INVESTORS REACH TENTATIVE AGREEMENT ON NEW SEVSIB RAILWAY

Russian officials have disclosed plans for yet another ambitious railway scheme, the North Siberian Railway or SevSib, apparently patterned after the Trans-Siberian Railway (TransSib). But the announcement provided yet another reminder that Russia’s sizable railway projects in the East often hemorrhage red ink and take far too long to materialize.

According to Russian Railways (RZD) CEO Vladimir Yakunin, SevSib project development will start in 2008. The state-run Vneshekonombank (VEB) will finance the project, he added, without disclosing the amount of the planned investment (Interfax, February 18). Construction is expected to start in 2010, and the project is due to be completed in five years, according to RZD.

The 2,000-kilometer SevSib rail system would traverse the northern regions of Western and Eastern Siberia to connect Nizhnevartovsk in Khanty-Mansiisky region and Ust-Ilimsk in Irkutsk region, where SevSib is to be linked with the BAM rail line. The railway would go across Tomsk and Krasnoyarsk regions, stopping at stations in Yeniseisk and Lesosibirsk. SevSib is expected to cost between 230 billion and 500 billion rubles ($9.6–$20.8 billion) and funnel 60 million tons of freight and seven million passengers a year by 2025, according to RZD (Interfax, February 18).

Russian Railways, VEB, the Siberian regional administration, and other companies to be potentially involved in the project discussed and tentatively approved a draft agreement on SevSib on February 8 in Tomsk.

SevSib should become the largest project in Russia realized in partnership between state-run entities and private companies, Tomsk first deputy governor Oksana Kozlovskaya told the meeting in Tomsk. Apart from state-run Russian Railways and VEB, private companies RusAl and HydroOGK were named as potential investors (Interfax, RIA-Novosti, February 8).

However, the potential partners appear to be struggling to agree on the terms of the SevSib project. On February 19 Andrei Putsik, head of investment for the Irkutsk regional administration, announced that the agreement was likely to be signed during the Baikal Economic Forum in September 2008 (Teleinform news agency, February 19).

Nonetheless, regional officials still sound optimistic about SevSib plans. Tomsk governor Viktor Kress argued that SevSib would facilitate intensified development of Tomsk region. He named the Severskaya nuclear power plant and modernization of Tomskneftekhim petrochemical plant as being among the region’s priority project. Some 800 kilometers of the 2,000-kilometer SevSib would traverse Tomsk region, he noted (Tomsky Vestnik weekly, February 27).

The SevSib announcement was followed by new developments on some smaller railway projects in Siberia. On February 19, Russia’s Mechel steel group and the Transstroi construction firm signed a contract in Moscow to build the 315-kilometer Ulak-Elga railway in Yakutiya. The project is designed to give access to the Elginsky coal deposit, which has estimated reserves of some 2.2 billion tons. The railway would funnel 25 million tons of freight each year (Interfax, February 19).

Furthermore, on February 8 Alexander Khoroshavin, of the Sakhalin regional administration, argued that the island still needed a railway link with the rest of Russia. A new transportation link, whether a tunnel or a bridge, would give the island’s economic development a major boost, he said (Interfax, February 8).

Russian railway officials have long had a railway link between Sakhalin and the mainland on the drawing board. In April 2007, Russia revealed an extraordinary project to build a transcontinental Yakutsk-Magadan-Anadyr-Alaska rail link, including the world’s longest subsea tunnel under the Bering Strait, at an estimated cost of some $55-67 billion.

Plans for the Sakhalin tunnel, another tunnel under the Bering Strait, the Yakutiya railway, and the Baikal-Amur Railway line (BAM) were first considered in the 19th century. The BAM idea was revived by Soviet dictator Joseph Stalin, and its eastern section was built during the 1930s and 1940s. BAM construction was revived again in the early 1970s, and the 4,000-kilometer rail system was finally declared complete in 1991 at an estimated cost of $10 billion.

Another part of East Siberia’s railway system, Yakutiya Railway, has also been subject to delays. Russian began building the 820-kilometer-long railway between Yakutsk and the BAM line in the early 1990s. Although it was originally expected to be completed by 1998, now its completion is now expected later this year—a full decade behind schedule.

The relatively new Siberian railways such as Yakutiya Railway and BAM are struggling to become economically feasible, because revenues still only cover roughly half of the maintenance costs. These lines are located at permafrost areas and their maintenance is expensive. Subsequently, the cost of freight carried by Yakutiya Railway and the BAM is roughly twice as high as compared with shipping via the older Trans-Siberian Railway. Both Yakutiya Railway and the BAM were originally supposed to give the development of Eastern Siberia a much needed boost, but these prolonged projects have been slow to encourage new industries in the region.

In terms of scale and engineering challenges, the proposed SevSib rail line could be comparable with the BAM and exceed Yakutiya Railway. The SevSib link would run through difficult terrain of permafrost areas, and its construction and maintenance costs would be very significant. Therefore, backers of the SevSib rail line now face the difficult task of proving the economic viability of the proposed link.