Key Logistics Hubs Along Russia’s Meridian Road
Which cities will benefit from being along the shortest route between China and Europe?
Op/Ed by Chris Devonshire-Ellis
Russian Prime Minister Dmitri Medvedev has given the go-ahead to build a new toll motorway stretching just over 2000 km through some of the more remote areas of the country – acting as a “Moscow bypass” between China and Europe. The Meridian Highway will stretch from the Belarus border with the European Union to the Russian border with Kazakhstan, providing the European and Urals leg of an existing highway that already crosses Kazakhstan to China. The Meridian Highway will effectively link China directly to Western Europe by road.
The new toll link is expected to cost around 600 billion rubles (US$9.5 billion), and will be built using a public-private partnership – with guarantees to investors about returns. The main source of revenue is likely to be trucks between Europe and China, and it is expected to take some of the freight that currently uses the Trans-Siberian Rail and the Suez Canal.The funding is believed to be coming from Alexander Ryazanov, the former deputy chairman of Gazprom who also own about 80 percent of the land where the road is expected to run through, will take between 12 to 14 years to be completed. However, other financing is also being sought, with Chinese and Indian contributors also being looked at. Investors have asked for assurances from the Russian Government that losses amounting from geopolitical risks such as border closures will be covered by Moscow. The highway is expected to make a profit after 15 years of operations – a ROI when the build cost is also factored in.
The route will not be entirely new in terms of much of the routing, which already exists in the form of existing Russian roads. Much of the Meridian Highway though requires a completely new build, both in order to preserve the Highways toll revenue integrity, in addition to handling the punishing treatment both heavy lorries and extreme weather conditions will impact upon the road surface and construction itself.
Russia’s Meridian Highway – Duty Free Freight
It is significant as part of the attraction of the projects that the Meridian Highway runs through Belarus, Russia and Kazakhstan – all members of the Eurasian Economic Union (EAEU). The EAEU is a Free Trade and Customs Union also including Armenia and Kyrgyzstan, which may in future lead to Meridian Highway sub-routes leading off to Bishkek. Armenia’s capital of Yerevan is unlikely to be linked anytime soon due to the poor relations it has with Azerbaijan, lying between it and Russia. Of additional future free trade interest is that China has signed off a Free Trade Agreement itself with the EAEU – which although is currently non-preferential in terms of any goods being affected, is known to be under product negotiation. As and when that happens, Chinese products will be able to travel the Meridian Highway, duty free, all the way to the border with the European Union. That is likely to occur way before the Highway is completed and lead to an immediately high volume of traffic – good news for the investors.
We can look at some of the impacted cities along the route, all of which can be expected to develop as logistics and supply hubs to service traffic and drivers along the route as follows:
Terespol is on the European Union Highway Route E30, and is a busy border crossing between Poland and Belarus. The E30 also links between Berlin-Warsaw-Minsk-Moscow. Terespol is also connected to Brest by train. The city can be expected to develop a repacking, customs, warehousing and related transportation industry as a result of Chinese, Kazakh and Russian goods using the Meridian Highway to access the EU, and vice-versa.
Like Terespol just across the border, Brest can be expected to develop a significant transportation and logistics hub with goods to and from the EU, Russia and China, and this development is already underway. Brest is a major artery for EU goods entering Russia with many EU businesses having relocated to Belarus to get around the EU sanctions. It is linked by road and rail to the capital, Minsk and directly to Moscow.
Smolensk is on the main Russian M1 highway with Moscow and the Moscow rail, while it also has an underused city airport although that will shortly change in line with its Meridian Highway destiny. The city is an engineering hub and also has aviation, electronics, IT and agricultural industry sectors. It is also a river port for the Dnieper River, one of Europe’s largest, reaching to the Black Sea via the Ukraine, where it remains an important logistics route.
Nizhny-Novgorod has long had a reputation as being one of Russia’s main trading cities, and is on the main Russian M7 highway linking directly to Moscow as well as Kazan and Ufa. It is also on the Volga River, Europe’s largest, linking it to the Caspian Sea. In summer it is possible to navigate the Volga from St.Petersburg through to Astrakhan. 11 of Russia’s largest cities border the Volga River, while it is also on the Trans-Siberian Rail and the high-speed Moscow-Kazan Rail itself the centre of speculation over direct high speed links to Beijing. This makes Nizhny Novogorod a central logistics regional hub. It has a large airport serving mainly domestic but some international flights.
Samara sits on the M5 highway, linking Moscow to the Urals. It is also on the Volga and Samara rivers and has a large inland Port, and is directly connected to Moscow and other Russian cities by rail. The Kurumoch International Airport handles flights throughout Russia, in addition to Frankfurt, Prague, Helsinki, Istanbul, Baku and Dubai, in addition to Tashkent and Dushanbe.
Orenburg is on the P239 Highway, which branches south to Kazakhstan from the M5. It is an important rail centre, with connections to Samara and onto Moscow, and is the Russian terminus of the Trans-Aral Railway, which heads southeast before crossing Kazakhstan and terminating in Tashkent, the capital of Uzbekistan, with links through to Almaty. It also has a regional airport with connections to most major Russian cities as well as Baku. Bus and rail connections from here lead to the Kazakhstan border.
Sagachin & Taskala (Russia-Kazakhstan Border)
These are the two border towns, policed by respective customs and immigration on either side. Customs formalities are fairly simple given that Russia and Kazakhstan are members of the EAEU, although drugs and contraband are still on the priority list for officials to deal with. Sagachin is reached from Orenburg by the A305. The Russian build of the planned Meridian Highway has, according to Russian media, commenced at this town, however in reality most travelers embark at Orenburg.
Taskala is on the Trans-Aral Rail, linking through to Moscow and Almaty. Both cities have small populations of about 5,000.
Previously known as Uralsk until 1992, Oral is the first major town in Kazakhstan after Sagachin and sits on the Kazakh Highway M32, in addition to the main Kazakh routes. It is also on the Trans-Altai Rail line in addition to being on the Ural River, which flows from the Ural Mountains to the north and empties into the Caspian Sea to the south-west. Consequently it has long been an important, strategically located trading centre. It is one of the main arteries for trade between Europe and Siberia, and is a major service centre for oil fields in the Caspian basin. It has an international airport with regional links across Kazakhstan as well as Nur-Sultan and Almaty in addition to serving Astrakhan, Baku, Moscow, and Frankfurt. Oral is also connected by road and rail to Aqtau, Kazakhstan’s main Port on the Caspian Sea.
A More Direct Meridian Route From Russia To Kazakhstan
The main problem with this route is that the Trans-Kazakh Highway M32 that it links to doesn’t, at present, lead to China – it heads either south to Aqtau on the Caspian, or south-east via Aktobe and then south to Shymkent, on the border with Uzbekistan, and far closer to Tashkent. That’s great for trade with Kazakhstan and Uzbekistan, which I wrote about in the article Kazak-Uzbek Trade Expands With Opening Of New Border Trade Centre but it doesn’t solve the problem of connecting through to China.
A regional map of Kazakhstan’s highways can be seen here:
As can be seen, there are other route connections between Russia and Kazakhstan when it comes to access with China that might also make more sense. We can examine these as follows:
Ufa is connected by both the M5 and M7 Russian highways directly to Moscow and is also on the Trans-Siberian Rail in addition to an international airport with flights to most major Russian cities as well as Azerbaijan, Uzbekistan, Turkey and the UAE. The M5 Highway east leads to Chelyabinsk.
Population: 1 million
Chelyabinsk is on the Russian M5 highway connecting it to Ufa and then onto Moscow, and is also the focal point of the South Urals Rail network that connects through to Orenburg as well as onto several locations in Kazakhstan. It is the proposed site of the Eurasian High-Speed Rail Corridor that could link Berlin to Beijing via Moscow and Astana, and also links further north to the Trans-Siberian Rail. Given that Chelyabinsk also has road connections through to Kazakhstan to Rudnyy and Kustanay, the development of the Meridian Highway through Chelyabinsk rather than Sagachin seems to make more sense. Both Rudnyy and Kustanay sit on the main Kazakh highway to Astana, which then heads further south-east to the Chinese border nearer to Almaty and the Chinese regional capital city of Urumqi.
Kustanay is connected by road to Chelyabinsk, Magnitogorsk, Troitsk, Yekaterinburg, Kurgan and Tyumen in Russia, and via the M36 from the border of Russia to Astana and Almaty in Kazakhstan. That total distance is some 2032km. From Almaty, modern highway and rail links cross the Kazakhstan border and terminate at Urumqi, the capital city in China’s Western Xinjiang Province. Kustanay is heavily interlinked by rail, and also has a major International airport, with flights across Kazakhstan as well as Minsk, Moscow and Hannover.
It remains to be seen whether the Russian media had the Meridian Highway border crossing exactly right when locating it at Sagochin. If so, then additional highway construction will be needed in Kazakhstan itself to link that route to the main Astana-Almaty-Urumqi route. My opinion is that the M5 and M7 Russian highways, essentially from Nizhny Novgorod through to Samara, Orenburg, Ufa and Chelyabinsk into Kazakhstan make more direct sense when looking to link up with the Kazakh M36 route to China. Either way, cities such as Brest in Belarus, as well as Nizhny Novgorod, Orenburg and Chelyabinsk are all good bets for logistics development in Russia, and beyond those, Kustanay in Kazakhstan. The Meridian Highway make take some time to build, but its impact when completed will assist with opening up the Urals region of Russia as well as provide investment opportunities for logistics and all the related services industries that go hand in hand with that. The interesting part about the Meridian Road project is that it is not just a highway, it provides access to the Trans Siberian rail at several important junctions, in addition to numerous important, commercially navigable and strategically positioned inland River Ports giving additional access to the vast Russian interior, Europe, and into Kazakhstan. As such the Meridian Road is part of a far larger and already integrated rail and river transport network with connections embracing a population running into tens of millions of consumers and producers.
Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at email@example.com or visit us at www.dezshira.com.