A significant factor in both the recent growth and the future prospects of the Russian freight rail industry is the current programme of structural reform of rail transportation in Russia (the Reform). The Reform was initiated by the Russian government in 2001 with the goal, among others, of satisfying the growing demand of the Russian economy for transportation services by increasing the efficiency of the existing rail infrastructure. In particular, the Reform was designed to attract investment, including private investment, to the sector, which is burdened with an ageing fleet of railcars and locomotives and an infrastructure that requires substantial investment.
The Reform is ongoing. While OAO Russian Railways (RZD) retains a monopoly in the provision of rail infrastructure and is by far the major player in the provision of locomotive traction services, the new regulatory framework provides third-party operators with a legal right to access such infrastructure on a non-discriminatory basis alongside RZD and its subsidiaries. Private operators have benefited from the Reform, enjoying unregulated pricing and substantially increasing their market share in a number or railcar segments in recent years.
In 2007, RZD established Freight One, a wholly owned operating subsidiary, to engage in freight transportation on a competitive basis. The Russian government and RZD have made recent public statements re-affirming their plan to create another competitive freight transportation subsidiary, Freight Two, to which the majority of RZD’s remaining fleet will be transferred. It is envisaged that, in the future, subsidiaries such as Freight One, TransContainer and Freight Two (when and if created) will be partially divested with minority interests offered to investors in order to attract new capital and private sector expertise into such subsidiaries.
Full liberalisation of locomotive traction, as envisioned by the Reform, remains to be implemented, and the timing of such liberalisation is uncertain. RZD’s locomotive fleet is ageing and will require significant replacement investment in coming years. The Russian government and RZD will likely need private capital to fund a portion of such investments, similar to the significant private investments in railcars in the course of the Reform.
Some private freight rail operators (including Globaltrans) already use some owned locomotives for freight rail transportation.
In 2008, as a part of the ongoing Reform and industry liberalisation, RZD divested a sizeable number of railcar repair depots to private investors. This has led to increased competition between private companies and RZD in certain segments of railcar repair services.
The next stage of liberalisation is expected to include the creation of Freight Two, a rail cargo transportation subsidiary of RZD. Once this has taken place, RZD is expected to be left with quite a small fleet of commercial freight railcars.
