With a constantly growing freight and passenger transport on a network of 85,000 km, Russian Railways and federal authorities are trying to identify new financing sources to improve and develop the infrastructure in order to meet the challenges imposed by traffic growth which is expected to continue on the medium and long term.
Regarding the infrastructure, the railway transport development strategy for 2030 stipulates the implementation of the infrastructure rehabilitation and modernization projects by 2015 to ensure maximum capacity on key routes and to elaborate network extension projects. At the same time, 13,800 km of heavy traffic line will be rehabilitated in order to reduce the transport cost of bulk cargo. Investments necessary for the modernisation of the existing infrastructure rise to RUB 3.2 Trillion (USD 92.7 Billion). 5,000 km of railways have already been rehabilitated in the first half of 2013.
The timeframe 2013-2030 concentrates the highest share of the investments necessary to the extension of the infrastructure necessary to the development of new economic areas. The scenarios the company considered include the construction of 16,000 km of railways (minimum scenario) and 20.7 thousand km (maximum scenario) for which necessary investments amount to RUB 4.2 Trillion (USD 130 Billion). 58.6% of this amount will be allocated through the federal budget, 11.9% will be provided by local/regional administrations, 10.7% by RZD and 18.8% by private funds.
By 2030, Russia wants to increase its railway density by 24% which will determine the increase of freight traffic by 58% and of passenger by 33%.
Figures are high if we consider the global economic situation and the fact that countries are trying to cover a large share of the investment programmes through loans supplied by the international financial institutions, while Russia assumes over 58% of investments for railway projects (under the strategy). The importance of investments in railway projects is not mentioned only on paper, it also reflects into investment budgets. For example, since the beginning of the railway reform, private companies have invested more than EUR 20 Billion in projects. Also, in the first 6 months of the year, the investment budget of RZD was of RUB 184.1 Trillion (USD 5.7 Billion) and is estimated at RUB 439.5 Trillion (USD 13.6 Billion) for 2013.
Direct Investments, Health and Pension funds, main financing sources
This year, federal authorities and RZD representatives try to identify new financing resources for the infrastructure projects. The Russian Government announced it would invest RUB 450 Billion (USD 13.7 Billion) in infrastructure and the funds will come from the national health fund and from the private capital. Also, more than half the necessary sum for investments will come from the Social Protection Fund, USD 87 Billion from the Health Fund and oil exports. “The main conditions will be assessed by the private business sector and viable and efficient projects will be co-financed in this segment. Infrastructure projects have to have a return. I know that the investors’ interest in these projects is significant, especially if the government is ready to assure them that the risk is minimal and if it accepts to be co-investor”, declared President Vladimir Putin during the International Economic Forum (St. Petersburg June 21-22).
Apart from these financing sources, by the end of the year, the Ministry of Transport hopes to attract financing from pension funds for the infrastructure projects developed by Russian Railways, Minister Maxim Sokolov announced. “As long as this regulation is in discussion, a significant role in the decision-making process is played by the Ministry of Finances and by the Ministry of Economic Development. We are interested in attracting these funds as fast as possible and we are hoping that this would happen by the end of the year”, declared Sokolov. RZD can benefit from part of the pension fund savings for the financing of its infrastructure projects based on reimbursement in the period July-August 2013, said Minister of Economy Andrei Belousov at the beginning of May. Another financing source for infrastructure projects could be granted through the Direct Investment Fund in Russia and Vnesheconombank (VEB), which “can complete each other to finance infrastructure projects. The Direct Investment Fund could cover the necessary financing for the construction of high-speed transport facilities and VEB can ensure the financing of large projects, such as the construction of lines, rail stations and infrastructure, projects with a long amortisation period”, declared Alexey Vyazovsky, Vice President of Pokrovka Finance, consultancy firm dealing with railway projects.
“The Direct Investment Fund can also be used in committing our partners from other investment funds or sovereign funds to participate in infrastructure projects considering the fact that the RUB 450 Billion represent the initial capital”, said Vladimir Putin during a meeting with VEB President (July 2013).
Europe has also expressed its interest to participate in the large projects of Russian railway infrastructure. “Europe is interested to invest in the Russian infrastructure as proved by the success of RZD’s Eurobond issue. Construction and logistics companies are also interested in developing the infrastructure of the Far East and Siberia: the Trans-Siberian and Baikal-Amur lines. The Russian Government decided to allocate RUB 260 Billion (EUR 6.4 Billion) for the development of the railway infrastructure in the region. Total investments in the Russian railway industry could reach to RUB 11 thousand billion (EUR 270 Billion), including the projects for the development of high-speed lines”, declared Yakunin during the Rail and Road Construction Summit in Merano, Italy.
According to the declarations of RZD traffic department director Anatoly Kuzhel, the company will invest EUR 7.5 Billion in the development of Baikal-Amur line, although funds worth RUB 562 Billion (around EUR 14 Billion) are necessary, of which RZD will allocate RUB 302 Billion, the rest of the amount being covered through public-private partnership. The project is of maximum importance for Russia as the line develops connections to the east part of Siberian and Far East. 4,324km long, the line crosses the north on a distance of 770 km being parallel to the Trans-Siberian. Another important project is the Trans-Siberian Corridor whose project requires financing of EUR 18.8 Billion. Both projects are included in the Railway Development Scheme 2013-2020 which includes private investments for the first time. Although the need for investments is huge, by 2017 Russia wants to invest around EUR 14 Billion in the modernization of Baikal- Amur and Trans-Siberian railways.
“The value of additional financing necessary to eliminate the existing unbalance of the railway infrastructure for the Baikal- Amur and the Trans-Siberian railways will amount to at least RUB 260 Billion (USD 8.35 Billion, EUR 6.5 Billion)”, declared Medvedev during a meeting of a governmental commission which deals with the development of the Far East (April 2013).
As the growth rhythm of the Asian markets exceeds by far that of European countries, Russia wants to improve its infrastructure in Siberia in order to sustain exports towards the countries with the highest demand.
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