JULY 1 saw the formal start of operations for Russian Railways’ Federal Passenger Board, which has been established as an early priority for the third stage of the RZD reform programme.

The reform of RZD’s passenger operations is based on splitting the commercial and social services into separate businesses. According to the head of the FPB, Valeri Shatayev, social and regulated services currently account for 66% of RZD’s passenger-journeys and 45% of the revenue. But despite increased traffic levels in 2005, RZD only covered 73% of its passenger operating costs, recording a loss of 27bn roubles.

RZD has already established a number of joint ventures with local authorities to manage commuter services in major cities. FPB has been created to manage long-distance passenger operations throughout the trunk network as a single integrated business unit. In the longer term, the intention is to convert the board into a subsidiary company, paving the way for the subsequent sale of a stake in the business to private investors.

On July 13 the RZD Management Board also approved plans to set up a subsidiary freight business which would become operational on January 1 2007. This is intended to guarantee the competitiveness of RZD freight operations and ensure financial transparency, ending cross-subsidies between business units.

Initially RZD will own all the shares in the freight company apart from a single preference share to be held by the railway reform body ZhelDorReform. In the future RZD would look to sell a minority stake through an IPO to raise funds for renewal of the rolling stock fleet and infrastructure.

With a fleet of 564000 wagons, the freight business is forecast to be handling 1·35 billion tonne-km by 2010, earning 90bn roubles a year and generating profits of around 20% of turnover. n