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  • 2012 November 10

    A trillion for RZD

    The Government of the Russian Federation has approved in general the investment program of Russian Railways (JSC RZD) until 2015. Overall, the country will inject RUB 1.1 trillion in the state-owned rail monopoly development. Part of the money will be invested in elimination of "bottlenecks," on the rail network carrying loads to the Russian ports. However, the Ministry of Economic Development believes that RZD should better cut down on costs instead of hiking rates and seeking the government assistance.

    Where the millions go…

    Russian Railways infrastructure is a "weak link" of the transport system of Russia holding back the development of industry and ports. Elimination of "bottlenecks" that restrain shipping of key export commodities, the development of transit potential of the country and upgraded of the existing infrastructure requires huge investments.

    As  Maxim Sokolov, Transportation Minister said, who reported at the meeting of the Russian government, according to the investment program for the 2013-2015 period the country will inject in the rail infrastructure about RUB 1.1 trillion, including  RUB 411.5 bn in 2013, RUB 360 bn in 2014 and RUB 346 bn in 2015.

    The three-year investment program was increased by 24.5 billion rubles versus last year’s numbers (the decision of the Board of Directors, held in November 2011). The federal budget will finance the projects: the construction of Sochi facilities (nearly RUB 33 bn), the development of the Moscow transportation hub (over RUB 17.5 bn), the construction of the second track and electrification of the Vyborg-Primorsk-Ermilovo section (more than RUB 2 bn), as well as the development of the Gremyacha rail station in the Volgograd region (about RUB 770m).
    Other money will be invested in the safety, renovation and overhaul, in purchase of locomotives and in R & D.

    The sources

    The urgent need for investments is quite clear, but the question stands: what are the resources and how effectively the money will be spent.
    According to Maxim Sokolov, freight rates adjustment for the next year is planned at 7%. It is also planned to resort to debt financing. At the same time in 2014, it is expected to move to a long-term tariff model.

    "The relevant decisions have been made - to move to a long-term tariff policy effective as from 2014. Hopefully, this will give us the sources of RZD development,” the Transportation Minister said.

    Meanwhile, RZD President Vladimir Yakunin says that the company’s internal financial reserves have nearly exhausted. "If we talk about our own resources, the situation is as follows: if we implement the tasks set by the government, the country, the society, our company will inevitably run out by 2015 of its two additional resources…,” RZD’s Yakunin said. Therefore, he concluded that the further execution of the investment project can be possible "only with direct government support."

    The opinion was not accepted by Minister of Economic Development Andrei Belousov saying the constant rate hikes is not a way out, because the rail transportation costs have accounted for 10% or 30%. Besides, the profitability of RZD has reached at least 10%, higher than the average in the industry.

    The Minister also disagreed with the thesis that RZD had run out of credit opportunities. Currently, Belousov said, the debt ratios at RZD is now 2. "There are not a few companies that are operting with the coefficient 2, 2.5, and 2.7. The record level is about 3. Therefore, we believe that the possibility of additional funding for the investment program through attracting loans are far from exhausted," said Belousov.

     

    Vanished projects

    Noteworthy, the three-year investment program did not mention at all the key projects aimed to eliminate some "bottlenecks" on access roads to the port, namely, the Mezhdurechensk-Taishet section overhaul. The government had set aside about RUB 37bn for the railroad modernization. In 2013, the project will get RUB 600m, Transportation Minister Sokolov said.

    As for the Leningrad region Governor Alexander Drozdenko, he was also concerned that the program budget does not provide for investment in the development of rail access to the port of Ust-Luga. "At the cabinet meeting on September 21, 2011 it was agreed to invest RUB 25bn as the state support for the construction of the first station Luzhskaya-Sortirovochnaya and electrification of the Gatchina-Luga section. That will help boost traffic. However, the money are not allocated in this year’s budget and in the planned budget of 2013-2014," complained the governor.

    Instead, the investment program mentions the project of construction in 2013 of the second track and electrification of Vyborg-Primorsk-Ermilovo section, which has long been promoted by Summa Group, which is competing with Ust-Luga for rail investments.

    Anyhow, the RZD investment draft project until 2015 has been approved by the government with some reservations about the need to work on its "improvement"

    However, fundamental issues about the tariff policy, internal resources of Russian Railways and its effectiveness have so far remained unresolved.

    Vitaly Chernov.

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