'WE HAVE the biggest private machine-building capacity in Russia', asserts Dmitry Komissarov proudly. 'Today Transmash Holding is one of the leading companies doing business in the Russian technology market.'
As Chairman & CEO of TMH, Komissarov believes the company is on course to become one of the top five suppliers of locomotives and rolling stock in the world, barely five years after it was founded. TMH has worked hard to get established in its home market, he insists, and now he feels that the group is ready to join the ranks of the big international players.
'Do then say' is his motto. 'We need to be realistic about what we can offer. We have been working hard to build up our capabilities, and it is important that we should be confident in our products before we start announcing ambitious plans for further expansion.'
A time of consolidation
Looking back to the company's early days, Komissarov recalls that 'it was an interesting period'. Transmash Holding was formed in 2002, as part of a trend which saw the privatisation of many former state-owned businesses across Russia. The then Ministry of Railways brought in external shareholders, mainly from the raw materials sector, who continue to control the business today.
'Our first period, up to 2005, was a time of consolidation. We took control of the main rolling stock plants in Russia. They were all built in the Soviet era, with old-fashioned production logistics. There was no concept of modular assembly or subcontracting elements to another plant. Each factory started with raw materials and outshopped a finished product. Novocherkassk, for example, did everything from sheet steel and drums of cable to a finished electric locomotive.
'The facilities were in a bad way — there were debts, unpaid salaries, no orders and no working capital. We had thousands of employees to be paid.'
All the plants had been designed for big production volumes, but after the collapse of the Soviet Union 'there were almost no orders. Novocherkassk had been undergoing bankruptcy proceedings when we came in. Originally designed to build up to 800 standard locos a year, it was down to producing between 12 and 18. We have ramped production back up to around 300 locos a year, of six or seven different types. That is effectively full capacity, and it represents a growth rate of 100% a year. We have grown the business 30-fold in four years.'
And it has been a similar story in the diesel loco and EMU markets. Meanwhile, passenger coach production has increased from 200 to almost 1000 vehicles a year. TMH has taken over some of its erstwhile competitors, and now has 14 plants spread across Russia (Table I), plus interests in Central and Eastern Europe.
Not that it has been a simple process. 'Our discussions with MoR were not easy', admits Komissarov. 'TMH was coming in as an unknown player, in a very complex business, and we had no background in heavy engineering.' Predicting market potential was also a challenge. 'We could see a big demand for rolling stock, but when, and how much?'
At the time, MoR was about to reform Russian Railways as a free-standing company, OAO RZD, after which the ministry was abolished and the remaining government functions were incorporated into the Ministry of Transport.
Komissarov recalls that in a period of limited funding, the official view was that 'modernisation of existing trains was cheaper than building new.' RZD also had its own plan to develop new designs of rolling stock, assembling them in-house at its existing maintenance workshops. 'We were offering some very different products, and RZD needed to understand whether it was better to repair or replace.'
A priority for the new owners was to 'prove our ability to deliver'. To support its restructuring, TMH wanted a long-term contract, but Komissarov insists that 'we did not want a special position.'
Nevertheless, he pays tribute to Vladimir Yakunin, who was then First Deputy Minister at MoR and subsequently became President of RZD. 'Yakunin was prepared to give us a chance, under strict conditions. He agreed to take five prototype locomotives for testing on the RZD network. That allowed us to prove the technical merits and quality of our products, and bid for full-scale orders.'
In setting a long-term strategy, Komissarov says 'it was important to look ahead for the next seven to 10 years, and decide which products suited which markets. It takes a minimum of three or four years to develop a product, test it fully and get it into series production. It is a step-by-step process to understand the market, win orders, and start producing.
'We needed to identify the market needs, and match these to our production capability and technological competencies. What do we develop ourselves, and what should we buy in? Do we establish partnerships or co-operation agreements to get access to the right technology?'
In parallel with the prototype locos, TMH made a start on remodelling its production facilities. 'Our 12 plants had never worked together — even in the Soviet era', says Komissarov. 'Each was completely self-sufficient.
'We needed to reform our working methods, to develop a logistics and production chain. An early step was to identify the competency base for each plant, in particular for major elements like bogies, electric traction equipment, and so on. This allowed us to reorganise our production requirements and product specifications, with a greater emphasis on standardisation. Our new diesel and electric locomotive families are based on common platforms, there is a standard range of bogies, and we are developing interchangeable modules which can be shared between the locomotive, EMU and DMU ranges.'
And as well as new production, TMH has developed a strong business in spare parts to support RZD's ageing fleets as well as its new equipment.
'It is all about economies of scale, about managing the cost of production. By world standards we have easy access to raw materials, low transport costs and a lower cost of employment. At the same time, we have a big market and factories capable of delivering large volumes. It all helps — or at least that is the theory.'
Building a supply chain
'As an investing group, we need to see a good perspective outside the main company', Komissarov continues. 'We know our weaknesses; what we don't have, where we are not strong or effective. This gives us a clear view of what we have to do in technology, co-operation and production skills.
'The global market is far ahead in terms of technology; it is our biggest challenge to catch up. We need to find technical support, with suitable partners in supply and product development.' But in terms of strategic development, 'we believe it is important to keep control of key elements and competencies.
'It has been quite a challenge to find a supply chain to meet the size of our market, in both quantity and quality. We need to ensure volume and consistency – even for own materials. And we must rely on our suppliers to develop at the same tempo as we do.'
A recent success was the signing in May of two joint-venture agreements with Bombardier to develop advanced propulsion equipment and manufacture traction converters at plants in Russia. TMH had already established LLC Transconverter as a joint venture with Siemens AG in April 2005. Using manufacturing technologies transferred from Siemens, Transconverter is developing and manufacturing high-voltage static converters for electric locomotives, EMUs and coaches, including the new EP2A electric locos with asynchronous drives being developed by Kolomensky Zavod.
Komissarov also cites the issue of air-conditioning for coaches and multiple-units. 'The Russian market is becoming more sophisticated, so we needed a supply of air-conditioning equipment. We could not source the volumes we needed on the open market, so we bought a supplier to guarantee our continuity of supply.' But he admits that 'there are still a lot of things to do.'
As the RZD reform process moves ahead, the railway is finally able to start addressing what Komissarov describes as a 'market deficit'. RZD, he feels, 'badly needs modern locos and coaches — it needs to write off a lot of obsolete equipment each year.'
Following the successful testing of prototype locomotives, RZD signed an agreement confirming TMH as a major supplier for locos and rolling stock over the next few years. Komissarov insists that 'this was only a Memorandum of Understanding, with no obligation to buy anything.' But earlier this year the company signed firm contracts for the next seven years, which 'do include an obligation to deliver'. This has given TMH a three to four-year order backlog, and Komissarov notes wryly that its customers are 'not used to this!'
At the same time, RZD needs to improve its operations and maintenance procedures, and TMH has agreed to work with its customer on training and staff development as the more modern stock comes on line.
Despite the huge orders, Komissarov insists that TMH does not have a monopoly in supplying RZD. 'The Russian market is open to all players, if they can meet the technical requirements. Look at Siemens, GE in Kazakhstan and the Ukrainian builders, who are all competing. There is no tariff restriction to enter the Russian market. From the outset we had to convince the government that we were a world player, not a monopoly.'
RZD and the Russian government are currently putting the final touches to a 25-year strategic programme (p21) for development of the national rail network, which Komissarov says will be 'the first long-term plan in Russian transport history'. By 2030, RZD hopes to invest no less than US$500bn in modernising infrastructure and rolling stock, plus up to 20000 km of new railway. This 'huge programme' will be funded through a mix of public and private finance — with PFI deals involving investors from both inside and outside Russia.
Komissarov explains that the need for outside investors reflects the fact that 'the country has lots to do in other areas too', citing modernisation of the power-generation sector as one example. He believes the railway industry is better placed than most, thanks to the progress made in the past five years to ensure that the supply industry has the capability to support the investment. 'This could be a real problem in the electrical power sector, where the supplier base has not been developed nearly as much.'
Despite the opportunities in the home market, Transmash is also looking at 'strategic opportunities' for export business. 'Neighbouring countries also need new trains, and we can build them', suggests External Affairs Director Anatoly Mescheriakov.
First target is the 1520 market of neighbouring broad-gauge railways, which have a common heritage and similar technical specifications dating from the Soviet era. They also have the same problems of ageing fleets needing wholescale renewal.
'Ukraine and Kazakhstan are probably ahead of the rest', suggests Komissarov. 'They are perhaps two or three years behind Russia; they understand the problems, but don't yet have the resources to tackle them.' He hopes to follow a similar approach to that adopted with RZD, starting with an initial small order and then following up with volume production.
'The emerging east-west and north-south railway corridors though Central Asia are a key element of the Russian strategic plan', he continues. 'They will give the 1520 railways a good geographical position in the global marketplace.'
But the company's vision is not limited to the broad-gauge networks. 'We are looking to develop products that are saleable in other markets as well.' Mescheriakov identifies other markets — particularly in Asia — which 'don't need the highest technology, but will require effective, standard products, which are modern, reliable and efficient'. India is a classic example, he suggests, with a large population but low income levels, focusing the demand for technology at 'a different level'.
Komissarov believes that TMH could be well placed to compete on the middle ground. 'How easy will it be for the high-tech suppliers to go back and make simple and cheaper products?' he wonders. 'We can easily make our products available.' Russia's lower cost base will also help. 'We can produce new mid-range EMUs for US$3m to US$4m for a 10-car set. Compare that to western suppliers, where the price is typically around €2m per vehicle.'
He recognises that 'China is another big competitor', and is watching with interest the current technology transfer deals between western suppliers and their Chinese partners.
Komissarov highlights the fast-growing urban rail sector as another promising market, noting that TMH already has strong capabilities through Metrowagonmash and its suburban EMU plants. 'There is a lot of promise in the cities — just look at the traffic congestion in Moscow today. Tramways, light rail and metro all offer opportunities, if we use our strength in the suburban market. But we will need to find new strategic partners and learn from others' experiences.
'It will take time to get into other markets', he reflects, 'either with our existing products or with new ones. We have to understand the markets, which are not all the same — there are cultural and language issues.'
Komissarov concludes by citing an old Russian proverb. 'The first pancake is never perfect — but you still have to make it'. He is optimistic for the future, but recognises pragmatically that 'our focus must be on delivering for the present.'
Table I. Transmash Holding’s principal business units
|Novocherkassk Electric Loco Works||Electric locos, shunting locos|
|Bryansk Engineering Plant||Diesel locos, shunting locos|
|Tver Carriage Works||Passenger coaches, bogies|
|Demikhovsky Engineering Plant||EMUs|
|Oktyabrsky Electric Railway||EMU and coach maintenance|
|Car Repair Plant|| |
|Metrowagonmash||Metro cars, DMUs|
|Kolomensky Zavod||Diesel locos, diesel engines|
|Penzadieselmash||Diesel engines, turbochargers|
|NPO Transport Machine Building||EMU design|
|Bexhitsk Steel Foundry||Steel castings|
|KMT Industrial Group||Passenger coach components|
|FTD Fahrzeugtechnik||EMUs, body modules, components,|
|Dessau (Germany)||bespoke engineering work|
Table II. Transmash locomotive designs for RZD and other CIS customers
|Class||Type||Transmission||Wheel arrangement||Continuous rating, kW||Length, m||Maximum speed, km/h||Weight, tionnes||Manufacturing plant|
|2TE25K||Diesel||AC/DC||2 x Co-Co||2 x 2?500||2 x 20||120||2 x 144||Bryansk|
|2TE25A||Diesel||AC||2 x Co-Co||2 x 2?500||2 x 20||120||2 x 144||Bryansk|
| || || || || || || || || |
|2ES5K||25 kV electric||DC||2 x Bo-Bo||6?120||35||110||192||Novocherkassk|
|3ES5K||25 kV electric||DC||3 x Bo-Bo||9?180||52·5||110||288||Novocherkassk|
|2ES4K||3 kV electric||DC||2 x Bo-Bo||6?400||35||120||192||Novocherkassk|
|EP1||25 kV electric||DC||Bo-Bo-Bo||4?400||22·5||140||132||Novocherkassk|
|EP10||3 kV/25 kV||DC||Bo-Bo-Bo||7?000||22·5||160||135||Novocherkassk|
| || || || || || || || || |
|2TE70||Diesel||AC/DC||2 x Co-Co||2 x 3?000||2 x 21·7||110||2 x 141||Kolomensky Zavod|
|EP200||25 kV electric||AC||Bo-Bo+Bo-Bo||8?000||25||200 to 250||180||Kolomensky Zavod|
|EP2K||3 kV electric||AC||Co-Co||4?320||21?7||160||135||Kolomensky Zavod|
|1. Also available as TEM18A for 1?435 mm gauge operation, TEM18G for LNG fuel and TEM18D fitted with 1-PD4D engine|
|2. TEP70BS version with 2A-9DG-01 generator developed for Oktyabrskaya Railway|
- CAPTION: Assembled at Novocherkassk, RZD's fleet of dual-system EP10 Bo-Bo-Bo locomotives was designed by Transmash in co-operation with Bombardier; two locos have been allocated to the St Petersburg - Helsinki route
- CAPTION: The latest coaches built at Tver such as this 160 km/h sleeper for the Moscow - St Petersburg Red Arrow have smooth rather than ribbed sides; other coaches include the Model 61-4189 restaurant car (left) able to run at 200 km/h
- CAPTION: This RA2 three-section lightweight DMU manufactured by Metrowagonmash offers 222 seats and has a maximum speed of 120 km/h
- CAPTION: Demikhovsky Engineering Plant has developed a range of electric multiple-units for different applications; this version is the ED4MKu
- CAPTION: Diesel locomotives in the Transmash portfolio include the twin-section 2TE70 and the single-unit TEP70U
- CAPTION: The E5K is a four-axle loco intended to haul short-distance freight trains on routes electrified at 25 kV
- CAPTION: Rolling stock for the Moscow - St Petersburg Nevsky Express includes these Model 61-4170 air-conditioned stainless steel cars designed for 200 km/h
- CAPTION: The EP2K built at Kolomensky Zavod is one of the first main line electric locomotives to be built in Russia for hauling passenger trains on RZD's 3 kV DC network; in Soviet days DC locomotives were imported