Railways Know Everything about Crisis in the Urals

10.08.2009 — Analysis

Railway cargo transportation paints the most unbiased picture of the situation in the Urals industry, since nearly all major ventures in the region use the services of the railway. The RusBusinessNews observer has been looking for the bottom of the crisis on the tracks of the statistical information.

The U.S. Government and governments of several European countries have declared that for their countries the worst of the crisis is already over. So, what about Russia? The country's industrial production index in the first half of 2009 was 85.2% y.o.y.; moreover, the decline figure for June was the lowest (12.1%). Should the official statistics be trusted, Russia has "hit the rock bottom" in May when the decline amounted to 17.1%.

However, there are more unbiased indicators of the industrial development. Russian economists emphasise the two key figures - the amount of electricity consumed by the ventures and the volume of cargo transported by railways. The latter is insignificant for some Russian regions, due to the uneven distribution of the railway system. Nevertheless, it is relevant to the Urals and Western Siberia where the railway cargo transportation, along with pipelines, plays the leading role in the economic activity.

Two branches of JSC Russian Railways operate in the region of the Urals and Western Siberia - the Sverdlovsk and the South Urals railways. The situation regarding cargo transportation on the Sverdlovsk Railway is levelling incrementally. By 1 January 2009, the country's largest decline of railway cargo transportation of 47% was recorded here. In June this indicator reduced to 26%; in July - to 18.8%. This matches the overall statistics of the Russian Railways.

The Sverdlovsk Railway management has set itself a fairly difficult goal of achieving the average annual level of the transportation decline vs. 2008 that would not exceed 19%. This has been helped somewhat by the sharp rise in the amounts of shipments of building materials, fertilizers, petroleum products, non-ferrous and iron ores in July. However, many types of cargo that are transported in summer are of a seasonal nature (e.g. building materials and fertilizers).

For both railways, coal and metals constitute the main share of the cargo. On average in Russia, transportation of coal has been reducing so far, although insignificantly (by 14% in the first half of the year); however, the main quantities of coal will be transported from Kazakhstan and the Kemerovo Oblast in the autumn, by the start of the heating season.

As far as metals are concerned, the decline in quantities transported across Russia in January-June turned out most substantial amongst all types of cargo at 32.9%. It would be fair to say that a six-month war could not have caused such a catastrophic damage to the domestic metals industry as the economic crisis has done.

Moreover, this indicator fully corresponds to the results of the Urals metals industry operation. For example, in January-June 2009 OJSC Magnitogorsk Iron and Steel Works has reduced steel production by 39.7%, and finished products by 41.4%.

The first thing that suggests itself is the reduction of cargo transportation tariffs, all the more so since JSC Russian Railways remains a 100% state-owned company. However, in March 2009 Vladimir Putin, the Russian Prime Minister, has spoken unambiguously on this issue: "It is inexpedient to reduce the railway cargo transportation tariffs." Vladimir Yakunin, the President of the Russian Railways, has responded forthwith: "The Prime Minister's position draws a line in the discussion related to certain private business representatives' and regional leaders' attempts to solve their problems at others' expense."

At the same time, the Government has restricted the Russian Railways' appetites by prohibiting them to increase tariffs by more than 5% in 2009. Meanwhile, the Government's field meeting in Magnitogorsk on 24 July has identified the reduction of railway transportation costs for scrap iron as a measure to be considered by the state for the support of the metals industry. It is evident that these actions are not exhaustive and, should the situation regarding metals railway transportation continue to deteriorate, some other tariffs will be reduced as well.

The difficult economic situation makes the railways and the metal makers jointly develop the logistics for a more efficient usage of funds and resources. It is, perhaps, the most positive manifestation of the crisis.

For instance, the Bogoslovsk Aluminium Smelter, a RUSAL company, has redistributed cargo flows in January 2009. The smelter has reduced shipments of commercial aluminium by 30%, and sends the available alumina that was used to make the finished product to RUSAL's other plants.

The South Urals Railway is also actively involved in the improvement of logistics. The most important recent event here is the opening a new railway transportation control centre at the Chelyabinsk station. This is one of the Russian Railways' largest investment projects worth more than 2 billion roubles. The new centre employs an innovative transportation process management technology that makes it possible to monitor the train situation in real time along the whole of the railway network which is almost 5 thousand kilometres of railway lines running the total of 1,200 passenger and freight trains daily.

2009 will be the worst year for the Urals railways in the last decade. Their performance indicator will bear witness to the situation in the industry of the Urals and Western Siberia, with the exception of the oil and gas sector. So far, the transportation volumes of the region's most important cargo, metals in particular, indicate that the economic rock bottom has not been hit yet.

Pavel Kober