“Over the past few years we have managed to improve the commercial viability of our operations…”

Interview with Mr. Vladimir Yakunin, President of Russian Railways

The Russia of the past years has proved Europe and the International Community that a recovery of the railway transport in the area between the two continents, Europe and Asia, is possible. The information sent by the Russian Railways and the Russian political class have proved that the railway system can, once again, play an important role in the economic development and in building the social cohesion of a country. The present interview details several aspects such as Russia’s strategy in the railway sector, from the point of view of both infrastructure development, as well as passenger and freight transport services.

Railway Pro: “Economic restructuring” is the word of the day. What were Russian Railways’ strategic goals in launching its restructuring process, and what has been achieved so far? What are the next phases of your strategic programme? In financial terms, can you tell us about the restructuring in numbers – profits and losses?

Vladimir Yakunin: Russian Railways’ financial results clearly demonstrate the success of the Russian rail transport reforms that began in 2001. Russian Railways was created in 2003 on the basis of the former Ministry of Railways, with a 100% stake held by the government; this enabled a separation of the roles of state management and the business activities of railway staff.
The Ministry of Railways ran its operations at a loss, whereas Russian Railways makes a profit. Over the past few years we have managed to improve the commercial viability of our operations, and the holding’s financial results are steadily improving. For 2010 the company expects profits in all areas of transport activity,
including profit from locomotive traction services and infrastructure, to total 1081.2 billion rubles, which is 13% higher than in 2009. And compared to 2004, for example, profit growth is over 60%.
Within this relatively short period, railway transport has become an organic component of the market economy, and set out on an innovative route of development

Railway Pro: The Russian Government has announced plans to divest passenger rail transport and hand it over to regional authorities. What does this decision mean for medium and long-distance passenger services?

Vladimir Yakunin: We are now in the final stage of rail transport reform, and from 2011 Russian Railways will cease to be a passenger transport company.
One of the main elements of our passenger service reform is the separation of infrastructure and train operations. Global experience has shown that combining infrastructure and train operations is not an efficient model.
All long-distance services will be passed on to our subsidiary, the Federal Passenger Company, which will work on developing this area of transport.
The situation involving suburban passenger services, which are gradually being transferred from joint management by railway staff and regional authorities, is somewhat more complex. Twenty-six suburban passenger companies have been created, which are carrying out this work together with regional authorities and private businesses.
While the Ministry of Railways was running the network, expenditure on loss-making passenger services was regularly covered by profit from freight services. Russian Railways cannot continue the practice of cross-subsidies – this decision follows directly from documents adopted by the Russian Government.
Therefore, responsibility for providing transport services in the provinces is now placed on Russian regions themselves. They place orders for suburban passenger services, and the transport company in this case acts under the directions of the local government. Local governments will then compensate the transport company for loss of revenue resulting from tariff regulation.
For the development of suburban services, these changes mean the creation of a modern, understandable mechanism for conducting our business activities, a focus on developing passenger services, and a gradual switch to loss-free operations.

Railway Pro: The Russian Government and Russian Railways have announced an ambitious investment programme to develop Russia’s railway infrastructure. What are the priorities here in the short-term, and how much is to be invested?

Vladimir Yakunin: In June 2008, the Russian Government approved the Rail Transport Development Strategy up to 2030, a key document for the sector, allowing us to plan ahead for the coming decades.
Strategy 2030 sets out the priority areas for developing the railway sector. It includes raising the competitiveness of the Russian railway network through network-wide infrastructure projects, and introducing innovations in freight and passenger services.
The strategy sets out two phases for the sector’s development: by 2015, the phase of modernizing rail transport should be completed, after which we will start dynamically developing the rail network.

The result will be the creation of an infrastructure base that will boost the growth of the national economy.
By 2030 we plan to build more than 20,000 km of new rail track and to renew 20,000 locomotives, around 1 million goods wagons, and 30,000 passenger carriages. Projects are already underway to build and install new equipment.
The density of the rail network will be increased by 24%, while traffic and load capacity limitations will be overcome entirely. Heavy-haul rail lines covering 13,000 km will be built, linking the ports of Russia’s Far East, Northwest and South, as well as the country’s western land borders.
The total volume of investment in developing  rail  transport  up  to  2030  is estimated at around 13 trillion rubles, and public-private partnership will be actively used in implementing the strategy.

Railway Pro: Russian Railways’ openness for a range of partnerships with leading players on the rail transport market has recently  attracted  attention. What are the plans for the coming years, not only for industrial projects, but also with railway operators? Will this openness, demonstrated towards Europe, also spread to Asia or America?

Vladimir Yakunin: One of our main development priorities is the introduction of high-speed railway services. The most effective approach is to learn from the experience of countries that have already carried out such projects – for example France, Germany, and Spain – and to plan accordingly.
The high-speed Sapsan electric train, created jointly with specialists from Siemens, with the involvement of Russian Railways’ own specialists and scientists, has already been successfully operating on the Russian railway network for more than a year, and cooperation with European, North American and Asian companies will certainly continue.
We signed an agreement with the Alstom company on launching high-speed services between St Petersburg and Helsinki, and also on a joint project to build the EP20 new-generation dual-system passenger locomotive with asynchronous traction motors, which among other things will provide transport services for the Sochi 2014 Winter Olympic Games. We are also developing our partnership with the Bombardier company.
As earlier mentioned, Russia is carrying out an ambitious programme to develop railway transport up to 2030, backed by substantial government investment. This programme is opening up a huge range of possibilities for the global business community – for example, the creation of engineering and production centres, the development of large terminal and logistics facilities with multi-modal transport hubs, and the development of capacity to repair and service rolling stock.

Railway Pro: The Black Sea zone is a central hub in the European transport chain. How does Russian Railways see the development of routes from east to west and from north to south?

Vladimir Yakunin: The Black Sea and Caucasus regions are of strategic importance for the development of international transport corridors, due to their location on the crossroads between the East – West and North – South transport routes. One of the key points is the development of the international North-South transport corridor as an alternative to sea transport, linking Europe to countries of the Persian Gulf and on the Indian Ocean. The potential freight flow via this corridor is estimated at 40 million tons per year.
The Europe – Caucasus – Asia corridor also has major potential. In conjunction with the railway networks of Azerbaijan and Iran, we have stepped up our work on the project to build the new Qazvin – Rasht – Astara line. Through this project, the route will be able to reach its full potential.
The company is investing heavily in the development of the region’s railway infrastructure. In particular, reconstruction work is underway on the Kotelnikovo – Krymskaya line, which has major significance for goods transit flows from the Volga area, the Urals, and eastern regions of the country, heading for export to ports of the Azov and Black Sea hub (Novorossiysk, Tuapse, Kavkaz, Temryuk, and Grushevskaya). In the future, this route is likely to see a substantial increase in export flows of coal, oil, ferrous metals, fertilizer, timber, grain, and other cargoes. The average freight turnover in both directions is predicted to reach 77.8 million tons by 2015.

Railway Pro: Will the growing volume of freight in Central Asia have a positive impact on the railway system, or will this flow move to other modes of transport?

Vladimir Yakunin: The volume of trade between Russia and countries of Asia and Europe is vast, and will continue to grow intensively. If, in cooperation with our European and Asian partners, we manage to attract just 10% of total transport volumes from Southeast Asia to Europe, this will create a market worth 50 billion dollars.
Russian Railways is already carrying out large-scale investment projects in the Far East and Siberia, essential development work is underway at train stations in China, Mongolia, and North Korea, and rail access to sea ports is being improved. Plans are being made for infrastructure projects in Europe, notably the extension of the broad-gauge network to Vienna.
Our European partners agree on the potential economic viability of this project. Vienna is located at the intersection of lines linking western and eastern Europe to Russia and other CIS countries, and the project will provide an additional stimulus for the development of container freight services. According to our estimates, the time needed for freight deliveries from Europe to Asia and back will be brought down to 13-14. We also aim to provide freight transit from the eastern borders and ports in just seven days.
By raising the level of logistical services, Russian and European countries will be able to attract freight to the rail network that was traditionally delivered by sea.

Railway Pro: Significant steps have been taken recently towards legal and administrative coordination in international rail traffic, including the recent proposal from the United Nations Economic Commission for Europe on legal methods for regulating rail traffic. How will rail transport benefit from such measures, and what opportunities does this open up for the railway networks of Russia and the CIS?

Vladimir Yakunin: The UN, EU, and international transport organizations, along with the International Union of Railways and the Organization for Cooperation between Railways, are focusing heavily on the development of rail transport.
We consider coordination between participants in the global transport system – coordination of strategic issues in the development, reform and provision of transport services – to be the key factor behind our successful operations. Ultimately, such decisions are aimed at realizing the strategic goal of strengthening the railway’s positions on global transport services markets.
Coordinating the efforts of global transport players gives all of us the opportunity to improve the system of agreements and contracts, technical and operational issues relating to cross-border transport, financial and economic calculations, and international tariffs and informatization, along with many other essential issues.

Railway Pro: Has the new customs union between Russia, Kazakhstan, and Belarus had an impact on rail transport in the 1520 Area?

Vladimir Yakunin: Russian Railways is cooperating successfully with the railway companies of Kazakhstan and Belarus, and the harmonization of customs laws will help the development of our relations. With our Kazakh colleagues, we have already signed a memorandum of cooperation on improving customs operations within the territory of the customs union.
Our involvement in the customs union allows us to develop ties in areas such as coordinating work on international freight customs issues, and providing mutual help and support in addressing issues relating to regulation and state control.
One of the key points in developing rail transport within the union will be the joint creation and implementation of projects to develop customs services, with the aim of speeding up freight, organizing information exchange, and introducing joint programmes to develop and equip transport infrastructure facilities.

Railway Pro: Has the Russian Government’s decision to partially privatize Russian Railways had any influence on the everyday work of the company or its investment activities?

Vladimir Yakunin: The Russian Government has not yet taken a decision to partially privatize Russian Railways. So far, the railway holding has only been included in an expanded list of state assets whose privatization is possible after 2013. A final decision on the viability of privatization will be taken after 2013.
It is therefore too early to talk about how such proposals are influencing our activities. The company has been working for many years on improving corporate governance procedures and forming an efficient, modern transport holding. This work will continue.

Railway Pro: What is the company’s policy on strengthening its presence on international markets?

Vladimir Yakunin: Russian Railways plays an active international role, which brings positive results throughout the company’s work. One of the important areas of our international business activity is strengthening the country’s positions on the Eurasian transport services and infrastructure market.
Together with the railway companies of Germany, Poland, and Belarus, we are working to attract transit freight to the Eurasian “West – East” corridor, which includes the Trans-Siberian Railway. Container trains from China to Europe using the Beijing-Hamburg route have demonstrated great potential.
We are focusing heavily on cooperation with foreign partners in high-technology areas. We aim to maximize the compatibility of the Russian rail system with the European equivalents, and to improve rail transport quality in Russia – both for passengers and freight. This is consistent with the strategic goals for reforming the sector as a whole.

Recorded by Elena Ilie

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