Andrei Dementiev

Higher School of Economics, Moscow

October 6-7, 2016

Means and Ends of Reform

Goals

• Increasing – reliability,

– safety, and

– quality

of railway transport

• Cutting overall transportation costs in the economy

• Meeting projected demand for transportation

Principles

• Encouraging on-track competition

– Non-discriminatory access to infrastructure

• Increasing attractiveness for investment

– Financial transparency

• Developing tariff policy

– Elimination of cross subsidies

2001-2002 2003-2005 2006-2010

Ministry of Railway

Transport (est.1863)

Russian Railways

RZD (est. 2003)

RZD &

Cargo Co. (est. 2007?)

State-owned

monopoly providing

final and (informally)

access service

Vertical access model

integrated

100% state monopoly

RZD = Infrastructure

100% state monopoly

Cargo Co.

RZD has 51%

3 TOC’s

private

Access charge (a) =

End-user tariff (T)

Ramsey pricing

‘Self-regulated’

a 0.85 T

Ramsey pricing

‘over’-regulated

global price-cap

a 0.85 T

Ramsey pricing of access

Unregulated

downstream

Unregulated

downstream

Wagon owners build capacity (rolling-

stock) to secure their revenues from any

delays

Operators

Captive / General

Local & niche markets (oil, metal)

RZD–the only carrier

Operators? Carriers?

The initial reform agenda S

TR

UC

TU

RE

R

EG

UL

AT

ION

C

OM

PE

TIT

ION

De jure there is no competition

RZD (Russian Railways) – vertically integrated provider (VIP) of infrastructure and transportation services is the only licensed carrier who can legally execute public contract of transportation

There is no legal definition of infrastructure services

The only carrier (RZD) uses wagon fleet of independent operators for haulage

De facto train operating companies compete with RZD on the downstream market - open access model Market structure: several independent rivals, RZD looses its

share

Behavior: strategic interaction (rivals set prices, invest in private wagon fleet, VIP adheres to sabotage)

The emergence of on-track competition

The new tariff system provides ‘top-to-bottom’ approach to infrastructure charging setting a discount of w=T-a for private operators wagon owners Incentives to invest in rolling stock if w>cR (wagon operating costs)

L L

Regulated price

a

T

IL

IW

L

W W

Regulatory reform

T-km share in Russia

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Other Owners

Affiliates ofRussian Railways

Russian Railways

Federal Freight

Regulatory reform and open access in Russia

Operations

Infrastructure

and

locomotives

Consumers

Federal

Tariff

Service Access Charge

End-user Charge

Federal

Antimonopoly

Service a

cc

es

s

co

nd

itio

ns

CPI

Ministry of

Transport

licen

sin

g

a

T

Ministry of

Economy

OPERATORS

Merger of FAS and FTS in 2015

The story: toughness of competition rises

The ratio of freight ton-km to freight rolling

stock capacity in Russia (1993-2013)