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11 Jan, 2010 09:32

Bumpy ride on Russian roads as private funding sought

Public private partnerships in road construction are seen by some experts as a solution for an old misery - the notoriously bad Russian roads. But the road ahead isn't getting any easier.

Russia has two problems – fools and roads, said the writer Nikolay Gogol back in the 19 century. Time passes, but the issue remains. The financial crisis has added to the problem. With collapsing industry, a trembling banking sector, growing unemployment, and the government focused at bailing out the financial system. Funding for transport infrastructure has been trimmed back from $140 billion over the next five years to around $20 billion by 2012.

Natalya Orlova, Chief Economist at Alfa-Bank says the government can’t complete a project alone that requires private financing.

“Russian government doesn’t have instruments to finance these infrastructural projects and I think the consensus in Russia is that these projects have to be financed. However you have to find the right tools, right projects to involve the private sector to this and this is just taking time.”

The government is pushing the private sector to get involved and build toll roads. To give move the idea along, the state recently adopted a law on public private partnership. But so far it's been of little help. Because of the amount of time it takes to plan and build a motorway, most companies are not inclined to risk their money for a potential return in 10 or 15 years says Leonid Khvoinsky, head of Soyuzdorstroy.

“The share of private toll roads in the world ranges from 2 to 3 percent. The rest belongs to a state. Russia can't rely on public private partnership. With current interest rates and the cost of construction not to mention the inflation rate, investors are looking for short money. Public private partnership will only work in a stable economy when investors have guarantees of return on their capital.”

But other experts believe it's too early to give-up on public-private cooperation. They believe that with the better growth outlook for Russia in the next year that investors will regain their interest and take to the road again.