On The Road In Russia

On May 6 the Russian cabinet endorsed an ambitious, twenty year plan to spend US$1 trillion on improving the country’s inadequate road system.

The plan would boost the paved roads in Russia from the current 368,000 miles to 525,000 miles. By comparison, the United States, which is one third smaller than Russia by area, has 4 million miles of roads, including 163,000 miles of highways. Currently, Russia builds about 3,000 miles of new road per year, so the new plan would double that rate.

It is 100 years since Tsar Nicholas II built the Trans-Siberian railway, but Russia still lacks a highway connecting the Far Eastern provinces with European Russia. (Siberians who buy Japanese used cars in Vladivostok cannot drive home; they have to take them by train.) In February of this year Russian President Vladimir Putin officially opened the 1,345 mile Khabarovsk-Chita highway, the last gap in the road link to Vladivostok. However, press reports quietly noted that not all of the road, which has been under construction since 1966, is yet paved. Putin presumably wanted a nice opening ceremony in the run-up to the March presidential election, in the same way that former Soviet leader Konstantin Chernenko declared the Baikal-Amur Railway open in 1984 – even though dozens of bridges and tunnels had not yet been built.

Soviet planners invested heavily in infrastructure development, but the road system was not one of their priorities. They focused on building an efficient and comprehensive railway network, which continues to work fairly well and hauls 50 percent of Russian freight.

Roads are lacking in three respects. First, Russia needs a modern multi-lane highway system to connect the major cities in European Russia, and to speed truck traffic with Finland and Poland. Inter-city links also need improving in the Far East.

Second, connections between small and medium size towns must be improved. Currently, 50,000 villages lack paved roads altogether. (This is why Russian cities are so dusty; trucks bring dirt on their wheels into urban areas.) Existing roads are in poor repair: An estimated 40 percent fail to meet federal standards. This is not a problem for nouveaux riche dacha owners, who buy SUVs to deal with urban potholes and rural tracks. But it is a problem for farmers trying to get their produce to market, and for businesses looking to locate outside the big cities.

Third, the explosion in car ownership since 1991 has turned the big cities into one giant traffic jam. In the 1990s the city bosses of Moscow and St. Petersburg (Yury Luzhkov and the now-departed Aleksandr Yakovlev) drummed up the cash for new ring roads. But these seem to have had the perverse effect of encouraging yet more car ownership, as was the case with the M40 ring road in London.

Experience in the Third World shows that building roads is one of the best ways to promote rural development. Unfortunately, experience in the First World (most notably Japan) shows that it can also be a pork barrel of epic proportions for corrupt politicians and contractors. The international lending agencies are encouraging Russia to build more roads. Last year the European Bank for Reconstruction and Development lent Russia US$490 million for road development. Still, the bank’s advice needs to be taken with a grain of salt: like all bankers, they have a vested interest in pushing loans through the door. The World Bank made three loans for highway and bridge development from 1993 to 1998, totaling more than US$1 billion. There were problems with implementation, and the final US$400 million loan went unused in the aftermath of the August 1998 crash.

Investing in new roads in Russia probably makes sense. The government is awash in cash from the surge in oil prices, with the stabilization fund (which sequesters excess oil revenues separate from the budget) hitting US$5.9 billion by May 1. Building roads is probably more useful than rival projects, such as the planned new super-fast train link between Moscow and St. Petersburg.

The government plans to raise much of the money for the new road plan from the private sector, by building the roads as toll roads. Toll roads are being promoted by international lenders, who stand to make money from such schemes. Russia currently lacks a legal framework for the Build-Operate-Transfer system, so Transportation and Communications Minister Igor Levitin has been charged to prepare one by October.

However, the Russians should carefully study international experience before committing themselves to toll roads. In the 1990s Mexico introduced an ambitious network of toll roads. The tolls were too high, no one used the roads, and in 1995 the companies went bankrupt, leaving the government to pick up their US$8billion debts. Likewise, Japan is currently struggling to come up with a framework to privatize its loss-making, state-owned toll road system. There are some toll roads already in operation around Moscow, and they are popular with drivers – but tolls are low, and do not cover the cost of construction.

It makes more sense to raise money for road building by taxing trucks and cars. But that raises screams of protests. Case in point: The decision to introduce compulsory auto insurance from January 1, costing at least US$60 a month, has triggered ongoing demonstrations by angry motorists.

And rather than breaking ground on ambitious new projects, priority should go to the mundane task of repairing existing roads. The current road budget is 50 billion rubles (US$2.3 billion), and although this will be increased to 70 billion rubles next year, it is still not enough to maintain the existing network (Moscow Times, Prime Tass, May 7; “Toll roads in Russia,” February 1999, www.bisnis.doc.gov/: World Bank disbursement report, November 2002; www.worldbank.ru).