«High-speed Railway»
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13 june

«The cost of construction per kilometer of HSL will not be higher than that in Europe». Interview given by A.S.Misharin to EIA PRIME

Question: Alexander Sergeevich, the works for the preparation of HSL projects in Russia have been conducted by RZD over several years. However, your joining the company as the First Vice President is allegedly associated with stepping-up this area of activity. What has been done so far? What are the arguments of RZD in support of creating the HSLs in Russia?

Answer: First of all, the approach to implementation of the project has changed from the concept stage. We have been actively involved as experts in the works dedicated to preparing and updating a number of documents of strategic importance for the country, including the forecast of social and economic development of Russia for the period lasting until 2030 and that of the transport strategy of Russian Federation for the period lasting until 2030. Thereafter RZD also introduced certain changes to the general scheme of development of the railroad network lasting until 2020.

The high-speed and express service network is now regarded as an integrated network: meaning that trains drive off HSL tracks to the express railway tracks and then back on again to the HSL tracks. This was preceded by the process of updating a number of documents, which lasted the last four to five months. These documents provide for the construction up to 4,200 kilometers of high-speed links and almost 7,000 kilometers of express ways in various options and volumes, and also stipulate the HSL directions.

The creation of a system whereby the high-speed and express networks work for each other allows for releasing the existing links for freight traffic. For instance, there are 8,000 kilometers of "bottlenecks". The launch of HSL will resolve the issue of 2.4 kilometers of those. HSL represents different potential for the organization of passenger traffic in general.

We reckon that in addition to high-speed trains, these lines will also be used by overnight express trains with speeds of 200-250 kmph. HSL will also essentially improve the quality of railroad service, reduce travel time by several times and will allow for the development of new technologies, as well as for origination of the largest order for the materials, engineering structures and equipment to the industrial sector. Implementation of the project provides for application of the private and public partnership schemes. We are facing a case here whereby not only the state invests in the infrastructure, but also private investors do.

Question: Formerly, the Moscow-St.Petersburg HSL used to be a pilot project. Now the Moscow-Kazan HSL will most probably be implemented. Why was the latter opted for?

Answer:Each direction has its benefits. The following factors are taken into account when choosing between the available options: population, passenger traffic, development of the regions, perspectives and issues of the transit geopolitics, cost of construction, activity of the regions. The eastward direction opens new horizons for the development of Povolzhye, Urals, as well as for the transit across these territories. The Moscow-Kazan line runs across the territories of six regions, connects five capitals of constituent entities, between which the travel time reduces down to one hour.

The line links the Moscow, Nizhny Novgorod and Kazan metropolitan areas, which can be reached in one hour and a half as opposed to the six to ten hours that it takes today. All this together defined the decision that was taken, and based on which the pilot project will be implemended in the Povolzhye direction, in this case, Moscow-Nizhny Novgorod-Kazan. However, a feasibility study is currently in process for two additional directions. In addition to the Moscow-St.Petersburg, this includes extension of the HSL to Yekaterinburg (with the inclusion of Ufa, Perm and Chelyabinsk), as well as the southward line to Adler.

Question: What will be the average cost of construction per kilometer of HSL in Russia, and what are the costs, for example, in Europe?

Answer: Today the projected average cost is EUR 20-22 million, which is just about the same as the European level. By the way, an attempt to design such a railroad and to make the respective calculations was made in 1988, when the Resolution of the Council of Ministers for the construction of the Center-South and the Leningrad-Moscow lines was adopted. We used the indices, recalculated the then cost and compared it against today's cost excluding the cost of land and additional conditions that were not applicable at that time. It was interesting to find out that the costs turned out to be nearly the same.

Question: How will the HSL construction be financed? Which financing option — private investments and state funding in the proportion of 50: 50 or 30: 70 — is the most practicable from RZD's perspective? What will be the source of repayment for an investor who will invest in HSL?

Answer: The basic option today is 70% government grants and 30% private funds. This model includes taxes that reduce the competitiveness of railway service against other modes of transport. I'm talking about property tax, which is not applicable to the constructed motor roads, take-off runways and quay wharfs.

Back in 2012 railroads used to have property tax preferences, which will not be applicable as of 2015. These are not drop-out incomes — this is a large tax that is incurred. The tax from a single railway link will be the same as the aggregate amount of tax that RZD pays today.

We propose to optimize the taxes, in which case the scheme may be different. In this case the non-refundable state grant may be reduced to 50%, and even down to 40% given certain options. We have a model that provides for the following ratios: 40% — funding granted by the state, 30% refundable funding by the National Wealth Fund or long-term pension funds, 30% — raised private funds. I believe that the state banks, the National Wealth Fund must participate in such projects — this will serve as an example for other financial institutions.

As to the volume… It will be clear once the design and estimate documents are developed, as they will clarify the cost of construction, implementation terms, organizational and legal scheme and the financial model for the term of 30-40 years. It is extremely important for our country to accumulate the experience of implementation of long-term (also from the financial perspective) projects.

We also lacked experience of mountain tunneling. Five years back we were told: "You will not be able to build the road to Krasnaya Polyana before the Olympic Games in Sochi — nobody ever has ever built any tunnels in these mountains". But we did. This experience points to the fact that our companies, including construction companies, are capable of implementing complicated infrastructure projects.

However, we will certainly engage our foreign partners, especially in the areas where they have the experience and technology that we lack. We are building an ultramodern double-track powered railway. For that matter, one should bear in mind that no one built double-track powered railway lines of normal length in our country during the last 50 years.

Question: A lot of project details were discussed during the same meeting, but the core question was left unanswered — will the state grant the funds for the HSL?

Answer: The main outcome of the meeting was the fact that the decision on the start of implementation of the Moscow-Kazan pilot project was taken, the sources of funding were defined, and it was confirmed that the designing works must be started. For all it is worth, we will have to build large bridges across Volga and Kama among other things. We must begin the project documentation in June. We have one year for fine-tuning the details on the financial scheme, the organizational and legal scheme, the rolling stock etc.

Question: When the Moscow-St.Petersburg project was discussed, some said that six foreign consortia are ready to compete for the construction of this HSL? Did those bidders remain? Have any new bidders appeared after it has been decided to make Moscow-Kazan the pilot project? When will the tender for the HSL construction be announced?

Answer: We have met some potential bidders for this project from various countries during the last months. They all express keen interest in participation in the project. As for the number of international consortia, there can be five or seven of them, they can regroup. Moreover, we can divide the HSL into two or three sections on an independent contracting basis. That being said, the probability that two or three international consortia will take part in the project increases drastically.

This is done to accelerate construction, to share risks and to be able to engage different technologies and experience accumulated not only in Europe, but also in Asia. Besides, we have to have the possibility to compare. At the end of the day, this results in the improved efficiently of expenses. However, the final decision has not been taken so far.

Question: Will the construction tender and rolling stock purchase tender be combined in a single tender? Who will arrange the tender for the purchase of rail cars?

Answer: The infrastructure is not constructed for the rail cars of a single known manufacturer. We will need the rolling stock of various purpose. When we are talking about the high-speed link, we assume that the express link will be connected to it, and those rail cars are completely different.

If there will be multiple railway districts, there will be multiple tenders for the construction and rolling stock. I guess, the rolling stock purchase tender will be held by Skorostnye Magistrali JSC as the subsidiary of RZD, and a structure that the investors will join, as transparency of all procedures and financing is important to them.

Question: How many trains will the HSL Moscow-Kazan require, and during which term do those need to be supplied? Will localization be a prerequisite?

Answer: The rolling stock will not only travel at 350kmph speeds, it will also operate on express lines. As to overnight trains, speeds of 200-250 kmph are applicable there. In any case, we will need more than 100 trains. In this case localization will be a must, both for the rolling stock and the equipment. I mean, when implementing such projects, we certainly have to develop the Russian industry as well. The rolling stock, as a rule, must be supplied one year prior to commencement of operation of the railroad. We can test this rolling stock on the existing Moscow-St.Petersburg link at the speed of 250 kmph. Higher speeds can be tested there, but with no passengers onboard.

Question: Who will operate those trains?

Answer: There are three possible options. It may be RZD, the "Federal Passenger Company", or a private company. The infrastructure built by the "Skorostnye Magistrali" company, is rented out to RZD, which must ensure maximum load of the given line.

Question: You were saying that not only passenger trains will run on the HSL, but also freight trains…

Answer: I was not referring to cargo trains carrying charcoal or other heavy cargo, but to express container trains that can be operated on HSL lines. But this requires a new rolling stock that is yet to be created. According to our calculations confirmed by our colleagues from Germany and France, traffic on HSL lines at speeds lower than 160 kmph is inefficient. This means that HSL will require new rolling stock, a new cart. A number of factories start working on this. For example the factory in Tikhvin. During the next 4-5 years we will have to perfect such technologies on the basis of the experience that a number of countries have today, including France and China.

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