Russian Railways May Build $157 Billion of High-Speed Links

OAO Russian Railways is planning more than 5 trillion rubles ($157 billion) of high-speed rail links as the world’s largest country by land mass plans to host the 2018 soccer World Cup.

“Building high-speed rail links is a brand new trend for the development of our economy,” Russian Railways Chief Executive Officer Vladimir Yakunin said in Sochi, the Black Sea city that will host the 2014 Winter Olympics. The plans are drawing interest from large foreign companies including Siemens AG (SIE) and Alstom SA (ALO), he said.

Russia’s ambitions to hold world sporting events is forcing the government to expand the national transportation system. The country doesn’t have a single high-speed rail line, while Japan introduced the world’s first service in the 1960s, according to data from OAO High-Speed Rail Lines, a unit of RZD as the Russian rail monopoly is known.

State-owned Russian Railways plans the routes from Moscow to St. Petersburg, Sochi and Kazan, with an extension to Yekaterinburg near the border of Europe and Asia. The company is trying to start the pilot link to Kazan in time to race soccer fans to stadiums in four of the 11 cities hosting World Cup matches.

Astronomic Figure

“The 5 trillion rubles in spending is an astronomic figure for Russian Railways as neither the company, nor the government has money for this,” said Andrey Rozhkov, analyst at IFC Metropol. “The project is unlikely to be implemented in full, while some high-speed links such as Moscow-Kazan may be built.”

Train producers such as Siemens AG, Alstom SA and their joint ventures with local partners in Russia may benefit from this project as well as steelmakers Evraz Plc (EVR) and OAO Mechel (MTLR), which produce durable rail tracks, Rozhkov said.

Russian Railways may require another 1.5 trillion rubles to build tracks for trains that can travel about 200 kilometers an hour (124 miles an hour), Yakunin said in the May 31 interview. High-speed trains can go twice that fast.

“If everything goes according to plan, we could be in time for the World Cup,” Yakunin said. This year, RZD expects to receive 16 billion rubles of budget funds for engineering under the Moscow-Kazan project, after which it could start building the railroad in late 2014 or early 2015, Yakunin said.

Cutting Travel Time

Moscow-Kazan is estimated to cost 928 billion rubles, Yakunin said during a conference with President Vladimir Putin last week. Transportation Minister Maxim Sokolov said the link would span 800 kilometers, cutting travel time to 3 1/2 hours from the current 11 1/2 hours.

In 2011, Siemens agreed on a contract with Russian Railways to produce 1,200 wagons of its Desiro trains under local brand Lastochka at its joint venture with Russian billionaire Dmitry Pumpyansky. Siemens may export these trains to other ex-Soviet countries, according to an agreement signed by CEO Peter Loescher and Russian Railways’sYakunin.

Siemens is seeking to expand its footprint in Russia with investments of about 1 billion euros ($1.3 billion), Loescher told reporters in Moscow today.

Yakunin said the project should be 70 percent financed from the budget, with the remaining 30 percent to be provided by RZD itself and investors.

The government and RZD are discussing the possibility of investing state funds in the construction, Yakunin said.

“The state, the Pension Fund and the National Wellbeing Fund could all contribute to the implementation of global long-term projects,” Yakunin added.

To contact the reporter on this story: Ekaterina Shatalova in Moscow at eshatalova@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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