Russian Roads Lead to Onerous Duties

25.05.2010 — Analysis

Russian Highways Corporation (Avtodor) was created in 2009. Its responsibilities include renovation and construction of federal highways. By 2015, the state company will have received in trust about 6 thousand kilometers of the busiest roads. Avtodor plans to reconstruct them and impose a road toll. The work will be financed through budget funds as well as by revenues from subleased land lots and participation in profit-making entities. The officials intend to involve the private sector in the reconstruction and construction of new roads.

The the Sverdlovsk region offered the 350-kilometer-long Ekaterinburg-Tyumen highway as a trial ground for the pilot project. Alexander Misharin, Governor of the Sverdlovsk region, thinks that after the reconstruction the highway can be classified as a freeway. The same plans are destined for the highways that connect Ekaterinburg with Chelyabinsk and Perm. The regional authorities intend to focus on implementation of regional programs. Budget funds will be earmarked at the construction of ring roads around Ekaterinburg and a number of other towns and cities of the region as well as access roads to the boundaries of the Perm District, Bashkiria and the Tyumen Oblast. Officials believe that such division of responsibilities will add up funds for the road industry and will make regional programs more feasible.

Meanwhile, experts take a dim view of the intentions cherished by the state-owned corporation. Alexander Burkov, a member of the Transport Committee at the RF State Duma, notes that the new outfit has been given powers of a government agency and a business entity, meaning that it will set rules and regulations, allocate money as well as build, repair and maintain the roads. Avtodor was created with violation of the Civil Code of the Russian Federation and operates outside the regulations. In violation of the requirements set by Federal Law No 94, the corporation is free of any obligation to contract out the planned work through bids. Thus, orders will be distributed through the buddy system. The deputy asserts that the corruption component will increase significantly, resulting in redistribution in the industry.

The asset split-up comparable in its scale to the carve-up of the 90s has already started. The the Sverdlovsk region government has come to the decision to privatize the Federal State Unitary Enterprise "Sverdlovskavtodor" that until recently has provided maintenance for the lion's share of the region's roads. The change of the ownership as well as a 2.5 reduction in funds allocated from the federal and regional budget for highway repair and construction resulted in almost 1,000 layoffs. A. Burkov states that in such context, the issue of quality takes backseat: the preservation of road facilities has become a primary concern.

Planners and designers are frightened by the speed, at which the authorities have arrived at the decision to introduce toll highways. They object to an administrative imposition of the toll: it may lead to grievous blunders. Russia does not have any toll roads; thus, it has no experience in their operation. The estimate shows that the LMV toll in the amount of 1 ruble per kilometer that was announced by the officials was "pulled out of a hat" and, in fact, is going to be much higher.

The estimates show that the reconstruction of the Ekaterinburg-Tyumen highway will cost 186 million rubles per kilometer. The construction of the alternative road will cost approximately the same amount. The annual operation expenses add another 500 million rubles. The total arrives at a vast amount of money that cannot be raised from the budget: in the recent years, the the Sverdlovsk region has spent 6-9 billion rubles on road maintenance and construction. All the intentions about private investors will end in talk: business people will not get involved. The investment in a 20-kilometer long section of the Tyumen highway amounting to only 15% of the estimate cost will take 40 years to be paid back! That is taking into account the 2.5 ruble toll rate for a light motor vehicle as well as 6.5 rubles and 11 rubles from a bus and a truck, respectively.

The stunning fact is that surveys conducted among business community and car owners have shown that more than half of the respondents do not agree to pay any tolls. Most of those who accept the toll cannot pay more than 5 rubles per kilometer. Therefore, the payback period will be even longer, thus, completely shutting out any prospect for private capital involvement in the project.

There is a suspicion that the officials' talks about private funds they are going to raise and the minimum toll they are going to set are nothing but hanky-panky. Being knowledgeable of the budget situation, they must realize that they will be very lucky if the roads are repaired. Alexei Bezborodov, an independent transport analyst, expects another, more probable, scenario - the toll is charged and the roads remain untouched. The expectation for the freeway status awarded to federal highways is nothing but naïve dream: to make it true requires much more than changing hands.

Over the last years, the Russian highway department has undergone numerous reforms, but the roads have not become better. A. Bezborodov is sure that officials are not going to give up stealing: "They have just invented a new setup. Then the idea to transfer the roads to the corporation boils down to the urge of certain executives to scoop cash flows. That can be accomplished through an administrative resource ".

Roughly, the process flow will be as follows: the corporation will receive money from the government and will put it out on loan to profit makers; the land will be subleased, thus, making it possible to pay off the borrowed funds from revenues, to do a road facelift and to "kickback" handsome amounts to certain personal accounts. The new reform of the road industry was conceived just to "tap" budget money, and the toll would take care of legitimization of high returns received by officials from the construction.

Experts are sure that instead of highway improvement, the government initiative yet again will refill the officials' accounts and restrict citizens in their travel. There is no doubt that the right to choose the road will be of formal nature; in real life, car owners will have to drive along the toll road. The law stipulates that the alternative toll-free road can be three times as long as the toll road; therefore, very few will opt for a poorly constructed road from Ekaterinburg to Tyumen just to save money and cover one thousand plus kilometers instead of three hundred kilometers. However, the going is also rough for the toll road. Alexander Burkov anticipates that in the road industry we should expect the problems similar to those we witnessed in the power sector where the connection charge sometimes exceeds the cost of the connected facility.

Automobilists console themselves that the toll will not be once-for-all-time. Oleg Belozerov, Deputy Minister of RF Transport, stated in one of the interviews that somewhere in 12 years the roads assigned to administration of the state corporation may again become toll-free. The chance may come sooner: everything will depend on "business" success.

Vladimir Terletsky