Russian Railways to Expand to Europe

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Aug. 24 – The state monopoly Russian Railways is considering buying a controlling stake in Zeleznica Spolecnost Cargo Slovakia from its parent company Slovak Republic Railways, Russian Railways Vice President Salman Babayev told reporters on Tuesday.

Babayev said that Russian Railways also had bid for Poland’s PKP Cargo, Europe’s No. 2 rail freight carrier. PKP Cargo is also of interest to the Czechs who want to merge Czech rail company CD Cargo with PKP Cargo in the most ambitious central European railway deal ever.

Earlier this March, the Slovak government approved a plan to revamp and partially sell state railways as it seeks to raise revenues and cut subsidies to the ailing industry.

According to the Transportation Minister for the Slovak Cabinet Jan Figel, the government will sell 66 percent of the cargo unit, ZSSK Cargo.

The companies, which also include an operator of the rail track and a passenger unit, have accumulated losses of 353 million euros (US$491 million) and need to repay the state 236 million euros in loans, according to the ministry document.

Last year remained marked by the impact of the economic crisis, unfavorable conditions in the transport market of the Slovak Republic, increased competition, and economic problems, the company says in its 2010 Annual Report.

In its auditors’ report, Ernst & Young said that “the future of the company depends on the implementation of new measures directly linked to the new revitalization program for the railways sector passed by the Slovak government as well as the introduction of a strategic investor.”

If the Russian monopoly becomes that strategic investor pointed out by the auditors, according to Babayev, Russian Railways would cover its 2011 investment program deficit by borrowing.

By buying Slovak and Polish carriers, Russian Railways will boost transit transportation from Asia to Europe and remarkably quicken it up, Babayev said.

Within the strategic plan to expand in Europe, Russian Railways plans to construct a broad-gauge main-line railroad from the Ukrainian Uzhgorod through Slovakia to Vienna in the standard Russian width of 1520 mm (in Europe a track width of 1435 mm is used), on which 15 million tons of cargo could be transported annually.

The main-line railroad construction to Europe may cost the Russian monopoly 6.3 billion euros, but Russian Railways management estimates the investment would be paid off within 12 years.

Cargo traffic on a new railroad from East Asian countries to Vienna is scheduled to start from 2016, with the transportation period to squeeze from a month and a half to 13–14 days.

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