Concession issues

Russian transport infrastructure is badly in need of expansion and modernization but budget funds are not sufficient to cover all the needs especially in view of possible deficit of the federal. In this context, high hopes a laid on private-public partnership though there are some “hidden rocks” here as well.

Privatization of private-public partnership?

According to the programme on the development of Russia’s marine and river transport, the capacity of Russian seaports is to be increased by 301.65 mln t by 2018. As Sergey Gorelik, Deputy Head of Rosmorrechflot (Federal Marine and River Transport Agency) said at the joint meeting of the Board and the Public Council of Rosmorrechflot in June 2013, RUB 150 bln is to be allocated from the federal budget under the programme while the off-budget financing is to exceed it 3 times.

With the limited budget financing, there are two ways to develop infrastructure – privatization and private-public partnership (PPP). Nevertheless, according to Russia’s former Transport Minister and Presidential Adviser Igor Levitin, transport infrastructure will always stay within the state responsibility. 

As for the construction of sea terminals and related infrastructure, nearby railway and automobile approaches, all these projects are supposed to be implemented at the expense of private funds and through the mechanisms of private-public partnership with the proportion of 1 budget ruble against 3 private rubles. 

However, it is not easy to launch a new project today. “Today, nobody wants to pay for the projects – for example, Russian Railways asked the government for resources and the discussion is in process, what if the project does not work? The Investment Fund was set up to finance the projects through the tenders but, unfortunately, this Fund does not work now and it is a problem for large projects to start... There should be a mechanism to start the projects,” Levitin said at the panel discussion within the framework of the St. Petersburg International Economic Forum – 2013. According to the ex-Minister, the problems arise at the level of teaching PPP specialists – we just don not have such a specialization in Russia. 

Another problem is in the rates of charges and tariffs for the use of infrastructure when it comes to the system of private-public partnership. The state invests in the creation of facilities but does not maintain them. Therefore, private investors overprice the use of this infrastructure thus decreasing the capacity of transport industry. Levitin believes, the agreements on private-public partnership should foresee the level of charges and tariffs. “When signing concession agreements it is important to ensure that charges do not grow,” he emphasized. However, he did not specify how the rates are to be regulated and controlled. In our opinion, such limits can entail an opposite problem of excessive regulation in the industry. For example, stevedoring companies - natural monopoly entities – have been for a long time striving for deregulation of tariffs as the current situation limits their competitiveness.

One more problem posed by Levitin is in the development of infrastructure for marine checkpoints. As the Presidential Adviser said at the meeting of Rosmorrechflot Council in July 2013, stevedoring companies are reluctant to transfer land plots for state control authorities, which hinders the development of ports. According to the comment of Serik Zhusupov, Executive Director of the Association of Commercial Sea Ports, one of the problems with checkpoints is that their designing should be carried out parallel to the designing of port infrastructure facilities. Deputy Minister of Transport Victor Olersky suggests that it should be agreed with Rosgranitsa. Victor Olersky also marks that all modern checkpoints should have a unified data base of all state controlling authorities and a possibility to work with a unified electronic signature.

Specific approach to railway

Nevertheless, in most cases, especial when it comes to Far East, the construction of new port facilities gets stuck on insufficient throughput capacity of remote railway approaches. Valentina Grigorjeva, Deputy Minister of Economic Development and Foreign Relations of the Khabarovsk territory, head of the authority on coordination of SEZ and complex projects, said that the capacity of the Baikal-Amur Mainline (BAM) is not to satisfy the requirements of the announced stevedoring projects in Khabarovsk Territory even with the implementation of the investment programme on its expansion till 2020 (some 125 mln t per year are required). In this context, the regional ministry considers the budgetary allocations for the development of railway infrastructure to be a priority. 

At the Saint-Petersburg International Economic Forum (SPIEF) RF President Vladimir Putin marked the development of the Transsib as a priority project in the sphere of transport infrastructure as today its insufficient capacity limits the development of ports in Primorsk Territory. Meanwhile, Far East directions are the most promising for Russian exporters of raw cargoes due to weak economic growth in the Western region and boosting economies of the Asia-Pacific region. The development of Transsib is to be financed from the National Welfare Fund.

As for the western direction, the problem of railway approaches is not the last one. For example, the development of Russian seaports on the northern coast of the Gulf of Finland depend directly on the construction of Losevo-Kamennogorsk line to by-pass the major Vyborg route. It is to be built by the end of 2013. In particular, it will allow boosting coal export via Vysotsky port >>>>. There are plans for the development of port Primorsk which depend on the railway as well. The development of railway infrastructure is also required in port Ust-Luga which plans to handle 180 mln t per year.

There are certain problems with the development of railway infrastructure in the southern direction. Russia’s largest stevedoring project on the construction of a dry cargo district is to be implemented at port Taman. At the March meeting of RF Government Marine Board, Andrey Lavrishchev, then Executive Director of FSUE Rosmorport, supposed that the deficit of railway towards port Taman may exceed 25 mln t by 2020. “The issue is under consideration but it is still urgent,” Lavrishchev said at the meeting.

In view of such a demand for investments, the possibility to attract private investors is being considered here. As Igor Levitin told at SPIEF, “our railway has a network tariff and we do not have local tariffs. With a network tariff it is difficult to make part of it to be refundable”. According to him, a project is under consideration which makes it possible to execute private construction of some lines with public tariff so that investment could Far East paid back. It should be noted that there is a global practice of private railways with a public tariff (the same for all users) but it is disputable and it is difficult to predict the effect of such measures in Russia.

Anyway, the state is looking for a possibility to lighten the burden of investments into infrastructure having retained the control over its development. And it is very important here to find a balance between the interests of the state, investor and the user of the infrastructure.

Vitaly Chernov

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Aleksandr Polikarpov - Head of Department on Cargo Transportation Research, Institute of Natural Monopolies Research (IPEM) >>>>