CC BY
54Russian Journal of Logistics and Transport Management, Vol.1, No.2, 2014
© Jari Kumpulainen
Saimaa University of Applied Sciences
RUSSIAN INFRASTRUCTURE DEVELOPMENT (Review article)
Abstract
The article provides a background and description of the current state of transport infrastructure in Russia based on the international reports and individual research articles. With the allowance for evidences from the previously published papers, the tendencies of the major infrastructure projects and related financing issues are discussed.
Keywords: transport infrastructure, investments, projects financing.
1 Background and the current status of the Russian infrastructure
In 1990, when Russia declared independence, the country inherited essential elements of its modern industrial infrastructure from the Soviet Union, including a decent power network and an extensive railway system. In this infrastructure, there were also significant deficits, and infrastructure was typically inefficient in areas such as transport and telecommunications. Since 1990, Russia has made solid progress in developing its infrastructure. However, still Russia is ranked 74th out of 144 countries in the World Economic Forum's Global Competitiveness Index for 2014-2015 for the quality of its overall infrastructure (Schwab, 2014).
There are some specific areas that require considerable attention. For example, Russia is ranked only 124th for the quality of roads, 81st for the port and 79h for air transport infrastructure, respectively. Fortunately, Russia has the required resources to help finance a major modernization program, and the government has committed to invest over 1 trillion USD in infrastructure by 2020 (PwC.com, 2013.)
As the global economic situation started to slow down in 2012, the government of Russia began to think options to support the world economic growth more seriously than earlier. It is important for Russia to gain faster growth than developed countries in order to fulfill the gap of status of life with developed countries. Economic growth is decided to speed up especially through domestic investments as its development has been slowing down in the last years. The level of investments called the level of fixed investments has been decided to increase the amount of fixed investments from 22 percent to 30
percent of GDP. The current amount of investment is enough for a developing country but not enough for a country trying to reach a faster economic growth. The government decided to place public investments towards enhancing roads and railroads as it is the most important factor to have in shape considering transportation routes (Korhonen et al., 2013).
The demand for better infrastructure is required because of the vast scope of the oil and gas industry. The highest growth potential in Russia's infrastructure sector relates to the export of commodities including everything from pipelines to ports required to support the country's massive output of oil and gas. The government understood this need and as a result it has prioritized such projects and it also increased spending on transport infrastructure. Due to this fact, the leading share of investments (2/3) is devoted to the economic sectors, which relate to the extraction and processing of oil, as well as to the pipe transport (Hilmola and Panova, 2014).
At the same time, the insufficient investments in the hinterland infrastructure of the seaports (e.g. inland roads, railways, terminal and warehousing infrastructure adjacent to seaports) deprives the smooth traffic of goods, resulting in so-called traffic jams, named at railways as abandoned trains (Panova and Korovyakovsky, 2013).
The government has created a ten billion USD investment fund in a hope to attract more private capital to invest in infrastructure. There are also plans to divest stakes in various state-owned transport and energy companies. Even of these efforts the expected wave of privatization has not yet gained real traction. Reason for this can be found from news reports and studies. It remains as a challenge to attract private investors in sufficient numbers because of their ongoing concerns about the country's political situation, a legal framework and the difficulty of protecting property rights (PwC.com, 2013).
2 Financing the infrastructure projects
Money for public investments could be gathered from re-organizing governmental services and by getting rid of many unnecessary units and services. If the financial situation of the pension fund could be solved, also the funds from a pension fund could be invested in the finances related to infrastructure (Korhonen et al., 2013).
Currently, some of the infrastructure financing in Russia come from state lenders and multilateral parties, such as European Bank for Reconstruction and Development. According to Morgan Stanley, still more than half of Russia's infrastructure investment is currently executed and largely financed by just eight state-owned companies. When considering the scale of Russia's infrastructure and its needs, the challenge to attract more private investments is an ongoing battle. Even if there are difficulties in finding private capital to join on building and updating the infrastructure, Russia's infrastructure investments in 2010 were
Ill billion USD, up from just 7 billion USD in 1999. This shows that even if there are difficulties in acquiring private investments to develop Russia's infrastructure, the government itself can go quite far with only public investments (PwC.com, 2013).
3 Major project regarding infrastructure in Russia
In Russia, there is considerable number of finished infrastructure projects, including Sochi, as well as various major projects ongoing to fulfill current and future needs and requirements regarding infrastructure. Two of these big projects are related to roads but also to sports. Firstly, a 656 kilometer highway is planned from Moscow to St. Petersburg, and another plan is to construct a 1 521 kilometer long highway from Moscow to Novorossiysk. The other, sport related project, is the 2018 Football World Cup. Russia is expected to construct or reconstruct stadiums in 13 cities at an estimated cost of 3.82 billion USD. With other competition related investments, which are required for new motorways, railways and tourist facilities, the estimation of the infrastructure cost would be about 10 billion USD (PwC.com, 2013). However, the budget is only a preliminary and, as Sochi showed the real budget, can be quite different (Kauppalehti, 2013). The issues, which concerned the ballooning of the budget, can be addressed in further research.
References
Hilmola, O.-P. & Panova, Y. (2014). Application of public-private partnerships in the projects of dry ports. Logistics: Modern Trends of Development. Procedings of XIII International Scientific and Practical Conference, 342- 346. Kauppalehti (2013). 33 miljardia - Sotshin budjetti nousee kohti taivasta. http: //www. kauppalehti. fi/etusivu/3 3 +milj ardia+-
+sotshin+budjetti+nousee+kohti+taivasta/201312591243 Accessed on 16.04. 2014. Korhonen, I., Korhonen, V., Lainela, S. & Solanko, L. (2013). Venajan kasvu vaatii muutakin
kuin energiaa. BOFIT Online 8/2013. Finnish Central Bank. Panova, Y. & Korovyakovsky, E. (2013). Perspective reserves of Russian seaport container terminals. World Review of Intermodal Transportation Research, 4 (2/3), 175 - 193. Pwc.com (2013). Russia: A Snapshot. Gridlines, Summer http://www.pwc.com/gx/en/capital-
projects-infrastmcture/assets/mssia-snapshot.pdf Accessed 20.05. 2014. Schwab, K. (2014). The Global Compativeness Report 2014-2015. World Economic Forum, Geneva.
