RUSSIA: RZD Faces A Bright Future

The formation of Russian Railways as an independent, although state-owned, joint stock company in 2003 has released a new dynamism which is having a profound effect on the railway and its future development.

David Briginshaw, Editor-in-Chief, The Rail Journal
June 19, 2006

THE separation of Russian Railways (RZD) from the Ministry of Railways was undoubtedly the correct decision, as civil servants are not the right people to run a commercial enterprise. RZD as a stand-alone organisation, albeit with the government as the sole shareholder, is already in a very strong financial position which is enabling it to address some of the problems it faces. For one thing, RZD makes sufficient profit to fund its capital investment programme.

During the Soviet era, the rail network in Russia expanded by about 30,000km to 85,500km, of which almost half is electrified. While the collapse of the Soviet Union and the end of communism led to an investment hiatus, traffic did not plummet on the same scale as that witnessed in most former communist Eastern European countries. The vast distances-RZD operates across 11 time zones-and Russia's huge mineral wealth benefit rail transport. The Trans-Siberian Railway is the most important railway landbridge between the Far East and Europe. As a result, RZD carries more than 70% of all freight in Russia, excluding oil and gas moved by pipeline.

Traffic continues to grow. Tonne-km increased by 3.1% last year to reach 1853 billion. Freight traffic increased by a further 3.4% during the first eight months of this year, with a rise of 4.1% being recorded in August alone. RZD is particularly pleased with the growth in high-profit freight, which went up by 4.9% and an impressive 10% in August. The strongest growth was recorded in ferrous metals (up nearly 11%), and in wrought iron and automobiles, which both jumped by more than 17%. RZD predicts further strong growth for the rest of the year as a result of increased industrial production and the launch of new businesses.

Last year, suburban passenger traffic soared by a staggering 43% to reach 52 billion passenger-km. Long-distance passenger traffic increased by 3.8% to 118.9 billion passenger-km, and the average trip length rose by 2.5% to 886.5km.

RZD recorded a net profit last year of Roubles 9.75 billion, an 11.1% increase over 2004. This was considerably better than expected as the president of RZD, Mr Vladimir Yakunin, explained to a Duma parliamentary committee in July: "Our increasing energy efficiency allowed us to exceed our forecast net profit last year of Roubles 8.7 billion." But as Yakunin pointed out, RZD is obliged to pay the government considerable sums. "Payments to the state budget and extra-budgetary funds in 2005 increased by 27% and exceeded Roubles 188 billion. In other words, every fourth rouble earned by Russian Railways went to the government."

The prospects for this year look even better, as Yakunin revealed in July: "Net profit for the first half of 2006 amounts to Roubles 8.8 billion-it is a good result."

RZD's improving financial performance is allowing it to ratchet up investment. Its strong financial position has already enabled it to become the first Russian company to be classed as "investment grade" by all three international rating agencies. The railway invested Roubles 151.3 billion last year, of which Roubles 140.6 billion was from its own resources. For the first time in many years, RZD could afford to replace rolling stock. It ordered new types of freight wagon with improved technical characteristics from domestic suppliers. Four new designs of 160km/h passenger coach have also been ordered. This is particularly urgent as up to 65% of the passenger rolling stock fleet is worn out. More recently, RZD has signed a Euros 600 million contract with Siemens to build and maintain a fleet of eight Velaro high-speed trains.

While it will be some time before RZD has tracks capable of exploiting the 300km/h potential of these trains, their entry into service will be a potent symbol to passengers that RZD is serious about adopting new technology and improving the quality of rail travel in Russia. The government, RZD, German Rail (DB), and Siemens signed a memorandum of understanding in June for the construction of a high-speed line from Moscow to St Petersburg. This is likely to be developed as public-private partnership.

While the Velaro trains will be built in Germany, many of the orders for new locomotives and rolling stock are being placed with Russian companies. As President Putin pointed out recently, this has given the Russian railway equipment supply industry a much-needed shot in the arm: "We have re-established work at tens of companies in the sector, which are now working at full tilt and have full orders to keep them busy for the next several years. I have to mention my visit to the test centre at Shcherbinka, where I was shown the mainline diesel locomotive, Peresvet. Without any doubt, this is a modern, new generation locomotive which, like other breakthroughs in machine building, is crucial to Russia's economic development."

According to Yakunin, RZD had already invested 55% of this year's Roubles 166 billion investment programme by August. While investment is increasing, the rate of increase is currently too slow which could have serious repercussions for the Russian economy.

According to Mr Vadim Morozov, RZD's first vice-president, the railway is already suffering. "The shortage of investment funds in the rail sector has already led to reduced throughput because of infrastructure problems on some 7000km of track, which is around 8% of the total track length."Far from continuing to expand the network, about 2200km of lines have been taken out of service since 1991.

A group of leading industrial specialists and scientists has drawn up a strategic programme for RZD which says that RZD needs to invest at least Roubles 1137 billion between now and 2010, and a further Roubles 1413 billion during the following five years. "The aim of the strategic programme is the development of RZD as a national transport company that boosts the steady growth of the national economy," says Yakunin.

The programme considered the overall condition of the railway during the next five to 10 years, the development of freight and passenger traffic, new lines, and RZD's tariff policy. Two growth scenarios were considered. In one, Gross National Product (GNP) is forecast to grow by 5% between now and 2015. As a result, freight traffic would increase to 2080 billion tonne-km by 2010 and 2325 billion by 2015. The second scenario is more optimistic. GNP would double, which equates to annual economic growth of around 7%. This would push tonne-km up to 2400 billion by 2010 and 2790 billion by 2015.

According to Morozov, RZD may need to spend even more than is currently planned if it is serious about expanding the network. He believes that RZD could access other sources of funds. Morozov says RZD has already gained "very positive experience" with public-private partnerships on a variety of projects to build new lines and upgrade existing ones. He also cited Russia's Investment Fund, the sale of shares in subsidiaries, and selling property as other potential sources.

Clearly, RZD faces a challenge to boost the level of investment, but increasing revenue and profitability, its excellent credit rating, and low level of debt, place it in a much stronger position to do so than many of the world's railways, which are at the mercy of government spending whims.

High-speed trains
Main Website

JSC Russian Railways is putting into action its programme for a high-speed rail service by 2020. Approximately 69 billion rubles has been allocated for the period of 2008 to 2010 in order to achieve this aim. The main aim of the programme is the provision of high-speed, convenient services with travel time of 6-7 hours.

Having analysed transport connections between the largest Russian cities, 18 routes with a high volume of passengers have been selected where it is realistic to implement high-speed passenger service. These cities are large centres such as St. Petersburg, Moscow, Krasnodar, Samara and Novosibirsk where passenger traffic is expected to increase by 10-13% by 2010.

Moscow - St. Petersburg

With the implementation of this programme, the plan to develop high-speed traffic between Moscow and St. Petersburg has become a pilot project. JSC Russian Railways has agreed a contract to supply the first Russian high-speed trains with Siemens AG. The contract for the manufacture of 8 electric Velaro RUS trains with the contract price of 276 million euros was signed in May 2006.

In accordance with the contract, 4 single-system trains will be supplied for use on the Moscow - St. Petersburg route and 4 double-system trains will be supplied for use on the Moscow - Nizhniy Novgorod route. Mass manufacturing of this new rolling stock specifically for Russian railways started at the Siemens plant in Krefeld-Uerdingen in July 2007.

The first train that got the name Sapsan has arrived in Russia in December 2009 while the others will be delivered during the course of 2010. The first trains will start running between Moscow and St. Petersburg at speeds of up to 250 km/h in certain sections and will cover the distance between the cities in 3 hours and 45 minutes. The train design allows for the future increase of the maximum speed to 330 km/h after a minor adaptation.

"Today we present the first of eight Sapsan high-speed electric trains," said Vladimir Yakunin, the President of Russian Railways, at the train presentation in St. Petersburgh. "The Sapsan still has to pass a whole series of tests and the certification procedure, but by the end of 2009 it will be carrying its first passengers and offer a serious alternative to aviation, covering the Moscow - Saint Petersburg run in just 3:45 hours. In addition, the fares will be lower than flights on the same route," said Yakunin.

Moscow and St. Petersburg were chosen to be the first destinations for high-speed trains as they are major Russian hubs for both economic and tourist activity.

Around 25 million people live in the two cities and their suburbs, i.e. 18% of the Russian population. Almost a quarter of Russian gross output is produced here. The total cost of time saved by the implementation of a high-speed rail service on this route will amount to approximately 940 million rubles annually.

Reduction of travel time is very important for passengers who travel between the cities for business reasons. This group of passengers forms the largest group travelling on the Moscow - St. Petersburg route. Evidently it is this group that will be the main user of the new service due to the current trend of large Russian companies moving their headquarters to St. Petersburg.

The forecast for passenger traffic increase indicates that in 2010, no less than 9.1 million passengers will use rail and air travel between Moscow and St. Petersburg. With the introduction of high-speed trains on this route, 8.6 million passengers will travel by rail.

Taking into account the average income of the population of these 2 cities, 4.2 million passengers will use high-speed rail travel. Around 35% of the population of these cities are in the "high" and "above average" income brackets.

Moscow - Nizhniy Novgorod high-speed rail travel will also be implemented on the basis of Sapsan electric train. It is planned that trains will travel between the 2 cities at the speed of 160-200 km/h. Travel time will be reduced by up to 3.5 hours, which is particularly important for business passengers including senior managers and the managers of large enterprises.

Implementation of this programme will enable the increase in demand for rail travel between Moscow and Nizhniy Novgorod as well as improving its profitability. The project to develop high-speed trains on this route assumes investments amounting to over 8.5 billion rubles in 2008-2010.

Currently, Russian Railways is cooperating with the Russian Ministry of Transport to develop the regulatory framework and high-speed communications standards in Russia for trains capable of exceeding 400 km/h.

The Company is also developing a project to build a new high-speed main line between Moscow and St. Petersburg, which will be laid parallel to the existing track. The tentative date of the project is between 2013-2018.

St. Petersburg - Helsinki

One of Russian Railways' most important and promising projects is high-speed services between St. Petersburg and Helsinki, which is scheduled to begin operations in 2010.

In November 2006, Vladimir Yakunin the president of Russian Railways, and Henri Kuitunen, Chairman of the VR Group, signed an equity contract regarding the Joint-Stock Company Oy Karelian Trains Ltd. The signing ceremony took place in Helsinki in the presence of Russian President Vladimir Putin and Finnish President Tarja Halonen.

Under the contract, Oy Karelian Trains Ltd has the right to acquire rolling stock as a result of an international tender, provide maintenance during the operating cycle and transfer rolling stock to VR Ltd and Russian Railways for commercial service on leasing terms.

In June 2007, the results were announced of an international tender to purchase motorised train units for high-speed rail services between St. Petersburg and Helsinki. The tender was won by the French corporation ALSTOM.

On 30 November 2007, senior executives from Russian Railways and ALSTOM attended the ceremony in Savigliano, Italy to mark the beginning of production of the first Pendolino high-speed electric passenger train intended for service between St. Petersburg and Helsinki.

To implement high-speed passenger services, Russian Railways will purchase and launch dual-system electric trains capable of a maximum speed of 220 kmph and with powered coach tilting. These trains will be in line with modern European requirements of comfort and security.

Introducing these new trains will reduce the journey time between St. Petersburg and Helsinki to 3-3.5 hours, at least two hours shorter compared to the 5.5 hours required at the moment. In particular, travel time in Russia itself will fall to 2 hours 27 minutes. Each train will have 300 seats and consist of 7 cars: 1 business-class coach, 5 second-class coaches and a restaurant car with a separate compartment for smokers.

Russian Railways plans to operate 4 pairs of high-speed trains per day between St. Petersburg and Helsinki.

On December 29, 2008 the Board of Directors of Oy Karelian Trains Ltd has named the new high-speed train the Allegro, which comes from the Italian and means fast. The name was chosen because it is readily understandable in Russian, Finnish and other languages. The train's livery is based on the flags of Russia and Finland: red, white, blue and silver.

Return to Index to Appendix "A"

Your use of this site is subject to
Terms and Conditions of Use
See also our
Privacy Policy
Click to subscribe to