Russia Profile
May 31, 2008
Fools and Roads
Russia Needs at Least Twice the Number of Roads It Has Now
By Maxim Krans
More than 200 years ago, the great Russian writer Nicholai Gogol defined the two main woes of the Russian statefools and roads. Unfortunately, little has changed since Gogol’s time.
A number of reasons have been given for Russia’s road deficiency over the years: a lack of rocks on the Russian plain, certain characteristics of the national mentality and even a seemingly deliberate and cunning strategyany enemies marching into Russia would get stuck in the mud of the country roads and would be unable to reach the cities. The Soviets began constructing a road network, but it was never completed and today, much of what was finished is in complete disrepair.
Data from the Ministry of Transportation shows that Russia has 700,000 kilometers of roads, only 50,000 of which are federal highways. This network is supplemented by 540,000 kilometers of city streets. Many experts estimate that a country as vast as Russia needs twice as many kilometers.
Yevgeny Primakov, president of Russia’s Chamber of Commerce and Industry, recently stated that in European Russia, highway density is one-eighth that of neighboring Poland, one-seventh of Latvia’s, and half that of Estonia, Belarus, and Ukraine. And the vast majority of Russia’s roads are located in the European part of the country.
The more remote 60 percent of Russia’s territory, consisting mostly of the Russian North and Far East, contains a mere 15.5 percent of the country’s highways. As a result, more than 40,000 Russian towns and villageshome to more than 12 million peopleare practically cut off from civilization. The continued deterioration of Russia’s road network causes the cumulative length of these local roads to decrease, which in turn causes the number of towns cut off from the rest of the country to grow. The number of towns inaccessible by roads has grown by 7,000 during the past five years.
Eighty percent of local roads are in need of major repairs, and 37 percent of federal ones do not meet the required standards. Transportation Minister Igor Levitin has estimated that if the situation is not resolved by 2010, no more than 15 percent of the entire road network in Russia will meet the required norms.
Bad roads also have serious economic consequences. Transportation costs equal 40 percent of the value of agricultural products. Potential income is also lost when foreign and even many domestic shippers prefer to avoid Russia in their transit routes. Only five to seven percent of the country’s transit potential is presently being used. The movement of goods between Europe and Asia across Russian territory makes up less than one percent of this ever-growing commerce. Today, the number of new roads being opened for use is half of what it was in 1990. Last year, only 600 kilometers were built, and few of these met European standards.
Following Europe’s path
Prime Minister Vladimir Putin broached the issue of roads in several of his addresses to the Federal Assembly while he was president, and during his administration, the Ministry of Transportation developed a new special-purpose federal program to help set goals of transportation development. This program, scheduled to begin in 2010, was approved on April 24. Its goals are ambitious13.9 trillion rubles are to be appropriated for the program over five years and almost half of the funds are to be spent on highways. The program’s designers intend for its measures to allow a transition from a tactical course of preservation and modernization of the road network to tasks of a strategic naturethe real formation of a unified national transportation system.
Over the next seven years, the project hopes to establish a permanent highway link, laying down 63,700 kilometers of highways connecting 2,300 towns and villages. The total length of roads that meet European standards will double. Additionally, there will be increased funding for large-scale projects, such as the construction of a new highway between Moscow and St. Petersburg and the Don highway, running south from Moscow to the Black Sea. A new ring road for Moscow is also planned.
The program will be a challenge for Russian industry, as its realization will require an increase in the output of a whole spectrum of necessary productsfrom asphalt and concrete to specialized road-building machinery. More than 50 trillion rubles will be needed to bring all of Russia’s roads up to European standards while doubling the amount of roadway currently in place.
Last year, a record 223 billion rubles was allocated to this cause and this year, the number grew to 330 billion. Another 100 billion will go to the reconstruction of city arteries, bridges, and the Don highway. Moreover, the Ministry of Transportation proposed implementing a toll scheme on federal highways for trucks heavier than 12 tons. According to preliminary calculations, the additional revenue could be higher than 60 billion rubles annually and would likewise be directed toward the development of highway infrastructure and increasing highway safety.
Yet according to experts, the question is not so much one of money as how it will be spent. Specialists calculated that two-thirds of the road budget is currently being spent on repairs and only one-third on building new highways. This allocation of funds makes life easier and more profitable for the government ministries involved in the project.
In order to break Russia’s highway plans out of this inefficient rut, the new long-term projects will involve private investors, including some large foreign companies. The Transportation Ministry’s strategic plan stipulates the need for a public-private partnership with over 40 percent of investment assigned to sources outside the state budget.
Private investors have an interest in participating in some building projects, such as the construction of a toll road between Moscow and St. Petersburg. Bidding for the right to participate in the first phase of construction was launched last September and work is supposed to begin in 2009.
But active involvement of entrepreneurial circles in the transformation of the national transportation system is hampered by the lack of specific government guarantees for investors. The government has promised to figure out the mechanism of providing such guarantees in the nearest future, especially since in the last decade, the payout term for investments in transportation projects has doubled to almost 20 years.
Untying the knot
The new state-owned corporation Avtodor is supposed to be the main executor of the Ministry of Transportation’s plans. The idea behind this is to consolidate state assets in strategic, but failing, sectors in order to force them to operate efficiently.
The Ministry of Transportation, which initiated and lobbied for Avtodor, is planning to have it take over a large part of the functions of Rosavtodor, the federal road agency. According to Levitin, it is fundamentally important that this company have the right of ownership of highways. It should also work to attract private funds, including organizing bidding for the development of roadside territories. The new corporation will also have the opportunity to earn money independently from toll roads as well as from roadside advertising and industrial and commercial enterprises located alongside roads.
Whether Avtodor will be able to fulfill its mission is questionable. The corporation’s authorized capital stock is being formed from funds and property invested by the state. These huge assets will be managed by a small group of trusted officials. Meanwhile, according to the law, such a corporation is non-commercial, and not subject to bankruptcy, which eliminates the stimulus for efficiency and rational use of the budget money. As critics have pointed out, with the obvious opaqueness of such a configuration, preferential conditions are created for a general lack of accountability and the swelling of the administration staff and salaries.
Today Russia is creating more and more of these state-owned companiesa process that has led to some economists questioning Russia’s commitment to the free market. But in one of his public statements, President Dmitry Medvedev emphasized that the creation of state-owned corporations does not mean a rejection of a market economy and a transition to capitalism. “The government’s desire to take everything upon itself results, as a rule, in the failure of the industrial branch,” he said. Thus, it is indeed possible that in the foreseeable future, if these plans are successful, the course of Russia’s transportation sphere will have been changed.
Maxim Krans is a political correspondent for RIA Novosti.