OREANDA-NEWS. March 31, 2014. The State Duma of the Russian Federation had Parliament hearings on “Railways privatization in Russia and Germany (on the examples of “Russian Railways” OJSC and “Deutsche Bahn AG”): Goals, Approaches, Results and Prospects”.

Deputy Head of the Federal Antimonopoly Service (FAS Russia), Anatoly Golomolzin, took part in the Parliament hearings.

Representatives of the Audit Chamber of the Russian Federation pointed out that the measures of the railway reform are not being exercised to the full, while the law on railway transport does not match the current situation on the market. Anatoly Golomolzin agreed and added that it adversely affects the overall state of the national economy.

“Problems emerged not just in 2013 when freight transportation reduced by 3% and long-distance passenger transportation - by 5%. In 2007 - 2013 the aggregate downfall of freight transportation was 8%, passenger transportation – over15%. The issues of efficient building up and spending investments in the locomotive fleet and in the infrastructure, in the direct jurisdiction of “Russian Railways” OJSC were not resolved. In the past several years the number of railway stations decreased, the total length of station tracks reduced, and the problem of the lack of locomotives escalated”, stated Deputy Head of FAS. “Success was achieved only through partial liberalization, when not even carriers but rolling stock operators were formed, that take part in transportation activities”.

In the competitive segment where freight wagon operators function (over 700 companies), the wagon fleet was significantly renovated (over 300,000 wagons) by attracting private investment to this segment.

Structural reforms of railway transport in the European Union, North America, etc. are more consistent and effective.

Anatoly Golomolzin corroborated his arguments with numerous statistical data. For instance, in the period of reforming railway transport in Germany the passenger transport increased by nearly 30%, freight turnover – by 45%, and the burden upon the national budget system decreased by over 30%. In 2012 the number of third-party carriers in Germany was, according to various data, from 247 to 385, and their share of passenger and cargo traffic increased from the minimum level to 12% and 31.5% accordingly. Under competitive conditions, railway transportation increased in 1994 - 2012, when the reforms reached their maturity (in accordance with the Structural Reforms Programme, in Russia a similar stage was supposed to be completed in 2010).

Railway reforms in the USA resulted in liquidation of inefficient assets, an increased productivity of railway transport and a significant drop in the accident rate. The major competition in the US is between seven large carriers, plus over 500 companies are also present in the market, intensifying competition. From launching the reforms in 1980 (when Staggers Rail Act was passed) the rates in comparable prices declined twofold by 2011, even despite the 25% growth in 2004 - 2011. One of the reasons for the tariff growth in the recent years is a considerable development of railway infrastructure. It enabled increasing cargo traffic density fourfold during the period of reforms.

US railways have comparable freight turnover and volume of shipment with Russia but the length of track in use is 2.7 times longer— 230,000 km against 86,000 km, and there are no “bottleneck” issues. In the US delayed shipments do not exceed 1-2%; in Russia in 2012 the figure was 27%. Experts note that under the conditions of competition and private property, the US railway infrastructure is being developed to the extent as the economy needs and, perhaps, even “more than enough”.

“In the Russian Federation problems with railway transport to a considerable extent are determined by delays or refusals to implement some of the most important areas of reforms rather than by foreign economic factors”, emphasized Anatoly Golomolzin. “Over a number of years FAS has consistently opened 90-100 cases against railway companies annually”.

To compare: in aviation in 2007 - 2013 passenger traffic increased by 87.9%. In 2007 - 2012 the share of passengers transported on the routes with developed competition (3 and more air carriers) went up from 72% to 83.6%. In the past two years the number of investigated cases dropped approximately twofold (from 77 to 40). Several institutional measures were undertaken, including “open skies” on the domestic markets, stage-by-stage liberalization of international air transportation, the Rules for non-discriminatory access in airports, etc. Each of those measures was preceded by a broad case practice with regard to aviation authorities as well as economic entities.

On the oil market production in 2007-2013 increased by 6.5%, oil refinery – by 19.6%. Since 2011, under the framework of modernization programme supervised by FAS, Rosstandart [the Federal Agency for Technical Regulation and Metrology] and Gostechnadzor [State Technical Authority], the output of high-quality fuel increased manifold and reached approximately 2/3 in 2013. In 2008 - 2013, upon the outcome of investigating the “three waves” of cases against vertically-integrated oil companies, and in line with the “third antimonopoly package” and the decisions of the Government of the Russian Federation, commercial infrastructure of the oil products market was formed, including exchange trading (around 10 – 15% of supplies to the domestic market), registration of the off-exchange transactions (approximately 60% of supplies to the domestic market); non-discriminatory interrelations of vertically-integrated oil companies with market participants, particularly, under the framework of “trade policies”, etc. The number of cases decreased by 8 times: from 150 in 2008 to 22 in 2013 (!). In 2008 – 2013 market prices were growing at the rate close to the inflation, with a much higher growth of prices in the external market and a manifold increase of excise duties.

To improve the situation with the railway transport services in Russia, FAS proposes to:

1. Modernize the law on natural monopolies, in particular, by adding provisions to No.135-FZ Federal Law “On Competition Protection” of 26.07.2006 (simultaneously abolishing the Federal Law “On Natural Monopolies”) providing for characteristics of state regulation of the holders of natural monopolies, and the norms to the industry-specific laws on characteristic aspects of regulating particular markets.

2. Modernize the law on railway transport by:

- Making changes to No. 17-FZ Federal Law “On Railway Transport in the Russian Federation” of 10.01.2003 to introduce the concepts of “rolling stock operator” and “commercial infrastructure of the market” that determine the basis for establishing markets of railway transport services

- Update the List of works (services) of the holders of natural monopolies in the field of railway transportation, tariffs, charges and fees for which are regulated by the state, approved by No. 643 Decree of the Government of the Russian Federation of 5.08.2009, particularly, by including services for freight car uncoupling maintenance in the List; detailing the list of terminal freight operations, in the part of freight wagon (rail tanker) inspections, introducing the concept of “technical, commercial inspection of freight wagons”.

3. Create commercial infrastructure of the freight market to establish interactions between market participants and coordinate the liaison procedures on the basis of market methods in accordance with the current legislation.

4. Liberalize locomotive haulage; develop the institution of private carriers.

5. Terminate stage-by-stage government regulation of freight tariffs in the competitive sectors and establish tariff conditions for concluding long-term freight contracts.

6. Develop capacities for manufacturing intermediate universal containers that are socially important goods for container transportation of the cargo of physical persons and economic entities - representatives of small and medium businesses through the public railway system.

7. Update the Plan for the Target Model of the rail freight market up to 2015 and implement it within the designated period.

8. Make changes to No.263 FAS Order “On Approving the Forms, Periods and Frequency of Information Disclosure by Holders of Natural Monopolies in Railway Transportation” of 12.04.2011 to disclose information on the working capacity of the infrastructure participants, on infrastructure restrictions, and on locomotive crews.

9. Monitor efficiency of the measures implemented under the framework of the Target Model of the rail freight market, and their impact upon developing competition in railway transport.