Russian commuter trains are given a cemetery lot

13.12.2010 — Analysis

In 2011, Russian may say farewell to commuter trains. The commuter companies launched by Russian Railways OJSC refuse to service passengers due to thumping losses these companies have to face. The carriers request budget support from regions. Experts see the policy pursued by Russian Railways as an obvious racket. They told the RusBusinessNews reporter that the monopoly is acting for the benefit of its freight subsidiaries, declining responsibility for commuter trains.

Splitting up was full of cheer, counting turned into shedding tears

The idea of singling out commuter services into an individual line of business is part of the large-scale railway transportation reform initiated by Russian Railways. By the end of 2010, the monopoly opened 18 subsidiaries - suburban commuter companies (SCCs) in the regions. Next year, their number is expected to increase to 26. Among the SCC founders are also regional government authorities that were given about 49% of shares. Their function is to develop routes and compensate for losses incurred by carriers.

In Russia commuter transportation, like everywhere in the world, is loss-making. The commuter fares controlled by the government cover only part of the railway expenses (from 5 to 90%). "From 2007 to 2009, the total losses incurred by SCCs rose from 27.7 to 32 billion rubles. In 2010-2012, the "deficit" may amount to 108 billion rubles", informed Gennady Petrakov, head of the Federal Railway Transport Agency. 

In most of the regions, government authorities refuse to fulfill their financial obligations to Russian Railways. In 2010, only three territorial entities - the Altai, Tyumen and Kemerovo Districts compensated railway companies for their losses almost in full. 11 regions did not allot anything to commuter companies (Kurgan Region is one of them). In 16 territorial entities the amount of compensation hardly reached 5%.

Russian Railways have to subsidize commuter trains through revenues received from freight transportation. After setting up of the Second Freight Company OJSC in 2010, the monopoly will stop pumping funds from the freight transportation sector into the passenger carriage sector. Experts in Russian Railways assert that commuter trains will not be able to survive without the regions' "sponsorship". The 25 billion rubles that are promised by the federal government in 2011 will be enough to cover only half of losses incurred by SCCs. To keep away from going into the red, the monopoly intends starting already at the beginning of the next year reduce the number of commuter trains in several times. It is definitely not a bluff.

In November 2008, the lack of the budget support in the Sverdlovsk Region resulted in a 40 train cut, February 2009 swept away another 55 (25% of the total number). According to the information from the Sverdlovsk Commuter Company, the routes with low passengers flows and developed bus traffic network were hit worst. However, "somehow" popular commuter trains also entered the black list.

The new governor of the Sverdlovsk Region Alexander Misharin, who earlier worked in the railway sector, did not leave his former colleagues without a piece of the budget pie. In his first year in the governor's office half of the Sverdlovsk Commuter Company's losses was compensated from the regional treasury; next year a 100% compensation is planned. In the meantime, the Middle Ural budget-2011 is actually bursting at the seams. 

Lamb arithmetic

Authorities of "irresponsible" regions speak about lack of funds and say that the policy chosen by Russian Railways is nothing but arm-twisting and obvious racket. "We can hardly cope with the burden of "bus" expenses. Taking into account that the Moscow hub accounts for more than 40% of the commuter railway traffic in Russia, additional expenses will amount to dozens of billions of rubles. Increasing of tariffs will be the only way out ", said Alexander Mitusov, the Transport Minister of the Moscow Region. Taking out the numbers: in the Moscow Region the commuter fare is high comparing to the Russian provincial levels; therefore, the railway losses are very low.

However, there is another crucial factor that gives rise to protest heard from regional authorities - absence of transparent methods used by SCCs to calculate their revenues and expenses and, consequently, their losses. According to Yevgeni Alekseyev, an analyst of the Institute for Problems of Natural Monopolies, Russian Railways compensation requests are quite reasonable, but even those regions that are ready to pay very often raise a query about the issued bills. By the way, in Europe expenses show the number of commuter passengers, whereas Russia relies on the "arithmetic mean" approach. It means that in Italy or in France railways carriers receive compensation for actually carried passengers, whereas Russian commuter trains can carry "air", while declaring incurred expenses for payment.

Vladimir Mishanin, Deputy Director of the Moscow Transport and Communication Department, thinks that the very concept of the reforms is wrong. "Why did Russian Railways set up commuter companies that have only a 100 thousand ruble authorized fund, having no rolling stock and no suburban infrastructure? The monopoly got rid of unprofitable assets and let regions shoulder their burden", he resents. The official recalls how the aviation sector was privatized - new entities received airports together with all infrastructure. So, it is logical that SCCs should own railway terminals, platforms, and the land under them. Then, they will be able to set off part of their expenses. 

Yuri Scherbanin, head of the laboratory at the National Economic Forecast Institute of the Russian Academy of Sciences, agrees that today's situation has resulted from the insufficient consideration for consequences of the reforms. According to him, the commuting system existing from the time of the Ministry of Railways of the USSR was quite efficient. "Nobody has proved that it is wrong to subsidize commuter trains through freight transportation. For example, oil and gas companies have to support unprofitable geological prospecting. However, they do not have any inclination to get rid of it", - points he out. 

Private freight operators are sure that the answer to the puzzle is quite simple. "The seemingly reasonable complaints of Russian Railways about regions disguise commonplace unwillingness of the monopoly's freight subsidiaries to share their revenues. It is more profitable to carry one lamb today than one human being. The people who steer the First Fright Company and the Second Freight Company pursue the only aim - to line their pockets. Though they are able to take on subsidizing of commuter services - their tariffs are higher than those of Russian Railways and they earn more than the parent company", - a representative of one of the Ural carrier companies told the RusBusinessNews reporter during the conversation. 

Walking along the rails

The reforms in the commuter transport are not limited to establishment of SCCs and squeezing subsidies out of regional budgets. In 5-7 years, Russian Railways intend to sell controlling stakes in the commuter subsidiaries to private investors. After that, as the reformers contemplate, a real fight for passengers and service quality will start on the market. The competition will set the balance between carriers' costs and ticket prices. 

The experts have the opposite opinion. According to Yuri Scherbanin, true competition is a pie in the sky in the segment dominated by the natural monopoly. The power industry is a spectacular example. Private companies will seek immediate maximum returns, forcing up prices for carrier services. They are unlikely to have any intention of making investment in the industry upgrading. "No one wants to think what commuter transport we will have in 20-30 years and who will organize research and development. Only the government can cope with such an ambitious task ", he asserts. That is why, most of the European countries decided against the idea of total privatization of commuter trains - most of the commuting traffic is under government control. 

By the way, in autumn 2010, Russia received the first private commuter carrier - the Perm Express Limited Liability Company (PE). At first, the company intends to lease the rolling stock from Russian Railways to buy it out later. As a representative of the Ministry for Urban Development and Infrastructure of the Perm District told RusBusinessNews, Perm Express, together with the commuter subsidiary of Russian Railways, will fight for budget subsidies for 2011. "We are interested in minimization of budget expenses, therefore, in future only the thriftiest company will gain budget support", the ministry representative stated. 

The experts think that the private carrier can skimp only on administrative expenses and can fight efficiently with "free riders". "The latter will hardly be as important. Therefore, the existence of Perm Express is still a puzzle for me", remarks Yevgeni Alekseyev.

Analysts give pessimistic projections. They are sure that the future of Russian commuter trains is as sad as a cemetery. In Latvia, for example, the privatization actually brought commuting to a full stop. There is a chance that already in 2011 Russians either will have to commute in more expensive buses, or, with the pessimistic scenario coming true, keep commuting within their region to a minimum. 

Marina Sirina