Armenia’s Railways preparing for opening borders

Interview with Victor Rebets, General Manager of South Caucasus Railways

South Caucasus Railways (CJSC “SCR”) has officially begun its operational activity within a concession agreement on the management of Armenia’s Railways, functioning as subsidiary of RZD. According to the agreement, the company established in phases the investment plans aimed at modernising the rolling stock, the railway infrastructure, and for 2012-2013 SCR will have to implement projects aiming at increasing train capacity and modernisation of railway stations. The strategy for Armenia’s railway system is based on four pillars which will contribute to the increase of efficiency and financial stability, the provision of a performing transport, the integration in the Eurasian transport system and the execution of cooperation programmes for social policy optimisation and humanitarian activity.
Being a country involved in the TRACECA project, Armenia initiates vital projects both for the execution of connections with neighbouring countries and for the traffic on the Europe-Caucasus-Asia route. As TRACECA links countries in Eastern Europe,  Black Sea Area, Caucasus, Central Asia, China, the railway transport relation with Turkey and the commissioning of Bosphorus Tunnel become extremely important for Armenia making possible the creation of a single transport corridor that will allow the freight provision on the Asia-Europe route. Development projects on this corridor determined Armenia to build in the next period the logistics centre Akhuryan, which has a strategic role, being located at the border with Turkey. Likewise, in order to become a key point for the Eurasian transport system, Armenia considers the construction of the Vanadzor-Fioletovo line (it could become part of the international “East-West” route), which will contribute to increasing transit potential and competitiveness in the region.

In order to understand Armenia’s potential in the Eurasian transport system, Mr. Victor Rebets, General Manager of South Caucasus Railways talks in an interview about the SCR involvement in railway projects, as well as the challenges faced by this region in supplying performing transport services.

RailwayPRO: South Caucasus Railways began business operation in Armenia in 2008, as part of a concession agreement of Armenia’s railways, operating as a RZD subsidiary. Under these circumstances, what are the projects initiated so far and what are the priorities for the next years both in terms of infrastructure and rolling stock?
Victor Rebets: CJSC “SCR” is created in accordance with the Concession Agreement signed by JSC “RZD” and the Republic of Armenia. The term of the concession agreement is 30 years with possible extension for another 10 years by mutual agreement of the parties after the first 20 years of operation.
In 2008, the entire railway infrastructure of the Republic of Armenia was transferred to the management of CJSC “SCR”, the rolling stock belonging to the Company.
One of the key areas of CJSC “SCR” concession activity is the investment in the rehabilitation of Armenia’s railway infrastructure. According to the agreement, SCR invests for these purposes USD 572 Million, of which USD 220 Million in the first 5 years.
In 2008-2009, the main priority of the CJSC “SCR” investment program was to upgrade the rolling stock, in 2010-2011 to modernise the track infrastructure and road constructions. For 2012-2013, the priority of the program is to increase carrying capacity of trains and to modernise stations.

RailwayPRO: What is RZD’s strategy for Armenia (as owner of SCR) as regards the development of the railway system and the optimisation of traffic in the region?
Victor Rebets: The main strategy of CJSC “SCR” aims its development as a national transporting company focusing on the efficiency and quality of transport services.
The main objectives of the Company are:
a) To increase the effectiveness and long-term financial stability:
CJSC “SCR” is among the three largest employers in Armenia, the staff consists of approximately 4,000 employees. CJSC “SCR” takes the fifth place in 1000 Armenian companies for mandatory social payments and is in the first hundred of Armenia’ top companies in terms of taxes paid to the state budget.
b) To provide reliable and effective transport services to the Armenian economy:
CJSC “SCR” copes with the role of national transport company, meeting the transport needs of the economy and society. Currently, more than 400 freight cars are modernised and the passenger cars are upgraded by 70%. Traction rolling stock is equipped with new locomotives. A comprehensive infrastructure modernisation is being carried out and the reconstruction of the entire depot complex will be completed this year. CJSC “SCR” holds a flexible tariff policy for the shippers to reduce the traffic costs.
c) Integration into the Eurasian transport system:
Due to the concession agreement, CJSC “SCR” is obliged to upgrade the entire railway network in Armenia regardless of the level of the areas congestion. On the other hand, the Concession agreement supposes an increase of the investments size, if three railway crossings presently inactive are released.
d) Cooperation in the field of improvement of social policy and humanitarian cooperation:
CJSC “SCR” is involved in social projects of the Republic. The implementation of the investment programme attaches Armenian companies in different projects. According to 2009-2010 data, about 1,800 workers (Armenian citizens) were involved to perform work for the needs of CJSC “SCR”. CJSC “SCR” also pays special attention to the training and retraining of young employees by cooperating with leading Armenian and Russian universities: Russian-Armenian (Slavonic) University, State Engineering University of Armenia and the Rostov State Transport University.

RailwayPRO: South Caucasus Railway holds a strategic position in the Eurasian transport system. What are the strategic objectives of the company for consolidating its railway transport position on the Europe-Caucasus-Asia axis?
Victor Rebets: Located at the crossroads of East and West, North and South, Armenia was one of the countries lying on the Silk Road. Armenia is able to connect direct transmissions of international traffic with its rail infrastructure. That would avoid unnecessary load on the rail infrastructure of neighbouring countries and would also save unnecessary bypass kilometres and significant time and money.
Due to the close borders, traffic to and from Armenia passes through Georgia, and the cargo is shipped to foreign markets mostly by sea through the ports of Poti and Batumi. Thus, only one SCR link out of four operates in the direction of Georgia. The remaining three (2 to Azerbaijan and one in the direction of Turkey) are temporarily closed. Accordingly, it is an important task for CJSC “SCR” to prepare the railway infrastructure to provide services if a border is opened.
If Armenia turns a key element of Europe-Caucasus-Asia transport corridor, it becomes important to construct the Vanadzor-Fioletovo railway line. This project is primarily aimed at improving Armenia’s transit potential and increasing its economic and political competitiveness at regional and international levels.

RailwayPRO: What can you tell us about Armenia’s projects with Iran and about the projects of Vanadzor-Fioletovo line? What is the international dimension of these projects and how do they contri-bute to bring freight traffic in the region?
Victor Rebets: Vanadzor-Fioletovo line was designed in the 80s of last century, but for some reason the project was postponed. Currently, the issue of its construction turned to be important again, taking into account the fact that Vanadzor-Fioletovo can become a part of the international “East-West” route.A memorandum has already been signed on the construction of the railway line Vanadzor-Fioletovo with 32 km of length.
The construction of Vanadzor-Fioletovo railway line will connect Ijevan-Hrazdan-Yerevan to Tbilisi-Ayrum-Gyumri-Masis, which will significantly reduce the duration of intra- and interstate transportations. Currently, the feasibility study for the construction is complete and the construction costs are determined.
This project will lead to a reduction of the traffic distance, the delivery time of goods in the local and international traffic, the creation of the international transport corridor “Europe-Caucasus-Asia” through Armenia.The construction issue has been actively discussed since 2007. The project supposes that a 500-km railway line will pass through the route Gagarin-Gavar-Martuni-Jermuk-Kapan-Meghri-Iranian city Merand connecting Armenia through its southern regions neighbouring Iran.
The Iranian party expressed its willingness to finance the construction of a 70-km railway line that crosses its territory. Currently, the project’s sources of funding are being discussed.
Armenia-Iran railway line will provide Armenia with an alternative way to transport energy and other goods having another access to outside world, given the fact that today’s Armenian railway communications are provided only through Georgia. According to the preliminary agreement, Iran will provide Armenia with access to the Persian Gulf. According to preliminary calculations, the project will need about USD 2 Billion, and the construction can last 5 years.

RailwayPRO: Armenia is strongly involved in the TRACECA project where the Yerevan Logistic Centre will be developed. What investments are necessary to develop this project and how will it contribute to improving the commercial exchange in the region? What is the impact of the project on cross-border traffic?
Victor Rebets: The international transport corridor TRACECA is a revival of one of the most famous historical routes the Silk Road.
The Corridor originates in Eastern Europe (Bulgaria, Romania, Ukraine) and also crosses Turkey. Then the route goes through the Black Sea to the ports of Poti and Batumi in Georgia, and then reaches the transport network of countries of the South Caucasus, using ground-based communication with this region of Turkey. From Azerbaijan through the Caspian Sea ferries (Baku -Turkmenbashi, Baku-Aktau) TRACECA route goes to the railway network in the Central Asia countries, such as Turkmenistan and Kazakhstan, whose transport networks are connected to Uzbekistan, Kyrgyzstan, Tajikistan and reach the borders with China and Afghanistan.
As regards Armenia, the possible opening of the Armenian-Turkish border and the reoperation of railway between the countries together with the tunnel under the Bosphorus will form a single transport line corridor, which will allow the delivery of goods through the corridor from Asia to Europe (and back) on a non-stop scheme. Such a development could have a significant positive impact on enhancing transportation directly to Armenia and transit through its territory.
Here, the involvement and development of international logistics centre “Akhuryan” on the Armenian-Turkish border gains a special importance.
The peculiarity of the project to create an ILC at Akhuryan railway station is that the primary objective of its creation is to exactly download TRACECA corridor, and suggests that the major potential customers of ILC are the companies involved in the freight transport for exports and imports.Akhuryan Railway station has not function since the Armenian-Turkish border has been closed on the initiative of Turkey since 1993. Earlier, a terminal operated at the station to transfer rolling stock from one track to another with the change of bogies of wagons.
Due to the concession obligations, CJSC “SCR” held rehabilitation work on the station infrastructure at the Akhuryan station. Constructions, station tracks are repaired. The electrification and FOCL installation are estimated to be completes. CJSC “SCR” conducts all these works from its own funds.
To create an international logistics centre Akhuryan following the order of SCR, the feasibility study is carried out, the implementation of which will fulfil the following objectives: to identify the needs of customers, the management of loading resources, express freight delivery by rail; information support of the order on the entire process chain, optimisation of transport costs.
The main advantage of the ILC based on Akhuryan railway station is, above all, its location. At this stage, the station is the only link between Armenia and Turkey, which can provide a so-called “local monopoly”.  The advantage of the project is to have a certain basis for the increase of the company’s capital in property complex of the station Akhuryan, the fact that financing of the property complex will be aimed mostly at their own expense, which indicates the financial stability of the company, and also obtaining the status of the first logistics centre of the country providing comprehensive services can contribute to the consolidation of customers.
The centre will serve freight flows from/to Turkey, a part of the cargo, which is currently delivered to/from Armenia through the sea ports of Poti and Batumi from Europe, America and Asia. In addition, the creation of the ILC will attract international freight transit to Armenia through the development of the land branch of the international transport corridor TRACECA, by increasing the attractiveness of Armenia as a transit country with the construction of the Fioletovo-Vanadzor branch.
The centre will serve from 309.5 thousand tons in 2013 to 599.3 thousand tons in 2019, according to the base-case scenario. According to the most conservative estimates, the figure ranges from 161.2 thousand tons in 2013 to 312.1 thousand tons in 2019, and on the maximum it may reach 1 857.0 thousand tons in 2013 to 2557.4 tons in 2019.The volume of investment in the creation of the centre according to expert estimates is about 9.1 million in the baseline scenario, USD 7.6 Million for the minimum scenario and USD 11.1 Million according to the maximum scenario.

RailwayPRO: What is SCR’s role in developing railway transport with Azerbaijan, Georgia, Moldova, Turkey and Ukraine?
Victor Rebets: Currently, due to the blockade of Armenia’s borders with Turkey and Azerbaijan, the cooperation with the railway administrations of these countries is frozen.
SCR has established enough productive cooperation with the Georgian railways both in terms of passenger and freight traffic. Since early 2009, a container train has been running on Karmir Blur-Poti- Karmir Blur route, and since the end of 2010 another container train has been introduced for Yerevan- Poti-Yerevan route. Currently, in the international traffic, express container trains run on the routes Karmir-Blur/Yerevan-Poti-Karmir-Blur/Yerevan.  Also, there are two international passenger trains running on Yerevan-Tbilisi-and Yerevan-Batumi route.
As for Moldova and Ukraine, a fruitful collaboration exists with these countries within the Council for Rail Transport of CIS countries.

RailwayPRO: What is SCR’s strategy for using the infrastructure of Black Sea and Caspian Sea ports?
Victor Rebets: As mentioned above, due to close borders, freight transports to and from Armenia through Georgia, will be performed for the most part, by sea through the ports of Poti and Batumi.
Here we should note the importance of the cooperation of CJSC “SCR” with LTD “Black Sea Ferry and Investments” which is the operator of several railway-ferry lines, such as “Kavkaz-Poti” and “Caucasus Samsun (Turkey)” on the Black Sea, as well as “Ust Luga-Baltic” and “Ust-Luga Sassnitz (Germany)” on the Baltic Sea, which operates its own multi-profile rail ferries “SMAT”, “Feruz” and “St. Petersburg”.
The international transport corridor port Kavkaz-port Poti-Republic of Armenia can supply goods to the country in the shortest time and at the lowest cost. On this ferry line, the multi-disciplinary railway-ship “SMAT” conducts crossings having a capacity of 50 tanks (50 grain) or 40 universal box cars and 21,220-foot containers. Annually ferry vessels of “BFI” company run on an average of 40 round trips on the line “Kavkaz-Poti” carrying about 1500 cars in both directions.
In 2011, CJSC “SCR” and BFI Ltd. signed an agreement regulating the railway freight process. According to it, CJSC “SCR” provides “BFI” with rolling stock and organises the railway transport process.As a national transport company, SCR pays special importance to the development of strategic cooperation with the “Black Sea Ferry and Investments”, the operator of the marine railway ferry line port Kavkaz-port Poti-Port Kavkaz, which accounts for most of the cargo in the direction of the Republic of Armenia.

RailwayPRO: Railway transport ser-vices on the Europe-Asia axis face a series of challenges (different gauges, countries with distinct customs procedures etc.). In your opinion what are the measures to be implemented in order to reduce the impact of these problems on international traffic and what objectives should be implemented to increase the attractiveness of these transport routes?
Victor Rebets: All these problems you mentioned can be truly solved through international cooperation, strengthening the integration of railway systems in different regions. The problem of rail gauges is successfully solved by involving special logistics centres transferring cars from one track to another by replacing trolleys, and the simplification of customs procedures depends on the will of the government.
First, in order to reduce the negative impact of problematic factors on the international transport, it is necessary to create a sustainable infrastructure chain for multi-modal transportation, to increase the competitiveness and attractiveness of the transport corridors, to liberalise the foreign trade and to reduce barriers in the way of cargo around the whole transport corridor.


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