Railway Reform in Belarus: A Special Way

The Belarusian reform concept is radically different from the Russian experience and Ukraine’s plans and contrary to the basic principles laid down in the "railway" directive of the EU, which requires separation of the provision of transport services from infrastructure management.
Dmytro Konovalov 14 May 2013 11:10

As of January 1, 2012, the Belarusian Railways had a fleet of 1,691 passenger cars. The average service life of a passenger car is about 23 years. The depreciation of the passenger car fleet is about 56%. With regard to freight transport, the Belarusian Railways currently has a fleet of 28,643 freight cars, including 4,617 boxcars cars, 2,914 flatcars, 6,914 gondola cars, 7,027 tank cars, and 7,171 other cars. The depreciation of the fleet of freight cars is 58.3%.

Official documents do not yet make mention of reform. The Belarussian state program for development of rail transport in the period of 2011-2015 only provides for modernization of the sector within the existing model, in which the Belarusian Railways is a government corporation subordinate to the Ministry of Transport and Communications of Belarus. But the Belarusian scientific community has developed a concept for change that allocates another place for the Belarussian railroad.

In fact, preparations for reform of the Belarusian Railways started a few years ago. The first thing that the Belarusians did was to decide on a very unpopular but economically adequate step. They got rid of sponsorship of medicine and education by state agencies. The more liberal-minded government of Ukraine does not even want to go this far. A key word in the entire Belarusian reform is "holding." This is specifically the organizational form chosen by the authors of the concept for transformation. One of them is an assistant professor at the Belarusian State University of Transport, Anatoly Mikhalchenko, who presented this concept at a recent international conference in Kyiv entitled "Development of Transport Systems during Reform."

It must be said that the European option - the corporatization of the railway - was previously regarded in Belarus as one of the ways of developing the industry. However, officials are no longer publicly advocating for this idea. Last year, Belarussian Transport Minister Anatoly Sivak said that corporatization could lead to violation of "many structural interaction processes."

According to Mikhalchenko, the concept provides for a vertically integrated entity. At the central level, management of all railway enterprises will be concentrated in a holding company called Belarusian Railways, which is to be taken out of the jurisdiction of the Belarussian Ministry of Transport and Communications and included directly in the Council of Ministers.

In turn, five companies will be subordinated to the general directorate of the holding company: a freight company, a passenger company, a locomotive company, an engineering company (repair and maintenance of infrastructure), and an engineering company (design work). Each of these companies is expected to perform the full range of functions supporting its type of transport operations.

The directorate of the freight company is expected to be responsible for relations with owners and lessees of freight cars, sale of transport services, the operations of logistics centers, as well as for information and legal support. In addition to long-distance passenger transportation, the passenger company will assume responsibility for the "suburb." For this purpose, passenger way stations, as well as diesel-train and electric-train depots will be transferred to it.

This model is significantly different from the model implemented in Russia, where suburban passenger companies were created with the participation of local self-government agencies. In Ukraine, the Russian model was used as a guideline.

Management of all the railway companies will be concentrated within the Belarusian Railways holding company, which is expected to be taken out of the control of the Ministry of Transport and included directly in the Council of Ministers.

The future locomotive company of the Belarusian Railways is expected to include both maintenance and repair assets. On the contrary, Ukrzaliznytsia is inclined to separate repair and maintenance in the locomotive sector. The engineering company of the Belarusian Railways will engage in servicing infrastructure in the broadest sense of the word. This entity will include enterprises for repair and construction of the upper structures of railways, divisions for power supply, signaling, and communications, forest protection plantations, civilian structures, water supply and sanitation facilities, as well as firefighting and restoration trains.

As can be seen, the Belarusians intend to mix everything that Ukraine plans to separate in accordance with the recommendations of the European Union. The Belarusian reform concept, of course, is contrary to the basic principles laid down in the above-mentioned railway directive of the European Union. This document strictly prescribes separation of the provision of transport services and management of infrastructure. The Europeans believe that these functions should ensure the independence of companies.

As we can see, the Belarussians have a different opinion. Furthermore, they do not consider corporatization of the Belarusian Railways as the main condition for attracting investment into the sector. The then chief of the Belarussian Railways, Anatoly Sivak, spoke publicly about this last year: "If we consider structural transformations as a way of attracting investment and floating securities on various markets, then there is no acute necessity for it today. Our own funds and credit from banks allow us to sustain the pace of capital investments."

The Belarusian Railways is really renewing its assets more intensively than Ukrzaliznytsia. In 2012, it purchased 2,673 freight cars, including 1,470 gondola cars, 676 tank cars, 411 cement hoppers, and 116 boxcars.

Another feature of the reform of the Belarusian Railways is the fact that one of its declared main goals is to increase productivity and wages. As a result of the reforms, Belarus plans to reach the productivity figure of USD 83,000 per worker per year and an average monthly salary of USD 3,000. According to Mikhalchenko, these results are also expected to be achieved by reducing the cost of bureaucratic support for transport operations. That is, Belarus will simply reduce the administrative apparatus of railways.

In addition, the reforms are expected to create conditions for sustainable development of the industry. Belarus plans to invest at least 10% of the annual operating revenue from its railway’s core operations in upgrade of rolling stock and railway infrastructure and expand its railway network by 12% after the transformation.

Tags: Belarus, rail