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Private Investment in Russia Railway Freight Vehicles

LOCATION

Russia

CLIENT / IMPLEMENTATION AGENCY

Russian Railways (RZD)

KEY WORDS

PPP; Railway Freight; Private Investment

YEAR OF COMPLETION / EXPECTED YEAR OF COMPLETION

March 11, 2016

CASE DESCRIPTION

Russia attracted more than USD 50 billion of private investments for the railway sector by allowing private ownership of railway freight wagons since 1995. In 2003, the Ministry of Railways was divided into the Federal Agency of Railway Transport and the Russian Railways (RZD). Russian Railways was established as a joint-stock company. The operators provided freight wagons; Russian Railways took charge of organizing train transport and the operators formulated destinations of freight wagons. Russian Railways as well as its joint venture were the only carriers. Russian Railways raised capital by selling its subordinate operation company. Nearly 50% of Transcontainer’s shares were sold in the form of private placement. First Freight Company was sold in two phases to Independent Transportation Co., Ltd.. Russian Railways primarily provided railway freight carrier and intercity passenger transport services. It also owned and managed main railway infrastructure. Several private freight wagon suppliers managed and provided customers with freight wagons.

During the transition to privatization of freight wagons, Russian Railways maintained profitability and relative financial stability. As privatization increased, unit income decreased due to declines in the freight wagon market. Since 2003, railway traffic volume has increased. Private enterprise investment guaranteed sufficient freight wagon provision for services and formed a complete industrial chain of owners and operators of railway freight wagon services. The income of railway employees also increased .

KEY DATA

From 2005 to 2013, privately owned freight wagons in Russia increased from approximately 30 to 80 percent.

In 2008, 15% of Transcontainer’s shares were sold in the form of private placement; 9.25% were acquired by the European Bank for Reconstruction and Development. In 2010, 35% of private shares were sold through an IPO raising USD 400 million in capital.

In 2011, 75% of First Freight Company was sold for RUB 125.5 billion and the remaining 25% was sold in 2012 for RUB 50 billion.

In 2016, Russian Railways directly owned 54,200 freight wagons while other operators owned about 960,000 freight wagons.

PROJECT-RELATED ENTITIES

Independent Transportation Co., Ltd.; Federal Agency of Railway Transport; Federal Agency of Tax and Price; Ministry of Anti-Monopoly Service; Federal Agency of Transportation Supervision; Federal Agency of Environment; and Agency of Industry and Nuclear Supervision

CURRENT STATUS / PROGRESS

In 2016, more than 80% of railway freight wagons were owned by private operators. Private investment in railway freight vehicles is ongoing.

INNOVATION HIGHLIGHTS

Russian Railways allowed private capital to be invested in railway freight vehicles. This allowed Russian Railways to focus efforts on freight operations and line infrastructure, reducing infrastructure costs and providing customers with professional freight services.

RELATED LINKS

Russian Railways: http://rzd.ru/