planned economy, but it is not clear whether the project will match the American development path and whether it will turn into a large scale financial disaster in the near future.

By Kristina Alexandrova 
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In Search of Investments



As cities grow their passenger traffic becomes so dense that the current network of public transportation (tram, trolleybus, bus) carries from 3,000 to 10,000 passengers per route per hour and cannot handle increased traffic flows and solve the urban transport problem. 

In large cities of more than 800 thousand inhabitants passenger flow exceeds 10,000 passengers in just one direction during the rush hour. In the case of constant passenger flows exceeding 10,000 passengers in one direction there is only one solution, i.e. the construction of a subway or another rapid transit line.

One should note that there is no clear definition for the term Subway (Metropoliten in Russian) in Russian legislation, even though this term is often used in legal acts. 

At the present moment subways operate in seven cities in the Russian Federation: Moscow, St Petersburg, Nizhny Novgorod, Novosibirsk, Samara, Yekaterinburg, and Kazan. In three other cities (Omsk, Chelyabinsk, and Krasnoyarsk) subways are being constructed. The underground part of the express tramway in Volgograd is also being constructed according to the subway standards. 

In 2010 the federal budget stopped co-funding regional subways, thus laying all the expenses for the new construction and reconstruction of the current lines and rail yards onto the budgets of the relevant regions and municipalities.

Is this burden fair? Let’s have a look at the results of a survey by the Russian Ministry of Finance for the period of 2011-2013 and compare the 11 regions that have been listed above as the proud owners of an extended or not so extended subway network.  For the sake of clarity we will divide them into two groups: (a) budgets of the other 9 Russian regions (fig. 1) and (b) budgets of federal cities – Moscow and St Petersburg (fig. 2). 

All the entities in question (fig. 1,2) show a significant deterioration of their relative financial condition within the relevant period, and 7 regions out of 11 have a deficit ridden budget, in some of them – Krasnoyarsk Krai, the Sverdlovsk region – the deficit is significant. 

As is customary, regions expect extra federal subsidy for the construction and reconstruction of transport infrastructure for hosting huge international sports events, in particular the 2018 FIFA World Cup in Russia. However the Russian government authorised funding for subway construction for the 2018 FIFA World Cup in St Petersburg and Nizhny Novgorod only. No funds have been allocated for new subway lines in Kazan, Yekaterinburg, Samara, and the line from the Pulkovo airport to St Petersburg. 

It is also worth mentioning that the scenario envisaged in the Transport Strategy of the Russian Federation till 2030 implies a significant increase in costs for the development of transport infrastructure and envisages the following stages for the development of a transport network for the largest metropolitan areas; by 2020 completion of the program for subway construction in Moscow, by 2025 development and completion of subway construction programs in St Petersburg and Kazan and by 2030 development and completion of subway construction programs in Nizhny Novgorod, Yekaterinburg, and Novosibirsk. 

However the planned expenditure from the federal budget for subway construction will cover no more than 5% of the total amount of capital investments for the period of 2010-2030 (table 1) that are estimated to be required to fulfill the Transport strategy of the Russian Federation till 2030.



What Should Regions Do?



Therefore, the regional budgets remain the main intended source of funding for subway construction (82.2%) until 2030, though the imbalance of this arrangement is quite clear – even Moscow cannot fund the “innovative scenario” of the subway construction on its own, requesting $6 billion from the federal budget. So what should others do? 

The only option for the regions is to replace the budgetary funding with extra-budgetary, which is impossible unless federal and municipal authorities make the projects attractive to long-term private investors so they can fund capital intensive construction of rapid transit infrastructure. 

Since the rolling stock, its components, subway and other rapid transit infrastructure facilities are and with all probability will be national or municipal property in the foreseeable future, the attraction of extra-budgetary funds is limited to certain modes of private-public partnership (PPP) and the following types of agreements: life cycle contracts, concessionary agreements, PPP agreements.

Concessionary agreements and the PPP modes being used – DB/RTO (“design-build/reconstruct-transfer-operate”) and B/RTO (“build/reconstruct-transfer-operate”) are now the least risky option of private-public partnership application in Russia, based on extensive and longstanding legislative and regulatory compliance practice in multiple infrastructure projects at the national, regional and municipal levels.

The first PPP project for subway construction in Russia – extension of the Dzerzhinskaya line of the Novosibirsk subway, has already been proposed by TRANSPROEKT LLC., an official consultant from the Ministry of Economic Development of the Novosibirsk region, and it is the concessionary agreement and BTO (“build-transfer-operate”) mode that are suggested as they ensure the most secure and just balance of the interests of the state and potential investors. The announcement of an open tender for the right to conclude a concessionary agreement for the construction of an extension of the Novosibirsk subway Dzerzhinskaya line from the “Zolotaya Niva” station to the “Molodezhnaya” station with a two-track junction line to the “Volochayevskoe” electric rail yard is scheduled for the 2nd quarter of  2014.

During the preparation works for this project several other options, including traditional state purchases of goods, works and services, were considered, however the project timeline and the applied pattern can only be preliminarily discussed before the governmental program of the Novosibirsk region specifies the amount, structure and timeline of government expenditures.

Attracting of RUB 14.5 billion of private investment for a period of at least 8 years for the expansion and operation of the Novosibirsk subway would be a successful example of PPP applied to subway construction in this country. As the Novosibirsk subway is the third largest in the country (after Moscow and St Petersburg) in terms of daily average passenger traffic volume, 243,000 people, which is twice as many as the daily passenger traffic of the Nizhny Novgorod subway, the importance and impact of this pioneering project on the viability of the public-private partnership in the field of subway construction and reconstruction in Russian cities can hardly be overestimated.

An interesting instance of PPP implementation, not directly related to the current subway infrastructure, is manufacturing, procurement and maintenance of Moscow subway carriages under a 30 year life cycle contract (the state is going to buy 2,500 – 3,500 carriages within the next 5 years). The purchaser in this tender on the part of the state is the state unitary enterprise “Moscow Subway”. 

The main commitment of “Moscow Subway” in this deal is to pay in installments for procurement and maintenance of the carriages upon their commissioning. The state company is also liable under the contract to provide the facilities for setting up a rail yard for the maintenance works, as the carriage maintenance technologies will depend on the carriage manufacturer/supplier.

The Russian legislation governing parties’ relations in a public-private partnership is constantly getting refined and polished by real life projects and so is finally becoming efficient and practical for investments into the economy of Russia and its subjects. 70 regional laws on PPP and a still longer list of municipalities’ regulations on this matter also encourage optimism and expectations of positive tendencies in practical implementation of PPP.



PPP to Help





The first PPP projects in Russia were toll highways and facilities along them, then came projects in the social sphere and housing and utilities, and then – educational, healthcare, cultural and sports facilities. Attraction of private investment to the construction and reconstruction of subway infrastructure is now a prerequisite to procure high levels of transport accessibility for people and achieve the intended pace of socio-economic development in the largest cities. Constant increases in demand and reliability, information availability and comfort, implementation of up-to-date technologies and new equipment fortunately turns the modern modes of public and business partnership into a single option for subway development over the next decades.

Vitaly Maximov, 

Ph.D. Chairman of the Board of Directors TRANSPROEKT LLC


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In Search of Investments



As cities grow their passenger traffic becomes so dense that the current network of public transportation (tram, trolleybus, bus) carries from 3,000 to 10,000 passengers per route per hour and cannot handle increased traffic flows and solve the urban transport problem. 

In large cities of more than 800 thousand inhabitants passenger flow exceeds 10,000 passengers in just one direction during the rush hour. In the case of constant passenger flows exceeding 10,000 passengers in one direction there is only one solution, i.e. the construction of a subway or another rapid transit line.

One should note that there is no clear definition for the term Subway (Metropoliten in Russian) in Russian legislation, even though this term is often used in legal acts. 

At the present moment subways operate in seven cities in the Russian Federation: Moscow, St Petersburg, Nizhny Novgorod, Novosibirsk, Samara, Yekaterinburg, and Kazan. In three other cities (Omsk, Chelyabinsk, and Krasnoyarsk) subways are being constructed. The underground part of the express tramway in Volgograd is also being constructed according to the subway standards. 

In 2010 the federal budget stopped co-funding regional subways, thus laying all the expenses for the new construction and reconstruction of the current lines and rail yards onto the budgets of the relevant regions and municipalities.

Is this burden fair? Let’s have a look at the results of a survey by the Russian Ministry of Finance for the period of 2011-2013 and compare the 11 regions that have been listed above as the proud owners of an extended or not so extended subway network.  For the sake of clarity we will divide them into two groups: (a) budgets of the other 9 Russian regions (fig. 1) and (b) budgets of federal cities – Moscow and St Petersburg (fig. 2). 

All the entities in question (fig. 1,2) show a significant deterioration of their relative financial condition within the relevant period, and 7 regions out of 11 have a deficit ridden budget, in some of them – Krasnoyarsk Krai, the Sverdlovsk region – the deficit is significant. 

As is customary, regions expect extra federal subsidy for the construction and reconstruction of transport infrastructure for hosting huge international sports events, in particular the 2018 FIFA World Cup in Russia. However the Russian government authorised funding for subway construction for the 2018 FIFA World Cup in St Petersburg and Nizhny Novgorod only. No funds have been allocated for new subway lines in Kazan, Yekaterinburg, Samara, and the line from the Pulkovo airport to St Petersburg. 

It is also worth mentioning that the scenario envisaged in the Transport Strategy of the Russian Federation till 2030 implies a significant increase in costs for the development of transport infrastructure and envisages the following stages for the development of a transport network for the largest metropolitan areas; by 2020 completion of the program for subway construction in Moscow, by 2025 development and completion of subway construction programs in St Petersburg and Kazan and by 2030 development and completion of subway construction programs in Nizhny Novgorod, Yekaterinburg, and Novosibirsk. 

However the planned expenditure from the federal budget for subway construction will cover no more than 5% of the total amount of capital investments for the period of 2010-2030 (table 1) that are estimated to be required to fulfill the Transport strategy of the Russian Federation till 2030.



What Should Regions Do?



Therefore, the regional budgets remain the main intended source of funding for subway construction (82.2%) until 2030, though the imbalance of this arrangement is quite clear – even Moscow cannot fund the “innovative scenario” of the subway construction on its own, requesting $6 billion from the federal budget. So what should others do? 

The only option for the regions is to replace the budgetary funding with extra-budgetary, which is impossible unless federal and municipal authorities make the projects attractive to long-term private investors so they can fund capital intensive construction of rapid transit infrastructure. 

Since the rolling stock, its components, subway and other rapid transit infrastructure facilities are and with all probability will be national or municipal property in the foreseeable future, the attraction of extra-budgetary funds is limited to certain modes of private-public partnership (PPP) and the following types of agreements: life cycle contracts, concessionary agreements, PPP agreements.

Concessionary agreements and the PPP modes being used – DB/RTO (“design-build/reconstruct-transfer-operate”) and B/RTO (“build/reconstruct-transfer-operate”) are now the least risky option of private-public partnership application in Russia, based on extensive and longstanding legislative and regulatory compliance practice in multiple infrastructure projects at the national, regional and municipal levels.

The first PPP project for subway construction in Russia – extension of the Dzerzhinskaya line of the Novosibirsk subway, has already been proposed by TRANSPROEKT LLC., an official consultant from the Ministry of Economic Development of the Novosibirsk region, and it is the concessionary agreement and BTO (“build-transfer-operate”) mode that are suggested as they ensure the most secure and just balance of the interests of the state and potential investors. The announcement of an open tender for the right to conclude a concessionary agreement for the construction of an extension of the Novosibirsk subway Dzerzhinskaya line from the “Zolotaya Niva” station to the “Molodezhnaya” station with a two-track junction line to the “Volochayevskoe” electric rail yard is scheduled for the 2nd quarter of  2014.

During the preparation works for this project several other options, including traditional state purchases of goods, works and services, were considered, however the project timeline and the applied pattern can only be preliminarily discussed before the governmental program of the Novosibirsk region specifies the amount, structure and timeline of government expenditures.

Attracting of RUB 14.5 billion of private investment for a period of at least 8 years for the expansion and operation of the Novosibirsk subway would be a successful example of PPP applied to subway construction in this country. As the Novosibirsk subway is the third largest in the country (after Moscow and St Petersburg) in terms of daily average passenger traffic volume, 243,000 people, which is twice as many as the daily passenger traffic of the Nizhny Novgorod subway, the importance and impact of this pioneering project on the viability of the public-private partnership in the field of subway construction and reconstruction in Russian cities can hardly be overestimated.

An interesting instance of PPP implementation, not directly related to the current subway infrastructure, is manufacturing, procurement and maintenance of Moscow subway carriages under a 30 year life cycle contract (the state is going to buy 2,500 – 3,500 carriages within the next 5 years). The purchaser in this tender on the part of the state is the state unitary enterprise “Moscow Subway”. 

The main commitment of “Moscow Subway” in this deal is to pay in installments for procurement and maintenance of the carriages upon their commissioning. The state company is also liable under the contract to provide the facilities for setting up a rail yard for the maintenance works, as the carriage maintenance technologies will depend on the carriage manufacturer/supplier.

The Russian legislation governing parties’ relations in a public-private partnership is constantly getting refined and polished by real life projects and so is finally becoming efficient and practical for investments into the economy of Russia and its subjects. 70 regional laws on PPP and a still longer list of municipalities’ regulations on this matter also encourage optimism and expectations of positive tendencies in practical implementation of PPP.



PPP to Help





The first PPP projects in Russia were toll highways and facilities along them, then came projects in the social sphere and housing and utilities, and then – educational, healthcare, cultural and sports facilities. Attraction of private investment to the construction and reconstruction of subway infrastructure is now a prerequisite to procure high levels of transport accessibility for people and achieve the intended pace of socio-economic development in the largest cities. Constant increases in demand and reliability, information availability and comfort, implementation of up-to-date technologies and new equipment fortunately turns the modern modes of public and business partnership into a single option for subway development over the next decades.

Vitaly Maximov, 

Ph.D. Chairman of the Board of Directors TRANSPROEKT LLC


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In Search of Investments



As cities grow their passenger traffic becomes so dense that the current network of public transportation (tram, trolleybus, bus) carries from 3,000 to 10,000 passengers per route per hour and cannot handle increased traffic flows and solve the urban transport problem. 

In large cities of more than 800 thousand inhabitants passenger flow exceeds 10,000 passengers in just one direction during the rush hour. In the case of constant passenger flows exceeding 10,000 passengers in one direction there is only one solution, i.e. the construction of a subway or another rapid transit line.

One should note that there is no clear definition for the term Subway (Metropoliten in Russian) in Russian legislation, even though this term is often used in legal acts. 

At the present moment subways operate in seven cities in the Russian Federation: Moscow, St Petersburg, Nizhny Novgorod, Novosibirsk, Samara, Yekaterinburg, and Kazan. In three other cities (Omsk, Chelyabinsk, and Krasnoyarsk) subways are being constructed. The underground part of the express tramway in Volgograd is also being constructed according to the subway standards. 

In 2010 the federal budget stopped co-funding regional subways, thus laying all the expenses for the new construction and reconstruction of the current lines and rail yards onto the budgets of the relevant regions and municipalities.

Is this burden fair? Let’s have a look at the results of a survey by the Russian Ministry of Finance for the period of 2011-2013 and compare the 11 regions that have been listed above as the proud owners of an extended or not so extended subway network.  For the sake of clarity we will divide them into two groups: (a) budgets of the other 9 Russian regions (fig. 1) and (b) budgets of federal cities – Moscow and St Petersburg (fig. 2). 

All the entities in question (fig. 1,2) show a significant deterioration of their relative financial condition within the relevant period, and 7 regions out of 11 have a deficit ridden budget, in some of them – Krasnoyarsk Krai, the Sverdlovsk region – the deficit is significant. 

As is customary, regions expect extra federal subsidy for the construction and reconstruction of transport infrastructure for hosting huge international sports events, in particular the 2018 FIFA World Cup in Russia. However the Russian government authorised funding for subway construction for the 2018 FIFA World Cup in St Petersburg and Nizhny Novgorod only. No funds have been allocated for new subway lines in Kazan, Yekaterinburg, Samara, and the line from the Pulkovo airport to St Petersburg. 

It is also worth mentioning that the scenario envisaged in the Transport Strategy of the Russian Federation till 2030 implies a significant increase in costs for the development of transport infrastructure and envisages the following stages for the development of a transport network for the largest metropolitan areas; by 2020 completion of the program for subway construction in Moscow, by 2025 development and completion of subway construction programs in St Petersburg and Kazan and by 2030 development and completion of subway construction programs in Nizhny Novgorod, Yekaterinburg, and Novosibirsk. 

However the planned expenditure from the federal budget for subway construction will cover no more than 5% of the total amount of capital investments for the period of 2010-2030 (table 1) that are estimated to be required to fulfill the Transport strategy of the Russian Federation till 2030.



What Should Regions Do?



Therefore, the regional budgets remain the main intended source of funding for subway construction (82.2%) until 2030, though the imbalance of this arrangement is quite clear – even Moscow cannot fund the “innovative scenario” of the subway construction on its own, requesting $6 billion from the federal budget. So what should others do? 

The only option for the regions is to replace the budgetary funding with extra-budgetary, which is impossible unless federal and municipal authorities make the projects attractive to long-term private investors so they can fund capital intensive construction of rapid transit infrastructure. 

Since the rolling stock, its components, subway and other rapid transit infrastructure facilities are and with all probability will be national or municipal property in the foreseeable future, the attraction of extra-budgetary funds is limited to certain modes of private-public partnership (PPP) and the following types of agreements: life cycle contracts, concessionary agreements, PPP agreements.

Concessionary agreements and the PPP modes being used – DB/RTO (“design-build/reconstruct-transfer-operate”) and B/RTO (“build/reconstruct-transfer-operate”) are now the least risky option of private-public partnership application in Russia, based on extensive and longstanding legislative and regulatory compliance practice in multiple infrastructure projects at the national, regional and municipal levels.

The first PPP project for subway construction in Russia – extension of the Dzerzhinskaya line of the Novosibirsk subway, has already been proposed by TRANSPROEKT LLC., an official consultant from the Ministry of Economic Development of the Novosibirsk region, and it is the concessionary agreement and BTO (“build-transfer-operate”) mode that are suggested as they ensure the most secure and just balance of the interests of the state and potential investors. The announcement of an open tender for the right to conclude a concessionary agreement for the construction of an extension of the Novosibirsk subway Dzerzhinskaya line from the “Zolotaya Niva” station to the “Molodezhnaya” station with a two-track junction line to the “Volochayevskoe” electric rail yard is scheduled for the 2nd quarter of  2014.

During the preparation works for this project several other options, including traditional state purchases of goods, works and services, were considered, however the project timeline and the applied pattern can only be preliminarily discussed before the governmental program of the Novosibirsk region specifies the amount, structure and timeline of government expenditures.

Attracting of RUB 14.5 billion of private investment for a period of at least 8 years for the expansion and operation of the Novosibirsk subway would be a successful example of PPP applied to subway construction in this country. As the Novosibirsk subway is the third largest in the country (after Moscow and St Petersburg) in terms of daily average passenger traffic volume, 243,000 people, which is twice as many as the daily passenger traffic of the Nizhny Novgorod subway, the importance and impact of this pioneering project on the viability of the public-private partnership in the field of subway construction and reconstruction in Russian cities can hardly be overestimated.

An interesting instance of PPP implementation, not directly related to the current subway infrastructure, is manufacturing, procurement and maintenance of Moscow subway carriages under a 30 year life cycle contract (the state is going to buy 2,500 – 3,500 carriages within the next 5 years). The purchaser in this tender on the part of the state is the state unitary enterprise “Moscow Subway”. 

The main commitment of “Moscow Subway” in this deal is to pay in installments for procurement and maintenance of the carriages upon their commissioning. The state company is also liable under the contract to provide the facilities for setting up a rail yard for the maintenance works, as the carriage maintenance technologies will depend on the carriage manufacturer/supplier.

The Russian legislation governing parties’ relations in a public-private partnership is constantly getting refined and polished by real life projects and so is finally becoming efficient and practical for investments into the economy of Russia and its subjects. 70 regional laws on PPP and a still longer list of municipalities’ regulations on this matter also encourage optimism and expectations of positive tendencies in practical implementation of PPP.



PPP to Help





The first PPP projects in Russia were toll highways and facilities along them, then came projects in the social sphere and housing and utilities, and then – educational, healthcare, cultural and sports facilities. Attraction of private investment to the construction and reconstruction of subway infrastructure is now a prerequisite to procure high levels of transport accessibility for people and achieve the intended pace of socio-economic development in the largest cities. Constant increases in demand and reliability, information availability and comfort, implementation of up-to-date technologies and new equipment fortunately turns the modern modes of public and business partnership into a single option for subway development over the next decades.

Vitaly Maximov, 

Ph.D. Chairman of the Board of Directors TRANSPROEKT LLC


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In Search of Investments



As cities grow their passenger traffic becomes so dense that the current network of public transportation (tram, trolleybus, bus) carries from 3,000 to 10,000 passengers per route per hour and cannot handle increased traffic flows and solve the urban transport problem. 

In large cities of more than 800 thousand inhabitants passenger flow exceeds 10,000 passengers in just one direction during the rush hour. In the case of constant passenger flows exceeding 10,000 passengers in one direction there is only one solution, i.e. the construction of a subway or another rapid transit line.

One should note that there is no clear definition for the term Subway (Metropoliten in Russian) in Russian legislation, even though this term is often used in legal acts. 

At the present moment subways operate in seven cities in the Russian Federation: Moscow, St Petersburg, Nizhny Novgorod, Novosibirsk, Samara, Yekaterinburg, and Kazan. In three other cities (Omsk, Chelyabinsk, and Krasnoyarsk) subways are being constructed. The underground part of the express tramway in Volgograd is also being constructed according to the subway standards. 

In 2010 the federal budget stopped co-funding regional subways, thus laying all the expenses for the new construction and reconstruction of the current lines and rail yards onto the budgets of the relevant regions and municipalities.

Is this burden fair? Let’s have a look at the results of a survey by the Russian Ministry of Finance for the period of 2011-2013 and compare the 11 regions that have been listed above as the proud owners of an extended or not so extended subway network.  For the sake of clarity we will divide them into two groups: (a) budgets of the other 9 Russian regions (fig. 1) and (b) budgets of federal cities – Moscow and St Petersburg (fig. 2). 

All the entities in question (fig. 1,2) show a significant deterioration of their relative financial condition within the relevant period, and 7 regions out of 11 have a deficit ridden budget, in some of them – Krasnoyarsk Krai, the Sverdlovsk region – the deficit is significant. 

As is customary, regions expect extra federal subsidy for the construction and reconstruction of transport infrastructure for hosting huge international sports events, in particular the 2018 FIFA World Cup in Russia. However the Russian government authorised funding for subway construction for the 2018 FIFA World Cup in St Petersburg and Nizhny Novgorod only. No funds have been allocated for new subway lines in Kazan, Yekaterinburg, Samara, and the line from the Pulkovo airport to St Petersburg. 

It is also worth mentioning that the scenario envisaged in the Transport Strategy of the Russian Federation till 2030 implies a significant increase in costs for the development of transport infrastructure and envisages the following stages for the development of a transport network for the largest metropolitan areas; by 2020 completion of the program for subway construction in Moscow, by 2025 development and completion of subway construction programs in St Petersburg and Kazan and by 2030 development and completion of subway construction programs in Nizhny Novgorod, Yekaterinburg, and Novosibirsk. 

However the planned expenditure from the federal budget for subway construction will cover no more than 5% of the total amount of capital investments for the period of 2010-2030 (table 1) that are estimated to be required to fulfill the Transport strategy of the Russian Federation till 2030.



What Should Regions Do?



Therefore, the regional budgets remain the main intended source of funding for subway construction (82.2%) until 2030, though the imbalance of this arrangement is quite clear – even Moscow cannot fund the “innovative scenario” of the subway construction on its own, requesting $6 billion from the federal budget. So what should others do? 

The only option for the regions is to replace the budgetary funding with extra-budgetary, which is impossible unless federal and municipal authorities make the projects attractive to long-term private investors so they can fund capital intensive construction of rapid transit infrastructure. 

Since the rolling stock, its components, subway and other rapid transit infrastructure facilities are and with all probability will be national or municipal property in the foreseeable future, the attraction of extra-budgetary funds is limited to certain modes of private-public partnership (PPP) and the following types of agreements: life cycle contracts, concessionary agreements, PPP agreements.

Concessionary agreements and the PPP modes being used – DB/RTO (“design-build/reconstruct-transfer-operate”) and B/RTO (“build/reconstruct-transfer-operate”) are now the least risky option of private-public partnership application in Russia, based on extensive and longstanding legislative and regulatory compliance practice in multiple infrastructure projects at the national, regional and municipal levels.

The first PPP project for subway construction in Russia – extension of the Dzerzhinskaya line of the Novosibirsk subway, has already been proposed by TRANSPROEKT LLC., an official consultant from the Ministry of Economic Development of the Novosibirsk region, and it is the concessionary agreement and BTO (“build-transfer-operate”) mode that are suggested as they ensure the most secure and just balance of the interests of the state and potential investors. The announcement of an open tender for the right to conclude a concessionary agreement for the construction of an extension of the Novosibirsk subway Dzerzhinskaya line from the “Zolotaya Niva” station to the “Molodezhnaya” station with a two-track junction line to the “Volochayevskoe” electric rail yard is scheduled for the 2nd quarter of  2014.

During the preparation works for this project several other options, including traditional state purchases of goods, works and services, were considered, however the project timeline and the applied pattern can only be preliminarily discussed before the governmental program of the Novosibirsk region specifies the amount, structure and timeline of government expenditures.

Attracting of RUB 14.5 billion of private investment for a period of at least 8 years for the expansion and operation of the Novosibirsk subway would be a successful example of PPP applied to subway construction in this country. As the Novosibirsk subway is the third largest in the country (after Moscow and St Petersburg) in terms of daily average passenger traffic volume, 243,000 people, which is twice as many as the daily passenger traffic of the Nizhny Novgorod subway, the importance and impact of this pioneering project on the viability of the public-private partnership in the field of subway construction and reconstruction in Russian cities can hardly be overestimated.

An interesting instance of PPP implementation, not directly related to the current subway infrastructure, is manufacturing, procurement and maintenance of Moscow subway carriages under a 30 year life cycle contract (the state is going to buy 2,500 – 3,500 carriages within the next 5 years). The purchaser in this tender on the part of the state is the state unitary enterprise “Moscow Subway”. 

The main commitment of “Moscow Subway” in this deal is to pay in installments for procurement and maintenance of the carriages upon their commissioning. The state company is also liable under the contract to provide the facilities for setting up a rail yard for the maintenance works, as the carriage maintenance technologies will depend on the carriage manufacturer/supplier.

The Russian legislation governing parties’ relations in a public-private partnership is constantly getting refined and polished by real life projects and so is finally becoming efficient and practical for investments into the economy of Russia and its subjects. 70 regional laws on PPP and a still longer list of municipalities’ regulations on this matter also encourage optimism and expectations of positive tendencies in practical implementation of PPP.



PPP to Help





The first PPP projects in Russia were toll highways and facilities along them, then came projects in the social sphere and housing and utilities, and then – educational, healthcare, cultural and sports facilities. Attraction of private investment to the construction and reconstruction of subway infrastructure is now a prerequisite to procure high levels of transport accessibility for people and achieve the intended pace of socio-economic development in the largest cities. Constant increases in demand and reliability, information availability and comfort, implementation of up-to-date technologies and new equipment fortunately turns the modern modes of public and business partnership into a single option for subway development over the next decades.

Vitaly Maximov, 

Ph.D. Chairman of the Board of Directors TRANSPROEKT LLC


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To Spend or Not to Spend?



In Q3 of 2013, the Russian econo­my’s growth was close to zero. It had previously been supposed that the trend of the slowdown of the economic growth could be reversed, but it didn’t happen. It seems at first sight that the time is not right for expenditure. Nevertheless, leading experts believe that investment in infrastructure can be a way out, because it is a key factor in the competitiveness of the national economy. Investment measures, the unclogging of bottle necks in transport infrastructure, and the development of large transport hubs are included into the federal target programme “The development of the Transport System of Russia (2010-2020)” in the framework of the governmental programme adopted by governmental decree №2600-r dated December 28, 2012. According to Oleg Belozerov, Deputy Transport Minister of Russia, insufficient use of transport advantages over national competitors causes economic losses. “Being practically in the centre of global trade routes, this country, in the opinion of experts, could have at least 10-15% of the transportation market, whilst its share is smaller by almost 84-88%,” he says. For example, on the railways, the insufficient funding of the infrastructure will mean that not all products from the most important industries will be transported, passenger and freight flows will switch to road transport, and, as a result, there will be a fall in GDP and lost national revenue.

This pattern is not new, therefore, investment in transport is growing, and it is a global trend. According to forecasts made by the Organisation for Economic Co-operation and Development (OECD), the total amount of investment needed for different transport modes in the world till 2030 is to amount up to $3 trillion for airports and sea ports, and $5 trillion for railways. The latter is considered as a priority. 



Revitalising Effect



Research undertaken by the World Bank shows that investment in infrastructure gives a fast result amid an economy recovering after the crisis: new jobs appear in the construction sector, and the increase in employment helps to support consumption. The main thing is that short-term demand is followed by long-term multiplier effects. They can be different and depend on the country, the region, and the sector. If the economy is developed, and when state expenses grow by 1%, the additional growth of the GDP can be 0.1-0.2 percen­tage points. During recession, the multiplier effect of state investment increases to 1-1.5 percentage points (p.p.) against 0-0.5 during the explosive growth period. For the Russian railway sector, every rouble invested in it is multiplied in the RF economy by 1.85.

The positive effect from increasing state investment is proved by the example of Poland, which in 2009-2011 expanded funding of ageing infrastructure when preparing for the European football championships. An increase in expenditure from 3.5% to 4.5% of GDP in 2005-2008 added 0.25 percentage points to its growth rates, additional investment of 1% of the GDP speeded up the economic growth by 0.5 percentage points in the next half of the year, and 6-9 months later private investment began to grow. On the whole, a 1 p.p. increase of the public investment in infrastructure caused a 0.75 p.p. growth of private investment. 

It is interesting that developing economies face a more acute shortage of infrastructure, therefore, the multiplier effect from investment in transport is more significant. For example, a faster growth of investment in infrastructure in Asia in 2001-2005 allowed the countries in the region to develop faster by 1.6 p.p. on average.



What about Russia? 



Russians will remember the summer of 2013 as a time when many large scale infrastructure projects were commenced, the declared cost of which amazed even experienced experts. After the information about the construction of RUB 937 billion Moscow – Kazan high-speed railway and RUB 562 billion modernisation of the BAM and the Transsib, the RF President Vladimir Putin announced the creation of the term of the Central Ring Road construction (RUB 300 billion). Also, there were talks about new railway routes to link Moscow and the Moscow region. In its project “Updating the General Scheme of the Development of the Moscow Railway Hub till 2025”, RZD estimated the total amount of required investment at RUB 1.43 trillion.

According to the RF President’s Budget Message about Budget Policy in 2014-2016 and the RF Government Chairman’s Commitment dated June 15, 2013, the basic statements of the state programme “Development of the Transport System” were specified and corrected by the Transport Ministry. The construction of the Central Ring Road and the Moscow – Kazan high-speed line were declared as priority large scale projects, and the programme was expanded by measures targeted at the development of the transport infrastructure to host the 2018 FIFA World Cup.

The structure of funding the mentioned infrastructure projects is rather complicated. The state pays part of the funds directly from the National Welfare Fund (NWF), the volume of which was RUB 2.85 trillion or $86.9 billion on August 1, 2013. Another part is given by the government from the Russian Direct Investment Fund (RDIF), which together with co-investors is ready to invest in the project of the Central Ring Road (CRR) up to RUB 60 billion. It is supposed that the participation of the state will allow the attraction of large international so­vereign funds to finance the CRR project on favourable terms.     

The third level of investment in infrastructure facilities is regional. Of the RUB 1.43 trillion needed to upgrade the Moscow railway hub, Moscow will invest RUB 48.38 billion from its budget, another RUB 36.13 billion will be allocated by the Moscow region. The basis of the funding structure is state banks and corporations. They also get funds from the government: for example, RZD regularly sells additional issues of shares in favour of the state.  

Additionally, natural monopolies actively use different market mechanisms – from placing infrastructure bonds (last year RZD attracted more than RUB 325 billion using this mechanism) to issuing special preference shares. It is interesting that the government plans to revise the dividend policy of state companies and oblige them to pay 25% of the net profit (IFRS) to guarantee the recoupment of funds invested by the NWF and the RDIF in such security papers. 



Focus on Private Capital



The focus on investment in infrastructure as an instrument to revive the economy is supposed to attract private capital. The main way to use this mechanism is the public-private partnership (PPP). Traditionally, greater efficiency of private investment in comparison with public investment is cited as one of its main advantages. Private companies carry part of the risk, for example, a rise in the cost of the project, or a failure to meet a deadline, and take all measures necessary to avoid them. It is the participation of private companies that allows the state to begin taking fees for utilising the infrastructure – in case of 100% public funding, implementation of a fee is politically unacceptable, as a rule. 

Currently, a number of PPP transport infrastructure projects are being carried out in Russia. Among them, are the construction and utilisation of the toll road “Western High-Speed Diameter” and the Pulkovo airport in St Petersburg, bridges over the Kama and the Bui in Udmurtia and the Lena in Yakutia. The public company Russian Motorways is contributing to the development of PPP in Russia. In particular, the company controls toll sections of the motorways M-4 “Don”, M-11 Moscow – St Petersburg, CRR. Unfortunately, such companies do not actively participate in projects in the railway sector. The only project, which is under way and has some features of PPP, is the development of the Small Ring of the Moscow Railway. The situation can change after the federal law “On Public-Private Partnership” comes into force.

Roman Churakov, Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS, believes that the main national problem with private investment in infrastructure in Russia falls within neither economy nor legislation – it arises because some regions or companies have doubts about the dramatically new investment mechanism.



To Compare with Europe



In the opinion of R. Churakov, the main difference between Russian and European PPP is that there is the secondary market of projects, which are under way and can be sold to a third person. “This sale is a profitable business: if the contract documentation is structured correctly, the project can be sold with a significant profit margin after the investment phase is over,” explains the expert. When the construction phase is completed, the most risky period of the project development is over, and the market value of the project increases. Additionally, when the new facility is put into operation, it becomes possible to cut expenses on debt servicing by means of loan refinancing, which also improves the economic profile of the project. 

All the prerequisites for the sale of some projects were created in Russia, but there has been no practice of concluding such deals, because most PPP projects have not been put into operation yet. 

Choosing tried-and-trusted methods, one should remember that not all European examples of PPP were a success. For example, the English Channel Tunnel built by a private company, a 65% stake in which belongs to private shareholders, and 35% – to the governments of Great Britain and France. Its total cost was $14.9 billion, while initially the estimated cost was $5.5 billion. The term of the project practically doubled – from three to six years. Eurotunnel company had to go through the bankruptcy procedure, and it got the first profit only in 2007, 20 years after construction began. The brightest example of unsuccessful PPP is Portugal, which became the biggest state-investor in PPP in the world in 2010: the public investment in its joint projects with private companies exceeded 10% of the GDP, while the average figure in the European Union was 2% of the GDP.  

Simultaneously, the Portuguese Government had enormous liabilities. Concluding PPP agreements eagerly, the state postponed expenses until the future. The system of choosing projects was not transparent and efficient, the public party turned out to be unable to estimate risks and future expenses, and took too many risks to attract private companies. Lenders recommended Portugal not to conclude new PPP contracts, try to revise old ones to cut the size of state-financed payments, buy out a part of facilities or even scrap projects that are at early stages. This situation could have been avoided if the projects had been structured and assessed properly.



Better Never Than Bad



Russian PPP projects are rather new, and it is too early to assess their efficiency. Nevertheless, experts say now that the cost of projects in the RF is higher than abroad. Andrey Shenk, Analyst at Investcafe, says that a shining example of this is the construction of the Moscow – Kazan HSR, the cost of which is RUB 1.39 billion for one kilometer of tracks, and the cost of a similar railway in the EU countries with the same climate is RUB 0.9-1.1 billion. “The project of the CRR is also debatable. Its estimated cost is approximately RUB 1 billion for a kilometer, and the fee for using it will be 2 roubles per a kilometer for a car with the motorway’s total capacity of 70,000 cars per day. In this case, 20 years are needed to recoup investment regardless of inflation and risks, therefore, it is hard to attract investment to such a project. Similar projects in European countries with the same climate cost about RUB 500-600 million for a kilometer. The difference arises because of many expensive structures – bridges and overhead roads. Meanwhile, I think it is possible to revise the project to make it cheaper,” says A. Shenk.

“The forecast for the efficiency of PPP projects should be highly detailed. One should take into account multiplier factors of the increase in indirect revenue for the state, and it is especially valid for transport infrastructure facilities,” reminds Innokenty Ivanov, Partner at Freshfields Bruckhaus Deringer LLP. The expert is sure that despite all the difficulties, there is no alternative to the PPP as the mechanism for Russian infrastructure development. Anyway, the Government has made its choice in favour of transport infrastructure projects, and it is proved by the state programmes of the RF transport system development and the signed by the head of the country decrees about the allocation of public investment. The attraction of private investors must provide control over the efficiency of investment. Additionally, it would not hurt to create a structure to control the target utilisation of public funds and the complex coordination of investment.

By Marina Ermolenko



viewpoint

Innokenty Ivanov,

Partner at Freshfields Bruckhaus Deringer LLP:

– PPP projects are often criticised because of their cost, which is usually higher than ordinary public contracts, but critics forget about the advantages this type of partnership creates for the public party. Firstly, unlike a public contract, private investment is attracted, thus allowing important projects amid a short-term lack of public funds to be carried out. Secondly, an investor brings to the project not only funds, but know-how, which can be adopted by the public party. Thirdly, an investor is interested in the efficiency of the project, because he invests his own funds and the recoupment of investment depends on the quality of the finished facility. It is especially important that a private partner usually undertakes a significant part of the risks concerning the attraction of funds and the realisation of the project, including the risks of an increase in the estimated cost, the demand for the new facility, and the collection of the fee.



Roman Churakov, 

Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS:

– I’d like to emphasise that PPP projects stand apart not because of the lack of public investment. On the contrary, public funding often varies from 40% to 85% of capital expenses.

The problem of an increase in the construction cost, which can arise when such projects are carried out, is solved by contract mechanisms, envisaging regulation distributing risks between the public and private partners. The common rule is (if nothing different is set in the contract) that the risk of an increase in the construction cost is carried by the private partner. A public partner takes responsibility when the cost increased due to problems which the investor could neither foresee nor prevent. For example, it happens if hidden utilities or archaeological objects are found, or if the public partner has not disclosed the information about them in the project documentation or in any other manner. Then, the public partner assumes expenses caused by the delay and those suffered because of the need to remove such objects.



Evgeny Trusov, 

Deputy Head of the Department for Infrastructure Funding at VTB Capital:

– The main specific of PPP projects is the necessity to reach arrangements by several parties with different interests. The state sets requirements to the object of the contract with the minimum burden on the budget, the goal of investors is to get profit, loan holders want to have fixed revenue as well as a guaranteed recoupment and protection for their investment. Any requirement impacts on the allocation of liabilities between the parties. Making arrangements is possible only on the basis of constructive cooperation, therefore, the main objective of the public and private participants in the project is to find the balance of interests. 
    [~DETAIL_TEXT] => 
To Spend or Not to Spend?



In Q3 of 2013, the Russian econo­my’s growth was close to zero. It had previously been supposed that the trend of the slowdown of the economic growth could be reversed, but it didn’t happen. It seems at first sight that the time is not right for expenditure. Nevertheless, leading experts believe that investment in infrastructure can be a way out, because it is a key factor in the competitiveness of the national economy. Investment measures, the unclogging of bottle necks in transport infrastructure, and the development of large transport hubs are included into the federal target programme “The development of the Transport System of Russia (2010-2020)” in the framework of the governmental programme adopted by governmental decree №2600-r dated December 28, 2012. According to Oleg Belozerov, Deputy Transport Minister of Russia, insufficient use of transport advantages over national competitors causes economic losses. “Being practically in the centre of global trade routes, this country, in the opinion of experts, could have at least 10-15% of the transportation market, whilst its share is smaller by almost 84-88%,” he says. For example, on the railways, the insufficient funding of the infrastructure will mean that not all products from the most important industries will be transported, passenger and freight flows will switch to road transport, and, as a result, there will be a fall in GDP and lost national revenue.

This pattern is not new, therefore, investment in transport is growing, and it is a global trend. According to forecasts made by the Organisation for Economic Co-operation and Development (OECD), the total amount of investment needed for different transport modes in the world till 2030 is to amount up to $3 trillion for airports and sea ports, and $5 trillion for railways. The latter is considered as a priority. 



Revitalising Effect



Research undertaken by the World Bank shows that investment in infrastructure gives a fast result amid an economy recovering after the crisis: new jobs appear in the construction sector, and the increase in employment helps to support consumption. The main thing is that short-term demand is followed by long-term multiplier effects. They can be different and depend on the country, the region, and the sector. If the economy is developed, and when state expenses grow by 1%, the additional growth of the GDP can be 0.1-0.2 percen­tage points. During recession, the multiplier effect of state investment increases to 1-1.5 percentage points (p.p.) against 0-0.5 during the explosive growth period. For the Russian railway sector, every rouble invested in it is multiplied in the RF economy by 1.85.

The positive effect from increasing state investment is proved by the example of Poland, which in 2009-2011 expanded funding of ageing infrastructure when preparing for the European football championships. An increase in expenditure from 3.5% to 4.5% of GDP in 2005-2008 added 0.25 percentage points to its growth rates, additional investment of 1% of the GDP speeded up the economic growth by 0.5 percentage points in the next half of the year, and 6-9 months later private investment began to grow. On the whole, a 1 p.p. increase of the public investment in infrastructure caused a 0.75 p.p. growth of private investment. 

It is interesting that developing economies face a more acute shortage of infrastructure, therefore, the multiplier effect from investment in transport is more significant. For example, a faster growth of investment in infrastructure in Asia in 2001-2005 allowed the countries in the region to develop faster by 1.6 p.p. on average.



What about Russia? 



Russians will remember the summer of 2013 as a time when many large scale infrastructure projects were commenced, the declared cost of which amazed even experienced experts. After the information about the construction of RUB 937 billion Moscow – Kazan high-speed railway and RUB 562 billion modernisation of the BAM and the Transsib, the RF President Vladimir Putin announced the creation of the term of the Central Ring Road construction (RUB 300 billion). Also, there were talks about new railway routes to link Moscow and the Moscow region. In its project “Updating the General Scheme of the Development of the Moscow Railway Hub till 2025”, RZD estimated the total amount of required investment at RUB 1.43 trillion.

According to the RF President’s Budget Message about Budget Policy in 2014-2016 and the RF Government Chairman’s Commitment dated June 15, 2013, the basic statements of the state programme “Development of the Transport System” were specified and corrected by the Transport Ministry. The construction of the Central Ring Road and the Moscow – Kazan high-speed line were declared as priority large scale projects, and the programme was expanded by measures targeted at the development of the transport infrastructure to host the 2018 FIFA World Cup.

The structure of funding the mentioned infrastructure projects is rather complicated. The state pays part of the funds directly from the National Welfare Fund (NWF), the volume of which was RUB 2.85 trillion or $86.9 billion on August 1, 2013. Another part is given by the government from the Russian Direct Investment Fund (RDIF), which together with co-investors is ready to invest in the project of the Central Ring Road (CRR) up to RUB 60 billion. It is supposed that the participation of the state will allow the attraction of large international so­vereign funds to finance the CRR project on favourable terms.     

The third level of investment in infrastructure facilities is regional. Of the RUB 1.43 trillion needed to upgrade the Moscow railway hub, Moscow will invest RUB 48.38 billion from its budget, another RUB 36.13 billion will be allocated by the Moscow region. The basis of the funding structure is state banks and corporations. They also get funds from the government: for example, RZD regularly sells additional issues of shares in favour of the state.  

Additionally, natural monopolies actively use different market mechanisms – from placing infrastructure bonds (last year RZD attracted more than RUB 325 billion using this mechanism) to issuing special preference shares. It is interesting that the government plans to revise the dividend policy of state companies and oblige them to pay 25% of the net profit (IFRS) to guarantee the recoupment of funds invested by the NWF and the RDIF in such security papers. 



Focus on Private Capital



The focus on investment in infrastructure as an instrument to revive the economy is supposed to attract private capital. The main way to use this mechanism is the public-private partnership (PPP). Traditionally, greater efficiency of private investment in comparison with public investment is cited as one of its main advantages. Private companies carry part of the risk, for example, a rise in the cost of the project, or a failure to meet a deadline, and take all measures necessary to avoid them. It is the participation of private companies that allows the state to begin taking fees for utilising the infrastructure – in case of 100% public funding, implementation of a fee is politically unacceptable, as a rule. 

Currently, a number of PPP transport infrastructure projects are being carried out in Russia. Among them, are the construction and utilisation of the toll road “Western High-Speed Diameter” and the Pulkovo airport in St Petersburg, bridges over the Kama and the Bui in Udmurtia and the Lena in Yakutia. The public company Russian Motorways is contributing to the development of PPP in Russia. In particular, the company controls toll sections of the motorways M-4 “Don”, M-11 Moscow – St Petersburg, CRR. Unfortunately, such companies do not actively participate in projects in the railway sector. The only project, which is under way and has some features of PPP, is the development of the Small Ring of the Moscow Railway. The situation can change after the federal law “On Public-Private Partnership” comes into force.

Roman Churakov, Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS, believes that the main national problem with private investment in infrastructure in Russia falls within neither economy nor legislation – it arises because some regions or companies have doubts about the dramatically new investment mechanism.



To Compare with Europe



In the opinion of R. Churakov, the main difference between Russian and European PPP is that there is the secondary market of projects, which are under way and can be sold to a third person. “This sale is a profitable business: if the contract documentation is structured correctly, the project can be sold with a significant profit margin after the investment phase is over,” explains the expert. When the construction phase is completed, the most risky period of the project development is over, and the market value of the project increases. Additionally, when the new facility is put into operation, it becomes possible to cut expenses on debt servicing by means of loan refinancing, which also improves the economic profile of the project. 

All the prerequisites for the sale of some projects were created in Russia, but there has been no practice of concluding such deals, because most PPP projects have not been put into operation yet. 

Choosing tried-and-trusted methods, one should remember that not all European examples of PPP were a success. For example, the English Channel Tunnel built by a private company, a 65% stake in which belongs to private shareholders, and 35% – to the governments of Great Britain and France. Its total cost was $14.9 billion, while initially the estimated cost was $5.5 billion. The term of the project practically doubled – from three to six years. Eurotunnel company had to go through the bankruptcy procedure, and it got the first profit only in 2007, 20 years after construction began. The brightest example of unsuccessful PPP is Portugal, which became the biggest state-investor in PPP in the world in 2010: the public investment in its joint projects with private companies exceeded 10% of the GDP, while the average figure in the European Union was 2% of the GDP.  

Simultaneously, the Portuguese Government had enormous liabilities. Concluding PPP agreements eagerly, the state postponed expenses until the future. The system of choosing projects was not transparent and efficient, the public party turned out to be unable to estimate risks and future expenses, and took too many risks to attract private companies. Lenders recommended Portugal not to conclude new PPP contracts, try to revise old ones to cut the size of state-financed payments, buy out a part of facilities or even scrap projects that are at early stages. This situation could have been avoided if the projects had been structured and assessed properly.



Better Never Than Bad



Russian PPP projects are rather new, and it is too early to assess their efficiency. Nevertheless, experts say now that the cost of projects in the RF is higher than abroad. Andrey Shenk, Analyst at Investcafe, says that a shining example of this is the construction of the Moscow – Kazan HSR, the cost of which is RUB 1.39 billion for one kilometer of tracks, and the cost of a similar railway in the EU countries with the same climate is RUB 0.9-1.1 billion. “The project of the CRR is also debatable. Its estimated cost is approximately RUB 1 billion for a kilometer, and the fee for using it will be 2 roubles per a kilometer for a car with the motorway’s total capacity of 70,000 cars per day. In this case, 20 years are needed to recoup investment regardless of inflation and risks, therefore, it is hard to attract investment to such a project. Similar projects in European countries with the same climate cost about RUB 500-600 million for a kilometer. The difference arises because of many expensive structures – bridges and overhead roads. Meanwhile, I think it is possible to revise the project to make it cheaper,” says A. Shenk.

“The forecast for the efficiency of PPP projects should be highly detailed. One should take into account multiplier factors of the increase in indirect revenue for the state, and it is especially valid for transport infrastructure facilities,” reminds Innokenty Ivanov, Partner at Freshfields Bruckhaus Deringer LLP. The expert is sure that despite all the difficulties, there is no alternative to the PPP as the mechanism for Russian infrastructure development. Anyway, the Government has made its choice in favour of transport infrastructure projects, and it is proved by the state programmes of the RF transport system development and the signed by the head of the country decrees about the allocation of public investment. The attraction of private investors must provide control over the efficiency of investment. Additionally, it would not hurt to create a structure to control the target utilisation of public funds and the complex coordination of investment.

By Marina Ermolenko



viewpoint

Innokenty Ivanov,

Partner at Freshfields Bruckhaus Deringer LLP:

– PPP projects are often criticised because of their cost, which is usually higher than ordinary public contracts, but critics forget about the advantages this type of partnership creates for the public party. Firstly, unlike a public contract, private investment is attracted, thus allowing important projects amid a short-term lack of public funds to be carried out. Secondly, an investor brings to the project not only funds, but know-how, which can be adopted by the public party. Thirdly, an investor is interested in the efficiency of the project, because he invests his own funds and the recoupment of investment depends on the quality of the finished facility. It is especially important that a private partner usually undertakes a significant part of the risks concerning the attraction of funds and the realisation of the project, including the risks of an increase in the estimated cost, the demand for the new facility, and the collection of the fee.



Roman Churakov, 

Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS:

– I’d like to emphasise that PPP projects stand apart not because of the lack of public investment. On the contrary, public funding often varies from 40% to 85% of capital expenses.

The problem of an increase in the construction cost, which can arise when such projects are carried out, is solved by contract mechanisms, envisaging regulation distributing risks between the public and private partners. The common rule is (if nothing different is set in the contract) that the risk of an increase in the construction cost is carried by the private partner. A public partner takes responsibility when the cost increased due to problems which the investor could neither foresee nor prevent. For example, it happens if hidden utilities or archaeological objects are found, or if the public partner has not disclosed the information about them in the project documentation or in any other manner. Then, the public partner assumes expenses caused by the delay and those suffered because of the need to remove such objects.



Evgeny Trusov, 

Deputy Head of the Department for Infrastructure Funding at VTB Capital:

– The main specific of PPP projects is the necessity to reach arrangements by several parties with different interests. The state sets requirements to the object of the contract with the minimum burden on the budget, the goal of investors is to get profit, loan holders want to have fixed revenue as well as a guaranteed recoupment and protection for their investment. Any requirement impacts on the allocation of liabilities between the parties. Making arrangements is possible only on the basis of constructive cooperation, therefore, the main objective of the public and private participants in the project is to find the balance of interests. 
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To Spend or Not to Spend?



In Q3 of 2013, the Russian econo­my’s growth was close to zero. It had previously been supposed that the trend of the slowdown of the economic growth could be reversed, but it didn’t happen. It seems at first sight that the time is not right for expenditure. Nevertheless, leading experts believe that investment in infrastructure can be a way out, because it is a key factor in the competitiveness of the national economy. Investment measures, the unclogging of bottle necks in transport infrastructure, and the development of large transport hubs are included into the federal target programme “The development of the Transport System of Russia (2010-2020)” in the framework of the governmental programme adopted by governmental decree №2600-r dated December 28, 2012. According to Oleg Belozerov, Deputy Transport Minister of Russia, insufficient use of transport advantages over national competitors causes economic losses. “Being practically in the centre of global trade routes, this country, in the opinion of experts, could have at least 10-15% of the transportation market, whilst its share is smaller by almost 84-88%,” he says. For example, on the railways, the insufficient funding of the infrastructure will mean that not all products from the most important industries will be transported, passenger and freight flows will switch to road transport, and, as a result, there will be a fall in GDP and lost national revenue.

This pattern is not new, therefore, investment in transport is growing, and it is a global trend. According to forecasts made by the Organisation for Economic Co-operation and Development (OECD), the total amount of investment needed for different transport modes in the world till 2030 is to amount up to $3 trillion for airports and sea ports, and $5 trillion for railways. The latter is considered as a priority. 



Revitalising Effect



Research undertaken by the World Bank shows that investment in infrastructure gives a fast result amid an economy recovering after the crisis: new jobs appear in the construction sector, and the increase in employment helps to support consumption. The main thing is that short-term demand is followed by long-term multiplier effects. They can be different and depend on the country, the region, and the sector. If the economy is developed, and when state expenses grow by 1%, the additional growth of the GDP can be 0.1-0.2 percen­tage points. During recession, the multiplier effect of state investment increases to 1-1.5 percentage points (p.p.) against 0-0.5 during the explosive growth period. For the Russian railway sector, every rouble invested in it is multiplied in the RF economy by 1.85.

The positive effect from increasing state investment is proved by the example of Poland, which in 2009-2011 expanded funding of ageing infrastructure when preparing for the European football championships. An increase in expenditure from 3.5% to 4.5% of GDP in 2005-2008 added 0.25 percentage points to its growth rates, additional investment of 1% of the GDP speeded up the economic growth by 0.5 percentage points in the next half of the year, and 6-9 months later private investment began to grow. On the whole, a 1 p.p. increase of the public investment in infrastructure caused a 0.75 p.p. growth of private investment. 

It is interesting that developing economies face a more acute shortage of infrastructure, therefore, the multiplier effect from investment in transport is more significant. For example, a faster growth of investment in infrastructure in Asia in 2001-2005 allowed the countries in the region to develop faster by 1.6 p.p. on average.



What about Russia? 



Russians will remember the summer of 2013 as a time when many large scale infrastructure projects were commenced, the declared cost of which amazed even experienced experts. After the information about the construction of RUB 937 billion Moscow – Kazan high-speed railway and RUB 562 billion modernisation of the BAM and the Transsib, the RF President Vladimir Putin announced the creation of the term of the Central Ring Road construction (RUB 300 billion). Also, there were talks about new railway routes to link Moscow and the Moscow region. In its project “Updating the General Scheme of the Development of the Moscow Railway Hub till 2025”, RZD estimated the total amount of required investment at RUB 1.43 trillion.

According to the RF President’s Budget Message about Budget Policy in 2014-2016 and the RF Government Chairman’s Commitment dated June 15, 2013, the basic statements of the state programme “Development of the Transport System” were specified and corrected by the Transport Ministry. The construction of the Central Ring Road and the Moscow – Kazan high-speed line were declared as priority large scale projects, and the programme was expanded by measures targeted at the development of the transport infrastructure to host the 2018 FIFA World Cup.

The structure of funding the mentioned infrastructure projects is rather complicated. The state pays part of the funds directly from the National Welfare Fund (NWF), the volume of which was RUB 2.85 trillion or $86.9 billion on August 1, 2013. Another part is given by the government from the Russian Direct Investment Fund (RDIF), which together with co-investors is ready to invest in the project of the Central Ring Road (CRR) up to RUB 60 billion. It is supposed that the participation of the state will allow the attraction of large international so­vereign funds to finance the CRR project on favourable terms.     

The third level of investment in infrastructure facilities is regional. Of the RUB 1.43 trillion needed to upgrade the Moscow railway hub, Moscow will invest RUB 48.38 billion from its budget, another RUB 36.13 billion will be allocated by the Moscow region. The basis of the funding structure is state banks and corporations. They also get funds from the government: for example, RZD regularly sells additional issues of shares in favour of the state.  

Additionally, natural monopolies actively use different market mechanisms – from placing infrastructure bonds (last year RZD attracted more than RUB 325 billion using this mechanism) to issuing special preference shares. It is interesting that the government plans to revise the dividend policy of state companies and oblige them to pay 25% of the net profit (IFRS) to guarantee the recoupment of funds invested by the NWF and the RDIF in such security papers. 



Focus on Private Capital



The focus on investment in infrastructure as an instrument to revive the economy is supposed to attract private capital. The main way to use this mechanism is the public-private partnership (PPP). Traditionally, greater efficiency of private investment in comparison with public investment is cited as one of its main advantages. Private companies carry part of the risk, for example, a rise in the cost of the project, or a failure to meet a deadline, and take all measures necessary to avoid them. It is the participation of private companies that allows the state to begin taking fees for utilising the infrastructure – in case of 100% public funding, implementation of a fee is politically unacceptable, as a rule. 

Currently, a number of PPP transport infrastructure projects are being carried out in Russia. Among them, are the construction and utilisation of the toll road “Western High-Speed Diameter” and the Pulkovo airport in St Petersburg, bridges over the Kama and the Bui in Udmurtia and the Lena in Yakutia. The public company Russian Motorways is contributing to the development of PPP in Russia. In particular, the company controls toll sections of the motorways M-4 “Don”, M-11 Moscow – St Petersburg, CRR. Unfortunately, such companies do not actively participate in projects in the railway sector. The only project, which is under way and has some features of PPP, is the development of the Small Ring of the Moscow Railway. The situation can change after the federal law “On Public-Private Partnership” comes into force.

Roman Churakov, Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS, believes that the main national problem with private investment in infrastructure in Russia falls within neither economy nor legislation – it arises because some regions or companies have doubts about the dramatically new investment mechanism.



To Compare with Europe



In the opinion of R. Churakov, the main difference between Russian and European PPP is that there is the secondary market of projects, which are under way and can be sold to a third person. “This sale is a profitable business: if the contract documentation is structured correctly, the project can be sold with a significant profit margin after the investment phase is over,” explains the expert. When the construction phase is completed, the most risky period of the project development is over, and the market value of the project increases. Additionally, when the new facility is put into operation, it becomes possible to cut expenses on debt servicing by means of loan refinancing, which also improves the economic profile of the project. 

All the prerequisites for the sale of some projects were created in Russia, but there has been no practice of concluding such deals, because most PPP projects have not been put into operation yet. 

Choosing tried-and-trusted methods, one should remember that not all European examples of PPP were a success. For example, the English Channel Tunnel built by a private company, a 65% stake in which belongs to private shareholders, and 35% – to the governments of Great Britain and France. Its total cost was $14.9 billion, while initially the estimated cost was $5.5 billion. The term of the project practically doubled – from three to six years. Eurotunnel company had to go through the bankruptcy procedure, and it got the first profit only in 2007, 20 years after construction began. The brightest example of unsuccessful PPP is Portugal, which became the biggest state-investor in PPP in the world in 2010: the public investment in its joint projects with private companies exceeded 10% of the GDP, while the average figure in the European Union was 2% of the GDP.  

Simultaneously, the Portuguese Government had enormous liabilities. Concluding PPP agreements eagerly, the state postponed expenses until the future. The system of choosing projects was not transparent and efficient, the public party turned out to be unable to estimate risks and future expenses, and took too many risks to attract private companies. Lenders recommended Portugal not to conclude new PPP contracts, try to revise old ones to cut the size of state-financed payments, buy out a part of facilities or even scrap projects that are at early stages. This situation could have been avoided if the projects had been structured and assessed properly.



Better Never Than Bad



Russian PPP projects are rather new, and it is too early to assess their efficiency. Nevertheless, experts say now that the cost of projects in the RF is higher than abroad. Andrey Shenk, Analyst at Investcafe, says that a shining example of this is the construction of the Moscow – Kazan HSR, the cost of which is RUB 1.39 billion for one kilometer of tracks, and the cost of a similar railway in the EU countries with the same climate is RUB 0.9-1.1 billion. “The project of the CRR is also debatable. Its estimated cost is approximately RUB 1 billion for a kilometer, and the fee for using it will be 2 roubles per a kilometer for a car with the motorway’s total capacity of 70,000 cars per day. In this case, 20 years are needed to recoup investment regardless of inflation and risks, therefore, it is hard to attract investment to such a project. Similar projects in European countries with the same climate cost about RUB 500-600 million for a kilometer. The difference arises because of many expensive structures – bridges and overhead roads. Meanwhile, I think it is possible to revise the project to make it cheaper,” says A. Shenk.

“The forecast for the efficiency of PPP projects should be highly detailed. One should take into account multiplier factors of the increase in indirect revenue for the state, and it is especially valid for transport infrastructure facilities,” reminds Innokenty Ivanov, Partner at Freshfields Bruckhaus Deringer LLP. The expert is sure that despite all the difficulties, there is no alternative to the PPP as the mechanism for Russian infrastructure development. Anyway, the Government has made its choice in favour of transport infrastructure projects, and it is proved by the state programmes of the RF transport system development and the signed by the head of the country decrees about the allocation of public investment. The attraction of private investors must provide control over the efficiency of investment. Additionally, it would not hurt to create a structure to control the target utilisation of public funds and the complex coordination of investment.

By Marina Ermolenko



viewpoint

Innokenty Ivanov,

Partner at Freshfields Bruckhaus Deringer LLP:

– PPP projects are often criticised because of their cost, which is usually higher than ordinary public contracts, but critics forget about the advantages this type of partnership creates for the public party. Firstly, unlike a public contract, private investment is attracted, thus allowing important projects amid a short-term lack of public funds to be carried out. Secondly, an investor brings to the project not only funds, but know-how, which can be adopted by the public party. Thirdly, an investor is interested in the efficiency of the project, because he invests his own funds and the recoupment of investment depends on the quality of the finished facility. It is especially important that a private partner usually undertakes a significant part of the risks concerning the attraction of funds and the realisation of the project, including the risks of an increase in the estimated cost, the demand for the new facility, and the collection of the fee.



Roman Churakov, 

Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS:

– I’d like to emphasise that PPP projects stand apart not because of the lack of public investment. On the contrary, public funding often varies from 40% to 85% of capital expenses.

The problem of an increase in the construction cost, which can arise when such projects are carried out, is solved by contract mechanisms, envisaging regulation distributing risks between the public and private partners. The common rule is (if nothing different is set in the contract) that the risk of an increase in the construction cost is carried by the private partner. A public partner takes responsibility when the cost increased due to problems which the investor could neither foresee nor prevent. For example, it happens if hidden utilities or archaeological objects are found, or if the public partner has not disclosed the information about them in the project documentation or in any other manner. Then, the public partner assumes expenses caused by the delay and those suffered because of the need to remove such objects.



Evgeny Trusov, 

Deputy Head of the Department for Infrastructure Funding at VTB Capital:

– The main specific of PPP projects is the necessity to reach arrangements by several parties with different interests. The state sets requirements to the object of the contract with the minimum burden on the budget, the goal of investors is to get profit, loan holders want to have fixed revenue as well as a guaranteed recoupment and protection for their investment. Any requirement impacts on the allocation of liabilities between the parties. Making arrangements is possible only on the basis of constructive cooperation, therefore, the main objective of the public and private participants in the project is to find the balance of interests. 
    [~DETAIL_TEXT] => 
To Spend or Not to Spend?



In Q3 of 2013, the Russian econo­my’s growth was close to zero. It had previously been supposed that the trend of the slowdown of the economic growth could be reversed, but it didn’t happen. It seems at first sight that the time is not right for expenditure. Nevertheless, leading experts believe that investment in infrastructure can be a way out, because it is a key factor in the competitiveness of the national economy. Investment measures, the unclogging of bottle necks in transport infrastructure, and the development of large transport hubs are included into the federal target programme “The development of the Transport System of Russia (2010-2020)” in the framework of the governmental programme adopted by governmental decree №2600-r dated December 28, 2012. According to Oleg Belozerov, Deputy Transport Minister of Russia, insufficient use of transport advantages over national competitors causes economic losses. “Being practically in the centre of global trade routes, this country, in the opinion of experts, could have at least 10-15% of the transportation market, whilst its share is smaller by almost 84-88%,” he says. For example, on the railways, the insufficient funding of the infrastructure will mean that not all products from the most important industries will be transported, passenger and freight flows will switch to road transport, and, as a result, there will be a fall in GDP and lost national revenue.

This pattern is not new, therefore, investment in transport is growing, and it is a global trend. According to forecasts made by the Organisation for Economic Co-operation and Development (OECD), the total amount of investment needed for different transport modes in the world till 2030 is to amount up to $3 trillion for airports and sea ports, and $5 trillion for railways. The latter is considered as a priority. 



Revitalising Effect



Research undertaken by the World Bank shows that investment in infrastructure gives a fast result amid an economy recovering after the crisis: new jobs appear in the construction sector, and the increase in employment helps to support consumption. The main thing is that short-term demand is followed by long-term multiplier effects. They can be different and depend on the country, the region, and the sector. If the economy is developed, and when state expenses grow by 1%, the additional growth of the GDP can be 0.1-0.2 percen­tage points. During recession, the multiplier effect of state investment increases to 1-1.5 percentage points (p.p.) against 0-0.5 during the explosive growth period. For the Russian railway sector, every rouble invested in it is multiplied in the RF economy by 1.85.

The positive effect from increasing state investment is proved by the example of Poland, which in 2009-2011 expanded funding of ageing infrastructure when preparing for the European football championships. An increase in expenditure from 3.5% to 4.5% of GDP in 2005-2008 added 0.25 percentage points to its growth rates, additional investment of 1% of the GDP speeded up the economic growth by 0.5 percentage points in the next half of the year, and 6-9 months later private investment began to grow. On the whole, a 1 p.p. increase of the public investment in infrastructure caused a 0.75 p.p. growth of private investment. 

It is interesting that developing economies face a more acute shortage of infrastructure, therefore, the multiplier effect from investment in transport is more significant. For example, a faster growth of investment in infrastructure in Asia in 2001-2005 allowed the countries in the region to develop faster by 1.6 p.p. on average.



What about Russia? 



Russians will remember the summer of 2013 as a time when many large scale infrastructure projects were commenced, the declared cost of which amazed even experienced experts. After the information about the construction of RUB 937 billion Moscow – Kazan high-speed railway and RUB 562 billion modernisation of the BAM and the Transsib, the RF President Vladimir Putin announced the creation of the term of the Central Ring Road construction (RUB 300 billion). Also, there were talks about new railway routes to link Moscow and the Moscow region. In its project “Updating the General Scheme of the Development of the Moscow Railway Hub till 2025”, RZD estimated the total amount of required investment at RUB 1.43 trillion.

According to the RF President’s Budget Message about Budget Policy in 2014-2016 and the RF Government Chairman’s Commitment dated June 15, 2013, the basic statements of the state programme “Development of the Transport System” were specified and corrected by the Transport Ministry. The construction of the Central Ring Road and the Moscow – Kazan high-speed line were declared as priority large scale projects, and the programme was expanded by measures targeted at the development of the transport infrastructure to host the 2018 FIFA World Cup.

The structure of funding the mentioned infrastructure projects is rather complicated. The state pays part of the funds directly from the National Welfare Fund (NWF), the volume of which was RUB 2.85 trillion or $86.9 billion on August 1, 2013. Another part is given by the government from the Russian Direct Investment Fund (RDIF), which together with co-investors is ready to invest in the project of the Central Ring Road (CRR) up to RUB 60 billion. It is supposed that the participation of the state will allow the attraction of large international so­vereign funds to finance the CRR project on favourable terms.     

The third level of investment in infrastructure facilities is regional. Of the RUB 1.43 trillion needed to upgrade the Moscow railway hub, Moscow will invest RUB 48.38 billion from its budget, another RUB 36.13 billion will be allocated by the Moscow region. The basis of the funding structure is state banks and corporations. They also get funds from the government: for example, RZD regularly sells additional issues of shares in favour of the state.  

Additionally, natural monopolies actively use different market mechanisms – from placing infrastructure bonds (last year RZD attracted more than RUB 325 billion using this mechanism) to issuing special preference shares. It is interesting that the government plans to revise the dividend policy of state companies and oblige them to pay 25% of the net profit (IFRS) to guarantee the recoupment of funds invested by the NWF and the RDIF in such security papers. 



Focus on Private Capital



The focus on investment in infrastructure as an instrument to revive the economy is supposed to attract private capital. The main way to use this mechanism is the public-private partnership (PPP). Traditionally, greater efficiency of private investment in comparison with public investment is cited as one of its main advantages. Private companies carry part of the risk, for example, a rise in the cost of the project, or a failure to meet a deadline, and take all measures necessary to avoid them. It is the participation of private companies that allows the state to begin taking fees for utilising the infrastructure – in case of 100% public funding, implementation of a fee is politically unacceptable, as a rule. 

Currently, a number of PPP transport infrastructure projects are being carried out in Russia. Among them, are the construction and utilisation of the toll road “Western High-Speed Diameter” and the Pulkovo airport in St Petersburg, bridges over the Kama and the Bui in Udmurtia and the Lena in Yakutia. The public company Russian Motorways is contributing to the development of PPP in Russia. In particular, the company controls toll sections of the motorways M-4 “Don”, M-11 Moscow – St Petersburg, CRR. Unfortunately, such companies do not actively participate in projects in the railway sector. The only project, which is under way and has some features of PPP, is the development of the Small Ring of the Moscow Railway. The situation can change after the federal law “On Public-Private Partnership” comes into force.

Roman Churakov, Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS, believes that the main national problem with private investment in infrastructure in Russia falls within neither economy nor legislation – it arises because some regions or companies have doubts about the dramatically new investment mechanism.



To Compare with Europe



In the opinion of R. Churakov, the main difference between Russian and European PPP is that there is the secondary market of projects, which are under way and can be sold to a third person. “This sale is a profitable business: if the contract documentation is structured correctly, the project can be sold with a significant profit margin after the investment phase is over,” explains the expert. When the construction phase is completed, the most risky period of the project development is over, and the market value of the project increases. Additionally, when the new facility is put into operation, it becomes possible to cut expenses on debt servicing by means of loan refinancing, which also improves the economic profile of the project. 

All the prerequisites for the sale of some projects were created in Russia, but there has been no practice of concluding such deals, because most PPP projects have not been put into operation yet. 

Choosing tried-and-trusted methods, one should remember that not all European examples of PPP were a success. For example, the English Channel Tunnel built by a private company, a 65% stake in which belongs to private shareholders, and 35% – to the governments of Great Britain and France. Its total cost was $14.9 billion, while initially the estimated cost was $5.5 billion. The term of the project practically doubled – from three to six years. Eurotunnel company had to go through the bankruptcy procedure, and it got the first profit only in 2007, 20 years after construction began. The brightest example of unsuccessful PPP is Portugal, which became the biggest state-investor in PPP in the world in 2010: the public investment in its joint projects with private companies exceeded 10% of the GDP, while the average figure in the European Union was 2% of the GDP.  

Simultaneously, the Portuguese Government had enormous liabilities. Concluding PPP agreements eagerly, the state postponed expenses until the future. The system of choosing projects was not transparent and efficient, the public party turned out to be unable to estimate risks and future expenses, and took too many risks to attract private companies. Lenders recommended Portugal not to conclude new PPP contracts, try to revise old ones to cut the size of state-financed payments, buy out a part of facilities or even scrap projects that are at early stages. This situation could have been avoided if the projects had been structured and assessed properly.



Better Never Than Bad



Russian PPP projects are rather new, and it is too early to assess their efficiency. Nevertheless, experts say now that the cost of projects in the RF is higher than abroad. Andrey Shenk, Analyst at Investcafe, says that a shining example of this is the construction of the Moscow – Kazan HSR, the cost of which is RUB 1.39 billion for one kilometer of tracks, and the cost of a similar railway in the EU countries with the same climate is RUB 0.9-1.1 billion. “The project of the CRR is also debatable. Its estimated cost is approximately RUB 1 billion for a kilometer, and the fee for using it will be 2 roubles per a kilometer for a car with the motorway’s total capacity of 70,000 cars per day. In this case, 20 years are needed to recoup investment regardless of inflation and risks, therefore, it is hard to attract investment to such a project. Similar projects in European countries with the same climate cost about RUB 500-600 million for a kilometer. The difference arises because of many expensive structures – bridges and overhead roads. Meanwhile, I think it is possible to revise the project to make it cheaper,” says A. Shenk.

“The forecast for the efficiency of PPP projects should be highly detailed. One should take into account multiplier factors of the increase in indirect revenue for the state, and it is especially valid for transport infrastructure facilities,” reminds Innokenty Ivanov, Partner at Freshfields Bruckhaus Deringer LLP. The expert is sure that despite all the difficulties, there is no alternative to the PPP as the mechanism for Russian infrastructure development. Anyway, the Government has made its choice in favour of transport infrastructure projects, and it is proved by the state programmes of the RF transport system development and the signed by the head of the country decrees about the allocation of public investment. The attraction of private investors must provide control over the efficiency of investment. Additionally, it would not hurt to create a structure to control the target utilisation of public funds and the complex coordination of investment.

By Marina Ermolenko



viewpoint

Innokenty Ivanov,

Partner at Freshfields Bruckhaus Deringer LLP:

– PPP projects are often criticised because of their cost, which is usually higher than ordinary public contracts, but critics forget about the advantages this type of partnership creates for the public party. Firstly, unlike a public contract, private investment is attracted, thus allowing important projects amid a short-term lack of public funds to be carried out. Secondly, an investor brings to the project not only funds, but know-how, which can be adopted by the public party. Thirdly, an investor is interested in the efficiency of the project, because he invests his own funds and the recoupment of investment depends on the quality of the finished facility. It is especially important that a private partner usually undertakes a significant part of the risks concerning the attraction of funds and the realisation of the project, including the risks of an increase in the estimated cost, the demand for the new facility, and the collection of the fee.



Roman Churakov, 

Senior Lawyer for Infrastructure and PPP Projects at Herbert Smith Freehills CIS:

– I’d like to emphasise that PPP projects stand apart not because of the lack of public investment. On the contrary, public funding often varies from 40% to 85% of capital expenses.

The problem of an increase in the construction cost, which can arise when such projects are carried out, is solved by contract mechanisms, envisaging regulation distributing risks between the public and private partners. The common rule is (if nothing different is set in the contract) that the risk of an increase in the construction cost is carried by the private partner. A public partner takes responsibility when the cost increased due to problems which the investor could neither foresee nor prevent. For example, it happens if hidden utilities or archaeological objects are found, or if the public partner has not disclosed the information about them in the project documentation or in any other manner. Then, the public partner assumes expenses caused by the delay and those suffered because of the need to remove such objects.



Evgeny Trusov, 

Deputy Head of the Department for Infrastructure Funding at VTB Capital:

– The main specific of PPP projects is the necessity to reach arrangements by several parties with different interests. The state sets requirements to the object of the contract with the minimum burden on the budget, the goal of investors is to get profit, loan holders want to have fixed revenue as well as a guaranteed recoupment and protection for their investment. Any requirement impacts on the allocation of liabilities between the parties. Making arrangements is possible only on the basis of constructive cooperation, therefore, the main objective of the public and private participants in the project is to find the balance of interests. 
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Russia lacks transport infrastructure and funds to develop it, 

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    [~PREVIEW_TEXT] => 
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RZD and VR Cargo: Gathering Advance Information for Everyone’s Benefit

Due to electronic technology, Russian Railways and VR Group can exchange data on arriving goods online, said Marina Bobrova, Head of Transport Forwarding Department at Nurminen Logistics.

“By October 1, 2014, RZD will provide advance information about carried cargo in accordance with the requirements of customs legislation”, she explains. “In particular, the system will be used to code cargo in invoices. The system is designed to ensure compliance with the international standard commodity classification”.

According to M. Bobrova, the provision of advance information about a consignment could significantly reduce the time needed for processing data and, therefore, the time at border crossing stations. “This is a positive effect, and market players are awaiting its arrival”, she said.

On October 1, 2014, mandatory advance information about goods imported to the countries of the Customs Union by railway will be implemented. The carrier will be required to provide advance information to the customs authorities at least two hours prior to the arrival of the goods at a transit station.





The Process of Attracting Investors to Ports in Ukraine Is Delayed

Due to the fact that Ukraine is not fully ready to cooperate with investors on the basis of regulations about port reform, the investment in Ukrainian port industry has been delayed.

Yuri Vaskov, Head of the State Enterprise “Ukrainian Sea Ports Authority” (USPA), said during a discussion about reform in the port sector at a session of the Parliament of Ukraine.

According to the speaker, it affects the public sector in marine cargo handling, where there is a serious lack of funds for development.

“Unfortunately, the process of attracting private investors is very difficult, causing tension among the public port operators. Today, they are not competitive. That is why efforts should be made to attract investors now, modern port operators,” said Y.Vaskov.

At the same time, the foundations for cooperation in public ports have already been laid. It is the law “On Sea Ports.” “When the law is fully implemented, relations between the USPA and investors will become clearer. Only then will it be possible to fully judge the efficiency of the USPA,” said the speaker.



Rostransnadzor bans railway cars with 49 American side frames

On April 8, 2014, The Federal Service for State Supervision in the Transport Sector (Rostransnadzor) banned operation of freight railcars with 49 side frames produced by Amsted Rail (United States) in Russia.

The decision was made to remove the irregularities identified in the course of an investigation into a derailment in March 2014 at the Filippovka railway station. It happened because of a break in the side frame produced by Amsted Rail in 2012.

“Operation of railcars with side frames produced by Amsted Rail Company Inc. in 2012 and moulded in the same heat with the broken detail must be prohibited in Russia according to the requirements of the legislation of the Russian Federation,” says the regulation.



Bridge across the Kerch Strait Gives Russia Access to a Deep-Water Port

Establishment of the transport corridor between Taman and Kerch will give Russia access to a deep-water port, said Andrey Golubchik, Head of the Foreign Trade and Transport Practices Department at Marsh &Wilts at a press conference in Moscow.

“The bridge is required to avoid possible complications with the delivery of goods on existing routes to the Crimea. If it is built we will be able not only to perform the transportation, but also will get access to the deep-water port, Russia lacks so much,” he explained.

Funding for the project of the bridge across the Kerch Strait could reach RUB 100 billion and even exceed this amount, said Maxim Sokolov, Minister of Transport of Russia.

“The funding will clearly exceed the 50 billion already allocated, because this sum will be spent only on construction of a road bridge. Since it is a new challenge (transition should be organised both by railway and road) we will need at least RUB 80-85 billion. And if it is a double-track railway, investment will even exceed RUB 100 billion,” said M. Sokolov.

According to him, “this is understandable, because the bridge will be the longest one in Russia - 5-10 km long”.

The creation of a transport corridor between Taman and Kerch is the most large-scale and costly infrastructure project, the minister said. “All options will be considered. In any case, it will be a combined route. But whether there is one track or two depends on the plans for the development of the Kerch port and other port infrastructure in Crimea,” said the speaker.



61% of Railway Infrastructure in Russia Needs Modernisation

52,500 km of railways (61% of the total railway infrastructure) is more than 100 years old and requires modernisation, said Andrey Lebedev, Deputy Director of the Centre for Survey and Diagnostics of Engineering Facilities (an affiliate of RZD) at a scientific and technical conference in Moscow.

He also noted that there are railway lines, which are less than 100 years old, but also need modernisation. “However, between 2008 and 2013, 17,500 km of lines, i.e. 16.7% of the total number of railways, was upgraded,” he said.



The Main problem of Logistics in Russia Is Interoperation of Various Transport Modes

Currently, the main problem for development of 3PL and 4PL services in Russia is the use of different transport modes, Alexander Polikarpov, Head of the Cargo Transportation Research Department of the Institute for Natural Monopolies said.

“For example, a lack of coordination between the port and the railway limits carrying capacities, cancels trains and, as a result, delays delivery,” explained the expert.

Considering the fact that nowadays the customers of transport companies need integrated logistics and door to door supply chains, A. Polikarpov noted that “unfortunately, such services using different transport modes in this country are still underdeveloped.” The expert believes that, because of its specifics only a truck can deliver cargo “from door to door” directly, and motor vehicles are required for the other modes of transport anyway.

“Modern Russian logisticians don’t believe in transportation by rail,” he added. “And their attitude is partly justified. However, the introduction of governmental measures to remove road transporters from the shadow economy will increase the attractiveness of railways.” At the same time, according to the expert, railways must become more customer-friendly to attract customers. “The technology to optimise integration into other transport networks, reduce the delivery time of goods, and ensure the reliability of the agreed delivery times, should be implemented,” he explained.

The expert also noted positive trends in the development of domestic logistics, such as the establishment of the company “RZD Logistics”, focused on the development of a sophisticated door to door service, as well as the introduction of other new services (for example, “The Transsib in 7 Days” service) and working on developing cargo train timetabling.

We should note that according to research by the World Bank entitled “Connecting to Compete: Trade Logistics in the Global Economy”, Russia was only 90-th of the 160 countries ranked by logistic performance index (LPI).



Federal Freight Contributes to Development of Piggyback Transportation in Russia

The Federal Freight (Federal Cargo Company) is involved in the process of formation and development of piggyback transport in Russia, said Vitaly Evdokimenko, CEO of the company, during the Moscow International Conference entitled “Development of Container and Piggyback Transport Services in Russia through Transport and Logistics Centers”.

As the press service of the operator said, a specialised flat wagon (model 13-9961) was created and certified to perform piggyback transportation on the pilot route linking Moscow and Helsinki.

V. Evdokimenko, noted that the technology, which is called the “rolling motorway” (RO-MO) in Europe, was chosen for Russia. This model is the best in terms of universality and infrastructure requirements. In addition, it allows the combination of vehicle and container transportation through a single technical solution.

The priority for the implementation of the project is to change the current legislation: special container dimensions, changes in transport, weight, and dimensional control procedures applied to vehicles. This will create an optimal technology of this type of transportation that meets the requirements of vehicle owners in terms of shipping and handling vehicles at the terminal. The issues of terminal infrastructure, as well as pricing for this type of transportation, are also very important. According to Federal Freight, piggyback services on the Moscow-Helsinki route can be efficient if the delivery time is 1-1.5 days and a through rate for door to door transportation is less than RUB 95,000. The cost of a specialised flat wagon in this case will be minimal and will not exceed 4-5% of the total transport costs, providing a competitive price.



Two Pilot Trains Run through Khasan-Rajin 

Two freight trains, each consisting of 65 wagons loaded with coal from the Kuzbass region in Russia, left from the West Siberian Railway at the end of March 2014. One of the trains has already reached the Far Eastern Railway, the second is currently travelling on the Transbaikal Main Line. Both the West Siberian Railway and the Far Eastern Railway are regional divisions of Russian Railways.

The two trains, which are carrying a total cargo of 9 tons, will arrive at the Khasan border station in the Russian Federation before departing for Tumangan station in North Korea, where the coal will be further transshipped to the port of Rajin.

The purpose of the test run on the new route is to shorten the overall transportation process, customs clearance and cargo handling at port.

The project is being implemented by the RasonKonTrans joint venture, which was set up in 2008 with a 70% equity stake from the RZD Trading House and the remaining 30% from the North Korean port of Rajin. It includes the reconstruction of the railway line between Tumangan – Rajin, the construction of a container terminal at the port of Rajin and the subsequent operation of the infrastructure.

The work was financed using the authorised capital of RasonKonTrans and funds the JV borrowed on the basis of the business plan.

The official opening of the Khasan – Rajin railway section took place on 22 September 2013.

During the works, the reconstruction of 54km of combined railway track with a width of 1435mm and 1520mm was undertaken and a number of artificial structures restored: 18 bridges, 12 culverts and 3 tunnels with a total length of over 4.5 km. In addition, modern signalling, centralisation, blocking and communications equipment was installed.

As part of the construction of the universal transshipment terminal at the port of Rajin, a range of additional activities was also conducted, including dredging, the construction of a new quay wall, equipping the warehouse areas, construction of industrial and office buildings and facilities and laying railway tracks within the terminal itself.

On completion of the project, additional traffic will be attracted to the Trans-Siberian Railway. Freight traffic on the Khasan – Rajin line via the port of Rajin is expected to reach about 4 million tons per annum.



Moscow-Kazan HSR is included in Russia’s territorial planning scheme

The high-speed railway line between Moscow – Vladimir – Nizhny Novgorod – Kazan, which has been designed to handle train speeds of up to 400 kph, has been included in the Russian Federation’s territorial planning scheme 

A corresponding decree, No. 429-R, was signed by Russian Prime Minister Dmitry Medvedev on 22.03.2014. In accordance with the document, changes have been made to the Russian Federation’s territorial planning scheme regarding federal transportation (rail, air, sea and inland waterways) and federal roads as approved by the Federal Government on 19 March 2013 № 384-r, including the high-speed 770km railway between Moscow – Kazan.

The scheme involves the construction of railway stations and separate points with track development, including three stations: Kursk Station in Moscow (with a total area of 49,100 m²), Moscow Station in Nizhny Novgorod (total area of 32,700m²) and Kazan Terminal -2 in Kazan (10,800 m²); 9 other stations on the Noginsk, Orekhovo-Zuevo, Petushki, Vladimir, Kovrov, Dzerzhinsk, Aeroport, Cheboksary and Pomary high-speed lines; 3 passing points for trains, and 17 traffic control points.



Progress on the First Phase of Transsib-BAM Modernisation

The Federation Council has held parliamentary hearings concerning the reconstruction of the Baikal-Amur Mainline and the Trans-Siberian Mainline with regard to the development of various constituent parts of the Russian Federation. 

The hearings were held on March 26, 2014, and organised by the Federation Council’s Committee on Economic Policy. The hearings were attended by senators and representatives from Russia’s regions, the relevant ministries and departments, research institutes and Russian Railways.

As Vice President and Secretary of State at Russian Railways Anatoly Mescheryakov told the hearings, a whole series of preparatory measures have already been taken to develop the infrastructure of Eastern Russia

In particular, an independent audit of the technology and cost of the project involving the world’s leading auditors has been carried out. The results of this audit were discussed at the expert and public hearings and sent to the Government of the Russian Federation. They indicate that, given the current state of the project as prepared by Russian Railways, the material has been fully evaluated.

In view of comments and suggestions made during the discussions, Russian Railways has worked to improve the project’s efficiency.

Thus, comments of a technological nature have been taken into account and it has been decided to carry out a cost audit during the development and approval stage of the design specifications and estimates with a view to the cost of a number of major undertakings.

An appropriate decision - the technical terms of reference and instructions on selecting the auditing firms - has been presented to the Board of Directors at Russian Railways.

In the regions through which the Baikal-Amur and Trans-Siberian railways pass, design work is currently under way and a schedule for the design, exploration, construction and installation works has been prepared with the assistance of local design institutes.

The participants in the parliamentary hearings recognised that it was appropriate to recognise the progress of the first phase of the reconstruction and modernisation work on the BAM and Trans-Siberian railways.

It has been recommended to the Russian government to approve the volume of the cargo base for the project by taking into account the shipment of coal from Russia’s Kuzbass region, and to consider funding for the second phase of the project.

It was also recommended to consider allocating funds from the National Welfare Fund to the project for developing electrical power facilities in Russia’s Far East and Trans-Baikal regions, including ensuring adequate provision for the growing needs of Eastern Russia’s main railway lines.



China increases railway investment in 2014

China will increase railway fixed asset investment to 720 billion yuan (117.09 billion U.S. dollars) in 2014, Sheng Guangzu, general manager of the China Railway Corporation (CRC), has revealed. The objective is to meet market demand. Forty-nine new projects and over 7,000 kilometers of new railway lines will be put into operation this year.

The former plan set at the beginning of the year targeted 700 billion yuan of fixed asset investment, 44 new projects and 6,600 kilometers of new railway lines, according to the CRC.

Sheng said that 78 percent of all construction investment will be in central and western regions, which will have 86 percent of this year’s newly operated railways.

According to a five-year plan from 2011 to 2015, 230,000 kilometers of new railway lines will be built in central and western regions, with an investment of 1.85 trillion yuan.  The general manager said from 2011 to 2013, 1.15 trillion yuan had been invested in the two regions.
    [~DETAIL_TEXT] => 
RZD and VR Cargo: Gathering Advance Information for Everyone’s Benefit

Due to electronic technology, Russian Railways and VR Group can exchange data on arriving goods online, said Marina Bobrova, Head of Transport Forwarding Department at Nurminen Logistics.

“By October 1, 2014, RZD will provide advance information about carried cargo in accordance with the requirements of customs legislation”, she explains. “In particular, the system will be used to code cargo in invoices. The system is designed to ensure compliance with the international standard commodity classification”.

According to M. Bobrova, the provision of advance information about a consignment could significantly reduce the time needed for processing data and, therefore, the time at border crossing stations. “This is a positive effect, and market players are awaiting its arrival”, she said.

On October 1, 2014, mandatory advance information about goods imported to the countries of the Customs Union by railway will be implemented. The carrier will be required to provide advance information to the customs authorities at least two hours prior to the arrival of the goods at a transit station.





The Process of Attracting Investors to Ports in Ukraine Is Delayed

Due to the fact that Ukraine is not fully ready to cooperate with investors on the basis of regulations about port reform, the investment in Ukrainian port industry has been delayed.

Yuri Vaskov, Head of the State Enterprise “Ukrainian Sea Ports Authority” (USPA), said during a discussion about reform in the port sector at a session of the Parliament of Ukraine.

According to the speaker, it affects the public sector in marine cargo handling, where there is a serious lack of funds for development.

“Unfortunately, the process of attracting private investors is very difficult, causing tension among the public port operators. Today, they are not competitive. That is why efforts should be made to attract investors now, modern port operators,” said Y.Vaskov.

At the same time, the foundations for cooperation in public ports have already been laid. It is the law “On Sea Ports.” “When the law is fully implemented, relations between the USPA and investors will become clearer. Only then will it be possible to fully judge the efficiency of the USPA,” said the speaker.



Rostransnadzor bans railway cars with 49 American side frames

On April 8, 2014, The Federal Service for State Supervision in the Transport Sector (Rostransnadzor) banned operation of freight railcars with 49 side frames produced by Amsted Rail (United States) in Russia.

The decision was made to remove the irregularities identified in the course of an investigation into a derailment in March 2014 at the Filippovka railway station. It happened because of a break in the side frame produced by Amsted Rail in 2012.

“Operation of railcars with side frames produced by Amsted Rail Company Inc. in 2012 and moulded in the same heat with the broken detail must be prohibited in Russia according to the requirements of the legislation of the Russian Federation,” says the regulation.



Bridge across the Kerch Strait Gives Russia Access to a Deep-Water Port

Establishment of the transport corridor between Taman and Kerch will give Russia access to a deep-water port, said Andrey Golubchik, Head of the Foreign Trade and Transport Practices Department at Marsh &Wilts at a press conference in Moscow.

“The bridge is required to avoid possible complications with the delivery of goods on existing routes to the Crimea. If it is built we will be able not only to perform the transportation, but also will get access to the deep-water port, Russia lacks so much,” he explained.

Funding for the project of the bridge across the Kerch Strait could reach RUB 100 billion and even exceed this amount, said Maxim Sokolov, Minister of Transport of Russia.

“The funding will clearly exceed the 50 billion already allocated, because this sum will be spent only on construction of a road bridge. Since it is a new challenge (transition should be organised both by railway and road) we will need at least RUB 80-85 billion. And if it is a double-track railway, investment will even exceed RUB 100 billion,” said M. Sokolov.

According to him, “this is understandable, because the bridge will be the longest one in Russia - 5-10 km long”.

The creation of a transport corridor between Taman and Kerch is the most large-scale and costly infrastructure project, the minister said. “All options will be considered. In any case, it will be a combined route. But whether there is one track or two depends on the plans for the development of the Kerch port and other port infrastructure in Crimea,” said the speaker.



61% of Railway Infrastructure in Russia Needs Modernisation

52,500 km of railways (61% of the total railway infrastructure) is more than 100 years old and requires modernisation, said Andrey Lebedev, Deputy Director of the Centre for Survey and Diagnostics of Engineering Facilities (an affiliate of RZD) at a scientific and technical conference in Moscow.

He also noted that there are railway lines, which are less than 100 years old, but also need modernisation. “However, between 2008 and 2013, 17,500 km of lines, i.e. 16.7% of the total number of railways, was upgraded,” he said.



The Main problem of Logistics in Russia Is Interoperation of Various Transport Modes

Currently, the main problem for development of 3PL and 4PL services in Russia is the use of different transport modes, Alexander Polikarpov, Head of the Cargo Transportation Research Department of the Institute for Natural Monopolies said.

“For example, a lack of coordination between the port and the railway limits carrying capacities, cancels trains and, as a result, delays delivery,” explained the expert.

Considering the fact that nowadays the customers of transport companies need integrated logistics and door to door supply chains, A. Polikarpov noted that “unfortunately, such services using different transport modes in this country are still underdeveloped.” The expert believes that, because of its specifics only a truck can deliver cargo “from door to door” directly, and motor vehicles are required for the other modes of transport anyway.

“Modern Russian logisticians don’t believe in transportation by rail,” he added. “And their attitude is partly justified. However, the introduction of governmental measures to remove road transporters from the shadow economy will increase the attractiveness of railways.” At the same time, according to the expert, railways must become more customer-friendly to attract customers. “The technology to optimise integration into other transport networks, reduce the delivery time of goods, and ensure the reliability of the agreed delivery times, should be implemented,” he explained.

The expert also noted positive trends in the development of domestic logistics, such as the establishment of the company “RZD Logistics”, focused on the development of a sophisticated door to door service, as well as the introduction of other new services (for example, “The Transsib in 7 Days” service) and working on developing cargo train timetabling.

We should note that according to research by the World Bank entitled “Connecting to Compete: Trade Logistics in the Global Economy”, Russia was only 90-th of the 160 countries ranked by logistic performance index (LPI).



Federal Freight Contributes to Development of Piggyback Transportation in Russia

The Federal Freight (Federal Cargo Company) is involved in the process of formation and development of piggyback transport in Russia, said Vitaly Evdokimenko, CEO of the company, during the Moscow International Conference entitled “Development of Container and Piggyback Transport Services in Russia through Transport and Logistics Centers”.

As the press service of the operator said, a specialised flat wagon (model 13-9961) was created and certified to perform piggyback transportation on the pilot route linking Moscow and Helsinki.

V. Evdokimenko, noted that the technology, which is called the “rolling motorway” (RO-MO) in Europe, was chosen for Russia. This model is the best in terms of universality and infrastructure requirements. In addition, it allows the combination of vehicle and container transportation through a single technical solution.

The priority for the implementation of the project is to change the current legislation: special container dimensions, changes in transport, weight, and dimensional control procedures applied to vehicles. This will create an optimal technology of this type of transportation that meets the requirements of vehicle owners in terms of shipping and handling vehicles at the terminal. The issues of terminal infrastructure, as well as pricing for this type of transportation, are also very important. According to Federal Freight, piggyback services on the Moscow-Helsinki route can be efficient if the delivery time is 1-1.5 days and a through rate for door to door transportation is less than RUB 95,000. The cost of a specialised flat wagon in this case will be minimal and will not exceed 4-5% of the total transport costs, providing a competitive price.



Two Pilot Trains Run through Khasan-Rajin 

Two freight trains, each consisting of 65 wagons loaded with coal from the Kuzbass region in Russia, left from the West Siberian Railway at the end of March 2014. One of the trains has already reached the Far Eastern Railway, the second is currently travelling on the Transbaikal Main Line. Both the West Siberian Railway and the Far Eastern Railway are regional divisions of Russian Railways.

The two trains, which are carrying a total cargo of 9 tons, will arrive at the Khasan border station in the Russian Federation before departing for Tumangan station in North Korea, where the coal will be further transshipped to the port of Rajin.

The purpose of the test run on the new route is to shorten the overall transportation process, customs clearance and cargo handling at port.

The project is being implemented by the RasonKonTrans joint venture, which was set up in 2008 with a 70% equity stake from the RZD Trading House and the remaining 30% from the North Korean port of Rajin. It includes the reconstruction of the railway line between Tumangan – Rajin, the construction of a container terminal at the port of Rajin and the subsequent operation of the infrastructure.

The work was financed using the authorised capital of RasonKonTrans and funds the JV borrowed on the basis of the business plan.

The official opening of the Khasan – Rajin railway section took place on 22 September 2013.

During the works, the reconstruction of 54km of combined railway track with a width of 1435mm and 1520mm was undertaken and a number of artificial structures restored: 18 bridges, 12 culverts and 3 tunnels with a total length of over 4.5 km. In addition, modern signalling, centralisation, blocking and communications equipment was installed.

As part of the construction of the universal transshipment terminal at the port of Rajin, a range of additional activities was also conducted, including dredging, the construction of a new quay wall, equipping the warehouse areas, construction of industrial and office buildings and facilities and laying railway tracks within the terminal itself.

On completion of the project, additional traffic will be attracted to the Trans-Siberian Railway. Freight traffic on the Khasan – Rajin line via the port of Rajin is expected to reach about 4 million tons per annum.



Moscow-Kazan HSR is included in Russia’s territorial planning scheme

The high-speed railway line between Moscow – Vladimir – Nizhny Novgorod – Kazan, which has been designed to handle train speeds of up to 400 kph, has been included in the Russian Federation’s territorial planning scheme 

A corresponding decree, No. 429-R, was signed by Russian Prime Minister Dmitry Medvedev on 22.03.2014. In accordance with the document, changes have been made to the Russian Federation’s territorial planning scheme regarding federal transportation (rail, air, sea and inland waterways) and federal roads as approved by the Federal Government on 19 March 2013 № 384-r, including the high-speed 770km railway between Moscow – Kazan.

The scheme involves the construction of railway stations and separate points with track development, including three stations: Kursk Station in Moscow (with a total area of 49,100 m²), Moscow Station in Nizhny Novgorod (total area of 32,700m²) and Kazan Terminal -2 in Kazan (10,800 m²); 9 other stations on the Noginsk, Orekhovo-Zuevo, Petushki, Vladimir, Kovrov, Dzerzhinsk, Aeroport, Cheboksary and Pomary high-speed lines; 3 passing points for trains, and 17 traffic control points.



Progress on the First Phase of Transsib-BAM Modernisation

The Federation Council has held parliamentary hearings concerning the reconstruction of the Baikal-Amur Mainline and the Trans-Siberian Mainline with regard to the development of various constituent parts of the Russian Federation. 

The hearings were held on March 26, 2014, and organised by the Federation Council’s Committee on Economic Policy. The hearings were attended by senators and representatives from Russia’s regions, the relevant ministries and departments, research institutes and Russian Railways.

As Vice President and Secretary of State at Russian Railways Anatoly Mescheryakov told the hearings, a whole series of preparatory measures have already been taken to develop the infrastructure of Eastern Russia

In particular, an independent audit of the technology and cost of the project involving the world’s leading auditors has been carried out. The results of this audit were discussed at the expert and public hearings and sent to the Government of the Russian Federation. They indicate that, given the current state of the project as prepared by Russian Railways, the material has been fully evaluated.

In view of comments and suggestions made during the discussions, Russian Railways has worked to improve the project’s efficiency.

Thus, comments of a technological nature have been taken into account and it has been decided to carry out a cost audit during the development and approval stage of the design specifications and estimates with a view to the cost of a number of major undertakings.

An appropriate decision - the technical terms of reference and instructions on selecting the auditing firms - has been presented to the Board of Directors at Russian Railways.

In the regions through which the Baikal-Amur and Trans-Siberian railways pass, design work is currently under way and a schedule for the design, exploration, construction and installation works has been prepared with the assistance of local design institutes.

The participants in the parliamentary hearings recognised that it was appropriate to recognise the progress of the first phase of the reconstruction and modernisation work on the BAM and Trans-Siberian railways.

It has been recommended to the Russian government to approve the volume of the cargo base for the project by taking into account the shipment of coal from Russia’s Kuzbass region, and to consider funding for the second phase of the project.

It was also recommended to consider allocating funds from the National Welfare Fund to the project for developing electrical power facilities in Russia’s Far East and Trans-Baikal regions, including ensuring adequate provision for the growing needs of Eastern Russia’s main railway lines.



China increases railway investment in 2014

China will increase railway fixed asset investment to 720 billion yuan (117.09 billion U.S. dollars) in 2014, Sheng Guangzu, general manager of the China Railway Corporation (CRC), has revealed. The objective is to meet market demand. Forty-nine new projects and over 7,000 kilometers of new railway lines will be put into operation this year.

The former plan set at the beginning of the year targeted 700 billion yuan of fixed asset investment, 44 new projects and 6,600 kilometers of new railway lines, according to the CRC.

Sheng said that 78 percent of all construction investment will be in central and western regions, which will have 86 percent of this year’s newly operated railways.

According to a five-year plan from 2011 to 2015, 230,000 kilometers of new railway lines will be built in central and western regions, with an investment of 1.85 trillion yuan.  The general manager said from 2011 to 2013, 1.15 trillion yuan had been invested in the two regions.
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RZD and VR Cargo: Gathering Advance Information for Everyone’s Benefit

Due to electronic technology, Russian Railways and VR Group can exchange data on arriving goods online, said Marina Bobrova, Head of Transport Forwarding Department at Nurminen Logistics.

“By October 1, 2014, RZD will provide advance information about carried cargo in accordance with the requirements of customs legislation”, she explains. “In particular, the system will be used to code cargo in invoices. The system is designed to ensure compliance with the international standard commodity classification”.

According to M. Bobrova, the provision of advance information about a consignment could significantly reduce the time needed for processing data and, therefore, the time at border crossing stations. “This is a positive effect, and market players are awaiting its arrival”, she said.

On October 1, 2014, mandatory advance information about goods imported to the countries of the Customs Union by railway will be implemented. The carrier will be required to provide advance information to the customs authorities at least two hours prior to the arrival of the goods at a transit station.





The Process of Attracting Investors to Ports in Ukraine Is Delayed

Due to the fact that Ukraine is not fully ready to cooperate with investors on the basis of regulations about port reform, the investment in Ukrainian port industry has been delayed.

Yuri Vaskov, Head of the State Enterprise “Ukrainian Sea Ports Authority” (USPA), said during a discussion about reform in the port sector at a session of the Parliament of Ukraine.

According to the speaker, it affects the public sector in marine cargo handling, where there is a serious lack of funds for development.

“Unfortunately, the process of attracting private investors is very difficult, causing tension among the public port operators. Today, they are not competitive. That is why efforts should be made to attract investors now, modern port operators,” said Y.Vaskov.

At the same time, the foundations for cooperation in public ports have already been laid. It is the law “On Sea Ports.” “When the law is fully implemented, relations between the USPA and investors will become clearer. Only then will it be possible to fully judge the efficiency of the USPA,” said the speaker.



Rostransnadzor bans railway cars with 49 American side frames

On April 8, 2014, The Federal Service for State Supervision in the Transport Sector (Rostransnadzor) banned operation of freight railcars with 49 side frames produced by Amsted Rail (United States) in Russia.

The decision was made to remove the irregularities identified in the course of an investigation into a derailment in March 2014 at the Filippovka railway station. It happened because of a break in the side frame produced by Amsted Rail in 2012.

“Operation of railcars with side frames produced by Amsted Rail Company Inc. in 2012 and moulded in the same heat with the broken detail must be prohibited in Russia according to the requirements of the legislation of the Russian Federation,” says the regulation.



Bridge across the Kerch Strait Gives Russia Access to a Deep-Water Port

Establishment of the transport corridor between Taman and Kerch will give Russia access to a deep-water port, said Andrey Golubchik, Head of the Foreign Trade and Transport Practices Department at Marsh &Wilts at a press conference in Moscow.

“The bridge is required to avoid possible complications with the delivery of goods on existing routes to the Crimea. If it is built we will be able not only to perform the transportation, but also will get access to the deep-water port, Russia lacks so much,” he explained.

Funding for the project of the bridge across the Kerch Strait could reach RUB 100 billion and even exceed this amount, said Maxim Sokolov, Minister of Transport of Russia.

“The funding will clearly exceed the 50 billion already allocated, because this sum will be spent only on construction of a road bridge. Since it is a new challenge (transition should be organised both by railway and road) we will need at least RUB 80-85 billion. And if it is a double-track railway, investment will even exceed RUB 100 billion,” said M. Sokolov.

According to him, “this is understandable, because the bridge will be the longest one in Russia - 5-10 km long”.

The creation of a transport corridor between Taman and Kerch is the most large-scale and costly infrastructure project, the minister said. “All options will be considered. In any case, it will be a combined route. But whether there is one track or two depends on the plans for the development of the Kerch port and other port infrastructure in Crimea,” said the speaker.



61% of Railway Infrastructure in Russia Needs Modernisation

52,500 km of railways (61% of the total railway infrastructure) is more than 100 years old and requires modernisation, said Andrey Lebedev, Deputy Director of the Centre for Survey and Diagnostics of Engineering Facilities (an affiliate of RZD) at a scientific and technical conference in Moscow.

He also noted that there are railway lines, which are less than 100 years old, but also need modernisation. “However, between 2008 and 2013, 17,500 km of lines, i.e. 16.7% of the total number of railways, was upgraded,” he said.



The Main problem of Logistics in Russia Is Interoperation of Various Transport Modes

Currently, the main problem for development of 3PL and 4PL services in Russia is the use of different transport modes, Alexander Polikarpov, Head of the Cargo Transportation Research Department of the Institute for Natural Monopolies said.

“For example, a lack of coordination between the port and the railway limits carrying capacities, cancels trains and, as a result, delays delivery,” explained the expert.

Considering the fact that nowadays the customers of transport companies need integrated logistics and door to door supply chains, A. Polikarpov noted that “unfortunately, such services using different transport modes in this country are still underdeveloped.” The expert believes that, because of its specifics only a truck can deliver cargo “from door to door” directly, and motor vehicles are required for the other modes of transport anyway.

“Modern Russian logisticians don’t believe in transportation by rail,” he added. “And their attitude is partly justified. However, the introduction of governmental measures to remove road transporters from the shadow economy will increase the attractiveness of railways.” At the same time, according to the expert, railways must become more customer-friendly to attract customers. “The technology to optimise integration into other transport networks, reduce the delivery time of goods, and ensure the reliability of the agreed delivery times, should be implemented,” he explained.

The expert also noted positive trends in the development of domestic logistics, such as the establishment of the company “RZD Logistics”, focused on the development of a sophisticated door to door service, as well as the introduction of other new services (for example, “The Transsib in 7 Days” service) and working on developing cargo train timetabling.

We should note that according to research by the World Bank entitled “Connecting to Compete: Trade Logistics in the Global Economy”, Russia was only 90-th of the 160 countries ranked by logistic performance index (LPI).



Federal Freight Contributes to Development of Piggyback Transportation in Russia

The Federal Freight (Federal Cargo Company) is involved in the process of formation and development of piggyback transport in Russia, said Vitaly Evdokimenko, CEO of the company, during the Moscow International Conference entitled “Development of Container and Piggyback Transport Services in Russia through Transport and Logistics Centers”.

As the press service of the operator said, a specialised flat wagon (model 13-9961) was created and certified to perform piggyback transportation on the pilot route linking Moscow and Helsinki.

V. Evdokimenko, noted that the technology, which is called the “rolling motorway” (RO-MO) in Europe, was chosen for Russia. This model is the best in terms of universality and infrastructure requirements. In addition, it allows the combination of vehicle and container transportation through a single technical solution.

The priority for the implementation of the project is to change the current legislation: special container dimensions, changes in transport, weight, and dimensional control procedures applied to vehicles. This will create an optimal technology of this type of transportation that meets the requirements of vehicle owners in terms of shipping and handling vehicles at the terminal. The issues of terminal infrastructure, as well as pricing for this type of transportation, are also very important. According to Federal Freight, piggyback services on the Moscow-Helsinki route can be efficient if the delivery time is 1-1.5 days and a through rate for door to door transportation is less than RUB 95,000. The cost of a specialised flat wagon in this case will be minimal and will not exceed 4-5% of the total transport costs, providing a competitive price.



Two Pilot Trains Run through Khasan-Rajin 

Two freight trains, each consisting of 65 wagons loaded with coal from the Kuzbass region in Russia, left from the West Siberian Railway at the end of March 2014. One of the trains has already reached the Far Eastern Railway, the second is currently travelling on the Transbaikal Main Line. Both the West Siberian Railway and the Far Eastern Railway are regional divisions of Russian Railways.

The two trains, which are carrying a total cargo of 9 tons, will arrive at the Khasan border station in the Russian Federation before departing for Tumangan station in North Korea, where the coal will be further transshipped to the port of Rajin.

The purpose of the test run on the new route is to shorten the overall transportation process, customs clearance and cargo handling at port.

The project is being implemented by the RasonKonTrans joint venture, which was set up in 2008 with a 70% equity stake from the RZD Trading House and the remaining 30% from the North Korean port of Rajin. It includes the reconstruction of the railway line between Tumangan – Rajin, the construction of a container terminal at the port of Rajin and the subsequent operation of the infrastructure.

The work was financed using the authorised capital of RasonKonTrans and funds the JV borrowed on the basis of the business plan.

The official opening of the Khasan – Rajin railway section took place on 22 September 2013.

During the works, the reconstruction of 54km of combined railway track with a width of 1435mm and 1520mm was undertaken and a number of artificial structures restored: 18 bridges, 12 culverts and 3 tunnels with a total length of over 4.5 km. In addition, modern signalling, centralisation, blocking and communications equipment was installed.

As part of the construction of the universal transshipment terminal at the port of Rajin, a range of additional activities was also conducted, including dredging, the construction of a new quay wall, equipping the warehouse areas, construction of industrial and office buildings and facilities and laying railway tracks within the terminal itself.

On completion of the project, additional traffic will be attracted to the Trans-Siberian Railway. Freight traffic on the Khasan – Rajin line via the port of Rajin is expected to reach about 4 million tons per annum.



Moscow-Kazan HSR is included in Russia’s territorial planning scheme

The high-speed railway line between Moscow – Vladimir – Nizhny Novgorod – Kazan, which has been designed to handle train speeds of up to 400 kph, has been included in the Russian Federation’s territorial planning scheme 

A corresponding decree, No. 429-R, was signed by Russian Prime Minister Dmitry Medvedev on 22.03.2014. In accordance with the document, changes have been made to the Russian Federation’s territorial planning scheme regarding federal transportation (rail, air, sea and inland waterways) and federal roads as approved by the Federal Government on 19 March 2013 № 384-r, including the high-speed 770km railway between Moscow – Kazan.

The scheme involves the construction of railway stations and separate points with track development, including three stations: Kursk Station in Moscow (with a total area of 49,100 m²), Moscow Station in Nizhny Novgorod (total area of 32,700m²) and Kazan Terminal -2 in Kazan (10,800 m²); 9 other stations on the Noginsk, Orekhovo-Zuevo, Petushki, Vladimir, Kovrov, Dzerzhinsk, Aeroport, Cheboksary and Pomary high-speed lines; 3 passing points for trains, and 17 traffic control points.



Progress on the First Phase of Transsib-BAM Modernisation

The Federation Council has held parliamentary hearings concerning the reconstruction of the Baikal-Amur Mainline and the Trans-Siberian Mainline with regard to the development of various constituent parts of the Russian Federation. 

The hearings were held on March 26, 2014, and organised by the Federation Council’s Committee on Economic Policy. The hearings were attended by senators and representatives from Russia’s regions, the relevant ministries and departments, research institutes and Russian Railways.

As Vice President and Secretary of State at Russian Railways Anatoly Mescheryakov told the hearings, a whole series of preparatory measures have already been taken to develop the infrastructure of Eastern Russia

In particular, an independent audit of the technology and cost of the project involving the world’s leading auditors has been carried out. The results of this audit were discussed at the expert and public hearings and sent to the Government of the Russian Federation. They indicate that, given the current state of the project as prepared by Russian Railways, the material has been fully evaluated.

In view of comments and suggestions made during the discussions, Russian Railways has worked to improve the project’s efficiency.

Thus, comments of a technological nature have been taken into account and it has been decided to carry out a cost audit during the development and approval stage of the design specifications and estimates with a view to the cost of a number of major undertakings.

An appropriate decision - the technical terms of reference and instructions on selecting the auditing firms - has been presented to the Board of Directors at Russian Railways.

In the regions through which the Baikal-Amur and Trans-Siberian railways pass, design work is currently under way and a schedule for the design, exploration, construction and installation works has been prepared with the assistance of local design institutes.

The participants in the parliamentary hearings recognised that it was appropriate to recognise the progress of the first phase of the reconstruction and modernisation work on the BAM and Trans-Siberian railways.

It has been recommended to the Russian government to approve the volume of the cargo base for the project by taking into account the shipment of coal from Russia’s Kuzbass region, and to consider funding for the second phase of the project.

It was also recommended to consider allocating funds from the National Welfare Fund to the project for developing electrical power facilities in Russia’s Far East and Trans-Baikal regions, including ensuring adequate provision for the growing needs of Eastern Russia’s main railway lines.



China increases railway investment in 2014

China will increase railway fixed asset investment to 720 billion yuan (117.09 billion U.S. dollars) in 2014, Sheng Guangzu, general manager of the China Railway Corporation (CRC), has revealed. The objective is to meet market demand. Forty-nine new projects and over 7,000 kilometers of new railway lines will be put into operation this year.

The former plan set at the beginning of the year targeted 700 billion yuan of fixed asset investment, 44 new projects and 6,600 kilometers of new railway lines, according to the CRC.

Sheng said that 78 percent of all construction investment will be in central and western regions, which will have 86 percent of this year’s newly operated railways.

According to a five-year plan from 2011 to 2015, 230,000 kilometers of new railway lines will be built in central and western regions, with an investment of 1.85 trillion yuan.  The general manager said from 2011 to 2013, 1.15 trillion yuan had been invested in the two regions.
    [~DETAIL_TEXT] => 
RZD and VR Cargo: Gathering Advance Information for Everyone’s Benefit

Due to electronic technology, Russian Railways and VR Group can exchange data on arriving goods online, said Marina Bobrova, Head of Transport Forwarding Department at Nurminen Logistics.

“By October 1, 2014, RZD will provide advance information about carried cargo in accordance with the requirements of customs legislation”, she explains. “In particular, the system will be used to code cargo in invoices. The system is designed to ensure compliance with the international standard commodity classification”.

According to M. Bobrova, the provision of advance information about a consignment could significantly reduce the time needed for processing data and, therefore, the time at border crossing stations. “This is a positive effect, and market players are awaiting its arrival”, she said.

On October 1, 2014, mandatory advance information about goods imported to the countries of the Customs Union by railway will be implemented. The carrier will be required to provide advance information to the customs authorities at least two hours prior to the arrival of the goods at a transit station.





The Process of Attracting Investors to Ports in Ukraine Is Delayed

Due to the fact that Ukraine is not fully ready to cooperate with investors on the basis of regulations about port reform, the investment in Ukrainian port industry has been delayed.

Yuri Vaskov, Head of the State Enterprise “Ukrainian Sea Ports Authority” (USPA), said during a discussion about reform in the port sector at a session of the Parliament of Ukraine.

According to the speaker, it affects the public sector in marine cargo handling, where there is a serious lack of funds for development.

“Unfortunately, the process of attracting private investors is very difficult, causing tension among the public port operators. Today, they are not competitive. That is why efforts should be made to attract investors now, modern port operators,” said Y.Vaskov.

At the same time, the foundations for cooperation in public ports have already been laid. It is the law “On Sea Ports.” “When the law is fully implemented, relations between the USPA and investors will become clearer. Only then will it be possible to fully judge the efficiency of the USPA,” said the speaker.



Rostransnadzor bans railway cars with 49 American side frames

On April 8, 2014, The Federal Service for State Supervision in the Transport Sector (Rostransnadzor) banned operation of freight railcars with 49 side frames produced by Amsted Rail (United States) in Russia.

The decision was made to remove the irregularities identified in the course of an investigation into a derailment in March 2014 at the Filippovka railway station. It happened because of a break in the side frame produced by Amsted Rail in 2012.

“Operation of railcars with side frames produced by Amsted Rail Company Inc. in 2012 and moulded in the same heat with the broken detail must be prohibited in Russia according to the requirements of the legislation of the Russian Federation,” says the regulation.



Bridge across the Kerch Strait Gives Russia Access to a Deep-Water Port

Establishment of the transport corridor between Taman and Kerch will give Russia access to a deep-water port, said Andrey Golubchik, Head of the Foreign Trade and Transport Practices Department at Marsh &Wilts at a press conference in Moscow.

“The bridge is required to avoid possible complications with the delivery of goods on existing routes to the Crimea. If it is built we will be able not only to perform the transportation, but also will get access to the deep-water port, Russia lacks so much,” he explained.

Funding for the project of the bridge across the Kerch Strait could reach RUB 100 billion and even exceed this amount, said Maxim Sokolov, Minister of Transport of Russia.

“The funding will clearly exceed the 50 billion already allocated, because this sum will be spent only on construction of a road bridge. Since it is a new challenge (transition should be organised both by railway and road) we will need at least RUB 80-85 billion. And if it is a double-track railway, investment will even exceed RUB 100 billion,” said M. Sokolov.

According to him, “this is understandable, because the bridge will be the longest one in Russia - 5-10 km long”.

The creation of a transport corridor between Taman and Kerch is the most large-scale and costly infrastructure project, the minister said. “All options will be considered. In any case, it will be a combined route. But whether there is one track or two depends on the plans for the development of the Kerch port and other port infrastructure in Crimea,” said the speaker.



61% of Railway Infrastructure in Russia Needs Modernisation

52,500 km of railways (61% of the total railway infrastructure) is more than 100 years old and requires modernisation, said Andrey Lebedev, Deputy Director of the Centre for Survey and Diagnostics of Engineering Facilities (an affiliate of RZD) at a scientific and technical conference in Moscow.

He also noted that there are railway lines, which are less than 100 years old, but also need modernisation. “However, between 2008 and 2013, 17,500 km of lines, i.e. 16.7% of the total number of railways, was upgraded,” he said.



The Main problem of Logistics in Russia Is Interoperation of Various Transport Modes

Currently, the main problem for development of 3PL and 4PL services in Russia is the use of different transport modes, Alexander Polikarpov, Head of the Cargo Transportation Research Department of the Institute for Natural Monopolies said.

“For example, a lack of coordination between the port and the railway limits carrying capacities, cancels trains and, as a result, delays delivery,” explained the expert.

Considering the fact that nowadays the customers of transport companies need integrated logistics and door to door supply chains, A. Polikarpov noted that “unfortunately, such services using different transport modes in this country are still underdeveloped.” The expert believes that, because of its specifics only a truck can deliver cargo “from door to door” directly, and motor vehicles are required for the other modes of transport anyway.

“Modern Russian logisticians don’t believe in transportation by rail,” he added. “And their attitude is partly justified. However, the introduction of governmental measures to remove road transporters from the shadow economy will increase the attractiveness of railways.” At the same time, according to the expert, railways must become more customer-friendly to attract customers. “The technology to optimise integration into other transport networks, reduce the delivery time of goods, and ensure the reliability of the agreed delivery times, should be implemented,” he explained.

The expert also noted positive trends in the development of domestic logistics, such as the establishment of the company “RZD Logistics”, focused on the development of a sophisticated door to door service, as well as the introduction of other new services (for example, “The Transsib in 7 Days” service) and working on developing cargo train timetabling.

We should note that according to research by the World Bank entitled “Connecting to Compete: Trade Logistics in the Global Economy”, Russia was only 90-th of the 160 countries ranked by logistic performance index (LPI).



Federal Freight Contributes to Development of Piggyback Transportation in Russia

The Federal Freight (Federal Cargo Company) is involved in the process of formation and development of piggyback transport in Russia, said Vitaly Evdokimenko, CEO of the company, during the Moscow International Conference entitled “Development of Container and Piggyback Transport Services in Russia through Transport and Logistics Centers”.

As the press service of the operator said, a specialised flat wagon (model 13-9961) was created and certified to perform piggyback transportation on the pilot route linking Moscow and Helsinki.

V. Evdokimenko, noted that the technology, which is called the “rolling motorway” (RO-MO) in Europe, was chosen for Russia. This model is the best in terms of universality and infrastructure requirements. In addition, it allows the combination of vehicle and container transportation through a single technical solution.

The priority for the implementation of the project is to change the current legislation: special container dimensions, changes in transport, weight, and dimensional control procedures applied to vehicles. This will create an optimal technology of this type of transportation that meets the requirements of vehicle owners in terms of shipping and handling vehicles at the terminal. The issues of terminal infrastructure, as well as pricing for this type of transportation, are also very important. According to Federal Freight, piggyback services on the Moscow-Helsinki route can be efficient if the delivery time is 1-1.5 days and a through rate for door to door transportation is less than RUB 95,000. The cost of a specialised flat wagon in this case will be minimal and will not exceed 4-5% of the total transport costs, providing a competitive price.



Two Pilot Trains Run through Khasan-Rajin 

Two freight trains, each consisting of 65 wagons loaded with coal from the Kuzbass region in Russia, left from the West Siberian Railway at the end of March 2014. One of the trains has already reached the Far Eastern Railway, the second is currently travelling on the Transbaikal Main Line. Both the West Siberian Railway and the Far Eastern Railway are regional divisions of Russian Railways.

The two trains, which are carrying a total cargo of 9 tons, will arrive at the Khasan border station in the Russian Federation before departing for Tumangan station in North Korea, where the coal will be further transshipped to the port of Rajin.

The purpose of the test run on the new route is to shorten the overall transportation process, customs clearance and cargo handling at port.

The project is being implemented by the RasonKonTrans joint venture, which was set up in 2008 with a 70% equity stake from the RZD Trading House and the remaining 30% from the North Korean port of Rajin. It includes the reconstruction of the railway line between Tumangan – Rajin, the construction of a container terminal at the port of Rajin and the subsequent operation of the infrastructure.

The work was financed using the authorised capital of RasonKonTrans and funds the JV borrowed on the basis of the business plan.

The official opening of the Khasan – Rajin railway section took place on 22 September 2013.

During the works, the reconstruction of 54km of combined railway track with a width of 1435mm and 1520mm was undertaken and a number of artificial structures restored: 18 bridges, 12 culverts and 3 tunnels with a total length of over 4.5 km. In addition, modern signalling, centralisation, blocking and communications equipment was installed.

As part of the construction of the universal transshipment terminal at the port of Rajin, a range of additional activities was also conducted, including dredging, the construction of a new quay wall, equipping the warehouse areas, construction of industrial and office buildings and facilities and laying railway tracks within the terminal itself.

On completion of the project, additional traffic will be attracted to the Trans-Siberian Railway. Freight traffic on the Khasan – Rajin line via the port of Rajin is expected to reach about 4 million tons per annum.



Moscow-Kazan HSR is included in Russia’s territorial planning scheme

The high-speed railway line between Moscow – Vladimir – Nizhny Novgorod – Kazan, which has been designed to handle train speeds of up to 400 kph, has been included in the Russian Federation’s territorial planning scheme 

A corresponding decree, No. 429-R, was signed by Russian Prime Minister Dmitry Medvedev on 22.03.2014. In accordance with the document, changes have been made to the Russian Federation’s territorial planning scheme regarding federal transportation (rail, air, sea and inland waterways) and federal roads as approved by the Federal Government on 19 March 2013 № 384-r, including the high-speed 770km railway between Moscow – Kazan.

The scheme involves the construction of railway stations and separate points with track development, including three stations: Kursk Station in Moscow (with a total area of 49,100 m²), Moscow Station in Nizhny Novgorod (total area of 32,700m²) and Kazan Terminal -2 in Kazan (10,800 m²); 9 other stations on the Noginsk, Orekhovo-Zuevo, Petushki, Vladimir, Kovrov, Dzerzhinsk, Aeroport, Cheboksary and Pomary high-speed lines; 3 passing points for trains, and 17 traffic control points.



Progress on the First Phase of Transsib-BAM Modernisation

The Federation Council has held parliamentary hearings concerning the reconstruction of the Baikal-Amur Mainline and the Trans-Siberian Mainline with regard to the development of various constituent parts of the Russian Federation. 

The hearings were held on March 26, 2014, and organised by the Federation Council’s Committee on Economic Policy. The hearings were attended by senators and representatives from Russia’s regions, the relevant ministries and departments, research institutes and Russian Railways.

As Vice President and Secretary of State at Russian Railways Anatoly Mescheryakov told the hearings, a whole series of preparatory measures have already been taken to develop the infrastructure of Eastern Russia

In particular, an independent audit of the technology and cost of the project involving the world’s leading auditors has been carried out. The results of this audit were discussed at the expert and public hearings and sent to the Government of the Russian Federation. They indicate that, given the current state of the project as prepared by Russian Railways, the material has been fully evaluated.

In view of comments and suggestions made during the discussions, Russian Railways has worked to improve the project’s efficiency.

Thus, comments of a technological nature have been taken into account and it has been decided to carry out a cost audit during the development and approval stage of the design specifications and estimates with a view to the cost of a number of major undertakings.

An appropriate decision - the technical terms of reference and instructions on selecting the auditing firms - has been presented to the Board of Directors at Russian Railways.

In the regions through which the Baikal-Amur and Trans-Siberian railways pass, design work is currently under way and a schedule for the design, exploration, construction and installation works has been prepared with the assistance of local design institutes.

The participants in the parliamentary hearings recognised that it was appropriate to recognise the progress of the first phase of the reconstruction and modernisation work on the BAM and Trans-Siberian railways.

It has been recommended to the Russian government to approve the volume of the cargo base for the project by taking into account the shipment of coal from Russia’s Kuzbass region, and to consider funding for the second phase of the project.

It was also recommended to consider allocating funds from the National Welfare Fund to the project for developing electrical power facilities in Russia’s Far East and Trans-Baikal regions, including ensuring adequate provision for the growing needs of Eastern Russia’s main railway lines.



China increases railway investment in 2014

China will increase railway fixed asset investment to 720 billion yuan (117.09 billion U.S. dollars) in 2014, Sheng Guangzu, general manager of the China Railway Corporation (CRC), has revealed. The objective is to meet market demand. Forty-nine new projects and over 7,000 kilometers of new railway lines will be put into operation this year.

The former plan set at the beginning of the year targeted 700 billion yuan of fixed asset investment, 44 new projects and 6,600 kilometers of new railway lines, according to the CRC.

Sheng said that 78 percent of all construction investment will be in central and western regions, which will have 86 percent of this year’s newly operated railways.

According to a five-year plan from 2011 to 2015, 230,000 kilometers of new railway lines will be built in central and western regions, with an investment of 1.85 trillion yuan.  The general manager said from 2011 to 2013, 1.15 trillion yuan had been invested in the two regions.
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