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Asia Times
November 29, 2001
Eurasian railway plans off track
By Sergei Blagov

MOSCOW - Russia has long been viewed as a potential link between East and West, as the country's railway system is a natural venue where the twain could probably meet. However, plans for a transcontinental Eurasian railway could remain just a bold vision for of a variety of economic and political reasons, including graft allegations against the Russian railway minister.

Russia's railways account for more than 80 percent of national freight turnover and roughly half of passenger transportation. The Trans-Siberian Railway (TSR), which runs from Moscow to Vladivostok, is the longest continuous rail line on Earth, about 10,000 kilometers - more than one-third of the circumference of the globe. It takes seven days to travel its length. To the west, connections are available through Moscow to Berlin and from there to Paris, as well as to St Petersburg and from there to Helsinki.

Experts say Russian railways' major potential could be in developing a scheme to funnel freight between Asia and Europe via the TSR. The South Korean government plans a rail tour to drum up support for the link-up of the TSR and Trans-Korean Railroad (TKR), Seoul's Ministry of Planning and Budget said on Wednesday.

The ministry said it will allocate 500 million won (US$395,000) for the trip for next July through August. Roughly 200-300 politicians, businessmen, and members of academe and the media from both South Korea and Russia will take part in the event. Organizers of the train tour said participants will visit the cities of Vladivostok in the Russian Far East, Khabarovsk, Irkutsk on the shores of Lake Baikal, Novosibirsk, Ekaterinburg, Nizhni Novogorod, Moscow and St Petersburg.

However, despite such occasional demonstrations of interest from outside Russia, the transcontinental-link scheme has not been a success so far, with only about 10,000 containers moving annually. The TSR's cargo and passenger transportation has plummeted by about 200 percent since the Soviet collapse in 1991.

Furthermore, freight forwarded from Russia to European destinations needs the transfer to broad-gauge rail (1,520mm) at Brest, Belarus. Experts argue the Asia-Europe scheme also needs major expansion of rail services between western European gateways and inland Russian terminals, so as to give rail a competitive edge against long-haul trucks on major routes.

Apart from the Trans-Siberian, Russia has another gateway to Asia-Pacific known as the BAM (Baikal-Amur Mainline). The 3,800-kilometer-long route runs about 700 kilometers north of and parallel to the Trans-Siberian - it was built to provide an alternative, more secure route. The BAM from Vanino Port on the Pacific coast to Taishet on the main freight line to Moscow is some 700 kilometers shorter than the equivalent section on the TSR from Nakhodka Port on the Pacific Ocean near Vladivostok. Nonetheless, the BAM is hemorrhaging red ink, a situation unlikely to change in the medium term.

Russia's railway network is also viewed as a potential link between Western Europe and Southeast Asia. With only one relatively short section (about 250 kilometers between Phnom Penh and Ho Chi Minh City) missing, reconnecting Vietnam with Thailand via Cambodia would allow train-lovers to travel from Singapore to Europe for the first time. The Railway Ministry says that launching a passenger or freight service between Western Europe and Southeast Asia would not constitute a large technical problem. Furthermore, Railway Minister Nikolai Aksyonenko has long been a supporter of a transcontinental Eurasian railway project.

The Railway Ministry's blueprint for an "East-West" rail corridor also includes plans for a rail link between Sakhalin and Japan. Last March Aksyonenko signed a rail pact with Pyongyang. Talks between North Korea and Russia on linking train networks resulted in an agreement to bolster cooperation on rail transport. Moreover, in early October, the Russian government approved the construction of a bridge linking the mainland with Sakhalin island.

The government at a regular meeting on October 4 tentatively approved a blueprint to build a rail link between the mainland Khabarovsk region and Sakhalin. The project is "necessary" for Russia, Prime Minister Mikhail Kasyanov said. However, Kasyanov warned that the huge investment into the project, estimated at US$4 billion, must be recouped.

The Sakhalin rail-link project would involve construction of a bridge and a dike in order to cross the Nevelsky Strait. This is a departure from the Railway Ministry's recent plan to resume construction of an undersea railway link begun half a century ago. It is far from clear why the Russian government switched from tunnel to bridge design, which would cost twice as much to build.

The construction of the undersea railway tunnel on Russia's east coast was ordered by Soviet dictator Joseph Stalin in 1950. The project envisaged the construction of an undersea tunnel 13 km long and 70 meters deep. It was known as "project No 6" and was carried out mainly by some 8,000 prisoners of gulag labor camps. After Stalin's death in 1953 the project was halted as wasteful.

Critics have argued that the Russian government can hardly afford a bridge or a tunnel, which was expected to take nine years and some $2 billion to build - especially given the lack of clarity regarding the link's economic viability.

It remains to be seen whether the rail-link project between the Russian mainland and Sakhalin could justify a $4 billion investment. However, Russia hopes to get more than $50 billion in taxes and royalties from Sakhalin energy projects. If this optimistic vision materializes, Russia may be able to afford an expensive rail link.

However, Aksyonenko's bold vision suffered a sudden blow in October when the Prosecutor General's Office charged the railway minister with abuse of office. Corruption allegations around Aksyonenko had boiled for quite some time, and on October 22 and he came under official investigation and was charged with graft. A week later, on October 29, Aksyonenko took a vacation. As the Audit Chamber continues to probe the Railway Ministry, a war on corruption in Russia's railway sector seems to be widening.

Aksyonenko's hidden empire reportedly controls the bulk of oil and petrochemical railway freight in Russia. Aksyonenko is rumored to force the Railway Ministry to sell transportation services to private companies close to his family members at below-market prices. Then insider firms allegedly resell these services on the market at the prevailing price. The discount has been estimated anywhere between 25 and 80 percent. Thus insider firms are understood to strip value from the Railway Ministry, a state-owned monopoly, and siphon the proceeds to offshore units.

Moreover, railway telecom company TransTeleCom has said it aims to sell off 49 percent of the company to a foreign investor. TransTeleCom values its 49 percent stake at $800 million. The remaining 51 percent in TransTeleCom is to be equally held by 17 regional railway companies.

TransTeleCom, set up by the Railway Ministry in 1997 to provide services to the country's extensive railroad network, is supposed to become a major player on the Russian telecom market. Last year, the Railway Ministry upped planned investment into TransTeleCom to $1 billion, of which nearly half has been disbursed to lay more than 20,000 kilometers of fiber-optic cable, according to the ministry. Thus, the Railway Ministry has poured at least $500 million from the state coffers into TransTeleCom, a private company, and now moves toward selling its stake in TransTeleCom as a private asset.

On Wednesday, Prosecutor-General Vladimir Ustinov stated that the investigation of Aksyonenko was to be completed by the end of the year. "We have no doubts in the evidence relative to this case," Ustinov said.

Aksyonenko still has high-profile backing. "I don't understand why the law-enforcement agencies launched the investigation" to probe the railway minister, Prime Minister Mikhail Kasyanov was quoted as saying by the official RIA news agency on Wednesday. Kasyanov described Aksyonenko as a "very good minister".

On Wednesday Aksyonenko declined to comment on the charges and insisted he had a "moral right" to keep his portfolio. He also pledged that reforms in the railway sector were to be continued and insisted that his plans, including the Sakhalin bridge, remained feasible. According to Aksyonenko, 600 billion rubles (about $20 billion) is needed over the next five years to modernize the system and replace aging equipment.

Russia's railways remain the country's last yet-to-be-privatized frontier. Last January 18, Aksyonenko confirmed his restructuring plans and said he would be laying off about 500,000 people, 40 percent of the ministry's 1.2 million employees, beginning next year.

A final decision to restructure the rails was made last fall. In November 2000, the government initiated restructuring of the country's railway sector, spinning the owning-and-operating functions as a new corporation. The restructuring plans involve setting up RAO Russian Railways that would have $12 billion annual turnover and own all existing trains, rails, train stations, and also 17 state-owned regional railway companies. The concept envisages splitting many small operator companies in charge of cargo and passengers operations.

Aksyonenko said that RAO Russian Railways is to be launched by next year, but insisted the restructuring did not equate to privatizing the railway sector, arguing that RAO Russian Railways would remain 100 percent state-owned. Aksyonenko also claimed that the European Bank of Reconstruction and Development (EBRD) had promised $250 million loans to invest in Russia's railway sector.

However, on Wednesday Andrei Sharonov, deputy minister of economic development and trade, suggested cutting the Railway Ministry's 2002 investment program by 123 billion rubles. And Communication Minister Leonid Reiman voiced protest over the railway ministry's excessive investments in the telecom sector. As a result, the cabinet turned down the ministry's investment program and ordered to have it reviewed by January.

Therefore, with a background of continued controversy around Russian railway sector, plans of a transcontinental link look like a distant dream.

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