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29 Jul, 2009 18:38

Track leasing comes in as Russian Railways looks for cash

Russian Railways is considering leasing out some of its railway lines for the first time, with many seeing the proposal as indication of the rail monopoly’s need for cash.

Russian Railways is facing harder times than it has for a decade, with passenger and cargo traffic falling 20% in the first half of 2009, while the Government has held tariff increases to 10%.

So its more than understandable that it is looking to cut costs. But the proposal to offer leases on 100’s of kilometres of rail track in different regions, mostly for storage of rolling stock is more of a break with the past.

Nadegda Timokhova, Analyst at AFK Metropol, say the move could attract interest from companies near the lines.

“At a reasonable price, many enterprises that are near the railways could be interested. The conditions will be to maintain the rail track, and that will cut cost for Russian railways and bring in income. The investment required varies from thousands to millions of Roubles.”

Eugeny Shago, Head of the Analyst Department at Ingosstrakh Investments, says the plan makes sense for a company which was promised government subsidies, but is facing falling demand, rising maintenance costs and a constrained capacity to service its infrastructure investment needs.

“It's a difficult time for Russian Railways. If it was previously possible to privatise subsidiaries like Transcargo, today it's difficult to sell any assets. The company might try to sell non-core assets, but the price could be too high.”

In addition to leasing track space, Russian Railways has taken a $500 million dollar loan from the EBRD and will carry out a $350 million share issue.