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Can rail investment act as an economic growth driver?

International Railway Journal

ONE of the most interesting observations to emerge from the first International Railway Congress, staged jointly in Vienna on March 18-19 by Austrian Federal Railways (ÖBB) and Russian Railways (RZD), was made by Dr Stefan Buske, owner of Buske Law, who pointed out that the World Bank estimates a $US 50 trillion investment gap in all types of infrastructure including rail up to 2040.

“We must close the investment gap to prevent us from economic downturn,” Buske told delegates. Buske says there needs to be a focus on private investors because of limited public funding. “The good news is that we have outstanding prospects for infrastructure financing and for rolling stock in particular,” he continued. In addition to scarce government resources, Buske says the need for private investment is being driven by further liberalisation, such as Europe’s Fourth Railway Package, and an enhanced regulatory framework such as the expansion of the Luxembourg rail protocol, which aims to encourage private investment.

China is continuing to invest in infrastructure in order to spur economic expansion. As we report this month, China has decided to ramp up expansion of its already colossal high-speed network to help prevent a further reduction in the rate of economic growth. Having already built a 29,000km high-speed rail network – by far the world’s largest – its original plan to reach 30,000km will be achieved shortly and it now intends build another 8000km by 2025 and to reach 45,000km by 2030.

China is not alone in expanding its rail network. Russia plans to construct 20,730km of new lines by 2030, particularly in the far east. Apart from the Moscow – Kazan high-speed line, most of the new lines are for freight. Unlike China, where new lines are funded by the state leading to serious concerns about the level of debt, Russia intends to use a mixture of public and private finance.

Russia also plans to invest around €2.7bn in rolling stock and €1.3bn to acquire 23,000 locomotives. Buske says around 25% will be funded privately.

Investment in new railways should be based on a sound business plan to develop the infrastructure when it is completed. Yet some of the Chinese lines are being built in the sparsely-populated western part of the country for strategic rather than commercial reasons, unless the plan is to use them for freight to reduce transit times for container traffic between China and Europe as part of the ambitious Belt and Road infrastructure programme.

Unfortunately, the new standard-gauge railways in east Africa are being built with little thought to how they might operate commercially. Faced with a severe lack of freight traffic, the Kenyan government has tried to force shippers to use the new railway between the port of Mombasa and Nairobi rather than sending their goods by road. This is hardly the best way to attract new customers.

Returning to Asia, a lot of effort has been put into reducing rail transit times between China and Europe to make rail more attractive, but it was only when China started to subsidise rail freight that traffic started to grow. The big question is how long will the Chinese continue to subsidise the traffic? More effort needs to be made to remove bottlenecks between China and Europe to make the rail offer more compelling.

This point was illustrated by Mr Oleg Belozerov, RZD’s CEO: “We cover 4000km in five days, but we need to stop at the borders for two days, which kills all the time saving achieved. We must put more effort to speeding up border crossings.” Belozorev says there was a 9.7% increase in transit volume last year to 23.7 million tonnes, and 34% increase in container traffic to 553,000 TEUs. “We want to achieve 3 million containers a year,” he says.

Mr Vladimir Morozov, head of Belarussian Railways, acknowledged that despite a lot of effort to streamline freight operations on the China – Kazakhstan – Russia – Belarus corridor, there are still problems to solve. “Since 2013, Belarus, Russia and Kazakhstan have been cooperating, and work has stepped up to create a high-quality product with high standards of service for customers, while technical standardisation has much improved,” Morozov told delegates. “We have concluded contracts with more than 50 companies which has led to a shortage of wagons. Trains are often stopped at Brest [on the border with Poland where the gauge changes from 1520mm to standard]. The waiting times are too long, not only at Brest but at other border stations, which needs to be solved. In one month, we will inaugurate another border station.”

RZD believes that extending the 1520mm-gauge network from Kosice in eastern Slovakia around 400km west to Bratislava and Vienna, would be one way to accelerate traffic from Asia to Europe. RZD forecasts the extension could carry 22.9 million tonnes of freight by 2050. “We must give maximum attention to this project so that it can be implemented,” Belozerov urged delegates.

The challenge is to convince the Slovakians that building the line, the majority of which would be on their territory, will be to their advantage. RZD plans to stage three more annual International Railway Congresses in Vienna, as it is deadly serious about building this line. But this should not divert attention away from the need for other improvements to the Eurasian landbridge.

Can rail investment act as an economic growth driver?

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