Publication: Monitor Volume: 4 Issue: 12

First Deputy Prime Minister Anatoly Chubais on January 10 presented to the government’s Commission on Economic Reform the cabinet’s 1998-2000 program to reform the country’s gargantuan rail system. Although this reform program is based on principles that have been applied successfully in other countries, the politics of its implementation in Russia could prove to exceed Chubais’s (apparently waning) influence.

The program, called "The Structural Reform of Rail Transport" (Itar-Tass, January 10), is descended from the "natural monopoly" reform initiatives begun in 1996 by then economics minister (and now Minister without Portfolio) Yevgeny Yasin, and continued last year by First Deputy Prime Minister Boris Nemtsov. As was the case with Nemtsov’s proposed reform of Gazprom and the UES electricity monopoly, the goal is to restructure Russia’s rail industry to maximize competition. This is to be done selectively by separating the monopolistic rail infrastructure (the rail network, stations, switching equipment, etc.) from those segments of the industry in which lower start-up costs allow competing companies to provide rail transport services on a commercial basis. These services include freight and passenger delivery, services to freight and passenger companies, and transport-expeditionary services.

Rail demonopolization began in the U.S. and UK some 20 years ago, and in principle there is no reason why it cannot work in Russia as well. The politics of reforming Russia’s railroads are daunting, however. The Railroad Ministry’s 2,000 employees manage Russia’s 16 major rail companies (all of which are state enterprises) as a national cartel, in which each railroad has a de facto monopoly over long-distance rail service within its region. The railroads’ regional character, moreover, makes them natural allies of the regional authorities, which have in turn resisted reformers’ attempts to restructure the railroads. In addition, the regional authorities and the railroad companies can in general count on the support of the industry’s two million employees, who themselves constitute a formidable national lobby.

Nemtsov’s spring-time "offensive" against Gazprom and UES yielded only mixed results, as neither company has been forced to make fundamental changes. Whether Chubais (or other government officials) will have better luck with the railroads remains to be seen.

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