MOSCOW CONCEDES NEED FOR MAJOR TRANSIT INVESTMENT

At the State Council’s November 13 meeting in Krasnoyarsk, Russian President Vladimir Putin declared that transportation infrastructure is strategically important for the country’s economic growth. He conceded that the bulk of Russia’s transportation facilities have become worn-out and obsolete, as most civilian planes, river ships, and rail cars are well beyond their service life. In the past 15 years the number of operational airports dropped fourfold, while the amortization of existing airport facilities reached a critical level of 80%, Putin said (Interfax, RIA-Novosti, November 13).

Government authorities have voiced concern that the poor state of Russia’s transportation network has not allowed Moscow to earn more from international transit services. Russia is yet to fully capitalize on its transit potential, according to a report by the State Council’s working group. The country currently funnels around 1% of total freight between Europe and Asia, thus it uses only 5-7% of its transit potential. The report also acknowledged that Russia’s overall development was hampered by the poor state of its transportation infrastructure (Interfax, November 13).

The Russian leadership suggested a long-term vision designed to improve the situation. Transportation Minister Igor Levitin told the State Council that the government should draft a blueprint to develop the country’s transportation system through 2030. Russia’s overall investments in transportation development could reach 4.8% of the gross domestic product, he said (Interfax, November 13).

“We should, of course, adopt the blueprint to develop the country’s transportation system by 2030,” because so far the country’s transportation problems have been solved far too slowly, Putin said. Otherwise, underdeveloped transportation infrastructure could hinder the country’s economic progress, Putin argued (Interfax, RIA-Novosti, November 13).

The government suggested focusing on the country’s railways as a key element in Russia’s transportation network. Investment in Russia’s rail monopoly, Russian Railways (RZD), would reach 1.331 trillion rubles ($54.3 billion) in 2008-2010, Prime Minister Viktor Zubkov told a cabinet meeting on November 15. To ensure better safety for passenger and freight rail operations 250 billion rubles ($10.2 billion) would be allocated to fund transportation safety measures, he said (Interfax, Itar-Tass, November 15).

The Russian government has been aware that the country’s rail safety record remains a matter of concern. In June 2007, the Russian Prosecutor-General’s Office found more than 9,000 violations of traffic safety and rail regulations. Subsequently, the Russian rail system has been seen as increasingly unsafe, and the railway network has been hit by a series of accidents in recent months.

The government promised to allocate sufficient funds for the sector’s recovery. The RZD investment program, at 1.331 trillion rubles, is three times higher than the 2005-2007 levels, Minister Levitin told the November 15 cabinet meeting. However, in order to achieve this goal, Russian Railways would have to borrow 280 billion rubles ($11.4 billion), he said (Interfax, November 15).

The authorities planned to rely on modern financial instruments, such as public share offerings, to finance the sector. At the same meeting RZD head Vladimir Yakunin claimed that a 15% stake in Transcontainer, which operates some 44,600 containers, could still be placed before the end of 2007. However, he added that an IPO of RZD shares would not be possible before 2010 (Interfax, Itar-Tass, November 15). Meanwhile, Levitin stated that the IPO of Transcontainer, RZD’s fully owned subsidiary, could be delayed until 2008 (Interfax, RIA-Novosti, November 15).

The RZD was created in September 2003 following reforms of Russia’s Railway Ministry. Now the state-controlled RZD employs 1.3 million people and the company funnels 1.3 billion tons of freight a year. It has pledged to do its best to sustain safe operations.

The overall RZD development plan stipulates raising its revenues from 957 billion rubles ($39 billion) in 2007 up to 1.318 trillion rubles ($53.8 billion) in 2010, Deputy Transportation Minister Alexander Misharin announced on November 14. However, RZD’s net profits are projected to drop from 76 billion rubles ($3.1 billion) in 2007 to 26.6 billion rubles ($1.1 billion) in 2010, while borrowing is expected to rise from 162 billion rubles ($6.6 billion) in 2007 to 380 billion rubles ($15.5 billion) in 2010 (Interfax, November 14).

In the meantime, RZD has a long record of implementation problems. The company has struggled to build a 660-kilometer high-speed railway connecting Moscow and St. Petersburg, planned since the early 1990s. Yet the RZD has suggested even more ambitious plans, notably a tunnel project to build a transcontinental Yakutsk-Magadan-Anadyr-Alaska rail link, including a subsea tunnel under the Bering Strait.

Simultaneously, the RZD has been seeking direct government subsidies. RZD head Yakunin explained to the State Council’s November 13 meeting that his company expected increased state funding starting in 2009. “In 2008 we would be able to move ahead with our own funds but state funding would be necessary from 2009,” otherwise the transportation system could face system-wide obstacles (Interfax, November 13).

Therefore, the Russian leadership appears to be planning to tackle the country’s transportation woes through massive financial injections. However, it remains to be seen whether the damage caused by years of inadequate investments could be alleviated reasonably soon. Subsequently, Russia’s transportation safety standards may still be a matter of concern in coming years.