Publication: Eurasia Daily Monitor Volume: 3 Issue: 42

Russian Railways (RZD), a state-owned monopoly, has been eyeing crude oil shipments to China as a key element of its Far Eastern development. But now RZD is concerned over prospects of loosing lucrative oil freight business to the planned Pacific oil pipeline.

RZD’s strategic priority is to provide Europe-bound railway freight services to Asia-Pacific nations, notably northeastern China, RZD head Vladimir Yakunin said February 28. RZD deputy head Sergei Kozyrev recently traveled to China to discuss ways to boost railway freight between the two states, Yakunin added.

On March 1-2 Kozyrev visited Russia’s Primor region to inspect the Nakhodka-Eastern container and coal terminals. He also inspected the Grodekovo-Suifenghe border railway, where freight exceeded 1.2 million tons in 2005. According to RZD, Kozyrev’s trip was intended to boost freight capacity and attract more freight for the Trans-Siberian railways.

Yakunin also inspected the Karymskaya-Zabaikalsk railway, which is seen as a crucial part of RZD plans to boost railway freight, mainly crude oil, between Russia and China –up to 30 million tons a year. “In 2006, RZD plans to invest 4.5 billion rubles ($161 million) in Karymskaya-Zabaikalsk,” according to a February 26 RZD statement. The total cost of the Karymskaya-Zabaikalsk upgrade is expected to reach 9 billion rubles ($322 million).

During the inspection, Yakunin reportedly voiced concern over plans to stop oil shipments to China by rail and funnel crude oil to China via an offshoot from the Pacific pipeline. Yakunin urged the government to consider whether its large crude oil shipments to China would survive when the country builds its first pipeline to Asia. As a state-owned company, RZD will be an investor in any Karymskaya-Zabaikalsk upgrade, therefore, he argued, the Russian government should coordinate oil shipments by rail and the future pipeline. Yakunin also reiterated plans to continue the Karymskaya-Zabaikalsk upgrade (Kommersant, February 28).

Nonetheless, Sergei Grigoriev, vice-president of the Russian pipeline monopoly Transneft, indicated that RZD would loose oil freight to China as soon as the pipeline offshoot to Daqing is built. He claimed that RZD could rely on alternative rail freight instead. Nezavisimaya gazeta claimed that Transneft and RZD are set to lock horns in a bitter fight over oil shipments to China, while RZD opposes the offshoot to Daqing (Nezavisimaya gazeta, February 28).

Seemingly fearing that Transneft could have an upper hand, RZD is now exploring its options. Yakunin told a press conference in Chita on February 28 that the Karymskaya-Zabaikalsk railway could be used to export wood, coal, ore, and chemicals to China. He described this rail line as a “key element” of the transit corridor between the Asia-Pacific region and Europe (Kommersant, March 1).

On February 28, Yakunin meet Chita regional governor Ravil Gueniatulin, reportedly to discuss railways development, notably ways to boost coal exports from Kharanorsk and Eastern coal mines to China. Yakunin also pledged to turn Zabaikalsk into Russia’s main gateway to China (Regions, February 28).

Overall Russian oil shipments by rail to China were up from 5.7 million tons in 2004 to 7.6 million tons last year. Crude freight is expected to reach 15 million tons in 2006, almost double the 2005 figure. RZD is now trying to attract more crude exports to China to replace volumes lost from the embattled Yukos oil company.

Eastern Siberia Railway, a subsidiary of RZD that passes through four Russian regions (Irkutsk, Chita, Buryatia, and Yakutiya), increased shipments of crude oil to China by 42.8% year-on-year to over 790,000 tons in January 2006. The company also said it discussed with potential clients ways to transport more oil to China through Naushki, as Yukos (formerly the main supplier through Naushki) may reduce supplies to China to 1.8 million tons this year, down from 2.4 million tons in 2005 (Interfax, February 9).

Yet despite its oil shipment fears, RZD has been keen to reiterate its trans-continental projects. “Substantial progress” has been made in talks on the reconstruction of the Trans-Korean Railroad, RZD head Yakunin announced in Novosibirsk on February 26. “The negotiations have been difficult, but we have advanced considerably on the issue of rail transport with the South Korean side,” he said.

Yakunin revealed that negotiations on the reconstruction of the Trans-Korean Railroad were progressing between Russia, North Korea, and South Korea. “We are now trying to organize a demonstration trip by representatives of South Korea, the Democratic People’s Republic of Korea, and Russia to [Russia’s] Far East regions, including visits to sea ports, for further joint consultations,” he said. “Invitations have been sent.”

In August 2002, Russian President Vladimir Putin and North Korean leader Kim Jong-il discussed the idea of linking the South and North Korean railroads to create an uninterrupted railroad from the Far Eastern ports to Western Europe. Subsequently, RZD has been negotiating the reconstruction of the eastern sector of the Trans-Korean Railroad and its linkup to the Trans-Siberian Railroad.

On March 6-10, the Railways Cooperation Organization commission is due to meet in Pyongyang. Railways executives from Russia, China, North Korea, Kazakhstan, Mongolia, and Vietnam are expected to discuss freight volumes for 2006.

In the meantime, in order to achieve its stated “strategic priority” to provide Europe-bound railway freight services to Asia-Pacific states, RZD had to deal with domestic red tape. Russian Transportation Minister Igor Levitin and RZD executives agreed to lift recent restrictions on the movement of foreign and private freight on public railroads. The two officials met to address the problems that have arisen because of these restrictions. Since February 15, about 1,000 foreign railroad carriages and containers were stopped in Russia because they did not have the customs paperwork for domestic cargo shipments. Levitin ordered the Federal Rail Transportation Agency to prepare regulations for foreign railroad cargo transit in Russia (RIA-Novosti, February 28).