BAM and the Trans-Siberian: How to Build Faster?

6 September 2022

BAM and the Trans-Siberian: How to Build Faster?

Key conclusions

Cargo volumes going east will be growing

“The cargo volumes going east will be growing significantly due to the sanctions and embargo… they get rerouted from west to east. We used to export 50 mln tonnes of coal to the European Union alone. All European countries, including Ukraine accounted for 70 mln tonnes. This is something that will be going eastward, instead of westward. If we add oil, petrochemicals, metals and fertilizers, experts estimate additional volumes to go eastward to be roughly 140 mln tonnes annually,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

BAM and the Trans-Siberian are important in terms growing energy consumption in Asia

“Today, Asian countries account for 30% of all energy resource consumption. In 30 years, Asian countries will be consuming half the world’s energy. <…> Our main challenge is providing the planet with enough energy. The US is the leader in mining and exporting energy resources, and Russia is its main competition. It is Russia that has a unique opportunity to become the absolute leader in the energy resource market due to its geographical closeness to Asia. <…> We do need to develop the Eastern Polygon. The pace of its development has a direct impact on our country’s position in the world,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

The project of developing the Eastern Polygon is economically beneficial especially for the new logistics

“The project has a decent IRR, with both public and private investment. Based on various assessments, this project brings various level budgets about RUB 714 bln and creates 150 thousand jobs within 5–10 years. These numbers are enough to prove that this project is beneficial right when we need to reroute certain product groups from west to east,” Pavel Brusser, First Vice President – Head, Infrastructure and PPP Department, Gazprombank.

“Russia is the world’s third biggest coal exporter. It was achieved through investments in mining capacities, port infrastructure and, of course, Russian Railways that are constructing the Eastern Polygon. <…> A total of 13 mln tonnes of coal has already shipped eastward through the west, which means higher transportation and freight costs. It drains our economy. This is why we need the Eastern Polygon so much,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

PROBLEMS

The Eastern Polygon being behind leads to idling capacities

“We are behind in every parameter of the Eastern Polygon construction. The start-up was rescheduled from 2017 to 2021, but I am sure we will complete stage 1 in the nearest future,” Andrey Kutepov, Chairman of the Committee on Economic Policy, Federation Council of the Federal Assembly of the Russian Federation.

“The surplus of specialized coal capacities in the Far East is over 50 mln tonnes. This is our reality. It is not just mining capacities, but transport and port capacities as well,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

“Due to infrastructural constraints on the railroad, we expect less coal shipped eastward. <…> This year, we are supposed to ship 58 mln tonnes of coal. It is even less than last year, by a wide margin. The embargo [to import coal in the EU from Russia, – Ed.] is in place since 10 August. I can attest that the incomplete Eastern Polygon affects our coal industry more than the embargo. We are behind the schedule,” Sergey Tsivilev, Governor of Kemerovo Region – Kuzbass.

Lack of personnel and contracting organizations prevents the construction from ramping up

“People are among the constraints that, if resolved, could speed up the construction works. We have about 13.5 thousand people working in railway construction, with most of them being rotation shift staff. Finding local personnel is a huge problem for us. <…> We need to build a pool of contractors that need to be restored. Unfortunately, a big share of those organizations has relocated to the European part of Russia, so BAM is just a name, unfortunately,” Andrew Makarov, Deputy General Director, Russian Railways.

The project of the Eastern Polygon construction is risky for banking

“Unfortunately, the Eastern Polygon project is considered risky among banks. There are precedents, when large banks issue guarantees to contractors for their work in the European part of Russia, while contractors that work on BAM get rejected, because the risks are too high for these projects. We do not have guarantees from VEB, Sber, or VTB,” Andrew Makarov, Deputy General Director, Russian Railways.

“The country loses about RUB 2 trln annually due to the non-expansion of the Eastern Polygon. We are ready to participate in this project with other financing organizations, but we would like to take this path in a shorter time and sign a concessions agreement fast. I would like to ask the Russian Government to sign a concessions agreement with Gazprombank consortium on a key-turn basis for the Eastern Polygon expansion,” Pavel Brusser, First Vice President – Head, Infrastructure and PPP Department, Gazprombank.

SOLUTIONS

Restoring contractors’ construction base to speed up the construction

“We need to restore the construction base that we lost. We relocated a large number of bridge construction crews, communication operators, and energy specialists from the European part of Russia. It is going to be really hard without any local support, yet with relocating all the equipment from the European part of Russia and with ensuring decent living conditions, which does not always fit our budget,” Andrew Makarov, Deputy General Director, Russian Railways.

Concessions agreements to build new lines

“If the business wants to transport something, it needs to get involved in the process. Concessions agreements with Russian Railway do not get signed. Yet, joint public and private participation becomes more popular. We need to pay attention to this and involve business more, giving them the opportunity to build,” Andrey Kutepov, Chairman of the Committee on Economic Policy, Federation Council of the Federal Assembly of the Russian Federation.

“We support the concessions approach as it helps focus on the construction of new lines. Concessions on the existing infrastructure is too hard in terms of organization. <…> Construction of new border control points may work in terms concessions because a new construction away from the existing ones may pay. A concessions company will use it to transport goods and will pay for it based on the tariffs. It will compensate for the losses,” Andrew Makarov, Deputy General Director, Russian Railways.

“Border control points are not performing well. We need a decision on whether this infrastructure can be included in concessions agreements… Why don’t we use them? The government bears costs and is unable to cope with them,” Vasily Orlov, Governor of Amur Region.

“Russian Railways owns and operates the Eastern Polygon. The second stage of its expansion is already under contract. It makes sense to use concessions to build new areas and infrastructure. It is a functional idea and technology,” Mikhail Degtyarev, Governor of Khabarovsky Territory.

Handing BAM and the Trans-Siberian over to the Ministry of Construction to speed up the works

“Due to the fact that BAM and Trans-Siberian modernization programme is constantly failed, we suggest leave only the operation and capital repairs to Russian Railways. Their construction should be handed over to the Ministry of construction – they have all the competencies. We need to make a serious strategic decision, because we have been failing the approved programme for many years now,” Sergey Tsivilev, Governor of Kemerovo Region – Kuzbass.

Developing a comprehensive programme and relevant documents for the Eastern Polygon development

“I suggest we address the Russian Government to develop a comprehensive programme for developing the Eastern Polygon. By that we mean developing both BAM and the Trans-Siberian after 2024, with reaching the targets set by Russia’s transport strategy,” Dmitry Islamov, Deputy Chairman of the Committee on Energy of the State Duma of the Federal Assembly of the Russian Federation.

“We have proposed an initiative to develop the programme for the third stage of the Eastern Polygon development. Stage three should be split into two five-year terms: one by 2030 and the other one by 2035,” Sergey Tsivilev, Governor of Kemerovo Region – Kuzbass.

“We need fast solutions for intensifying construction works, for parallel works on crossovers, for purchasing railway automation systems and teleautomatics and for applying any methods that will help intensify construction works,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

“Coal mining, metallurgical and oil companies build their own port infrastructure and sign international trade contracts. Yet I have never seen a container flow development strategy. Maybe we need to come up with one? We need to create our own union and draft a container strategy,” Irina Olkhovskaya, Chief Officer for Seaport and Railway Projects, UMMC.

For more information, visit the Roscongress Foundation’s Information and Analytical System roscongress.org.

BAM and the Trans-Siberian: How to Build Faster?

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