INTRO: A phased programme of structural reforms of Russia’s railways will culminate in the launch of independent companies that will compete for passenger and freight traffic against a national state-owned operator to be known as RZD Ltd. Boris Lukov reports from Moscow

On August 16 the Board of Russia’s Ministry of Railways confirmed that it was pressing ahead with further stages in the programme of structural reform of Russian Railways. The government first adopted the programme on May 15 1998, setting strategic objectives to cut the cost of moving freight and passengers by rail and to introduce formal arrangements ensuring that the infrastructure of the national network and other railway equipment is maintained in good condition. This reflects a situation where maintenance and repairs were neglected when traffic was falling. Recent improvements in the economy have generated fresh business, and rehabilitation and repair of equipment and rolling stock is now increasingly urgent.

The Ministry of Railways has been formally charged with implementing the reform programme under the government’s guidance. The ministry’s own role will change significantly, as its strategic and operational functions are to be separated. The ministry will retain powers as the executive body for implementing national railway policy, with operational and commercial functions devolved to the Russian Railway Company (RZD). There is no intention to establish a separate infrastructure company, and the railway will remain an integrated entity with central control of operations and safety.

The reform is also intended to create the conditions to demonopolise the various activities of the national railway, to develop market competition, and to ensure access to the rail infrastructure for all users, irrespective of the form of ownership.

Major financial reforms will form an essential part of the programme. In particular, the costs of operating freight services are to be reduced, and cross-subsidies for passenger traffic eliminated; socially necessary passenger services will be funded out of the state budget.

Measures will also be taken to enhance state control over fares to ensure that operators cannot abuse a monopoly position. There will also be guarantees against monopolies in the provision of services and products offered to railway customers.

Stage I

The initial stage of the reform is being implemented in 2000-01. It will see development of the fundamental legal principles allowing the changes to go ahead, and the initial arrangements made for establishing operating companies for long-distance passenger and commuter services. In some cases, steps are being taken towards establishing passenger train operating companies, with some railways setting them up as business units.

Documents identifying business models for these companies are also being drawn up, and recommendations made for separating the strategic and operational functions of the national railway.

Work is also being carried out to establish freight operating companies carrying bulk cargo. It was not considered feasible to allocate the fleet of freight wagons between a large number of operators without causing disruption to existing services, so for the moment only companies operating block trains on regular routes will be entitled to own their rolling stock. Such companies must meet strict criteria that ensure financial stability, and only if these are fulfilled will they be able to buy their wagons.

The Ministry of Railways will retain several other important roles. It will oversee and regulate operations in terms of standardisation and legal documentation, approving, enforcing and supervising the implementation of operating and technical standards, as well as being responsible for safety and environmental protection. It will issue operating licences and grant certification, and implement standardisation among operators and in the railway industry generally. The brief further includes development of the railway network and of transport corridors, as well as handling international relations.

The role of the Railway Company (RZD Ltd) is brought more into line with that found in other countries. In particular, it will have operational control of the transport process, draw up and approve train schedules covering the national network, exercise control of communications and data handling, develop proposals for documents covering norms and standards for railway operations and equipment, implement a unified scientific, technical policy encouraging innovation. It will carry out financial planning, manage budgets and exercise corporate control of commercial transactions. It will also implement international agreements and contracts, and manage international activities at the operational level.

Stage II

Running from 2002 to 2004, Stage II covers the implementation of the new structure that governs the relationships between the various organisations and companies, and with the users of rail services. Once the arrangements for subsidising losses incurred by operation of passenger services are settled, the government anticipates that moves can be made towards establishment of independent passenger operating companies for commuter and long-distance services that are separate from the ’mother’ railway.

Privatisation will be completed of installations and factories not directly related to the railway but which have a supporting function for the national network. At the same time, unprofitable routes with low traffic density are to be separated from the national network or closed.

Terms and conditions are being established for all operating companies to have equal access to the infrastructure. RZD Ltd will set up Freight Operating Companies as subsidiaries, and sale of some of their shares is to be considered with the aim of generating investment. RZD Ltd will also establish the Federal Directorate of Long-Distance Passenger Services as a subsidiary. It will also endeavour to obtain investment funds in the form of loans that will be used to renew equipment and infrastructure.

Stage III

The third stage of the Reform, to be implemented from 2005, entails selling a proportion of the shares of subsidiary companies. In contrast, 100% of the shares of RZD Ltd will remain in state ownership. Funds obtained by selling these shares will be transferred to RZD Ltd as resources for investment.

Freight and passenger operating companies that have been hived off from RZD Ltd or which have been established from scratch will in due course open up the railway to competition. In this way the main goal of the Reform will be attained.

’The Russian government is firmly committed to structural reform of the country’s rail network’

Nikolai Aksyonenko

Minister of Railways