Publication: Monitor Volume: 3 Issue: 94

Among the natural monopolies in Boris Nemtsov’s sights is Russia’s massive railway system. The nation’s 19 railway companies, with their 2.2 million workers, remain under the control of the Ministry of Railways. They are also still the backbone of the country’s transport system, accounting for 40 percent of passenger travel and 78 percent of freight transit — a figure far higher than in other countries. (Interfax, April 29)

Boris Nemtsov had President Yeltsin dismiss Railway Minister Anatoly Zaitsev on 14 April: Zaitsev was replaced by his deputy, Nikolai Aksenenko. Nemtsov accuses the railways of exploiting their monopoly position to hike tariffs to unfair levels, making much of Russian industry unprofitable. Rail tariffs have risen more than four times faster than industrial prices since 1991. Transport now often accounts for more than half of the production cost of goods such as coal and steel, which typically travel over 1,000 km from producer to consumer.

Railway managers use two arguments to defend their position. First, they note that many of their customers do not pay (and less than 40 percent of business customers pay in cash), and that customer debts now amount to 6.5 trillion rubles ($1.1 billion). The railways ran at a loss for the first time in 1996 (losing 1.6 trillion rubles on spending of 70 trillion), and lost another 500 billion in the first quarter of 1997. Second, they complain that rail tariffs are already set by the state, and their unprofitability is partly due to a February 1996 government decree which limited freight price increases to 80 percent of the industrial wholesale price index. Also, the government forces them to subsidize passenger travel from freight tariffs. Despite hikes in ticket prices, passenger receipts cover only about one third of operating costs. A planned 20 percent cut in freight tariffs in January, 1997, did not materialize because the government failed to pay the promised subsidies for passenger travel. (Delovoi mir, April 17, Rossiiskie vesti, April 24)

Short-term, the railways’ problem is to get chronic debtors to pay up, enabling them to pay their workers and avoid strikes. Long term, they have to replace their chronically outdated rolling stock and renew long-postponed track maintenance. Some steps along these lines are being taken — a new central IBM computer system for monitoring freight car movements is being installed, for example.

Nemtsov wants to see structural reform to promote more competition on the railways, such as creating separate companies for short and long-haul passenger service. He seems to be backing away from more radical proposals for the dissolution of the centrally-managed system, however. The railways’ defenders, such as Vladimir Persianov from the Academy of Management, argue that the railways are "guaranteeing the functioning of a great power" and that a hasty reform could be the last nail in the coffin of the Russian economy. Persianov points to the example of Russia’s merchant fleet, whose collapse means that 80 percent of Russia’s freight is now carried by foreign vessels. (Delovoi mir, 17 April)

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