Railway Sector Structural Reform Program
The railway transport reform is implemented on the basis of the Program of Railway
Sector Structural Reform approved by Russian Federation Government Decree #384
of 18 May 2001 (hereinafter referred to as the Program).
The railway sector structural reform pursues the following objectives:
- enhancing the stability of rail transport performance, its availability, safety and
quality of services in order to secure the creation of a single economic space
and development of the national economy;
- forming a single harmonized national transport system;
- lowering the gross national economic expenditures on railway freight
trafficking;
- satisfying the growing demand for rail transport services.
In order to achieve the set objectives, it is necessary to implement at the first stage of
the railway sector structural reform the following tasks and principles:
- separation of functions of government regulation and economic management
in the railway sector with simultaneous withdrawal of the competitive
activities from the monopoly sphere;
- preservation of a single public net production infrastructure of railroads and
centralized dispatch supervision;
- phasing out cross subsidizing of passenger transportation at the expense of
freight trafficking and national transportation at the expenses of export and
import transporting;
- upgrading the tariff policy;
- further development of competition in the sphere of freight trafficking, repair
of the rolling stock, passenger transportation and servicing;
- inadmissibility of merger of enterprises operating in a potentially competitive
sphere with natural monopolies;
- guaranteeing non-discriminate access of independent freight and passenger
transporting companies and users of the rolling stock to the federal rail
transport infrastructure;
- withdrawing public utilities and other facilities (except specialized ones) from
the sphere of activity of the federal railroads with a view to lowering nonproduction costs;
- securing financial transparency of all forms of economic activity of the
industry, including by means of separate financial accounting;
- implementing measures for raising investment attractiveness of the railway
system;
- raising material incentives for the rail transport workers and offering them
social security guarantees.
The Program stipulates that the railway sector reform shall be conducted in three
stages:
stage one: 2001-2002;
stage two: 2003-2005;
stage three: 2006-2010.
The crucial moment in transition to a new functional model of the railway sector is
full separation of the functions of government regulation from economic management
as early as the first (preparatory) stage of reform. This separation is necessary to
introduce competition within the railway system and is one of the conditions of
providing equal access of independent operators to the net infrastructure and fair tariff
setting.
The economic management functions carried out by the Russian Ministry of Railways
are to be taken away from this ministry and handed over to a single economic entity –
the public joint stock company Russian Railroads, 100 percent of shares of which
shall constitute public property.
At present, the Action Plan for implementing the Railway Sector Structural Reform
Program in 2001-2002 (section 3 of the Program) has been on the whole completed,
and an action plan for the 2003-2005 period has been drafted. The draft has been
agreed with the involved ministries and agencies, considered at the session of the
Russian Federation Government Commission for the railway sector structural reform,
and is to be presented in the established manner to the RF Government this January.
The Program envisages control and a possibility of actions adjustment on the basis of
a progress analysis.
The progress and economic implications analysis of the railway sector structural
reform activities shall be made with the participation of specialists and academics
from consultative and research organizations.
Coordinating Activity between Different Administration Levels in the Process of
the Railway Sector Reform
Pursuant to the implementation of the Program and the coordination of activity
between different administrative levels in the railway sector, The Railway Sector
Reform Headquarters of the Russian Ministry of Railways (the Russian MPS
Headquarters) and the Reform Headquarters of Railroads have been formed.
The Russian MPS Headquarters set up working groups to supervise the main focus
areas of the railway sector structural reform.
The Russian MPS Headquarters working groups carry out preliminary development,
regulatory, legal and organizational preparation of the rail transport reform.
A working schedule has been elaborated for each of the Russian MPS Headquarters
working groups.
Railroad-based working groups for structural reform have been set up at all 17
railroads under the leadership of senior railroad managers. Railroad working groups
arrange for the implementation of concrete measures to reform the railway transport.
For the sake of public relations purposes, a Public Expert Council is working at the
Russian MPS Headquarters, including representatives of the State Duma, the
Federation Council of the RF Federal Assembly, consumers of transport services,
representatives of the Russian executive authorities, business and academic
communities.
The Russian MPS Headquarters, its Public Expert Council, the RF Government
Commission for the Railway Sector Structural Reform, and the RF Government
regularly discuss at their sittings the progress, outcomes and possible implications of
the railway sector structural reform.
Competition Development and Antimonopoly Policy in the Railway Sector
The Program envisages the streamlining of laws regulating the railway sector with the
basic principles of the Russian civil law.
The Railway Sector Structural Reform Action Plan for 2001-2002 was used as the
basis for drafting the Federal Law on Rail Transport in the Russian Federation, the
Charter of the Russian Federation Rail Transport, and the Law on Introduction of
Amendments and Additions to the Federal Law on Natural Monopolies.
On 26 April 2002 the said draft laws were approved by the Russian Government, on
26 June 2002 they were adopted in first reading by the State Duma of the RF Federal
Assembly, on 15 December 2002 – in the second reading, and on 24 December 2002
– in the third reading. On 27 December the draft laws were approved by the
Federation Council of the RF Federal Assembly.
The conceptual basis of the draft Federal Law on Introduction of Amendments and
Additions to the Federal Law on Natural Monopolies consists in the following.
The structural reform underway in the railway sector is aimed at a number of
objectives, including the demonopolization of the railroad services and development
of competition in the sphere of freight trafficking, repair of the rolling stock,
passenger transportation and servicing.
In this connection, the draft law envisions the separation of the sphere of natural
monopoly in rail transport from the competitive sphere. As the railway transport
market is being demonopolized the regulators of natural monopolies shall limit the
sphere of regulation to the rail transport infrastructure services. Consequently, the
regulation sphere is reduced from railway transportation to infrastructure services in
accordance with the implemented demonopolization measures.
The regulator of natural monopolies shall adopt the decision to change or suspend the
regulation of natural monopolies, taking into consideration the demonopolization
measures implemented in the corresponding areas.
The draft law also imposes a ban on economically unsubstantiated restriction of the
transfer of natural monopolistic spheres into a competitive market status.
The draft Federal Law on Rail Transport in the Russian Federation fixes the
fundamentals of a conceptually new (different from the effective law) approach to
organizing rail transportation. There are three actors on the market of rail
transportation: the transporter, the public rail transport infrastructure owner
(hereinafter referred to as the infrastructure owner), and the user of the rail transport
services (passenger, consignor, sender, consignee, acceptor). In this connection, the
draft law fixes requirements to the said persons.
The draft law envisions a new approach to the railway sector government regulation
ensuring effective participation of the state in the industry functioning in conditions of
reform.
The introduction of new methods of government regulation and control, on the one
hand, is supposed to help satisfy the demand for railway transportations, enhance
safety, quality and availability of the railway services, comprehensiveness and
persistency of regulation, forming a steadily developing system of market relations in
the industry, and harmonious development of a single national transport system.
Much attention is being given to the regulation of the bases of interaction of the rail
transport infrastructure owners with the transporters, as well as the users of railway
services and transporters in the process of preparing and implementing passenger,
freight, luggage, and cargo baggage trafficking. The draft law fixes a number of
interaction principles between the said entities.
Finally, the draft law envisages the revision of property relations in the rail sector
considering the structural adjustments underway in the industry. The regulations on
creation procedures and the organizational legal form of the rail enterprises and the
fundamentals of their financial and economic relations shall be adjusted accordingly.
The draft Charter of the Russian Federation Rail Transport envisages the development
of an operating procedure of a conceptually new system of rail transportation spelled
out by the draft Law on Rail Transport in the Russian Federation. The principal
features of this system consist in dividing the rail transportation process, currently
constituting a single operation, into two different spectrums of legal relations:
infrastructure services and trafficking.
There also emerges a possibility for the functioning of independent railway
transporters, which in its turn should ensure the formation and development of
competition in the rail transportation sphere. In contrast to effective Charter (in
accordance with which only railroads may become transporters), any legal or natural
person may become a transporter, if it has in property or holds on other legal grounds
rolling stock and is licensed to carry out transportation activities.
The implementation of the first stage of the railway sector structural reform would
enable:
1. To eliminate the main obstacles for development of a competitive railway
market as a result of dividing the functions of economic activity and
government regulation, as well as organizational and legal separation of
natural monopolies, competitive and potentially competitive activities within
the railway system.
2. To streamline the regulatory framework of the railway sector with the
fundamentals of Russian Federation civil law, which would enable to raise the
efficiency of the system of government regulation.