Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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Railway Reform: Toolkit for improving Rail Sector Performance Case Study: Russian Railways 3.1 Preliminary Phase This phase set the stage and established objectives. Federal Law 153 (1995) established a legal basis for railway sector organization and relationships among entities involved. Presidential Edict No. 426 (1997) set reform objectives and Government Decree No. 448 (1998) added refinements. The Railway ministry transferred social services, such as hospitals and rest areas, to the appropriate ministries, and encouraged private sector participation in supply industries. 3.2 Phase I—Separation of Regulations and Operations In early 2003, the ‘Federal Law on Railway Transport in the Russian Federation,’ came into effect. This law separated the Ministry of Railways into the Federal Railway Transport Agency (FRTA) and Russian Railways (RZhD). The FRTA is a Ministry of Transport agency that regulates rail transport, and RZhD is a stateowned company in charge of railway infrastructure, and train operations for freight and passengers. The law defined the relationship between railway infrastructure services, train operations, and Government; it created a legal basis for railway operators (managers of wagons) and railway carriers (managers of wagons and locomotives), and required RZhD to provide open access to railway infrastructure for carriers and operators. In the spirit of separated services, RZhD tariffs separated infrastructure charges from wagon and locomotive charges. The 2003 Federal Charter of Railway Transport specified business models and legal responsibilities for rail infrastructure service providers. Under the new legal structure, independent cargo companies could manage their own cargo. However, RZhD remained the sole carrier. 177 Rail operators and rolling stock leasing companies emerged as private businesses; rail operators functioned as freight forwarders that either owned or rented wagons and handled all customer rail logistics; and rolling stock leasing companies purchased and leased wagons. In preparation for phase II, RZhD made some internal changes: it separated management functions from accounting in each business line within RZhD; thus creating transparent operations in each division. 3.3 Phase II—Separating Functions and Establishing a Joint-Stock Holding Company Later in 2003, Decree No. 585 established RZhD as a joint stock holding company (see Box), and separated many institutional activities. To enable this separation, RZhD created 63 subsidiary companies such as JSC TransContainer, RailTranAuto, Rail Passenger Directorate, Russian Troika, TransGroup, and Refservis. Subsidiaries focus on serving niche markets; for example, Refservis serves the refrigerated transport market. Ownership structures vary and some companies can sell shares to the public. In 2008, TransContainer raised 7.8 billion rubles by selling 15 percent of its shares to the public. As of November 2010, there were plans to sell an additional 35 percent of remaining shares. 177 Carriers have the universal service obligation of being willing and able to provide service to customers anywhere in Russia. Only RZhD can meet this requirement. The World Bank Page 394
Railway Reform: Toolkit for improving Rail Sector Performance Case Study: Russian Railways Since 2006, reforms have included passenger transportation. The Rail Passenger Directorate was formed to focus on managing long distance passenger services as a business entity. Subsidiaries jointly owned by RZhD and local governments are being formed for local passenger service, which allows RZhD access to local government financial support for loss-making suburban passenger services. Also, private companies have emerged to offer specialized passenger services, mostly on the St. Petersburg-Moscow line. The companies own and operate passenger coaches, set prices, sell tickets, and provide on-board and on-station staffing. RZhD locomotives and drivers haul these coaches. CJSC TC Grand Service Express and LLC Tverskoy Express are the most prominent private companies; by end-2009, they had garnered 0.3 percent of the market for long distance passenger transportation. Box 1 RZhD Corporate Governance RZhD has shareholders, and the principal shareholder is the Russian Federation. Its board of directors consists of nine members elected by the government of the Russian Federation. Currently, six members are elected from external commercial companies, one member represents the workers union, one represents the deputy prime minister of Russian Federation and the last member is the president of RZhD. Annual reports and financial statements are prepared according to International Financial Reporting Standards, and are publicly published annually. Its executive body consists of 23 members from a variety of political and commercial backgrounds and is headed by the president of the company. As of 2010, RZhD reforms increasingly include suburban passenger transportation, for which the immediate goal is reaching the break-even point. RZhD is creating a new system for tariffs that will eliminate fare evasions by introducing electronic ticketing and security services on some lines, improving terminals, and leasing vacant space for commercial use. 3.4 Phase III–Developing Competition As part of the focus on competition, RZhD formed First Freight Company (FFC) and capitalized it with 200,000 wagons, and formed Second Freight Company (SFC), capitalized with 217,000 wagons. Both companies intend to sell shares to the public; both face competition from independent operators such as Global- Trans, and operating companies set up by major natural resources companies such as Gazprotrans. By end-2009, independent private owners had 42.3 percent of the Russian railway fleet. This shift in wagon ownership means that RZhD needs fewer repair and maintenance facilities. As of June 2010, RZhD had sold 18 freight wagon repair depots to private companies, and plans to separate remaining repair depots into two competing companies, and sell partial interest in each. The World Bank Page 395
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Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

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