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Rail Transport 1991-2000
Russian railways are the longest in the world, with a total length of 86 000 km. Russian railways also rank second in length of electrified lines: 40 300 km. The industry employs 1.3 million people, or nearly 2% of the entire working-age population of Russia.
Today, 80% of domestic freight traffic (more than 1 billion tonnes per year) and 40% of passenger traffic (1418.1 million people) are carried on the main lines. The main lines transport 98.6% of iron and manganese ores, 92.3% of ferrous metals, 87.2% of the coal, 88.1% of the total volume of fertilizer output, and 45 million containers. The Trans-Siberian line is the fastest route for delivering containers from Asia to Europe: the shipments cover a distance of more than 10 000 km and eight time zones in nine days.
According to forecasts of the Ministry of Railway Transport, revenues from freight transportation in 2001 should amount to 304.1 billion rubles, with a net profit of 54.5 billion rubles.
The Ministry also has the longest system of state-of-the-art fiber-optic lines: 19 000 km.
Six research institutes, six design offices, and ten institutes of higher education employing more than 7000 scientists, including 580 Doctors of Science, form part of the industry.
HISTORY: 1990-2000
In spite of a string of rather noisy scandals, the character of Russian railway operations has scarcely changed over the past ten years. Three heads of the Ministry of Railway Transport (MRT) have been able to maintain the industry's complete monopoly, reserving the right to dictate transport rates and regulations to producers. The reasons for both the Ministry's present-day successes and its problems were taking shape even in the days when it was a closed, quasi-military structure. It is interesting that the need to prepare for market relations was recognized at MRT even before the collapse of the USSR, and that the post-Soviet period began a year earlier for the railways.
1990
In February, the first attempt was made to attract Western investors to develop the Baikal-Amur Railway (BAR). The deputy minister of the USSR Ministry of Railway Transport, Vladimir Butko, signed a protocol with the president and executive director of the American company Burlington Northern Inc., Gerald Greenstein, on creating a joint enterprise to run the BAR. However, American experts who visited the line refused to implement the project, saying "The BAR is operable, but it's a sloppy operation."
In April, the Warsaw Pact countries almost completely stopped deliveries of passenger rolling stock to the Soviet Union: Hungary stopped deliveries of diesel trains; the GDR, deliveries of Ritz passenger sleeping cars and regular cars; and Czechoslovakia, deliveries of ChS-8 electric locomotives. The first conflict between the Ministry of Railway Transport and the press was connected with this situation: Minister Nikolai Konarev gave an order prohibiting the transmission of information on the shortage of cars and locomotives. The problem of renewing passenger rolling stock exists at MRT to this day.
In December, the Ministry of Railway Transport of the USSR, along with the Polytechnical Museum, was one of the first founders of the Russian Commodity Exchange. In the same month, Minister Konarev was the first to openly announce the possible severance of transportation links with the union republic of Lithuania.
1991
The division of the USSR's pool of rolling stock began in April; it stretched out for several years and was the cause of many intergovernmental disputes in the CIS. In contrast to the situation with the maritime fleet, accurately keeping track of transfers of railway cars between enterprises in the collapsing Union was extremely complicated. The cause of the "wild redistribution" of railway cars, when the new owners had no aversion to concealing and appropriating them for themselves, was a transport workers' strike in Georgia. For the first time, the USSR Ministry of Railway Transport prohibited shipments of national economic production to this republic.
In September, President Yeltsin issued the decree "On the Creation of a High-Speed St. Petersburg-Moscow Main Passenger Line."
On November 23, Yeltsin formed the High-Speed Line (RAO HSL) joint stock company by decree. Aleksei Bol'shakov became the company's first general director. RAO HSL's history was confined to one five-year period; its bankruptcy cost the state treasury $500 million in losses.
1992
In January, President Yeltsin signed the decree "On the Formation of the Ministry of Railway Transport of the Russian Federation." Gennady Fadeev was appointed Minister.
On February, 14, a rail transport council of CIS member states was set up. The council's main tasks were to coordinate rail transport at the intergovernmental level and to work out consistent principles for its operations. This was the first attempt to redistribute railway property in a civilized manner.
In April, Boris Yeltsin signed the decree " On the Special Features of Managing Enterprises and Rail Transport Facilities in the Russian Federation." The decree stated specifically that rail transport was "a single production unit."
On July 17, 1992, the president signed a decree, according to which RAO HSL received ownership or trust management of controlling blocks of 23 enterprises from the state. These were mainly engineering enterprises that had previously belonged to the military-industrial complex. The technical and economic justification for constructing a high-speed line was written at the Lengiprotrans Institute (a state research and design institute). The estimate for the project was $3.5 billion, but this amount steadily increased with time.
In October, talks were held between the Ministry of Railway Transport and the German company Deutsche Waggonbau AG on building double-deck passenger cars in the CIS. According to official information, the talks were successful; however, not a single car was ever built.
1993
In January, MRT made the decision to establish a joint venture in Switzerland to service transit goods. Zheldoreksport (the company had been formed by MRT as early as 1989) was registered with its Western creditors as JV (Joint Venture) Transrail AG. The charter capital of the joint venture was organized on a parity basis, with Zheldoreksport contributing $270 million. JV Transrail AG forced the signing of freight transport contracts with the railways of former union republics, i.e., the Azerbaijani, Georgian, and Central Asian railways (which united the Turkmen, Uzbek, and Kyrgyz railways). In the same year, the Russian portion of Transrail's shares went to MRT without compensation. Later, when laws prohibiting state structures from having a share in commercial enterprises were passed, the Ministry board decided to transfer these stocks directly to 17 Russian Federation railways. MRT used the same share distribution scheme in 1997 in creating ZAO Transtelekom.
At a press conference in February, Prosecutor General of the Russian Federation Valentin Stepankov told about abuses uncovered at the Kuibyshev, October, North Caucasus, Southeast, Trans-Baikal, Kemerovo, and Moscow railways. The Prosecutor's Office initiated and investigated approximately ten criminal cases; the Prosecutor paid particular attention to the case of Anatoly Zaitsev, head of the October Railway, who was accused of illegal participation in the activity of a Russian-Finnish joint venture. Zaitsev received a salary of $1100 and 25 000 Finnish marks (about $5000) per month from the enterprise. MRT head Gennady Fadeev reprimanded Zaitsev in an order and obliged Ministry employees to withdraw from all joint ventures. The same month, the Ministry of Railway Transport set up a special institution of freight agents. The carriers were given the opportunity to make use of preferential rates when transporting freight, provided they collected cash from debtor clients, which was to be transferred to the accounts of MRT branch offices. The Swiss firm Transrail received the rights of general carrier. From then on, it was the sole, unconditional leader among expeditors and freight agents for transit goods.
In March, MRT increased the price of a trip on suburban trains by three times. At the end of the year, MRT verified that the number of passengers caught without tickets had increased nine times and for the first time gave a figure for losses from passenger traffic: 20 billion rubles.
At a briefing in July, the head of the Main Administration of Internal Transport Affairs of the Russian Ministry of the Interior, Anatoly Romakhov, reported a sharp worsening of the crime situation in rail transport: rail transport accounted for 86% of the total number of transport thefts.
In December, the Samara Regional Court sentenced Valentin Khazansky, director of Volzhtranstop, a Ministry of Railway Transport energy company, to three years conditionally with a one-year probation period for official forgery and abuse of official capacity. This was the first case involving a senior manager of an MRT structure to be brought to trial.
1994
In May, the government issued a resolution "On Indexation of Freight Rates and Charges for Cargo Handling Performed by Rail Transport of the Russian Federation in 1994", which granted the Russian Ministry of Railway Transport the right to revise and set freight rates and cargo handling charges independently. MRT's monopoly on rates lasted until 1999, when the right to formulate rates reverted to a government commission.
In August, the head of MRT, Gennady Fadeev, reported that Premier Viktor Chernomyrdin was scheduled to approve a general agreement on joint actions to stabilize prices and reduce mutual defaults on payments, which had been signed by the chief executives of MRT, the Ministry of Energy, Roskommetallurgii (Russian Federation Metallurgy Committee), RAO UES, and State Enterprise Rosugol' (Russian Coal). The prototype of a single rate agency for natural monopolies remains only on paper.
In November, an unprecedented act of sabotage was committed in Moscow. Two powerful bombs were exploded on a railway bridge over the Yauza River. As a result, the bridge and the railway bed were partially destroyed and one person was killed. Traffic was paralyzed for four days.
1995
In May, the 23rd annual session of the International Organization for Railway Cooperation (IORC) was held in Hanoi; a delegation from the Russian Ministry of Railway Transport took part in the activities. The session was devoted to the construction and operation of transcontinental transport corridors was discussed at the session. Russia concluded agreements on the creation of two such corridors: Berlin-Minsk-Moscow and Helsinki-St. Petersburg-Kiev-Chisinau-Bucharest-Plovdiv. Neither of these routes received international status at a European conference in 1998, because the participating governments admitted that the infrastructure was not in place.
In November, the dacha of Minister of Railway Transport Gennady Fadeev, located at the Health-2 horticultural association in Shchelkovsky District, Moscow Region, was robbed. Fadeev estimated the loss at 5 million rubles (about $1100).
In December, the first stage in the preparatory work on development of the so-called Eastern Line from Finland to Russia was completed. An agreement between the transport ministers of the two countries proposed to first rebuild the existing line and then build a new route for high-speed passenger trains. The new route has still not been built.
1996
In March, the head of the Central Electoral Committee, Aleksandr Ivanchenko, promised at hearings in the State Duma to "investigate the management of the Ministry of Railway Transport, where they're being overly zealous about collecting signatures in support of Boris Yeltsin, which has led to numerous complaints from citizens." In the same month, Boris Yeltsin granted the request of MRT head Gennady Fadeev to transfer control of the federal blocks of shares in diesel locomotive factories to his department.
In April, the Ministry of the Economy and the Central Bank proposed the creation of a federal railway service that would operate on a commercial basis. Minister Fadeev labeled the project an attempt to break up the state railway transport system. In his words, "the idea of corporatizing and privatizing the Russian railways comes from Western creditors and the IMF, and certain forces in the government are recklessly supporting them." This reckless supporting force was Vice-Premier Vladimir Kadannikov. At a meeting of the standing government committee for improving the payment system, he declared that "MRT has a stranglehold on the entire economy of the country" and "it's impossible to undo the knot of problems associated with MRT's monopoly-it has to be cut." Five and a half years later, Vladimir Putin returned the minister's portfolio to Gennady Fadeev, who had lost it in August 1996, precisely in order to "implement a program for reforming the railways and turn them into corporations."
In June, the MRT board adopted the "Main Directions of Development and Socioeconomic Policy of Rail Transport to 2005." They provided for selective freight-rate reductions for Siberia, the Far East, and Kaliningrad Region and discounts on agricultural shipments throughout the entire country. After the crisis of 1998, everyone forgot about the first "reformative" document.
In June, the Moscow government decided to collect rent from the Moscow and October railways for the land under the rail beds and embankments. Previously, the railways had only paid a land tax of 4000 rubles per hectare per year; now they would have to pay 20 000 times more. With MRT's support, the railways filed a suit in the Moscow Court of Arbitration demanding the repeal of the disastrous resolution. Gennadi Fadeev won against Yury Luzhkov in the case. This was his last success in the post of Minister; in August, Anatoly Zaitsev, the chief of the October Railway, was appointed the new head of MRT. Zaitsev announced that MRT's primary task was engineering control over the construction of a high-speed main line, whose development would lead to "a breakthrough in science and technology." By that time, the first head of RAO High-Speed Line, Aleksey Bol'shakov, had moved up to the post of Vice-Premier.
In August, the chief of MRT's main passenger department, Valery Shataev, announced a project for the creation of a federal passenger company responsible for organizing and financing passenger traffic in Russia. The aim of creating this company was to move to independent financing of passenger traffic in Russia by means of both internal earnings and subsidies. This was the first, and to this day the only, attempt by the railways to make passenger traffic pay for itself.
1997
In January, a draft of the resolution "On Measures to Stimulate Economic Development in the Baikal-Amur Railway Region" was approved at a meeting with Vice-Premier Oleg Lobov. The idea of reviving the economy of the region by de facto transferring it to MRT's control was approved at the meeting. AO BARinvest, with headquarters in Tynda, was supposed to be involved in developing the territories; the company had been set up by the railways, and MRT was naturally in charge of its operations. The Ministry could have become the sovereign master beyond the Urals in February after a scheduled meeting with Oleg Lobov, when 1.5 million sq. km of territory belonging to BAR were transferred to MRT. However, this decision did not take the form of official documents.
In April, Nikolai Aksenenko was appointed Minister of Railway Transport of the Russian Federation; within two years, he had risen to the rank of Vice-Premier and "Boris Yeltsin's possible successor." Aksenenko's first serious step in this post was to hold a tender for construction of a station for the new St. Petersburg-Moscow high-speed railway at a cost of $200 million. The winners were Taylor & Woodrow and Skanska.
In June, the head of MRT issued an order making AOZT Baltic Construction Company (BCC) the sole general contractor for reconstruction of the St. Petersburg-Moscow main line without holding a tender. BCC's original founders were the Tekhnopolis and Stroikomplektservis companies (the latter owned 99.2% of the shares of ZAO Eurosib, which was headed by the Minister's nephew, Sergei Aksenenko).
On November 8, the president issued Decree #1201 "On Improving the Structure of Rail Transport in the Russian Federation". The decree ordered the privatization of "second-level" MRT enterprises, i.e., repair, construction, and contracting companies. Controlling blocks of shares were to remain in the hands of the state.
In the same month, the Kuznetsky Metallurgical Combine (KMC), one of two Russian rail manufacturers, categorically refused to take part in bidding for the delivery of rails to MRT, because it was not satisfied with the terms of the tender. Evegeny Braunshtein, the combine's general director, advised that KMC and the Nizhny Tagil Metallurgical Combine, were planning to conduct their own auctions after offering rails to "certain potential customers," although in Russia, besides MRT, they were able to sell rails to the administrations of only 17 railways. Aksenenko did not even bother to react to KMC's initiative.
In December, Vice-Premier Boris Nemtsov announced to MRT's board that reform of the railway industry would start at the beginning of 1998.
1998
In January, MRT approved a concept for structural reform of federal rail transport. According to this concept, all enterprises and companies in the MRT system had to have their own balance sheets and keep accounts divided according to type of activity. MRT was to organize the management of financial resources. In addition, there were plans to reduce funding of passenger transport via freight transport and switch to subsidies for separate categories of passengers. On January 29, the government approved this concept. Although it was never carried out, the concept is notable for the fact that, as was the case two years later, MRT was planning to shift the burden of passenger transport onto the shoulders of the regions.
In April, the critical financial state of the October Railway (OR) was the cause of organizational shuffles. Anatoly Zaitsev, the head of (OR), who had returned to this position in 1997 from the post of Minister of Rail Transport, was reprimanded and fired along with his deputy. A version of the story that appeared in the media claimed that there was more than just the personal enmity of Nikolai Aksenenko toward his predecessor hidden behind the feud between OR and its ministry: the story was that OR's financial interests were at cross purposes with the interests of Aksenenko's nephew, Sergei Aksenenko, who headed the Eurosib industrial and financial group. A fight flared up around Baltic Bank (OR owned 49.7% of the bank's shares), because Eurosib, which owned 24.5% of Baltic Bank's shares, had not repaid bank loans of $1.4 million and 55 billion rubles.
On May 14, Aleksandr Kuznetsov became head of the October Railway.
On May 27, the All-Russian Rate Convention and Conference of Railway Transport Service Users and Employees began. The "Support Agency" as railway men themselves called it, nevertheless became history: at the convention, Nikolai Aksensenko made the first announcement about the creation of private operating companies.
In July, President Yeltsin rescinded the decree " On the Creation of a High-Speed St. Petersburg-Moscow Main Passenger Line." The project departed this life, leaving Russian taxpayers with debts of $500 million.
In spite of RAO HSL's sad end, Nizhny Novgorod and St. Petersburg announced plans in August to create their own high-speed lines. Nizhny Novrogorod's plans included the launching of special high-speed train service to Moscow, while St. Petersburg took aim at the capital of an adjacent country, i.e., Helsinki. Aleksandr Kuznetsov, head of the October Railway, proclaimed the "Speed" program, which envisaged reconstructing the St. Petersburg-Helsinki route and preparing it for high-speed trains.
In September, MRT refused to take rubles as payment for export shipments. Nikolai Aksenenko made the Swiss franc the currency of Russian railways for export shipments in his telegram #722. The State Antimonopoly Committee took MRT to court and won the case at all levels; however, MRT simply ignored all the court decisions.
In November, MRT surprised everyone with a new initiative to reanimate the "Komsomol (Young Communist League) project of the century." The mining of commercial minerals, which would have provided new work places, was supposed to have been developed around the Baikal-Amur Railway, which was virtually unused at the time.
1999
In May, Sergei Stepashin formed his own government. Vladimir Starostenko became head of MRT during Nikolai Aksenenko's brief tenure as Vice-Premier.
In July, the still-unliquidated RAO High-Speed Line and the Transmash factory (Tikhvin, Leningrad Region) reported the completion of construction of the first Sokol-250 Russian high-speed train. By that time, the development of HSL's St. Petersburg-Moscow route had been frozen, but this did not prevent the "assimilation" of $15 million with MRT's support. The plan was to launch the new train on the Moscow-St. Petersburg line, but even test runs along this route have so far been postponed.
In September, Minister of Railway Transport Vladimir Starostenko was fired. He was replaced by Nikolai Aksenenko, who also kept the post of First Vice-Premier for himself. Within a month, the Antimonopoly Ministry approved MRT's decision to set up operating companies, but it obliged Aksenenko to co-ordinate with it all changes in rate policy. The operators were only allowed to work "in specific areas" so that the shortage of railway cars would not migrate to another region and a given consignor would not be left without cars.
2000
In January, the Antimonopoly Ministry began an investigation involving MRT and the state enterprise Roszheldorsnab, accusing them of coordinated actions to limit competition. Nikolai Aksenenko had granted Roszheldorsnab (a company that supplied fuel and parts for MRT) the exclusive right to buy and sell scrap metal generated at MRT enterprises and preferential rates for transporting it.
On January 20, Nikolai Aksenenko's career reached its peak, when Vladimir Putin proposed making the Minister a member of the Presidium at a government session.
However, on February 4, Vladimir Putin excluded Aksenenko from the Security Council along with Viktor Khristenko, Aksenenko also lost his post as First Deputy-Premier. About two weeks later, on February 15, Aksenenko suggested to Aleksandr Kuznetsov that he voluntarily quit his post as head of the October Railway. Kuznetsov refused, and he was fired for "consistent failure to perform his duties." Even rumors of Kuznetsov's "friendly relations with the President" did not help him keep his job.
In March, MRT took the first steps toward privatizing its property. By a special agreement with MRT, the operating companies were offered the chance to buy old railway cars. In return, MRT gave these companies discounts on the base railway freight rate, admittedly for routes specified beforehand by the Ministry.
In May, MRT proposed a new reorganization plan for passenger transport: passenger directorates would be established at each of the 17 railways, and these directorates were supposed to be united into the state corporation "Passenger Transport." At the same time, the sale of passengers cars to private operators was supposed to begin. However, none of the companies expressed an interest in buying even one passenger car.
At an MRT board meeting on August 16, Nikolai Aksenenko first presented a concept for reforming his natural monopoly that became the basis of a future government program. However, there was an important difference: of the two transport ministries, the Ministry of Transport and the Ministry of Railway Transport, Akseneko's concept proposed keeping one-the Ministry of Railway Transport. The dispute between RAO UES of Russia and Aksenenko's department began at the same time. UES demanded that MRT repay debts amounting to 3.5 billion rubles. On August 24, Aksenenko and head of RAO UES Anatoly Chubais sat down at the bargaining table. It was decided that MRT would repay its debts up to April 1, 2001. For the next eight months, RAO UES and MRT carried on a PR war in the media by correspondence on the theme "Who owes whom?"
On October 18, Premier Mikhail Kasyanov sent MRT's reform concept back to Nikolai Aksenenko for revision. The source of the Premier's main complaint was the proposal to keep railways out of competition in the transport industry. However, on November 4, at a meeting with Vice-Premier Viktor Khristenko, Aksenenko and Minister of Economic Development German Gref concluded a "nonaggression treaty" and agreed not to divulge the secrets of MRT's reform program until the Premier had approved it.
They only had to wait nine days. On November 9, Mikhail Kasyanov informed President Vladimir Putin that the reform concept was ready. There would be a lot of carriers, but RAO Russian Railways would nevertheless remain the main one. This day could be considered the start of the creation of the full-fledged Ministry of Railway Transport reform program.
by Sergei Chereshnev, Marina Kochetova
PRESENT
To this day, the Ministry of Railway Transport remains a state within state. These are not empty words; the railway department can have whatever it wants. In addition to its own transport operations on its 17 railways, it supports polyclinics, housing stock, depots, stores, and a telecommunications network. However, although the main figures in railway transport, as before, are concentrated in the Ministry and reform of the monopoly has not yet started in earnest, the railways can no longer dispose of these riches at their discretion.
Rate Blitzkrieg
The Ministry of Railway Transport obtains much of its profit from freight transport. Various estimates have been given for the amount of profit both within the monopoly and outside it; however, the Ministry's own official figure of 55.3 billion rubles of net profit for 2000 is a better guideline. The Ministry's total revenues are almost never published, but they are at least twice as much, since MRT spends no less than 20 billion rubles a year on subsidizing passenger traffic, and the railways have estimated their investment program for 2000 at 80 billion rubles. At the beginning of 2001, Nikolai Aksenenko, the former head of MRT, managed this money like a virtual autocrat.
Since MRT is a state structure, its revenues must be automatically included in budget revenues and spent at the government's discretion. However, in practice, the money has seldom left the industry, and the question "Who owns railway transport?" is merely rhetorical. It belongs to the Ministry. Nikolai Aksenenko ignored his opponents' opinion. MRT included social facilities, the Transtelekom project, support of sports teams, and its own press in its investment program. Incidentally, the newspaper Gudok (Whistle) is the only paper in the country with the letter "e" in its type face. However, in his three years as Minister, Aksenenko acquired a lot of enemies, who mounted a successful attack on the monopoly's position. The beginning of 2001 can be considered a reference point, when the formulation of rates for domestic operations (65% of the total volume) was divided between Il'ya Yuzhanov, the head of the Antimonopoly Ministry, and Viktor Khristenko's government commission.
Nevertheless, the tastiest piece of the pie, rates for export-import transport (revenues of more than 135 billion rubles), remained in Aksenenko's hands. These rates were three times higher than general schedule #1001 and were invariably collected from the consignor in Swiss francs. Freight transport to ports was also charged export rates, even though it was carried out on Russian territory. In addition, MRT, which represented the Russian Federation's interests in the tariff agency of the CIS, also dictated its terms there.
On April 28, after the minister had returned from a meeting with Vladimir Putin and announced that the president had approved his department's reform program, it looked as though these revenues would no longer be collected from MRT. This was because the reform program, worked out behind closed doors at the Ministry with the help of consultants from Arthur Andersen, contained the premise that huge capital investments of no less than 785 billion rubles over ten years were needed in the industry. Aksenenko himself believed that the railways would stand up without new investments.
After the meeting between the minister and the president, the government's approval of MRT's reform program on May 21 already seemed routine. A bolt from the blue struck the monopoly in June, when Premier Mikhail Kasyanov approved the unification of domestic rates. All transport on Russian Federation territory would be paid for in rubles according to a single schedule. The first deputy head of MRT, Aleksandr Tsel'ko, estimated losses to the railways from this move at 20 billion rubles. Nikolai Aksenenko demanded a 33% increase in domestic rates (he could no longer do this independently). However, the deputy head of the Ministry of Economic Development, Andrei Sharonov, announced that that the principles of formulating rates according to MRT's criteria were long since outdated. Oleg Deripaska, the general director of the Russian Aluminum holding, demanded the direct participation of exporters in this process, in which he was fully supported by the president of the Russian Union of Industrialists and Entrepreneurs (RSPP), Arkady Vol'sky. Domestic transport ended up costing 17.5% more.
From then on, as Sergei Loparev, the director of the Association of Shipping Agents, put it "it was clear to everyone that rate increases would become a regular event," because MRT was now demanding compensation for passenger transport of up to 31 billion rubles per year from federal and regional budgets. The result was a 30% increase in ticket prices. Mindful of freight rates, Nikolai Aksenenko steadfastly demanded new increases from the government. "After the crisis of 1998," he said, "MRT lost 186 billion rubles on artificial rate restraint. If they won't meet us halfway, we'll stop subsidizing other industries." However it was Gennady Fadeev who profited from the fruits of his eloquence: the government agreed to another rate increase only toward the beginning of 2002.
However, an even more important outcome of Nikolai Aksenenko's defeat on rates was that his opponents understood that it was possible to fight the monopoly and its Minister. In three years, he had acquired plenty of opponents. Metallurgists disliked him for charging them the highest transport rates possible; power companies, for his refusal to repay debts; carriers, for the lack of clear-cut rules of the game on the market; ship owners, simply as a competitor; and everyone together, because of his inability to consider contrary opinions. In six months, such a powerful antirailway lobby had formed that it had to be taken into consideration both during the preparation of industry reforms and its basic laws and during discussion of an investment program.
Don't Hide Your Money
Anatoly Chubais, the head of RAO UES of Russia, struck MRT a telling blow by going after the return of railway debts (more than 3 billion rubles) to power companies. It took Chubais only two months to publicly prove to Nikolai Aksenenko that MRT owed the power companies and not the other way around. The biggest winners in the conflict were the mass media, which accurately fixated on the mutual accusations of "ineffective management" of the parties. The only loser was Nikolai Aksenenko, whose reputation was seriously damaged.
Almost simultaneously with these events, the Accounts Chamber of the Russian Federation completed an audit of MRT and uncovered the existence of six special funds out of which department money was spent for no fixed purpose (a total of about 50 billion rubles). This amount was exactly equal to the money allotted from the federal budget for development of the industry and compensation for passenger transport. The violations included the purchase of apartments and cars for bureaucrats. On October 19, the Prosecutor General's Office charged Nikolai Aksenenko under Article 286, Part 3 of the Criminal Code ("abuse of official position entailing serious consequences"). The investigators were interested in the 70 million rubles earmarked for the "Northern Delivery" program and the 11 billion rubles that MRT had not paid to the budget.
The main industry events of the last months of 2001 unfurled without the minister, who was on a "routine vacation so as not to hinder the investigation." As later events proved, no one was able to defend the monopoly's position as successfully as Nikolai Aksenenko. A discussion of two bills that were supposed to regulate the rail transport market after 2003 (Railway Transport Regulations and "On the Fundamental Statutes of Railway Transport Operations") dragged on, and MRT was not able to introduce them to the State Duma on time. This could entail a speedy disruption of the schedule for carrying out the industry reform program.
Premier Mikhail Kasyanov sent MRT's investment program for 2002, whose developers had requested 168 billion rubles, back for revision. Nikolai Aksenenko returned from vacation expressly for this meeting and afterwards went to the hospital. On January 3, 2002, he submitted his resignation after receiving a diploma from the Premier and an instituted legal action from the Prosecutor General.
The first deputy head of MRT, Aleksandr Misharin, believed that the program would not be cut back after the revisions. However, all the experience of 2001 showed that although the government was listening attentively to MRT's proposals, it would heed its opponents in making its decision. Returning to the helm of MRT after five and a half years, Gennady Fadeev inherited a still-undefeated monopoly but significantly reduced powers, smaller revenues, and larger budgetary debts at all levels. Mikhail Kasyanov demanded the repayment of 30 billion rubles of federal budget debt in ten years, the same period in which Fadeev had to carry out reforms guaranteeing all companies equal access to the railway infrastructure.
Personnel Revolution
During his short tenure in the post of Minister, Gennady Fadeev has spoken guardedly about the prospects of reform, but compared to his predecessor, he has said nothing at all.
According to Fadeev, MRT's primary task is the fastest possible repayment of the accumulated 30-billion-ruble budgetary debt, in four years rather than in ten. He has also managed to speak very definitely about the 168-billion-ruble investment program for 2002: it will be reviewed, but all of its main projects will be retained, meaning that MRT has not given up its dream of a bridge to Sakhalin Island.
MRT's total needs for four years amount to no less than 198 billion rubles, but last December, Nikolai Aksenenko calculated that the Ministry's profit for 2001 was about 32 billion rubles. The difference between wishes and resources is obvious. Therefore, it is not inconceivable that all reforms for 2003 will be confined to its legislation part, especially after rumors appeared that FSB representatives (the Federal Security Service, the KGB's successor) disagreed with the law on RAO Russian Railways. Incidentally, participants in discussions of the law at Il'ya Klebanov's government commission have not even attempted to disprove them.
However, it is unlikely that either the President or the Premier gave tacit approval to halt the reform. Therefore, immediately after Gennady Fadeev became Minister of Railway Transport, other candidates began to be predicted for the post. Government employees have successfully cultivated this version by their anonymous comments or their refusal to comment.
According to these political forecasts, former head of the October Railway Aleksandr Kuznetsov is the leading contender.
Attempts by Vlast' to determine the likelihood of Gennady Fadeev's replacement in the government apparatus have added another indirect contender for the post of head of MRT, Vladimir Yakunin, the current Deputy Minister of Transport. Among his colleagues, he has the authority of a person who is close to the President's family. However, the fact that Yakunin has never worked on the railways argues against this version: in MRT's entire history there has never been a "Varangian" (i.e., an outsider) at the helm of the department.
The third and most private forecast anticipates a real personnel revolution in the monopoly, right up to complete replacement of the board members. Then, the team members' previous job will not matter.
The three scenarios agree only in the time period: this should happen before February. The mildest version of the personnel revolution assumes the temporary appointment of Aleksandr Kuznetsov and Vladimir Yakunin as Gennady Fadeev's first deputies, which could happen even before this issue reaches our readers.
by Sergei Chereshnev
TRENDS
"The industry's existence depends on the progress of reform." Ex-minister Nikolai Aksenenko loved to repeat this phrase. Today, however, the schedules for both the first phase of reform and all the other phases are under threat of disruption.
The main argument of the authors of the reform program (besides MRT, they include well-known consultants from McKensey, Arthur Andersen, and the company Modern Business Technology), who proposed a period of ten years, was the miserable situation of the railways. The experts concluded that before making any changes, a lot of money would be needed (785 billion rubles over ten years) to renew the pool of worn-out cars and outdated equipment and to introduce new technologies. Otherwise, investors would not invest their money in Russian railways. The plan was to carry out the reform itself in three phases.
In the first phase (2002-2003), RAO Russian Railways (RR) is supposed to be separated from the Ministry of Railway Transport, and all the infrastructure of tracks, stations, depots, and rolling stock will pass to it. The process is to be carefully ordered by legislation. Private companies will be permitted only on the transport market and will have to develop a 25% niche.
Even at this stage, reform has started to slide. The schedule for preparing the laws regulating the activity of RAO Russian Railways (see "The Present") has broken down. The Russian Union of Industrialists and Entrepreneurs (RSPP) became the main defender of the interests of private companies, simply because, in the opinion of Sergei Losharev, director of the Association of Shipping Agents (ASA), the Ministry would be forced to consider the influence of this organization. The transport commission at RSPP was headed by the director of Russian Aluminum, Oleg Deripaska, who voiced the main complaint about the "reform laws": "Instead of one monopoly, another one will appear. Private carriers will have to compete with a colossus."
The majority of active carriers belonging to ASA agree with this theory. The ASA is still unhappy that the rights of shippers are poorly defended in the laws. Shipping companies (more than 2000) already operate on the railways, but they carry no more than 10% of the total freight volume of 1.09 billion tonnes. They are totally dependent on one MRT department, the Center for Corporate Transport Service (CCTS), which issues licenses to would-be competitors. For them, the figure of Aleksandr Velichko, the head of CCTS, is perhaps more important than the minister: he decides the fate of a player in the transport process, and according to the reform program, this power over the railways will pass to RAO RR.
The expediting market has developed by leaps and bounds in the past two years, in spite of the dominance of a number of companies close to the leadership of MRT, such as Transrail AG (see "History"). In 1999, there were hundreds of companies, and today there is no room to develop this sector. Sergei Lopashev told Vlast' that there were simply not enough rail cars for everyone, and investing private funds in a pool of rail cars (average cost of $25 000-30 000) did not pay. CCTS was supposed to provide discounts for the use of its cars, but the rates were determined arbitrarily and did not defray expenses. Shippers were offered old cars for purchase, but they were not interested. RAO RR, which would get ownership of both tracks and locomotives according to the reform plan, would become still another main player in a renewed market, but even with its worn-out stock, it would easily eliminate its competitors.
Shippers, who will be the main players in a future open market, do not want to invest money in railway infrastructure under these rules of the game. In this case, RAO RR will really have to find billions in order to the support the infrastructure of the lines. Otherwise, the shortfall of rolling stock due to wear and obsolescence will reach 70% by 2008 at the present rate of renewal, a fact that even MRT acknowledges.
However, the program has already been approved. Under Nikolai Aksenenko, MRT not only refused to change its basic principles, but also refused to even discuss them. Deputy Minister Anna Belova announced at the end of December that even assuming a belated introduction of the bills in the State Duma, there may still be time to complete the first phase of the program by 2003.
It is quite possible that Gennady Fadeev will manage to convince the government of the need to speed up preparation of the laws. Then RAO RR will get ready for the second phase of reform (2004-2006), when passenger transport will be separated from the new monopoly and privatization of construction and repair enterprises will start. The end of passenger subsidies at the expense of freight transport suits RSPP and Oleg Deripaska perfectly. However, this is the only part of the plan on which both the authors of the program and cargo owners agree. Many disagree with the fact that companies will not be allowed to take part in the privatization of MRT assets before 2004. Compromise appears to be impossible: this issue is also firmly fixed in the main principles of the program.
There is simply no one to stick up for passengers. The end of cross subsidization means a minimum 38% increase in ticket prices (today, passengers pay 62% of the actual cost of a ticket, according to MRT). The way things are going, this will happen no later than 2006.
There are almost no arguments about the third phase of reform (2006-2010), after which RAO RR will retain only the function of regulator of an open shippers' market and responsibility for maintaining the lines themselves. However, one reform program aimed at 2005 has already been conveniently lost in the corridors of MRT (see "History").
Sergei Chereshnev
All the Article in Russian as of Jan. 22, 2002
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