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Favourable conditions

Several years ago the coal sector was suffering bad days: demand on the domestic market was constantly reducing and foreign markets were not developed. Moreover, transportation was not easy: coal is traditionally carried by railway in gondola cars, but a few years ago railmen lacked gondolas and sometimes could not even manage them efficiently. The sector was close to collapse: mines were almost exhausted; funds were out of date; coal producers limited their investment due to the low profitability of the sector; the state, which did not have enough funds, tried to support the sector by rail tariff reduction. At the same time, railmen faced lack of gondolas and unprofitability of this freight transportation. When the industry was a step from collapse, a miracle happened: the world economy changed. Japan and China started fast economic development and the Asian-Pacific market was revived. Today China is still one of the most promising consumers of almost all produce. Metal market also pushed coal producers, as on the one hand, metallurgy created demand for coal on the domestic market, while, on the other hand, metal works started investing heavily into the Russian coal industry. Thus, metal producers acquired shares of the most promising mines producing coke, in order to optimize the produce and build better logistics.

During the last three years, coal transportation by rail increased substantially, together with OAO RZD's profit. In order to ensure regular coal delivery to foreign consumers, ports also increased coal handling and started rising specialized capacities. Carriers also entered the coal transportation market. Thus, many participants of the economic process were dependent on further development of the coal sector. Unfortunately, today the situation in the coal sector does not look as optimistic, as it was only a year ago. The Russian coal sector is likely to be coming to another collapse:

Coal resources in Russia enable the country to increase production volume manifolds. According to experts, coal resources are twice as large, as aggregate resources of oil and gas. However, produce volume is determined by market demand. Thus, today coal industry experts watch closely the changes in demand.

As it was mentioned, initially the lion's share of coal produced in Russia was distributed on the domestic market, but gradually the demand started decreasing and the trend still continues. The key reasons for domestic demand fall are weather conditions (during warm winters electric power stations consume less coal), competition with hydroelectric power stations and import of Kazakh coal, as since the Soviet era electric power stations of the Western Siberia have been consuming Ekibastuz coal. Moreover, some companies use gas instead of coal in order to cut expenses. Thus, the only way out of crisis for the Russian coal industry is further exploitation of foreign markets. When coal prices started rising, Russian coal producers turned it into their advantage. Experts evaluate energy coal price rise at 50% in 2004, whereas prices for some coke coals grew almost 2.5-fold.



Be profitable at any price

However, the year of 2005 changed the situation on the market dramatically. Firstly, global ferrous metals producers suffered demand and, consequently, price fall. In Russia such a situation turned into a real price war between ferrous metals and coke coal producers. The victory did not require too many efforts from metal producers, as almost all coke coal enterprises are incorporated into metallurgical and industrial holdings. However, those lost in the battle who are not integrated into holdings with metal producers: the latter dumped and coal producers had to reduce produce volumes, as they could not agree with the consumers.

The situation in the energy coals production remained stable. However, there are also some symptoms for future worries. Thus, according to the Coals Market Research Institute, today the development of the domestic market substantially exceeds the production growth rate. For instance, in 2005 energy coals consumption in Russia dropped by over 10%, in comparison with the results of 2001, due to the policy of the biggest consumer (RAO Unified Energy System (UES )), who tries to cut expenses by using natural gas instead of more expensive coal.

Concerning export deliveries, it should be noted that, despite the growth trend, some market participants believe that the growth rate is likely to slow down following the reduction of price and rail tariff increase. Thus, in February, at the conference "Energy and coal in Russia" held in Moscow, participants agreed that in 2005 Russian exporters, as well as those from other countries, passed a serious trial. After an unexampled price growth of the late 2004, prices started stabilizing, which was later followed by a sharp fall. All this was happening against the background of the trend for low demand on the European market and the considerably high consumption growth rate in the Asian region. Some experts evaluate price reduction for exporters at about 15% and in some sectors at 30%. Moreover, the transport tariff rise led to the situation when the profitability of coal export dropped by no less than 40%. As a result, the majority of producers had to decide whether to search for new markets and continue export deliveries or reduce coal produce. It should be noted that in late 2005 export volume increased only due to the necessity to fulfill long-term contracts. Nevertheless, when the contracts terminate, coal producers will have to make a decision whether to continue delivery at lower prices or finish it. Thus, today some companies continue working even with zero profitability, in order to save production volume and not to lose their share on the global market and their clients.



Are there any prospects?

Evaluating prospects of the Russian coal produce industry, analysts made several conclusions. Domestic demand will reduce continuously and coal will be thrown out of the energy sector. The next coal boom is expected to start not earlier than in 2015 and only if the gas prices growth rate is higher than that in the coal sector, which could push electric power stations to turn to coal. However, even if gas is twice as expensive as coal, there will still be a technological problem of coal consumption by stations constructed to be run on gas. 

Domestic demand for coke coal will depend on prices for metals on the world market. It should be highlighted that metal producers who do not have incorporated raw material enterprises will face serious difficulties, as the majority of coke coal producers belong to bigger metal producing holdings. Thus, producers will have to buy coke coal at the world price or even import it.

The only chance for further development of coal industry in the near future is export delivery growth. The question is how to achieve it.

Unfortunately, the Russian coal sector depends heavily on changeable world market prices, which is the main obstacle for a successful development of Russia's producers. Furthermore, analysts point out that the efficiency of produce export depends a lot on the stability of the ruble exchangerate due to the low profitability of coal industry. Further strengthening of the ruble against other currencies means profit reduction (in rubles) for coal producers. Thus, coal export could become absolutely unprofitable. And any rail tariff rise could also be the last straw for coal export, because in Russia the distance of coal transportation to border crossings averages 4.5 thousand kilometers. 

Experts of Coals Market Research Institute consider two possible scenarios of further development. Under the worst-case (and, frankly speaking, highly probable) scenario, prices on the world market will keep reducing. In this case, export profitability will decrease substantially, and, consequently, volumes will drop to 50-60 million tons. At the same time, domestic demand will be as low as it has been in recent years. Such situation will negatively affect the investment attractiveness of the sector.

Under the hopeful scenario, world prices will continue to grow or domestic demand will revive after the biggest electric power stations reconsider their fuel balance and reduce gas consumption. However, the world price growth sounds unlikely, taking into consideration recent trends, particularly, the fast development of coal produce in China and Kazakhstan, which has already led to new world coal suppliers appear on the market and these countries reduced coal volume imported by them earlier from Russia. The domestic demand increase is much doubtful, as it does not coincide with the country's energy strategy and resource-saving policy. 

However, coal producers can see other prospects. Firstly, they assume that after the recent events dealing with Russian gas supply to Ukraine, the latter could reconsider the country's fuel balance, in order to increase the share of coal with the view of becoming less dependent on Russia. Other possible markets for Russian coal are the United Kingdom, the Scandinavian countries, Spain and Italy, because electric power stations run on coal are being developed there. A lot will be exported to the Asian-Pacific region for such traditional consumers as Japan, South Korea and Taiwan. China is likely to be excluded from this list. Furthermore, more and more experts forecast that the key prospect for the Russian coal sector is investment into concentrating facilities, in order to produce higher-calorie coal and reduce coal ash and sulfur, which, consequently, will improve coal quality and boost its price and demand for it on the global markets.



Tatyana Tokareva
    [~DETAIL_TEXT] => 

Favourable conditions

Several years ago the coal sector was suffering bad days: demand on the domestic market was constantly reducing and foreign markets were not developed. Moreover, transportation was not easy: coal is traditionally carried by railway in gondola cars, but a few years ago railmen lacked gondolas and sometimes could not even manage them efficiently. The sector was close to collapse: mines were almost exhausted; funds were out of date; coal producers limited their investment due to the low profitability of the sector; the state, which did not have enough funds, tried to support the sector by rail tariff reduction. At the same time, railmen faced lack of gondolas and unprofitability of this freight transportation. When the industry was a step from collapse, a miracle happened: the world economy changed. Japan and China started fast economic development and the Asian-Pacific market was revived. Today China is still one of the most promising consumers of almost all produce. Metal market also pushed coal producers, as on the one hand, metallurgy created demand for coal on the domestic market, while, on the other hand, metal works started investing heavily into the Russian coal industry. Thus, metal producers acquired shares of the most promising mines producing coke, in order to optimize the produce and build better logistics.

During the last three years, coal transportation by rail increased substantially, together with OAO RZD's profit. In order to ensure regular coal delivery to foreign consumers, ports also increased coal handling and started rising specialized capacities. Carriers also entered the coal transportation market. Thus, many participants of the economic process were dependent on further development of the coal sector. Unfortunately, today the situation in the coal sector does not look as optimistic, as it was only a year ago. The Russian coal sector is likely to be coming to another collapse:

Coal resources in Russia enable the country to increase production volume manifolds. According to experts, coal resources are twice as large, as aggregate resources of oil and gas. However, produce volume is determined by market demand. Thus, today coal industry experts watch closely the changes in demand.

As it was mentioned, initially the lion's share of coal produced in Russia was distributed on the domestic market, but gradually the demand started decreasing and the trend still continues. The key reasons for domestic demand fall are weather conditions (during warm winters electric power stations consume less coal), competition with hydroelectric power stations and import of Kazakh coal, as since the Soviet era electric power stations of the Western Siberia have been consuming Ekibastuz coal. Moreover, some companies use gas instead of coal in order to cut expenses. Thus, the only way out of crisis for the Russian coal industry is further exploitation of foreign markets. When coal prices started rising, Russian coal producers turned it into their advantage. Experts evaluate energy coal price rise at 50% in 2004, whereas prices for some coke coals grew almost 2.5-fold.



Be profitable at any price

However, the year of 2005 changed the situation on the market dramatically. Firstly, global ferrous metals producers suffered demand and, consequently, price fall. In Russia such a situation turned into a real price war between ferrous metals and coke coal producers. The victory did not require too many efforts from metal producers, as almost all coke coal enterprises are incorporated into metallurgical and industrial holdings. However, those lost in the battle who are not integrated into holdings with metal producers: the latter dumped and coal producers had to reduce produce volumes, as they could not agree with the consumers.

The situation in the energy coals production remained stable. However, there are also some symptoms for future worries. Thus, according to the Coals Market Research Institute, today the development of the domestic market substantially exceeds the production growth rate. For instance, in 2005 energy coals consumption in Russia dropped by over 10%, in comparison with the results of 2001, due to the policy of the biggest consumer (RAO Unified Energy System (UES )), who tries to cut expenses by using natural gas instead of more expensive coal.

Concerning export deliveries, it should be noted that, despite the growth trend, some market participants believe that the growth rate is likely to slow down following the reduction of price and rail tariff increase. Thus, in February, at the conference "Energy and coal in Russia" held in Moscow, participants agreed that in 2005 Russian exporters, as well as those from other countries, passed a serious trial. After an unexampled price growth of the late 2004, prices started stabilizing, which was later followed by a sharp fall. All this was happening against the background of the trend for low demand on the European market and the considerably high consumption growth rate in the Asian region. Some experts evaluate price reduction for exporters at about 15% and in some sectors at 30%. Moreover, the transport tariff rise led to the situation when the profitability of coal export dropped by no less than 40%. As a result, the majority of producers had to decide whether to search for new markets and continue export deliveries or reduce coal produce. It should be noted that in late 2005 export volume increased only due to the necessity to fulfill long-term contracts. Nevertheless, when the contracts terminate, coal producers will have to make a decision whether to continue delivery at lower prices or finish it. Thus, today some companies continue working even with zero profitability, in order to save production volume and not to lose their share on the global market and their clients.



Are there any prospects?

Evaluating prospects of the Russian coal produce industry, analysts made several conclusions. Domestic demand will reduce continuously and coal will be thrown out of the energy sector. The next coal boom is expected to start not earlier than in 2015 and only if the gas prices growth rate is higher than that in the coal sector, which could push electric power stations to turn to coal. However, even if gas is twice as expensive as coal, there will still be a technological problem of coal consumption by stations constructed to be run on gas. 

Domestic demand for coke coal will depend on prices for metals on the world market. It should be highlighted that metal producers who do not have incorporated raw material enterprises will face serious difficulties, as the majority of coke coal producers belong to bigger metal producing holdings. Thus, producers will have to buy coke coal at the world price or even import it.

The only chance for further development of coal industry in the near future is export delivery growth. The question is how to achieve it.

Unfortunately, the Russian coal sector depends heavily on changeable world market prices, which is the main obstacle for a successful development of Russia's producers. Furthermore, analysts point out that the efficiency of produce export depends a lot on the stability of the ruble exchangerate due to the low profitability of coal industry. Further strengthening of the ruble against other currencies means profit reduction (in rubles) for coal producers. Thus, coal export could become absolutely unprofitable. And any rail tariff rise could also be the last straw for coal export, because in Russia the distance of coal transportation to border crossings averages 4.5 thousand kilometers. 

Experts of Coals Market Research Institute consider two possible scenarios of further development. Under the worst-case (and, frankly speaking, highly probable) scenario, prices on the world market will keep reducing. In this case, export profitability will decrease substantially, and, consequently, volumes will drop to 50-60 million tons. At the same time, domestic demand will be as low as it has been in recent years. Such situation will negatively affect the investment attractiveness of the sector.

Under the hopeful scenario, world prices will continue to grow or domestic demand will revive after the biggest electric power stations reconsider their fuel balance and reduce gas consumption. However, the world price growth sounds unlikely, taking into consideration recent trends, particularly, the fast development of coal produce in China and Kazakhstan, which has already led to new world coal suppliers appear on the market and these countries reduced coal volume imported by them earlier from Russia. The domestic demand increase is much doubtful, as it does not coincide with the country's energy strategy and resource-saving policy. 

However, coal producers can see other prospects. Firstly, they assume that after the recent events dealing with Russian gas supply to Ukraine, the latter could reconsider the country's fuel balance, in order to increase the share of coal with the view of becoming less dependent on Russia. Other possible markets for Russian coal are the United Kingdom, the Scandinavian countries, Spain and Italy, because electric power stations run on coal are being developed there. A lot will be exported to the Asian-Pacific region for such traditional consumers as Japan, South Korea and Taiwan. China is likely to be excluded from this list. Furthermore, more and more experts forecast that the key prospect for the Russian coal sector is investment into concentrating facilities, in order to produce higher-calorie coal and reduce coal ash and sulfur, which, consequently, will improve coal quality and boost its price and demand for it on the global markets.



Tatyana Tokareva
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Favourable conditions

Several years ago the coal sector was suffering bad days: demand on the domestic market was constantly reducing and foreign markets were not developed. Moreover, transportation was not easy: coal is traditionally carried by railway in gondola cars, but a few years ago railmen lacked gondolas and sometimes could not even manage them efficiently. The sector was close to collapse: mines were almost exhausted; funds were out of date; coal producers limited their investment due to the low profitability of the sector; the state, which did not have enough funds, tried to support the sector by rail tariff reduction. At the same time, railmen faced lack of gondolas and unprofitability of this freight transportation. When the industry was a step from collapse, a miracle happened: the world economy changed. Japan and China started fast economic development and the Asian-Pacific market was revived. Today China is still one of the most promising consumers of almost all produce. Metal market also pushed coal producers, as on the one hand, metallurgy created demand for coal on the domestic market, while, on the other hand, metal works started investing heavily into the Russian coal industry. Thus, metal producers acquired shares of the most promising mines producing coke, in order to optimize the produce and build better logistics.

During the last three years, coal transportation by rail increased substantially, together with OAO RZD's profit. In order to ensure regular coal delivery to foreign consumers, ports also increased coal handling and started rising specialized capacities. Carriers also entered the coal transportation market. Thus, many participants of the economic process were dependent on further development of the coal sector. Unfortunately, today the situation in the coal sector does not look as optimistic, as it was only a year ago. The Russian coal sector is likely to be coming to another collapse:

Coal resources in Russia enable the country to increase production volume manifolds. According to experts, coal resources are twice as large, as aggregate resources of oil and gas. However, produce volume is determined by market demand. Thus, today coal industry experts watch closely the changes in demand.

As it was mentioned, initially the lion's share of coal produced in Russia was distributed on the domestic market, but gradually the demand started decreasing and the trend still continues. The key reasons for domestic demand fall are weather conditions (during warm winters electric power stations consume less coal), competition with hydroelectric power stations and import of Kazakh coal, as since the Soviet era electric power stations of the Western Siberia have been consuming Ekibastuz coal. Moreover, some companies use gas instead of coal in order to cut expenses. Thus, the only way out of crisis for the Russian coal industry is further exploitation of foreign markets. When coal prices started rising, Russian coal producers turned it into their advantage. Experts evaluate energy coal price rise at 50% in 2004, whereas prices for some coke coals grew almost 2.5-fold.



Be profitable at any price

However, the year of 2005 changed the situation on the market dramatically. Firstly, global ferrous metals producers suffered demand and, consequently, price fall. In Russia such a situation turned into a real price war between ferrous metals and coke coal producers. The victory did not require too many efforts from metal producers, as almost all coke coal enterprises are incorporated into metallurgical and industrial holdings. However, those lost in the battle who are not integrated into holdings with metal producers: the latter dumped and coal producers had to reduce produce volumes, as they could not agree with the consumers.

The situation in the energy coals production remained stable. However, there are also some symptoms for future worries. Thus, according to the Coals Market Research Institute, today the development of the domestic market substantially exceeds the production growth rate. For instance, in 2005 energy coals consumption in Russia dropped by over 10%, in comparison with the results of 2001, due to the policy of the biggest consumer (RAO Unified Energy System (UES )), who tries to cut expenses by using natural gas instead of more expensive coal.

Concerning export deliveries, it should be noted that, despite the growth trend, some market participants believe that the growth rate is likely to slow down following the reduction of price and rail tariff increase. Thus, in February, at the conference "Energy and coal in Russia" held in Moscow, participants agreed that in 2005 Russian exporters, as well as those from other countries, passed a serious trial. After an unexampled price growth of the late 2004, prices started stabilizing, which was later followed by a sharp fall. All this was happening against the background of the trend for low demand on the European market and the considerably high consumption growth rate in the Asian region. Some experts evaluate price reduction for exporters at about 15% and in some sectors at 30%. Moreover, the transport tariff rise led to the situation when the profitability of coal export dropped by no less than 40%. As a result, the majority of producers had to decide whether to search for new markets and continue export deliveries or reduce coal produce. It should be noted that in late 2005 export volume increased only due to the necessity to fulfill long-term contracts. Nevertheless, when the contracts terminate, coal producers will have to make a decision whether to continue delivery at lower prices or finish it. Thus, today some companies continue working even with zero profitability, in order to save production volume and not to lose their share on the global market and their clients.



Are there any prospects?

Evaluating prospects of the Russian coal produce industry, analysts made several conclusions. Domestic demand will reduce continuously and coal will be thrown out of the energy sector. The next coal boom is expected to start not earlier than in 2015 and only if the gas prices growth rate is higher than that in the coal sector, which could push electric power stations to turn to coal. However, even if gas is twice as expensive as coal, there will still be a technological problem of coal consumption by stations constructed to be run on gas. 

Domestic demand for coke coal will depend on prices for metals on the world market. It should be highlighted that metal producers who do not have incorporated raw material enterprises will face serious difficulties, as the majority of coke coal producers belong to bigger metal producing holdings. Thus, producers will have to buy coke coal at the world price or even import it.

The only chance for further development of coal industry in the near future is export delivery growth. The question is how to achieve it.

Unfortunately, the Russian coal sector depends heavily on changeable world market prices, which is the main obstacle for a successful development of Russia's producers. Furthermore, analysts point out that the efficiency of produce export depends a lot on the stability of the ruble exchangerate due to the low profitability of coal industry. Further strengthening of the ruble against other currencies means profit reduction (in rubles) for coal producers. Thus, coal export could become absolutely unprofitable. And any rail tariff rise could also be the last straw for coal export, because in Russia the distance of coal transportation to border crossings averages 4.5 thousand kilometers. 

Experts of Coals Market Research Institute consider two possible scenarios of further development. Under the worst-case (and, frankly speaking, highly probable) scenario, prices on the world market will keep reducing. In this case, export profitability will decrease substantially, and, consequently, volumes will drop to 50-60 million tons. At the same time, domestic demand will be as low as it has been in recent years. Such situation will negatively affect the investment attractiveness of the sector.

Under the hopeful scenario, world prices will continue to grow or domestic demand will revive after the biggest electric power stations reconsider their fuel balance and reduce gas consumption. However, the world price growth sounds unlikely, taking into consideration recent trends, particularly, the fast development of coal produce in China and Kazakhstan, which has already led to new world coal suppliers appear on the market and these countries reduced coal volume imported by them earlier from Russia. The domestic demand increase is much doubtful, as it does not coincide with the country's energy strategy and resource-saving policy. 

However, coal producers can see other prospects. Firstly, they assume that after the recent events dealing with Russian gas supply to Ukraine, the latter could reconsider the country's fuel balance, in order to increase the share of coal with the view of becoming less dependent on Russia. Other possible markets for Russian coal are the United Kingdom, the Scandinavian countries, Spain and Italy, because electric power stations run on coal are being developed there. A lot will be exported to the Asian-Pacific region for such traditional consumers as Japan, South Korea and Taiwan. China is likely to be excluded from this list. Furthermore, more and more experts forecast that the key prospect for the Russian coal sector is investment into concentrating facilities, in order to produce higher-calorie coal and reduce coal ash and sulfur, which, consequently, will improve coal quality and boost its price and demand for it on the global markets.



Tatyana Tokareva
    [~DETAIL_TEXT] => 

Favourable conditions

Several years ago the coal sector was suffering bad days: demand on the domestic market was constantly reducing and foreign markets were not developed. Moreover, transportation was not easy: coal is traditionally carried by railway in gondola cars, but a few years ago railmen lacked gondolas and sometimes could not even manage them efficiently. The sector was close to collapse: mines were almost exhausted; funds were out of date; coal producers limited their investment due to the low profitability of the sector; the state, which did not have enough funds, tried to support the sector by rail tariff reduction. At the same time, railmen faced lack of gondolas and unprofitability of this freight transportation. When the industry was a step from collapse, a miracle happened: the world economy changed. Japan and China started fast economic development and the Asian-Pacific market was revived. Today China is still one of the most promising consumers of almost all produce. Metal market also pushed coal producers, as on the one hand, metallurgy created demand for coal on the domestic market, while, on the other hand, metal works started investing heavily into the Russian coal industry. Thus, metal producers acquired shares of the most promising mines producing coke, in order to optimize the produce and build better logistics.

During the last three years, coal transportation by rail increased substantially, together with OAO RZD's profit. In order to ensure regular coal delivery to foreign consumers, ports also increased coal handling and started rising specialized capacities. Carriers also entered the coal transportation market. Thus, many participants of the economic process were dependent on further development of the coal sector. Unfortunately, today the situation in the coal sector does not look as optimistic, as it was only a year ago. The Russian coal sector is likely to be coming to another collapse:

Coal resources in Russia enable the country to increase production volume manifolds. According to experts, coal resources are twice as large, as aggregate resources of oil and gas. However, produce volume is determined by market demand. Thus, today coal industry experts watch closely the changes in demand.

As it was mentioned, initially the lion's share of coal produced in Russia was distributed on the domestic market, but gradually the demand started decreasing and the trend still continues. The key reasons for domestic demand fall are weather conditions (during warm winters electric power stations consume less coal), competition with hydroelectric power stations and import of Kazakh coal, as since the Soviet era electric power stations of the Western Siberia have been consuming Ekibastuz coal. Moreover, some companies use gas instead of coal in order to cut expenses. Thus, the only way out of crisis for the Russian coal industry is further exploitation of foreign markets. When coal prices started rising, Russian coal producers turned it into their advantage. Experts evaluate energy coal price rise at 50% in 2004, whereas prices for some coke coals grew almost 2.5-fold.



Be profitable at any price

However, the year of 2005 changed the situation on the market dramatically. Firstly, global ferrous metals producers suffered demand and, consequently, price fall. In Russia such a situation turned into a real price war between ferrous metals and coke coal producers. The victory did not require too many efforts from metal producers, as almost all coke coal enterprises are incorporated into metallurgical and industrial holdings. However, those lost in the battle who are not integrated into holdings with metal producers: the latter dumped and coal producers had to reduce produce volumes, as they could not agree with the consumers.

The situation in the energy coals production remained stable. However, there are also some symptoms for future worries. Thus, according to the Coals Market Research Institute, today the development of the domestic market substantially exceeds the production growth rate. For instance, in 2005 energy coals consumption in Russia dropped by over 10%, in comparison with the results of 2001, due to the policy of the biggest consumer (RAO Unified Energy System (UES )), who tries to cut expenses by using natural gas instead of more expensive coal.

Concerning export deliveries, it should be noted that, despite the growth trend, some market participants believe that the growth rate is likely to slow down following the reduction of price and rail tariff increase. Thus, in February, at the conference "Energy and coal in Russia" held in Moscow, participants agreed that in 2005 Russian exporters, as well as those from other countries, passed a serious trial. After an unexampled price growth of the late 2004, prices started stabilizing, which was later followed by a sharp fall. All this was happening against the background of the trend for low demand on the European market and the considerably high consumption growth rate in the Asian region. Some experts evaluate price reduction for exporters at about 15% and in some sectors at 30%. Moreover, the transport tariff rise led to the situation when the profitability of coal export dropped by no less than 40%. As a result, the majority of producers had to decide whether to search for new markets and continue export deliveries or reduce coal produce. It should be noted that in late 2005 export volume increased only due to the necessity to fulfill long-term contracts. Nevertheless, when the contracts terminate, coal producers will have to make a decision whether to continue delivery at lower prices or finish it. Thus, today some companies continue working even with zero profitability, in order to save production volume and not to lose their share on the global market and their clients.



Are there any prospects?

Evaluating prospects of the Russian coal produce industry, analysts made several conclusions. Domestic demand will reduce continuously and coal will be thrown out of the energy sector. The next coal boom is expected to start not earlier than in 2015 and only if the gas prices growth rate is higher than that in the coal sector, which could push electric power stations to turn to coal. However, even if gas is twice as expensive as coal, there will still be a technological problem of coal consumption by stations constructed to be run on gas. 

Domestic demand for coke coal will depend on prices for metals on the world market. It should be highlighted that metal producers who do not have incorporated raw material enterprises will face serious difficulties, as the majority of coke coal producers belong to bigger metal producing holdings. Thus, producers will have to buy coke coal at the world price or even import it.

The only chance for further development of coal industry in the near future is export delivery growth. The question is how to achieve it.

Unfortunately, the Russian coal sector depends heavily on changeable world market prices, which is the main obstacle for a successful development of Russia's producers. Furthermore, analysts point out that the efficiency of produce export depends a lot on the stability of the ruble exchangerate due to the low profitability of coal industry. Further strengthening of the ruble against other currencies means profit reduction (in rubles) for coal producers. Thus, coal export could become absolutely unprofitable. And any rail tariff rise could also be the last straw for coal export, because in Russia the distance of coal transportation to border crossings averages 4.5 thousand kilometers. 

Experts of Coals Market Research Institute consider two possible scenarios of further development. Under the worst-case (and, frankly speaking, highly probable) scenario, prices on the world market will keep reducing. In this case, export profitability will decrease substantially, and, consequently, volumes will drop to 50-60 million tons. At the same time, domestic demand will be as low as it has been in recent years. Such situation will negatively affect the investment attractiveness of the sector.

Under the hopeful scenario, world prices will continue to grow or domestic demand will revive after the biggest electric power stations reconsider their fuel balance and reduce gas consumption. However, the world price growth sounds unlikely, taking into consideration recent trends, particularly, the fast development of coal produce in China and Kazakhstan, which has already led to new world coal suppliers appear on the market and these countries reduced coal volume imported by them earlier from Russia. The domestic demand increase is much doubtful, as it does not coincide with the country's energy strategy and resource-saving policy. 

However, coal producers can see other prospects. Firstly, they assume that after the recent events dealing with Russian gas supply to Ukraine, the latter could reconsider the country's fuel balance, in order to increase the share of coal with the view of becoming less dependent on Russia. Other possible markets for Russian coal are the United Kingdom, the Scandinavian countries, Spain and Italy, because electric power stations run on coal are being developed there. A lot will be exported to the Asian-Pacific region for such traditional consumers as Japan, South Korea and Taiwan. China is likely to be excluded from this list. Furthermore, more and more experts forecast that the key prospect for the Russian coal sector is investment into concentrating facilities, in order to produce higher-calorie coal and reduce coal ash and sulfur, which, consequently, will improve coal quality and boost its price and demand for it on the global markets.



Tatyana Tokareva
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    [DETAIL_TEXT] => "OAO RZD creates conditions to stimulate growth of industrial output, to increase the competitiveness of Russian goods at the domestic and global markets, realizing the target of tariff loading reduction, set by the country's President", stated the first vice-president of OAO RZD Vadim Morozov.

In fact, it is worth reminding that the increased in 2005 tariffs on freight transportation by railway on average turned out to be 9.5 points lower that in the Russian transport system on the whole, and by 7.9 points lower that the growth of prices in industry. In January 2006 tariffs were indexed by 7.5% on average, however the forecasted inflation is to amount to 8.5%. 

However, the railmen bent every effort to fulfill the target, set by the state. "We prepared the infrastructure for winter to service the increasing transportation volumes, planned in cooperation with cargo owners", the representatives of the company said. By the beginning of 2006, almost all affiliates of OAO RZD had created maximum conditions to attract freight for transportation. To motivate clients, the railways simplified and fastened the procedures and receiving and approving the applications from consignors as well as process of freight transportation locally, which was especially important in the first ten days of January (holidays).



E-Declaration to Be Implemented in 2008

All the RF customs bodies are to usee-declaration system in 2008.

Thus, everybody involved in the foreign economy activities will be able to submit e-documents anywhere where customs clearance is provided. RF customs bodies started using e-declaration in 2004. Nowadays 86 customs offices the technology of e-declaration. By now 17.7 thousand freight customs e-declarations have been registered. Over 250 companies use it. It is planned that in 2006 up to 130 customs offices will join the system. Implementing e-declaration has accelerated customs clearance and increased its transparency. E-documents circulation is used in such customs' projects as "Green Corridor" on the border with Finland and "Kaliningrad Transit".



Speeded Up Railway Communication to Be Launched

OAO RZD plans to launch a speeded up railway communication on the route St.-Petersburg - Helsinki in 2008, vice-president of OAO RussianRailways Mikhail Akulov said on February 14.

In his words, a new joint company for purchase and maintenance of the rolling stock park will be launched. By April 1, 2006, OAO RZD and the Finnish party plan to have determined the terms on which the joint company will function, as well as the new company's authorized capital and the place of its registration.

Mikhail Akulov also mentioned that three Pendolino trains (Italy) will service the line at the first stage. He also noted that further increase of the amount of trains on the line will depend on the passenger flow. 



In 2006 Port of Olya to Handle New Cargoes

In 2006 the port of Olya will start handling timber and vegetable oil for export. According to the forecasts made by the Privolzhskaya Railway Center of Transport Services, 540 thousand tons of ferrous metals, 125 thousand tons of grain, 26 thousand tons of chemicals and soda, 11 thousand tons of vehicles, and 10 thousand tons of paper are to be transported via the railway station "Port of Olya", an important part of the North-South transport corridor.

This will be the first time when 41 thousand tons of timber and 26 thousand tons of vegetable oil are exported via the Astrakhan region. Railmen believe that over 782 thousand tons will be handled via the port of Olya. 

Last year, 1,167 wagons were delivered to the port of Olya by railway; 128 wagons were transported from the port. In 2005 three wagons were loaded daily on average. In January 2006, 14 wagons were loaded in the port daily on average.

Since the beginning of 2006, 432 wagons with 26 thousand tons of cargoes have been delivered to the railway station "Port of Olya" of the Astrakhan Department of the Privolzhskaya Railway. The cargoes are to be exported to Iran.

In February 2006, 721 wagons, or 45,700 tons of cargoes, are to be transported to the station "Port of Olya".



Russian Gift to Kazakhstan

Over 11 million tons of cargo was transported via the Dostyk (Druzhba) - Alashankou border crossing in 2005. Thus, a new record has been set at the border crossing. A source in Kazakhstan Temir Zholy reported that nowadays the Dostyk-Alashankou border crossing takes the second place after the Manchuria-Zabaikalsk border crossing among all Russian-Chinese border crossing by transportation volume and its annual growth.

According to Kazakhstan Temir Zholy, the average annual growth of freight transportation via the border crossing is 22%. Thus, about 5 million tons was transported via the border crossing in 2002; 6.5 million tons and 9.2 million tons was carried there in 2003 and 2004 respectively, while in 2005 this figure was 11.08 million tons.

The increase of the throughput of receiving and dispatching wagons with export and import freight at the Dostyk station simultaneously symbolizes the revival of the Silk Road connecting China, Kazakhstan and Europe since the ancient time. Nowadays transit cargoes from Russia and countries of Central Asia make a significant part of the throughput carried via the border crossing. In particular, in 2003, 1.2 million tons of transit freight was carried via the Dostyk border crossing; over 1.5 million tons of transit cargoes was transported there in 2004, and over 1.8 million tons - in 2005.

Such promising figures prove the fruitful and efficient cooperation of the Chinese and Kazakhstan sides. On the other hand, they demonstrate that the transport potential of Kazakhstan is high enough, and nowadays all the conditions to realize it are being created. And this means that the Transsiberian Railway has a new serious competitor.

In 2006, Kazakh railmen will transport over 13 million tons of cargoes via the Dostyk (Druzhba) - Alashankou border crossing. To avoid freight accumulation, 10 pairs of trains (500 wagons) are to run daily along the broad gauge to China and 6 trains (120 wagons) are to run to China daily along the narrow gauge in 2006. From China to Kazakhstan 6 pairs (230 wagons) of trains are to run daily. At the same time, the carrying capacities of the railway stations increase. In particular, a new repair-maintenance base has recently been opened at the Dostyk station, and a new hump with 10 tracks has been constructed there. The capacity of the station where the size of gauge changes to a broader or a narrower one has increased. The new block train Poti-Baku-Aktau-Almaty also proves the fact that, if the carrying capacity of Kazakhstan continues to increase, Kazakhstan will turn into a prospective and important transit corridor. "Expert" magazine reported that the operator of this block train is the consortium of Georgian and Turkish companies Black Sea Transit Ltd. and Advantage International Transport and Logistic Ltd. Until February 15, the consortium was to held negotiations with AO Kaztransservice and OOO Transkavkaztransport companies, as well as with the commercial sea port of Baku, and the Caspian shipping company. Analysts believe, up to 50,000 containers can be transported along the new route annually.



Freight Transportation in the CIS

On average, in 2005, freight transportation within the CIS (without pipelines), not taking Turkmenistan and Uzbekistan into account, as they do not present their data to the Statistics Service of the CIS, increased by 5% year-on-year (+30% in comparison with 2000). 

The largest freight transportation growth took place in Armenia. It amounted to 22.6% (+100% in comparison with 2000). 

In 2005 in Georgia, Byelorussia and Azerbaijan freight transportation increased by 11.7% (+53%), 11% (+39%), and 10.4% (+68%) year-on-year respectively.

Russia, Kazakhstan and Tajikistan increased freight transportation volume by 7.3% (+14%), 4.7% (+58%) and 1.6% (+43%) respectively.

According to the Statistics Service of the CIS, in 2005 Ukraine reduced freight transportation by 1.8% year-on-year (+27%), Moldova decreased freight transportation by 7.3% (+45%), and Kyrgyzstan - by 9.3% (+6%).



Riga-Moscow Railway To Be Reconstructed

The Russian Ambassador to Latvia Viktor Kalyuzhny believes that the two countries should start to solve the problem of Riga-Moscow railway line reconstruction.

On February 2, at the meeting of the Committee of Foreign Affairs Seim Viktor Kalyuzhny stressed that nowadays the condition of the railway network is poor. The Ambassador believes that the EU structuring funds can be attracted, since the Riga-Moscow transit corridor is an important sector connecting East and West. The Head of the PR Department of Latvijas dzelzcels (LDz or the Latvian Railway) Biruta Sakse said that LDz can discuss the improvement of the railway infrastructure on the territory of Latvia.

She noted that on the Latvian territory the line is in proper order: there are no speed limits, and it meets the requirements and rules of usage.

The Latvian Railway supplies the passenger communication on the Riga-Moscow line with two trains daily. Delivery time is 16-17 hours.



First Tanker with Azeri Oil to Leave Ceyhan in May

The first tanker filled with oil from Azerbaijan will sail from the Turkish port of Ceyhan in May 2006, Azeri Industry and Energy Minister Natik Aliyev said on February 14.

"To date, 99.7% of work on the construction of the Baku-Tbilisi-Ceyhan pipeline has been completed. It will not take long to test all the components of the pipeline. We expect that the first tanker will sail in May, 2006", he said.

N. Aliyev said that 5 million barrels of oil have been pumped into the pipeline. "All that remains is to fill the Turkish 800-km section. There the oil has reached the second pumping station. Now work is being carried out to test the third station, after which filling of the pipeline will continue. Another 5 million barrels of oil will be pumped into the pipeline", the minister said. Initially it was planned to ship the first tanker from Ceyhan in 2005.

The Baku-Tbilisi-Ceyhan pipeline stretches 1,767 kilometers (443 km through Azerbaijan, 248 km through Georgia and 1,076 km through Turkey) and will have a capacity of 50 million tons of oil per annum. The pipeline construction began in April 2003, with expenditure amounting to USD 3.4 billion.

The BTC Co. shareholders are BP (30.1%), the State Oil Company of the Azerbaijani Republic (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), ENI (5%), Itochu (3.4%), ConocoPhillips (2.5%), Inpex (2.5%), Total (5%) and Amerada Hess (2.36%).

    [~DETAIL_TEXT] => "OAO RZD creates conditions to stimulate growth of industrial output, to increase the competitiveness of Russian goods at the domestic and global markets, realizing the target of tariff loading reduction, set by the country's President", stated the first vice-president of OAO RZD Vadim Morozov.

In fact, it is worth reminding that the increased in 2005 tariffs on freight transportation by railway on average turned out to be 9.5 points lower that in the Russian transport system on the whole, and by 7.9 points lower that the growth of prices in industry. In January 2006 tariffs were indexed by 7.5% on average, however the forecasted inflation is to amount to 8.5%. 

However, the railmen bent every effort to fulfill the target, set by the state. "We prepared the infrastructure for winter to service the increasing transportation volumes, planned in cooperation with cargo owners", the representatives of the company said. By the beginning of 2006, almost all affiliates of OAO RZD had created maximum conditions to attract freight for transportation. To motivate clients, the railways simplified and fastened the procedures and receiving and approving the applications from consignors as well as process of freight transportation locally, which was especially important in the first ten days of January (holidays).



E-Declaration to Be Implemented in 2008

All the RF customs bodies are to usee-declaration system in 2008.

Thus, everybody involved in the foreign economy activities will be able to submit e-documents anywhere where customs clearance is provided. RF customs bodies started using e-declaration in 2004. Nowadays 86 customs offices the technology of e-declaration. By now 17.7 thousand freight customs e-declarations have been registered. Over 250 companies use it. It is planned that in 2006 up to 130 customs offices will join the system. Implementing e-declaration has accelerated customs clearance and increased its transparency. E-documents circulation is used in such customs' projects as "Green Corridor" on the border with Finland and "Kaliningrad Transit".



Speeded Up Railway Communication to Be Launched

OAO RZD plans to launch a speeded up railway communication on the route St.-Petersburg - Helsinki in 2008, vice-president of OAO RussianRailways Mikhail Akulov said on February 14.

In his words, a new joint company for purchase and maintenance of the rolling stock park will be launched. By April 1, 2006, OAO RZD and the Finnish party plan to have determined the terms on which the joint company will function, as well as the new company's authorized capital and the place of its registration.

Mikhail Akulov also mentioned that three Pendolino trains (Italy) will service the line at the first stage. He also noted that further increase of the amount of trains on the line will depend on the passenger flow. 



In 2006 Port of Olya to Handle New Cargoes

In 2006 the port of Olya will start handling timber and vegetable oil for export. According to the forecasts made by the Privolzhskaya Railway Center of Transport Services, 540 thousand tons of ferrous metals, 125 thousand tons of grain, 26 thousand tons of chemicals and soda, 11 thousand tons of vehicles, and 10 thousand tons of paper are to be transported via the railway station "Port of Olya", an important part of the North-South transport corridor.

This will be the first time when 41 thousand tons of timber and 26 thousand tons of vegetable oil are exported via the Astrakhan region. Railmen believe that over 782 thousand tons will be handled via the port of Olya. 

Last year, 1,167 wagons were delivered to the port of Olya by railway; 128 wagons were transported from the port. In 2005 three wagons were loaded daily on average. In January 2006, 14 wagons were loaded in the port daily on average.

Since the beginning of 2006, 432 wagons with 26 thousand tons of cargoes have been delivered to the railway station "Port of Olya" of the Astrakhan Department of the Privolzhskaya Railway. The cargoes are to be exported to Iran.

In February 2006, 721 wagons, or 45,700 tons of cargoes, are to be transported to the station "Port of Olya".



Russian Gift to Kazakhstan

Over 11 million tons of cargo was transported via the Dostyk (Druzhba) - Alashankou border crossing in 2005. Thus, a new record has been set at the border crossing. A source in Kazakhstan Temir Zholy reported that nowadays the Dostyk-Alashankou border crossing takes the second place after the Manchuria-Zabaikalsk border crossing among all Russian-Chinese border crossing by transportation volume and its annual growth.

According to Kazakhstan Temir Zholy, the average annual growth of freight transportation via the border crossing is 22%. Thus, about 5 million tons was transported via the border crossing in 2002; 6.5 million tons and 9.2 million tons was carried there in 2003 and 2004 respectively, while in 2005 this figure was 11.08 million tons.

The increase of the throughput of receiving and dispatching wagons with export and import freight at the Dostyk station simultaneously symbolizes the revival of the Silk Road connecting China, Kazakhstan and Europe since the ancient time. Nowadays transit cargoes from Russia and countries of Central Asia make a significant part of the throughput carried via the border crossing. In particular, in 2003, 1.2 million tons of transit freight was carried via the Dostyk border crossing; over 1.5 million tons of transit cargoes was transported there in 2004, and over 1.8 million tons - in 2005.

Such promising figures prove the fruitful and efficient cooperation of the Chinese and Kazakhstan sides. On the other hand, they demonstrate that the transport potential of Kazakhstan is high enough, and nowadays all the conditions to realize it are being created. And this means that the Transsiberian Railway has a new serious competitor.

In 2006, Kazakh railmen will transport over 13 million tons of cargoes via the Dostyk (Druzhba) - Alashankou border crossing. To avoid freight accumulation, 10 pairs of trains (500 wagons) are to run daily along the broad gauge to China and 6 trains (120 wagons) are to run to China daily along the narrow gauge in 2006. From China to Kazakhstan 6 pairs (230 wagons) of trains are to run daily. At the same time, the carrying capacities of the railway stations increase. In particular, a new repair-maintenance base has recently been opened at the Dostyk station, and a new hump with 10 tracks has been constructed there. The capacity of the station where the size of gauge changes to a broader or a narrower one has increased. The new block train Poti-Baku-Aktau-Almaty also proves the fact that, if the carrying capacity of Kazakhstan continues to increase, Kazakhstan will turn into a prospective and important transit corridor. "Expert" magazine reported that the operator of this block train is the consortium of Georgian and Turkish companies Black Sea Transit Ltd. and Advantage International Transport and Logistic Ltd. Until February 15, the consortium was to held negotiations with AO Kaztransservice and OOO Transkavkaztransport companies, as well as with the commercial sea port of Baku, and the Caspian shipping company. Analysts believe, up to 50,000 containers can be transported along the new route annually.



Freight Transportation in the CIS

On average, in 2005, freight transportation within the CIS (without pipelines), not taking Turkmenistan and Uzbekistan into account, as they do not present their data to the Statistics Service of the CIS, increased by 5% year-on-year (+30% in comparison with 2000). 

The largest freight transportation growth took place in Armenia. It amounted to 22.6% (+100% in comparison with 2000). 

In 2005 in Georgia, Byelorussia and Azerbaijan freight transportation increased by 11.7% (+53%), 11% (+39%), and 10.4% (+68%) year-on-year respectively.

Russia, Kazakhstan and Tajikistan increased freight transportation volume by 7.3% (+14%), 4.7% (+58%) and 1.6% (+43%) respectively.

According to the Statistics Service of the CIS, in 2005 Ukraine reduced freight transportation by 1.8% year-on-year (+27%), Moldova decreased freight transportation by 7.3% (+45%), and Kyrgyzstan - by 9.3% (+6%).



Riga-Moscow Railway To Be Reconstructed

The Russian Ambassador to Latvia Viktor Kalyuzhny believes that the two countries should start to solve the problem of Riga-Moscow railway line reconstruction.

On February 2, at the meeting of the Committee of Foreign Affairs Seim Viktor Kalyuzhny stressed that nowadays the condition of the railway network is poor. The Ambassador believes that the EU structuring funds can be attracted, since the Riga-Moscow transit corridor is an important sector connecting East and West. The Head of the PR Department of Latvijas dzelzcels (LDz or the Latvian Railway) Biruta Sakse said that LDz can discuss the improvement of the railway infrastructure on the territory of Latvia.

She noted that on the Latvian territory the line is in proper order: there are no speed limits, and it meets the requirements and rules of usage.

The Latvian Railway supplies the passenger communication on the Riga-Moscow line with two trains daily. Delivery time is 16-17 hours.



First Tanker with Azeri Oil to Leave Ceyhan in May

The first tanker filled with oil from Azerbaijan will sail from the Turkish port of Ceyhan in May 2006, Azeri Industry and Energy Minister Natik Aliyev said on February 14.

"To date, 99.7% of work on the construction of the Baku-Tbilisi-Ceyhan pipeline has been completed. It will not take long to test all the components of the pipeline. We expect that the first tanker will sail in May, 2006", he said.

N. Aliyev said that 5 million barrels of oil have been pumped into the pipeline. "All that remains is to fill the Turkish 800-km section. There the oil has reached the second pumping station. Now work is being carried out to test the third station, after which filling of the pipeline will continue. Another 5 million barrels of oil will be pumped into the pipeline", the minister said. Initially it was planned to ship the first tanker from Ceyhan in 2005.

The Baku-Tbilisi-Ceyhan pipeline stretches 1,767 kilometers (443 km through Azerbaijan, 248 km through Georgia and 1,076 km through Turkey) and will have a capacity of 50 million tons of oil per annum. The pipeline construction began in April 2003, with expenditure amounting to USD 3.4 billion.

The BTC Co. shareholders are BP (30.1%), the State Oil Company of the Azerbaijani Republic (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), ENI (5%), Itochu (3.4%), ConocoPhillips (2.5%), Inpex (2.5%), Total (5%) and Amerada Hess (2.36%).

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    [DETAIL_TEXT] => "OAO RZD creates conditions to stimulate growth of industrial output, to increase the competitiveness of Russian goods at the domestic and global markets, realizing the target of tariff loading reduction, set by the country's President", stated the first vice-president of OAO RZD Vadim Morozov.

In fact, it is worth reminding that the increased in 2005 tariffs on freight transportation by railway on average turned out to be 9.5 points lower that in the Russian transport system on the whole, and by 7.9 points lower that the growth of prices in industry. In January 2006 tariffs were indexed by 7.5% on average, however the forecasted inflation is to amount to 8.5%. 

However, the railmen bent every effort to fulfill the target, set by the state. "We prepared the infrastructure for winter to service the increasing transportation volumes, planned in cooperation with cargo owners", the representatives of the company said. By the beginning of 2006, almost all affiliates of OAO RZD had created maximum conditions to attract freight for transportation. To motivate clients, the railways simplified and fastened the procedures and receiving and approving the applications from consignors as well as process of freight transportation locally, which was especially important in the first ten days of January (holidays).



E-Declaration to Be Implemented in 2008

All the RF customs bodies are to usee-declaration system in 2008.

Thus, everybody involved in the foreign economy activities will be able to submit e-documents anywhere where customs clearance is provided. RF customs bodies started using e-declaration in 2004. Nowadays 86 customs offices the technology of e-declaration. By now 17.7 thousand freight customs e-declarations have been registered. Over 250 companies use it. It is planned that in 2006 up to 130 customs offices will join the system. Implementing e-declaration has accelerated customs clearance and increased its transparency. E-documents circulation is used in such customs' projects as "Green Corridor" on the border with Finland and "Kaliningrad Transit".



Speeded Up Railway Communication to Be Launched

OAO RZD plans to launch a speeded up railway communication on the route St.-Petersburg - Helsinki in 2008, vice-president of OAO RussianRailways Mikhail Akulov said on February 14.

In his words, a new joint company for purchase and maintenance of the rolling stock park will be launched. By April 1, 2006, OAO RZD and the Finnish party plan to have determined the terms on which the joint company will function, as well as the new company's authorized capital and the place of its registration.

Mikhail Akulov also mentioned that three Pendolino trains (Italy) will service the line at the first stage. He also noted that further increase of the amount of trains on the line will depend on the passenger flow. 



In 2006 Port of Olya to Handle New Cargoes

In 2006 the port of Olya will start handling timber and vegetable oil for export. According to the forecasts made by the Privolzhskaya Railway Center of Transport Services, 540 thousand tons of ferrous metals, 125 thousand tons of grain, 26 thousand tons of chemicals and soda, 11 thousand tons of vehicles, and 10 thousand tons of paper are to be transported via the railway station "Port of Olya", an important part of the North-South transport corridor.

This will be the first time when 41 thousand tons of timber and 26 thousand tons of vegetable oil are exported via the Astrakhan region. Railmen believe that over 782 thousand tons will be handled via the port of Olya. 

Last year, 1,167 wagons were delivered to the port of Olya by railway; 128 wagons were transported from the port. In 2005 three wagons were loaded daily on average. In January 2006, 14 wagons were loaded in the port daily on average.

Since the beginning of 2006, 432 wagons with 26 thousand tons of cargoes have been delivered to the railway station "Port of Olya" of the Astrakhan Department of the Privolzhskaya Railway. The cargoes are to be exported to Iran.

In February 2006, 721 wagons, or 45,700 tons of cargoes, are to be transported to the station "Port of Olya".



Russian Gift to Kazakhstan

Over 11 million tons of cargo was transported via the Dostyk (Druzhba) - Alashankou border crossing in 2005. Thus, a new record has been set at the border crossing. A source in Kazakhstan Temir Zholy reported that nowadays the Dostyk-Alashankou border crossing takes the second place after the Manchuria-Zabaikalsk border crossing among all Russian-Chinese border crossing by transportation volume and its annual growth.

According to Kazakhstan Temir Zholy, the average annual growth of freight transportation via the border crossing is 22%. Thus, about 5 million tons was transported via the border crossing in 2002; 6.5 million tons and 9.2 million tons was carried there in 2003 and 2004 respectively, while in 2005 this figure was 11.08 million tons.

The increase of the throughput of receiving and dispatching wagons with export and import freight at the Dostyk station simultaneously symbolizes the revival of the Silk Road connecting China, Kazakhstan and Europe since the ancient time. Nowadays transit cargoes from Russia and countries of Central Asia make a significant part of the throughput carried via the border crossing. In particular, in 2003, 1.2 million tons of transit freight was carried via the Dostyk border crossing; over 1.5 million tons of transit cargoes was transported there in 2004, and over 1.8 million tons - in 2005.

Such promising figures prove the fruitful and efficient cooperation of the Chinese and Kazakhstan sides. On the other hand, they demonstrate that the transport potential of Kazakhstan is high enough, and nowadays all the conditions to realize it are being created. And this means that the Transsiberian Railway has a new serious competitor.

In 2006, Kazakh railmen will transport over 13 million tons of cargoes via the Dostyk (Druzhba) - Alashankou border crossing. To avoid freight accumulation, 10 pairs of trains (500 wagons) are to run daily along the broad gauge to China and 6 trains (120 wagons) are to run to China daily along the narrow gauge in 2006. From China to Kazakhstan 6 pairs (230 wagons) of trains are to run daily. At the same time, the carrying capacities of the railway stations increase. In particular, a new repair-maintenance base has recently been opened at the Dostyk station, and a new hump with 10 tracks has been constructed there. The capacity of the station where the size of gauge changes to a broader or a narrower one has increased. The new block train Poti-Baku-Aktau-Almaty also proves the fact that, if the carrying capacity of Kazakhstan continues to increase, Kazakhstan will turn into a prospective and important transit corridor. "Expert" magazine reported that the operator of this block train is the consortium of Georgian and Turkish companies Black Sea Transit Ltd. and Advantage International Transport and Logistic Ltd. Until February 15, the consortium was to held negotiations with AO Kaztransservice and OOO Transkavkaztransport companies, as well as with the commercial sea port of Baku, and the Caspian shipping company. Analysts believe, up to 50,000 containers can be transported along the new route annually.



Freight Transportation in the CIS

On average, in 2005, freight transportation within the CIS (without pipelines), not taking Turkmenistan and Uzbekistan into account, as they do not present their data to the Statistics Service of the CIS, increased by 5% year-on-year (+30% in comparison with 2000). 

The largest freight transportation growth took place in Armenia. It amounted to 22.6% (+100% in comparison with 2000). 

In 2005 in Georgia, Byelorussia and Azerbaijan freight transportation increased by 11.7% (+53%), 11% (+39%), and 10.4% (+68%) year-on-year respectively.

Russia, Kazakhstan and Tajikistan increased freight transportation volume by 7.3% (+14%), 4.7% (+58%) and 1.6% (+43%) respectively.

According to the Statistics Service of the CIS, in 2005 Ukraine reduced freight transportation by 1.8% year-on-year (+27%), Moldova decreased freight transportation by 7.3% (+45%), and Kyrgyzstan - by 9.3% (+6%).



Riga-Moscow Railway To Be Reconstructed

The Russian Ambassador to Latvia Viktor Kalyuzhny believes that the two countries should start to solve the problem of Riga-Moscow railway line reconstruction.

On February 2, at the meeting of the Committee of Foreign Affairs Seim Viktor Kalyuzhny stressed that nowadays the condition of the railway network is poor. The Ambassador believes that the EU structuring funds can be attracted, since the Riga-Moscow transit corridor is an important sector connecting East and West. The Head of the PR Department of Latvijas dzelzcels (LDz or the Latvian Railway) Biruta Sakse said that LDz can discuss the improvement of the railway infrastructure on the territory of Latvia.

She noted that on the Latvian territory the line is in proper order: there are no speed limits, and it meets the requirements and rules of usage.

The Latvian Railway supplies the passenger communication on the Riga-Moscow line with two trains daily. Delivery time is 16-17 hours.



First Tanker with Azeri Oil to Leave Ceyhan in May

The first tanker filled with oil from Azerbaijan will sail from the Turkish port of Ceyhan in May 2006, Azeri Industry and Energy Minister Natik Aliyev said on February 14.

"To date, 99.7% of work on the construction of the Baku-Tbilisi-Ceyhan pipeline has been completed. It will not take long to test all the components of the pipeline. We expect that the first tanker will sail in May, 2006", he said.

N. Aliyev said that 5 million barrels of oil have been pumped into the pipeline. "All that remains is to fill the Turkish 800-km section. There the oil has reached the second pumping station. Now work is being carried out to test the third station, after which filling of the pipeline will continue. Another 5 million barrels of oil will be pumped into the pipeline", the minister said. Initially it was planned to ship the first tanker from Ceyhan in 2005.

The Baku-Tbilisi-Ceyhan pipeline stretches 1,767 kilometers (443 km through Azerbaijan, 248 km through Georgia and 1,076 km through Turkey) and will have a capacity of 50 million tons of oil per annum. The pipeline construction began in April 2003, with expenditure amounting to USD 3.4 billion.

The BTC Co. shareholders are BP (30.1%), the State Oil Company of the Azerbaijani Republic (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), ENI (5%), Itochu (3.4%), ConocoPhillips (2.5%), Inpex (2.5%), Total (5%) and Amerada Hess (2.36%).

    [~DETAIL_TEXT] => "OAO RZD creates conditions to stimulate growth of industrial output, to increase the competitiveness of Russian goods at the domestic and global markets, realizing the target of tariff loading reduction, set by the country's President", stated the first vice-president of OAO RZD Vadim Morozov.

In fact, it is worth reminding that the increased in 2005 tariffs on freight transportation by railway on average turned out to be 9.5 points lower that in the Russian transport system on the whole, and by 7.9 points lower that the growth of prices in industry. In January 2006 tariffs were indexed by 7.5% on average, however the forecasted inflation is to amount to 8.5%. 

However, the railmen bent every effort to fulfill the target, set by the state. "We prepared the infrastructure for winter to service the increasing transportation volumes, planned in cooperation with cargo owners", the representatives of the company said. By the beginning of 2006, almost all affiliates of OAO RZD had created maximum conditions to attract freight for transportation. To motivate clients, the railways simplified and fastened the procedures and receiving and approving the applications from consignors as well as process of freight transportation locally, which was especially important in the first ten days of January (holidays).



E-Declaration to Be Implemented in 2008

All the RF customs bodies are to usee-declaration system in 2008.

Thus, everybody involved in the foreign economy activities will be able to submit e-documents anywhere where customs clearance is provided. RF customs bodies started using e-declaration in 2004. Nowadays 86 customs offices the technology of e-declaration. By now 17.7 thousand freight customs e-declarations have been registered. Over 250 companies use it. It is planned that in 2006 up to 130 customs offices will join the system. Implementing e-declaration has accelerated customs clearance and increased its transparency. E-documents circulation is used in such customs' projects as "Green Corridor" on the border with Finland and "Kaliningrad Transit".



Speeded Up Railway Communication to Be Launched

OAO RZD plans to launch a speeded up railway communication on the route St.-Petersburg - Helsinki in 2008, vice-president of OAO RussianRailways Mikhail Akulov said on February 14.

In his words, a new joint company for purchase and maintenance of the rolling stock park will be launched. By April 1, 2006, OAO RZD and the Finnish party plan to have determined the terms on which the joint company will function, as well as the new company's authorized capital and the place of its registration.

Mikhail Akulov also mentioned that three Pendolino trains (Italy) will service the line at the first stage. He also noted that further increase of the amount of trains on the line will depend on the passenger flow. 



In 2006 Port of Olya to Handle New Cargoes

In 2006 the port of Olya will start handling timber and vegetable oil for export. According to the forecasts made by the Privolzhskaya Railway Center of Transport Services, 540 thousand tons of ferrous metals, 125 thousand tons of grain, 26 thousand tons of chemicals and soda, 11 thousand tons of vehicles, and 10 thousand tons of paper are to be transported via the railway station "Port of Olya", an important part of the North-South transport corridor.

This will be the first time when 41 thousand tons of timber and 26 thousand tons of vegetable oil are exported via the Astrakhan region. Railmen believe that over 782 thousand tons will be handled via the port of Olya. 

Last year, 1,167 wagons were delivered to the port of Olya by railway; 128 wagons were transported from the port. In 2005 three wagons were loaded daily on average. In January 2006, 14 wagons were loaded in the port daily on average.

Since the beginning of 2006, 432 wagons with 26 thousand tons of cargoes have been delivered to the railway station "Port of Olya" of the Astrakhan Department of the Privolzhskaya Railway. The cargoes are to be exported to Iran.

In February 2006, 721 wagons, or 45,700 tons of cargoes, are to be transported to the station "Port of Olya".



Russian Gift to Kazakhstan

Over 11 million tons of cargo was transported via the Dostyk (Druzhba) - Alashankou border crossing in 2005. Thus, a new record has been set at the border crossing. A source in Kazakhstan Temir Zholy reported that nowadays the Dostyk-Alashankou border crossing takes the second place after the Manchuria-Zabaikalsk border crossing among all Russian-Chinese border crossing by transportation volume and its annual growth.

According to Kazakhstan Temir Zholy, the average annual growth of freight transportation via the border crossing is 22%. Thus, about 5 million tons was transported via the border crossing in 2002; 6.5 million tons and 9.2 million tons was carried there in 2003 and 2004 respectively, while in 2005 this figure was 11.08 million tons.

The increase of the throughput of receiving and dispatching wagons with export and import freight at the Dostyk station simultaneously symbolizes the revival of the Silk Road connecting China, Kazakhstan and Europe since the ancient time. Nowadays transit cargoes from Russia and countries of Central Asia make a significant part of the throughput carried via the border crossing. In particular, in 2003, 1.2 million tons of transit freight was carried via the Dostyk border crossing; over 1.5 million tons of transit cargoes was transported there in 2004, and over 1.8 million tons - in 2005.

Such promising figures prove the fruitful and efficient cooperation of the Chinese and Kazakhstan sides. On the other hand, they demonstrate that the transport potential of Kazakhstan is high enough, and nowadays all the conditions to realize it are being created. And this means that the Transsiberian Railway has a new serious competitor.

In 2006, Kazakh railmen will transport over 13 million tons of cargoes via the Dostyk (Druzhba) - Alashankou border crossing. To avoid freight accumulation, 10 pairs of trains (500 wagons) are to run daily along the broad gauge to China and 6 trains (120 wagons) are to run to China daily along the narrow gauge in 2006. From China to Kazakhstan 6 pairs (230 wagons) of trains are to run daily. At the same time, the carrying capacities of the railway stations increase. In particular, a new repair-maintenance base has recently been opened at the Dostyk station, and a new hump with 10 tracks has been constructed there. The capacity of the station where the size of gauge changes to a broader or a narrower one has increased. The new block train Poti-Baku-Aktau-Almaty also proves the fact that, if the carrying capacity of Kazakhstan continues to increase, Kazakhstan will turn into a prospective and important transit corridor. "Expert" magazine reported that the operator of this block train is the consortium of Georgian and Turkish companies Black Sea Transit Ltd. and Advantage International Transport and Logistic Ltd. Until February 15, the consortium was to held negotiations with AO Kaztransservice and OOO Transkavkaztransport companies, as well as with the commercial sea port of Baku, and the Caspian shipping company. Analysts believe, up to 50,000 containers can be transported along the new route annually.



Freight Transportation in the CIS

On average, in 2005, freight transportation within the CIS (without pipelines), not taking Turkmenistan and Uzbekistan into account, as they do not present their data to the Statistics Service of the CIS, increased by 5% year-on-year (+30% in comparison with 2000). 

The largest freight transportation growth took place in Armenia. It amounted to 22.6% (+100% in comparison with 2000). 

In 2005 in Georgia, Byelorussia and Azerbaijan freight transportation increased by 11.7% (+53%), 11% (+39%), and 10.4% (+68%) year-on-year respectively.

Russia, Kazakhstan and Tajikistan increased freight transportation volume by 7.3% (+14%), 4.7% (+58%) and 1.6% (+43%) respectively.

According to the Statistics Service of the CIS, in 2005 Ukraine reduced freight transportation by 1.8% year-on-year (+27%), Moldova decreased freight transportation by 7.3% (+45%), and Kyrgyzstan - by 9.3% (+6%).



Riga-Moscow Railway To Be Reconstructed

The Russian Ambassador to Latvia Viktor Kalyuzhny believes that the two countries should start to solve the problem of Riga-Moscow railway line reconstruction.

On February 2, at the meeting of the Committee of Foreign Affairs Seim Viktor Kalyuzhny stressed that nowadays the condition of the railway network is poor. The Ambassador believes that the EU structuring funds can be attracted, since the Riga-Moscow transit corridor is an important sector connecting East and West. The Head of the PR Department of Latvijas dzelzcels (LDz or the Latvian Railway) Biruta Sakse said that LDz can discuss the improvement of the railway infrastructure on the territory of Latvia.

She noted that on the Latvian territory the line is in proper order: there are no speed limits, and it meets the requirements and rules of usage.

The Latvian Railway supplies the passenger communication on the Riga-Moscow line with two trains daily. Delivery time is 16-17 hours.



First Tanker with Azeri Oil to Leave Ceyhan in May

The first tanker filled with oil from Azerbaijan will sail from the Turkish port of Ceyhan in May 2006, Azeri Industry and Energy Minister Natik Aliyev said on February 14.

"To date, 99.7% of work on the construction of the Baku-Tbilisi-Ceyhan pipeline has been completed. It will not take long to test all the components of the pipeline. We expect that the first tanker will sail in May, 2006", he said.

N. Aliyev said that 5 million barrels of oil have been pumped into the pipeline. "All that remains is to fill the Turkish 800-km section. There the oil has reached the second pumping station. Now work is being carried out to test the third station, after which filling of the pipeline will continue. Another 5 million barrels of oil will be pumped into the pipeline", the minister said. Initially it was planned to ship the first tanker from Ceyhan in 2005.

The Baku-Tbilisi-Ceyhan pipeline stretches 1,767 kilometers (443 km through Azerbaijan, 248 km through Georgia and 1,076 km through Turkey) and will have a capacity of 50 million tons of oil per annum. The pipeline construction began in April 2003, with expenditure amounting to USD 3.4 billion.

The BTC Co. shareholders are BP (30.1%), the State Oil Company of the Azerbaijani Republic (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), ENI (5%), Itochu (3.4%), ConocoPhillips (2.5%), Inpex (2.5%), Total (5%) and Amerada Hess (2.36%).

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    [DETAIL_TEXT] => The peculiarities of investing in Russian transport objects were the topic of our conversation with the OAO TransCreditBank (Moscow) first vice-president Alexey Krokhin.



- Mr Krokhin, how would you describe in general the current situation in Russia in respect to investment in transport projects?

- In the recent years transport has become one of the most dynamically developing industries in the Russian economy. This is largely the effect of the state policy aimed not only at modernization of the existing facilities, but also at the creation of new transport infrastructure objects. Achieving the planned results would require considerable investments, which, in various estimates, are to comprise at the initial stage (2005-2007) not less than 4% of gross domestic product, or about UDS 20 billion. Such a large scale of investment requires active involvement of private capital. According to the RF Ministry of Transport data for 2003-2004, one can conclude that the amount of state and private sources in the industry funding are comparable: about 1.56% and 1.14% of GDP respectively. 

It is almost unanimously agreed that the real investment potential of the Russian financial system is sufficient to have a considerable influence on the solution of problems in the industry. Still, the banks' participation in the financing of the transport projects with long repayment terms is limited to minor projects (costing between several million and several dozens million dollars). And, as evinces from the TransCreditBank experience, a major problem in increasing these amounts is the lack of investment projects adequate in terms of bank requirements.

- It is believed in Europe that high risks remain the main obstacle for a considerable increase of bank investments in the Russian transport industry. Do you share this opinion?

- To an extent. The case is that investment into the transport sector is extremely varied, as the sector itself. Investment into the infrastructure, rolling stock and main funds, sea and river transport and air transport reveal different risks. If we are speaking about the sector on the whole, I would say, investment has minimal risks here, in comparison with other industries, if the investment project is structured properly, taking into consideration its participants, terms and cooperation with suppliers. The growth of big banks' investment into transport, as well as the increasing interest to few public tenders and paper issue for transport project financing on the market, support the statement.

- And what about the realization of the transport infrastructure development projects?

- Here, it seems, only the technical means of operation maintenance, the service and maintenance equipment and some other issues can fully satisfy our requirements so far. The most promising credits in this segment of the transportation industry appear to be the middle-term ones for such sectors as aerodrome-technical and navigation, lighting, telecommunications and communications, security, road and road constructing, cargoes processing equipment and systems.

- What investment tools to carry out transport projects are currently most widely used?

- Currently, the most demanded by the customers and acceptable for the banks are leasing credits. TransCreditBank has recently been working successfully in this sphere. First of all, it has to do with the railway rolling stock, the acquisition of which is financed by our bank on the basis of leasing not only for OAO Russian Railways, but also for a number of private operator companies. For several years already, the bank has been financing the purchase of rolling stock for the term of up to 5 years. Recently this term has grown insufficient; therefore, we have developed and carried out a number of projects with the financing term of 7-8 years. At the same time, it has to be admitted that the investment tool of leasing, with all its benefits, results, in the long run, in a considerable increase in the price of the rolling stock paid by the leasing receiver and its applicability strongly depends on the level of profitability of various transportation modes.

- Does TransCreditBank intend to expand significantly its financing in other segments of the transportation industry, apart from the railway transport?

- It does, indeed. The experience accumulated in the railway sector allowed us to undertake some steps in the sphere of financing the airlines projects. The credits are taken for the renovation of the stock of planes and engines, in particular with the use of leasing crediting schemes. In various expert estimations, taking into account the introduction of restrictions for flights performed by airplanes not meeting the ICAO ecological standards in respect to the level of noisiness, as well as the increase of air transport traffic, the volume of investments required by the civil aviation for planes stock renovation only should comprise the minimum of USD 3 billion. Airlines are objectively unable to carry out the financing at this scale on their own. Therefore, the funds will naturally be provided by banks, according to credit or leasing schemes. At present, TransCreditBank is successfully carrying out the investment projects: concerning the acquisition of passenger planes Boeing-757 and Tu-154 to be further leased to national airlines. The total amount of financing required is about USD 30 million. Another one is acquiring engines for Tu passenger planes to be further leased to national airlines. The total amount of financing required is not considerable now, but it is growing continuously.

 The bank also has some positive experience in investment crediting in the sphere of vessels, oil barges, construction and leasing. We consider it to be of principal importance to develop such a project structure, so as to allow financing already at the stage of vessel construction at the shipyard. Of course, our positive decision in this respect was based on the strong belief in the great demand for this kind of vessels on the market. Thus, last September the Board of Directors of the European Bank for Reconstruction and Development approved providing the Italian Pietro Barbaro, who showed interest in the Russian market of river and sea transportation, a credit of USD 73.5 million to purchase vessels for oil transportation in the RF. EBRD also invests in Pietro Barbaro up to USD 8 million, which means the Italian company intends to purchase 8 tankers and 5 barges, in particular those constructed at Russian shipyards. The total cost of the project is estimated by the Italian company's analysts to comprise USD 103 million.

- What general approaches to investment crediting projects would you indicate?

- TransCreditBank is paying most close attention to careful consideration and analysis of the customers' business plans. The economic indicators of the project efficiency, the scheme of its financing, costs covered by the credit to be received, expected terms and volume of the product output or services rendered with prices per item of product or service, the analysis of the technical, price, functional competitiveness of the products are only some of the parameters on the basis of which we estimate the prospects of our participation in an investment project.

First of all, we are interested in the economic indicators of the efficiency of the business in the development of which the bank is going to invest for a relatively long term. The degree of these parameters development and the persuasiveness of the calculations based on the analysis of several forecast scenarios are crucial in making a decision on the project.

Much attention is paid by our experts to the structure of the project financing on all stages. If there are several sources of financing, we need to be perfectly sure that the means invested by us would not be turned dead due to delays or lack of financing by other project participants. Accordingly, the quality and reliability of these participants, their stability for the term of the project duration are important factors for us.

One more aspect of utmost importance is the expert estimation of administrative and technical aspects of the project: the way of spending the resources, the terms of spending, the coordination of the stages, often associated with considerable risks, the estimation of which is a complicated task for many banks due to lack of experts with the necessary technical background.

At present, the main specifics of bank investment financing apparently consists in that the banks usually do not aspire to participate in the capital, and, if such participation takes place, it is used not to get profit, but to ensure the necessary control over the project realization as a way to minimize risks.

Financing long-term projects with a high level of risks requires the new project to be based on an existing businesss that will serve as a security basis and turnover. Meeting these requirements to settle the matters of interests payment terms and regularity, as well as develop an acceptable for all parties and maximally flexible schedule of debt repayment. This requirement is most topical for the transport engineering enterprises technical re-equipment.

- In your investment activity you surely cooperate with foreign companies. What would you like to point out in this respect?

- Yes, for example, we participate in schemes of subsequent mortgage used for settling accounts on equipment supply by import contracts with letters of credit. As a rule, the project provides for attracting financing from Western banks, which allows us to reduce the cost of loan significantly, a most important detail for the borrower or leasing receiver.

The average cost of outward funding received by TransCreditBank in 2004-2005 for the term of 3-7 years, including all the fixed costs converted in annual interest rate, comprised 5.0-6.5%. 

 In conclusion, I would like to stress once again that Russian banks have a serious investment potential which can and should be resorted to when resolving large-scale tasks that the transport industry and the country's economy in general now face.



Interviewed by Andrey Guryev
    [~DETAIL_TEXT] => The peculiarities of investing in Russian transport objects were the topic of our conversation with the OAO TransCreditBank (Moscow) first vice-president Alexey Krokhin.



- Mr Krokhin, how would you describe in general the current situation in Russia in respect to investment in transport projects?

- In the recent years transport has become one of the most dynamically developing industries in the Russian economy. This is largely the effect of the state policy aimed not only at modernization of the existing facilities, but also at the creation of new transport infrastructure objects. Achieving the planned results would require considerable investments, which, in various estimates, are to comprise at the initial stage (2005-2007) not less than 4% of gross domestic product, or about UDS 20 billion. Such a large scale of investment requires active involvement of private capital. According to the RF Ministry of Transport data for 2003-2004, one can conclude that the amount of state and private sources in the industry funding are comparable: about 1.56% and 1.14% of GDP respectively. 

It is almost unanimously agreed that the real investment potential of the Russian financial system is sufficient to have a considerable influence on the solution of problems in the industry. Still, the banks' participation in the financing of the transport projects with long repayment terms is limited to minor projects (costing between several million and several dozens million dollars). And, as evinces from the TransCreditBank experience, a major problem in increasing these amounts is the lack of investment projects adequate in terms of bank requirements.

- It is believed in Europe that high risks remain the main obstacle for a considerable increase of bank investments in the Russian transport industry. Do you share this opinion?

- To an extent. The case is that investment into the transport sector is extremely varied, as the sector itself. Investment into the infrastructure, rolling stock and main funds, sea and river transport and air transport reveal different risks. If we are speaking about the sector on the whole, I would say, investment has minimal risks here, in comparison with other industries, if the investment project is structured properly, taking into consideration its participants, terms and cooperation with suppliers. The growth of big banks' investment into transport, as well as the increasing interest to few public tenders and paper issue for transport project financing on the market, support the statement.

- And what about the realization of the transport infrastructure development projects?

- Here, it seems, only the technical means of operation maintenance, the service and maintenance equipment and some other issues can fully satisfy our requirements so far. The most promising credits in this segment of the transportation industry appear to be the middle-term ones for such sectors as aerodrome-technical and navigation, lighting, telecommunications and communications, security, road and road constructing, cargoes processing equipment and systems.

- What investment tools to carry out transport projects are currently most widely used?

- Currently, the most demanded by the customers and acceptable for the banks are leasing credits. TransCreditBank has recently been working successfully in this sphere. First of all, it has to do with the railway rolling stock, the acquisition of which is financed by our bank on the basis of leasing not only for OAO Russian Railways, but also for a number of private operator companies. For several years already, the bank has been financing the purchase of rolling stock for the term of up to 5 years. Recently this term has grown insufficient; therefore, we have developed and carried out a number of projects with the financing term of 7-8 years. At the same time, it has to be admitted that the investment tool of leasing, with all its benefits, results, in the long run, in a considerable increase in the price of the rolling stock paid by the leasing receiver and its applicability strongly depends on the level of profitability of various transportation modes.

- Does TransCreditBank intend to expand significantly its financing in other segments of the transportation industry, apart from the railway transport?

- It does, indeed. The experience accumulated in the railway sector allowed us to undertake some steps in the sphere of financing the airlines projects. The credits are taken for the renovation of the stock of planes and engines, in particular with the use of leasing crediting schemes. In various expert estimations, taking into account the introduction of restrictions for flights performed by airplanes not meeting the ICAO ecological standards in respect to the level of noisiness, as well as the increase of air transport traffic, the volume of investments required by the civil aviation for planes stock renovation only should comprise the minimum of USD 3 billion. Airlines are objectively unable to carry out the financing at this scale on their own. Therefore, the funds will naturally be provided by banks, according to credit or leasing schemes. At present, TransCreditBank is successfully carrying out the investment projects: concerning the acquisition of passenger planes Boeing-757 and Tu-154 to be further leased to national airlines. The total amount of financing required is about USD 30 million. Another one is acquiring engines for Tu passenger planes to be further leased to national airlines. The total amount of financing required is not considerable now, but it is growing continuously.

 The bank also has some positive experience in investment crediting in the sphere of vessels, oil barges, construction and leasing. We consider it to be of principal importance to develop such a project structure, so as to allow financing already at the stage of vessel construction at the shipyard. Of course, our positive decision in this respect was based on the strong belief in the great demand for this kind of vessels on the market. Thus, last September the Board of Directors of the European Bank for Reconstruction and Development approved providing the Italian Pietro Barbaro, who showed interest in the Russian market of river and sea transportation, a credit of USD 73.5 million to purchase vessels for oil transportation in the RF. EBRD also invests in Pietro Barbaro up to USD 8 million, which means the Italian company intends to purchase 8 tankers and 5 barges, in particular those constructed at Russian shipyards. The total cost of the project is estimated by the Italian company's analysts to comprise USD 103 million.

- What general approaches to investment crediting projects would you indicate?

- TransCreditBank is paying most close attention to careful consideration and analysis of the customers' business plans. The economic indicators of the project efficiency, the scheme of its financing, costs covered by the credit to be received, expected terms and volume of the product output or services rendered with prices per item of product or service, the analysis of the technical, price, functional competitiveness of the products are only some of the parameters on the basis of which we estimate the prospects of our participation in an investment project.

First of all, we are interested in the economic indicators of the efficiency of the business in the development of which the bank is going to invest for a relatively long term. The degree of these parameters development and the persuasiveness of the calculations based on the analysis of several forecast scenarios are crucial in making a decision on the project.

Much attention is paid by our experts to the structure of the project financing on all stages. If there are several sources of financing, we need to be perfectly sure that the means invested by us would not be turned dead due to delays or lack of financing by other project participants. Accordingly, the quality and reliability of these participants, their stability for the term of the project duration are important factors for us.

One more aspect of utmost importance is the expert estimation of administrative and technical aspects of the project: the way of spending the resources, the terms of spending, the coordination of the stages, often associated with considerable risks, the estimation of which is a complicated task for many banks due to lack of experts with the necessary technical background.

At present, the main specifics of bank investment financing apparently consists in that the banks usually do not aspire to participate in the capital, and, if such participation takes place, it is used not to get profit, but to ensure the necessary control over the project realization as a way to minimize risks.

Financing long-term projects with a high level of risks requires the new project to be based on an existing businesss that will serve as a security basis and turnover. Meeting these requirements to settle the matters of interests payment terms and regularity, as well as develop an acceptable for all parties and maximally flexible schedule of debt repayment. This requirement is most topical for the transport engineering enterprises technical re-equipment.

- In your investment activity you surely cooperate with foreign companies. What would you like to point out in this respect?

- Yes, for example, we participate in schemes of subsequent mortgage used for settling accounts on equipment supply by import contracts with letters of credit. As a rule, the project provides for attracting financing from Western banks, which allows us to reduce the cost of loan significantly, a most important detail for the borrower or leasing receiver.

The average cost of outward funding received by TransCreditBank in 2004-2005 for the term of 3-7 years, including all the fixed costs converted in annual interest rate, comprised 5.0-6.5%. 

 In conclusion, I would like to stress once again that Russian banks have a serious investment potential which can and should be resorted to when resolving large-scale tasks that the transport industry and the country's economy in general now face.



Interviewed by Andrey Guryev
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    [DETAIL_TEXT] => The peculiarities of investing in Russian transport objects were the topic of our conversation with the OAO TransCreditBank (Moscow) first vice-president Alexey Krokhin.



- Mr Krokhin, how would you describe in general the current situation in Russia in respect to investment in transport projects?

- In the recent years transport has become one of the most dynamically developing industries in the Russian economy. This is largely the effect of the state policy aimed not only at modernization of the existing facilities, but also at the creation of new transport infrastructure objects. Achieving the planned results would require considerable investments, which, in various estimates, are to comprise at the initial stage (2005-2007) not less than 4% of gross domestic product, or about UDS 20 billion. Such a large scale of investment requires active involvement of private capital. According to the RF Ministry of Transport data for 2003-2004, one can conclude that the amount of state and private sources in the industry funding are comparable: about 1.56% and 1.14% of GDP respectively. 

It is almost unanimously agreed that the real investment potential of the Russian financial system is sufficient to have a considerable influence on the solution of problems in the industry. Still, the banks' participation in the financing of the transport projects with long repayment terms is limited to minor projects (costing between several million and several dozens million dollars). And, as evinces from the TransCreditBank experience, a major problem in increasing these amounts is the lack of investment projects adequate in terms of bank requirements.

- It is believed in Europe that high risks remain the main obstacle for a considerable increase of bank investments in the Russian transport industry. Do you share this opinion?

- To an extent. The case is that investment into the transport sector is extremely varied, as the sector itself. Investment into the infrastructure, rolling stock and main funds, sea and river transport and air transport reveal different risks. If we are speaking about the sector on the whole, I would say, investment has minimal risks here, in comparison with other industries, if the investment project is structured properly, taking into consideration its participants, terms and cooperation with suppliers. The growth of big banks' investment into transport, as well as the increasing interest to few public tenders and paper issue for transport project financing on the market, support the statement.

- And what about the realization of the transport infrastructure development projects?

- Here, it seems, only the technical means of operation maintenance, the service and maintenance equipment and some other issues can fully satisfy our requirements so far. The most promising credits in this segment of the transportation industry appear to be the middle-term ones for such sectors as aerodrome-technical and navigation, lighting, telecommunications and communications, security, road and road constructing, cargoes processing equipment and systems.

- What investment tools to carry out transport projects are currently most widely used?

- Currently, the most demanded by the customers and acceptable for the banks are leasing credits. TransCreditBank has recently been working successfully in this sphere. First of all, it has to do with the railway rolling stock, the acquisition of which is financed by our bank on the basis of leasing not only for OAO Russian Railways, but also for a number of private operator companies. For several years already, the bank has been financing the purchase of rolling stock for the term of up to 5 years. Recently this term has grown insufficient; therefore, we have developed and carried out a number of projects with the financing term of 7-8 years. At the same time, it has to be admitted that the investment tool of leasing, with all its benefits, results, in the long run, in a considerable increase in the price of the rolling stock paid by the leasing receiver and its applicability strongly depends on the level of profitability of various transportation modes.

- Does TransCreditBank intend to expand significantly its financing in other segments of the transportation industry, apart from the railway transport?

- It does, indeed. The experience accumulated in the railway sector allowed us to undertake some steps in the sphere of financing the airlines projects. The credits are taken for the renovation of the stock of planes and engines, in particular with the use of leasing crediting schemes. In various expert estimations, taking into account the introduction of restrictions for flights performed by airplanes not meeting the ICAO ecological standards in respect to the level of noisiness, as well as the increase of air transport traffic, the volume of investments required by the civil aviation for planes stock renovation only should comprise the minimum of USD 3 billion. Airlines are objectively unable to carry out the financing at this scale on their own. Therefore, the funds will naturally be provided by banks, according to credit or leasing schemes. At present, TransCreditBank is successfully carrying out the investment projects: concerning the acquisition of passenger planes Boeing-757 and Tu-154 to be further leased to national airlines. The total amount of financing required is about USD 30 million. Another one is acquiring engines for Tu passenger planes to be further leased to national airlines. The total amount of financing required is not considerable now, but it is growing continuously.

 The bank also has some positive experience in investment crediting in the sphere of vessels, oil barges, construction and leasing. We consider it to be of principal importance to develop such a project structure, so as to allow financing already at the stage of vessel construction at the shipyard. Of course, our positive decision in this respect was based on the strong belief in the great demand for this kind of vessels on the market. Thus, last September the Board of Directors of the European Bank for Reconstruction and Development approved providing the Italian Pietro Barbaro, who showed interest in the Russian market of river and sea transportation, a credit of USD 73.5 million to purchase vessels for oil transportation in the RF. EBRD also invests in Pietro Barbaro up to USD 8 million, which means the Italian company intends to purchase 8 tankers and 5 barges, in particular those constructed at Russian shipyards. The total cost of the project is estimated by the Italian company's analysts to comprise USD 103 million.

- What general approaches to investment crediting projects would you indicate?

- TransCreditBank is paying most close attention to careful consideration and analysis of the customers' business plans. The economic indicators of the project efficiency, the scheme of its financing, costs covered by the credit to be received, expected terms and volume of the product output or services rendered with prices per item of product or service, the analysis of the technical, price, functional competitiveness of the products are only some of the parameters on the basis of which we estimate the prospects of our participation in an investment project.

First of all, we are interested in the economic indicators of the efficiency of the business in the development of which the bank is going to invest for a relatively long term. The degree of these parameters development and the persuasiveness of the calculations based on the analysis of several forecast scenarios are crucial in making a decision on the project.

Much attention is paid by our experts to the structure of the project financing on all stages. If there are several sources of financing, we need to be perfectly sure that the means invested by us would not be turned dead due to delays or lack of financing by other project participants. Accordingly, the quality and reliability of these participants, their stability for the term of the project duration are important factors for us.

One more aspect of utmost importance is the expert estimation of administrative and technical aspects of the project: the way of spending the resources, the terms of spending, the coordination of the stages, often associated with considerable risks, the estimation of which is a complicated task for many banks due to lack of experts with the necessary technical background.

At present, the main specifics of bank investment financing apparently consists in that the banks usually do not aspire to participate in the capital, and, if such participation takes place, it is used not to get profit, but to ensure the necessary control over the project realization as a way to minimize risks.

Financing long-term projects with a high level of risks requires the new project to be based on an existing businesss that will serve as a security basis and turnover. Meeting these requirements to settle the matters of interests payment terms and regularity, as well as develop an acceptable for all parties and maximally flexible schedule of debt repayment. This requirement is most topical for the transport engineering enterprises technical re-equipment.

- In your investment activity you surely cooperate with foreign companies. What would you like to point out in this respect?

- Yes, for example, we participate in schemes of subsequent mortgage used for settling accounts on equipment supply by import contracts with letters of credit. As a rule, the project provides for attracting financing from Western banks, which allows us to reduce the cost of loan significantly, a most important detail for the borrower or leasing receiver.

The average cost of outward funding received by TransCreditBank in 2004-2005 for the term of 3-7 years, including all the fixed costs converted in annual interest rate, comprised 5.0-6.5%. 

 In conclusion, I would like to stress once again that Russian banks have a serious investment potential which can and should be resorted to when resolving large-scale tasks that the transport industry and the country's economy in general now face.



Interviewed by Andrey Guryev
    [~DETAIL_TEXT] => The peculiarities of investing in Russian transport objects were the topic of our conversation with the OAO TransCreditBank (Moscow) first vice-president Alexey Krokhin.



- Mr Krokhin, how would you describe in general the current situation in Russia in respect to investment in transport projects?

- In the recent years transport has become one of the most dynamically developing industries in the Russian economy. This is largely the effect of the state policy aimed not only at modernization of the existing facilities, but also at the creation of new transport infrastructure objects. Achieving the planned results would require considerable investments, which, in various estimates, are to comprise at the initial stage (2005-2007) not less than 4% of gross domestic product, or about UDS 20 billion. Such a large scale of investment requires active involvement of private capital. According to the RF Ministry of Transport data for 2003-2004, one can conclude that the amount of state and private sources in the industry funding are comparable: about 1.56% and 1.14% of GDP respectively. 

It is almost unanimously agreed that the real investment potential of the Russian financial system is sufficient to have a considerable influence on the solution of problems in the industry. Still, the banks' participation in the financing of the transport projects with long repayment terms is limited to minor projects (costing between several million and several dozens million dollars). And, as evinces from the TransCreditBank experience, a major problem in increasing these amounts is the lack of investment projects adequate in terms of bank requirements.

- It is believed in Europe that high risks remain the main obstacle for a considerable increase of bank investments in the Russian transport industry. Do you share this opinion?

- To an extent. The case is that investment into the transport sector is extremely varied, as the sector itself. Investment into the infrastructure, rolling stock and main funds, sea and river transport and air transport reveal different risks. If we are speaking about the sector on the whole, I would say, investment has minimal risks here, in comparison with other industries, if the investment project is structured properly, taking into consideration its participants, terms and cooperation with suppliers. The growth of big banks' investment into transport, as well as the increasing interest to few public tenders and paper issue for transport project financing on the market, support the statement.

- And what about the realization of the transport infrastructure development projects?

- Here, it seems, only the technical means of operation maintenance, the service and maintenance equipment and some other issues can fully satisfy our requirements so far. The most promising credits in this segment of the transportation industry appear to be the middle-term ones for such sectors as aerodrome-technical and navigation, lighting, telecommunications and communications, security, road and road constructing, cargoes processing equipment and systems.

- What investment tools to carry out transport projects are currently most widely used?

- Currently, the most demanded by the customers and acceptable for the banks are leasing credits. TransCreditBank has recently been working successfully in this sphere. First of all, it has to do with the railway rolling stock, the acquisition of which is financed by our bank on the basis of leasing not only for OAO Russian Railways, but also for a number of private operator companies. For several years already, the bank has been financing the purchase of rolling stock for the term of up to 5 years. Recently this term has grown insufficient; therefore, we have developed and carried out a number of projects with the financing term of 7-8 years. At the same time, it has to be admitted that the investment tool of leasing, with all its benefits, results, in the long run, in a considerable increase in the price of the rolling stock paid by the leasing receiver and its applicability strongly depends on the level of profitability of various transportation modes.

- Does TransCreditBank intend to expand significantly its financing in other segments of the transportation industry, apart from the railway transport?

- It does, indeed. The experience accumulated in the railway sector allowed us to undertake some steps in the sphere of financing the airlines projects. The credits are taken for the renovation of the stock of planes and engines, in particular with the use of leasing crediting schemes. In various expert estimations, taking into account the introduction of restrictions for flights performed by airplanes not meeting the ICAO ecological standards in respect to the level of noisiness, as well as the increase of air transport traffic, the volume of investments required by the civil aviation for planes stock renovation only should comprise the minimum of USD 3 billion. Airlines are objectively unable to carry out the financing at this scale on their own. Therefore, the funds will naturally be provided by banks, according to credit or leasing schemes. At present, TransCreditBank is successfully carrying out the investment projects: concerning the acquisition of passenger planes Boeing-757 and Tu-154 to be further leased to national airlines. The total amount of financing required is about USD 30 million. Another one is acquiring engines for Tu passenger planes to be further leased to national airlines. The total amount of financing required is not considerable now, but it is growing continuously.

 The bank also has some positive experience in investment crediting in the sphere of vessels, oil barges, construction and leasing. We consider it to be of principal importance to develop such a project structure, so as to allow financing already at the stage of vessel construction at the shipyard. Of course, our positive decision in this respect was based on the strong belief in the great demand for this kind of vessels on the market. Thus, last September the Board of Directors of the European Bank for Reconstruction and Development approved providing the Italian Pietro Barbaro, who showed interest in the Russian market of river and sea transportation, a credit of USD 73.5 million to purchase vessels for oil transportation in the RF. EBRD also invests in Pietro Barbaro up to USD 8 million, which means the Italian company intends to purchase 8 tankers and 5 barges, in particular those constructed at Russian shipyards. The total cost of the project is estimated by the Italian company's analysts to comprise USD 103 million.

- What general approaches to investment crediting projects would you indicate?

- TransCreditBank is paying most close attention to careful consideration and analysis of the customers' business plans. The economic indicators of the project efficiency, the scheme of its financing, costs covered by the credit to be received, expected terms and volume of the product output or services rendered with prices per item of product or service, the analysis of the technical, price, functional competitiveness of the products are only some of the parameters on the basis of which we estimate the prospects of our participation in an investment project.

First of all, we are interested in the economic indicators of the efficiency of the business in the development of which the bank is going to invest for a relatively long term. The degree of these parameters development and the persuasiveness of the calculations based on the analysis of several forecast scenarios are crucial in making a decision on the project.

Much attention is paid by our experts to the structure of the project financing on all stages. If there are several sources of financing, we need to be perfectly sure that the means invested by us would not be turned dead due to delays or lack of financing by other project participants. Accordingly, the quality and reliability of these participants, their stability for the term of the project duration are important factors for us.

One more aspect of utmost importance is the expert estimation of administrative and technical aspects of the project: the way of spending the resources, the terms of spending, the coordination of the stages, often associated with considerable risks, the estimation of which is a complicated task for many banks due to lack of experts with the necessary technical background.

At present, the main specifics of bank investment financing apparently consists in that the banks usually do not aspire to participate in the capital, and, if such participation takes place, it is used not to get profit, but to ensure the necessary control over the project realization as a way to minimize risks.

Financing long-term projects with a high level of risks requires the new project to be based on an existing businesss that will serve as a security basis and turnover. Meeting these requirements to settle the matters of interests payment terms and regularity, as well as develop an acceptable for all parties and maximally flexible schedule of debt repayment. This requirement is most topical for the transport engineering enterprises technical re-equipment.

- In your investment activity you surely cooperate with foreign companies. What would you like to point out in this respect?

- Yes, for example, we participate in schemes of subsequent mortgage used for settling accounts on equipment supply by import contracts with letters of credit. As a rule, the project provides for attracting financing from Western banks, which allows us to reduce the cost of loan significantly, a most important detail for the borrower or leasing receiver.

The average cost of outward funding received by TransCreditBank in 2004-2005 for the term of 3-7 years, including all the fixed costs converted in annual interest rate, comprised 5.0-6.5%. 

 In conclusion, I would like to stress once again that Russian banks have a serious investment potential which can and should be resorted to when resolving large-scale tasks that the transport industry and the country's economy in general now face.



Interviewed by Andrey Guryev
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Principles of Control are to be changed

Until now only separate fragments of the state and private business cooperation system were activated. This could not produce the required social-economic effect. Thus, the federal target programme "Transport system modernization" approved in 2001 did not focus on mechanisms of non-budget funds attraction. This urged the creation of such documents as Transport Strategy of Russia till 2020, Strategy of the RF Transport development till 2010 and the new edition of the federal target programme "The RF transport system modernization". 

The strategy developed for the period up to 2020 had already been considered and was approved by the RF Government on April 28, 2005. The initial version of the middle-term transport development strategy till 2010 was significantly corrected and submitted to the RF Government and the RF Ministry of Trade and Economic Development. By now no additional comments or suggestions to these documents have been submitted to the Ministry of Transport. 

The federal target programme "Transport System Modernization" was amended in the area of basic principles and priority projects of the public-private partnership development in the transport sector. Financial data were also amended. Still, this programme only deals with arrangements to reproduce the already existing infrastructure. At the same time, the task of infrastructure development requires new approaches, modern mechanisms of projects control and implementation, which is why a concept of the new federal target programme "Development of transport services export of Russia (2006-2010)" has been worked out and presented at the RF Government session. 

The major peculiarity of the Programme lies in the fact that all its projects are supposed to be implemented on the basis of the public-private partnership. This will allow not only to expand the range of their financial sources, but also appeal to the investment and administrative experience of foreign partners, i.e. to implement all projects at the highest level possible. 

The projects considered by the federal target programme aim to achieve the two most important goals of the transport policy formulated by the two Strategies: to increase competition within the Russian transport system and fulfill the national transit potential, both being matters of great importance with the view of Russia's forthcoming joining the WTO. 



Via infrastructure development to raw material independence

The new goals being large-scaled, they required fundamentally new approaches to be worked out and reflected in the new Programme. In particular, the principle of programme formation based on choosing projects of maximum systemic efficiency was changed. The way to select most efficient projects has been worked out. This will be done by selecting strategic zones of transport infrastructure development that are located on the crossing points and in the areas of maximum concentration of export, domestic and transit cargo flows. Objects coinciding with the basic international transport corridors routes will be considered as well. Another peculiarity of the federal target programme is the elimination of the core business principle and switching to the intersectoral principle of planning and infrastructure control. 

The project concerning the creation of Novorossiysk multimodal transport junction can be given as an example here. It is a whole complex of connected subprojects on access and logistic port infrastructure development. At present the port's development is restricted precisely by the core business principle which includes the following factors: ineffective co-operation between stevedores and railmen, absence of direct access to the federal railway net from the port, and shortage of reserve areas to place new logistic terminals. This project implementation will supposedly lead to the elimination of cars idling and increase dry cargo handling by the port to 60 million tonnes (today it amounts to 20 million) 

Another project within the framework of the new complex approach is the creation of a logistic ring around Moscow which would follow the reconstruction of the Central ring road in the Moscow region. Not only the net of distribution logistic centers will be constructed here, but also container and customs terminals and warehouses will be transferred beyond the city line. Moreover, the development of recreation and innovative-industrial zones is planned that will allow to unload accesses to the city by allowing transit transport to pass and freeing a large number of expensive city territories. 

All the approaches mentioned above made grounds for new administrative principles. The Programme quoted the Ministry of Transport as the major state customer. To implement operative control and coordinate programme arrangements, a new Board should be created that will get half of the state customer's functions on the basis of contractual terms. All economic functions and immediate control over projects will be delegated to business within the framework of concluded agreements on the public-private partnership. 

As a result of the programmes implementation, by 2010 transport services export is expected to double (to USD 13 billion) and transfer passenger transportation in airports-hubs five-sevenfold (tо 3-4 million passengers). In the opinion of the Ministry of Transport experts, the stake on competition rise in the national transport complex, as well as the enhance of Russia's transit potential, will make Russia independent on raw materials. 



"Export" Needs Investment 

Aggregate volume of financing for five years period offered by the federal target programme has to amount to RUR 736 billion, wherein RUR 304 billion is federal funds (including RUR 32 billion of the regional budgets) and non-budget sources will make RUR 400 billion. Private investment will be attracted with use of two schemes applying either by launching joint-stock companies, or via the transfer of created objects owned by the state to long-term concessions. 

At the same time, major volumes of capital investment will be directed at high-technology infrastructure projects implementation, i.e. modern multimodal logistic complexes, high-speed motorways, national net of airports-hubs, development of Russia's biggest sea ports' infrastructure. The creation and implementation of modern transport, logistic and information technologies to provide high-quality and competitive transport services is a key priority. However, this approach faces the limitations of present-day budget mechanisms, i.e. long budget planning cycle, difficulty in giving social guarantees etc. This is why the Ministry of Transport offers to take Investment Fund as a donor. According to the Ministry of Trade and Economic Development of the RF, such Fund will have to be created within the budget for 2006 to support projects on maintenance and development of regional infrastructure. This Fund will receive part of the oil sector additional profit and its volume is expected to amount to RUR 70 billion in 2006, RUR 90 billion in 2007, RUR 120 million in 2008.

The annual need of the federal target programme "Transport services export" in budget subsidies amounts to RUR 60 billion. At the same time, the project budget for 2006 allocated to the Programme implementation makes only RUR 5 billion (while for the federal target programme "Modernization of the transport system of Russia" it is RUR 106.59 billion). It should be said that the idea of Programme being financed by the Investment Funds triggers heated discussions. Thus, in Vice-Premier Alexander Zhukov's opinion, the Russians haven't learnt to spend funds efficiently and there is a great danger of losing such a heavy investment. Viktor Khristenko, Minister of Industry and Economy, also sounds quite skeptical. He believes there is a risk of certain divergence in numbers appearing under conditions of new projects launch. Alexey Kudrin, Minister of Finance, is the most fierce opponent to the Ministry of Transport financial demands. He claims, they are too high to be satisfied. 

At any rate, to establish Investment Fund under the federal budget, the present-day Budget Code has to be amended. In particular, according to Svetlana Ganeyeva, director of investment policy department in the Ministry of Trade and Economic Development, Civil Code handles such a notion as "guarantee" only towards commercial banks, while the Investment Fund concept is directed not only at immediate funds investment, but at other investment guarantees also. There can be found plenty of contradictions of this kind.



Ivan Denisenko
    [~DETAIL_TEXT] => 

Principles of Control are to be changed

Until now only separate fragments of the state and private business cooperation system were activated. This could not produce the required social-economic effect. Thus, the federal target programme "Transport system modernization" approved in 2001 did not focus on mechanisms of non-budget funds attraction. This urged the creation of such documents as Transport Strategy of Russia till 2020, Strategy of the RF Transport development till 2010 and the new edition of the federal target programme "The RF transport system modernization". 

The strategy developed for the period up to 2020 had already been considered and was approved by the RF Government on April 28, 2005. The initial version of the middle-term transport development strategy till 2010 was significantly corrected and submitted to the RF Government and the RF Ministry of Trade and Economic Development. By now no additional comments or suggestions to these documents have been submitted to the Ministry of Transport. 

The federal target programme "Transport System Modernization" was amended in the area of basic principles and priority projects of the public-private partnership development in the transport sector. Financial data were also amended. Still, this programme only deals with arrangements to reproduce the already existing infrastructure. At the same time, the task of infrastructure development requires new approaches, modern mechanisms of projects control and implementation, which is why a concept of the new federal target programme "Development of transport services export of Russia (2006-2010)" has been worked out and presented at the RF Government session. 

The major peculiarity of the Programme lies in the fact that all its projects are supposed to be implemented on the basis of the public-private partnership. This will allow not only to expand the range of their financial sources, but also appeal to the investment and administrative experience of foreign partners, i.e. to implement all projects at the highest level possible. 

The projects considered by the federal target programme aim to achieve the two most important goals of the transport policy formulated by the two Strategies: to increase competition within the Russian transport system and fulfill the national transit potential, both being matters of great importance with the view of Russia's forthcoming joining the WTO. 



Via infrastructure development to raw material independence

The new goals being large-scaled, they required fundamentally new approaches to be worked out and reflected in the new Programme. In particular, the principle of programme formation based on choosing projects of maximum systemic efficiency was changed. The way to select most efficient projects has been worked out. This will be done by selecting strategic zones of transport infrastructure development that are located on the crossing points and in the areas of maximum concentration of export, domestic and transit cargo flows. Objects coinciding with the basic international transport corridors routes will be considered as well. Another peculiarity of the federal target programme is the elimination of the core business principle and switching to the intersectoral principle of planning and infrastructure control. 

The project concerning the creation of Novorossiysk multimodal transport junction can be given as an example here. It is a whole complex of connected subprojects on access and logistic port infrastructure development. At present the port's development is restricted precisely by the core business principle which includes the following factors: ineffective co-operation between stevedores and railmen, absence of direct access to the federal railway net from the port, and shortage of reserve areas to place new logistic terminals. This project implementation will supposedly lead to the elimination of cars idling and increase dry cargo handling by the port to 60 million tonnes (today it amounts to 20 million) 

Another project within the framework of the new complex approach is the creation of a logistic ring around Moscow which would follow the reconstruction of the Central ring road in the Moscow region. Not only the net of distribution logistic centers will be constructed here, but also container and customs terminals and warehouses will be transferred beyond the city line. Moreover, the development of recreation and innovative-industrial zones is planned that will allow to unload accesses to the city by allowing transit transport to pass and freeing a large number of expensive city territories. 

All the approaches mentioned above made grounds for new administrative principles. The Programme quoted the Ministry of Transport as the major state customer. To implement operative control and coordinate programme arrangements, a new Board should be created that will get half of the state customer's functions on the basis of contractual terms. All economic functions and immediate control over projects will be delegated to business within the framework of concluded agreements on the public-private partnership. 

As a result of the programmes implementation, by 2010 transport services export is expected to double (to USD 13 billion) and transfer passenger transportation in airports-hubs five-sevenfold (tо 3-4 million passengers). In the opinion of the Ministry of Transport experts, the stake on competition rise in the national transport complex, as well as the enhance of Russia's transit potential, will make Russia independent on raw materials. 



"Export" Needs Investment 

Aggregate volume of financing for five years period offered by the federal target programme has to amount to RUR 736 billion, wherein RUR 304 billion is federal funds (including RUR 32 billion of the regional budgets) and non-budget sources will make RUR 400 billion. Private investment will be attracted with use of two schemes applying either by launching joint-stock companies, or via the transfer of created objects owned by the state to long-term concessions. 

At the same time, major volumes of capital investment will be directed at high-technology infrastructure projects implementation, i.e. modern multimodal logistic complexes, high-speed motorways, national net of airports-hubs, development of Russia's biggest sea ports' infrastructure. The creation and implementation of modern transport, logistic and information technologies to provide high-quality and competitive transport services is a key priority. However, this approach faces the limitations of present-day budget mechanisms, i.e. long budget planning cycle, difficulty in giving social guarantees etc. This is why the Ministry of Transport offers to take Investment Fund as a donor. According to the Ministry of Trade and Economic Development of the RF, such Fund will have to be created within the budget for 2006 to support projects on maintenance and development of regional infrastructure. This Fund will receive part of the oil sector additional profit and its volume is expected to amount to RUR 70 billion in 2006, RUR 90 billion in 2007, RUR 120 million in 2008.

The annual need of the federal target programme "Transport services export" in budget subsidies amounts to RUR 60 billion. At the same time, the project budget for 2006 allocated to the Programme implementation makes only RUR 5 billion (while for the federal target programme "Modernization of the transport system of Russia" it is RUR 106.59 billion). It should be said that the idea of Programme being financed by the Investment Funds triggers heated discussions. Thus, in Vice-Premier Alexander Zhukov's opinion, the Russians haven't learnt to spend funds efficiently and there is a great danger of losing such a heavy investment. Viktor Khristenko, Minister of Industry and Economy, also sounds quite skeptical. He believes there is a risk of certain divergence in numbers appearing under conditions of new projects launch. Alexey Kudrin, Minister of Finance, is the most fierce opponent to the Ministry of Transport financial demands. He claims, they are too high to be satisfied. 

At any rate, to establish Investment Fund under the federal budget, the present-day Budget Code has to be amended. In particular, according to Svetlana Ganeyeva, director of investment policy department in the Ministry of Trade and Economic Development, Civil Code handles such a notion as "guarantee" only towards commercial banks, while the Investment Fund concept is directed not only at immediate funds investment, but at other investment guarantees also. There can be found plenty of contradictions of this kind.



Ivan Denisenko
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    [DETAIL_TEXT] => 

Principles of Control are to be changed

Until now only separate fragments of the state and private business cooperation system were activated. This could not produce the required social-economic effect. Thus, the federal target programme "Transport system modernization" approved in 2001 did not focus on mechanisms of non-budget funds attraction. This urged the creation of such documents as Transport Strategy of Russia till 2020, Strategy of the RF Transport development till 2010 and the new edition of the federal target programme "The RF transport system modernization". 

The strategy developed for the period up to 2020 had already been considered and was approved by the RF Government on April 28, 2005. The initial version of the middle-term transport development strategy till 2010 was significantly corrected and submitted to the RF Government and the RF Ministry of Trade and Economic Development. By now no additional comments or suggestions to these documents have been submitted to the Ministry of Transport. 

The federal target programme "Transport System Modernization" was amended in the area of basic principles and priority projects of the public-private partnership development in the transport sector. Financial data were also amended. Still, this programme only deals with arrangements to reproduce the already existing infrastructure. At the same time, the task of infrastructure development requires new approaches, modern mechanisms of projects control and implementation, which is why a concept of the new federal target programme "Development of transport services export of Russia (2006-2010)" has been worked out and presented at the RF Government session. 

The major peculiarity of the Programme lies in the fact that all its projects are supposed to be implemented on the basis of the public-private partnership. This will allow not only to expand the range of their financial sources, but also appeal to the investment and administrative experience of foreign partners, i.e. to implement all projects at the highest level possible. 

The projects considered by the federal target programme aim to achieve the two most important goals of the transport policy formulated by the two Strategies: to increase competition within the Russian transport system and fulfill the national transit potential, both being matters of great importance with the view of Russia's forthcoming joining the WTO. 



Via infrastructure development to raw material independence

The new goals being large-scaled, they required fundamentally new approaches to be worked out and reflected in the new Programme. In particular, the principle of programme formation based on choosing projects of maximum systemic efficiency was changed. The way to select most efficient projects has been worked out. This will be done by selecting strategic zones of transport infrastructure development that are located on the crossing points and in the areas of maximum concentration of export, domestic and transit cargo flows. Objects coinciding with the basic international transport corridors routes will be considered as well. Another peculiarity of the federal target programme is the elimination of the core business principle and switching to the intersectoral principle of planning and infrastructure control. 

The project concerning the creation of Novorossiysk multimodal transport junction can be given as an example here. It is a whole complex of connected subprojects on access and logistic port infrastructure development. At present the port's development is restricted precisely by the core business principle which includes the following factors: ineffective co-operation between stevedores and railmen, absence of direct access to the federal railway net from the port, and shortage of reserve areas to place new logistic terminals. This project implementation will supposedly lead to the elimination of cars idling and increase dry cargo handling by the port to 60 million tonnes (today it amounts to 20 million) 

Another project within the framework of the new complex approach is the creation of a logistic ring around Moscow which would follow the reconstruction of the Central ring road in the Moscow region. Not only the net of distribution logistic centers will be constructed here, but also container and customs terminals and warehouses will be transferred beyond the city line. Moreover, the development of recreation and innovative-industrial zones is planned that will allow to unload accesses to the city by allowing transit transport to pass and freeing a large number of expensive city territories. 

All the approaches mentioned above made grounds for new administrative principles. The Programme quoted the Ministry of Transport as the major state customer. To implement operative control and coordinate programme arrangements, a new Board should be created that will get half of the state customer's functions on the basis of contractual terms. All economic functions and immediate control over projects will be delegated to business within the framework of concluded agreements on the public-private partnership. 

As a result of the programmes implementation, by 2010 transport services export is expected to double (to USD 13 billion) and transfer passenger transportation in airports-hubs five-sevenfold (tо 3-4 million passengers). In the opinion of the Ministry of Transport experts, the stake on competition rise in the national transport complex, as well as the enhance of Russia's transit potential, will make Russia independent on raw materials. 



"Export" Needs Investment 

Aggregate volume of financing for five years period offered by the federal target programme has to amount to RUR 736 billion, wherein RUR 304 billion is federal funds (including RUR 32 billion of the regional budgets) and non-budget sources will make RUR 400 billion. Private investment will be attracted with use of two schemes applying either by launching joint-stock companies, or via the transfer of created objects owned by the state to long-term concessions. 

At the same time, major volumes of capital investment will be directed at high-technology infrastructure projects implementation, i.e. modern multimodal logistic complexes, high-speed motorways, national net of airports-hubs, development of Russia's biggest sea ports' infrastructure. The creation and implementation of modern transport, logistic and information technologies to provide high-quality and competitive transport services is a key priority. However, this approach faces the limitations of present-day budget mechanisms, i.e. long budget planning cycle, difficulty in giving social guarantees etc. This is why the Ministry of Transport offers to take Investment Fund as a donor. According to the Ministry of Trade and Economic Development of the RF, such Fund will have to be created within the budget for 2006 to support projects on maintenance and development of regional infrastructure. This Fund will receive part of the oil sector additional profit and its volume is expected to amount to RUR 70 billion in 2006, RUR 90 billion in 2007, RUR 120 million in 2008.

The annual need of the federal target programme "Transport services export" in budget subsidies amounts to RUR 60 billion. At the same time, the project budget for 2006 allocated to the Programme implementation makes only RUR 5 billion (while for the federal target programme "Modernization of the transport system of Russia" it is RUR 106.59 billion). It should be said that the idea of Programme being financed by the Investment Funds triggers heated discussions. Thus, in Vice-Premier Alexander Zhukov's opinion, the Russians haven't learnt to spend funds efficiently and there is a great danger of losing such a heavy investment. Viktor Khristenko, Minister of Industry and Economy, also sounds quite skeptical. He believes there is a risk of certain divergence in numbers appearing under conditions of new projects launch. Alexey Kudrin, Minister of Finance, is the most fierce opponent to the Ministry of Transport financial demands. He claims, they are too high to be satisfied. 

At any rate, to establish Investment Fund under the federal budget, the present-day Budget Code has to be amended. In particular, according to Svetlana Ganeyeva, director of investment policy department in the Ministry of Trade and Economic Development, Civil Code handles such a notion as "guarantee" only towards commercial banks, while the Investment Fund concept is directed not only at immediate funds investment, but at other investment guarantees also. There can be found plenty of contradictions of this kind.



Ivan Denisenko
    [~DETAIL_TEXT] => 

Principles of Control are to be changed

Until now only separate fragments of the state and private business cooperation system were activated. This could not produce the required social-economic effect. Thus, the federal target programme "Transport system modernization" approved in 2001 did not focus on mechanisms of non-budget funds attraction. This urged the creation of such documents as Transport Strategy of Russia till 2020, Strategy of the RF Transport development till 2010 and the new edition of the federal target programme "The RF transport system modernization". 

The strategy developed for the period up to 2020 had already been considered and was approved by the RF Government on April 28, 2005. The initial version of the middle-term transport development strategy till 2010 was significantly corrected and submitted to the RF Government and the RF Ministry of Trade and Economic Development. By now no additional comments or suggestions to these documents have been submitted to the Ministry of Transport. 

The federal target programme "Transport System Modernization" was amended in the area of basic principles and priority projects of the public-private partnership development in the transport sector. Financial data were also amended. Still, this programme only deals with arrangements to reproduce the already existing infrastructure. At the same time, the task of infrastructure development requires new approaches, modern mechanisms of projects control and implementation, which is why a concept of the new federal target programme "Development of transport services export of Russia (2006-2010)" has been worked out and presented at the RF Government session. 

The major peculiarity of the Programme lies in the fact that all its projects are supposed to be implemented on the basis of the public-private partnership. This will allow not only to expand the range of their financial sources, but also appeal to the investment and administrative experience of foreign partners, i.e. to implement all projects at the highest level possible. 

The projects considered by the federal target programme aim to achieve the two most important goals of the transport policy formulated by the two Strategies: to increase competition within the Russian transport system and fulfill the national transit potential, both being matters of great importance with the view of Russia's forthcoming joining the WTO. 



Via infrastructure development to raw material independence

The new goals being large-scaled, they required fundamentally new approaches to be worked out and reflected in the new Programme. In particular, the principle of programme formation based on choosing projects of maximum systemic efficiency was changed. The way to select most efficient projects has been worked out. This will be done by selecting strategic zones of transport infrastructure development that are located on the crossing points and in the areas of maximum concentration of export, domestic and transit cargo flows. Objects coinciding with the basic international transport corridors routes will be considered as well. Another peculiarity of the federal target programme is the elimination of the core business principle and switching to the intersectoral principle of planning and infrastructure control. 

The project concerning the creation of Novorossiysk multimodal transport junction can be given as an example here. It is a whole complex of connected subprojects on access and logistic port infrastructure development. At present the port's development is restricted precisely by the core business principle which includes the following factors: ineffective co-operation between stevedores and railmen, absence of direct access to the federal railway net from the port, and shortage of reserve areas to place new logistic terminals. This project implementation will supposedly lead to the elimination of cars idling and increase dry cargo handling by the port to 60 million tonnes (today it amounts to 20 million) 

Another project within the framework of the new complex approach is the creation of a logistic ring around Moscow which would follow the reconstruction of the Central ring road in the Moscow region. Not only the net of distribution logistic centers will be constructed here, but also container and customs terminals and warehouses will be transferred beyond the city line. Moreover, the development of recreation and innovative-industrial zones is planned that will allow to unload accesses to the city by allowing transit transport to pass and freeing a large number of expensive city territories. 

All the approaches mentioned above made grounds for new administrative principles. The Programme quoted the Ministry of Transport as the major state customer. To implement operative control and coordinate programme arrangements, a new Board should be created that will get half of the state customer's functions on the basis of contractual terms. All economic functions and immediate control over projects will be delegated to business within the framework of concluded agreements on the public-private partnership. 

As a result of the programmes implementation, by 2010 transport services export is expected to double (to USD 13 billion) and transfer passenger transportation in airports-hubs five-sevenfold (tо 3-4 million passengers). In the opinion of the Ministry of Transport experts, the stake on competition rise in the national transport complex, as well as the enhance of Russia's transit potential, will make Russia independent on raw materials. 



"Export" Needs Investment 

Aggregate volume of financing for five years period offered by the federal target programme has to amount to RUR 736 billion, wherein RUR 304 billion is federal funds (including RUR 32 billion of the regional budgets) and non-budget sources will make RUR 400 billion. Private investment will be attracted with use of two schemes applying either by launching joint-stock companies, or via the transfer of created objects owned by the state to long-term concessions. 

At the same time, major volumes of capital investment will be directed at high-technology infrastructure projects implementation, i.e. modern multimodal logistic complexes, high-speed motorways, national net of airports-hubs, development of Russia's biggest sea ports' infrastructure. The creation and implementation of modern transport, logistic and information technologies to provide high-quality and competitive transport services is a key priority. However, this approach faces the limitations of present-day budget mechanisms, i.e. long budget planning cycle, difficulty in giving social guarantees etc. This is why the Ministry of Transport offers to take Investment Fund as a donor. According to the Ministry of Trade and Economic Development of the RF, such Fund will have to be created within the budget for 2006 to support projects on maintenance and development of regional infrastructure. This Fund will receive part of the oil sector additional profit and its volume is expected to amount to RUR 70 billion in 2006, RUR 90 billion in 2007, RUR 120 million in 2008.

The annual need of the federal target programme "Transport services export" in budget subsidies amounts to RUR 60 billion. At the same time, the project budget for 2006 allocated to the Programme implementation makes only RUR 5 billion (while for the federal target programme "Modernization of the transport system of Russia" it is RUR 106.59 billion). It should be said that the idea of Programme being financed by the Investment Funds triggers heated discussions. Thus, in Vice-Premier Alexander Zhukov's opinion, the Russians haven't learnt to spend funds efficiently and there is a great danger of losing such a heavy investment. Viktor Khristenko, Minister of Industry and Economy, also sounds quite skeptical. He believes there is a risk of certain divergence in numbers appearing under conditions of new projects launch. Alexey Kudrin, Minister of Finance, is the most fierce opponent to the Ministry of Transport financial demands. He claims, they are too high to be satisfied. 

At any rate, to establish Investment Fund under the federal budget, the present-day Budget Code has to be amended. In particular, according to Svetlana Ganeyeva, director of investment policy department in the Ministry of Trade and Economic Development, Civil Code handles such a notion as "guarantee" only towards commercial banks, while the Investment Fund concept is directed not only at immediate funds investment, but at other investment guarantees also. There can be found plenty of contradictions of this kind.



Ivan Denisenko
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    [DETAIL_TEXT] => On January 17, Russian President Vladimir Putin received Head of the Russian Railways Company Vladimir Yakunin, who informed the head of state of the results of the company's operation for the last year.

"We have completely fulfilled the plan", V.Yakunin reported at the working meeting. "The company carried 1.3 billion passengers during the year and reached the highest level of daily loading (3.8 million tones). We have also fulfilled all tasks connected with the implementation of the cash-for-benefits law, and received no complaints on this point". 

On studying the documentation submitted by the company head, V.Putin noticed a decrease in the transport component in the price of industrial goods in Russia. "This has been achieved thanks to cuts in expenses and to raising efficiency of transport haulage", V.Yakunin explained. 

Speaking of tasks for the future, the company chief named as one of the most important things a decrease in the wear and tear of fixed assets, which amounted to 68 percent last year. "We plan to slash the wear and tear down to 56 percent by 2010", he stated. 

Among other main tasks, V.Yakunin also pointed to reforming the passenger system of carriage. "I have issued all the necessary instructions to set up a federal passenger management by now", he stated. 

"You should not create any additional problems connected with the reorganization that you plan", V. Putin warned. "You should consider everything so that passenger carriage does not suffer". 

In V.Yakunin's words, "the company must not pass to its passengers the entire volume of expenses ensuring transport independence of Russian citizens". 

V.Putin noted again that all changes and ensuing expenses should not tell negatively on passengers. "Money should be found in the budget and not in the pockets of our citizens", the President emphasized.



OAO RZD and India: Prospects for Cooperation

At the working meeting held on January 26, OAO RZD President Vladimir Yakunin and Indian Ambassador Extraordinary and Plenipotentiary to Russia Shri Kanval Sibal discussed prospects for cooperation to supply the Indian Railways with rolling stock produced in Russia, new automatic telecommunications and safety facilities. OAO RZD's participation in the construction of railway objects in India was also mentioned.

Besides, the sides exchanged opinions on the prospects for development of the international transport corridor "North-South", which provides transport connections between European countries, states of the Persian Gulf, Southern and South-Eastern Asia via the ports of Russia and Iran.

"For further development of the international transport corridor "North-South", it is necessary to define the freight transportation volume, consignors, forwarders and operators, who will transport cargo along the corridor. The potential annual cargo volume from Germany destined for Iran and India may amount to 4 million tons", Vladimir Yakunin said.

The Ambassador Extraordinary and Plenipotentiary said that cooperation between the Russian and the Indian Railways is very important, since it will strengthen the Russian-Indian relations.



Investment Fund Projects Named

In his public speech on December 23, Russian Economic Development and Trade Minister German Gref listed the projects to be financed from Russia's Investment Fund.

G.Gref said that, in distributing the RUR 70 billion (USD 2.4 billion) earmarked for investment next year, preference would be given to infrastructure projects. 

The minister also said that about two dozen projects to be financed by the Investment Fund were in road construction. He singled out projects to build a highway and railroad to link Moscow and St.-Petersburg, a logistics center near the Black Sea port of Novorosiysk, and beltways around Moscow and the city of Sochi, also located on the Black Sea coast. He said the construction of a third beltway around Moscow would bring logistic infrastructure to areas beyond the city boundaries, thus keeping trucks out of the center. 

Priority funding will also go towards a project to create a network of transit airport hubs in Russia, G. Gref said. According to the Minister, five or six such hubs will cost no more than USD 2 billion to build, but the inflow of passengers and freight they are expected to draw may bring Russia as much as EUR 3.5-4 billion in annual revenue. 

The infrastructural development of the lower Angara River area in Siberia will be financed as part of what G. Gref called the most ambitious project undertaken in Russia in the past 30 years. This project will involve completing the Boguchanskaya hydroelectric plant, whose construction has been suspended since the Soviet era, building an aluminum smelter and two paper and pulp factories, as well as developing three oil fields, with a combined estimated output of 3 million metric tons.



OAO RZD: RUR 1.3 Billion for Development of Ust-Luga

Part of OAO RZD's investing programme for 2006 envisages the investment of RUR 1,300 million into the construction of railway approaches to the port, as well as railway approaches to the terminals in the port. Such figures were named by OAO RZD President Vladimir Yakunin, who heads the construction of a commercial sea port in Ust-Luga, during the working conference in the port.

The conference was devoted to the questions of stage-by-stage port development and freight delivery by railway, as well as defining further steps necessary for the railway infrastructure development. 

Nowadays the railway infrastructure allows delivery of up to 6 million tons of cargo to the port of Ust-Luga, which entirely meets the requirements of the first stage of the coal terminal and the ferry line to be put into operation this year.

Up to now RUR500 million has been spent. The Southern and the Northern railway parks complex is to be implemented in autumn 2006. In accordance with the General scheme, to develop the North-Western Federal District railway infrastructure, investment of RUR 24 billion is required to construct close approaches to the sea port of Ust-Luga.



OAO RZD Successfully Placed Bonds Series 05

On January 26, JSC Russian Railways placed bonds series 05 totaling RUR 10 billion with a term of 3 years on the MICEX stock exchange. The demand for bonds was RUR 12.6 billion. 

The rate of one coupon yield was set up at 6.67% a year, which corresponds to the annual effective yield of 6.78%. The coupon yield is paid once in six months (182 days). The rates of coupons 2-6 of the series 05 equal the corresponding rate for the first coupon period, defined according to the results of the auction. The bonds series 05 were placed by public subscription. The bonds were placed with the price equal to the nominal value - RUR 1,000. The maturity terms of bonds is three years; the issue totals RUR 10 billion. 

The arrangers of the loan for JSC Russian Railways are KIT Finans Investment Bank and JP Morgan. Co-arrangers are HSBC, Dresdner Bank, Petrokommerts Bank and SOYUZ Bank. The underwrites syndicate was formed by ABN Amro Bank, International Moscow Bank, Industry and Construction Bank, Deutsche Bank, Bank of Moscow, NOMOS Bank, Impexbank and Promsvyasbank. 



Customs Accord between Russia and Belarus Proposed

Signing an agreement between the customs authorities of Russia and Belarus will help to resolve issues of goods transit via Byelarussia, said Economic Development and Trade Minister German Gref on February 3.

A serious problem exists with the re-export, as well as re-import, of Russian goods at reduced value via Belarus. The re-import issue mainly has to do with considerable volumes of cane sugar imported into Russia via Belarus. Without such an agreement, there can be no effective system to control the transit of goods, the minister concluded.



Port of Odessa: USD 40 Million Investing Project

The authorities of the port of Odessa and HHLA (Germany) - the largest operator of the container terminal in the port of Hamburg and a founder of GPK-Ukraine Company (the operator of the container terminal in the port of Odessa) - signed a general agreement. The agreement is aimed at further development of the port's container terminal to service Panamax container vessels. The term of the agreement is 10 years.

The agreement envisages the German company investing into the renewal of the terminal's loading equipment. The total sum of investment is USD 40 million. The first part of it will be spent on purchase of a STS cranes (to be implemented in 2007), which will enable the port to service 4,000 TEU container vessels. The port is also to develop its infrastructure.

According to the port officials, the agreement is to be carried out in the framework of the general plan for development supported by the Ministry of Transport and Communications of the Ukraine, with the total cost of USD 1.3 billion. 



New Tariff Regulation by Ukrzaliznytsya: Grain Transportation Price Increases

The authorities of the Ukrainian Grain Association, uniting 59 key players of the Ukrainian grain market, appealed to the Government of Ukraine against the project of Decree "On Approval of the Tariffs on Freight Transportation by Railway of Ukraine" (Tariff Regulation ? 1) produced by the Ukrainian Cabinet.

The reason for the appeal is the increase of the cost of grain transportation by railway envisaged by the new Tariff Regulation.

According to the Ukrainian Grain Association, when the new Tariff Regulation comes in force, it will lead to an increase of tariffs on the main type of agribulk, including grain (+4% - +6%), sunflower-seed oil (+6% - +9%) and sunflower seed (+13%). Besides, the services of Ukrzaliznytsya (Ukrainian Railways) will also become more expensive (in particular, the cost of forwarding and wagon guarding will increase threefold); dues will increase; moreover, new dues will be implemented.

All these issues made the agrarian companies appeal to the country's authorities to suspend the implementation of the new Tariff Regulation until an additional analysis of the problem is completed. Respective remarks have been made and offers have been sent to the authorities of the Ministry of Transport and Communications and to the Ministry of Agrarian Policy of Ukraine. 



Byelorussian Railway to Be Included into Ministry of Transport of Byelorussia

The Byelorussian Railway will be included into the Ministry of Transport and Communications of the Republic of Belarus.

The presence of the Head of the Byelorussian Railway Vladimir Zherelo at the meeting in the Byelorussian Ministry of Transport on January 26 and his words "later a decision can be made and all the transporters will be united under the jurisdiction of one Ministry".

However, according to some non-official sources in the Byelorussian Ministry of Transport, such changes will not be made before the presidential election in the Republic of Belarus, which is to be held on March 19, 2006.

    [~DETAIL_TEXT] => On January 17, Russian President Vladimir Putin received Head of the Russian Railways Company Vladimir Yakunin, who informed the head of state of the results of the company's operation for the last year.

"We have completely fulfilled the plan", V.Yakunin reported at the working meeting. "The company carried 1.3 billion passengers during the year and reached the highest level of daily loading (3.8 million tones). We have also fulfilled all tasks connected with the implementation of the cash-for-benefits law, and received no complaints on this point". 

On studying the documentation submitted by the company head, V.Putin noticed a decrease in the transport component in the price of industrial goods in Russia. "This has been achieved thanks to cuts in expenses and to raising efficiency of transport haulage", V.Yakunin explained. 

Speaking of tasks for the future, the company chief named as one of the most important things a decrease in the wear and tear of fixed assets, which amounted to 68 percent last year. "We plan to slash the wear and tear down to 56 percent by 2010", he stated. 

Among other main tasks, V.Yakunin also pointed to reforming the passenger system of carriage. "I have issued all the necessary instructions to set up a federal passenger management by now", he stated. 

"You should not create any additional problems connected with the reorganization that you plan", V. Putin warned. "You should consider everything so that passenger carriage does not suffer". 

In V.Yakunin's words, "the company must not pass to its passengers the entire volume of expenses ensuring transport independence of Russian citizens". 

V.Putin noted again that all changes and ensuing expenses should not tell negatively on passengers. "Money should be found in the budget and not in the pockets of our citizens", the President emphasized.



OAO RZD and India: Prospects for Cooperation

At the working meeting held on January 26, OAO RZD President Vladimir Yakunin and Indian Ambassador Extraordinary and Plenipotentiary to Russia Shri Kanval Sibal discussed prospects for cooperation to supply the Indian Railways with rolling stock produced in Russia, new automatic telecommunications and safety facilities. OAO RZD's participation in the construction of railway objects in India was also mentioned.

Besides, the sides exchanged opinions on the prospects for development of the international transport corridor "North-South", which provides transport connections between European countries, states of the Persian Gulf, Southern and South-Eastern Asia via the ports of Russia and Iran.

"For further development of the international transport corridor "North-South", it is necessary to define the freight transportation volume, consignors, forwarders and operators, who will transport cargo along the corridor. The potential annual cargo volume from Germany destined for Iran and India may amount to 4 million tons", Vladimir Yakunin said.

The Ambassador Extraordinary and Plenipotentiary said that cooperation between the Russian and the Indian Railways is very important, since it will strengthen the Russian-Indian relations.



Investment Fund Projects Named

In his public speech on December 23, Russian Economic Development and Trade Minister German Gref listed the projects to be financed from Russia's Investment Fund.

G.Gref said that, in distributing the RUR 70 billion (USD 2.4 billion) earmarked for investment next year, preference would be given to infrastructure projects. 

The minister also said that about two dozen projects to be financed by the Investment Fund were in road construction. He singled out projects to build a highway and railroad to link Moscow and St.-Petersburg, a logistics center near the Black Sea port of Novorosiysk, and beltways around Moscow and the city of Sochi, also located on the Black Sea coast. He said the construction of a third beltway around Moscow would bring logistic infrastructure to areas beyond the city boundaries, thus keeping trucks out of the center. 

Priority funding will also go towards a project to create a network of transit airport hubs in Russia, G. Gref said. According to the Minister, five or six such hubs will cost no more than USD 2 billion to build, but the inflow of passengers and freight they are expected to draw may bring Russia as much as EUR 3.5-4 billion in annual revenue. 

The infrastructural development of the lower Angara River area in Siberia will be financed as part of what G. Gref called the most ambitious project undertaken in Russia in the past 30 years. This project will involve completing the Boguchanskaya hydroelectric plant, whose construction has been suspended since the Soviet era, building an aluminum smelter and two paper and pulp factories, as well as developing three oil fields, with a combined estimated output of 3 million metric tons.



OAO RZD: RUR 1.3 Billion for Development of Ust-Luga

Part of OAO RZD's investing programme for 2006 envisages the investment of RUR 1,300 million into the construction of railway approaches to the port, as well as railway approaches to the terminals in the port. Such figures were named by OAO RZD President Vladimir Yakunin, who heads the construction of a commercial sea port in Ust-Luga, during the working conference in the port.

The conference was devoted to the questions of stage-by-stage port development and freight delivery by railway, as well as defining further steps necessary for the railway infrastructure development. 

Nowadays the railway infrastructure allows delivery of up to 6 million tons of cargo to the port of Ust-Luga, which entirely meets the requirements of the first stage of the coal terminal and the ferry line to be put into operation this year.

Up to now RUR500 million has been spent. The Southern and the Northern railway parks complex is to be implemented in autumn 2006. In accordance with the General scheme, to develop the North-Western Federal District railway infrastructure, investment of RUR 24 billion is required to construct close approaches to the sea port of Ust-Luga.



OAO RZD Successfully Placed Bonds Series 05

On January 26, JSC Russian Railways placed bonds series 05 totaling RUR 10 billion with a term of 3 years on the MICEX stock exchange. The demand for bonds was RUR 12.6 billion. 

The rate of one coupon yield was set up at 6.67% a year, which corresponds to the annual effective yield of 6.78%. The coupon yield is paid once in six months (182 days). The rates of coupons 2-6 of the series 05 equal the corresponding rate for the first coupon period, defined according to the results of the auction. The bonds series 05 were placed by public subscription. The bonds were placed with the price equal to the nominal value - RUR 1,000. The maturity terms of bonds is three years; the issue totals RUR 10 billion. 

The arrangers of the loan for JSC Russian Railways are KIT Finans Investment Bank and JP Morgan. Co-arrangers are HSBC, Dresdner Bank, Petrokommerts Bank and SOYUZ Bank. The underwrites syndicate was formed by ABN Amro Bank, International Moscow Bank, Industry and Construction Bank, Deutsche Bank, Bank of Moscow, NOMOS Bank, Impexbank and Promsvyasbank. 



Customs Accord between Russia and Belarus Proposed

Signing an agreement between the customs authorities of Russia and Belarus will help to resolve issues of goods transit via Byelarussia, said Economic Development and Trade Minister German Gref on February 3.

A serious problem exists with the re-export, as well as re-import, of Russian goods at reduced value via Belarus. The re-import issue mainly has to do with considerable volumes of cane sugar imported into Russia via Belarus. Without such an agreement, there can be no effective system to control the transit of goods, the minister concluded.



Port of Odessa: USD 40 Million Investing Project

The authorities of the port of Odessa and HHLA (Germany) - the largest operator of the container terminal in the port of Hamburg and a founder of GPK-Ukraine Company (the operator of the container terminal in the port of Odessa) - signed a general agreement. The agreement is aimed at further development of the port's container terminal to service Panamax container vessels. The term of the agreement is 10 years.

The agreement envisages the German company investing into the renewal of the terminal's loading equipment. The total sum of investment is USD 40 million. The first part of it will be spent on purchase of a STS cranes (to be implemented in 2007), which will enable the port to service 4,000 TEU container vessels. The port is also to develop its infrastructure.

According to the port officials, the agreement is to be carried out in the framework of the general plan for development supported by the Ministry of Transport and Communications of the Ukraine, with the total cost of USD 1.3 billion. 



New Tariff Regulation by Ukrzaliznytsya: Grain Transportation Price Increases

The authorities of the Ukrainian Grain Association, uniting 59 key players of the Ukrainian grain market, appealed to the Government of Ukraine against the project of Decree "On Approval of the Tariffs on Freight Transportation by Railway of Ukraine" (Tariff Regulation ? 1) produced by the Ukrainian Cabinet.

The reason for the appeal is the increase of the cost of grain transportation by railway envisaged by the new Tariff Regulation.

According to the Ukrainian Grain Association, when the new Tariff Regulation comes in force, it will lead to an increase of tariffs on the main type of agribulk, including grain (+4% - +6%), sunflower-seed oil (+6% - +9%) and sunflower seed (+13%). Besides, the services of Ukrzaliznytsya (Ukrainian Railways) will also become more expensive (in particular, the cost of forwarding and wagon guarding will increase threefold); dues will increase; moreover, new dues will be implemented.

All these issues made the agrarian companies appeal to the country's authorities to suspend the implementation of the new Tariff Regulation until an additional analysis of the problem is completed. Respective remarks have been made and offers have been sent to the authorities of the Ministry of Transport and Communications and to the Ministry of Agrarian Policy of Ukraine. 



Byelorussian Railway to Be Included into Ministry of Transport of Byelorussia

The Byelorussian Railway will be included into the Ministry of Transport and Communications of the Republic of Belarus.

The presence of the Head of the Byelorussian Railway Vladimir Zherelo at the meeting in the Byelorussian Ministry of Transport on January 26 and his words "later a decision can be made and all the transporters will be united under the jurisdiction of one Ministry".

However, according to some non-official sources in the Byelorussian Ministry of Transport, such changes will not be made before the presidential election in the Republic of Belarus, which is to be held on March 19, 2006.

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    [DETAIL_TEXT] => On January 17, Russian President Vladimir Putin received Head of the Russian Railways Company Vladimir Yakunin, who informed the head of state of the results of the company's operation for the last year.

"We have completely fulfilled the plan", V.Yakunin reported at the working meeting. "The company carried 1.3 billion passengers during the year and reached the highest level of daily loading (3.8 million tones). We have also fulfilled all tasks connected with the implementation of the cash-for-benefits law, and received no complaints on this point". 

On studying the documentation submitted by the company head, V.Putin noticed a decrease in the transport component in the price of industrial goods in Russia. "This has been achieved thanks to cuts in expenses and to raising efficiency of transport haulage", V.Yakunin explained. 

Speaking of tasks for the future, the company chief named as one of the most important things a decrease in the wear and tear of fixed assets, which amounted to 68 percent last year. "We plan to slash the wear and tear down to 56 percent by 2010", he stated. 

Among other main tasks, V.Yakunin also pointed to reforming the passenger system of carriage. "I have issued all the necessary instructions to set up a federal passenger management by now", he stated. 

"You should not create any additional problems connected with the reorganization that you plan", V. Putin warned. "You should consider everything so that passenger carriage does not suffer". 

In V.Yakunin's words, "the company must not pass to its passengers the entire volume of expenses ensuring transport independence of Russian citizens". 

V.Putin noted again that all changes and ensuing expenses should not tell negatively on passengers. "Money should be found in the budget and not in the pockets of our citizens", the President emphasized.



OAO RZD and India: Prospects for Cooperation

At the working meeting held on January 26, OAO RZD President Vladimir Yakunin and Indian Ambassador Extraordinary and Plenipotentiary to Russia Shri Kanval Sibal discussed prospects for cooperation to supply the Indian Railways with rolling stock produced in Russia, new automatic telecommunications and safety facilities. OAO RZD's participation in the construction of railway objects in India was also mentioned.

Besides, the sides exchanged opinions on the prospects for development of the international transport corridor "North-South", which provides transport connections between European countries, states of the Persian Gulf, Southern and South-Eastern Asia via the ports of Russia and Iran.

"For further development of the international transport corridor "North-South", it is necessary to define the freight transportation volume, consignors, forwarders and operators, who will transport cargo along the corridor. The potential annual cargo volume from Germany destined for Iran and India may amount to 4 million tons", Vladimir Yakunin said.

The Ambassador Extraordinary and Plenipotentiary said that cooperation between the Russian and the Indian Railways is very important, since it will strengthen the Russian-Indian relations.



Investment Fund Projects Named

In his public speech on December 23, Russian Economic Development and Trade Minister German Gref listed the projects to be financed from Russia's Investment Fund.

G.Gref said that, in distributing the RUR 70 billion (USD 2.4 billion) earmarked for investment next year, preference would be given to infrastructure projects. 

The minister also said that about two dozen projects to be financed by the Investment Fund were in road construction. He singled out projects to build a highway and railroad to link Moscow and St.-Petersburg, a logistics center near the Black Sea port of Novorosiysk, and beltways around Moscow and the city of Sochi, also located on the Black Sea coast. He said the construction of a third beltway around Moscow would bring logistic infrastructure to areas beyond the city boundaries, thus keeping trucks out of the center. 

Priority funding will also go towards a project to create a network of transit airport hubs in Russia, G. Gref said. According to the Minister, five or six such hubs will cost no more than USD 2 billion to build, but the inflow of passengers and freight they are expected to draw may bring Russia as much as EUR 3.5-4 billion in annual revenue. 

The infrastructural development of the lower Angara River area in Siberia will be financed as part of what G. Gref called the most ambitious project undertaken in Russia in the past 30 years. This project will involve completing the Boguchanskaya hydroelectric plant, whose construction has been suspended since the Soviet era, building an aluminum smelter and two paper and pulp factories, as well as developing three oil fields, with a combined estimated output of 3 million metric tons.



OAO RZD: RUR 1.3 Billion for Development of Ust-Luga

Part of OAO RZD's investing programme for 2006 envisages the investment of RUR 1,300 million into the construction of railway approaches to the port, as well as railway approaches to the terminals in the port. Such figures were named by OAO RZD President Vladimir Yakunin, who heads the construction of a commercial sea port in Ust-Luga, during the working conference in the port.

The conference was devoted to the questions of stage-by-stage port development and freight delivery by railway, as well as defining further steps necessary for the railway infrastructure development. 

Nowadays the railway infrastructure allows delivery of up to 6 million tons of cargo to the port of Ust-Luga, which entirely meets the requirements of the first stage of the coal terminal and the ferry line to be put into operation this year.

Up to now RUR500 million has been spent. The Southern and the Northern railway parks complex is to be implemented in autumn 2006. In accordance with the General scheme, to develop the North-Western Federal District railway infrastructure, investment of RUR 24 billion is required to construct close approaches to the sea port of Ust-Luga.



OAO RZD Successfully Placed Bonds Series 05

On January 26, JSC Russian Railways placed bonds series 05 totaling RUR 10 billion with a term of 3 years on the MICEX stock exchange. The demand for bonds was RUR 12.6 billion. 

The rate of one coupon yield was set up at 6.67% a year, which corresponds to the annual effective yield of 6.78%. The coupon yield is paid once in six months (182 days). The rates of coupons 2-6 of the series 05 equal the corresponding rate for the first coupon period, defined according to the results of the auction. The bonds series 05 were placed by public subscription. The bonds were placed with the price equal to the nominal value - RUR 1,000. The maturity terms of bonds is three years; the issue totals RUR 10 billion. 

The arrangers of the loan for JSC Russian Railways are KIT Finans Investment Bank and JP Morgan. Co-arrangers are HSBC, Dresdner Bank, Petrokommerts Bank and SOYUZ Bank. The underwrites syndicate was formed by ABN Amro Bank, International Moscow Bank, Industry and Construction Bank, Deutsche Bank, Bank of Moscow, NOMOS Bank, Impexbank and Promsvyasbank. 



Customs Accord between Russia and Belarus Proposed

Signing an agreement between the customs authorities of Russia and Belarus will help to resolve issues of goods transit via Byelarussia, said Economic Development and Trade Minister German Gref on February 3.

A serious problem exists with the re-export, as well as re-import, of Russian goods at reduced value via Belarus. The re-import issue mainly has to do with considerable volumes of cane sugar imported into Russia via Belarus. Without such an agreement, there can be no effective system to control the transit of goods, the minister concluded.



Port of Odessa: USD 40 Million Investing Project

The authorities of the port of Odessa and HHLA (Germany) - the largest operator of the container terminal in the port of Hamburg and a founder of GPK-Ukraine Company (the operator of the container terminal in the port of Odessa) - signed a general agreement. The agreement is aimed at further development of the port's container terminal to service Panamax container vessels. The term of the agreement is 10 years.

The agreement envisages the German company investing into the renewal of the terminal's loading equipment. The total sum of investment is USD 40 million. The first part of it will be spent on purchase of a STS cranes (to be implemented in 2007), which will enable the port to service 4,000 TEU container vessels. The port is also to develop its infrastructure.

According to the port officials, the agreement is to be carried out in the framework of the general plan for development supported by the Ministry of Transport and Communications of the Ukraine, with the total cost of USD 1.3 billion. 



New Tariff Regulation by Ukrzaliznytsya: Grain Transportation Price Increases

The authorities of the Ukrainian Grain Association, uniting 59 key players of the Ukrainian grain market, appealed to the Government of Ukraine against the project of Decree "On Approval of the Tariffs on Freight Transportation by Railway of Ukraine" (Tariff Regulation ? 1) produced by the Ukrainian Cabinet.

The reason for the appeal is the increase of the cost of grain transportation by railway envisaged by the new Tariff Regulation.

According to the Ukrainian Grain Association, when the new Tariff Regulation comes in force, it will lead to an increase of tariffs on the main type of agribulk, including grain (+4% - +6%), sunflower-seed oil (+6% - +9%) and sunflower seed (+13%). Besides, the services of Ukrzaliznytsya (Ukrainian Railways) will also become more expensive (in particular, the cost of forwarding and wagon guarding will increase threefold); dues will increase; moreover, new dues will be implemented.

All these issues made the agrarian companies appeal to the country's authorities to suspend the implementation of the new Tariff Regulation until an additional analysis of the problem is completed. Respective remarks have been made and offers have been sent to the authorities of the Ministry of Transport and Communications and to the Ministry of Agrarian Policy of Ukraine. 



Byelorussian Railway to Be Included into Ministry of Transport of Byelorussia

The Byelorussian Railway will be included into the Ministry of Transport and Communications of the Republic of Belarus.

The presence of the Head of the Byelorussian Railway Vladimir Zherelo at the meeting in the Byelorussian Ministry of Transport on January 26 and his words "later a decision can be made and all the transporters will be united under the jurisdiction of one Ministry".

However, according to some non-official sources in the Byelorussian Ministry of Transport, such changes will not be made before the presidential election in the Republic of Belarus, which is to be held on March 19, 2006.

    [~DETAIL_TEXT] => On January 17, Russian President Vladimir Putin received Head of the Russian Railways Company Vladimir Yakunin, who informed the head of state of the results of the company's operation for the last year.

"We have completely fulfilled the plan", V.Yakunin reported at the working meeting. "The company carried 1.3 billion passengers during the year and reached the highest level of daily loading (3.8 million tones). We have also fulfilled all tasks connected with the implementation of the cash-for-benefits law, and received no complaints on this point". 

On studying the documentation submitted by the company head, V.Putin noticed a decrease in the transport component in the price of industrial goods in Russia. "This has been achieved thanks to cuts in expenses and to raising efficiency of transport haulage", V.Yakunin explained. 

Speaking of tasks for the future, the company chief named as one of the most important things a decrease in the wear and tear of fixed assets, which amounted to 68 percent last year. "We plan to slash the wear and tear down to 56 percent by 2010", he stated. 

Among other main tasks, V.Yakunin also pointed to reforming the passenger system of carriage. "I have issued all the necessary instructions to set up a federal passenger management by now", he stated. 

"You should not create any additional problems connected with the reorganization that you plan", V. Putin warned. "You should consider everything so that passenger carriage does not suffer". 

In V.Yakunin's words, "the company must not pass to its passengers the entire volume of expenses ensuring transport independence of Russian citizens". 

V.Putin noted again that all changes and ensuing expenses should not tell negatively on passengers. "Money should be found in the budget and not in the pockets of our citizens", the President emphasized.



OAO RZD and India: Prospects for Cooperation

At the working meeting held on January 26, OAO RZD President Vladimir Yakunin and Indian Ambassador Extraordinary and Plenipotentiary to Russia Shri Kanval Sibal discussed prospects for cooperation to supply the Indian Railways with rolling stock produced in Russia, new automatic telecommunications and safety facilities. OAO RZD's participation in the construction of railway objects in India was also mentioned.

Besides, the sides exchanged opinions on the prospects for development of the international transport corridor "North-South", which provides transport connections between European countries, states of the Persian Gulf, Southern and South-Eastern Asia via the ports of Russia and Iran.

"For further development of the international transport corridor "North-South", it is necessary to define the freight transportation volume, consignors, forwarders and operators, who will transport cargo along the corridor. The potential annual cargo volume from Germany destined for Iran and India may amount to 4 million tons", Vladimir Yakunin said.

The Ambassador Extraordinary and Plenipotentiary said that cooperation between the Russian and the Indian Railways is very important, since it will strengthen the Russian-Indian relations.



Investment Fund Projects Named

In his public speech on December 23, Russian Economic Development and Trade Minister German Gref listed the projects to be financed from Russia's Investment Fund.

G.Gref said that, in distributing the RUR 70 billion (USD 2.4 billion) earmarked for investment next year, preference would be given to infrastructure projects. 

The minister also said that about two dozen projects to be financed by the Investment Fund were in road construction. He singled out projects to build a highway and railroad to link Moscow and St.-Petersburg, a logistics center near the Black Sea port of Novorosiysk, and beltways around Moscow and the city of Sochi, also located on the Black Sea coast. He said the construction of a third beltway around Moscow would bring logistic infrastructure to areas beyond the city boundaries, thus keeping trucks out of the center. 

Priority funding will also go towards a project to create a network of transit airport hubs in Russia, G. Gref said. According to the Minister, five or six such hubs will cost no more than USD 2 billion to build, but the inflow of passengers and freight they are expected to draw may bring Russia as much as EUR 3.5-4 billion in annual revenue. 

The infrastructural development of the lower Angara River area in Siberia will be financed as part of what G. Gref called the most ambitious project undertaken in Russia in the past 30 years. This project will involve completing the Boguchanskaya hydroelectric plant, whose construction has been suspended since the Soviet era, building an aluminum smelter and two paper and pulp factories, as well as developing three oil fields, with a combined estimated output of 3 million metric tons.



OAO RZD: RUR 1.3 Billion for Development of Ust-Luga

Part of OAO RZD's investing programme for 2006 envisages the investment of RUR 1,300 million into the construction of railway approaches to the port, as well as railway approaches to the terminals in the port. Such figures were named by OAO RZD President Vladimir Yakunin, who heads the construction of a commercial sea port in Ust-Luga, during the working conference in the port.

The conference was devoted to the questions of stage-by-stage port development and freight delivery by railway, as well as defining further steps necessary for the railway infrastructure development. 

Nowadays the railway infrastructure allows delivery of up to 6 million tons of cargo to the port of Ust-Luga, which entirely meets the requirements of the first stage of the coal terminal and the ferry line to be put into operation this year.

Up to now RUR500 million has been spent. The Southern and the Northern railway parks complex is to be implemented in autumn 2006. In accordance with the General scheme, to develop the North-Western Federal District railway infrastructure, investment of RUR 24 billion is required to construct close approaches to the sea port of Ust-Luga.



OAO RZD Successfully Placed Bonds Series 05

On January 26, JSC Russian Railways placed bonds series 05 totaling RUR 10 billion with a term of 3 years on the MICEX stock exchange. The demand for bonds was RUR 12.6 billion. 

The rate of one coupon yield was set up at 6.67% a year, which corresponds to the annual effective yield of 6.78%. The coupon yield is paid once in six months (182 days). The rates of coupons 2-6 of the series 05 equal the corresponding rate for the first coupon period, defined according to the results of the auction. The bonds series 05 were placed by public subscription. The bonds were placed with the price equal to the nominal value - RUR 1,000. The maturity terms of bonds is three years; the issue totals RUR 10 billion. 

The arrangers of the loan for JSC Russian Railways are KIT Finans Investment Bank and JP Morgan. Co-arrangers are HSBC, Dresdner Bank, Petrokommerts Bank and SOYUZ Bank. The underwrites syndicate was formed by ABN Amro Bank, International Moscow Bank, Industry and Construction Bank, Deutsche Bank, Bank of Moscow, NOMOS Bank, Impexbank and Promsvyasbank. 



Customs Accord between Russia and Belarus Proposed

Signing an agreement between the customs authorities of Russia and Belarus will help to resolve issues of goods transit via Byelarussia, said Economic Development and Trade Minister German Gref on February 3.

A serious problem exists with the re-export, as well as re-import, of Russian goods at reduced value via Belarus. The re-import issue mainly has to do with considerable volumes of cane sugar imported into Russia via Belarus. Without such an agreement, there can be no effective system to control the transit of goods, the minister concluded.



Port of Odessa: USD 40 Million Investing Project

The authorities of the port of Odessa and HHLA (Germany) - the largest operator of the container terminal in the port of Hamburg and a founder of GPK-Ukraine Company (the operator of the container terminal in the port of Odessa) - signed a general agreement. The agreement is aimed at further development of the port's container terminal to service Panamax container vessels. The term of the agreement is 10 years.

The agreement envisages the German company investing into the renewal of the terminal's loading equipment. The total sum of investment is USD 40 million. The first part of it will be spent on purchase of a STS cranes (to be implemented in 2007), which will enable the port to service 4,000 TEU container vessels. The port is also to develop its infrastructure.

According to the port officials, the agreement is to be carried out in the framework of the general plan for development supported by the Ministry of Transport and Communications of the Ukraine, with the total cost of USD 1.3 billion. 



New Tariff Regulation by Ukrzaliznytsya: Grain Transportation Price Increases

The authorities of the Ukrainian Grain Association, uniting 59 key players of the Ukrainian grain market, appealed to the Government of Ukraine against the project of Decree "On Approval of the Tariffs on Freight Transportation by Railway of Ukraine" (Tariff Regulation ? 1) produced by the Ukrainian Cabinet.

The reason for the appeal is the increase of the cost of grain transportation by railway envisaged by the new Tariff Regulation.

According to the Ukrainian Grain Association, when the new Tariff Regulation comes in force, it will lead to an increase of tariffs on the main type of agribulk, including grain (+4% - +6%), sunflower-seed oil (+6% - +9%) and sunflower seed (+13%). Besides, the services of Ukrzaliznytsya (Ukrainian Railways) will also become more expensive (in particular, the cost of forwarding and wagon guarding will increase threefold); dues will increase; moreover, new dues will be implemented.

All these issues made the agrarian companies appeal to the country's authorities to suspend the implementation of the new Tariff Regulation until an additional analysis of the problem is completed. Respective remarks have been made and offers have been sent to the authorities of the Ministry of Transport and Communications and to the Ministry of Agrarian Policy of Ukraine. 



Byelorussian Railway to Be Included into Ministry of Transport of Byelorussia

The Byelorussian Railway will be included into the Ministry of Transport and Communications of the Republic of Belarus.

The presence of the Head of the Byelorussian Railway Vladimir Zherelo at the meeting in the Byelorussian Ministry of Transport on January 26 and his words "later a decision can be made and all the transporters will be united under the jurisdiction of one Ministry".

However, according to some non-official sources in the Byelorussian Ministry of Transport, such changes will not be made before the presidential election in the Republic of Belarus, which is to be held on March 19, 2006.

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    [DETAIL_TEXT] => The specific feature of the Far Eastern region is that it borders on the fast developing states of the Asian-Pacific region, which, on the one hand, lack natural resources (especially fuel-energy ones) and consume large volumes of the world ore export, and on the other hand, form container flows of consumer goods. Thus, the Asian-Pacific region is a prospective partner for Russia not only as a market, but also as a consumer of transport services. The Head of the Transport Department of the Primorsk Region Administration Lev Panchenko comments on the problems and further development of the transport sector of the region.



- The ports of the Primorsk Region are not just key objects in the functioning of the region's transport sector: they play an important role in reaching the strategic targets of the country's economy, including the use of its transit potential. How could you evaluate the ports' work now? What problems became obvious last year?

- In fact, the ports of the Primorsk Region handle over 80% of the total volume of Russian foreign trade in the Far East. In 2004, 52 million tons was handled, which was within the limits of the regional ports' capacities. 

Nowadays, speaking of the results of 2005, unfortunately, we can record that the ports' throughput reduced by 8%. The share of export freight in the total volume of cargoes handled made 83.2% or 39.8 million tons, 10.1% down year-on-year (44.3 million tons or 85.1% of the total throughput). The share of import freight amounted to 6% or 2.9 million tons, 15.9% up year-on-year (2.5 million tons or 4.8% of the total throughput). The share of coastal trade was 8.3% or 3.9 million tons, 4.5% up year-on-year (3.8 million tons or 7.3% of the total throughput). The share of transit freight was 2.5% or 1.15 million tons, 20.7% down year-on-year (1.4 million tons or 2.8% of the total throughput). 

On the whole, the 2005 results of the ports of the Primorsk Region can be considered positive. The reduction of handling volumes for some cargoes did not come unexpected. Freight flows of liquid bulk and metals reduced significantly - by 16% and by 12% respectively. Coal throughput decreased by 4%. Here I would like to add that Russia, having great resources of the cargo popular on the Asian-Pacific market, has no sea terminals to handle it. The existing port capacities have been overloaded for several years. The reason for it is the prolonged reforms of the RF Ministry of Transport. It seems that Russia has no state policy for transport development, especially for its strategic directions and especially in the Far East Region. The present-day attempts to formulate the state approach to transport problems solution are based on the post-socialist world perception, and, unfortunately, they are very far from traditional market approaches to the formation of state policy. You asked about the use of the transit potential, which is obvious to anyone who has seen the globe. By all means, the distance from the Asian-Pacific region to Europe is twice shorter when using the Transsib. And the Transsib not just exists - thanks to the Tsar; it now has a high technical level - thanks to the railmen. We pay much attention to transit cargo attraction to the Transsiberian Railway. And the main restraining factor is our attitude to the foreign cargoes, the owner of which would be glad to use the shortest way - the Transsib - for freight delivery. But he knows about the possible delays - inspections, train formation etc. - which are difficult to forecast, that is why he goes in a roundabout way - by sea. It is much longer, but it is clear when the cargo will be delivered. 

The time factor of transportation by means of the Transsib is an uncertain figure, which makes logistics unreasonable. Thus, the transit cargo that could be transported along the Transsib is now being carried by sea transport. Besides, the programmes of railways construction via China and Kazakhstan to Europe are being implemented. And our "hungry" customs officers continue to stop transit freight because of trifles. I have no intention to offend Russian customs officers: they are nice people, but what can we expect from them - look at their salary! A lot has been said about it lately, and I hope that the projects of customs reforms, mentioned by German Gref, the Minister of the Economic Development and Trade of the Russian Federation, will be launched. An important problem is the level of production control at the railway. It should also be improved. Without it the dream of logistics will forever remain a dream. The problem was mentioned in one of the reports of OAO RZD President Vladimir Yakunin, and I'm sure special attention will be paid to it.

The 12% reduction of export metals handling volumes in the ports of Vladivostok and Nakhodka results, on the one hand, from the abolishment of exclusive stimulating tariffs on this type of cargo transportation to the terminals of the Far Eastern region, and on the other hand, from the construction of metallurgical works in China, close to consumers in the Asian-Pacific region. Consequently, more and more metal produce of Russian metallurgical works, situated in the center of the European part of Russia, is exported via the ports of the Black Sea and the Baltic Sea. It is difficult to say if it is bad or not, since from the Primorsk region perspective it is bad, and from the state perspective it is normal. Nowadays, being on the verge of joining the WTO, it is improper to speak about the return to the old system of railway transport tariffs formation. It would be more reasonable to develop a tariff policy with a clear idea of the consequences that will result when the target set is reached. For example, creating conditions for metals sale for export or for domestic consumption, stimulating the development of metal consuming sectors in the country's economy: 

Until now we have successfully explained our lack of order and management and laziness by the high cost of production, if the enterprise is situated far from Moscow. Well, perhaps it was so when Russia had a social economy, but what prevents us from making the enterprises, similar to those in the Northern provinces of China, competitive?

- What are the relations between railways and ports?

- The process of transport companies' (especially ports and railway companies) cooperation is being improved. There is a paradox, when the plans for cargo delivery, approved by the participants, cause a lot of misunderstandings between ports and railway companies. Among the latter there have appeared a lot of rolling-stock owners (or lessees), and the technology of sorting and dispatching wagons has not been worked through at the main port stations. This leads to an accumulation of large amount of rolling-stock at port railway junctions, since the rolling-stock owners do their best to keep the rolling-stock in the ports, until they find cargoes to load the wagons. This restrains the shunting works and significantly reduces the carrying capacities of the main port stations.

To solve the problem, it is necessary to admit that there is no sense in creating a fundamentally new transport process in Russia. We will never be able to adopt it to the technologies used on the global transportation market. That is why, when developing market relations, we must turn to the international experience, in particular that of cooperation and responsibilities of freight transportation process participants. It seems that, in accordance with the contract for transportation, which is to contain the sides' liabilities and responsibilities, the responsibility for cargo must be passed on to the carrier by the cargo owner. Only the cargo owner or its authorized agent (a forwarding or a logistic company) is to be responsible for delays when passing the freight from one participant of the transport process to another. And it does not matter who the latter is -the carrier or the owner of a warehouse. It is the cargo owner who can decide on the route and the speed of cargo transportation from the producer to the consumer, based on the potential of the transportation process participants, and conclude or authorize a forwarding company to conclude relevant contracts for transportation. 

 Railmen must know where they should deliver their rolling-stock for it to be loaded, how long it will take to get it loaded, and when it is to arrive at the point of destination. At the same time, they must be sure that the rolling-stock will be unloaded by the date mentioned in the contract. It does not matter where the rolling-stock is unloaded - at a terminal or at a port warehouse. All these factors should be envisaged by the contract for transportation; unfortunately, so far the railway has vague ideas of it. Let's hope that various aspects of cooperation and mutual responsibilities of the transportation process participants and cargo owners will be defined in the near future.

- Could you evaluate the level of the railway infrastructure development in the region? Does the carrying capacity of the Far Eastern railway meet the region's transport requirements?

- The Far Eastern railway is the most important element of the transport infrastructure in the Primorsk Region, and it takes the top place in export-import freight transportation. To service the increasing transportation volumes, the railway strengthens approaches to sea ports and border crossings, taking into account the increase of railway stations and terminals capacities. In the Primorsk Region, the most prospective direction is the development of the ports of Nakhodka and Vostochny. In contrast to Vladivostok, they have huge potential for development. Thus, nowadays, the projects of reconstruction of the sixth terminal of Nakhodka Vostochnaya station and the construction of the second track at the approach to the station are being carried out. Now the annual carrying capacity of the station is 26 million tons. And when the reconstruction is completed (according to the plan, it will happen in 2008), the carrying capacity will increase to 42 million tons. Large investments to develop railway stations in the port of Nakhodka are planned, to increase their handling capacities to 35 million tons by 2008. 

Special attention is paid to the Baranovsky-Khasan railway line to provide transportation of the prospective cargo flow (oil products, first of all) to the Perevoznaya Bay. The Programme for 2006 and the following years envisages further development of the carrying and handling capacities in the sector. Besides, the project of connecting the Transsib with the Transkorean Railway is also important today, since that will create conditions for attracting large container flows from the dynamically developing Korean port of Pusan to the Transsib. Carrying this project out is prospective for Russia, as well as for the countries of the Asian-Pacific Region and Central Europe. 

The Transsib as an international transport corridor has a lot of commercial and technological advantages. IT and fibre channel railway digital network implementation enables to control freight transportation along the Transsib. Due to automatic programmes, location of any wagon or container can be found on-line, i.e. they are really able to answer any question a client may have: where is the cargo? When will it cross this or that checking point? When will it be delivered to any place in Russia or to the state border? 

- Could you comment on the activities of the State Controlling Bodies in the Primorsk Region?

- The low carrying capacity of the RF border crossings is one of the most important problems for the ports of the Primorsk Region. In spite of the fact that there is a statement in the RF Customs Code that the actions of the customs bodies should not hinder the industrial process, we cannot provide twenty-four-hour work of the check-points where the transport modes, physical persons, freight and goods are cleared. This leads to the many-hour idling of the fleet, while it is waiting for cargo clearance by the state controlling bodies. One of the reasons for it is the lack of staff in the customs bodies. 

Meanwhile, a port unable to organize twenty-four-hour vessels customs clearance becomes less attractive for a ship owner and this is one of the reasons for charter rates on freight transportation increase. Thus, the expenses on additional staff of the state controlling bodies are much smaller than the losses suffered by the ports, ship owners and other participants of the international transport process, when the port and state controlling bodies fail to operate simultaneously. 

The customs check-points in the main sea ports of the region - Vladivostok, Nakhodka, and Vostochny - have not been opened in accordance with the legislation of the Russian Federation and failed to be put into operation. The territories, water areas, property and the state body or the organization responsible for functioning and development of the sea customs check-points have not been determined yet. Under such conditions, the activities of the state controlling bodies in the sea customs check-points are coordinated from time to time and insufficiently. The procedures of transport modes and freight customs clearance are often unpredictable. The Customs Service often delays cargo in standard situations that can be easily resolved in foreign ports in several minutes. All this leads to the uncertain position of the Russian ports, and as a result - we have no real transit freight flows.

It is obvious that it is high time for the Government to change its point of view on the problem and take measures to improve the situation. 

Another important problem is the ambiguous interpretation of the acting legislation in the sector of adjacent water areas of the commercial and the fish ports in Nakhodka and Vladivostok. The Federal bodies of the executive power (the Ministry of Transport, the Ministry of Agriculture and their Agencies) do not take necessary measures to solve the problem. As a result, ship owners either pay the vessel due twice or not pay it at all. 

At the same time, I can't but mark that lately the fish ports' specialization has completely changed. Since 1992 they have been handling export-import freight instead of fish, i.e. they function as commercial sea ports. In such a situation, it would be reasonable to establish a single state sea ports administration, responsible for the state control and management of navigation on the water area, and deal with fishery fleet sailing in the port's waters as with usual vessels. 

The problem should be regulated by a law. There is no federal law "On Sea Ports", in which the definition of a sea port, the basic principles of its functioning, the types of port dues, and the order of payment is formulated. The lack of clear cut definitions negatively influences the relations between the participants of the port services market, and Russian ports become less and less attractive for foreign ship owners.



Interviewed by TATYANA  TOKAREVA
    [~DETAIL_TEXT] => The specific feature of the Far Eastern region is that it borders on the fast developing states of the Asian-Pacific region, which, on the one hand, lack natural resources (especially fuel-energy ones) and consume large volumes of the world ore export, and on the other hand, form container flows of consumer goods. Thus, the Asian-Pacific region is a prospective partner for Russia not only as a market, but also as a consumer of transport services. The Head of the Transport Department of the Primorsk Region Administration Lev Panchenko comments on the problems and further development of the transport sector of the region.



- The ports of the Primorsk Region are not just key objects in the functioning of the region's transport sector: they play an important role in reaching the strategic targets of the country's economy, including the use of its transit potential. How could you evaluate the ports' work now? What problems became obvious last year?

- In fact, the ports of the Primorsk Region handle over 80% of the total volume of Russian foreign trade in the Far East. In 2004, 52 million tons was handled, which was within the limits of the regional ports' capacities. 

Nowadays, speaking of the results of 2005, unfortunately, we can record that the ports' throughput reduced by 8%. The share of export freight in the total volume of cargoes handled made 83.2% or 39.8 million tons, 10.1% down year-on-year (44.3 million tons or 85.1% of the total throughput). The share of import freight amounted to 6% or 2.9 million tons, 15.9% up year-on-year (2.5 million tons or 4.8% of the total throughput). The share of coastal trade was 8.3% or 3.9 million tons, 4.5% up year-on-year (3.8 million tons or 7.3% of the total throughput). The share of transit freight was 2.5% or 1.15 million tons, 20.7% down year-on-year (1.4 million tons or 2.8% of the total throughput). 

On the whole, the 2005 results of the ports of the Primorsk Region can be considered positive. The reduction of handling volumes for some cargoes did not come unexpected. Freight flows of liquid bulk and metals reduced significantly - by 16% and by 12% respectively. Coal throughput decreased by 4%. Here I would like to add that Russia, having great resources of the cargo popular on the Asian-Pacific market, has no sea terminals to handle it. The existing port capacities have been overloaded for several years. The reason for it is the prolonged reforms of the RF Ministry of Transport. It seems that Russia has no state policy for transport development, especially for its strategic directions and especially in the Far East Region. The present-day attempts to formulate the state approach to transport problems solution are based on the post-socialist world perception, and, unfortunately, they are very far from traditional market approaches to the formation of state policy. You asked about the use of the transit potential, which is obvious to anyone who has seen the globe. By all means, the distance from the Asian-Pacific region to Europe is twice shorter when using the Transsib. And the Transsib not just exists - thanks to the Tsar; it now has a high technical level - thanks to the railmen. We pay much attention to transit cargo attraction to the Transsiberian Railway. And the main restraining factor is our attitude to the foreign cargoes, the owner of which would be glad to use the shortest way - the Transsib - for freight delivery. But he knows about the possible delays - inspections, train formation etc. - which are difficult to forecast, that is why he goes in a roundabout way - by sea. It is much longer, but it is clear when the cargo will be delivered. 

The time factor of transportation by means of the Transsib is an uncertain figure, which makes logistics unreasonable. Thus, the transit cargo that could be transported along the Transsib is now being carried by sea transport. Besides, the programmes of railways construction via China and Kazakhstan to Europe are being implemented. And our "hungry" customs officers continue to stop transit freight because of trifles. I have no intention to offend Russian customs officers: they are nice people, but what can we expect from them - look at their salary! A lot has been said about it lately, and I hope that the projects of customs reforms, mentioned by German Gref, the Minister of the Economic Development and Trade of the Russian Federation, will be launched. An important problem is the level of production control at the railway. It should also be improved. Without it the dream of logistics will forever remain a dream. The problem was mentioned in one of the reports of OAO RZD President Vladimir Yakunin, and I'm sure special attention will be paid to it.

The 12% reduction of export metals handling volumes in the ports of Vladivostok and Nakhodka results, on the one hand, from the abolishment of exclusive stimulating tariffs on this type of cargo transportation to the terminals of the Far Eastern region, and on the other hand, from the construction of metallurgical works in China, close to consumers in the Asian-Pacific region. Consequently, more and more metal produce of Russian metallurgical works, situated in the center of the European part of Russia, is exported via the ports of the Black Sea and the Baltic Sea. It is difficult to say if it is bad or not, since from the Primorsk region perspective it is bad, and from the state perspective it is normal. Nowadays, being on the verge of joining the WTO, it is improper to speak about the return to the old system of railway transport tariffs formation. It would be more reasonable to develop a tariff policy with a clear idea of the consequences that will result when the target set is reached. For example, creating conditions for metals sale for export or for domestic consumption, stimulating the development of metal consuming sectors in the country's economy: 

Until now we have successfully explained our lack of order and management and laziness by the high cost of production, if the enterprise is situated far from Moscow. Well, perhaps it was so when Russia had a social economy, but what prevents us from making the enterprises, similar to those in the Northern provinces of China, competitive?

- What are the relations between railways and ports?

- The process of transport companies' (especially ports and railway companies) cooperation is being improved. There is a paradox, when the plans for cargo delivery, approved by the participants, cause a lot of misunderstandings between ports and railway companies. Among the latter there have appeared a lot of rolling-stock owners (or lessees), and the technology of sorting and dispatching wagons has not been worked through at the main port stations. This leads to an accumulation of large amount of rolling-stock at port railway junctions, since the rolling-stock owners do their best to keep the rolling-stock in the ports, until they find cargoes to load the wagons. This restrains the shunting works and significantly reduces the carrying capacities of the main port stations.

To solve the problem, it is necessary to admit that there is no sense in creating a fundamentally new transport process in Russia. We will never be able to adopt it to the technologies used on the global transportation market. That is why, when developing market relations, we must turn to the international experience, in particular that of cooperation and responsibilities of freight transportation process participants. It seems that, in accordance with the contract for transportation, which is to contain the sides' liabilities and responsibilities, the responsibility for cargo must be passed on to the carrier by the cargo owner. Only the cargo owner or its authorized agent (a forwarding or a logistic company) is to be responsible for delays when passing the freight from one participant of the transport process to another. And it does not matter who the latter is -the carrier or the owner of a warehouse. It is the cargo owner who can decide on the route and the speed of cargo transportation from the producer to the consumer, based on the potential of the transportation process participants, and conclude or authorize a forwarding company to conclude relevant contracts for transportation. 

 Railmen must know where they should deliver their rolling-stock for it to be loaded, how long it will take to get it loaded, and when it is to arrive at the point of destination. At the same time, they must be sure that the rolling-stock will be unloaded by the date mentioned in the contract. It does not matter where the rolling-stock is unloaded - at a terminal or at a port warehouse. All these factors should be envisaged by the contract for transportation; unfortunately, so far the railway has vague ideas of it. Let's hope that various aspects of cooperation and mutual responsibilities of the transportation process participants and cargo owners will be defined in the near future.

- Could you evaluate the level of the railway infrastructure development in the region? Does the carrying capacity of the Far Eastern railway meet the region's transport requirements?

- The Far Eastern railway is the most important element of the transport infrastructure in the Primorsk Region, and it takes the top place in export-import freight transportation. To service the increasing transportation volumes, the railway strengthens approaches to sea ports and border crossings, taking into account the increase of railway stations and terminals capacities. In the Primorsk Region, the most prospective direction is the development of the ports of Nakhodka and Vostochny. In contrast to Vladivostok, they have huge potential for development. Thus, nowadays, the projects of reconstruction of the sixth terminal of Nakhodka Vostochnaya station and the construction of the second track at the approach to the station are being carried out. Now the annual carrying capacity of the station is 26 million tons. And when the reconstruction is completed (according to the plan, it will happen in 2008), the carrying capacity will increase to 42 million tons. Large investments to develop railway stations in the port of Nakhodka are planned, to increase their handling capacities to 35 million tons by 2008. 

Special attention is paid to the Baranovsky-Khasan railway line to provide transportation of the prospective cargo flow (oil products, first of all) to the Perevoznaya Bay. The Programme for 2006 and the following years envisages further development of the carrying and handling capacities in the sector. Besides, the project of connecting the Transsib with the Transkorean Railway is also important today, since that will create conditions for attracting large container flows from the dynamically developing Korean port of Pusan to the Transsib. Carrying this project out is prospective for Russia, as well as for the countries of the Asian-Pacific Region and Central Europe. 

The Transsib as an international transport corridor has a lot of commercial and technological advantages. IT and fibre channel railway digital network implementation enables to control freight transportation along the Transsib. Due to automatic programmes, location of any wagon or container can be found on-line, i.e. they are really able to answer any question a client may have: where is the cargo? When will it cross this or that checking point? When will it be delivered to any place in Russia or to the state border? 

- Could you comment on the activities of the State Controlling Bodies in the Primorsk Region?

- The low carrying capacity of the RF border crossings is one of the most important problems for the ports of the Primorsk Region. In spite of the fact that there is a statement in the RF Customs Code that the actions of the customs bodies should not hinder the industrial process, we cannot provide twenty-four-hour work of the check-points where the transport modes, physical persons, freight and goods are cleared. This leads to the many-hour idling of the fleet, while it is waiting for cargo clearance by the state controlling bodies. One of the reasons for it is the lack of staff in the customs bodies. 

Meanwhile, a port unable to organize twenty-four-hour vessels customs clearance becomes less attractive for a ship owner and this is one of the reasons for charter rates on freight transportation increase. Thus, the expenses on additional staff of the state controlling bodies are much smaller than the losses suffered by the ports, ship owners and other participants of the international transport process, when the port and state controlling bodies fail to operate simultaneously. 

The customs check-points in the main sea ports of the region - Vladivostok, Nakhodka, and Vostochny - have not been opened in accordance with the legislation of the Russian Federation and failed to be put into operation. The territories, water areas, property and the state body or the organization responsible for functioning and development of the sea customs check-points have not been determined yet. Under such conditions, the activities of the state controlling bodies in the sea customs check-points are coordinated from time to time and insufficiently. The procedures of transport modes and freight customs clearance are often unpredictable. The Customs Service often delays cargo in standard situations that can be easily resolved in foreign ports in several minutes. All this leads to the uncertain position of the Russian ports, and as a result - we have no real transit freight flows.

It is obvious that it is high time for the Government to change its point of view on the problem and take measures to improve the situation. 

Another important problem is the ambiguous interpretation of the acting legislation in the sector of adjacent water areas of the commercial and the fish ports in Nakhodka and Vladivostok. The Federal bodies of the executive power (the Ministry of Transport, the Ministry of Agriculture and their Agencies) do not take necessary measures to solve the problem. As a result, ship owners either pay the vessel due twice or not pay it at all. 

At the same time, I can't but mark that lately the fish ports' specialization has completely changed. Since 1992 they have been handling export-import freight instead of fish, i.e. they function as commercial sea ports. In such a situation, it would be reasonable to establish a single state sea ports administration, responsible for the state control and management of navigation on the water area, and deal with fishery fleet sailing in the port's waters as with usual vessels. 

The problem should be regulated by a law. There is no federal law "On Sea Ports", in which the definition of a sea port, the basic principles of its functioning, the types of port dues, and the order of payment is formulated. The lack of clear cut definitions negatively influences the relations between the participants of the port services market, and Russian ports become less and less attractive for foreign ship owners.



Interviewed by TATYANA  TOKAREVA
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    [DETAIL_TEXT] => The specific feature of the Far Eastern region is that it borders on the fast developing states of the Asian-Pacific region, which, on the one hand, lack natural resources (especially fuel-energy ones) and consume large volumes of the world ore export, and on the other hand, form container flows of consumer goods. Thus, the Asian-Pacific region is a prospective partner for Russia not only as a market, but also as a consumer of transport services. The Head of the Transport Department of the Primorsk Region Administration Lev Panchenko comments on the problems and further development of the transport sector of the region.



- The ports of the Primorsk Region are not just key objects in the functioning of the region's transport sector: they play an important role in reaching the strategic targets of the country's economy, including the use of its transit potential. How could you evaluate the ports' work now? What problems became obvious last year?

- In fact, the ports of the Primorsk Region handle over 80% of the total volume of Russian foreign trade in the Far East. In 2004, 52 million tons was handled, which was within the limits of the regional ports' capacities. 

Nowadays, speaking of the results of 2005, unfortunately, we can record that the ports' throughput reduced by 8%. The share of export freight in the total volume of cargoes handled made 83.2% or 39.8 million tons, 10.1% down year-on-year (44.3 million tons or 85.1% of the total throughput). The share of import freight amounted to 6% or 2.9 million tons, 15.9% up year-on-year (2.5 million tons or 4.8% of the total throughput). The share of coastal trade was 8.3% or 3.9 million tons, 4.5% up year-on-year (3.8 million tons or 7.3% of the total throughput). The share of transit freight was 2.5% or 1.15 million tons, 20.7% down year-on-year (1.4 million tons or 2.8% of the total throughput). 

On the whole, the 2005 results of the ports of the Primorsk Region can be considered positive. The reduction of handling volumes for some cargoes did not come unexpected. Freight flows of liquid bulk and metals reduced significantly - by 16% and by 12% respectively. Coal throughput decreased by 4%. Here I would like to add that Russia, having great resources of the cargo popular on the Asian-Pacific market, has no sea terminals to handle it. The existing port capacities have been overloaded for several years. The reason for it is the prolonged reforms of the RF Ministry of Transport. It seems that Russia has no state policy for transport development, especially for its strategic directions and especially in the Far East Region. The present-day attempts to formulate the state approach to transport problems solution are based on the post-socialist world perception, and, unfortunately, they are very far from traditional market approaches to the formation of state policy. You asked about the use of the transit potential, which is obvious to anyone who has seen the globe. By all means, the distance from the Asian-Pacific region to Europe is twice shorter when using the Transsib. And the Transsib not just exists - thanks to the Tsar; it now has a high technical level - thanks to the railmen. We pay much attention to transit cargo attraction to the Transsiberian Railway. And the main restraining factor is our attitude to the foreign cargoes, the owner of which would be glad to use the shortest way - the Transsib - for freight delivery. But he knows about the possible delays - inspections, train formation etc. - which are difficult to forecast, that is why he goes in a roundabout way - by sea. It is much longer, but it is clear when the cargo will be delivered. 

The time factor of transportation by means of the Transsib is an uncertain figure, which makes logistics unreasonable. Thus, the transit cargo that could be transported along the Transsib is now being carried by sea transport. Besides, the programmes of railways construction via China and Kazakhstan to Europe are being implemented. And our "hungry" customs officers continue to stop transit freight because of trifles. I have no intention to offend Russian customs officers: they are nice people, but what can we expect from them - look at their salary! A lot has been said about it lately, and I hope that the projects of customs reforms, mentioned by German Gref, the Minister of the Economic Development and Trade of the Russian Federation, will be launched. An important problem is the level of production control at the railway. It should also be improved. Without it the dream of logistics will forever remain a dream. The problem was mentioned in one of the reports of OAO RZD President Vladimir Yakunin, and I'm sure special attention will be paid to it.

The 12% reduction of export metals handling volumes in the ports of Vladivostok and Nakhodka results, on the one hand, from the abolishment of exclusive stimulating tariffs on this type of cargo transportation to the terminals of the Far Eastern region, and on the other hand, from the construction of metallurgical works in China, close to consumers in the Asian-Pacific region. Consequently, more and more metal produce of Russian metallurgical works, situated in the center of the European part of Russia, is exported via the ports of the Black Sea and the Baltic Sea. It is difficult to say if it is bad or not, since from the Primorsk region perspective it is bad, and from the state perspective it is normal. Nowadays, being on the verge of joining the WTO, it is improper to speak about the return to the old system of railway transport tariffs formation. It would be more reasonable to develop a tariff policy with a clear idea of the consequences that will result when the target set is reached. For example, creating conditions for metals sale for export or for domestic consumption, stimulating the development of metal consuming sectors in the country's economy: 

Until now we have successfully explained our lack of order and management and laziness by the high cost of production, if the enterprise is situated far from Moscow. Well, perhaps it was so when Russia had a social economy, but what prevents us from making the enterprises, similar to those in the Northern provinces of China, competitive?

- What are the relations between railways and ports?

- The process of transport companies' (especially ports and railway companies) cooperation is being improved. There is a paradox, when the plans for cargo delivery, approved by the participants, cause a lot of misunderstandings between ports and railway companies. Among the latter there have appeared a lot of rolling-stock owners (or lessees), and the technology of sorting and dispatching wagons has not been worked through at the main port stations. This leads to an accumulation of large amount of rolling-stock at port railway junctions, since the rolling-stock owners do their best to keep the rolling-stock in the ports, until they find cargoes to load the wagons. This restrains the shunting works and significantly reduces the carrying capacities of the main port stations.

To solve the problem, it is necessary to admit that there is no sense in creating a fundamentally new transport process in Russia. We will never be able to adopt it to the technologies used on the global transportation market. That is why, when developing market relations, we must turn to the international experience, in particular that of cooperation and responsibilities of freight transportation process participants. It seems that, in accordance with the contract for transportation, which is to contain the sides' liabilities and responsibilities, the responsibility for cargo must be passed on to the carrier by the cargo owner. Only the cargo owner or its authorized agent (a forwarding or a logistic company) is to be responsible for delays when passing the freight from one participant of the transport process to another. And it does not matter who the latter is -the carrier or the owner of a warehouse. It is the cargo owner who can decide on the route and the speed of cargo transportation from the producer to the consumer, based on the potential of the transportation process participants, and conclude or authorize a forwarding company to conclude relevant contracts for transportation. 

 Railmen must know where they should deliver their rolling-stock for it to be loaded, how long it will take to get it loaded, and when it is to arrive at the point of destination. At the same time, they must be sure that the rolling-stock will be unloaded by the date mentioned in the contract. It does not matter where the rolling-stock is unloaded - at a terminal or at a port warehouse. All these factors should be envisaged by the contract for transportation; unfortunately, so far the railway has vague ideas of it. Let's hope that various aspects of cooperation and mutual responsibilities of the transportation process participants and cargo owners will be defined in the near future.

- Could you evaluate the level of the railway infrastructure development in the region? Does the carrying capacity of the Far Eastern railway meet the region's transport requirements?

- The Far Eastern railway is the most important element of the transport infrastructure in the Primorsk Region, and it takes the top place in export-import freight transportation. To service the increasing transportation volumes, the railway strengthens approaches to sea ports and border crossings, taking into account the increase of railway stations and terminals capacities. In the Primorsk Region, the most prospective direction is the development of the ports of Nakhodka and Vostochny. In contrast to Vladivostok, they have huge potential for development. Thus, nowadays, the projects of reconstruction of the sixth terminal of Nakhodka Vostochnaya station and the construction of the second track at the approach to the station are being carried out. Now the annual carrying capacity of the station is 26 million tons. And when the reconstruction is completed (according to the plan, it will happen in 2008), the carrying capacity will increase to 42 million tons. Large investments to develop railway stations in the port of Nakhodka are planned, to increase their handling capacities to 35 million tons by 2008. 

Special attention is paid to the Baranovsky-Khasan railway line to provide transportation of the prospective cargo flow (oil products, first of all) to the Perevoznaya Bay. The Programme for 2006 and the following years envisages further development of the carrying and handling capacities in the sector. Besides, the project of connecting the Transsib with the Transkorean Railway is also important today, since that will create conditions for attracting large container flows from the dynamically developing Korean port of Pusan to the Transsib. Carrying this project out is prospective for Russia, as well as for the countries of the Asian-Pacific Region and Central Europe. 

The Transsib as an international transport corridor has a lot of commercial and technological advantages. IT and fibre channel railway digital network implementation enables to control freight transportation along the Transsib. Due to automatic programmes, location of any wagon or container can be found on-line, i.e. they are really able to answer any question a client may have: where is the cargo? When will it cross this or that checking point? When will it be delivered to any place in Russia or to the state border? 

- Could you comment on the activities of the State Controlling Bodies in the Primorsk Region?

- The low carrying capacity of the RF border crossings is one of the most important problems for the ports of the Primorsk Region. In spite of the fact that there is a statement in the RF Customs Code that the actions of the customs bodies should not hinder the industrial process, we cannot provide twenty-four-hour work of the check-points where the transport modes, physical persons, freight and goods are cleared. This leads to the many-hour idling of the fleet, while it is waiting for cargo clearance by the state controlling bodies. One of the reasons for it is the lack of staff in the customs bodies. 

Meanwhile, a port unable to organize twenty-four-hour vessels customs clearance becomes less attractive for a ship owner and this is one of the reasons for charter rates on freight transportation increase. Thus, the expenses on additional staff of the state controlling bodies are much smaller than the losses suffered by the ports, ship owners and other participants of the international transport process, when the port and state controlling bodies fail to operate simultaneously. 

The customs check-points in the main sea ports of the region - Vladivostok, Nakhodka, and Vostochny - have not been opened in accordance with the legislation of the Russian Federation and failed to be put into operation. The territories, water areas, property and the state body or the organization responsible for functioning and development of the sea customs check-points have not been determined yet. Under such conditions, the activities of the state controlling bodies in the sea customs check-points are coordinated from time to time and insufficiently. The procedures of transport modes and freight customs clearance are often unpredictable. The Customs Service often delays cargo in standard situations that can be easily resolved in foreign ports in several minutes. All this leads to the uncertain position of the Russian ports, and as a result - we have no real transit freight flows.

It is obvious that it is high time for the Government to change its point of view on the problem and take measures to improve the situation. 

Another important problem is the ambiguous interpretation of the acting legislation in the sector of adjacent water areas of the commercial and the fish ports in Nakhodka and Vladivostok. The Federal bodies of the executive power (the Ministry of Transport, the Ministry of Agriculture and their Agencies) do not take necessary measures to solve the problem. As a result, ship owners either pay the vessel due twice or not pay it at all. 

At the same time, I can't but mark that lately the fish ports' specialization has completely changed. Since 1992 they have been handling export-import freight instead of fish, i.e. they function as commercial sea ports. In such a situation, it would be reasonable to establish a single state sea ports administration, responsible for the state control and management of navigation on the water area, and deal with fishery fleet sailing in the port's waters as with usual vessels. 

The problem should be regulated by a law. There is no federal law "On Sea Ports", in which the definition of a sea port, the basic principles of its functioning, the types of port dues, and the order of payment is formulated. The lack of clear cut definitions negatively influences the relations between the participants of the port services market, and Russian ports become less and less attractive for foreign ship owners.



Interviewed by TATYANA  TOKAREVA
    [~DETAIL_TEXT] => The specific feature of the Far Eastern region is that it borders on the fast developing states of the Asian-Pacific region, which, on the one hand, lack natural resources (especially fuel-energy ones) and consume large volumes of the world ore export, and on the other hand, form container flows of consumer goods. Thus, the Asian-Pacific region is a prospective partner for Russia not only as a market, but also as a consumer of transport services. The Head of the Transport Department of the Primorsk Region Administration Lev Panchenko comments on the problems and further development of the transport sector of the region.



- The ports of the Primorsk Region are not just key objects in the functioning of the region's transport sector: they play an important role in reaching the strategic targets of the country's economy, including the use of its transit potential. How could you evaluate the ports' work now? What problems became obvious last year?

- In fact, the ports of the Primorsk Region handle over 80% of the total volume of Russian foreign trade in the Far East. In 2004, 52 million tons was handled, which was within the limits of the regional ports' capacities. 

Nowadays, speaking of the results of 2005, unfortunately, we can record that the ports' throughput reduced by 8%. The share of export freight in the total volume of cargoes handled made 83.2% or 39.8 million tons, 10.1% down year-on-year (44.3 million tons or 85.1% of the total throughput). The share of import freight amounted to 6% or 2.9 million tons, 15.9% up year-on-year (2.5 million tons or 4.8% of the total throughput). The share of coastal trade was 8.3% or 3.9 million tons, 4.5% up year-on-year (3.8 million tons or 7.3% of the total throughput). The share of transit freight was 2.5% or 1.15 million tons, 20.7% down year-on-year (1.4 million tons or 2.8% of the total throughput). 

On the whole, the 2005 results of the ports of the Primorsk Region can be considered positive. The reduction of handling volumes for some cargoes did not come unexpected. Freight flows of liquid bulk and metals reduced significantly - by 16% and by 12% respectively. Coal throughput decreased by 4%. Here I would like to add that Russia, having great resources of the cargo popular on the Asian-Pacific market, has no sea terminals to handle it. The existing port capacities have been overloaded for several years. The reason for it is the prolonged reforms of the RF Ministry of Transport. It seems that Russia has no state policy for transport development, especially for its strategic directions and especially in the Far East Region. The present-day attempts to formulate the state approach to transport problems solution are based on the post-socialist world perception, and, unfortunately, they are very far from traditional market approaches to the formation of state policy. You asked about the use of the transit potential, which is obvious to anyone who has seen the globe. By all means, the distance from the Asian-Pacific region to Europe is twice shorter when using the Transsib. And the Transsib not just exists - thanks to the Tsar; it now has a high technical level - thanks to the railmen. We pay much attention to transit cargo attraction to the Transsiberian Railway. And the main restraining factor is our attitude to the foreign cargoes, the owner of which would be glad to use the shortest way - the Transsib - for freight delivery. But he knows about the possible delays - inspections, train formation etc. - which are difficult to forecast, that is why he goes in a roundabout way - by sea. It is much longer, but it is clear when the cargo will be delivered. 

The time factor of transportation by means of the Transsib is an uncertain figure, which makes logistics unreasonable. Thus, the transit cargo that could be transported along the Transsib is now being carried by sea transport. Besides, the programmes of railways construction via China and Kazakhstan to Europe are being implemented. And our "hungry" customs officers continue to stop transit freight because of trifles. I have no intention to offend Russian customs officers: they are nice people, but what can we expect from them - look at their salary! A lot has been said about it lately, and I hope that the projects of customs reforms, mentioned by German Gref, the Minister of the Economic Development and Trade of the Russian Federation, will be launched. An important problem is the level of production control at the railway. It should also be improved. Without it the dream of logistics will forever remain a dream. The problem was mentioned in one of the reports of OAO RZD President Vladimir Yakunin, and I'm sure special attention will be paid to it.

The 12% reduction of export metals handling volumes in the ports of Vladivostok and Nakhodka results, on the one hand, from the abolishment of exclusive stimulating tariffs on this type of cargo transportation to the terminals of the Far Eastern region, and on the other hand, from the construction of metallurgical works in China, close to consumers in the Asian-Pacific region. Consequently, more and more metal produce of Russian metallurgical works, situated in the center of the European part of Russia, is exported via the ports of the Black Sea and the Baltic Sea. It is difficult to say if it is bad or not, since from the Primorsk region perspective it is bad, and from the state perspective it is normal. Nowadays, being on the verge of joining the WTO, it is improper to speak about the return to the old system of railway transport tariffs formation. It would be more reasonable to develop a tariff policy with a clear idea of the consequences that will result when the target set is reached. For example, creating conditions for metals sale for export or for domestic consumption, stimulating the development of metal consuming sectors in the country's economy: 

Until now we have successfully explained our lack of order and management and laziness by the high cost of production, if the enterprise is situated far from Moscow. Well, perhaps it was so when Russia had a social economy, but what prevents us from making the enterprises, similar to those in the Northern provinces of China, competitive?

- What are the relations between railways and ports?

- The process of transport companies' (especially ports and railway companies) cooperation is being improved. There is a paradox, when the plans for cargo delivery, approved by the participants, cause a lot of misunderstandings between ports and railway companies. Among the latter there have appeared a lot of rolling-stock owners (or lessees), and the technology of sorting and dispatching wagons has not been worked through at the main port stations. This leads to an accumulation of large amount of rolling-stock at port railway junctions, since the rolling-stock owners do their best to keep the rolling-stock in the ports, until they find cargoes to load the wagons. This restrains the shunting works and significantly reduces the carrying capacities of the main port stations.

To solve the problem, it is necessary to admit that there is no sense in creating a fundamentally new transport process in Russia. We will never be able to adopt it to the technologies used on the global transportation market. That is why, when developing market relations, we must turn to the international experience, in particular that of cooperation and responsibilities of freight transportation process participants. It seems that, in accordance with the contract for transportation, which is to contain the sides' liabilities and responsibilities, the responsibility for cargo must be passed on to the carrier by the cargo owner. Only the cargo owner or its authorized agent (a forwarding or a logistic company) is to be responsible for delays when passing the freight from one participant of the transport process to another. And it does not matter who the latter is -the carrier or the owner of a warehouse. It is the cargo owner who can decide on the route and the speed of cargo transportation from the producer to the consumer, based on the potential of the transportation process participants, and conclude or authorize a forwarding company to conclude relevant contracts for transportation. 

 Railmen must know where they should deliver their rolling-stock for it to be loaded, how long it will take to get it loaded, and when it is to arrive at the point of destination. At the same time, they must be sure that the rolling-stock will be unloaded by the date mentioned in the contract. It does not matter where the rolling-stock is unloaded - at a terminal or at a port warehouse. All these factors should be envisaged by the contract for transportation; unfortunately, so far the railway has vague ideas of it. Let's hope that various aspects of cooperation and mutual responsibilities of the transportation process participants and cargo owners will be defined in the near future.

- Could you evaluate the level of the railway infrastructure development in the region? Does the carrying capacity of the Far Eastern railway meet the region's transport requirements?

- The Far Eastern railway is the most important element of the transport infrastructure in the Primorsk Region, and it takes the top place in export-import freight transportation. To service the increasing transportation volumes, the railway strengthens approaches to sea ports and border crossings, taking into account the increase of railway stations and terminals capacities. In the Primorsk Region, the most prospective direction is the development of the ports of Nakhodka and Vostochny. In contrast to Vladivostok, they have huge potential for development. Thus, nowadays, the projects of reconstruction of the sixth terminal of Nakhodka Vostochnaya station and the construction of the second track at the approach to the station are being carried out. Now the annual carrying capacity of the station is 26 million tons. And when the reconstruction is completed (according to the plan, it will happen in 2008), the carrying capacity will increase to 42 million tons. Large investments to develop railway stations in the port of Nakhodka are planned, to increase their handling capacities to 35 million tons by 2008. 

Special attention is paid to the Baranovsky-Khasan railway line to provide transportation of the prospective cargo flow (oil products, first of all) to the Perevoznaya Bay. The Programme for 2006 and the following years envisages further development of the carrying and handling capacities in the sector. Besides, the project of connecting the Transsib with the Transkorean Railway is also important today, since that will create conditions for attracting large container flows from the dynamically developing Korean port of Pusan to the Transsib. Carrying this project out is prospective for Russia, as well as for the countries of the Asian-Pacific Region and Central Europe. 

The Transsib as an international transport corridor has a lot of commercial and technological advantages. IT and fibre channel railway digital network implementation enables to control freight transportation along the Transsib. Due to automatic programmes, location of any wagon or container can be found on-line, i.e. they are really able to answer any question a client may have: where is the cargo? When will it cross this or that checking point? When will it be delivered to any place in Russia or to the state border? 

- Could you comment on the activities of the State Controlling Bodies in the Primorsk Region?

- The low carrying capacity of the RF border crossings is one of the most important problems for the ports of the Primorsk Region. In spite of the fact that there is a statement in the RF Customs Code that the actions of the customs bodies should not hinder the industrial process, we cannot provide twenty-four-hour work of the check-points where the transport modes, physical persons, freight and goods are cleared. This leads to the many-hour idling of the fleet, while it is waiting for cargo clearance by the state controlling bodies. One of the reasons for it is the lack of staff in the customs bodies. 

Meanwhile, a port unable to organize twenty-four-hour vessels customs clearance becomes less attractive for a ship owner and this is one of the reasons for charter rates on freight transportation increase. Thus, the expenses on additional staff of the state controlling bodies are much smaller than the losses suffered by the ports, ship owners and other participants of the international transport process, when the port and state controlling bodies fail to operate simultaneously. 

The customs check-points in the main sea ports of the region - Vladivostok, Nakhodka, and Vostochny - have not been opened in accordance with the legislation of the Russian Federation and failed to be put into operation. The territories, water areas, property and the state body or the organization responsible for functioning and development of the sea customs check-points have not been determined yet. Under such conditions, the activities of the state controlling bodies in the sea customs check-points are coordinated from time to time and insufficiently. The procedures of transport modes and freight customs clearance are often unpredictable. The Customs Service often delays cargo in standard situations that can be easily resolved in foreign ports in several minutes. All this leads to the uncertain position of the Russian ports, and as a result - we have no real transit freight flows.

It is obvious that it is high time for the Government to change its point of view on the problem and take measures to improve the situation. 

Another important problem is the ambiguous interpretation of the acting legislation in the sector of adjacent water areas of the commercial and the fish ports in Nakhodka and Vladivostok. The Federal bodies of the executive power (the Ministry of Transport, the Ministry of Agriculture and their Agencies) do not take necessary measures to solve the problem. As a result, ship owners either pay the vessel due twice or not pay it at all. 

At the same time, I can't but mark that lately the fish ports' specialization has completely changed. Since 1992 they have been handling export-import freight instead of fish, i.e. they function as commercial sea ports. In such a situation, it would be reasonable to establish a single state sea ports administration, responsible for the state control and management of navigation on the water area, and deal with fishery fleet sailing in the port's waters as with usual vessels. 

The problem should be regulated by a law. There is no federal law "On Sea Ports", in which the definition of a sea port, the basic principles of its functioning, the types of port dues, and the order of payment is formulated. The lack of clear cut definitions negatively influences the relations between the participants of the port services market, and Russian ports become less and less attractive for foreign ship owners.



Interviewed by TATYANA  TOKAREVA
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Based on Principles of Mutual Confidence

It is common knowledge, that the main factors influencing one's choice of a carrier are quality, price and delivery time. That is why it is not surprising that road haulages becomes more and more popular in Russia, as well as in many other countries. For example, nowadays, the average speed of cargo transportation from the consignor to the consignee (taking into account idling, customs clearance, and other necessary procedures) is 16 km/h by car, 8 km/h by railway, and 4 km/h by sea.

Other advantages of road haulages arise due to the fact that this sector of the transport complex is traditionally the place of active development of the small-scale and middle-scale businesses, which are especially interested to deliver freight as fast as possible and to receive money for it, because such companies have no opportunity to "freeze" a lot of circulating assets. 

Besides, it is important for a consumer to know that his cargo is looked after when it is transported. This is another advantage of the road vehicles in comparison with railway and sea transport modes. Unlike the latter two transport modes, which can transport much more goods than a road vehicle at a time and, consequently, are unable to pay much attention to their cargo, a truck driver, in fact, functions as a forwarder. Thus, the services of road carriers are much less impersonal, which makes them more attractive for consumers, especially in cases of expensive freight transportation: consumer electronics, foodstuffs, perfumery etc.

However, it would be wrong to assert that cargo owners do not trust road haulages with less valuable cargoes, including mass ones. For example, in 2005 road haulages actively carried foodstuffs, the share of which was 30% (import), as well as timber. The share of exported unprocessed timber was 36% and that of processed timber - 18%. On the whole, but for the cargoes mentioned above, the distribution of shares in export and import cargo flows was as follows: export - the share of ferrous metals was 11%, the one of the petrochemical industry produce was 7%, foodstuffs made 6%, the share of machine-building industry output was 5%, and other cargoes' share amounted to 17%; import - the share of the petrochemical industry produce was 18%, the share of machine-building industry output was 15%, the share of paper was 6%, ferrous metals made 5%, electric facilities amounted to 4%, and the share of other types of cargo was 22%.

At the same time, as well as in previous years, foreign trade cargo volumes carried by road haulages were distributed mainly in the Central and the North-Western Federal Regions of the Russian Federation (44% and 33% respectively), which can be explained, first of all, by the presence of the largest cities in the Russian Federation - Moscow and St.-Petersburg - in them. The share of the other regions in the foreign trade cargo volumes carried by road haulages was as follows: the Privolzhsky Federal Region - 6%, the Sibirsky (Siberian) Federal Region - 6%, the Dalnevostochny (Far-Eastern) Federal Region - 4%, the Yuzhny (Southern) Federal District - 4%, the Uralsky Federal Region - 3%.

In 2005 the structure of cargo flows according to destinations was the same as in previous years. Traditionally, road haulages were actively used for international transportation to the countries neighbouring Russia, and to its main commercial partners: Finland (27%), Germany (9%), Ukraine (8%), Lithuania, China and Poland (7% to each), and Kazakhstan (6%).

On the whole, according to statistics, since 1990, the volume of freight transportation by road haulages between Russia and foreign states has increased at 10.5 times (transported by foreign haulers) and fourteen-fold (transported by Russian haulers).



New Opportunitiesin the East

In 2005 a lot of challenges appeared for road haulers of Russia, as well as their colleagues in other states. At the meeting of RF President Vladimir Putin and the Prime Minister of China, an Agreement was signed, envisaging ways of development of economic relations between the two countries. The Chinese businessmen are interested in exporting their goods to Russia and transiting them via Russia to Europe, using road haulages, since cargo is transported by motor transport several times faster than by sea.

On the whole, the commodity turnover between China and Russia is to increase fourfold, that is why already now the RF Government, the RF Ministry of Economic Development and Trade, and the Federal Customs Service work to increase the capacities of the respective border check-points. That is why ASMAP has offered to open a new border crossing in the Sibirsky Federal Region, connecting the Russian Altai Territory with the Chinese Xinxiang Uygur Autonomous Region. This offer made by road haulers is very important nowadays, because the most part of cargo destined for China is transported via Mongolia and Kazakhstan. Besides, the Chinese side has already put the construction of a new motorway to its border with the Russian Federation into its road infrastructure development plan for the next five years. Experts believe that the construction of an international motorway will give a powerful stimulus to the development of the Russian-Chinese cooperation, and enable the two countries to increase cargo transportation by USD 2.5-3 billion within the corridor. 

Nowadays, negotiations are carried out to enable Russian international road haulers to transport freight to the territory of China and to transit it via China to Korea. It is very important, since any transshipment of freight at the border reduces the competitiveness of road haulages and increases delivery time. 

To popularize the transit potential of Russia and international transportation by road haulages, in September 2005 the Russian road haulers, together with their colleagues from China, Kazakhstan, Poland, Latvia and Lithuania, participated in the road race on the route Beijing - Berlin - Brussels, thus having showed to the world the possible way of solving the problem of overloaded European and Asian sea ports. Besides, delivery of Chinese cargoes via the territory of Russia turned to be more profitable. When the direct road communication between Russia and China is opened, delivery time will decrease further.



Carrying on a Dialogue with the Authorities

The increase of the level of cooperation between the road haulages business and the state bodies in 2005 was also very important for the Russian road haulers, since a number of difficult problems were solved due to it. 

The amendment to the RF Tax Code on using a zero rate of VAT (value added tax) for import transportation was approved at last. Earlier international road haulers had to prove the necessity of such a decision to the state bodies again and again, and it was approved at last - the new amendment to the Law came into force on January 1, 2006.

In 2005 much was done to reduce the tax on "horse power": preferential taxation was provided to international road haulers in some regions of Russia. Supported by ASMAP, the Heads of the road haulage companies servicing foreign trade routes persuaded the state not to impose this tax upon their business, since they pay road dues abroad, and 50% of the distance their road vehicles run are roads of foreign countries. Road haulers believe that it was this very circumstance that made the whole system existing earlier illogical, since it was based on the wrong supposition that all the subjects of taxation operate only on the roads of the Russian Federation.

Besides, last year the RF State Duma approved in the first reading the law on putting amendments to the Labour Code, which must create the necessary juridical conditions for the companies-employers to pay daily fee to their drivers. Moreover, the project of the law on putting amendments to Chapter 11 of the Administrative Offence Code was developed and sent to the State Duma. The project toughens the responsibilities of foreign offenders of the rules of international transportation by road haulages.

Last year the Russian International Road Haulers Association actively participated in the development of the signed by the Transport Ministers of the CIS Agreement on implementing the international certification of vehicle weighing, which is to reduce the amount of weighing during transportation and, thus, to decrease the delivery time. For example, now a road-train is weighed up to 4-5 times on the motorway St.-Petersburg - Moscow, and road haulers believe that it is possible to do it just once - on the border. At the same time, if there is overweight, the driver will have to pay for the whole route, registered in his road documentation. Nowadays the Agreement has already been ratified by the Republics of Belarus, Kazakhstan, Moldova, Tajikistan, and Kirgizstan. Unfortunately, the Russian Federation has not ratified it yet. However, the active work of road haulers, to improve the legislative base will promote a further growth of road transportation efficiency and increase the importance of this transport mode.



From Problemsto Development

In 2005 the share of the Russian international road haulers at the Russian transport market increased from 25% to 39%. Besides, the transportation volumes of the Russian international road haulers grew by 8.5% (the one of foreign road haulers increased by 5%). Such results became possible due to the increase of car fleet purchase based on the RF Government's Decree № 147, which enables the companies to postpone payment of customs duties when purchasing trucks meeting Euro-3 and higher requirements for the period of their use on the international directions.

"In fact, earlier 70% of our trucks met the requirements of Euro-1, and it is practically forbidden to use them in Europe now. That is why such a timely Decree of the Government enabled us to renew our fleet, and now about 26% of the Russian road haulers' park meets the requirements of Euro-3, and the amount of trucks with Euro-2 engines has also significantly increased", Y.Sukhin comments on the situation.

International road haulers solve the problem of truck fleet renewal simultaneously with the problem of fuel price increase. This is why they supported the large-scale precautionary protest action held by trade unions. The road haulers' indignation came to the highest degree: during the last two years the prices for fuel increased twofold, and expenses amounted to 35% of the services' cost price. The main target of the action - to stop the growth of prices for fuel - has been reached. The Government, at last, held negotiations with oil companies and the prices were frozen till the end of the year. Now the Government discusses the question of changing the tax system for the oil sector, which, perhaps, will help to stop the growth of prices, or even reduce them. 

In cooperation with such structures as the Ministry of Transport and the Ministry of Foreign Affairs, the road haulers managed to simplify the procedure of issuing visas to their drivers. On October 14, 2005, drivers operating on international routes were put on the list for simplified visa issue in the framework of the Agreement signed on that day by Russia and the EU. Now drivers get multi-entry visas of yearly duration to all the countries of the European Union, with ASMAP confirming the necessity of issuing such documents (for foreign drivers this is done by national international road haulers associations). 

The members of the Association believe that this issue demands a constant staff development and an increase in the quality of training given to the Russian drivers servicing international routes. Now there are already 13 training centers of ASMAP, where over 20,000 businessmen have been trained during the last 5-6 years. In 2005, over 7,500 specialists were trained there. According to their diplomas, all the trainees got licensed by the Ministry of Transport for international transportation by road haulages. At the first All-Russian Meeting of the International Road Haulers, held at the end of May, about 150 new companies became members of the Association.



By GENNADY BUGROV
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Based on Principles of Mutual Confidence

It is common knowledge, that the main factors influencing one's choice of a carrier are quality, price and delivery time. That is why it is not surprising that road haulages becomes more and more popular in Russia, as well as in many other countries. For example, nowadays, the average speed of cargo transportation from the consignor to the consignee (taking into account idling, customs clearance, and other necessary procedures) is 16 km/h by car, 8 km/h by railway, and 4 km/h by sea.

Other advantages of road haulages arise due to the fact that this sector of the transport complex is traditionally the place of active development of the small-scale and middle-scale businesses, which are especially interested to deliver freight as fast as possible and to receive money for it, because such companies have no opportunity to "freeze" a lot of circulating assets. 

Besides, it is important for a consumer to know that his cargo is looked after when it is transported. This is another advantage of the road vehicles in comparison with railway and sea transport modes. Unlike the latter two transport modes, which can transport much more goods than a road vehicle at a time and, consequently, are unable to pay much attention to their cargo, a truck driver, in fact, functions as a forwarder. Thus, the services of road carriers are much less impersonal, which makes them more attractive for consumers, especially in cases of expensive freight transportation: consumer electronics, foodstuffs, perfumery etc.

However, it would be wrong to assert that cargo owners do not trust road haulages with less valuable cargoes, including mass ones. For example, in 2005 road haulages actively carried foodstuffs, the share of which was 30% (import), as well as timber. The share of exported unprocessed timber was 36% and that of processed timber - 18%. On the whole, but for the cargoes mentioned above, the distribution of shares in export and import cargo flows was as follows: export - the share of ferrous metals was 11%, the one of the petrochemical industry produce was 7%, foodstuffs made 6%, the share of machine-building industry output was 5%, and other cargoes' share amounted to 17%; import - the share of the petrochemical industry produce was 18%, the share of machine-building industry output was 15%, the share of paper was 6%, ferrous metals made 5%, electric facilities amounted to 4%, and the share of other types of cargo was 22%.

At the same time, as well as in previous years, foreign trade cargo volumes carried by road haulages were distributed mainly in the Central and the North-Western Federal Regions of the Russian Federation (44% and 33% respectively), which can be explained, first of all, by the presence of the largest cities in the Russian Federation - Moscow and St.-Petersburg - in them. The share of the other regions in the foreign trade cargo volumes carried by road haulages was as follows: the Privolzhsky Federal Region - 6%, the Sibirsky (Siberian) Federal Region - 6%, the Dalnevostochny (Far-Eastern) Federal Region - 4%, the Yuzhny (Southern) Federal District - 4%, the Uralsky Federal Region - 3%.

In 2005 the structure of cargo flows according to destinations was the same as in previous years. Traditionally, road haulages were actively used for international transportation to the countries neighbouring Russia, and to its main commercial partners: Finland (27%), Germany (9%), Ukraine (8%), Lithuania, China and Poland (7% to each), and Kazakhstan (6%).

On the whole, according to statistics, since 1990, the volume of freight transportation by road haulages between Russia and foreign states has increased at 10.5 times (transported by foreign haulers) and fourteen-fold (transported by Russian haulers).



New Opportunitiesin the East

In 2005 a lot of challenges appeared for road haulers of Russia, as well as their colleagues in other states. At the meeting of RF President Vladimir Putin and the Prime Minister of China, an Agreement was signed, envisaging ways of development of economic relations between the two countries. The Chinese businessmen are interested in exporting their goods to Russia and transiting them via Russia to Europe, using road haulages, since cargo is transported by motor transport several times faster than by sea.

On the whole, the commodity turnover between China and Russia is to increase fourfold, that is why already now the RF Government, the RF Ministry of Economic Development and Trade, and the Federal Customs Service work to increase the capacities of the respective border check-points. That is why ASMAP has offered to open a new border crossing in the Sibirsky Federal Region, connecting the Russian Altai Territory with the Chinese Xinxiang Uygur Autonomous Region. This offer made by road haulers is very important nowadays, because the most part of cargo destined for China is transported via Mongolia and Kazakhstan. Besides, the Chinese side has already put the construction of a new motorway to its border with the Russian Federation into its road infrastructure development plan for the next five years. Experts believe that the construction of an international motorway will give a powerful stimulus to the development of the Russian-Chinese cooperation, and enable the two countries to increase cargo transportation by USD 2.5-3 billion within the corridor. 

Nowadays, negotiations are carried out to enable Russian international road haulers to transport freight to the territory of China and to transit it via China to Korea. It is very important, since any transshipment of freight at the border reduces the competitiveness of road haulages and increases delivery time. 

To popularize the transit potential of Russia and international transportation by road haulages, in September 2005 the Russian road haulers, together with their colleagues from China, Kazakhstan, Poland, Latvia and Lithuania, participated in the road race on the route Beijing - Berlin - Brussels, thus having showed to the world the possible way of solving the problem of overloaded European and Asian sea ports. Besides, delivery of Chinese cargoes via the territory of Russia turned to be more profitable. When the direct road communication between Russia and China is opened, delivery time will decrease further.



Carrying on a Dialogue with the Authorities

The increase of the level of cooperation between the road haulages business and the state bodies in 2005 was also very important for the Russian road haulers, since a number of difficult problems were solved due to it. 

The amendment to the RF Tax Code on using a zero rate of VAT (value added tax) for import transportation was approved at last. Earlier international road haulers had to prove the necessity of such a decision to the state bodies again and again, and it was approved at last - the new amendment to the Law came into force on January 1, 2006.

In 2005 much was done to reduce the tax on "horse power": preferential taxation was provided to international road haulers in some regions of Russia. Supported by ASMAP, the Heads of the road haulage companies servicing foreign trade routes persuaded the state not to impose this tax upon their business, since they pay road dues abroad, and 50% of the distance their road vehicles run are roads of foreign countries. Road haulers believe that it was this very circumstance that made the whole system existing earlier illogical, since it was based on the wrong supposition that all the subjects of taxation operate only on the roads of the Russian Federation.

Besides, last year the RF State Duma approved in the first reading the law on putting amendments to the Labour Code, which must create the necessary juridical conditions for the companies-employers to pay daily fee to their drivers. Moreover, the project of the law on putting amendments to Chapter 11 of the Administrative Offence Code was developed and sent to the State Duma. The project toughens the responsibilities of foreign offenders of the rules of international transportation by road haulages.

Last year the Russian International Road Haulers Association actively participated in the development of the signed by the Transport Ministers of the CIS Agreement on implementing the international certification of vehicle weighing, which is to reduce the amount of weighing during transportation and, thus, to decrease the delivery time. For example, now a road-train is weighed up to 4-5 times on the motorway St.-Petersburg - Moscow, and road haulers believe that it is possible to do it just once - on the border. At the same time, if there is overweight, the driver will have to pay for the whole route, registered in his road documentation. Nowadays the Agreement has already been ratified by the Republics of Belarus, Kazakhstan, Moldova, Tajikistan, and Kirgizstan. Unfortunately, the Russian Federation has not ratified it yet. However, the active work of road haulers, to improve the legislative base will promote a further growth of road transportation efficiency and increase the importance of this transport mode.



From Problemsto Development

In 2005 the share of the Russian international road haulers at the Russian transport market increased from 25% to 39%. Besides, the transportation volumes of the Russian international road haulers grew by 8.5% (the one of foreign road haulers increased by 5%). Such results became possible due to the increase of car fleet purchase based on the RF Government's Decree № 147, which enables the companies to postpone payment of customs duties when purchasing trucks meeting Euro-3 and higher requirements for the period of their use on the international directions.

"In fact, earlier 70% of our trucks met the requirements of Euro-1, and it is practically forbidden to use them in Europe now. That is why such a timely Decree of the Government enabled us to renew our fleet, and now about 26% of the Russian road haulers' park meets the requirements of Euro-3, and the amount of trucks with Euro-2 engines has also significantly increased", Y.Sukhin comments on the situation.

International road haulers solve the problem of truck fleet renewal simultaneously with the problem of fuel price increase. This is why they supported the large-scale precautionary protest action held by trade unions. The road haulers' indignation came to the highest degree: during the last two years the prices for fuel increased twofold, and expenses amounted to 35% of the services' cost price. The main target of the action - to stop the growth of prices for fuel - has been reached. The Government, at last, held negotiations with oil companies and the prices were frozen till the end of the year. Now the Government discusses the question of changing the tax system for the oil sector, which, perhaps, will help to stop the growth of prices, or even reduce them. 

In cooperation with such structures as the Ministry of Transport and the Ministry of Foreign Affairs, the road haulers managed to simplify the procedure of issuing visas to their drivers. On October 14, 2005, drivers operating on international routes were put on the list for simplified visa issue in the framework of the Agreement signed on that day by Russia and the EU. Now drivers get multi-entry visas of yearly duration to all the countries of the European Union, with ASMAP confirming the necessity of issuing such documents (for foreign drivers this is done by national international road haulers associations). 

The members of the Association believe that this issue demands a constant staff development and an increase in the quality of training given to the Russian drivers servicing international routes. Now there are already 13 training centers of ASMAP, where over 20,000 businessmen have been trained during the last 5-6 years. In 2005, over 7,500 specialists were trained there. According to their diplomas, all the trainees got licensed by the Ministry of Transport for international transportation by road haulages. At the first All-Russian Meeting of the International Road Haulers, held at the end of May, about 150 new companies became members of the Association.



By GENNADY BUGROV
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    [DETAIL_TEXT] => 

Based on Principles of Mutual Confidence

It is common knowledge, that the main factors influencing one's choice of a carrier are quality, price and delivery time. That is why it is not surprising that road haulages becomes more and more popular in Russia, as well as in many other countries. For example, nowadays, the average speed of cargo transportation from the consignor to the consignee (taking into account idling, customs clearance, and other necessary procedures) is 16 km/h by car, 8 km/h by railway, and 4 km/h by sea.

Other advantages of road haulages arise due to the fact that this sector of the transport complex is traditionally the place of active development of the small-scale and middle-scale businesses, which are especially interested to deliver freight as fast as possible and to receive money for it, because such companies have no opportunity to "freeze" a lot of circulating assets. 

Besides, it is important for a consumer to know that his cargo is looked after when it is transported. This is another advantage of the road vehicles in comparison with railway and sea transport modes. Unlike the latter two transport modes, which can transport much more goods than a road vehicle at a time and, consequently, are unable to pay much attention to their cargo, a truck driver, in fact, functions as a forwarder. Thus, the services of road carriers are much less impersonal, which makes them more attractive for consumers, especially in cases of expensive freight transportation: consumer electronics, foodstuffs, perfumery etc.

However, it would be wrong to assert that cargo owners do not trust road haulages with less valuable cargoes, including mass ones. For example, in 2005 road haulages actively carried foodstuffs, the share of which was 30% (import), as well as timber. The share of exported unprocessed timber was 36% and that of processed timber - 18%. On the whole, but for the cargoes mentioned above, the distribution of shares in export and import cargo flows was as follows: export - the share of ferrous metals was 11%, the one of the petrochemical industry produce was 7%, foodstuffs made 6%, the share of machine-building industry output was 5%, and other cargoes' share amounted to 17%; import - the share of the petrochemical industry produce was 18%, the share of machine-building industry output was 15%, the share of paper was 6%, ferrous metals made 5%, electric facilities amounted to 4%, and the share of other types of cargo was 22%.

At the same time, as well as in previous years, foreign trade cargo volumes carried by road haulages were distributed mainly in the Central and the North-Western Federal Regions of the Russian Federation (44% and 33% respectively), which can be explained, first of all, by the presence of the largest cities in the Russian Federation - Moscow and St.-Petersburg - in them. The share of the other regions in the foreign trade cargo volumes carried by road haulages was as follows: the Privolzhsky Federal Region - 6%, the Sibirsky (Siberian) Federal Region - 6%, the Dalnevostochny (Far-Eastern) Federal Region - 4%, the Yuzhny (Southern) Federal District - 4%, the Uralsky Federal Region - 3%.

In 2005 the structure of cargo flows according to destinations was the same as in previous years. Traditionally, road haulages were actively used for international transportation to the countries neighbouring Russia, and to its main commercial partners: Finland (27%), Germany (9%), Ukraine (8%), Lithuania, China and Poland (7% to each), and Kazakhstan (6%).

On the whole, according to statistics, since 1990, the volume of freight transportation by road haulages between Russia and foreign states has increased at 10.5 times (transported by foreign haulers) and fourteen-fold (transported by Russian haulers).



New Opportunitiesin the East

In 2005 a lot of challenges appeared for road haulers of Russia, as well as their colleagues in other states. At the meeting of RF President Vladimir Putin and the Prime Minister of China, an Agreement was signed, envisaging ways of development of economic relations between the two countries. The Chinese businessmen are interested in exporting their goods to Russia and transiting them via Russia to Europe, using road haulages, since cargo is transported by motor transport several times faster than by sea.

On the whole, the commodity turnover between China and Russia is to increase fourfold, that is why already now the RF Government, the RF Ministry of Economic Development and Trade, and the Federal Customs Service work to increase the capacities of the respective border check-points. That is why ASMAP has offered to open a new border crossing in the Sibirsky Federal Region, connecting the Russian Altai Territory with the Chinese Xinxiang Uygur Autonomous Region. This offer made by road haulers is very important nowadays, because the most part of cargo destined for China is transported via Mongolia and Kazakhstan. Besides, the Chinese side has already put the construction of a new motorway to its border with the Russian Federation into its road infrastructure development plan for the next five years. Experts believe that the construction of an international motorway will give a powerful stimulus to the development of the Russian-Chinese cooperation, and enable the two countries to increase cargo transportation by USD 2.5-3 billion within the corridor. 

Nowadays, negotiations are carried out to enable Russian international road haulers to transport freight to the territory of China and to transit it via China to Korea. It is very important, since any transshipment of freight at the border reduces the competitiveness of road haulages and increases delivery time. 

To popularize the transit potential of Russia and international transportation by road haulages, in September 2005 the Russian road haulers, together with their colleagues from China, Kazakhstan, Poland, Latvia and Lithuania, participated in the road race on the route Beijing - Berlin - Brussels, thus having showed to the world the possible way of solving the problem of overloaded European and Asian sea ports. Besides, delivery of Chinese cargoes via the territory of Russia turned to be more profitable. When the direct road communication between Russia and China is opened, delivery time will decrease further.



Carrying on a Dialogue with the Authorities

The increase of the level of cooperation between the road haulages business and the state bodies in 2005 was also very important for the Russian road haulers, since a number of difficult problems were solved due to it. 

The amendment to the RF Tax Code on using a zero rate of VAT (value added tax) for import transportation was approved at last. Earlier international road haulers had to prove the necessity of such a decision to the state bodies again and again, and it was approved at last - the new amendment to the Law came into force on January 1, 2006.

In 2005 much was done to reduce the tax on "horse power": preferential taxation was provided to international road haulers in some regions of Russia. Supported by ASMAP, the Heads of the road haulage companies servicing foreign trade routes persuaded the state not to impose this tax upon their business, since they pay road dues abroad, and 50% of the distance their road vehicles run are roads of foreign countries. Road haulers believe that it was this very circumstance that made the whole system existing earlier illogical, since it was based on the wrong supposition that all the subjects of taxation operate only on the roads of the Russian Federation.

Besides, last year the RF State Duma approved in the first reading the law on putting amendments to the Labour Code, which must create the necessary juridical conditions for the companies-employers to pay daily fee to their drivers. Moreover, the project of the law on putting amendments to Chapter 11 of the Administrative Offence Code was developed and sent to the State Duma. The project toughens the responsibilities of foreign offenders of the rules of international transportation by road haulages.

Last year the Russian International Road Haulers Association actively participated in the development of the signed by the Transport Ministers of the CIS Agreement on implementing the international certification of vehicle weighing, which is to reduce the amount of weighing during transportation and, thus, to decrease the delivery time. For example, now a road-train is weighed up to 4-5 times on the motorway St.-Petersburg - Moscow, and road haulers believe that it is possible to do it just once - on the border. At the same time, if there is overweight, the driver will have to pay for the whole route, registered in his road documentation. Nowadays the Agreement has already been ratified by the Republics of Belarus, Kazakhstan, Moldova, Tajikistan, and Kirgizstan. Unfortunately, the Russian Federation has not ratified it yet. However, the active work of road haulers, to improve the legislative base will promote a further growth of road transportation efficiency and increase the importance of this transport mode.



From Problemsto Development

In 2005 the share of the Russian international road haulers at the Russian transport market increased from 25% to 39%. Besides, the transportation volumes of the Russian international road haulers grew by 8.5% (the one of foreign road haulers increased by 5%). Such results became possible due to the increase of car fleet purchase based on the RF Government's Decree № 147, which enables the companies to postpone payment of customs duties when purchasing trucks meeting Euro-3 and higher requirements for the period of their use on the international directions.

"In fact, earlier 70% of our trucks met the requirements of Euro-1, and it is practically forbidden to use them in Europe now. That is why such a timely Decree of the Government enabled us to renew our fleet, and now about 26% of the Russian road haulers' park meets the requirements of Euro-3, and the amount of trucks with Euro-2 engines has also significantly increased", Y.Sukhin comments on the situation.

International road haulers solve the problem of truck fleet renewal simultaneously with the problem of fuel price increase. This is why they supported the large-scale precautionary protest action held by trade unions. The road haulers' indignation came to the highest degree: during the last two years the prices for fuel increased twofold, and expenses amounted to 35% of the services' cost price. The main target of the action - to stop the growth of prices for fuel - has been reached. The Government, at last, held negotiations with oil companies and the prices were frozen till the end of the year. Now the Government discusses the question of changing the tax system for the oil sector, which, perhaps, will help to stop the growth of prices, or even reduce them. 

In cooperation with such structures as the Ministry of Transport and the Ministry of Foreign Affairs, the road haulers managed to simplify the procedure of issuing visas to their drivers. On October 14, 2005, drivers operating on international routes were put on the list for simplified visa issue in the framework of the Agreement signed on that day by Russia and the EU. Now drivers get multi-entry visas of yearly duration to all the countries of the European Union, with ASMAP confirming the necessity of issuing such documents (for foreign drivers this is done by national international road haulers associations). 

The members of the Association believe that this issue demands a constant staff development and an increase in the quality of training given to the Russian drivers servicing international routes. Now there are already 13 training centers of ASMAP, where over 20,000 businessmen have been trained during the last 5-6 years. In 2005, over 7,500 specialists were trained there. According to their diplomas, all the trainees got licensed by the Ministry of Transport for international transportation by road haulages. At the first All-Russian Meeting of the International Road Haulers, held at the end of May, about 150 new companies became members of the Association.



By GENNADY BUGROV
    [~DETAIL_TEXT] => 

Based on Principles of Mutual Confidence

It is common knowledge, that the main factors influencing one's choice of a carrier are quality, price and delivery time. That is why it is not surprising that road haulages becomes more and more popular in Russia, as well as in many other countries. For example, nowadays, the average speed of cargo transportation from the consignor to the consignee (taking into account idling, customs clearance, and other necessary procedures) is 16 km/h by car, 8 km/h by railway, and 4 km/h by sea.

Other advantages of road haulages arise due to the fact that this sector of the transport complex is traditionally the place of active development of the small-scale and middle-scale businesses, which are especially interested to deliver freight as fast as possible and to receive money for it, because such companies have no opportunity to "freeze" a lot of circulating assets. 

Besides, it is important for a consumer to know that his cargo is looked after when it is transported. This is another advantage of the road vehicles in comparison with railway and sea transport modes. Unlike the latter two transport modes, which can transport much more goods than a road vehicle at a time and, consequently, are unable to pay much attention to their cargo, a truck driver, in fact, functions as a forwarder. Thus, the services of road carriers are much less impersonal, which makes them more attractive for consumers, especially in cases of expensive freight transportation: consumer electronics, foodstuffs, perfumery etc.

However, it would be wrong to assert that cargo owners do not trust road haulages with less valuable cargoes, including mass ones. For example, in 2005 road haulages actively carried foodstuffs, the share of which was 30% (import), as well as timber. The share of exported unprocessed timber was 36% and that of processed timber - 18%. On the whole, but for the cargoes mentioned above, the distribution of shares in export and import cargo flows was as follows: export - the share of ferrous metals was 11%, the one of the petrochemical industry produce was 7%, foodstuffs made 6%, the share of machine-building industry output was 5%, and other cargoes' share amounted to 17%; import - the share of the petrochemical industry produce was 18%, the share of machine-building industry output was 15%, the share of paper was 6%, ferrous metals made 5%, electric facilities amounted to 4%, and the share of other types of cargo was 22%.

At the same time, as well as in previous years, foreign trade cargo volumes carried by road haulages were distributed mainly in the Central and the North-Western Federal Regions of the Russian Federation (44% and 33% respectively), which can be explained, first of all, by the presence of the largest cities in the Russian Federation - Moscow and St.-Petersburg - in them. The share of the other regions in the foreign trade cargo volumes carried by road haulages was as follows: the Privolzhsky Federal Region - 6%, the Sibirsky (Siberian) Federal Region - 6%, the Dalnevostochny (Far-Eastern) Federal Region - 4%, the Yuzhny (Southern) Federal District - 4%, the Uralsky Federal Region - 3%.

In 2005 the structure of cargo flows according to destinations was the same as in previous years. Traditionally, road haulages were actively used for international transportation to the countries neighbouring Russia, and to its main commercial partners: Finland (27%), Germany (9%), Ukraine (8%), Lithuania, China and Poland (7% to each), and Kazakhstan (6%).

On the whole, according to statistics, since 1990, the volume of freight transportation by road haulages between Russia and foreign states has increased at 10.5 times (transported by foreign haulers) and fourteen-fold (transported by Russian haulers).



New Opportunitiesin the East

In 2005 a lot of challenges appeared for road haulers of Russia, as well as their colleagues in other states. At the meeting of RF President Vladimir Putin and the Prime Minister of China, an Agreement was signed, envisaging ways of development of economic relations between the two countries. The Chinese businessmen are interested in exporting their goods to Russia and transiting them via Russia to Europe, using road haulages, since cargo is transported by motor transport several times faster than by sea.

On the whole, the commodity turnover between China and Russia is to increase fourfold, that is why already now the RF Government, the RF Ministry of Economic Development and Trade, and the Federal Customs Service work to increase the capacities of the respective border check-points. That is why ASMAP has offered to open a new border crossing in the Sibirsky Federal Region, connecting the Russian Altai Territory with the Chinese Xinxiang Uygur Autonomous Region. This offer made by road haulers is very important nowadays, because the most part of cargo destined for China is transported via Mongolia and Kazakhstan. Besides, the Chinese side has already put the construction of a new motorway to its border with the Russian Federation into its road infrastructure development plan for the next five years. Experts believe that the construction of an international motorway will give a powerful stimulus to the development of the Russian-Chinese cooperation, and enable the two countries to increase cargo transportation by USD 2.5-3 billion within the corridor. 

Nowadays, negotiations are carried out to enable Russian international road haulers to transport freight to the territory of China and to transit it via China to Korea. It is very important, since any transshipment of freight at the border reduces the competitiveness of road haulages and increases delivery time. 

To popularize the transit potential of Russia and international transportation by road haulages, in September 2005 the Russian road haulers, together with their colleagues from China, Kazakhstan, Poland, Latvia and Lithuania, participated in the road race on the route Beijing - Berlin - Brussels, thus having showed to the world the possible way of solving the problem of overloaded European and Asian sea ports. Besides, delivery of Chinese cargoes via the territory of Russia turned to be more profitable. When the direct road communication between Russia and China is opened, delivery time will decrease further.



Carrying on a Dialogue with the Authorities

The increase of the level of cooperation between the road haulages business and the state bodies in 2005 was also very important for the Russian road haulers, since a number of difficult problems were solved due to it. 

The amendment to the RF Tax Code on using a zero rate of VAT (value added tax) for import transportation was approved at last. Earlier international road haulers had to prove the necessity of such a decision to the state bodies again and again, and it was approved at last - the new amendment to the Law came into force on January 1, 2006.

In 2005 much was done to reduce the tax on "horse power": preferential taxation was provided to international road haulers in some regions of Russia. Supported by ASMAP, the Heads of the road haulage companies servicing foreign trade routes persuaded the state not to impose this tax upon their business, since they pay road dues abroad, and 50% of the distance their road vehicles run are roads of foreign countries. Road haulers believe that it was this very circumstance that made the whole system existing earlier illogical, since it was based on the wrong supposition that all the subjects of taxation operate only on the roads of the Russian Federation.

Besides, last year the RF State Duma approved in the first reading the law on putting amendments to the Labour Code, which must create the necessary juridical conditions for the companies-employers to pay daily fee to their drivers. Moreover, the project of the law on putting amendments to Chapter 11 of the Administrative Offence Code was developed and sent to the State Duma. The project toughens the responsibilities of foreign offenders of the rules of international transportation by road haulages.

Last year the Russian International Road Haulers Association actively participated in the development of the signed by the Transport Ministers of the CIS Agreement on implementing the international certification of vehicle weighing, which is to reduce the amount of weighing during transportation and, thus, to decrease the delivery time. For example, now a road-train is weighed up to 4-5 times on the motorway St.-Petersburg - Moscow, and road haulers believe that it is possible to do it just once - on the border. At the same time, if there is overweight, the driver will have to pay for the whole route, registered in his road documentation. Nowadays the Agreement has already been ratified by the Republics of Belarus, Kazakhstan, Moldova, Tajikistan, and Kirgizstan. Unfortunately, the Russian Federation has not ratified it yet. However, the active work of road haulers, to improve the legislative base will promote a further growth of road transportation efficiency and increase the importance of this transport mode.



From Problemsto Development

In 2005 the share of the Russian international road haulers at the Russian transport market increased from 25% to 39%. Besides, the transportation volumes of the Russian international road haulers grew by 8.5% (the one of foreign road haulers increased by 5%). Such results became possible due to the increase of car fleet purchase based on the RF Government's Decree № 147, which enables the companies to postpone payment of customs duties when purchasing trucks meeting Euro-3 and higher requirements for the period of their use on the international directions.

"In fact, earlier 70% of our trucks met the requirements of Euro-1, and it is practically forbidden to use them in Europe now. That is why such a timely Decree of the Government enabled us to renew our fleet, and now about 26% of the Russian road haulers' park meets the requirements of Euro-3, and the amount of trucks with Euro-2 engines has also significantly increased", Y.Sukhin comments on the situation.

International road haulers solve the problem of truck fleet renewal simultaneously with the problem of fuel price increase. This is why they supported the large-scale precautionary protest action held by trade unions. The road haulers' indignation came to the highest degree: during the last two years the prices for fuel increased twofold, and expenses amounted to 35% of the services' cost price. The main target of the action - to stop the growth of prices for fuel - has been reached. The Government, at last, held negotiations with oil companies and the prices were frozen till the end of the year. Now the Government discusses the question of changing the tax system for the oil sector, which, perhaps, will help to stop the growth of prices, or even reduce them. 

In cooperation with such structures as the Ministry of Transport and the Ministry of Foreign Affairs, the road haulers managed to simplify the procedure of issuing visas to their drivers. On October 14, 2005, drivers operating on international routes were put on the list for simplified visa issue in the framework of the Agreement signed on that day by Russia and the EU. Now drivers get multi-entry visas of yearly duration to all the countries of the European Union, with ASMAP confirming the necessity of issuing such documents (for foreign drivers this is done by national international road haulers associations). 

The members of the Association believe that this issue demands a constant staff development and an increase in the quality of training given to the Russian drivers servicing international routes. Now there are already 13 training centers of ASMAP, where over 20,000 businessmen have been trained during the last 5-6 years. In 2005, over 7,500 specialists were trained there. According to their diplomas, all the trainees got licensed by the Ministry of Transport for international transportation by road haulages. At the first All-Russian Meeting of the International Road Haulers, held at the end of May, about 150 new companies became members of the Association.



By GENNADY BUGROV
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    [DETAIL_TEXT] => "The Ministry of Transport forecasts that in 2006 investment into infrastructure of sea ports will increase to RUR 20.7 billion, whereof RUR 19 billion will come from the private sector", reported Moscow office of the Association of commercial sea port of the RF CEO Alexander Shimansky, who told The RZD-Partner International about the results of the sector operation in 2005 and prospects for 2006.



- Mr. Shimansky, could you, please, evaluate the operation of the Russian sea ports in 2005?

- In 2005, the handling volume of the RF commercial sea ports grew by 11.8% (or by 43 million tons) to about 407 million tones. Russian ports handled over 173 million tons of dry bulk, which is 10% up year-on-year, and 223.7 million tons of liquid bulk (+13% in comparison with the results of 2004). Export cargo flow amounted to 83.9%; import share was 6.2%; transit took 3.6% and coastal trade constituted 6.3%. As usual, the main cargoes handled are oil bulk, coal, metals, containers, timber and logs and mineral fertilizers.






The highest growth rate was registered in the North-Western region. The cargo turnover of the North-Western ports exceeded 178 million tons, which is 18% up year-on-year. The region's ports took 44% of the aggregate throughput of the Russian ports. A recent trend of the North-Western share growth is explained by the increase of oil bulk handling, first of all, due to putting into operation of an oil terminal in the port of Primorsk in 2003. Another cargo flows, which contributed most in the turnover increase, are containers, timber and logs, coal and mineral fertilizers.

An aggregate throughput of the Southern basin ports amounted to over 159 million tons, which is 11.7% up year-on-year. The region took 39% of Russian ports' aggregate turnover. The throughput growth of the Southern ports was explained by the dry bulk handling increase: grain flow went up by 2.5 times, volumes of containers, timber and logs, mineral fertilizers and ferrous metals also rose.

A slight downturn (by 1%) was registered in the Far-Eastern ports, which handled about 70 million tons in 2005, wherein dry bulk amounted to 55 million tons and oil bulk - to 15 million tons. The basin's share in the aggregate turnover amounted to 17%. The growth of container, ore and mineral fertilizer handling was marked in the region.

- Which companies performed best and which cargo flows increased most in 2005?

- In the North-Western basin only OOO Spetsmornefteport (the port of Primorsk) handled over 57 million tons of liquid bulk, which is 28.7% up year-on-year. Stevedoring companies of the port of Saint-Petersburg handled over 57.7 million tons; in Murmansk the throughput amounted to over 30 million tons. In Saint-Petersburg and Murmansk the volumes of containers (in Saint-Petersburg over 1 million containers was handled), coal, metals, timber and logs and mineral fertilizers increased.

The leader of the Southern region was still the port of Novorossiysk, which handled 113.3 million tons (+15.7% year-on-year), wherein dry bulk amounted to 26.6 million tons (+30.9%) and liquid bulk constituted 86.7 million tons (+11.7%). The port of Novorossiysk took over 70% of the aggregate throughput of the Southern ports. Handling of ferrous and non-ferrous metals, timber and logs, mineral fertilizers and containers grew best in the port.

The port of Novorossiysk was followed by the Tuapse port, which handled over 21.3 million tons (+5.7%), wherein dry bulk amounted to 6.6 million tons, which is 21% up year-on-year.

As our research shows, handling in the biggest ports of the North-Western and Southern regions tends to go upwards in 2006. In the Russian Far-East, against the background of turnover decrease (mostly due to ferrous metals volume reduction), stevedoring companies of the Vanino port increased throughput by 22% to 11.6 million tons. The turnover of the port of Posyet grew by 34% to 1.7 million tons. In 2005, handling of the Far-Eastern ports was seriously affected by the situation in the world metal market, particularly by the metal produce growth in China. The ports of Vladivostok and Nakhodka decreased their metal turnover by 21.6%. Chinese metal is cheaper due to lower prime cost, and, on the whole, metal prices reduced by some 30%. The situation is likely to remain the same in 2006. Thus, ports have to focus on other cargo flows.

- Which projects aimed at handling capacities increase are given top priority?

- The Ministry of Transport of the RF developed a sub-programme "Sea transport" aimed at turning the Russian marine sector into an efficient and profitable industry meeting international requirements, supplying the country's economy and capable of transport services export. In 2005 the total capacity of new terminals put into operation amounted to 31.42 million tons, particularly in the ports of Saint-Petersburg for container handling, in Kaliningrad for oil bulk handling, in Makhachkala for grain handling, in Ust-Luga for coal handling, in Vysotsk for oil bulk handling, in Murmansk for mazut handling and in Primorsk and Novorossiysk for oil products handling.

The state sub-programme envisages increasing of port handling capacities on average by 370 million tons annually with a simultaneous reduction of neigbouring countries shares in the Russian cargo volume handling from 26% in 2001 to 10% in 2010. This could be achieved by construction and reconstruction of terminals specializing in liquid and breakbulk handling (in Murmansk, Ust-Luga, Vysotsk, Novorossiysk, Vostochny), as well as of capacities for container handling (Saint-Petersburg, Ust-Luga, Novorossiysk, Vladivostok) and ro-ro capacities (Ust-Luga, Kaliningrad, Saint-Petersburg).

- What is the investment volume in the development of ports and rail approaches? Are private companies interested in financing such objects?

- In 2005, the total investment volume into ports exceeded RUR 12.8 billion, whereof the budget allocated RUR 2.8 billion and private companies invested RUR 10 billion. The Ministry of Transport of the Russian Federation forecasts investment volume into sea port infrastructure in 2006 at RUR 20.7 billion, whereof non-budget funds are to amount to RUR 19 billion. I should notice that the port sector has been working on the basis of public-private partnership for a long time and we consider it efficient to implement investment programmes and balancу the interests of private companies and the state. Favourable market conditions and the state policy were the factors that allowed to put into operation port capacities for over 130 million tons handling, attract private investment and increase turnover by 2.5 times during the period of 2001-2005. Producers of oil, coal and chemicals have been developing the port sector. There were constructed and reconstructed terminals in the ports of Ust-Luga, Saint-Petersburg, Vysotsk, Murmansk, Novorossiysk, Vostochny, Vanino and Posjet.

- What do Russian stevedoring companies do in order to improve competitiveness of the country's ports?

- The share of Russian ports in the handling of the country's foreign trade cargoes increases annually and in 2005 it reached 80%. This proves that Russian stevedoring companies provide services meeting today's requirements. Since 2001 almost all big ports have increased handling capacities, acquired new equipment, reconstructed berths and fulfilled dredging. Stevedoring companies improve their services and contribute a lot to the interaction between the participants of the transport process at transport junctions, as well as to the improvement of relationships with shippers. The development of technological schemes improves the competitiveness of the handling services. Taking into consideration international transport corridors West-East and North-South, there are several groups of competitors: the Russian North-Western basin ports and the Baltic ones, the Southern ports and Ukrainian ones, and the Far-Eastern facilities and Chinese ports.



Foreign trade cargo handling at sea ports in 2005 (million tons)





However, there are still problems unsolved. The legislation of port activities does not meet modern requirements, which negatively affects the ports' competitiveness. Russia still lacks a Decree on sea ports, rules for export and import transportation, as well as rules for planning foreign trade cargoes transportation via sea ports.

The solution of problems with state property rent, port dues reduction, and creation of free economic zones is vital. In order to smooth the interaction within freight transportation, terminal operators should have the status of a transport organization. So, there is still much to be done.

- How could you evaluate the level of interaction between ports and railways?

- Russian stevedoring companies increase rail car handling substantially every year and pay much attention to services and time, as further throughput development and profit growth are tightly connected with these factors.

However, ports and railways used to suffer difficulties during their interaction, as too heavy traffic in the period of December-January led to rail car congestions at the port rail stations. But in 2005 the situation changed. Traffic management, efficient logistic solutions and coordination of ports and railway operations within freight transportation process helped us all to cope with the situation. We successfully cooperated with the Center of Transport Services of OAO RZD and now stevedoring companies and railways exchange information on volumes to be transported via sea ports, in order to prevent rail car congestions. Thus, in the period of December, 2005 - January, 2006 there were no congestions. The only problem we met during the first two months of 2006 is unfavourable weather conditions, which caused congestions as equipment did not work and vessels could not call at some ports.

I can evaluate today's interaction between ports and railways as efficient and both parties are able to solve problems due to co-operation.

- Could you comment on the prospects of Russian rail tariff policy in terms of improving the ports' competitivness?

- In 2005 rail tariffs on transportation to ports were indexed twice: by 12.5% since January and by 5.4% since August, whereas those on transportation to border crossings remained. This had impact only on ferrous cargo flows, which used to be handled by Far-Eastern ports, but are now rerouted to the Southern ports of Russia and Ukrainian ports. In 2006 rail tariffs on transportation to ports were indexed by 12.8% and those on carriage to border crossings again remained stable. 

After that tariffs on coal transportation via Russian sea ports increased on average by 7-11%. However, decreasing indexes for the ports of Arkhangelsk (0.8), Kandalaksha (0.75), Murmansk, Nakhodka, Posjet and Vanino (0.922) were implemented.Tariff indexes on ferrous metals transportation varied. For the Far-Eastern ports tariffs rose by less than 1%, whereas for others the indexation reached 12.8%. We hope this measure will help to get ferrous metals flows back to the region. However, the Association is worried about the situation where rail tariffs on transportation to the Southern ports of Russia as compared to the Ukrainian ones, are now unfavourable (for instance, the tariff on transportation from Cherepovetsky plant to the port of Novorossiysk amounts to USD 38.67, whereas transportation tariff to the Urkaine reaches only USD 37.3).

Tariffs on the rail transportation to ports of chemical fertilizers and timber and logs increased by 12.8%, and those on transportation to border crossings, in fact to the ports of neighbouring countries, remained the same. Despite this, transportation to the Russian ports of these cargo flows is still more attractive.

Tariffs is the most flexible and fast regulator of export, import and transit freight flows, especially in Russia, taking into consideration its big territory and the role of railway in the transportation. Tariff policy contributes to the solution of such problems as producers located too far from their clients, loading the idling facilities and Russian exporters entering new markets. Evidently, joining the World Trade Organization will limit tariff protectionism. However, the policy which has been implemented strengthened the Russian ports positions in long-term perspective. Thus, I suppose that joining the WTO will not affect the throughput growth rate. The key targets of the protection policy were reached, as ports increased their capacity, as well as their throughput, and private investment into port infrastructure exceeds the state's one.



Foreign trade cargo handling at Russian sea ports in 2005 (million tons)





- What should be done in order to improve the legislative base for ports operation?

- As I have already mentioned, one of the crucial factors preventing ports from further development is the imperfection of our legislation, first of all, the absence of a law on sea ports. The law should regulate operation in sea ports, particularly the processes of launch, liquidation, opening, closing, functioning, construction and reconstruction of sea ports, economic activities in them, and establish rules for state regulation. Today we are close to the development and adoption of such a law.

Speaking of the port sector operation, the most important for investors and stevedoring companies obstacle is the unclear rent conditions: long-term rent of state property, unpredictable changes of tariffs and investment payback in this respect. The Association offers to set the maximum rent term at 49 years and the minimum one at 15 years. Such period, to my mind, enables the implementation of long-term investment programmes for terminals construction and operation. There have been no rules for rent contracts concerning real estate owned by the state or for tariffs schemes development. Ports wish to work in compliance with contracts where parties' liabilities for main issues should be described and tariffs are predictable and just.

Ports also suffer from underdeveloped land laws, the absence of set rules of land reserving and exempting, unsolved problems of land tenure for transport and ports. These issues should be set in the law on ports. Moreover, laws and amendments should be made in order to create attractive conditions for private investors and efficient transport infrastructure management.

A port is not an ordinary consignee, thus, the relationship between ports and railways can not be regulated by Railway Code only: it has always been set by additional rules.

Experts of the Association of commercial sea port of the Russian Federation developed draft laws, which will enable to regulate the interaction between ports and railways at the transport junctions (I mean Rules of export and import freight transportation, Rules of freight transportation planning and the List of sea ports performing freight handling). These draft laws are being considered by the Ministry of Transport of the RF and need agreement and passing.



Interviewed by  OLESYA  ANGELOVA
    [~DETAIL_TEXT] => "The Ministry of Transport forecasts that in 2006 investment into infrastructure of sea ports will increase to RUR 20.7 billion, whereof RUR 19 billion will come from the private sector", reported Moscow office of the Association of commercial sea port of the RF CEO Alexander Shimansky, who told The RZD-Partner International about the results of the sector operation in 2005 and prospects for 2006.



- Mr. Shimansky, could you, please, evaluate the operation of the Russian sea ports in 2005?

- In 2005, the handling volume of the RF commercial sea ports grew by 11.8% (or by 43 million tons) to about 407 million tones. Russian ports handled over 173 million tons of dry bulk, which is 10% up year-on-year, and 223.7 million tons of liquid bulk (+13% in comparison with the results of 2004). Export cargo flow amounted to 83.9%; import share was 6.2%; transit took 3.6% and coastal trade constituted 6.3%. As usual, the main cargoes handled are oil bulk, coal, metals, containers, timber and logs and mineral fertilizers.






The highest growth rate was registered in the North-Western region. The cargo turnover of the North-Western ports exceeded 178 million tons, which is 18% up year-on-year. The region's ports took 44% of the aggregate throughput of the Russian ports. A recent trend of the North-Western share growth is explained by the increase of oil bulk handling, first of all, due to putting into operation of an oil terminal in the port of Primorsk in 2003. Another cargo flows, which contributed most in the turnover increase, are containers, timber and logs, coal and mineral fertilizers.

An aggregate throughput of the Southern basin ports amounted to over 159 million tons, which is 11.7% up year-on-year. The region took 39% of Russian ports' aggregate turnover. The throughput growth of the Southern ports was explained by the dry bulk handling increase: grain flow went up by 2.5 times, volumes of containers, timber and logs, mineral fertilizers and ferrous metals also rose.

A slight downturn (by 1%) was registered in the Far-Eastern ports, which handled about 70 million tons in 2005, wherein dry bulk amounted to 55 million tons and oil bulk - to 15 million tons. The basin's share in the aggregate turnover amounted to 17%. The growth of container, ore and mineral fertilizer handling was marked in the region.

- Which companies performed best and which cargo flows increased most in 2005?

- In the North-Western basin only OOO Spetsmornefteport (the port of Primorsk) handled over 57 million tons of liquid bulk, which is 28.7% up year-on-year. Stevedoring companies of the port of Saint-Petersburg handled over 57.7 million tons; in Murmansk the throughput amounted to over 30 million tons. In Saint-Petersburg and Murmansk the volumes of containers (in Saint-Petersburg over 1 million containers was handled), coal, metals, timber and logs and mineral fertilizers increased.

The leader of the Southern region was still the port of Novorossiysk, which handled 113.3 million tons (+15.7% year-on-year), wherein dry bulk amounted to 26.6 million tons (+30.9%) and liquid bulk constituted 86.7 million tons (+11.7%). The port of Novorossiysk took over 70% of the aggregate throughput of the Southern ports. Handling of ferrous and non-ferrous metals, timber and logs, mineral fertilizers and containers grew best in the port.

The port of Novorossiysk was followed by the Tuapse port, which handled over 21.3 million tons (+5.7%), wherein dry bulk amounted to 6.6 million tons, which is 21% up year-on-year.

As our research shows, handling in the biggest ports of the North-Western and Southern regions tends to go upwards in 2006. In the Russian Far-East, against the background of turnover decrease (mostly due to ferrous metals volume reduction), stevedoring companies of the Vanino port increased throughput by 22% to 11.6 million tons. The turnover of the port of Posyet grew by 34% to 1.7 million tons. In 2005, handling of the Far-Eastern ports was seriously affected by the situation in the world metal market, particularly by the metal produce growth in China. The ports of Vladivostok and Nakhodka decreased their metal turnover by 21.6%. Chinese metal is cheaper due to lower prime cost, and, on the whole, metal prices reduced by some 30%. The situation is likely to remain the same in 2006. Thus, ports have to focus on other cargo flows.

- Which projects aimed at handling capacities increase are given top priority?

- The Ministry of Transport of the RF developed a sub-programme "Sea transport" aimed at turning the Russian marine sector into an efficient and profitable industry meeting international requirements, supplying the country's economy and capable of transport services export. In 2005 the total capacity of new terminals put into operation amounted to 31.42 million tons, particularly in the ports of Saint-Petersburg for container handling, in Kaliningrad for oil bulk handling, in Makhachkala for grain handling, in Ust-Luga for coal handling, in Vysotsk for oil bulk handling, in Murmansk for mazut handling and in Primorsk and Novorossiysk for oil products handling.

The state sub-programme envisages increasing of port handling capacities on average by 370 million tons annually with a simultaneous reduction of neigbouring countries shares in the Russian cargo volume handling from 26% in 2001 to 10% in 2010. This could be achieved by construction and reconstruction of terminals specializing in liquid and breakbulk handling (in Murmansk, Ust-Luga, Vysotsk, Novorossiysk, Vostochny), as well as of capacities for container handling (Saint-Petersburg, Ust-Luga, Novorossiysk, Vladivostok) and ro-ro capacities (Ust-Luga, Kaliningrad, Saint-Petersburg).

- What is the investment volume in the development of ports and rail approaches? Are private companies interested in financing such objects?

- In 2005, the total investment volume into ports exceeded RUR 12.8 billion, whereof the budget allocated RUR 2.8 billion and private companies invested RUR 10 billion. The Ministry of Transport of the Russian Federation forecasts investment volume into sea port infrastructure in 2006 at RUR 20.7 billion, whereof non-budget funds are to amount to RUR 19 billion. I should notice that the port sector has been working on the basis of public-private partnership for a long time and we consider it efficient to implement investment programmes and balancу the interests of private companies and the state. Favourable market conditions and the state policy were the factors that allowed to put into operation port capacities for over 130 million tons handling, attract private investment and increase turnover by 2.5 times during the period of 2001-2005. Producers of oil, coal and chemicals have been developing the port sector. There were constructed and reconstructed terminals in the ports of Ust-Luga, Saint-Petersburg, Vysotsk, Murmansk, Novorossiysk, Vostochny, Vanino and Posjet.

- What do Russian stevedoring companies do in order to improve competitiveness of the country's ports?

- The share of Russian ports in the handling of the country's foreign trade cargoes increases annually and in 2005 it reached 80%. This proves that Russian stevedoring companies provide services meeting today's requirements. Since 2001 almost all big ports have increased handling capacities, acquired new equipment, reconstructed berths and fulfilled dredging. Stevedoring companies improve their services and contribute a lot to the interaction between the participants of the transport process at transport junctions, as well as to the improvement of relationships with shippers. The development of technological schemes improves the competitiveness of the handling services. Taking into consideration international transport corridors West-East and North-South, there are several groups of competitors: the Russian North-Western basin ports and the Baltic ones, the Southern ports and Ukrainian ones, and the Far-Eastern facilities and Chinese ports.



Foreign trade cargo handling at sea ports in 2005 (million tons)





However, there are still problems unsolved. The legislation of port activities does not meet modern requirements, which negatively affects the ports' competitiveness. Russia still lacks a Decree on sea ports, rules for export and import transportation, as well as rules for planning foreign trade cargoes transportation via sea ports.

The solution of problems with state property rent, port dues reduction, and creation of free economic zones is vital. In order to smooth the interaction within freight transportation, terminal operators should have the status of a transport organization. So, there is still much to be done.

- How could you evaluate the level of interaction between ports and railways?

- Russian stevedoring companies increase rail car handling substantially every year and pay much attention to services and time, as further throughput development and profit growth are tightly connected with these factors.

However, ports and railways used to suffer difficulties during their interaction, as too heavy traffic in the period of December-January led to rail car congestions at the port rail stations. But in 2005 the situation changed. Traffic management, efficient logistic solutions and coordination of ports and railway operations within freight transportation process helped us all to cope with the situation. We successfully cooperated with the Center of Transport Services of OAO RZD and now stevedoring companies and railways exchange information on volumes to be transported via sea ports, in order to prevent rail car congestions. Thus, in the period of December, 2005 - January, 2006 there were no congestions. The only problem we met during the first two months of 2006 is unfavourable weather conditions, which caused congestions as equipment did not work and vessels could not call at some ports.

I can evaluate today's interaction between ports and railways as efficient and both parties are able to solve problems due to co-operation.

- Could you comment on the prospects of Russian rail tariff policy in terms of improving the ports' competitivness?

- In 2005 rail tariffs on transportation to ports were indexed twice: by 12.5% since January and by 5.4% since August, whereas those on transportation to border crossings remained. This had impact only on ferrous cargo flows, which used to be handled by Far-Eastern ports, but are now rerouted to the Southern ports of Russia and Ukrainian ports. In 2006 rail tariffs on transportation to ports were indexed by 12.8% and those on carriage to border crossings again remained stable. 

After that tariffs on coal transportation via Russian sea ports increased on average by 7-11%. However, decreasing indexes for the ports of Arkhangelsk (0.8), Kandalaksha (0.75), Murmansk, Nakhodka, Posjet and Vanino (0.922) were implemented.Tariff indexes on ferrous metals transportation varied. For the Far-Eastern ports tariffs rose by less than 1%, whereas for others the indexation reached 12.8%. We hope this measure will help to get ferrous metals flows back to the region. However, the Association is worried about the situation where rail tariffs on transportation to the Southern ports of Russia as compared to the Ukrainian ones, are now unfavourable (for instance, the tariff on transportation from Cherepovetsky plant to the port of Novorossiysk amounts to USD 38.67, whereas transportation tariff to the Urkaine reaches only USD 37.3).

Tariffs on the rail transportation to ports of chemical fertilizers and timber and logs increased by 12.8%, and those on transportation to border crossings, in fact to the ports of neighbouring countries, remained the same. Despite this, transportation to the Russian ports of these cargo flows is still more attractive.

Tariffs is the most flexible and fast regulator of export, import and transit freight flows, especially in Russia, taking into consideration its big territory and the role of railway in the transportation. Tariff policy contributes to the solution of such problems as producers located too far from their clients, loading the idling facilities and Russian exporters entering new markets. Evidently, joining the World Trade Organization will limit tariff protectionism. However, the policy which has been implemented strengthened the Russian ports positions in long-term perspective. Thus, I suppose that joining the WTO will not affect the throughput growth rate. The key targets of the protection policy were reached, as ports increased their capacity, as well as their throughput, and private investment into port infrastructure exceeds the state's one.



Foreign trade cargo handling at Russian sea ports in 2005 (million tons)





- What should be done in order to improve the legislative base for ports operation?

- As I have already mentioned, one of the crucial factors preventing ports from further development is the imperfection of our legislation, first of all, the absence of a law on sea ports. The law should regulate operation in sea ports, particularly the processes of launch, liquidation, opening, closing, functioning, construction and reconstruction of sea ports, economic activities in them, and establish rules for state regulation. Today we are close to the development and adoption of such a law.

Speaking of the port sector operation, the most important for investors and stevedoring companies obstacle is the unclear rent conditions: long-term rent of state property, unpredictable changes of tariffs and investment payback in this respect. The Association offers to set the maximum rent term at 49 years and the minimum one at 15 years. Such period, to my mind, enables the implementation of long-term investment programmes for terminals construction and operation. There have been no rules for rent contracts concerning real estate owned by the state or for tariffs schemes development. Ports wish to work in compliance with contracts where parties' liabilities for main issues should be described and tariffs are predictable and just.

Ports also suffer from underdeveloped land laws, the absence of set rules of land reserving and exempting, unsolved problems of land tenure for transport and ports. These issues should be set in the law on ports. Moreover, laws and amendments should be made in order to create attractive conditions for private investors and efficient transport infrastructure management.

A port is not an ordinary consignee, thus, the relationship between ports and railways can not be regulated by Railway Code only: it has always been set by additional rules.

Experts of the Association of commercial sea port of the Russian Federation developed draft laws, which will enable to regulate the interaction between ports and railways at the transport junctions (I mean Rules of export and import freight transportation, Rules of freight transportation planning and the List of sea ports performing freight handling). These draft laws are being considered by the Ministry of Transport of the RF and need agreement and passing.



Interviewed by  OLESYA  ANGELOVA
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    [DETAIL_TEXT] => "The Ministry of Transport forecasts that in 2006 investment into infrastructure of sea ports will increase to RUR 20.7 billion, whereof RUR 19 billion will come from the private sector", reported Moscow office of the Association of commercial sea port of the RF CEO Alexander Shimansky, who told The RZD-Partner International about the results of the sector operation in 2005 and prospects for 2006.



- Mr. Shimansky, could you, please, evaluate the operation of the Russian sea ports in 2005?

- In 2005, the handling volume of the RF commercial sea ports grew by 11.8% (or by 43 million tons) to about 407 million tones. Russian ports handled over 173 million tons of dry bulk, which is 10% up year-on-year, and 223.7 million tons of liquid bulk (+13% in comparison with the results of 2004). Export cargo flow amounted to 83.9%; import share was 6.2%; transit took 3.6% and coastal trade constituted 6.3%. As usual, the main cargoes handled are oil bulk, coal, metals, containers, timber and logs and mineral fertilizers.






The highest growth rate was registered in the North-Western region. The cargo turnover of the North-Western ports exceeded 178 million tons, which is 18% up year-on-year. The region's ports took 44% of the aggregate throughput of the Russian ports. A recent trend of the North-Western share growth is explained by the increase of oil bulk handling, first of all, due to putting into operation of an oil terminal in the port of Primorsk in 2003. Another cargo flows, which contributed most in the turnover increase, are containers, timber and logs, coal and mineral fertilizers.

An aggregate throughput of the Southern basin ports amounted to over 159 million tons, which is 11.7% up year-on-year. The region took 39% of Russian ports' aggregate turnover. The throughput growth of the Southern ports was explained by the dry bulk handling increase: grain flow went up by 2.5 times, volumes of containers, timber and logs, mineral fertilizers and ferrous metals also rose.

A slight downturn (by 1%) was registered in the Far-Eastern ports, which handled about 70 million tons in 2005, wherein dry bulk amounted to 55 million tons and oil bulk - to 15 million tons. The basin's share in the aggregate turnover amounted to 17%. The growth of container, ore and mineral fertilizer handling was marked in the region.

- Which companies performed best and which cargo flows increased most in 2005?

- In the North-Western basin only OOO Spetsmornefteport (the port of Primorsk) handled over 57 million tons of liquid bulk, which is 28.7% up year-on-year. Stevedoring companies of the port of Saint-Petersburg handled over 57.7 million tons; in Murmansk the throughput amounted to over 30 million tons. In Saint-Petersburg and Murmansk the volumes of containers (in Saint-Petersburg over 1 million containers was handled), coal, metals, timber and logs and mineral fertilizers increased.

The leader of the Southern region was still the port of Novorossiysk, which handled 113.3 million tons (+15.7% year-on-year), wherein dry bulk amounted to 26.6 million tons (+30.9%) and liquid bulk constituted 86.7 million tons (+11.7%). The port of Novorossiysk took over 70% of the aggregate throughput of the Southern ports. Handling of ferrous and non-ferrous metals, timber and logs, mineral fertilizers and containers grew best in the port.

The port of Novorossiysk was followed by the Tuapse port, which handled over 21.3 million tons (+5.7%), wherein dry bulk amounted to 6.6 million tons, which is 21% up year-on-year.

As our research shows, handling in the biggest ports of the North-Western and Southern regions tends to go upwards in 2006. In the Russian Far-East, against the background of turnover decrease (mostly due to ferrous metals volume reduction), stevedoring companies of the Vanino port increased throughput by 22% to 11.6 million tons. The turnover of the port of Posyet grew by 34% to 1.7 million tons. In 2005, handling of the Far-Eastern ports was seriously affected by the situation in the world metal market, particularly by the metal produce growth in China. The ports of Vladivostok and Nakhodka decreased their metal turnover by 21.6%. Chinese metal is cheaper due to lower prime cost, and, on the whole, metal prices reduced by some 30%. The situation is likely to remain the same in 2006. Thus, ports have to focus on other cargo flows.

- Which projects aimed at handling capacities increase are given top priority?

- The Ministry of Transport of the RF developed a sub-programme "Sea transport" aimed at turning the Russian marine sector into an efficient and profitable industry meeting international requirements, supplying the country's economy and capable of transport services export. In 2005 the total capacity of new terminals put into operation amounted to 31.42 million tons, particularly in the ports of Saint-Petersburg for container handling, in Kaliningrad for oil bulk handling, in Makhachkala for grain handling, in Ust-Luga for coal handling, in Vysotsk for oil bulk handling, in Murmansk for mazut handling and in Primorsk and Novorossiysk for oil products handling.

The state sub-programme envisages increasing of port handling capacities on average by 370 million tons annually with a simultaneous reduction of neigbouring countries shares in the Russian cargo volume handling from 26% in 2001 to 10% in 2010. This could be achieved by construction and reconstruction of terminals specializing in liquid and breakbulk handling (in Murmansk, Ust-Luga, Vysotsk, Novorossiysk, Vostochny), as well as of capacities for container handling (Saint-Petersburg, Ust-Luga, Novorossiysk, Vladivostok) and ro-ro capacities (Ust-Luga, Kaliningrad, Saint-Petersburg).

- What is the investment volume in the development of ports and rail approaches? Are private companies interested in financing such objects?

- In 2005, the total investment volume into ports exceeded RUR 12.8 billion, whereof the budget allocated RUR 2.8 billion and private companies invested RUR 10 billion. The Ministry of Transport of the Russian Federation forecasts investment volume into sea port infrastructure in 2006 at RUR 20.7 billion, whereof non-budget funds are to amount to RUR 19 billion. I should notice that the port sector has been working on the basis of public-private partnership for a long time and we consider it efficient to implement investment programmes and balancу the interests of private companies and the state. Favourable market conditions and the state policy were the factors that allowed to put into operation port capacities for over 130 million tons handling, attract private investment and increase turnover by 2.5 times during the period of 2001-2005. Producers of oil, coal and chemicals have been developing the port sector. There were constructed and reconstructed terminals in the ports of Ust-Luga, Saint-Petersburg, Vysotsk, Murmansk, Novorossiysk, Vostochny, Vanino and Posjet.

- What do Russian stevedoring companies do in order to improve competitiveness of the country's ports?

- The share of Russian ports in the handling of the country's foreign trade cargoes increases annually and in 2005 it reached 80%. This proves that Russian stevedoring companies provide services meeting today's requirements. Since 2001 almost all big ports have increased handling capacities, acquired new equipment, reconstructed berths and fulfilled dredging. Stevedoring companies improve their services and contribute a lot to the interaction between the participants of the transport process at transport junctions, as well as to the improvement of relationships with shippers. The development of technological schemes improves the competitiveness of the handling services. Taking into consideration international transport corridors West-East and North-South, there are several groups of competitors: the Russian North-Western basin ports and the Baltic ones, the Southern ports and Ukrainian ones, and the Far-Eastern facilities and Chinese ports.



Foreign trade cargo handling at sea ports in 2005 (million tons)





However, there are still problems unsolved. The legislation of port activities does not meet modern requirements, which negatively affects the ports' competitiveness. Russia still lacks a Decree on sea ports, rules for export and import transportation, as well as rules for planning foreign trade cargoes transportation via sea ports.

The solution of problems with state property rent, port dues reduction, and creation of free economic zones is vital. In order to smooth the interaction within freight transportation, terminal operators should have the status of a transport organization. So, there is still much to be done.

- How could you evaluate the level of interaction between ports and railways?

- Russian stevedoring companies increase rail car handling substantially every year and pay much attention to services and time, as further throughput development and profit growth are tightly connected with these factors.

However, ports and railways used to suffer difficulties during their interaction, as too heavy traffic in the period of December-January led to rail car congestions at the port rail stations. But in 2005 the situation changed. Traffic management, efficient logistic solutions and coordination of ports and railway operations within freight transportation process helped us all to cope with the situation. We successfully cooperated with the Center of Transport Services of OAO RZD and now stevedoring companies and railways exchange information on volumes to be transported via sea ports, in order to prevent rail car congestions. Thus, in the period of December, 2005 - January, 2006 there were no congestions. The only problem we met during the first two months of 2006 is unfavourable weather conditions, which caused congestions as equipment did not work and vessels could not call at some ports.

I can evaluate today's interaction between ports and railways as efficient and both parties are able to solve problems due to co-operation.

- Could you comment on the prospects of Russian rail tariff policy in terms of improving the ports' competitivness?

- In 2005 rail tariffs on transportation to ports were indexed twice: by 12.5% since January and by 5.4% since August, whereas those on transportation to border crossings remained. This had impact only on ferrous cargo flows, which used to be handled by Far-Eastern ports, but are now rerouted to the Southern ports of Russia and Ukrainian ports. In 2006 rail tariffs on transportation to ports were indexed by 12.8% and those on carriage to border crossings again remained stable. 

After that tariffs on coal transportation via Russian sea ports increased on average by 7-11%. However, decreasing indexes for the ports of Arkhangelsk (0.8), Kandalaksha (0.75), Murmansk, Nakhodka, Posjet and Vanino (0.922) were implemented.Tariff indexes on ferrous metals transportation varied. For the Far-Eastern ports tariffs rose by less than 1%, whereas for others the indexation reached 12.8%. We hope this measure will help to get ferrous metals flows back to the region. However, the Association is worried about the situation where rail tariffs on transportation to the Southern ports of Russia as compared to the Ukrainian ones, are now unfavourable (for instance, the tariff on transportation from Cherepovetsky plant to the port of Novorossiysk amounts to USD 38.67, whereas transportation tariff to the Urkaine reaches only USD 37.3).

Tariffs on the rail transportation to ports of chemical fertilizers and timber and logs increased by 12.8%, and those on transportation to border crossings, in fact to the ports of neighbouring countries, remained the same. Despite this, transportation to the Russian ports of these cargo flows is still more attractive.

Tariffs is the most flexible and fast regulator of export, import and transit freight flows, especially in Russia, taking into consideration its big territory and the role of railway in the transportation. Tariff policy contributes to the solution of such problems as producers located too far from their clients, loading the idling facilities and Russian exporters entering new markets. Evidently, joining the World Trade Organization will limit tariff protectionism. However, the policy which has been implemented strengthened the Russian ports positions in long-term perspective. Thus, I suppose that joining the WTO will not affect the throughput growth rate. The key targets of the protection policy were reached, as ports increased their capacity, as well as their throughput, and private investment into port infrastructure exceeds the state's one.



Foreign trade cargo handling at Russian sea ports in 2005 (million tons)





- What should be done in order to improve the legislative base for ports operation?

- As I have already mentioned, one of the crucial factors preventing ports from further development is the imperfection of our legislation, first of all, the absence of a law on sea ports. The law should regulate operation in sea ports, particularly the processes of launch, liquidation, opening, closing, functioning, construction and reconstruction of sea ports, economic activities in them, and establish rules for state regulation. Today we are close to the development and adoption of such a law.

Speaking of the port sector operation, the most important for investors and stevedoring companies obstacle is the unclear rent conditions: long-term rent of state property, unpredictable changes of tariffs and investment payback in this respect. The Association offers to set the maximum rent term at 49 years and the minimum one at 15 years. Such period, to my mind, enables the implementation of long-term investment programmes for terminals construction and operation. There have been no rules for rent contracts concerning real estate owned by the state or for tariffs schemes development. Ports wish to work in compliance with contracts where parties' liabilities for main issues should be described and tariffs are predictable and just.

Ports also suffer from underdeveloped land laws, the absence of set rules of land reserving and exempting, unsolved problems of land tenure for transport and ports. These issues should be set in the law on ports. Moreover, laws and amendments should be made in order to create attractive conditions for private investors and efficient transport infrastructure management.

A port is not an ordinary consignee, thus, the relationship between ports and railways can not be regulated by Railway Code only: it has always been set by additional rules.

Experts of the Association of commercial sea port of the Russian Federation developed draft laws, which will enable to regulate the interaction between ports and railways at the transport junctions (I mean Rules of export and import freight transportation, Rules of freight transportation planning and the List of sea ports performing freight handling). These draft laws are being considered by the Ministry of Transport of the RF and need agreement and passing.



Interviewed by  OLESYA  ANGELOVA
    [~DETAIL_TEXT] => "The Ministry of Transport forecasts that in 2006 investment into infrastructure of sea ports will increase to RUR 20.7 billion, whereof RUR 19 billion will come from the private sector", reported Moscow office of the Association of commercial sea port of the RF CEO Alexander Shimansky, who told The RZD-Partner International about the results of the sector operation in 2005 and prospects for 2006.



- Mr. Shimansky, could you, please, evaluate the operation of the Russian sea ports in 2005?

- In 2005, the handling volume of the RF commercial sea ports grew by 11.8% (or by 43 million tons) to about 407 million tones. Russian ports handled over 173 million tons of dry bulk, which is 10% up year-on-year, and 223.7 million tons of liquid bulk (+13% in comparison with the results of 2004). Export cargo flow amounted to 83.9%; import share was 6.2%; transit took 3.6% and coastal trade constituted 6.3%. As usual, the main cargoes handled are oil bulk, coal, metals, containers, timber and logs and mineral fertilizers.






The highest growth rate was registered in the North-Western region. The cargo turnover of the North-Western ports exceeded 178 million tons, which is 18% up year-on-year. The region's ports took 44% of the aggregate throughput of the Russian ports. A recent trend of the North-Western share growth is explained by the increase of oil bulk handling, first of all, due to putting into operation of an oil terminal in the port of Primorsk in 2003. Another cargo flows, which contributed most in the turnover increase, are containers, timber and logs, coal and mineral fertilizers.

An aggregate throughput of the Southern basin ports amounted to over 159 million tons, which is 11.7% up year-on-year. The region took 39% of Russian ports' aggregate turnover. The throughput growth of the Southern ports was explained by the dry bulk handling increase: grain flow went up by 2.5 times, volumes of containers, timber and logs, mineral fertilizers and ferrous metals also rose.

A slight downturn (by 1%) was registered in the Far-Eastern ports, which handled about 70 million tons in 2005, wherein dry bulk amounted to 55 million tons and oil bulk - to 15 million tons. The basin's share in the aggregate turnover amounted to 17%. The growth of container, ore and mineral fertilizer handling was marked in the region.

- Which companies performed best and which cargo flows increased most in 2005?

- In the North-Western basin only OOO Spetsmornefteport (the port of Primorsk) handled over 57 million tons of liquid bulk, which is 28.7% up year-on-year. Stevedoring companies of the port of Saint-Petersburg handled over 57.7 million tons; in Murmansk the throughput amounted to over 30 million tons. In Saint-Petersburg and Murmansk the volumes of containers (in Saint-Petersburg over 1 million containers was handled), coal, metals, timber and logs and mineral fertilizers increased.

The leader of the Southern region was still the port of Novorossiysk, which handled 113.3 million tons (+15.7% year-on-year), wherein dry bulk amounted to 26.6 million tons (+30.9%) and liquid bulk constituted 86.7 million tons (+11.7%). The port of Novorossiysk took over 70% of the aggregate throughput of the Southern ports. Handling of ferrous and non-ferrous metals, timber and logs, mineral fertilizers and containers grew best in the port.

The port of Novorossiysk was followed by the Tuapse port, which handled over 21.3 million tons (+5.7%), wherein dry bulk amounted to 6.6 million tons, which is 21% up year-on-year.

As our research shows, handling in the biggest ports of the North-Western and Southern regions tends to go upwards in 2006. In the Russian Far-East, against the background of turnover decrease (mostly due to ferrous metals volume reduction), stevedoring companies of the Vanino port increased throughput by 22% to 11.6 million tons. The turnover of the port of Posyet grew by 34% to 1.7 million tons. In 2005, handling of the Far-Eastern ports was seriously affected by the situation in the world metal market, particularly by the metal produce growth in China. The ports of Vladivostok and Nakhodka decreased their metal turnover by 21.6%. Chinese metal is cheaper due to lower prime cost, and, on the whole, metal prices reduced by some 30%. The situation is likely to remain the same in 2006. Thus, ports have to focus on other cargo flows.

- Which projects aimed at handling capacities increase are given top priority?

- The Ministry of Transport of the RF developed a sub-programme "Sea transport" aimed at turning the Russian marine sector into an efficient and profitable industry meeting international requirements, supplying the country's economy and capable of transport services export. In 2005 the total capacity of new terminals put into operation amounted to 31.42 million tons, particularly in the ports of Saint-Petersburg for container handling, in Kaliningrad for oil bulk handling, in Makhachkala for grain handling, in Ust-Luga for coal handling, in Vysotsk for oil bulk handling, in Murmansk for mazut handling and in Primorsk and Novorossiysk for oil products handling.

The state sub-programme envisages increasing of port handling capacities on average by 370 million tons annually with a simultaneous reduction of neigbouring countries shares in the Russian cargo volume handling from 26% in 2001 to 10% in 2010. This could be achieved by construction and reconstruction of terminals specializing in liquid and breakbulk handling (in Murmansk, Ust-Luga, Vysotsk, Novorossiysk, Vostochny), as well as of capacities for container handling (Saint-Petersburg, Ust-Luga, Novorossiysk, Vladivostok) and ro-ro capacities (Ust-Luga, Kaliningrad, Saint-Petersburg).

- What is the investment volume in the development of ports and rail approaches? Are private companies interested in financing such objects?

- In 2005, the total investment volume into ports exceeded RUR 12.8 billion, whereof the budget allocated RUR 2.8 billion and private companies invested RUR 10 billion. The Ministry of Transport of the Russian Federation forecasts investment volume into sea port infrastructure in 2006 at RUR 20.7 billion, whereof non-budget funds are to amount to RUR 19 billion. I should notice that the port sector has been working on the basis of public-private partnership for a long time and we consider it efficient to implement investment programmes and balancу the interests of private companies and the state. Favourable market conditions and the state policy were the factors that allowed to put into operation port capacities for over 130 million tons handling, attract private investment and increase turnover by 2.5 times during the period of 2001-2005. Producers of oil, coal and chemicals have been developing the port sector. There were constructed and reconstructed terminals in the ports of Ust-Luga, Saint-Petersburg, Vysotsk, Murmansk, Novorossiysk, Vostochny, Vanino and Posjet.

- What do Russian stevedoring companies do in order to improve competitiveness of the country's ports?

- The share of Russian ports in the handling of the country's foreign trade cargoes increases annually and in 2005 it reached 80%. This proves that Russian stevedoring companies provide services meeting today's requirements. Since 2001 almost all big ports have increased handling capacities, acquired new equipment, reconstructed berths and fulfilled dredging. Stevedoring companies improve their services and contribute a lot to the interaction between the participants of the transport process at transport junctions, as well as to the improvement of relationships with shippers. The development of technological schemes improves the competitiveness of the handling services. Taking into consideration international transport corridors West-East and North-South, there are several groups of competitors: the Russian North-Western basin ports and the Baltic ones, the Southern ports and Ukrainian ones, and the Far-Eastern facilities and Chinese ports.



Foreign trade cargo handling at sea ports in 2005 (million tons)





However, there are still problems unsolved. The legislation of port activities does not meet modern requirements, which negatively affects the ports' competitiveness. Russia still lacks a Decree on sea ports, rules for export and import transportation, as well as rules for planning foreign trade cargoes transportation via sea ports.

The solution of problems with state property rent, port dues reduction, and creation of free economic zones is vital. In order to smooth the interaction within freight transportation, terminal operators should have the status of a transport organization. So, there is still much to be done.

- How could you evaluate the level of interaction between ports and railways?

- Russian stevedoring companies increase rail car handling substantially every year and pay much attention to services and time, as further throughput development and profit growth are tightly connected with these factors.

However, ports and railways used to suffer difficulties during their interaction, as too heavy traffic in the period of December-January led to rail car congestions at the port rail stations. But in 2005 the situation changed. Traffic management, efficient logistic solutions and coordination of ports and railway operations within freight transportation process helped us all to cope with the situation. We successfully cooperated with the Center of Transport Services of OAO RZD and now stevedoring companies and railways exchange information on volumes to be transported via sea ports, in order to prevent rail car congestions. Thus, in the period of December, 2005 - January, 2006 there were no congestions. The only problem we met during the first two months of 2006 is unfavourable weather conditions, which caused congestions as equipment did not work and vessels could not call at some ports.

I can evaluate today's interaction between ports and railways as efficient and both parties are able to solve problems due to co-operation.

- Could you comment on the prospects of Russian rail tariff policy in terms of improving the ports' competitivness?

- In 2005 rail tariffs on transportation to ports were indexed twice: by 12.5% since January and by 5.4% since August, whereas those on transportation to border crossings remained. This had impact only on ferrous cargo flows, which used to be handled by Far-Eastern ports, but are now rerouted to the Southern ports of Russia and Ukrainian ports. In 2006 rail tariffs on transportation to ports were indexed by 12.8% and those on carriage to border crossings again remained stable. 

After that tariffs on coal transportation via Russian sea ports increased on average by 7-11%. However, decreasing indexes for the ports of Arkhangelsk (0.8), Kandalaksha (0.75), Murmansk, Nakhodka, Posjet and Vanino (0.922) were implemented.Tariff indexes on ferrous metals transportation varied. For the Far-Eastern ports tariffs rose by less than 1%, whereas for others the indexation reached 12.8%. We hope this measure will help to get ferrous metals flows back to the region. However, the Association is worried about the situation where rail tariffs on transportation to the Southern ports of Russia as compared to the Ukrainian ones, are now unfavourable (for instance, the tariff on transportation from Cherepovetsky plant to the port of Novorossiysk amounts to USD 38.67, whereas transportation tariff to the Urkaine reaches only USD 37.3).

Tariffs on the rail transportation to ports of chemical fertilizers and timber and logs increased by 12.8%, and those on transportation to border crossings, in fact to the ports of neighbouring countries, remained the same. Despite this, transportation to the Russian ports of these cargo flows is still more attractive.

Tariffs is the most flexible and fast regulator of export, import and transit freight flows, especially in Russia, taking into consideration its big territory and the role of railway in the transportation. Tariff policy contributes to the solution of such problems as producers located too far from their clients, loading the idling facilities and Russian exporters entering new markets. Evidently, joining the World Trade Organization will limit tariff protectionism. However, the policy which has been implemented strengthened the Russian ports positions in long-term perspective. Thus, I suppose that joining the WTO will not affect the throughput growth rate. The key targets of the protection policy were reached, as ports increased their capacity, as well as their throughput, and private investment into port infrastructure exceeds the state's one.



Foreign trade cargo handling at Russian sea ports in 2005 (million tons)





- What should be done in order to improve the legislative base for ports operation?

- As I have already mentioned, one of the crucial factors preventing ports from further development is the imperfection of our legislation, first of all, the absence of a law on sea ports. The law should regulate operation in sea ports, particularly the processes of launch, liquidation, opening, closing, functioning, construction and reconstruction of sea ports, economic activities in them, and establish rules for state regulation. Today we are close to the development and adoption of such a law.

Speaking of the port sector operation, the most important for investors and stevedoring companies obstacle is the unclear rent conditions: long-term rent of state property, unpredictable changes of tariffs and investment payback in this respect. The Association offers to set the maximum rent term at 49 years and the minimum one at 15 years. Such period, to my mind, enables the implementation of long-term investment programmes for terminals construction and operation. There have been no rules for rent contracts concerning real estate owned by the state or for tariffs schemes development. Ports wish to work in compliance with contracts where parties' liabilities for main issues should be described and tariffs are predictable and just.

Ports also suffer from underdeveloped land laws, the absence of set rules of land reserving and exempting, unsolved problems of land tenure for transport and ports. These issues should be set in the law on ports. Moreover, laws and amendments should be made in order to create attractive conditions for private investors and efficient transport infrastructure management.

A port is not an ordinary consignee, thus, the relationship between ports and railways can not be regulated by Railway Code only: it has always been set by additional rules.

Experts of the Association of commercial sea port of the Russian Federation developed draft laws, which will enable to regulate the interaction between ports and railways at the transport junctions (I mean Rules of export and import freight transportation, Rules of freight transportation planning and the List of sea ports performing freight handling). These draft laws are being considered by the Ministry of Transport of the RF and need agreement and passing.



Interviewed by  OLESYA  ANGELOVA
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Billion for Fleet Development

The largest Russian shipping company, which owns a fleet of 50 vessels with the total dead weight of 3.95 million tons, OAO Sovcomflot currently specializes in energy carriers transportation by sea and participates in the largest and most important Russian industrial projects, such as "Sakhalin-2", Varandey and Prirazlomnoye. Sales volume exceeded that of 2004, in spite of a worse market situation; the efficiency of fleet exploitation grew by 10% year-on-year. The company's own capital increased by 10% and exceeded USD 1 billion. In the words of the company's Director General Sergey Frank, according to the results of 2005, the profit from operations will amount to USD 260 million and operating revenues will come to a little more than USD 400 million.

The company's specialists believe that, in spite of the forecasted downturn in the charter market in 2006-2008, the financial position of OAO Sovcomflot will continue to be stable, since the company has all the necessary financial resources to fulfill its obligations and develop further, first of all, in such important sectors as ice navigation in the Arctic and liquefied natural gas (LNG) transportation.

Nowadays OAO Sovcomflot increases the orderbook of large industrial projects, such as Varandey, Prirazlomnoye, Sakhalin-1 and Sakhalin-2, the share of which will exceed 30% of the company's total revenue in 2008. In 2005 the company concluded a contract for LNG transportation from the Tangu terminal (Indonesia): the realization of the project will start in 2008. Other large projects to be carried out in 2007-2008 are cooperation with OAO Gazprom and OAO Sevmorneftegaz in the sphere of oil transportation from the Prirazlomnoye oil field, as well as the contract with Naryanmarneftegaz for oil transportation from the terminal of Varndey. The forecasted annual revenue from the three projects mentioned above exceeds USD 170 million, or 45% of the sales volume of 2004.

In 2005 the company finished re-financing the earlier attracted bank credits on more favourable for the borrower terms for the total sum of USD 669.5 million. The company and Mizuho Bank concluded a credit contract for financing the purchase of two vessels for LNG transportation to work in the framework of Sakhalin-2 project (the sum of the credit is USD 320 million, the term is 12 years).

In 2006 the company's fleet is to be enlarged with new specialized tankers of ice class and vessels for LNG transportation. Thus, the total dead weight of the fleet will increase by 10%. USD 920 million is to be invested into the fleet development in the next three years. OAO Sovcomflot and Admiralty Shipyards agreed to continue construction of a series of tankers for oil products transportation with the dead weight of 47.4 thousand tons each. The series of the vessels will be increased to 9 units. The seventh and the eighth tankers are to be delivered in 2007, the ninth is to be delivered in 2008. Besides, OAO Sovcomflot group of companies concluded contracts for the construction of six tankers, four of which already work in the fleet of OAO Sovcomflot. The fifth and the sixth vessels are to be delivered this year. 

Maintaining high ecological standards, OAO Sovcomflot agreed with the International risk management organization Lloyd's Register and the Russian ship-building yard the implementation of modifications on all the tankers for oil products transportation starting from "Torgovy Bridge" (the fourth vessel), which will provide the vessels with an additional symbol of "EP" class (Environmental Protection) or "meeting high ecological requirements".

Nowadays only Russian crews work for the company. According to the results of 2005, the sector's trade union named the company's social standards of sailors employment the best in the sector. In 2005 the amount of jobs on board increased by more than 10% to 2,638 people. By 2009, it will grow by 1,000 people more.

 The Novorossiysk Shipping Company (Novoship) is another leader of Russian shipping business. The company is at the top of the list of Russian vessel owners according to the amount of private shareholders, and second largest after OAO Sovcomflot. Last year there were a lot of rumors about the company, including its privatization and its relative or full merger with OAO Sovcomflot. So far, changes have only been made in the company's Board. The new Board was approved by the Board of Directors of OAO Novorossiysk Shipping Company. In particular, ex-president of Novoship Tagir Izmaylov was discharged, and Sergey Terekhin, a former vice-president of Sovcomflot, was appointed the company's president. 

On the whole, according to MSFO, the company's profit from operating activities in 2005 is forecasted to amount USD 250 million. In 2006, Novoship plans to increase it to USD 260 million. (For reference: in H1 of 2005 the company doubled its net profit, according to MSFO, to USD 176 million).

The total dead weight of the group's fleet is 3.3 million tons. In 2006 it is to amount to 3.8 million tons. In 2005 the average age of vessels was 11 years, in 2006 it will not exceed 10 years. According to the results of 2005, the group of companies had 51 vessels, and in 2006 it is to have 61 vessels. 



"Russia"to Be Launched in 2007

In 2005 the throughput of OAO Murmansk Shipping Company, the only Russian shipping company able to work actively in the Arctic all year round, increased by 12% year-on-year to 14.3 million tons. Export cargoes made over 97% of the company's throughput, and the share of export steam coal was 77%. According to forecasts, in 2005 coal handling amounted to 10.8 million tons.

According to the results of 2005, the volume of capital investments of OAO Murmansk Shipping Company increased by 33% year-on-year to RUR 300 million. In accordance with the financial results of the state-owned ice-breaking fleet asset management, in 2005 the sum of the surplus of the net profit from asset management of the ice fleet will be the same as in 2004.

All the vessels ice piloting along the waterway tracks of the North sea route and in the White Sea was completed to the full. In 2005, in difficult ice conditions, the company's ice-breakers provided transportation of 1.8 million tons of freight, 18% up year-on-year. 100% of the state order of the North delivery programme was completed: over 100,000 tons of coal, oil products and other important for the people of the region cargoes was delivered to the ports of Yakutia, Taimyr Autonomous Area and Chukot Autonomous Area.

In 2005 all the ice-breakers, managed by OAO Murmansk Shipping Company, were in use, in accordance with the repair schedule and the necessity to prolong the resource of atomic steam producing plants (ASPP). Besides, in accordance with the Decree of the RF Government, the atomic ice-breaker "50th Anniversary of Victory", the construction of which is being completed at the OAO Baltiysky Zavod, is to be submittied under the shipping company's asset management in 2006. In 2005 the company regularly carried out the Programme of prolongation of the resource of ASPP and the service life of ice breakers to 30 years. After a successful completing of prolongation of the resource of ASPP and the service life of atomic ice-breaker "Arctic", similar works are being done on board of "Russia", which is to be launched at the beginning of 2007.

Summing up the 2005 results of another large tanker company OAO Primorsk Shipping Corporation (PRISCO), one can say that the company reached the set target, in spite of an unfavourable year. 

In 2005 PRISCO's vessels transported 14.7 million tons of liquid bulk, 7% up year-on-year, when 13.72 million tons of cargo was carried. Thus, a new record was set. The vessels of the company's balance fleet delivered 2.75 million tons to customers, 13% up year-on-year. They continue to deliver oil products to the Russian Far-Eastern region. In 2005, the company transported 518,700 tons of coastal trade freight, including 155,000 tons of oil products delivered to Sakhalin, 40,500 tons delivered to the Magadan region, 217,200 tons delivered to Kamchatka, 84,200 tons delivered to the Chukot Autonomous Area, 18,100 tons to the Vityaz terminal, and 2,610 tons to the Kurils. The company's off-shore tankers transported 11.95 million tons of freight in 2005.

Nowadays PRISCO manages 34 tankers with the total dead weight of 1.95 million tons, wherein 16 vessels with the total dead weight of 151,563 tons are under the Russian flag. In 2005, 3 Aframax tankers were added to the company's fleet; thus, PRISCO's vessels total dead weight increased by 302,805 tons. New vessels for the corporation are being built. It is expected that PRISCO's 2005 revenue will exceed the planned one. 

Among the shipping corporation's priority projects for the next several years one can name the construction of new vessels to service the freight base at the Sakhalin projects, as well as the base formed at the Baltic Sea and the Arctic sea of Russia. These are the tasks financed via the largest investing projects. Among them is the construction of an ice-breaking tow-boat "Polar Pevek" in cooperation with the company's Norwegian partners (the vessel is to be launched in April 2006); putting into operation in 2006-2007 new supplying vessels for servicing oil platforms of the Sakhalin-2 project; renewal of the PRISCO's fleet with tankers with the dead weight of 177,000 tons each, which are to be delivered in 2007. The project of the agreement for the construction of seven more tankers of different dead weight is being developed. 

One of the shipping corporation's strategic targets for 2006 is training the sailors to work on board of the new vessels, meeting the requirements of safe navigation.



Intermodal Companyof National Scale

OAO Far Eastern Shipping Company (FESCO) is the largest shipping company specializing in container transportation in Russia. The company now manages 79 vessels with the total dead weight of 1 million tons. The company's revenue, according to the Russian Accounting Standards (RAS), amounted to USD 250 million, 7.1% year-on-year; FESCO's net profit was USD 22 million. The reduction of the net profit was connected with, first of all, the planned increase of repair volume (about 40 vessels were repaired); besides, the company purchased 10,500 TEU of new containers. In 2005 FESCO's container transportation volume increased by 9% to 399,000 TEU.

In February 2006, the state FESCO's share holding (19.8%) was purchased by ZAO Investment and Development of Fuel and Energy Sector Agency (a subsidiary of Industrial Investors Group): earlier the Group controlled 62% of FESCO's shares. 

According to President of Industrial Investors Group Sergey Generalov, among the most important for FESCO events of 2005 the heroic cruise of the legendary ice-breaker "Krasin" to Antarctica should be named, as it meant the beginning of the company's cooperation with the National Scientific Fund of the USA. Another event worth mentioning was the launch of Russian Troyka Company in cooperation with OAO RZD. He noted that the success of the latter project is of great importance for the state and makes FESCO the largest in Russia Intermodal company of national scale.

Another important for the shipping company event in 2005 was putting into operation of a unique ice-breaker "FESCO Sakhalin" and the beginning of cooperation with Exxon Mobile. A successful start of the cooperation enables FESCO to become the key player on the market of ice-breaking services and oil and gas projects piloting at the Russian shelf.

When the programme of modern container vessels is accomplished, OAO Far Eastern Shipping Company will become the leader among Russian shipping container companies, and it will increase the total dead weight of its transport fleet by 390 thousand tons (or by 40%).

In 2005 the rotation of the direct service between the Chinese ports and the Russian Far East on the FCDL line increased. The line directly connected Shanghai and Vladivostok. The service on the Vladivostok - Petropavlovsk-Kamchatsky line was improved - the third vessel, faster and of a larger capacity, started to service the line. A new container line - FESCO Korea Sakhalin Line (FKSL) - was opened. It connected the port of Pusan (South Korea) and the ports of Kholmsk and Korsakov (Russia, Sakhalin). Containerized cargo and equipment for the Sakhalin oil projects are transported along the route.

The realization of a scaled programme of fleet renewal was continued. Nowadays four container vessels, with the carrying capacity of 1,100 units each, are being constructed in China. The first vessel of the series - "FESCO ASKOLD" - has been launched, and all the four vessels are to be put into operation in 2006. In the framework of new container vessels construction, three more container vessels, with the capacity of 2,741 units each, built in Germany, are to be put into operation this year. They are to join the shipping company's fleet in July-September.

In 2005 the favourable market situation enabled the Russian shipping companies to carry out actively programmes of fleet construction and modernization, increasing dead weight and implementing innovations. According to forecasts, this year the rate of vessel construction will increase, and the Russian tanker fleet will be replenished with vessels of a new type. Besides, the approval of the Law on the Russian International Vessels Registration will enable the companies to register vessels (first of all, those constructed now) under the Russian flag, and Sovcomflot was the first company to announce its intention to do so. Let us hope that all this will provide the increase of the Russian fleet's competitiveness and strengthen the image of the Russian shipping.



NADEZHDA  VTORUSHINA
    [~DETAIL_TEXT] => 

Billion for Fleet Development

The largest Russian shipping company, which owns a fleet of 50 vessels with the total dead weight of 3.95 million tons, OAO Sovcomflot currently specializes in energy carriers transportation by sea and participates in the largest and most important Russian industrial projects, such as "Sakhalin-2", Varandey and Prirazlomnoye. Sales volume exceeded that of 2004, in spite of a worse market situation; the efficiency of fleet exploitation grew by 10% year-on-year. The company's own capital increased by 10% and exceeded USD 1 billion. In the words of the company's Director General Sergey Frank, according to the results of 2005, the profit from operations will amount to USD 260 million and operating revenues will come to a little more than USD 400 million.

The company's specialists believe that, in spite of the forecasted downturn in the charter market in 2006-2008, the financial position of OAO Sovcomflot will continue to be stable, since the company has all the necessary financial resources to fulfill its obligations and develop further, first of all, in such important sectors as ice navigation in the Arctic and liquefied natural gas (LNG) transportation.

Nowadays OAO Sovcomflot increases the orderbook of large industrial projects, such as Varandey, Prirazlomnoye, Sakhalin-1 and Sakhalin-2, the share of which will exceed 30% of the company's total revenue in 2008. In 2005 the company concluded a contract for LNG transportation from the Tangu terminal (Indonesia): the realization of the project will start in 2008. Other large projects to be carried out in 2007-2008 are cooperation with OAO Gazprom and OAO Sevmorneftegaz in the sphere of oil transportation from the Prirazlomnoye oil field, as well as the contract with Naryanmarneftegaz for oil transportation from the terminal of Varndey. The forecasted annual revenue from the three projects mentioned above exceeds USD 170 million, or 45% of the sales volume of 2004.

In 2005 the company finished re-financing the earlier attracted bank credits on more favourable for the borrower terms for the total sum of USD 669.5 million. The company and Mizuho Bank concluded a credit contract for financing the purchase of two vessels for LNG transportation to work in the framework of Sakhalin-2 project (the sum of the credit is USD 320 million, the term is 12 years).

In 2006 the company's fleet is to be enlarged with new specialized tankers of ice class and vessels for LNG transportation. Thus, the total dead weight of the fleet will increase by 10%. USD 920 million is to be invested into the fleet development in the next three years. OAO Sovcomflot and Admiralty Shipyards agreed to continue construction of a series of tankers for oil products transportation with the dead weight of 47.4 thousand tons each. The series of the vessels will be increased to 9 units. The seventh and the eighth tankers are to be delivered in 2007, the ninth is to be delivered in 2008. Besides, OAO Sovcomflot group of companies concluded contracts for the construction of six tankers, four of which already work in the fleet of OAO Sovcomflot. The fifth and the sixth vessels are to be delivered this year. 

Maintaining high ecological standards, OAO Sovcomflot agreed with the International risk management organization Lloyd's Register and the Russian ship-building yard the implementation of modifications on all the tankers for oil products transportation starting from "Torgovy Bridge" (the fourth vessel), which will provide the vessels with an additional symbol of "EP" class (Environmental Protection) or "meeting high ecological requirements".

Nowadays only Russian crews work for the company. According to the results of 2005, the sector's trade union named the company's social standards of sailors employment the best in the sector. In 2005 the amount of jobs on board increased by more than 10% to 2,638 people. By 2009, it will grow by 1,000 people more.

 The Novorossiysk Shipping Company (Novoship) is another leader of Russian shipping business. The company is at the top of the list of Russian vessel owners according to the amount of private shareholders, and second largest after OAO Sovcomflot. Last year there were a lot of rumors about the company, including its privatization and its relative or full merger with OAO Sovcomflot. So far, changes have only been made in the company's Board. The new Board was approved by the Board of Directors of OAO Novorossiysk Shipping Company. In particular, ex-president of Novoship Tagir Izmaylov was discharged, and Sergey Terekhin, a former vice-president of Sovcomflot, was appointed the company's president. 

On the whole, according to MSFO, the company's profit from operating activities in 2005 is forecasted to amount USD 250 million. In 2006, Novoship plans to increase it to USD 260 million. (For reference: in H1 of 2005 the company doubled its net profit, according to MSFO, to USD 176 million).

The total dead weight of the group's fleet is 3.3 million tons. In 2006 it is to amount to 3.8 million tons. In 2005 the average age of vessels was 11 years, in 2006 it will not exceed 10 years. According to the results of 2005, the group of companies had 51 vessels, and in 2006 it is to have 61 vessels. 



"Russia"to Be Launched in 2007

In 2005 the throughput of OAO Murmansk Shipping Company, the only Russian shipping company able to work actively in the Arctic all year round, increased by 12% year-on-year to 14.3 million tons. Export cargoes made over 97% of the company's throughput, and the share of export steam coal was 77%. According to forecasts, in 2005 coal handling amounted to 10.8 million tons.

According to the results of 2005, the volume of capital investments of OAO Murmansk Shipping Company increased by 33% year-on-year to RUR 300 million. In accordance with the financial results of the state-owned ice-breaking fleet asset management, in 2005 the sum of the surplus of the net profit from asset management of the ice fleet will be the same as in 2004.

All the vessels ice piloting along the waterway tracks of the North sea route and in the White Sea was completed to the full. In 2005, in difficult ice conditions, the company's ice-breakers provided transportation of 1.8 million tons of freight, 18% up year-on-year. 100% of the state order of the North delivery programme was completed: over 100,000 tons of coal, oil products and other important for the people of the region cargoes was delivered to the ports of Yakutia, Taimyr Autonomous Area and Chukot Autonomous Area.

In 2005 all the ice-breakers, managed by OAO Murmansk Shipping Company, were in use, in accordance with the repair schedule and the necessity to prolong the resource of atomic steam producing plants (ASPP). Besides, in accordance with the Decree of the RF Government, the atomic ice-breaker "50th Anniversary of Victory", the construction of which is being completed at the OAO Baltiysky Zavod, is to be submittied under the shipping company's asset management in 2006. In 2005 the company regularly carried out the Programme of prolongation of the resource of ASPP and the service life of ice breakers to 30 years. After a successful completing of prolongation of the resource of ASPP and the service life of atomic ice-breaker "Arctic", similar works are being done on board of "Russia", which is to be launched at the beginning of 2007.

Summing up the 2005 results of another large tanker company OAO Primorsk Shipping Corporation (PRISCO), one can say that the company reached the set target, in spite of an unfavourable year. 

In 2005 PRISCO's vessels transported 14.7 million tons of liquid bulk, 7% up year-on-year, when 13.72 million tons of cargo was carried. Thus, a new record was set. The vessels of the company's balance fleet delivered 2.75 million tons to customers, 13% up year-on-year. They continue to deliver oil products to the Russian Far-Eastern region. In 2005, the company transported 518,700 tons of coastal trade freight, including 155,000 tons of oil products delivered to Sakhalin, 40,500 tons delivered to the Magadan region, 217,200 tons delivered to Kamchatka, 84,200 tons delivered to the Chukot Autonomous Area, 18,100 tons to the Vityaz terminal, and 2,610 tons to the Kurils. The company's off-shore tankers transported 11.95 million tons of freight in 2005.

Nowadays PRISCO manages 34 tankers with the total dead weight of 1.95 million tons, wherein 16 vessels with the total dead weight of 151,563 tons are under the Russian flag. In 2005, 3 Aframax tankers were added to the company's fleet; thus, PRISCO's vessels total dead weight increased by 302,805 tons. New vessels for the corporation are being built. It is expected that PRISCO's 2005 revenue will exceed the planned one. 

Among the shipping corporation's priority projects for the next several years one can name the construction of new vessels to service the freight base at the Sakhalin projects, as well as the base formed at the Baltic Sea and the Arctic sea of Russia. These are the tasks financed via the largest investing projects. Among them is the construction of an ice-breaking tow-boat "Polar Pevek" in cooperation with the company's Norwegian partners (the vessel is to be launched in April 2006); putting into operation in 2006-2007 new supplying vessels for servicing oil platforms of the Sakhalin-2 project; renewal of the PRISCO's fleet with tankers with the dead weight of 177,000 tons each, which are to be delivered in 2007. The project of the agreement for the construction of seven more tankers of different dead weight is being developed. 

One of the shipping corporation's strategic targets for 2006 is training the sailors to work on board of the new vessels, meeting the requirements of safe navigation.



Intermodal Companyof National Scale

OAO Far Eastern Shipping Company (FESCO) is the largest shipping company specializing in container transportation in Russia. The company now manages 79 vessels with the total dead weight of 1 million tons. The company's revenue, according to the Russian Accounting Standards (RAS), amounted to USD 250 million, 7.1% year-on-year; FESCO's net profit was USD 22 million. The reduction of the net profit was connected with, first of all, the planned increase of repair volume (about 40 vessels were repaired); besides, the company purchased 10,500 TEU of new containers. In 2005 FESCO's container transportation volume increased by 9% to 399,000 TEU.

In February 2006, the state FESCO's share holding (19.8%) was purchased by ZAO Investment and Development of Fuel and Energy Sector Agency (a subsidiary of Industrial Investors Group): earlier the Group controlled 62% of FESCO's shares. 

According to President of Industrial Investors Group Sergey Generalov, among the most important for FESCO events of 2005 the heroic cruise of the legendary ice-breaker "Krasin" to Antarctica should be named, as it meant the beginning of the company's cooperation with the National Scientific Fund of the USA. Another event worth mentioning was the launch of Russian Troyka Company in cooperation with OAO RZD. He noted that the success of the latter project is of great importance for the state and makes FESCO the largest in Russia Intermodal company of national scale.

Another important for the shipping company event in 2005 was putting into operation of a unique ice-breaker "FESCO Sakhalin" and the beginning of cooperation with Exxon Mobile. A successful start of the cooperation enables FESCO to become the key player on the market of ice-breaking services and oil and gas projects piloting at the Russian shelf.

When the programme of modern container vessels is accomplished, OAO Far Eastern Shipping Company will become the leader among Russian shipping container companies, and it will increase the total dead weight of its transport fleet by 390 thousand tons (or by 40%).

In 2005 the rotation of the direct service between the Chinese ports and the Russian Far East on the FCDL line increased. The line directly connected Shanghai and Vladivostok. The service on the Vladivostok - Petropavlovsk-Kamchatsky line was improved - the third vessel, faster and of a larger capacity, started to service the line. A new container line - FESCO Korea Sakhalin Line (FKSL) - was opened. It connected the port of Pusan (South Korea) and the ports of Kholmsk and Korsakov (Russia, Sakhalin). Containerized cargo and equipment for the Sakhalin oil projects are transported along the route.

The realization of a scaled programme of fleet renewal was continued. Nowadays four container vessels, with the carrying capacity of 1,100 units each, are being constructed in China. The first vessel of the series - "FESCO ASKOLD" - has been launched, and all the four vessels are to be put into operation in 2006. In the framework of new container vessels construction, three more container vessels, with the capacity of 2,741 units each, built in Germany, are to be put into operation this year. They are to join the shipping company's fleet in July-September.

In 2005 the favourable market situation enabled the Russian shipping companies to carry out actively programmes of fleet construction and modernization, increasing dead weight and implementing innovations. According to forecasts, this year the rate of vessel construction will increase, and the Russian tanker fleet will be replenished with vessels of a new type. Besides, the approval of the Law on the Russian International Vessels Registration will enable the companies to register vessels (first of all, those constructed now) under the Russian flag, and Sovcomflot was the first company to announce its intention to do so. Let us hope that all this will provide the increase of the Russian fleet's competitiveness and strengthen the image of the Russian shipping.



NADEZHDA  VTORUSHINA
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    [PREVIEW_TEXT] => Last year was not an easy one for the Russian shipping companies. The tax scandal involving Volgotanker due to its suspected association with YUKOS passed on to the state level, and the whole situation had a negative influence on the company's financial condition and the output results. In 2005 the president of the Novoship company changed, and currently the future of the company is vague. At the same time, the financial figures of the largest Russian vessel owners were increasing; the programmes aimed at fleet renewal were carried out, and on the whole, the year of 2005 can be considered a successful one for the Russian shipping companies.

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Billion for Fleet Development

The largest Russian shipping company, which owns a fleet of 50 vessels with the total dead weight of 3.95 million tons, OAO Sovcomflot currently specializes in energy carriers transportation by sea and participates in the largest and most important Russian industrial projects, such as "Sakhalin-2", Varandey and Prirazlomnoye. Sales volume exceeded that of 2004, in spite of a worse market situation; the efficiency of fleet exploitation grew by 10% year-on-year. The company's own capital increased by 10% and exceeded USD 1 billion. In the words of the company's Director General Sergey Frank, according to the results of 2005, the profit from operations will amount to USD 260 million and operating revenues will come to a little more than USD 400 million.

The company's specialists believe that, in spite of the forecasted downturn in the charter market in 2006-2008, the financial position of OAO Sovcomflot will continue to be stable, since the company has all the necessary financial resources to fulfill its obligations and develop further, first of all, in such important sectors as ice navigation in the Arctic and liquefied natural gas (LNG) transportation.

Nowadays OAO Sovcomflot increases the orderbook of large industrial projects, such as Varandey, Prirazlomnoye, Sakhalin-1 and Sakhalin-2, the share of which will exceed 30% of the company's total revenue in 2008. In 2005 the company concluded a contract for LNG transportation from the Tangu terminal (Indonesia): the realization of the project will start in 2008. Other large projects to be carried out in 2007-2008 are cooperation with OAO Gazprom and OAO Sevmorneftegaz in the sphere of oil transportation from the Prirazlomnoye oil field, as well as the contract with Naryanmarneftegaz for oil transportation from the terminal of Varndey. The forecasted annual revenue from the three projects mentioned above exceeds USD 170 million, or 45% of the sales volume of 2004.

In 2005 the company finished re-financing the earlier attracted bank credits on more favourable for the borrower terms for the total sum of USD 669.5 million. The company and Mizuho Bank concluded a credit contract for financing the purchase of two vessels for LNG transportation to work in the framework of Sakhalin-2 project (the sum of the credit is USD 320 million, the term is 12 years).

In 2006 the company's fleet is to be enlarged with new specialized tankers of ice class and vessels for LNG transportation. Thus, the total dead weight of the fleet will increase by 10%. USD 920 million is to be invested into the fleet development in the next three years. OAO Sovcomflot and Admiralty Shipyards agreed to continue construction of a series of tankers for oil products transportation with the dead weight of 47.4 thousand tons each. The series of the vessels will be increased to 9 units. The seventh and the eighth tankers are to be delivered in 2007, the ninth is to be delivered in 2008. Besides, OAO Sovcomflot group of companies concluded contracts for the construction of six tankers, four of which already work in the fleet of OAO Sovcomflot. The fifth and the sixth vessels are to be delivered this year. 

Maintaining high ecological standards, OAO Sovcomflot agreed with the International risk management organization Lloyd's Register and the Russian ship-building yard the implementation of modifications on all the tankers for oil products transportation starting from "Torgovy Bridge" (the fourth vessel), which will provide the vessels with an additional symbol of "EP" class (Environmental Protection) or "meeting high ecological requirements".

Nowadays only Russian crews work for the company. According to the results of 2005, the sector's trade union named the company's social standards of sailors employment the best in the sector. In 2005 the amount of jobs on board increased by more than 10% to 2,638 people. By 2009, it will grow by 1,000 people more.

 The Novorossiysk Shipping Company (Novoship) is another leader of Russian shipping business. The company is at the top of the list of Russian vessel owners according to the amount of private shareholders, and second largest after OAO Sovcomflot. Last year there were a lot of rumors about the company, including its privatization and its relative or full merger with OAO Sovcomflot. So far, changes have only been made in the company's Board. The new Board was approved by the Board of Directors of OAO Novorossiysk Shipping Company. In particular, ex-president of Novoship Tagir Izmaylov was discharged, and Sergey Terekhin, a former vice-president of Sovcomflot, was appointed the company's president. 

On the whole, according to MSFO, the company's profit from operating activities in 2005 is forecasted to amount USD 250 million. In 2006, Novoship plans to increase it to USD 260 million. (For reference: in H1 of 2005 the company doubled its net profit, according to MSFO, to USD 176 million).

The total dead weight of the group's fleet is 3.3 million tons. In 2006 it is to amount to 3.8 million tons. In 2005 the average age of vessels was 11 years, in 2006 it will not exceed 10 years. According to the results of 2005, the group of companies had 51 vessels, and in 2006 it is to have 61 vessels. 



"Russia"to Be Launched in 2007

In 2005 the throughput of OAO Murmansk Shipping Company, the only Russian shipping company able to work actively in the Arctic all year round, increased by 12% year-on-year to 14.3 million tons. Export cargoes made over 97% of the company's throughput, and the share of export steam coal was 77%. According to forecasts, in 2005 coal handling amounted to 10.8 million tons.

According to the results of 2005, the volume of capital investments of OAO Murmansk Shipping Company increased by 33% year-on-year to RUR 300 million. In accordance with the financial results of the state-owned ice-breaking fleet asset management, in 2005 the sum of the surplus of the net profit from asset management of the ice fleet will be the same as in 2004.

All the vessels ice piloting along the waterway tracks of the North sea route and in the White Sea was completed to the full. In 2005, in difficult ice conditions, the company's ice-breakers provided transportation of 1.8 million tons of freight, 18% up year-on-year. 100% of the state order of the North delivery programme was completed: over 100,000 tons of coal, oil products and other important for the people of the region cargoes was delivered to the ports of Yakutia, Taimyr Autonomous Area and Chukot Autonomous Area.

In 2005 all the ice-breakers, managed by OAO Murmansk Shipping Company, were in use, in accordance with the repair schedule and the necessity to prolong the resource of atomic steam producing plants (ASPP). Besides, in accordance with the Decree of the RF Government, the atomic ice-breaker "50th Anniversary of Victory", the construction of which is being completed at the OAO Baltiysky Zavod, is to be submittied under the shipping company's asset management in 2006. In 2005 the company regularly carried out the Programme of prolongation of the resource of ASPP and the service life of ice breakers to 30 years. After a successful completing of prolongation of the resource of ASPP and the service life of atomic ice-breaker "Arctic", similar works are being done on board of "Russia", which is to be launched at the beginning of 2007.

Summing up the 2005 results of another large tanker company OAO Primorsk Shipping Corporation (PRISCO), one can say that the company reached the set target, in spite of an unfavourable year. 

In 2005 PRISCO's vessels transported 14.7 million tons of liquid bulk, 7% up year-on-year, when 13.72 million tons of cargo was carried. Thus, a new record was set. The vessels of the company's balance fleet delivered 2.75 million tons to customers, 13% up year-on-year. They continue to deliver oil products to the Russian Far-Eastern region. In 2005, the company transported 518,700 tons of coastal trade freight, including 155,000 tons of oil products delivered to Sakhalin, 40,500 tons delivered to the Magadan region, 217,200 tons delivered to Kamchatka, 84,200 tons delivered to the Chukot Autonomous Area, 18,100 tons to the Vityaz terminal, and 2,610 tons to the Kurils. The company's off-shore tankers transported 11.95 million tons of freight in 2005.

Nowadays PRISCO manages 34 tankers with the total dead weight of 1.95 million tons, wherein 16 vessels with the total dead weight of 151,563 tons are under the Russian flag. In 2005, 3 Aframax tankers were added to the company's fleet; thus, PRISCO's vessels total dead weight increased by 302,805 tons. New vessels for the corporation are being built. It is expected that PRISCO's 2005 revenue will exceed the planned one. 

Among the shipping corporation's priority projects for the next several years one can name the construction of new vessels to service the freight base at the Sakhalin projects, as well as the base formed at the Baltic Sea and the Arctic sea of Russia. These are the tasks financed via the largest investing projects. Among them is the construction of an ice-breaking tow-boat "Polar Pevek" in cooperation with the company's Norwegian partners (the vessel is to be launched in April 2006); putting into operation in 2006-2007 new supplying vessels for servicing oil platforms of the Sakhalin-2 project; renewal of the PRISCO's fleet with tankers with the dead weight of 177,000 tons each, which are to be delivered in 2007. The project of the agreement for the construction of seven more tankers of different dead weight is being developed. 

One of the shipping corporation's strategic targets for 2006 is training the sailors to work on board of the new vessels, meeting the requirements of safe navigation.



Intermodal Companyof National Scale

OAO Far Eastern Shipping Company (FESCO) is the largest shipping company specializing in container transportation in Russia. The company now manages 79 vessels with the total dead weight of 1 million tons. The company's revenue, according to the Russian Accounting Standards (RAS), amounted to USD 250 million, 7.1% year-on-year; FESCO's net profit was USD 22 million. The reduction of the net profit was connected with, first of all, the planned increase of repair volume (about 40 vessels were repaired); besides, the company purchased 10,500 TEU of new containers. In 2005 FESCO's container transportation volume increased by 9% to 399,000 TEU.

In February 2006, the state FESCO's share holding (19.8%) was purchased by ZAO Investment and Development of Fuel and Energy Sector Agency (a subsidiary of Industrial Investors Group): earlier the Group controlled 62% of FESCO's shares. 

According to President of Industrial Investors Group Sergey Generalov, among the most important for FESCO events of 2005 the heroic cruise of the legendary ice-breaker "Krasin" to Antarctica should be named, as it meant the beginning of the company's cooperation with the National Scientific Fund of the USA. Another event worth mentioning was the launch of Russian Troyka Company in cooperation with OAO RZD. He noted that the success of the latter project is of great importance for the state and makes FESCO the largest in Russia Intermodal company of national scale.

Another important for the shipping company event in 2005 was putting into operation of a unique ice-breaker "FESCO Sakhalin" and the beginning of cooperation with Exxon Mobile. A successful start of the cooperation enables FESCO to become the key player on the market of ice-breaking services and oil and gas projects piloting at the Russian shelf.

When the programme of modern container vessels is accomplished, OAO Far Eastern Shipping Company will become the leader among Russian shipping container companies, and it will increase the total dead weight of its transport fleet by 390 thousand tons (or by 40%).

In 2005 the rotation of the direct service between the Chinese ports and the Russian Far East on the FCDL line increased. The line directly connected Shanghai and Vladivostok. The service on the Vladivostok - Petropavlovsk-Kamchatsky line was improved - the third vessel, faster and of a larger capacity, started to service the line. A new container line - FESCO Korea Sakhalin Line (FKSL) - was opened. It connected the port of Pusan (South Korea) and the ports of Kholmsk and Korsakov (Russia, Sakhalin). Containerized cargo and equipment for the Sakhalin oil projects are transported along the route.

The realization of a scaled programme of fleet renewal was continued. Nowadays four container vessels, with the carrying capacity of 1,100 units each, are being constructed in China. The first vessel of the series - "FESCO ASKOLD" - has been launched, and all the four vessels are to be put into operation in 2006. In the framework of new container vessels construction, three more container vessels, with the capacity of 2,741 units each, built in Germany, are to be put into operation this year. They are to join the shipping company's fleet in July-September.

In 2005 the favourable market situation enabled the Russian shipping companies to carry out actively programmes of fleet construction and modernization, increasing dead weight and implementing innovations. According to forecasts, this year the rate of vessel construction will increase, and the Russian tanker fleet will be replenished with vessels of a new type. Besides, the approval of the Law on the Russian International Vessels Registration will enable the companies to register vessels (first of all, those constructed now) under the Russian flag, and Sovcomflot was the first company to announce its intention to do so. Let us hope that all this will provide the increase of the Russian fleet's competitiveness and strengthen the image of the Russian shipping.



NADEZHDA  VTORUSHINA
    [~DETAIL_TEXT] => 

Billion for Fleet Development

The largest Russian shipping company, which owns a fleet of 50 vessels with the total dead weight of 3.95 million tons, OAO Sovcomflot currently specializes in energy carriers transportation by sea and participates in the largest and most important Russian industrial projects, such as "Sakhalin-2", Varandey and Prirazlomnoye. Sales volume exceeded that of 2004, in spite of a worse market situation; the efficiency of fleet exploitation grew by 10% year-on-year. The company's own capital increased by 10% and exceeded USD 1 billion. In the words of the company's Director General Sergey Frank, according to the results of 2005, the profit from operations will amount to USD 260 million and operating revenues will come to a little more than USD 400 million.

The company's specialists believe that, in spite of the forecasted downturn in the charter market in 2006-2008, the financial position of OAO Sovcomflot will continue to be stable, since the company has all the necessary financial resources to fulfill its obligations and develop further, first of all, in such important sectors as ice navigation in the Arctic and liquefied natural gas (LNG) transportation.

Nowadays OAO Sovcomflot increases the orderbook of large industrial projects, such as Varandey, Prirazlomnoye, Sakhalin-1 and Sakhalin-2, the share of which will exceed 30% of the company's total revenue in 2008. In 2005 the company concluded a contract for LNG transportation from the Tangu terminal (Indonesia): the realization of the project will start in 2008. Other large projects to be carried out in 2007-2008 are cooperation with OAO Gazprom and OAO Sevmorneftegaz in the sphere of oil transportation from the Prirazlomnoye oil field, as well as the contract with Naryanmarneftegaz for oil transportation from the terminal of Varndey. The forecasted annual revenue from the three projects mentioned above exceeds USD 170 million, or 45% of the sales volume of 2004.

In 2005 the company finished re-financing the earlier attracted bank credits on more favourable for the borrower terms for the total sum of USD 669.5 million. The company and Mizuho Bank concluded a credit contract for financing the purchase of two vessels for LNG transportation to work in the framework of Sakhalin-2 project (the sum of the credit is USD 320 million, the term is 12 years).

In 2006 the company's fleet is to be enlarged with new specialized tankers of ice class and vessels for LNG transportation. Thus, the total dead weight of the fleet will increase by 10%. USD 920 million is to be invested into the fleet development in the next three years. OAO Sovcomflot and Admiralty Shipyards agreed to continue construction of a series of tankers for oil products transportation with the dead weight of 47.4 thousand tons each. The series of the vessels will be increased to 9 units. The seventh and the eighth tankers are to be delivered in 2007, the ninth is to be delivered in 2008. Besides, OAO Sovcomflot group of companies concluded contracts for the construction of six tankers, four of which already work in the fleet of OAO Sovcomflot. The fifth and the sixth vessels are to be delivered this year. 

Maintaining high ecological standards, OAO Sovcomflot agreed with the International risk management organization Lloyd's Register and the Russian ship-building yard the implementation of modifications on all the tankers for oil products transportation starting from "Torgovy Bridge" (the fourth vessel), which will provide the vessels with an additional symbol of "EP" class (Environmental Protection) or "meeting high ecological requirements".

Nowadays only Russian crews work for the company. According to the results of 2005, the sector's trade union named the company's social standards of sailors employment the best in the sector. In 2005 the amount of jobs on board increased by more than 10% to 2,638 people. By 2009, it will grow by 1,000 people more.

 The Novorossiysk Shipping Company (Novoship) is another leader of Russian shipping business. The company is at the top of the list of Russian vessel owners according to the amount of private shareholders, and second largest after OAO Sovcomflot. Last year there were a lot of rumors about the company, including its privatization and its relative or full merger with OAO Sovcomflot. So far, changes have only been made in the company's Board. The new Board was approved by the Board of Directors of OAO Novorossiysk Shipping Company. In particular, ex-president of Novoship Tagir Izmaylov was discharged, and Sergey Terekhin, a former vice-president of Sovcomflot, was appointed the company's president. 

On the whole, according to MSFO, the company's profit from operating activities in 2005 is forecasted to amount USD 250 million. In 2006, Novoship plans to increase it to USD 260 million. (For reference: in H1 of 2005 the company doubled its net profit, according to MSFO, to USD 176 million).

The total dead weight of the group's fleet is 3.3 million tons. In 2006 it is to amount to 3.8 million tons. In 2005 the average age of vessels was 11 years, in 2006 it will not exceed 10 years. According to the results of 2005, the group of companies had 51 vessels, and in 2006 it is to have 61 vessels. 



"Russia"to Be Launched in 2007

In 2005 the throughput of OAO Murmansk Shipping Company, the only Russian shipping company able to work actively in the Arctic all year round, increased by 12% year-on-year to 14.3 million tons. Export cargoes made over 97% of the company's throughput, and the share of export steam coal was 77%. According to forecasts, in 2005 coal handling amounted to 10.8 million tons.

According to the results of 2005, the volume of capital investments of OAO Murmansk Shipping Company increased by 33% year-on-year to RUR 300 million. In accordance with the financial results of the state-owned ice-breaking fleet asset management, in 2005 the sum of the surplus of the net profit from asset management of the ice fleet will be the same as in 2004.

All the vessels ice piloting along the waterway tracks of the North sea route and in the White Sea was completed to the full. In 2005, in difficult ice conditions, the company's ice-breakers provided transportation of 1.8 million tons of freight, 18% up year-on-year. 100% of the state order of the North delivery programme was completed: over 100,000 tons of coal, oil products and other important for the people of the region cargoes was delivered to the ports of Yakutia, Taimyr Autonomous Area and Chukot Autonomous Area.

In 2005 all the ice-breakers, managed by OAO Murmansk Shipping Company, were in use, in accordance with the repair schedule and the necessity to prolong the resource of atomic steam producing plants (ASPP). Besides, in accordance with the Decree of the RF Government, the atomic ice-breaker "50th Anniversary of Victory", the construction of which is being completed at the OAO Baltiysky Zavod, is to be submittied under the shipping company's asset management in 2006. In 2005 the company regularly carried out the Programme of prolongation of the resource of ASPP and the service life of ice breakers to 30 years. After a successful completing of prolongation of the resource of ASPP and the service life of atomic ice-breaker "Arctic", similar works are being done on board of "Russia", which is to be launched at the beginning of 2007.

Summing up the 2005 results of another large tanker company OAO Primorsk Shipping Corporation (PRISCO), one can say that the company reached the set target, in spite of an unfavourable year. 

In 2005 PRISCO's vessels transported 14.7 million tons of liquid bulk, 7% up year-on-year, when 13.72 million tons of cargo was carried. Thus, a new record was set. The vessels of the company's balance fleet delivered 2.75 million tons to customers, 13% up year-on-year. They continue to deliver oil products to the Russian Far-Eastern region. In 2005, the company transported 518,700 tons of coastal trade freight, including 155,000 tons of oil products delivered to Sakhalin, 40,500 tons delivered to the Magadan region, 217,200 tons delivered to Kamchatka, 84,200 tons delivered to the Chukot Autonomous Area, 18,100 tons to the Vityaz terminal, and 2,610 tons to the Kurils. The company's off-shore tankers transported 11.95 million tons of freight in 2005.

Nowadays PRISCO manages 34 tankers with the total dead weight of 1.95 million tons, wherein 16 vessels with the total dead weight of 151,563 tons are under the Russian flag. In 2005, 3 Aframax tankers were added to the company's fleet; thus, PRISCO's vessels total dead weight increased by 302,805 tons. New vessels for the corporation are being built. It is expected that PRISCO's 2005 revenue will exceed the planned one. 

Among the shipping corporation's priority projects for the next several years one can name the construction of new vessels to service the freight base at the Sakhalin projects, as well as the base formed at the Baltic Sea and the Arctic sea of Russia. These are the tasks financed via the largest investing projects. Among them is the construction of an ice-breaking tow-boat "Polar Pevek" in cooperation with the company's Norwegian partners (the vessel is to be launched in April 2006); putting into operation in 2006-2007 new supplying vessels for servicing oil platforms of the Sakhalin-2 project; renewal of the PRISCO's fleet with tankers with the dead weight of 177,000 tons each, which are to be delivered in 2007. The project of the agreement for the construction of seven more tankers of different dead weight is being developed. 

One of the shipping corporation's strategic targets for 2006 is training the sailors to work on board of the new vessels, meeting the requirements of safe navigation.



Intermodal Companyof National Scale

OAO Far Eastern Shipping Company (FESCO) is the largest shipping company specializing in container transportation in Russia. The company now manages 79 vessels with the total dead weight of 1 million tons. The company's revenue, according to the Russian Accounting Standards (RAS), amounted to USD 250 million, 7.1% year-on-year; FESCO's net profit was USD 22 million. The reduction of the net profit was connected with, first of all, the planned increase of repair volume (about 40 vessels were repaired); besides, the company purchased 10,500 TEU of new containers. In 2005 FESCO's container transportation volume increased by 9% to 399,000 TEU.

In February 2006, the state FESCO's share holding (19.8%) was purchased by ZAO Investment and Development of Fuel and Energy Sector Agency (a subsidiary of Industrial Investors Group): earlier the Group controlled 62% of FESCO's shares. 

According to President of Industrial Investors Group Sergey Generalov, among the most important for FESCO events of 2005 the heroic cruise of the legendary ice-breaker "Krasin" to Antarctica should be named, as it meant the beginning of the company's cooperation with the National Scientific Fund of the USA. Another event worth mentioning was the launch of Russian Troyka Company in cooperation with OAO RZD. He noted that the success of the latter project is of great importance for the state and makes FESCO the largest in Russia Intermodal company of national scale.

Another important for the shipping company event in 2005 was putting into operation of a unique ice-breaker "FESCO Sakhalin" and the beginning of cooperation with Exxon Mobile. A successful start of the cooperation enables FESCO to become the key player on the market of ice-breaking services and oil and gas projects piloting at the Russian shelf.

When the programme of modern container vessels is accomplished, OAO Far Eastern Shipping Company will become the leader among Russian shipping container companies, and it will increase the total dead weight of its transport fleet by 390 thousand tons (or by 40%).

In 2005 the rotation of the direct service between the Chinese ports and the Russian Far East on the FCDL line increased. The line directly connected Shanghai and Vladivostok. The service on the Vladivostok - Petropavlovsk-Kamchatsky line was improved - the third vessel, faster and of a larger capacity, started to service the line. A new container line - FESCO Korea Sakhalin Line (FKSL) - was opened. It connected the port of Pusan (South Korea) and the ports of Kholmsk and Korsakov (Russia, Sakhalin). Containerized cargo and equipment for the Sakhalin oil projects are transported along the route.

The realization of a scaled programme of fleet renewal was continued. Nowadays four container vessels, with the carrying capacity of 1,100 units each, are being constructed in China. The first vessel of the series - "FESCO ASKOLD" - has been launched, and all the four vessels are to be put into operation in 2006. In the framework of new container vessels construction, three more container vessels, with the capacity of 2,741 units each, built in Germany, are to be put into operation this year. They are to join the shipping company's fleet in July-September.

In 2005 the favourable market situation enabled the Russian shipping companies to carry out actively programmes of fleet construction and modernization, increasing dead weight and implementing innovations. According to forecasts, this year the rate of vessel construction will increase, and the Russian tanker fleet will be replenished with vessels of a new type. Besides, the approval of the Law on the Russian International Vessels Registration will enable the companies to register vessels (first of all, those constructed now) under the Russian flag, and Sovcomflot was the first company to announce its intention to do so. Let us hope that all this will provide the increase of the Russian fleet's competitiveness and strengthen the image of the Russian shipping.



NADEZHDA  VTORUSHINA
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At the expense of highly profitable cargoes

In order to achieve the target, 3.6 million tons is to be carried daily. In 2005 such volumes could seem impossible; however, the loading volume during the period of June-December enabled to hit the records set within the last five years and on September 29 OAO RZD loaded 3.78 million tons, which is the highest daily figure for the last twelve years. 

In 2005, the best dynamics were showed by the Sverdlovskaya railway (+11.5 million tons or +10% year-on-year), the Severo-Kavkazskaya (North-Caucasian) railway (+8.3 million tons or +13.2%), the Vostochno-Sibirskaya (East-Siberian) railway (+7.6 million tons or +10.8%), the Octyabrskaya (October) railway (+5.6 million tons or +5.5%) and the Severnaya (Northern) railway (+3.9 million tons or +5.5%).

The structure of cargo has not changed: coal takes the lion's share (22.1%), minerals and construction materials make 21.7%, oil and products - 17.4%, iron ore - 10.2% and ferrous metals - 6.4%. Evidently, the trend of fast growth of highly profitable cargoes transportation has disappeared. According to the Center of Transport Services of OAO RZD, the loading of highly profitable cargoes rose by only 3.4% in 2005, which is lower than the network average growth rate. Particularly, experts notice that the ferrous metals transportation growth slowed down, amounting to 1.5% against 5.3% in 2004, while scrap metal carriage rose by only 2.7% against 26.6% in 2004. Partially, the lack of growth was compensated by oil bulk and containers transportation increase by 3.7% and 11.5% respectively.

Transportation of the medium-profitable cargoes, such as timber and logs, grain and non-ferrous ore, grew in line with the average network trend and amounted to 4.8% (timber and logs carriage increased by 7.8%, grain - by 10.2% and non-ferrous ore - by 3.4% respectively). The growth rate could be even higher, but coke dropped sharply by 13%, in comparison with the results of 2004. Incidentally, coke transportation decrease leads to a double loss for railways, as the volume of coke leaving concentration plants also falls down.

Low-profitable cargoes transportation grew substantially. Particularly, minerals and construction materials volume increased by 10.5%, mineral fertilizers - by 3.7%, coal and ores - by 2.4% and 1.8% respectively.

In 2005, the structure of foreign trade cargo transportation changed. Experts notice import cargo flow decrease, while export and transit shares grew. Thus, export freight transportation took 79.2% of the total carriage volume, which is by 0.2% up year-on-year; transit increased by 0.1% to 3.7% and the share of import constituted 16.7% against 17.1% in 2004.

The trend in the export cargo transportation, wherein oil and products take over 30%, coal - 23%, ferrous metals - 10%, timber and logs also 10%, fertilizers - 8% and ores - 6%, changed most dramatically. Traditionally, export freight transportation grew due to the increase of the above-listed cargoes, while in 2005 the most serious impact in export volume rise was made by grain, which more than doubled (+121.4%), minerals and construction materials (+23.4%) and timber and logs (+15.3%). The export of coal grew by 7.8%, that of iron ore and mineral fertilizers - by 7.2% and 5.9% respectively. Totally, export transportation increased by 3.6%.



From raw materialsto products

The key trend of 2005 is the decrease of growth rate for the transportation of leading cargoes that traditionally contributed most to the operation and profit of rail transport. What are the reasons and will the trend continue in 2006?

Late 2004-early 2005 was the period when oil bulk transportation dropped substantially. The main reasons for the reduction are high export dues for crude oil and sharp decrease (to almost zero) of YUKOS' produce transportation.

Incidentally, the nationalization of YUKOS assets today negatively affects the functioning and revenue of the Kuybyshevskaya railway, which takes the lion's share of oil bulk transportation in the total network of Russian railways total network throughput of the cargo. According to the experts of OAO RZD, in 2005 oil bulk constituted 50% of the Kuybyshevskaya railway loading volume, while in 2004 it exceeded 55%. Thus, there was an 11% (or four-million tons) decrease of oil bulk loading volume in comparison with the previous year. At the same time, crude oil transportation fell down by 7.4 million tons or by 60% year-on-year.

The key reason is transfer of Yuganskneftegaz (the main YUKOS' oil extracting asset) to OAO Rosneft and the re-routing of crude oil flows to China. These resulted in the situation when YUKOS' refineries located in the Samara region did not receive about 33.2% or 9.2 million tons of crude oil in comparison with 2004. Moreover, oil bulk flows were re-routed to the pipelines, due to lower prices and low quality of crude oil produced by some companies for which there is no demand on the international market. These companies prefer to use pipelines, where their oil is mixed with better quality "black gold" of other producers and together they make the Russian brand "Urals".

Having reduced crude oil transportation volumes, the majority of companies increased refining and, consequently, oil products loading grew. For instance, YUKOS-Transservice transported almost by 20% more oil products than during 2004, Nizhnekamsky refinery increased oil loading by 6%. OAO Salavatnefteorgsintez performed best in terms of loading volume growth rate - oil products loading grew by 40% year-on-year. In total, in 2005 the loading of oil products on the Kuybyshevskaya railway rose by 14% or 3.4 million tons, in comparison with the results of the previous year. A similar situation can be observed on other railways of the network: in 2005 the share of crude oil transportation decreased, while oil products replaced the volume. A fall of crude oil rail transportation amounted to 10.5%. Evidently, due to a plentiful supply of pipeline facilities and lower tariffs, oil producers preferred the traditional transport for crude oil. Transportation of oil products, on the contrary, increased by 8%, which is even higher than its production rate. 

According to some data, volumes of oil refinery grew by 6.4% in 2005. Diesel oil production grew most (by 8.3%), fuel oil increased by 5.8%, and petrol was up by 4.9%. Thus, the situation on the market is not likely to change this year.

However, analysts have already pointed to the decrease of the oil extraction volumes growth rate: in 2005 the volumes increased by only 2.4% against the 8.9% increase in 2004. The fall is explained by the reserve depletion in the traditional regions and insufficient investment into oil and gas provinces development.

In the coal industry, analysts also mark a substantial price increase (by almost 19%) in 2005 and in January of 2006. On the whole, experts evaluate a price growth in the treasures of the soil extraction sector at 44% on average, while the same index in the refinery industry amounted to only 8%. This illustrates the demand for energy carriers stability on the world markets.

The current situation in the Russian coal sector is not promising. According to OAO RZD, the loading of coal increased by 2.4% in comparison with 2004 at the expense of export growth, which amounted to 7%. Despite this, coal producers did not reach the target volume. In the Kuznetsk field (Kuzbass) coal producers load only 172.4 million tons, having claimed for 175 million tons, and the growth rate amounted to only 0.3% year-on-year. In 2006, the coal producers of the region claimed 180 million tons for transportation, which is extremely doubtful. Firstly, the experience of the previous year showed a negative trend and, secondly, the situation in the world market of coal changed after China, Kazakhstan and Ukraine had entered the market with much cheaper coal. However, according to the market opinion poll, Russian coal producers are not going to reduce prices of their produce referring to the cost price rise. This position results in numerous examples of losing markets due to the unwillingness to reduce prices, which leads to a decrease in produce volumes and, consequently, brings down the volumes of rail transportation.

However, the most difficult situation arose in the market of ferrous metals. Experts evaluate +ferrous metals price reduction at 1.6% in 2005, while in 2004 the index grew by 64.4% in comparison with the level of 2003. On the one hand, the situation could be considered stable. On the other hand, it increasingly looks like stagnation with the further negative trend. The main danger is an unfavourable situation on the global markets, where prices decrease. Another threat is the development of ferrous metal production in the largest steel producing country - China.

Thus, in 2005, China's produce substantially exceeded the country's domestic demand. In 2006, counting import, the overproduction volume is forecasted at over 50 million tons, whereof 30 million tons is to be exported. Such situation will result in price reduction in the Asian ferrous metals market. Moreover, Chinese export of ferrous metals is likely to win positions in the market of North America, which will lower prices. Thus, the optimism of the European metal producing giants, who declare a price increase following raw materials and electric energy cost rise, is ungrounded. Evidently, raw materials expenses keep growing, as this year mining companies has already announced iron ore prices to rise by 20%.

Railmen are also worried. The Yuzhno-Uralskaya (South-Ural) railway, which serves the majority of metallurgic plants of the country, reports that in 2005 ferrous metals loading volume remained at the level of 2004. At the same time, the share of ferrous metals dropped in the aggregate network transportation volume. 

Experts mark several trends in the development of metallurgic industry in the South-Ural region. Firstly, the biggest Russian plant - Magnitogorsk iron and steel works (MMK) - has overcome a serious problem. In 2004, due to its refusal to unite into a holding with its main iron ore suppliers - Sokolovsko-Sarbaysky, Mikhaylovsky and Lebedinsky ore mining and processing enterprises, - MMK lost these suppliers. And both, MMK and suppliers, lost a lot following this disagreement: the ore mining and processing enterprises lost their biggest client and Magnitogorsk iron and steel works had to pause one of its blast furnaces operation, as there was no ore and the plant could not operate at its full potential. Then railmen helped MMK by reducing tariffs for iron ore import from Ukraine and Kazakhstan. Thus, by late 2005 the plant managed to overcome the crisis and by November production growth rate amounted to 11%. However, due to the global price decrease, MMK's production volume in 2005 was at the level of the previous year.

Rail transport sector analysts quote the above mentioned change of the situation on the global ferrous metals market as the second reason for a decrease of ferrous metals loading volume growth rate. However, making a forecast for 2006, it should be said that, despite ferrous metal demand decrease continuing, Russian producers will keep their share of the market, as they have invested into produce development, in order to improve the quality of products. At the same time, due to the construction boom (including pipe line network construction) in Russia, produce of tubular industry is much in demand.

High iron ore produce and transportation rate was another trend of 2005. Particularly, export volumes grew sharply. In 2003, export of ore did not exceed 2%. Today the index amounts to over 6%.

To sum up, Russian economy is still on the rise, but, unfortunately, only at the expense of raw materials export, which can not ensure further stable development. Firstly, the country is too dependent on the prices on global market, and, as the volume of export flows is huge, any price fluctuation in the world markets could lead to whole produce facilities closing and, from the railways perspective, to a decrease in transportation volume. Secondly, export of raw materials is not economically sound, as they are always cheaper than products. However, today hi-tech producing countries also face an unstable situation, as prices of computers, mobile phones, domestic machinery and other products are falling down, while those of raw materials growing.



Will Volumes Help?

What Russian producers will export is difficult to predict. However, certain difficulties are already present. Some industrial sectors have already faced problems: for instance, despite the heavy frosts in Russia in January 2006, the demand for coal, either domestic, or international, did not change. However, Russian producers name high rail tariffs one of the key aspects hampering sales.

On January 1, 2006, freight rail tariffs were increased by 12.8%. However, the index is average and can not be a criterion for rail services price evaluation. In order to support producers, favourable tariffs were implemented. This concerns coal transportation, both domestic and import, export and transit: tariffs on some sorts of coke coals are reduced to the level of those for energy coals. Railmen estimate profit losses from these tariffs reduction at RUR 1 billion. Moreover, tariffs on oil transportation to the Russian Far East and China, as well as those for export of timber and logs, were reduced and tariffs on metals transportation to the Far-Eastern ports were kept low. Tariffs for export and import of iron ore were also cut. On the one hand, tariffs reduction is supposed to have a positive impact on rail transport operation, as it will level the transport constituent and, consequently, improve rail fleet usage, balance port loading and decrease rail car turn. All these, in the opinion of railmen, will enable them to increase transportation volume, but will the forecast come true?

It should be reminded that the loading growth rate is continuously decreasing, the share of profitable freight in the aggregate volume is reducing, the transportation of medium and low profitable freight is being stimulated by tariff reduction and the world market is extremely changeable. Thus, reducing tariffs in the hope of increasing volumes is a very questionable policy.



Competition: pros and contras

OAO RZD experts mark three main aspects affecting the company's profit. They are the average transportation length decrease, the freight flows re-routing from border crossing to ports in the first half of 2005 and the increase of private rolling stock transportation share. Profit losses by OAO RZD are estimated at about RUR 17 billion.

According to the Center of Transport Services of OAO RZD, in 2005 export via Russian ports grew by 2.5%, whereas via border crossings it was up by 3.9%. Profit from export transportation went up by 5.7% (from transportation via ports it rose by 3.9%, and via border crossings it increased by 7%). However, railmen believe that ports did not use all the advantages of the rail tariff reduction for transportation to ports as implemented in 2001. Particularly, in 2005, ports refused to handle over 8.2 million tons of export freight, and port transshipment junctions rejected 4.7 million tons of oil and products. Another limiting factor was the refusal to load by foreign railways (11.3 million tons of export). Losses resulting from this refusal are preliminary estimated at about RUR 19 billion. Losses from bans on loading cargo destined for companies rejecting to handle are estimated at RUR 1.03 billion. However, in 2005 the number of bans on loading freight destined for Russian ports decreased twofold amounting to 231 daily.

The development of competition in the sector of freight transportation could be considered the most significant trend of the year. The only question arises whether it is good or bad for OAO RZD. On the one hand, competition development is a strategic target of the structural reform of the sector. On the other hand, competition means profit losses for OAO RZD. Thus, according to OAO RZD, in 2005 the share of transportation in the private rolling stock increased 1.5-fold, in comparison with 2003, and now about a third of the aggregate freight volume is carried by private rail fleet. Moreover, in 2005, aggregate rail network carriage volume increased by 4% year-on-year; freight volume carried by OAO RZD's fleet grew by 1%, whereas that carried by private rolling stock rose by 17%. It should also be noted that almost 45% of high profitable cargoes, 20% of medium profitable and 24% of low profitable cargoes are carried in private fleet. Furthermore, the high profitable freight transportation growth rate for private rail fleet amounted to over 19%, while that for OAO RZD's rolling stock dropped to -2.9%. Another trend is OAO RZD's rail fleet rent reduction: during the period of 2003-2005, the share of transportation in rented from OAO RZD rolling stock decreased from 8% to 4%.

Thus, obviously, the results of the structural reform in the rail sector could be evaluated as successful and profitable for the country's economy. The interaction of railmen, consignors and other transport modes employees is improving. In January, OAO RZD took a remarkable step: the corporation allowed to accept freight for loading with payment during the month, which is exceptional for Russian railways and means that now rail transportation could be performed on credit terms. The measure was taken in order to prevent pauses in loading during the holidays (December, 30 - January, 9). However, the target was not reached due to severe frosts that caused technological difficulties, the measure is of crucial importance, as it means flexibility and attention of OAO RZD to its clients. 

There is another question arising in the field of tariff policy on rail transport, i.e. whether OAO RZD is a really business-structure or just a tool for the state support of other industry sectors. When ferrous metals, then oil and coal prices boomed on the world markets and producers' profit grew substantially, rail tariffs increased by inflation rate only. OAO RZD did not have the right to change tariffs and the Federal Tariff Service did not change them depending on world prices on produce. Thus, OAO Russian Railways did not and does not profit from any produce price increase, but any fluctuations of world prices result in producers' attempts to accuse the railmen of a too heavy transport constituent and to lobby a tariff reduction. Usually, producers end up getting lower tariffs, but not always supply the produce volume they promised for transportation.



Flexible tariffs for business development

The majority of rail transport analysts assume that OAO RZD has already proved to be a functioning business structure and the only limiting factor of the rail sector development is the absence of right to set tariffs on rail services. The situation is not just funny: the largest rail carrier being a natural monopoly does not have all the necessary rights to enter competition on equal terms, and other participants are more competitive than it is. Thus, private carriers are able to change their services price at the expense of the rail car constituent in the rail tariff. OAO RZD can not change tariffs. 

Several railways, affiliates of OAO RZD, have already developed a system of contract tariffs and offer the state to consider it. For instance, railways are willing to choose promising and profitable routes in order to increase volumes there at the expense of tariff change. In this case, there could be two requirements to tariffs set by railways: firstly, they should not be higher than set by the RF Federal Tariff Service and described in Tariff Regulation 10-01 and not lower than cost price. Thus, contract tariffs will depend on the type of freight, route, volume, term and payment guaranties. Tariffs could be reduced as well as increased (in order to balance freight flows, for instance).

Contract tariffs scheme should be available for all clients and based on contract signing. Thus, if the freight volume for transportation is less than promised, the tariff will be changed to the level of the acting Tariff Regulation 10-01 next month. As a result, OAO RZD will be able to compete with other rolling stock owners, increase profit and volumes of freight transportation. At last, such system is absolutely necessary for mass cargo transportation which is season-dependant (particularly, coal). OAO RZD should have the right to change tariffs within one railway or, in case of a particular agreement, within several railways. A flexible tariff system will make tariffs dependent on the world market price situation: thus, when prices for produce are high, carriers also get additional profit, but when the situation is unfavourable, rail tariffs are reduced in order to make Russian produce more competitive in the world market. Unfortunately, if OAO RZD does not obtain the right to change tariffs within set limits, the corporation will turn into a tool of state support for the country's producers.



TATYANA  TOKAREVA
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At the expense of highly profitable cargoes

In order to achieve the target, 3.6 million tons is to be carried daily. In 2005 such volumes could seem impossible; however, the loading volume during the period of June-December enabled to hit the records set within the last five years and on September 29 OAO RZD loaded 3.78 million tons, which is the highest daily figure for the last twelve years. 

In 2005, the best dynamics were showed by the Sverdlovskaya railway (+11.5 million tons or +10% year-on-year), the Severo-Kavkazskaya (North-Caucasian) railway (+8.3 million tons or +13.2%), the Vostochno-Sibirskaya (East-Siberian) railway (+7.6 million tons or +10.8%), the Octyabrskaya (October) railway (+5.6 million tons or +5.5%) and the Severnaya (Northern) railway (+3.9 million tons or +5.5%).

The structure of cargo has not changed: coal takes the lion's share (22.1%), minerals and construction materials make 21.7%, oil and products - 17.4%, iron ore - 10.2% and ferrous metals - 6.4%. Evidently, the trend of fast growth of highly profitable cargoes transportation has disappeared. According to the Center of Transport Services of OAO RZD, the loading of highly profitable cargoes rose by only 3.4% in 2005, which is lower than the network average growth rate. Particularly, experts notice that the ferrous metals transportation growth slowed down, amounting to 1.5% against 5.3% in 2004, while scrap metal carriage rose by only 2.7% against 26.6% in 2004. Partially, the lack of growth was compensated by oil bulk and containers transportation increase by 3.7% and 11.5% respectively.

Transportation of the medium-profitable cargoes, such as timber and logs, grain and non-ferrous ore, grew in line with the average network trend and amounted to 4.8% (timber and logs carriage increased by 7.8%, grain - by 10.2% and non-ferrous ore - by 3.4% respectively). The growth rate could be even higher, but coke dropped sharply by 13%, in comparison with the results of 2004. Incidentally, coke transportation decrease leads to a double loss for railways, as the volume of coke leaving concentration plants also falls down.

Low-profitable cargoes transportation grew substantially. Particularly, minerals and construction materials volume increased by 10.5%, mineral fertilizers - by 3.7%, coal and ores - by 2.4% and 1.8% respectively.

In 2005, the structure of foreign trade cargo transportation changed. Experts notice import cargo flow decrease, while export and transit shares grew. Thus, export freight transportation took 79.2% of the total carriage volume, which is by 0.2% up year-on-year; transit increased by 0.1% to 3.7% and the share of import constituted 16.7% against 17.1% in 2004.

The trend in the export cargo transportation, wherein oil and products take over 30%, coal - 23%, ferrous metals - 10%, timber and logs also 10%, fertilizers - 8% and ores - 6%, changed most dramatically. Traditionally, export freight transportation grew due to the increase of the above-listed cargoes, while in 2005 the most serious impact in export volume rise was made by grain, which more than doubled (+121.4%), minerals and construction materials (+23.4%) and timber and logs (+15.3%). The export of coal grew by 7.8%, that of iron ore and mineral fertilizers - by 7.2% and 5.9% respectively. Totally, export transportation increased by 3.6%.



From raw materialsto products

The key trend of 2005 is the decrease of growth rate for the transportation of leading cargoes that traditionally contributed most to the operation and profit of rail transport. What are the reasons and will the trend continue in 2006?

Late 2004-early 2005 was the period when oil bulk transportation dropped substantially. The main reasons for the reduction are high export dues for crude oil and sharp decrease (to almost zero) of YUKOS' produce transportation.

Incidentally, the nationalization of YUKOS assets today negatively affects the functioning and revenue of the Kuybyshevskaya railway, which takes the lion's share of oil bulk transportation in the total network of Russian railways total network throughput of the cargo. According to the experts of OAO RZD, in 2005 oil bulk constituted 50% of the Kuybyshevskaya railway loading volume, while in 2004 it exceeded 55%. Thus, there was an 11% (or four-million tons) decrease of oil bulk loading volume in comparison with the previous year. At the same time, crude oil transportation fell down by 7.4 million tons or by 60% year-on-year.

The key reason is transfer of Yuganskneftegaz (the main YUKOS' oil extracting asset) to OAO Rosneft and the re-routing of crude oil flows to China. These resulted in the situation when YUKOS' refineries located in the Samara region did not receive about 33.2% or 9.2 million tons of crude oil in comparison with 2004. Moreover, oil bulk flows were re-routed to the pipelines, due to lower prices and low quality of crude oil produced by some companies for which there is no demand on the international market. These companies prefer to use pipelines, where their oil is mixed with better quality "black gold" of other producers and together they make the Russian brand "Urals".

Having reduced crude oil transportation volumes, the majority of companies increased refining and, consequently, oil products loading grew. For instance, YUKOS-Transservice transported almost by 20% more oil products than during 2004, Nizhnekamsky refinery increased oil loading by 6%. OAO Salavatnefteorgsintez performed best in terms of loading volume growth rate - oil products loading grew by 40% year-on-year. In total, in 2005 the loading of oil products on the Kuybyshevskaya railway rose by 14% or 3.4 million tons, in comparison with the results of the previous year. A similar situation can be observed on other railways of the network: in 2005 the share of crude oil transportation decreased, while oil products replaced the volume. A fall of crude oil rail transportation amounted to 10.5%. Evidently, due to a plentiful supply of pipeline facilities and lower tariffs, oil producers preferred the traditional transport for crude oil. Transportation of oil products, on the contrary, increased by 8%, which is even higher than its production rate. 

According to some data, volumes of oil refinery grew by 6.4% in 2005. Diesel oil production grew most (by 8.3%), fuel oil increased by 5.8%, and petrol was up by 4.9%. Thus, the situation on the market is not likely to change this year.

However, analysts have already pointed to the decrease of the oil extraction volumes growth rate: in 2005 the volumes increased by only 2.4% against the 8.9% increase in 2004. The fall is explained by the reserve depletion in the traditional regions and insufficient investment into oil and gas provinces development.

In the coal industry, analysts also mark a substantial price increase (by almost 19%) in 2005 and in January of 2006. On the whole, experts evaluate a price growth in the treasures of the soil extraction sector at 44% on average, while the same index in the refinery industry amounted to only 8%. This illustrates the demand for energy carriers stability on the world markets.

The current situation in the Russian coal sector is not promising. According to OAO RZD, the loading of coal increased by 2.4% in comparison with 2004 at the expense of export growth, which amounted to 7%. Despite this, coal producers did not reach the target volume. In the Kuznetsk field (Kuzbass) coal producers load only 172.4 million tons, having claimed for 175 million tons, and the growth rate amounted to only 0.3% year-on-year. In 2006, the coal producers of the region claimed 180 million tons for transportation, which is extremely doubtful. Firstly, the experience of the previous year showed a negative trend and, secondly, the situation in the world market of coal changed after China, Kazakhstan and Ukraine had entered the market with much cheaper coal. However, according to the market opinion poll, Russian coal producers are not going to reduce prices of their produce referring to the cost price rise. This position results in numerous examples of losing markets due to the unwillingness to reduce prices, which leads to a decrease in produce volumes and, consequently, brings down the volumes of rail transportation.

However, the most difficult situation arose in the market of ferrous metals. Experts evaluate +ferrous metals price reduction at 1.6% in 2005, while in 2004 the index grew by 64.4% in comparison with the level of 2003. On the one hand, the situation could be considered stable. On the other hand, it increasingly looks like stagnation with the further negative trend. The main danger is an unfavourable situation on the global markets, where prices decrease. Another threat is the development of ferrous metal production in the largest steel producing country - China.

Thus, in 2005, China's produce substantially exceeded the country's domestic demand. In 2006, counting import, the overproduction volume is forecasted at over 50 million tons, whereof 30 million tons is to be exported. Such situation will result in price reduction in the Asian ferrous metals market. Moreover, Chinese export of ferrous metals is likely to win positions in the market of North America, which will lower prices. Thus, the optimism of the European metal producing giants, who declare a price increase following raw materials and electric energy cost rise, is ungrounded. Evidently, raw materials expenses keep growing, as this year mining companies has already announced iron ore prices to rise by 20%.

Railmen are also worried. The Yuzhno-Uralskaya (South-Ural) railway, which serves the majority of metallurgic plants of the country, reports that in 2005 ferrous metals loading volume remained at the level of 2004. At the same time, the share of ferrous metals dropped in the aggregate network transportation volume. 

Experts mark several trends in the development of metallurgic industry in the South-Ural region. Firstly, the biggest Russian plant - Magnitogorsk iron and steel works (MMK) - has overcome a serious problem. In 2004, due to its refusal to unite into a holding with its main iron ore suppliers - Sokolovsko-Sarbaysky, Mikhaylovsky and Lebedinsky ore mining and processing enterprises, - MMK lost these suppliers. And both, MMK and suppliers, lost a lot following this disagreement: the ore mining and processing enterprises lost their biggest client and Magnitogorsk iron and steel works had to pause one of its blast furnaces operation, as there was no ore and the plant could not operate at its full potential. Then railmen helped MMK by reducing tariffs for iron ore import from Ukraine and Kazakhstan. Thus, by late 2005 the plant managed to overcome the crisis and by November production growth rate amounted to 11%. However, due to the global price decrease, MMK's production volume in 2005 was at the level of the previous year.

Rail transport sector analysts quote the above mentioned change of the situation on the global ferrous metals market as the second reason for a decrease of ferrous metals loading volume growth rate. However, making a forecast for 2006, it should be said that, despite ferrous metal demand decrease continuing, Russian producers will keep their share of the market, as they have invested into produce development, in order to improve the quality of products. At the same time, due to the construction boom (including pipe line network construction) in Russia, produce of tubular industry is much in demand.

High iron ore produce and transportation rate was another trend of 2005. Particularly, export volumes grew sharply. In 2003, export of ore did not exceed 2%. Today the index amounts to over 6%.

To sum up, Russian economy is still on the rise, but, unfortunately, only at the expense of raw materials export, which can not ensure further stable development. Firstly, the country is too dependent on the prices on global market, and, as the volume of export flows is huge, any price fluctuation in the world markets could lead to whole produce facilities closing and, from the railways perspective, to a decrease in transportation volume. Secondly, export of raw materials is not economically sound, as they are always cheaper than products. However, today hi-tech producing countries also face an unstable situation, as prices of computers, mobile phones, domestic machinery and other products are falling down, while those of raw materials growing.



Will Volumes Help?

What Russian producers will export is difficult to predict. However, certain difficulties are already present. Some industrial sectors have already faced problems: for instance, despite the heavy frosts in Russia in January 2006, the demand for coal, either domestic, or international, did not change. However, Russian producers name high rail tariffs one of the key aspects hampering sales.

On January 1, 2006, freight rail tariffs were increased by 12.8%. However, the index is average and can not be a criterion for rail services price evaluation. In order to support producers, favourable tariffs were implemented. This concerns coal transportation, both domestic and import, export and transit: tariffs on some sorts of coke coals are reduced to the level of those for energy coals. Railmen estimate profit losses from these tariffs reduction at RUR 1 billion. Moreover, tariffs on oil transportation to the Russian Far East and China, as well as those for export of timber and logs, were reduced and tariffs on metals transportation to the Far-Eastern ports were kept low. Tariffs for export and import of iron ore were also cut. On the one hand, tariffs reduction is supposed to have a positive impact on rail transport operation, as it will level the transport constituent and, consequently, improve rail fleet usage, balance port loading and decrease rail car turn. All these, in the opinion of railmen, will enable them to increase transportation volume, but will the forecast come true?

It should be reminded that the loading growth rate is continuously decreasing, the share of profitable freight in the aggregate volume is reducing, the transportation of medium and low profitable freight is being stimulated by tariff reduction and the world market is extremely changeable. Thus, reducing tariffs in the hope of increasing volumes is a very questionable policy.



Competition: pros and contras

OAO RZD experts mark three main aspects affecting the company's profit. They are the average transportation length decrease, the freight flows re-routing from border crossing to ports in the first half of 2005 and the increase of private rolling stock transportation share. Profit losses by OAO RZD are estimated at about RUR 17 billion.

According to the Center of Transport Services of OAO RZD, in 2005 export via Russian ports grew by 2.5%, whereas via border crossings it was up by 3.9%. Profit from export transportation went up by 5.7% (from transportation via ports it rose by 3.9%, and via border crossings it increased by 7%). However, railmen believe that ports did not use all the advantages of the rail tariff reduction for transportation to ports as implemented in 2001. Particularly, in 2005, ports refused to handle over 8.2 million tons of export freight, and port transshipment junctions rejected 4.7 million tons of oil and products. Another limiting factor was the refusal to load by foreign railways (11.3 million tons of export). Losses resulting from this refusal are preliminary estimated at about RUR 19 billion. Losses from bans on loading cargo destined for companies rejecting to handle are estimated at RUR 1.03 billion. However, in 2005 the number of bans on loading freight destined for Russian ports decreased twofold amounting to 231 daily.

The development of competition in the sector of freight transportation could be considered the most significant trend of the year. The only question arises whether it is good or bad for OAO RZD. On the one hand, competition development is a strategic target of the structural reform of the sector. On the other hand, competition means profit losses for OAO RZD. Thus, according to OAO RZD, in 2005 the share of transportation in the private rolling stock increased 1.5-fold, in comparison with 2003, and now about a third of the aggregate freight volume is carried by private rail fleet. Moreover, in 2005, aggregate rail network carriage volume increased by 4% year-on-year; freight volume carried by OAO RZD's fleet grew by 1%, whereas that carried by private rolling stock rose by 17%. It should also be noted that almost 45% of high profitable cargoes, 20% of medium profitable and 24% of low profitable cargoes are carried in private fleet. Furthermore, the high profitable freight transportation growth rate for private rail fleet amounted to over 19%, while that for OAO RZD's rolling stock dropped to -2.9%. Another trend is OAO RZD's rail fleet rent reduction: during the period of 2003-2005, the share of transportation in rented from OAO RZD rolling stock decreased from 8% to 4%.

Thus, obviously, the results of the structural reform in the rail sector could be evaluated as successful and profitable for the country's economy. The interaction of railmen, consignors and other transport modes employees is improving. In January, OAO RZD took a remarkable step: the corporation allowed to accept freight for loading with payment during the month, which is exceptional for Russian railways and means that now rail transportation could be performed on credit terms. The measure was taken in order to prevent pauses in loading during the holidays (December, 30 - January, 9). However, the target was not reached due to severe frosts that caused technological difficulties, the measure is of crucial importance, as it means flexibility and attention of OAO RZD to its clients. 

There is another question arising in the field of tariff policy on rail transport, i.e. whether OAO RZD is a really business-structure or just a tool for the state support of other industry sectors. When ferrous metals, then oil and coal prices boomed on the world markets and producers' profit grew substantially, rail tariffs increased by inflation rate only. OAO RZD did not have the right to change tariffs and the Federal Tariff Service did not change them depending on world prices on produce. Thus, OAO Russian Railways did not and does not profit from any produce price increase, but any fluctuations of world prices result in producers' attempts to accuse the railmen of a too heavy transport constituent and to lobby a tariff reduction. Usually, producers end up getting lower tariffs, but not always supply the produce volume they promised for transportation.



Flexible tariffs for business development

The majority of rail transport analysts assume that OAO RZD has already proved to be a functioning business structure and the only limiting factor of the rail sector development is the absence of right to set tariffs on rail services. The situation is not just funny: the largest rail carrier being a natural monopoly does not have all the necessary rights to enter competition on equal terms, and other participants are more competitive than it is. Thus, private carriers are able to change their services price at the expense of the rail car constituent in the rail tariff. OAO RZD can not change tariffs. 

Several railways, affiliates of OAO RZD, have already developed a system of contract tariffs and offer the state to consider it. For instance, railways are willing to choose promising and profitable routes in order to increase volumes there at the expense of tariff change. In this case, there could be two requirements to tariffs set by railways: firstly, they should not be higher than set by the RF Federal Tariff Service and described in Tariff Regulation 10-01 and not lower than cost price. Thus, contract tariffs will depend on the type of freight, route, volume, term and payment guaranties. Tariffs could be reduced as well as increased (in order to balance freight flows, for instance).

Contract tariffs scheme should be available for all clients and based on contract signing. Thus, if the freight volume for transportation is less than promised, the tariff will be changed to the level of the acting Tariff Regulation 10-01 next month. As a result, OAO RZD will be able to compete with other rolling stock owners, increase profit and volumes of freight transportation. At last, such system is absolutely necessary for mass cargo transportation which is season-dependant (particularly, coal). OAO RZD should have the right to change tariffs within one railway or, in case of a particular agreement, within several railways. A flexible tariff system will make tariffs dependent on the world market price situation: thus, when prices for produce are high, carriers also get additional profit, but when the situation is unfavourable, rail tariffs are reduced in order to make Russian produce more competitive in the world market. Unfortunately, if OAO RZD does not obtain the right to change tariffs within set limits, the corporation will turn into a tool of state support for the country's producers.



TATYANA  TOKAREVA
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At the expense of highly profitable cargoes

In order to achieve the target, 3.6 million tons is to be carried daily. In 2005 such volumes could seem impossible; however, the loading volume during the period of June-December enabled to hit the records set within the last five years and on September 29 OAO RZD loaded 3.78 million tons, which is the highest daily figure for the last twelve years. 

In 2005, the best dynamics were showed by the Sverdlovskaya railway (+11.5 million tons or +10% year-on-year), the Severo-Kavkazskaya (North-Caucasian) railway (+8.3 million tons or +13.2%), the Vostochno-Sibirskaya (East-Siberian) railway (+7.6 million tons or +10.8%), the Octyabrskaya (October) railway (+5.6 million tons or +5.5%) and the Severnaya (Northern) railway (+3.9 million tons or +5.5%).

The structure of cargo has not changed: coal takes the lion's share (22.1%), minerals and construction materials make 21.7%, oil and products - 17.4%, iron ore - 10.2% and ferrous metals - 6.4%. Evidently, the trend of fast growth of highly profitable cargoes transportation has disappeared. According to the Center of Transport Services of OAO RZD, the loading of highly profitable cargoes rose by only 3.4% in 2005, which is lower than the network average growth rate. Particularly, experts notice that the ferrous metals transportation growth slowed down, amounting to 1.5% against 5.3% in 2004, while scrap metal carriage rose by only 2.7% against 26.6% in 2004. Partially, the lack of growth was compensated by oil bulk and containers transportation increase by 3.7% and 11.5% respectively.

Transportation of the medium-profitable cargoes, such as timber and logs, grain and non-ferrous ore, grew in line with the average network trend and amounted to 4.8% (timber and logs carriage increased by 7.8%, grain - by 10.2% and non-ferrous ore - by 3.4% respectively). The growth rate could be even higher, but coke dropped sharply by 13%, in comparison with the results of 2004. Incidentally, coke transportation decrease leads to a double loss for railways, as the volume of coke leaving concentration plants also falls down.

Low-profitable cargoes transportation grew substantially. Particularly, minerals and construction materials volume increased by 10.5%, mineral fertilizers - by 3.7%, coal and ores - by 2.4% and 1.8% respectively.

In 2005, the structure of foreign trade cargo transportation changed. Experts notice import cargo flow decrease, while export and transit shares grew. Thus, export freight transportation took 79.2% of the total carriage volume, which is by 0.2% up year-on-year; transit increased by 0.1% to 3.7% and the share of import constituted 16.7% against 17.1% in 2004.

The trend in the export cargo transportation, wherein oil and products take over 30%, coal - 23%, ferrous metals - 10%, timber and logs also 10%, fertilizers - 8% and ores - 6%, changed most dramatically. Traditionally, export freight transportation grew due to the increase of the above-listed cargoes, while in 2005 the most serious impact in export volume rise was made by grain, which more than doubled (+121.4%), minerals and construction materials (+23.4%) and timber and logs (+15.3%). The export of coal grew by 7.8%, that of iron ore and mineral fertilizers - by 7.2% and 5.9% respectively. Totally, export transportation increased by 3.6%.



From raw materialsto products

The key trend of 2005 is the decrease of growth rate for the transportation of leading cargoes that traditionally contributed most to the operation and profit of rail transport. What are the reasons and will the trend continue in 2006?

Late 2004-early 2005 was the period when oil bulk transportation dropped substantially. The main reasons for the reduction are high export dues for crude oil and sharp decrease (to almost zero) of YUKOS' produce transportation.

Incidentally, the nationalization of YUKOS assets today negatively affects the functioning and revenue of the Kuybyshevskaya railway, which takes the lion's share of oil bulk transportation in the total network of Russian railways total network throughput of the cargo. According to the experts of OAO RZD, in 2005 oil bulk constituted 50% of the Kuybyshevskaya railway loading volume, while in 2004 it exceeded 55%. Thus, there was an 11% (or four-million tons) decrease of oil bulk loading volume in comparison with the previous year. At the same time, crude oil transportation fell down by 7.4 million tons or by 60% year-on-year.

The key reason is transfer of Yuganskneftegaz (the main YUKOS' oil extracting asset) to OAO Rosneft and the re-routing of crude oil flows to China. These resulted in the situation when YUKOS' refineries located in the Samara region did not receive about 33.2% or 9.2 million tons of crude oil in comparison with 2004. Moreover, oil bulk flows were re-routed to the pipelines, due to lower prices and low quality of crude oil produced by some companies for which there is no demand on the international market. These companies prefer to use pipelines, where their oil is mixed with better quality "black gold" of other producers and together they make the Russian brand "Urals".

Having reduced crude oil transportation volumes, the majority of companies increased refining and, consequently, oil products loading grew. For instance, YUKOS-Transservice transported almost by 20% more oil products than during 2004, Nizhnekamsky refinery increased oil loading by 6%. OAO Salavatnefteorgsintez performed best in terms of loading volume growth rate - oil products loading grew by 40% year-on-year. In total, in 2005 the loading of oil products on the Kuybyshevskaya railway rose by 14% or 3.4 million tons, in comparison with the results of the previous year. A similar situation can be observed on other railways of the network: in 2005 the share of crude oil transportation decreased, while oil products replaced the volume. A fall of crude oil rail transportation amounted to 10.5%. Evidently, due to a plentiful supply of pipeline facilities and lower tariffs, oil producers preferred the traditional transport for crude oil. Transportation of oil products, on the contrary, increased by 8%, which is even higher than its production rate. 

According to some data, volumes of oil refinery grew by 6.4% in 2005. Diesel oil production grew most (by 8.3%), fuel oil increased by 5.8%, and petrol was up by 4.9%. Thus, the situation on the market is not likely to change this year.

However, analysts have already pointed to the decrease of the oil extraction volumes growth rate: in 2005 the volumes increased by only 2.4% against the 8.9% increase in 2004. The fall is explained by the reserve depletion in the traditional regions and insufficient investment into oil and gas provinces development.

In the coal industry, analysts also mark a substantial price increase (by almost 19%) in 2005 and in January of 2006. On the whole, experts evaluate a price growth in the treasures of the soil extraction sector at 44% on average, while the same index in the refinery industry amounted to only 8%. This illustrates the demand for energy carriers stability on the world markets.

The current situation in the Russian coal sector is not promising. According to OAO RZD, the loading of coal increased by 2.4% in comparison with 2004 at the expense of export growth, which amounted to 7%. Despite this, coal producers did not reach the target volume. In the Kuznetsk field (Kuzbass) coal producers load only 172.4 million tons, having claimed for 175 million tons, and the growth rate amounted to only 0.3% year-on-year. In 2006, the coal producers of the region claimed 180 million tons for transportation, which is extremely doubtful. Firstly, the experience of the previous year showed a negative trend and, secondly, the situation in the world market of coal changed after China, Kazakhstan and Ukraine had entered the market with much cheaper coal. However, according to the market opinion poll, Russian coal producers are not going to reduce prices of their produce referring to the cost price rise. This position results in numerous examples of losing markets due to the unwillingness to reduce prices, which leads to a decrease in produce volumes and, consequently, brings down the volumes of rail transportation.

However, the most difficult situation arose in the market of ferrous metals. Experts evaluate +ferrous metals price reduction at 1.6% in 2005, while in 2004 the index grew by 64.4% in comparison with the level of 2003. On the one hand, the situation could be considered stable. On the other hand, it increasingly looks like stagnation with the further negative trend. The main danger is an unfavourable situation on the global markets, where prices decrease. Another threat is the development of ferrous metal production in the largest steel producing country - China.

Thus, in 2005, China's produce substantially exceeded the country's domestic demand. In 2006, counting import, the overproduction volume is forecasted at over 50 million tons, whereof 30 million tons is to be exported. Such situation will result in price reduction in the Asian ferrous metals market. Moreover, Chinese export of ferrous metals is likely to win positions in the market of North America, which will lower prices. Thus, the optimism of the European metal producing giants, who declare a price increase following raw materials and electric energy cost rise, is ungrounded. Evidently, raw materials expenses keep growing, as this year mining companies has already announced iron ore prices to rise by 20%.

Railmen are also worried. The Yuzhno-Uralskaya (South-Ural) railway, which serves the majority of metallurgic plants of the country, reports that in 2005 ferrous metals loading volume remained at the level of 2004. At the same time, the share of ferrous metals dropped in the aggregate network transportation volume. 

Experts mark several trends in the development of metallurgic industry in the South-Ural region. Firstly, the biggest Russian plant - Magnitogorsk iron and steel works (MMK) - has overcome a serious problem. In 2004, due to its refusal to unite into a holding with its main iron ore suppliers - Sokolovsko-Sarbaysky, Mikhaylovsky and Lebedinsky ore mining and processing enterprises, - MMK lost these suppliers. And both, MMK and suppliers, lost a lot following this disagreement: the ore mining and processing enterprises lost their biggest client and Magnitogorsk iron and steel works had to pause one of its blast furnaces operation, as there was no ore and the plant could not operate at its full potential. Then railmen helped MMK by reducing tariffs for iron ore import from Ukraine and Kazakhstan. Thus, by late 2005 the plant managed to overcome the crisis and by November production growth rate amounted to 11%. However, due to the global price decrease, MMK's production volume in 2005 was at the level of the previous year.

Rail transport sector analysts quote the above mentioned change of the situation on the global ferrous metals market as the second reason for a decrease of ferrous metals loading volume growth rate. However, making a forecast for 2006, it should be said that, despite ferrous metal demand decrease continuing, Russian producers will keep their share of the market, as they have invested into produce development, in order to improve the quality of products. At the same time, due to the construction boom (including pipe line network construction) in Russia, produce of tubular industry is much in demand.

High iron ore produce and transportation rate was another trend of 2005. Particularly, export volumes grew sharply. In 2003, export of ore did not exceed 2%. Today the index amounts to over 6%.

To sum up, Russian economy is still on the rise, but, unfortunately, only at the expense of raw materials export, which can not ensure further stable development. Firstly, the country is too dependent on the prices on global market, and, as the volume of export flows is huge, any price fluctuation in the world markets could lead to whole produce facilities closing and, from the railways perspective, to a decrease in transportation volume. Secondly, export of raw materials is not economically sound, as they are always cheaper than products. However, today hi-tech producing countries also face an unstable situation, as prices of computers, mobile phones, domestic machinery and other products are falling down, while those of raw materials growing.



Will Volumes Help?

What Russian producers will export is difficult to predict. However, certain difficulties are already present. Some industrial sectors have already faced problems: for instance, despite the heavy frosts in Russia in January 2006, the demand for coal, either domestic, or international, did not change. However, Russian producers name high rail tariffs one of the key aspects hampering sales.

On January 1, 2006, freight rail tariffs were increased by 12.8%. However, the index is average and can not be a criterion for rail services price evaluation. In order to support producers, favourable tariffs were implemented. This concerns coal transportation, both domestic and import, export and transit: tariffs on some sorts of coke coals are reduced to the level of those for energy coals. Railmen estimate profit losses from these tariffs reduction at RUR 1 billion. Moreover, tariffs on oil transportation to the Russian Far East and China, as well as those for export of timber and logs, were reduced and tariffs on metals transportation to the Far-Eastern ports were kept low. Tariffs for export and import of iron ore were also cut. On the one hand, tariffs reduction is supposed to have a positive impact on rail transport operation, as it will level the transport constituent and, consequently, improve rail fleet usage, balance port loading and decrease rail car turn. All these, in the opinion of railmen, will enable them to increase transportation volume, but will the forecast come true?

It should be reminded that the loading growth rate is continuously decreasing, the share of profitable freight in the aggregate volume is reducing, the transportation of medium and low profitable freight is being stimulated by tariff reduction and the world market is extremely changeable. Thus, reducing tariffs in the hope of increasing volumes is a very questionable policy.



Competition: pros and contras

OAO RZD experts mark three main aspects affecting the company's profit. They are the average transportation length decrease, the freight flows re-routing from border crossing to ports in the first half of 2005 and the increase of private rolling stock transportation share. Profit losses by OAO RZD are estimated at about RUR 17 billion.

According to the Center of Transport Services of OAO RZD, in 2005 export via Russian ports grew by 2.5%, whereas via border crossings it was up by 3.9%. Profit from export transportation went up by 5.7% (from transportation via ports it rose by 3.9%, and via border crossings it increased by 7%). However, railmen believe that ports did not use all the advantages of the rail tariff reduction for transportation to ports as implemented in 2001. Particularly, in 2005, ports refused to handle over 8.2 million tons of export freight, and port transshipment junctions rejected 4.7 million tons of oil and products. Another limiting factor was the refusal to load by foreign railways (11.3 million tons of export). Losses resulting from this refusal are preliminary estimated at about RUR 19 billion. Losses from bans on loading cargo destined for companies rejecting to handle are estimated at RUR 1.03 billion. However, in 2005 the number of bans on loading freight destined for Russian ports decreased twofold amounting to 231 daily.

The development of competition in the sector of freight transportation could be considered the most significant trend of the year. The only question arises whether it is good or bad for OAO RZD. On the one hand, competition development is a strategic target of the structural reform of the sector. On the other hand, competition means profit losses for OAO RZD. Thus, according to OAO RZD, in 2005 the share of transportation in the private rolling stock increased 1.5-fold, in comparison with 2003, and now about a third of the aggregate freight volume is carried by private rail fleet. Moreover, in 2005, aggregate rail network carriage volume increased by 4% year-on-year; freight volume carried by OAO RZD's fleet grew by 1%, whereas that carried by private rolling stock rose by 17%. It should also be noted that almost 45% of high profitable cargoes, 20% of medium profitable and 24% of low profitable cargoes are carried in private fleet. Furthermore, the high profitable freight transportation growth rate for private rail fleet amounted to over 19%, while that for OAO RZD's rolling stock dropped to -2.9%. Another trend is OAO RZD's rail fleet rent reduction: during the period of 2003-2005, the share of transportation in rented from OAO RZD rolling stock decreased from 8% to 4%.

Thus, obviously, the results of the structural reform in the rail sector could be evaluated as successful and profitable for the country's economy. The interaction of railmen, consignors and other transport modes employees is improving. In January, OAO RZD took a remarkable step: the corporation allowed to accept freight for loading with payment during the month, which is exceptional for Russian railways and means that now rail transportation could be performed on credit terms. The measure was taken in order to prevent pauses in loading during the holidays (December, 30 - January, 9). However, the target was not reached due to severe frosts that caused technological difficulties, the measure is of crucial importance, as it means flexibility and attention of OAO RZD to its clients. 

There is another question arising in the field of tariff policy on rail transport, i.e. whether OAO RZD is a really business-structure or just a tool for the state support of other industry sectors. When ferrous metals, then oil and coal prices boomed on the world markets and producers' profit grew substantially, rail tariffs increased by inflation rate only. OAO RZD did not have the right to change tariffs and the Federal Tariff Service did not change them depending on world prices on produce. Thus, OAO Russian Railways did not and does not profit from any produce price increase, but any fluctuations of world prices result in producers' attempts to accuse the railmen of a too heavy transport constituent and to lobby a tariff reduction. Usually, producers end up getting lower tariffs, but not always supply the produce volume they promised for transportation.



Flexible tariffs for business development

The majority of rail transport analysts assume that OAO RZD has already proved to be a functioning business structure and the only limiting factor of the rail sector development is the absence of right to set tariffs on rail services. The situation is not just funny: the largest rail carrier being a natural monopoly does not have all the necessary rights to enter competition on equal terms, and other participants are more competitive than it is. Thus, private carriers are able to change their services price at the expense of the rail car constituent in the rail tariff. OAO RZD can not change tariffs. 

Several railways, affiliates of OAO RZD, have already developed a system of contract tariffs and offer the state to consider it. For instance, railways are willing to choose promising and profitable routes in order to increase volumes there at the expense of tariff change. In this case, there could be two requirements to tariffs set by railways: firstly, they should not be higher than set by the RF Federal Tariff Service and described in Tariff Regulation 10-01 and not lower than cost price. Thus, contract tariffs will depend on the type of freight, route, volume, term and payment guaranties. Tariffs could be reduced as well as increased (in order to balance freight flows, for instance).

Contract tariffs scheme should be available for all clients and based on contract signing. Thus, if the freight volume for transportation is less than promised, the tariff will be changed to the level of the acting Tariff Regulation 10-01 next month. As a result, OAO RZD will be able to compete with other rolling stock owners, increase profit and volumes of freight transportation. At last, such system is absolutely necessary for mass cargo transportation which is season-dependant (particularly, coal). OAO RZD should have the right to change tariffs within one railway or, in case of a particular agreement, within several railways. A flexible tariff system will make tariffs dependent on the world market price situation: thus, when prices for produce are high, carriers also get additional profit, but when the situation is unfavourable, rail tariffs are reduced in order to make Russian produce more competitive in the world market. Unfortunately, if OAO RZD does not obtain the right to change tariffs within set limits, the corporation will turn into a tool of state support for the country's producers.



TATYANA  TOKAREVA
    [~DETAIL_TEXT] => 

At the expense of highly profitable cargoes

In order to achieve the target, 3.6 million tons is to be carried daily. In 2005 such volumes could seem impossible; however, the loading volume during the period of June-December enabled to hit the records set within the last five years and on September 29 OAO RZD loaded 3.78 million tons, which is the highest daily figure for the last twelve years. 

In 2005, the best dynamics were showed by the Sverdlovskaya railway (+11.5 million tons or +10% year-on-year), the Severo-Kavkazskaya (North-Caucasian) railway (+8.3 million tons or +13.2%), the Vostochno-Sibirskaya (East-Siberian) railway (+7.6 million tons or +10.8%), the Octyabrskaya (October) railway (+5.6 million tons or +5.5%) and the Severnaya (Northern) railway (+3.9 million tons or +5.5%).

The structure of cargo has not changed: coal takes the lion's share (22.1%), minerals and construction materials make 21.7%, oil and products - 17.4%, iron ore - 10.2% and ferrous metals - 6.4%. Evidently, the trend of fast growth of highly profitable cargoes transportation has disappeared. According to the Center of Transport Services of OAO RZD, the loading of highly profitable cargoes rose by only 3.4% in 2005, which is lower than the network average growth rate. Particularly, experts notice that the ferrous metals transportation growth slowed down, amounting to 1.5% against 5.3% in 2004, while scrap metal carriage rose by only 2.7% against 26.6% in 2004. Partially, the lack of growth was compensated by oil bulk and containers transportation increase by 3.7% and 11.5% respectively.

Transportation of the medium-profitable cargoes, such as timber and logs, grain and non-ferrous ore, grew in line with the average network trend and amounted to 4.8% (timber and logs carriage increased by 7.8%, grain - by 10.2% and non-ferrous ore - by 3.4% respectively). The growth rate could be even higher, but coke dropped sharply by 13%, in comparison with the results of 2004. Incidentally, coke transportation decrease leads to a double loss for railways, as the volume of coke leaving concentration plants also falls down.

Low-profitable cargoes transportation grew substantially. Particularly, minerals and construction materials volume increased by 10.5%, mineral fertilizers - by 3.7%, coal and ores - by 2.4% and 1.8% respectively.

In 2005, the structure of foreign trade cargo transportation changed. Experts notice import cargo flow decrease, while export and transit shares grew. Thus, export freight transportation took 79.2% of the total carriage volume, which is by 0.2% up year-on-year; transit increased by 0.1% to 3.7% and the share of import constituted 16.7% against 17.1% in 2004.

The trend in the export cargo transportation, wherein oil and products take over 30%, coal - 23%, ferrous metals - 10%, timber and logs also 10%, fertilizers - 8% and ores - 6%, changed most dramatically. Traditionally, export freight transportation grew due to the increase of the above-listed cargoes, while in 2005 the most serious impact in export volume rise was made by grain, which more than doubled (+121.4%), minerals and construction materials (+23.4%) and timber and logs (+15.3%). The export of coal grew by 7.8%, that of iron ore and mineral fertilizers - by 7.2% and 5.9% respectively. Totally, export transportation increased by 3.6%.



From raw materialsto products

The key trend of 2005 is the decrease of growth rate for the transportation of leading cargoes that traditionally contributed most to the operation and profit of rail transport. What are the reasons and will the trend continue in 2006?

Late 2004-early 2005 was the period when oil bulk transportation dropped substantially. The main reasons for the reduction are high export dues for crude oil and sharp decrease (to almost zero) of YUKOS' produce transportation.

Incidentally, the nationalization of YUKOS assets today negatively affects the functioning and revenue of the Kuybyshevskaya railway, which takes the lion's share of oil bulk transportation in the total network of Russian railways total network throughput of the cargo. According to the experts of OAO RZD, in 2005 oil bulk constituted 50% of the Kuybyshevskaya railway loading volume, while in 2004 it exceeded 55%. Thus, there was an 11% (or four-million tons) decrease of oil bulk loading volume in comparison with the previous year. At the same time, crude oil transportation fell down by 7.4 million tons or by 60% year-on-year.

The key reason is transfer of Yuganskneftegaz (the main YUKOS' oil extracting asset) to OAO Rosneft and the re-routing of crude oil flows to China. These resulted in the situation when YUKOS' refineries located in the Samara region did not receive about 33.2% or 9.2 million tons of crude oil in comparison with 2004. Moreover, oil bulk flows were re-routed to the pipelines, due to lower prices and low quality of crude oil produced by some companies for which there is no demand on the international market. These companies prefer to use pipelines, where their oil is mixed with better quality "black gold" of other producers and together they make the Russian brand "Urals".

Having reduced crude oil transportation volumes, the majority of companies increased refining and, consequently, oil products loading grew. For instance, YUKOS-Transservice transported almost by 20% more oil products than during 2004, Nizhnekamsky refinery increased oil loading by 6%. OAO Salavatnefteorgsintez performed best in terms of loading volume growth rate - oil products loading grew by 40% year-on-year. In total, in 2005 the loading of oil products on the Kuybyshevskaya railway rose by 14% or 3.4 million tons, in comparison with the results of the previous year. A similar situation can be observed on other railways of the network: in 2005 the share of crude oil transportation decreased, while oil products replaced the volume. A fall of crude oil rail transportation amounted to 10.5%. Evidently, due to a plentiful supply of pipeline facilities and lower tariffs, oil producers preferred the traditional transport for crude oil. Transportation of oil products, on the contrary, increased by 8%, which is even higher than its production rate. 

According to some data, volumes of oil refinery grew by 6.4% in 2005. Diesel oil production grew most (by 8.3%), fuel oil increased by 5.8%, and petrol was up by 4.9%. Thus, the situation on the market is not likely to change this year.

However, analysts have already pointed to the decrease of the oil extraction volumes growth rate: in 2005 the volumes increased by only 2.4% against the 8.9% increase in 2004. The fall is explained by the reserve depletion in the traditional regions and insufficient investment into oil and gas provinces development.

In the coal industry, analysts also mark a substantial price increase (by almost 19%) in 2005 and in January of 2006. On the whole, experts evaluate a price growth in the treasures of the soil extraction sector at 44% on average, while the same index in the refinery industry amounted to only 8%. This illustrates the demand for energy carriers stability on the world markets.

The current situation in the Russian coal sector is not promising. According to OAO RZD, the loading of coal increased by 2.4% in comparison with 2004 at the expense of export growth, which amounted to 7%. Despite this, coal producers did not reach the target volume. In the Kuznetsk field (Kuzbass) coal producers load only 172.4 million tons, having claimed for 175 million tons, and the growth rate amounted to only 0.3% year-on-year. In 2006, the coal producers of the region claimed 180 million tons for transportation, which is extremely doubtful. Firstly, the experience of the previous year showed a negative trend and, secondly, the situation in the world market of coal changed after China, Kazakhstan and Ukraine had entered the market with much cheaper coal. However, according to the market opinion poll, Russian coal producers are not going to reduce prices of their produce referring to the cost price rise. This position results in numerous examples of losing markets due to the unwillingness to reduce prices, which leads to a decrease in produce volumes and, consequently, brings down the volumes of rail transportation.

However, the most difficult situation arose in the market of ferrous metals. Experts evaluate +ferrous metals price reduction at 1.6% in 2005, while in 2004 the index grew by 64.4% in comparison with the level of 2003. On the one hand, the situation could be considered stable. On the other hand, it increasingly looks like stagnation with the further negative trend. The main danger is an unfavourable situation on the global markets, where prices decrease. Another threat is the development of ferrous metal production in the largest steel producing country - China.

Thus, in 2005, China's produce substantially exceeded the country's domestic demand. In 2006, counting import, the overproduction volume is forecasted at over 50 million tons, whereof 30 million tons is to be exported. Such situation will result in price reduction in the Asian ferrous metals market. Moreover, Chinese export of ferrous metals is likely to win positions in the market of North America, which will lower prices. Thus, the optimism of the European metal producing giants, who declare a price increase following raw materials and electric energy cost rise, is ungrounded. Evidently, raw materials expenses keep growing, as this year mining companies has already announced iron ore prices to rise by 20%.

Railmen are also worried. The Yuzhno-Uralskaya (South-Ural) railway, which serves the majority of metallurgic plants of the country, reports that in 2005 ferrous metals loading volume remained at the level of 2004. At the same time, the share of ferrous metals dropped in the aggregate network transportation volume. 

Experts mark several trends in the development of metallurgic industry in the South-Ural region. Firstly, the biggest Russian plant - Magnitogorsk iron and steel works (MMK) - has overcome a serious problem. In 2004, due to its refusal to unite into a holding with its main iron ore suppliers - Sokolovsko-Sarbaysky, Mikhaylovsky and Lebedinsky ore mining and processing enterprises, - MMK lost these suppliers. And both, MMK and suppliers, lost a lot following this disagreement: the ore mining and processing enterprises lost their biggest client and Magnitogorsk iron and steel works had to pause one of its blast furnaces operation, as there was no ore and the plant could not operate at its full potential. Then railmen helped MMK by reducing tariffs for iron ore import from Ukraine and Kazakhstan. Thus, by late 2005 the plant managed to overcome the crisis and by November production growth rate amounted to 11%. However, due to the global price decrease, MMK's production volume in 2005 was at the level of the previous year.

Rail transport sector analysts quote the above mentioned change of the situation on the global ferrous metals market as the second reason for a decrease of ferrous metals loading volume growth rate. However, making a forecast for 2006, it should be said that, despite ferrous metal demand decrease continuing, Russian producers will keep their share of the market, as they have invested into produce development, in order to improve the quality of products. At the same time, due to the construction boom (including pipe line network construction) in Russia, produce of tubular industry is much in demand.

High iron ore produce and transportation rate was another trend of 2005. Particularly, export volumes grew sharply. In 2003, export of ore did not exceed 2%. Today the index amounts to over 6%.

To sum up, Russian economy is still on the rise, but, unfortunately, only at the expense of raw materials export, which can not ensure further stable development. Firstly, the country is too dependent on the prices on global market, and, as the volume of export flows is huge, any price fluctuation in the world markets could lead to whole produce facilities closing and, from the railways perspective, to a decrease in transportation volume. Secondly, export of raw materials is not economically sound, as they are always cheaper than products. However, today hi-tech producing countries also face an unstable situation, as prices of computers, mobile phones, domestic machinery and other products are falling down, while those of raw materials growing.



Will Volumes Help?

What Russian producers will export is difficult to predict. However, certain difficulties are already present. Some industrial sectors have already faced problems: for instance, despite the heavy frosts in Russia in January 2006, the demand for coal, either domestic, or international, did not change. However, Russian producers name high rail tariffs one of the key aspects hampering sales.

On January 1, 2006, freight rail tariffs were increased by 12.8%. However, the index is average and can not be a criterion for rail services price evaluation. In order to support producers, favourable tariffs were implemented. This concerns coal transportation, both domestic and import, export and transit: tariffs on some sorts of coke coals are reduced to the level of those for energy coals. Railmen estimate profit losses from these tariffs reduction at RUR 1 billion. Moreover, tariffs on oil transportation to the Russian Far East and China, as well as those for export of timber and logs, were reduced and tariffs on metals transportation to the Far-Eastern ports were kept low. Tariffs for export and import of iron ore were also cut. On the one hand, tariffs reduction is supposed to have a positive impact on rail transport operation, as it will level the transport constituent and, consequently, improve rail fleet usage, balance port loading and decrease rail car turn. All these, in the opinion of railmen, will enable them to increase transportation volume, but will the forecast come true?

It should be reminded that the loading growth rate is continuously decreasing, the share of profitable freight in the aggregate volume is reducing, the transportation of medium and low profitable freight is being stimulated by tariff reduction and the world market is extremely changeable. Thus, reducing tariffs in the hope of increasing volumes is a very questionable policy.



Competition: pros and contras

OAO RZD experts mark three main aspects affecting the company's profit. They are the average transportation length decrease, the freight flows re-routing from border crossing to ports in the first half of 2005 and the increase of private rolling stock transportation share. Profit losses by OAO RZD are estimated at about RUR 17 billion.

According to the Center of Transport Services of OAO RZD, in 2005 export via Russian ports grew by 2.5%, whereas via border crossings it was up by 3.9%. Profit from export transportation went up by 5.7% (from transportation via ports it rose by 3.9%, and via border crossings it increased by 7%). However, railmen believe that ports did not use all the advantages of the rail tariff reduction for transportation to ports as implemented in 2001. Particularly, in 2005, ports refused to handle over 8.2 million tons of export freight, and port transshipment junctions rejected 4.7 million tons of oil and products. Another limiting factor was the refusal to load by foreign railways (11.3 million tons of export). Losses resulting from this refusal are preliminary estimated at about RUR 19 billion. Losses from bans on loading cargo destined for companies rejecting to handle are estimated at RUR 1.03 billion. However, in 2005 the number of bans on loading freight destined for Russian ports decreased twofold amounting to 231 daily.

The development of competition in the sector of freight transportation could be considered the most significant trend of the year. The only question arises whether it is good or bad for OAO RZD. On the one hand, competition development is a strategic target of the structural reform of the sector. On the other hand, competition means profit losses for OAO RZD. Thus, according to OAO RZD, in 2005 the share of transportation in the private rolling stock increased 1.5-fold, in comparison with 2003, and now about a third of the aggregate freight volume is carried by private rail fleet. Moreover, in 2005, aggregate rail network carriage volume increased by 4% year-on-year; freight volume carried by OAO RZD's fleet grew by 1%, whereas that carried by private rolling stock rose by 17%. It should also be noted that almost 45% of high profitable cargoes, 20% of medium profitable and 24% of low profitable cargoes are carried in private fleet. Furthermore, the high profitable freight transportation growth rate for private rail fleet amounted to over 19%, while that for OAO RZD's rolling stock dropped to -2.9%. Another trend is OAO RZD's rail fleet rent reduction: during the period of 2003-2005, the share of transportation in rented from OAO RZD rolling stock decreased from 8% to 4%.

Thus, obviously, the results of the structural reform in the rail sector could be evaluated as successful and profitable for the country's economy. The interaction of railmen, consignors and other transport modes employees is improving. In January, OAO RZD took a remarkable step: the corporation allowed to accept freight for loading with payment during the month, which is exceptional for Russian railways and means that now rail transportation could be performed on credit terms. The measure was taken in order to prevent pauses in loading during the holidays (December, 30 - January, 9). However, the target was not reached due to severe frosts that caused technological difficulties, the measure is of crucial importance, as it means flexibility and attention of OAO RZD to its clients. 

There is another question arising in the field of tariff policy on rail transport, i.e. whether OAO RZD is a really business-structure or just a tool for the state support of other industry sectors. When ferrous metals, then oil and coal prices boomed on the world markets and producers' profit grew substantially, rail tariffs increased by inflation rate only. OAO RZD did not have the right to change tariffs and the Federal Tariff Service did not change them depending on world prices on produce. Thus, OAO Russian Railways did not and does not profit from any produce price increase, but any fluctuations of world prices result in producers' attempts to accuse the railmen of a too heavy transport constituent and to lobby a tariff reduction. Usually, producers end up getting lower tariffs, but not always supply the produce volume they promised for transportation.



Flexible tariffs for business development

The majority of rail transport analysts assume that OAO RZD has already proved to be a functioning business structure and the only limiting factor of the rail sector development is the absence of right to set tariffs on rail services. The situation is not just funny: the largest rail carrier being a natural monopoly does not have all the necessary rights to enter competition on equal terms, and other participants are more competitive than it is. Thus, private carriers are able to change their services price at the expense of the rail car constituent in the rail tariff. OAO RZD can not change tariffs. 

Several railways, affiliates of OAO RZD, have already developed a system of contract tariffs and offer the state to consider it. For instance, railways are willing to choose promising and profitable routes in order to increase volumes there at the expense of tariff change. In this case, there could be two requirements to tariffs set by railways: firstly, they should not be higher than set by the RF Federal Tariff Service and described in Tariff Regulation 10-01 and not lower than cost price. Thus, contract tariffs will depend on the type of freight, route, volume, term and payment guaranties. Tariffs could be reduced as well as increased (in order to balance freight flows, for instance).

Contract tariffs scheme should be available for all clients and based on contract signing. Thus, if the freight volume for transportation is less than promised, the tariff will be changed to the level of the acting Tariff Regulation 10-01 next month. As a result, OAO RZD will be able to compete with other rolling stock owners, increase profit and volumes of freight transportation. At last, such system is absolutely necessary for mass cargo transportation which is season-dependant (particularly, coal). OAO RZD should have the right to change tariffs within one railway or, in case of a particular agreement, within several railways. A flexible tariff system will make tariffs dependent on the world market price situation: thus, when prices for produce are high, carriers also get additional profit, but when the situation is unfavourable, rail tariffs are reduced in order to make Russian produce more competitive in the world market. Unfortunately, if OAO RZD does not obtain the right to change tariffs within set limits, the corporation will turn into a tool of state support for the country's producers.



TATYANA  TOKAREVA
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