Two potential investors, Novolipetsk Steel and Globaltrans, have made public their intentions to buy a share package in First Cargo Company and Second Cargo Company, two large railway freight transport operators from Russia. RZD may offer for sale a share package of 50% for both companies, but the project hasn’t yet reached negotiations. On the other hand, the Russian Ministry of Transport is waiting for the two investors to present their contributions before analysing the implications on the economic and railway sector.
In 2001, the Russian Ministry of Railways, together with the Russian Government, began the development of a Structural Reform Programme for the railway sector. This programme establishes strategic priorities for efficiency and profitability improvement of railway services and investments. Since 2006, Russia has been trying to improve competitiveness among private passenger and freight transport operators by partially privatising Russian Railways and several of its subsidiaries. The reform process is currently in the final stage. The reform has been actively implemented and the results are visible. The profitability of the railway sector has increased and the necessary modernisations for the rail infrastructure (especially along the main routes) and rolling stock have already been made.
The market of private operators is represented by 80 companies, with a total of 352.800 wagons (36.2% of the total rolling stock fleet in Russia). By 2007, the market share of private operators reached 36.4%, compared to 20.8% in 2003. RZD, through its subsidiaries – First Cargo Company (PGC), Second Cargo Company (CGK) and Transcontainer, is still the largest railway freight transport operator in Russia.
As for the two large operators, First Cargo Company (PGC) and Second Cargo Company (CGK), two potential investors, Novolipetsk Steel and Globaltrans, have announced their intention to buy a share package in the two companies.
Thus, Globaltrans may buy 50% of Freight Two, a company set up by RZD. According to Reuters, Freight Two has been valued at RUB 50 Billion (over EUR 1 Billion), but economic analysts say that this value has been underestimated. The operator owns 200.000 freight cars and, according to RZD officials, the terms of the sale will be revised. Part of the shares of First Cargo Company may be bought by businessman Vladimir Lisin, who owns one of the largest steel companies, Novolipetsk Steel. As for PGC, “RZD is considering two options: either the sale of a 50% share package through an initial public offering or a 25% sale through IPO and the rest of 25% to be sold to a strategic investor”, said Vadim Mikhailov, Senior Vice-President RZD.
In 2011, RZD may list First Freight on the stock market. As for the value of the operator, “it may reach USD 5 Billion. Vladimir Lisin may buy 25% of the company at a value of over USD 1 Billion“, said Salman Babayev, General Manager First Freight.
However, RZD President Vladimir Yakunin hasn’t received a formal documentation concerning the intention of businessman Vladimir Lisin of buying First Freight shares. “I haven’t received any official information. I have received reports concerning the acquisition of the shares, but I don’t believe in rumours. I prefer to work with objective information”, stated Yakunin for the Russian press.
Before deciding on the share acquisitions, the Russian Ministry of Transport has to understand better the intentions of the two investors.
“We have to understand if Globaltrans plans to make a financial contribution or supply wagons. This is a major problem, because a company that owns 160,000 wagons is a major player that can influence the entire price policy. Therefore, until now we haven’t received any information to that end so we haven’t made any decision”, announced Russian Secretary of State Andrey Nedosekov.
As for First Cargo Company, the situation is the same. “Novolipetsk Steel is a large company which, on the one hand will try to minimize its costs and, on the other hand will gain profit from the transport activity as soon as Lisin will make investments. First and foremost, we want to see this balance”, said Nedosekov.
The Russian Ministry of Transport will analyse the business methods of the two private investors and then decide whether or not they will benefit the economic sector. “It’s very important that the creation of new subsidiaries will not monopolise the market and, thus, not increase tariffs. Therefore, the proposals will be analysed based on these considerations. Another interesting fact is that the industry is not capable of replacing the entire rolling stock fleet”, added Nedosekov. The railway freight transport market in Russia is lacking freight cars seeing as traffic is increasing. The number of available freight cars is insufficient, especially because the old cars are deteriorating and have to be put out of service. The turnover obtained by RZD from the total freight transport has been estimated at 2046.4 billion tonnes/km in 2010, (+1.6%) and 2084.1 billion tonnes/km in 2011 (estimate growth of 1.8%).
by Pamela Luică
Share on:
