Russian Rail Taps Banks on Kazan Route as Costs Hit $33 Billion

OAO Russian Railways is seeking bank funding for a 1.1 trillion-ruble ($33 billion) high-speed rail line linking Moscow with the soccer World Cup venue of Kazan, even as the government questions the route’s feasibility.

Russian Railways is in talks with state banks VTB Group, OAO Sberbank, ОАО Gazprombank and Vnesheconombank, as well as the Kremlin-backed Russian Direct Investment Fund, Alexander Misharin, its first vice-president, said in an interview.

Russia last month froze plans to allocate 150 billion rubles to the 720-kilometer (450-mile) route from its National Wellbeing Fund after costs rose from an initial 928 billion rubles. The line, part of a 6 trillion-ruble plan to construct a high-speed network in the world’s largest country, needs a more detailed feasibility study before receiving the injection, First Deputy Prime Minister Igor Shuvalov said at the time.

Russian Railways still expects the government to provide the Kazan funding once it approves the financial model, most likely in first quarter, Misharin said. PricewaterhouseCoopers has already signed off on the plan following an audit.

The company is also putting final touches to an investor memorandum to be sent to banks in the nearest future, he said.

Funding streams may include 239 billion rubles from a pension fund and infrastructure bonds, and 220 billion rubles in loans, including some bank contributions. Russian Direct Investment may pledge 40 billion rubles, according to Misharin.

Stations, Stock

Investors in the Kazan route -- which is due to completed in time for the 2018 World Cup, for which it is one of 11 host cities -- will be able to participate in specific projects such as station construction and rolling stock acquisition and could buy a stake, as well as extend loans, he said.

Sberbank and VEB didn’t respond to requests for comment, while VTB declined to comment and Gazprombank said it was working with Russian Railways on a number of infrastructure projects. Russian Direct Investment said the Kazan project is not yet under formal consideration, pending government approval for its financial model and transaction structure.

President Vladimir Putin has pledged infrastructure investment of 450 billion rubles from the National Wellbeing Fund as he seeks to reinvigorate growth that stood at 1.2 percent in the third quarter amid the worst slowdown since 2009.

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