Russia’s Largest Infrastructure Project – Far Eastern Rail Networks With Asian Connectivity

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Proposals for US$44 billion on two rail projects and a bridge to Sakhalin Island provided to the President 

Russia’s Gazprombank and Singapore based BTS-Most, a construction company Chaired by Ruslan Baisarov, have asked Russia’s President Vladimir Putin to give them a concession on Russia’s largest infrastructure project, the expansion of the Baikal-Amur Mainline (BAM) and the Trans-Siberian Railway (Transsib). Combined, these would provide an extensive rail network throughout Far East Russia and increase Russia-Asian trade by hundreds of billions of dollars.

The urgency of the project is due to the reorientation of Russian exports and the need to establish a new center of global development in the Asia-Pacific region.

“The project would give a push to the development of the Far East and Siberia, and facilitate the development of huge resources and the growth of the economic potential of the regions,” Gazprombank said, remarking that it is a leader in financing infrastructure projects on the principles of public-private partnerships, while BTS-Most is the largest construction company in Russia and has, among other things, built all ten tunnels on the BAM.

The two companies sent Putin a letter proposing the concession on March 29.

With the reconstruction of the railways and expansion of bottlenecks (including the construction of second Severomuisky and Kuznetsovsky tunnels) the throughput capacity of the railways could grow to 260 million-280 million tonnes.

Putin has been asked to support the initiative and “jointly work out the conditions for the turn-key implementation of the eastern railways based on the model of a concession agreement signed with the concession holders”

In return, Putin has instructed Prime Minister Mikhail Mishustin, Transport Minister Vitaly Savelyev and Russian Railways CEO Oleg Belozerov to “consider and report.” The issue was discussed on May 31 at a meeting of the commission for projects to develop railway infrastructure in Siberia and the Far East, chaired by Deputy Prime Minister Marat Khusnullin.

The scale of the project the consortium is seeking to implement is vast. The proposal includes the construction or reconstruction of the Severomuisky, Kodarsky and Kuznetsovsky tunnels, as well as a bridge across the Amur River.

The budget estimate for the project has not yet been fully analyzed, however Russian Railways has previously estimated that 2.55 trillion rubles (US$44.5 billion) would need to be invested to expand the throughput capacity of these railways to 240 million tonnes, including a second Severomuisky tunnel.

Estimates by Gazprombank and BTS-Most, a multiplier effect of the Far Eastern railways project would result in exports to the Asia-Pacific region increasing by 8.3 trillion rubles (US$134 billion, or about 90% of 2021 Russian exports to the EU). The mining of mineral resources would be expected to grow by 220 million tonnes by 2025, boosting the mining industry’s revenues by 550 billion rubles, (US$9 billion) the export potential of cargo handling at ports in the Far East growing by 180 billion rubles (US$3 billion) and so on. More than 230,000 workers would be required to bring the railway projects to fruition. Both Gazprombank and BTS-Most are prepared to invest 1.5 trillion rubles (US$250 million) for shareholding in the concession.

The Russian Transport Ministry has signed an order to form a working group on this issue and explore all options over the next two months, although Khusnullin has ordered the Transport Ministry, RZD, GPB and BTS-Most to work out all measures, time-frames and conditions for recoupment of investment within the context of the working group.

Another high-profile concession proposal, for the construction of a bridge to Sakhalin Island, tabled by MGR, was also considered at this meeting. This company, which is controlled by Mikhail Skigin and is currently building the Poronaisk port on Sakhalin. The cost element for this is 676 billion rubles (US$11 billion).

These two potential projects stand in some opposition to each other, as one of MGR’s arguments is that building a bridge would be a third cheaper than modernizing the eastern sections of the BAM and Transsib (Komsomolsk-Vanino and Volochayevka-Primorye ports).

Ultimately, the commission proposed to estimate the freight base for a bridge to Sakhalin and continue developing the Poronaisk port as a base for the Northern Sea Route. Decisions concerning these proposals will depend on what decisions are made in July on the format for the third phase of the modernization of the BAM and Transsib.

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