Vladimir Yakunin, Russian Railways
Release Date: 2010-09-07
Vladimir Yakunin, President of Russian Railways, was interviewed by Russiaenergy.com for the Russia Special report in Oil and Gas Financial Journal to discuss the investment plans of Russian Railways, its significance for the Russian transport sector and its long-term commitment to the development of Russian Railways, Russia and its people.In April 2010 Russian Railways successfully issued US$1.5 billion in Eurobonds on the Irish Stock Exchange which two months later were included in JP Morgan’s EMBI international index. What is the significance of this new release of bonds of in the European markets for the company and how do you intend to use these resources in the investment plans of Russian Railways?
Firstly, Russian Railways has a particular significance to Russia and the world. As highlighted on different occasions by President Medvedev and Prime Minister Putin, it is the unique link to every corner of Russia, by far the biggest country in the world, and it is world renowned for being the only way of crossing Russia’s wilderness. For many regions across the country Russian Railways is not just another means of transportation, it is a means of survival and work. This is why Russian Railways, and its Board of Directors, considers itself to be a fundamental element of the Russian economy and our development should always be in line with the strategic plans for the long-term development of Russia.
The strategic nature of Russian Railways can only be compared to that of companies like Gazprom, and from this point of view, any success for Russian Railways is a success for the entire Russian economy. Thus there is a great deal of interest in the company, not only from the national government and different ministries, but also from foreign investors, banking institutions, and even foreign governments.
From this point of view, Russian Railways’ success with the issue of Eurobonds also translates into success for the Russian economy as a whole. There are a lot of controversial discussions about whether there is a place for national monopolies in a market economy or if this kind of model is obsolete. Monopolies are a part of market economies all over the world, such as in mail services or energy supply across Europe; in Russia, Russian Railways is clearly leading the way in what is an increasingly market oriented economy.
The issuing of the bonds also highlighted the recognition outside of Russia of the quality of the Russian Railways’ management. It has meant that foreign observers – including the business community, bankers, and experts – can see the positive steps that Russian Railways is taking to reform the company. Besides that, we have the chance to draw direct comparisons between the reforms we are currently applying and those undertaken elsewhere in order to learn from others’ mistakes.
Due to the scale of the company and the current trend in the industry towards globalization, Russian Railways has to consider itself as a world player. We are already working directly in more than six countries and we have activities in the Baltic Republics and other European countries across a variety of areas, from passenger operations, to cargo delivery and freight. Russian Railways’ well-established links with both Asian and European markets makes it a unique international player.
Successful release of these bonds was the recognition of all of this. The amount of resources and the low interest rates of 5.75% show the world the credibility, safety and attractiveness that of Russian Railways. Our conservative and consistent approach towards a market oriented economy has surely paid off.
Another major milestone for Russian Railways was the release of its very ambitious long-term plan for 2030 promising more than 1.3 trillion rubles in investment. What are the main guidelines for these investments and which sectors will Russian Railways prioritize?
Russian Railways is actually the first company to create such a long-term plan in the Russian Federation. When Russian Railways came up with the strategy, very few people took it seriously. Now you can barely find any institution in this country which does not have at least some kind of medium-term plan.
The strategy was elaborated and proposed by Russian Railways’ management and then passed and accepted by the Russian government. The plan was developed as a scientific document, it wasn’t simply a guess at figures, it was based on scientific research and relied on the support of the Ministry of Energy, the Ministry of Economic Development, the Ministry of Transport and many other Ministries, since we had to absorb the plans of other industries into those of Russian Railways’ since their fate depends on our demand.
Between today and 2030 Russian Railways expects to build more than 20000km of new railways, of which 7500km will be electrified, an impressive feat if you consider that we already operate the longest electrified lines in the world – 43000 km. We also plan to completely renew the locomotives, around 23000 pieces, and over 24000 passenger wagons. We will not be buying freight wagons, but our daughter companies will be buying more than 9000 wagons and renewing their parks.
Russian Railways also needs to introduce entirely new services for Russia, such as bullet and high-speed train services, which we have already started to accomplish. We have opened the operations between Moscow and Saint Petersburg and we the same services will be running between Moscow and Nizhny Novgorod by August. Russian Railways also have plans beyond the borders of Russia and will open high-speed train services between Helsinki and Saint Petersburg at the end of this year.
Another major pillar of the 2030 long-term plan is the modernization of the railway infrastructure in Russia. Russian Railways will be introducing innovative technologies to the railway systems, considerably increasing the efficiency and safety of its existing assets.
To summarize, the major targets of this ambitious plan are to develop the existing infrastructure, to support the strategy of escalation of raw materials in the most distant regions of Russia and provide our passengers with a safe, fast and comfortable means of transportation.
What would you say is the role that commodity transportation in general, but more specifically that of the oil and gas industry, plays for Russian Railways and what are your main strategies for this sector?
Naturally, Russian Railways’ development needs also to be coordinated with the development of the oil and gas industry in Russia. Nowadays pipelines constitute the main means of transportation of oil and gas in the country. As the pipeline infrastructure network keeps developing, we will be ensuring that Russian Railways’ development remains in line with this mainstream option.
For instance, before the EPSO pipeline was completed we had closed important freight deals with China and invested more than 12 billion rubles in the railways that take Russian hydrocarbons to this important market. However it is wrong to see the development of the pipeline infrastructure as necessarily opposite to railway transportation, since it is nearly impossible to consider the possibility of such developments in the oil and gas industry without the support of Russian Railways. Without us how would they be able to deliver the huge tubes to the far away places? How would contractors’ materials be delivered? Not to mention how would their workers reach the remote sites. Hence, the development of Russian Railways and russian pipelines should be seen as complementary pillars in the development of the Russian oil gas industry.
There is also a competition for the transport of oil and gas products. How will you deal with this increased competition and secure Russian Railways a significant market share in the transportation of Russia’s oil and gas riches?
As have I mentioned previously, I believe that the development of pipeline transportation in Russia should be coordinated with the ideas of the Russian government to develop Russian Railways since the two sectors are complementary.
Secondly, we provide oil and gas companies and clients services which no pipeline can provide. For instance, the brands of oil can be quite different. With a pipeline you can only guarantee average quality, whereas if you would like to sell the highest valued oil than you should use wagons, since what you put in is precisely what the costumer will get out, and this is essential for the industry. Besides, not everywhere can be accessed by pipelines, so on one hand we are competitors, but on the other we have a clear idea of what are our niche areas.
As you mentioned before, you want to transform Russian Railways in a truly global corporation. What are the main advantages of internationalizing such a Russian-centered organization and how will you compete in international markets?
The reason to target global market lies in the well-known assumption that Russia can provide a land-bridge between Europe and Asia. This is certainly very true from an international trade perspective. Therefore Russian Railways is careful to be very particular about the quality of the services and security, and attentive to the speed of our deliveries.
You have to bear in mind that because the scale of Russian Railways we are competing with deep-sea operators. Of course, we will never replace deep-sea Asia and Europe transport but it may be essential for very high-value products not to be frozen for the 40 days it takes for the journey; it is often much more interesting to have them unfrozen, in only 10. This has made Russian Railways take great care to improve our infrastructure services to hold this important international niche.
On the other hand, since we are discussing direct competition, we are also competing against the private owners of wagons in Russia. So far we do not compete with foreign operators – they have enough of their own problems back home! That said, the technological knowledge of our foreign friends is essential, and it is important to recognize what we can learn from each other. They can learn about scale, since in terms of volume of freight operations for example, any rail company in the West is tiny compared to Russian Railways, but of course we also have a lot to learn in terms of business efficiency and technology.
Hence, the interaction between Russian Railways and German, French, Slovak or Austrian rail systems is essential for our future development. This is a positive way of exchanging the set of values our countries established throughout history. That’s why Russian Railways has suggested new technologies with the automatic change of gate to be used between Russian and CIS countries and Western railways so that we won’t have to invest huge amounts of money to change the existing infrastructure. In this business, internationalization is much more about cooperation and exchange of experiences than predatory competition.
Amongst all figures related to Russian Railways, one is notably more gargantuan than others: your ‘army’ of 1.3 million employees. What kind of extra responsibilities does this bring to you and how has it shaped the way you manage Russian Railways?
Before my appointment as President of Russian Railways, I was a little overwhelmed at the idea of having such a responsibility. Just to imagine this army of more than a million people – it is huge. But once here, I learned that the more than 185 years of existence have accredited Russian Railways with a unique organizational capacity which makes this job feasible.
When Russian Railways was building its network in far away places such as Siberia many decades ago, it was actually at the same time bringing substantial development to unexplored regions, since with railways you have to assume a certain degree of infrastructure in order to have people working on the maintenance of the lines. This is still very much true of today, and the development process continues.
Our people should feel protected and have future perspectives for themselves and their children no matter where they are. When the crisis came and the need to cut expenses became unavoidable, the first option in many people’s minds was to reduce the headcount and preserve the investments in the railways, locomotives, wagons, and so on. This however could have been disastrous and fortunately we chose to do otherwise.
Some people questioned why we needed to support kindergartens in the middle of nowhere. The answer was simple: if we didn’t offer the basic infrastructure for our employees, to incentivize moving to such places with their families, the very link between the east and the west of Russia would be broken. For without our personnel there is no railway.
Based on this, we also have other types of social support measures, for instance our personnel receive tickets to go anywhere in Russia once a year; we have a special program to support the talented people who are studying in our universities; and we have a very developed healthcare system. Russian Railways has even created hospital trains; in some places more than 700 people were waiting in line to be seen by these hospital trains due to their sophisticated medical equipment and personnel close to hand. We currently have five hospital-trains and some regional governments are providing us with a 25% financing to expand these services.
In light of this, when during the crisis I needed either to lay off more than 173,000 personnel or to get their concession to work part time – President included – I chose the latter. It was the only way to cope with the crisis – and the personnel accepted this even though it meant cutting our salaries too. This meant we got the positive balance we needed.
After that, Russian Railways could, among other things, have this flourishing issue of Eurobonds. This is a clear example of positive interaction between the management and the workers and of our long-term commitment to the development of Russian Railways, Russia and our people.
What would be your final message to the readers of the Oil and Gas Financial Journal about the future for Russian Railways both in Russia and abroad?
I am still not entirely optimistic that we have reached the end of the economic crisis. Of course, a lot of effort has already been made by different political organizations, governments, bankers and companies but we are still living in a very economically unstable period. This is why, I suppose, the wisest people understand that infrastructure will be necessary under all circumstances. Bad times and good times alike, infrastructure will continue to be the most attractive asset to invest in. Hence, my message to your readers is: if you’re looking for long-term safety and profitability, Russian Railways is THE partner you are looking for.
| Company: | Russian Railways |
| Position: | President |
| Country: | Russian Federation |