To begin, let me state the obvious: of course Putin, who yesterday acted out that little scene — "Have you all gone mad? Bring them back" — knew perfectly well that commuter trains were being canceled (this has been going on for two years), and he supported and approved that decision.
It’s just that now the political cost of such decisions has turned out to be far higher than expected. When cancellations started happening not route by route but across entire regions, people said: "They didn’t cancel them even in the cursed ’90s, and now, in the 15th year of ‘stability,’ this is completely unacceptable."
Watch TV Rain’s excellent report on the issue, produced as part of a joint project with the ACF (Anti-Corruption Foundation). It’s 19 minutes long, unlocked this time and free to watch:
The footage of the public gathering in Vologda Region explains yesterday’s "Have you lost your minds?!" perfectly well.
I’ve said many times that despite its performative toughness, this government always backs down when it faces organized public discontent. This is yet another example.
So, once again, a political problem has been solved with money: the government will give Yakunin’s Russian Railways an extra 15 billion rubles (about 15 billion rubles).
We are convinced that this costly solution will fix absolutely nothing. The commuter trains will run, regional debt will keep growing, and before long Yakunin will once again start blackmailing the authorities with the threat of canceling trains.
For now, they’ve simply covered a hole in the floor with a decorative rug.
Since the collapse of suburban rail service has merely been postponed, we decided not to cancel our explainer and instead get to the heart of the issue. This is a complicated but very important topic.
How is the fare set?
The economically justified fare/price is the total cost the company incurs to transport passengers. Suppose 50 rubles go to infrastructure rental, 30 to leasing railcars, and 20 to repairs — 100 rubles in total.
The actual or "social" fare is the fare the passenger actually pays when buying a ticket. With very rare exceptions, it is much lower. Let’s say it is 20 rubles.
100 rubles minus 20 rubles equals 80 rubles — that is the amount suburban passenger companies (PPCs) supposedly "fail to receive" and seek to have reimbursed. In Russian Railways’ preferred terminology, this amount is called "lost revenue."
The final fare for passengers is set by the Regional Energy Commissions (RECs), which act as overseers of the fare requested by the suburban passenger companies. They analyze how much the suburban companies are asking for and why, consider what passengers can afford to pay, verify the calculations, and then set the fare.
What makes up the economically justified fare?
Thanks to our cooperation with TV Rain, we obtained documents that explain many of the intricacies of fare-setting, including what exactly goes into the economically justified fare. Take a close look — this is an exclusive. It is an excerpt from documents submitted to the REC, detailing how the region’s "debt" to the Northern Suburban Passenger Company is calculated.
All these costs are added up, divided by passenger volume, and the result is the economically justified fare.
The most important thing in this table is that almost the entire estimate consists of lease payments and reimbursement of Russian Railways’ expenses. The suburban companies lease infrastructure and trains, and pay for repairs, management, and train operations.
All these amounts are written into contracts between the suburban companies and Russian Railways — in other words, between subsidiaries and the parent company. Whatever amount the parent company, Russian Railways, bills, the suburban passenger companies will pay. There can be no talk of market terms in contracts like these. If Russian Railways says a repair costs X rubles, then that is what the suburban company will pay.
This is an utterly absurd setup, really: a subsidiary of a state monopoly rents something from that same state monopoly. The left pocket gives money to the right pocket and then asks taxpayers to reimburse the left pocket for the amount transferred.
The corruption risk lies precisely in these payments and expenses. Say Russian Railways needs to replace geogrids on the tracks: they are ordered from a company owned by an offshore entity that controls the Yakunin family’s assets, and that contract is then built into the economically justified fare.
Who are the suburban passenger companies?
Suburban passenger companies were created in 2011. Suburban rail transport was spun off from the parent structure of Russian Railways and handed over to supposedly "separate companies." In reality, these "separate companies" are in most cases wholly owned by Russian Railways.
Separating these legal entities was supposed, in theory, to liberalize the market, but in practice it only made the system of mutual settlements more complicated. The only thing that changed is that Russian Railways now has fewer expenses of its own, while we are left with a whole collection of bankrupt carriers canceling more and more commuter trains every day.
In an interview with TV Rain, Maxim Shneider, head of Russian Railways’ suburban train division, spoke persuasively about how private carriers can now create their own suburban passenger companies, and Russian Railways will service them. Or how the regions themselves can create their own suburban companies and transport passengers independently. Everything above is nothing more than Russian Railways’ corporate nonsense. No economically rational player could survive under the current conditions of the suburban rail market.
On the government’s decision to cut the regions’ subsidy by a factor of 25
Now for a very important issue that the media have completely ignored. It is astonishing that this news passed so unnoticed.
Until December 31, 2014, suburban companies effectively did not pay for infrastructure rental. This is item no. 1 in the estimate shown above. A preferential rate was in place — a coefficient of 0.01 applied to this expense line.
The other 99% of the amount spent on railway infrastructure rental was compensated from the federal budget.
On January 5, 2015, in the middle of the New Year holidays — and, crucially, after commuter trains had already been canceled in Vologda and cut back in other regions — Medvedev signed the following decree:
It is hard to believe, but at a time when most Russian regions were facing the threat of losing all commuter trains altogether, the government decided to INCREASE the regions’ payments for infrastructure. The previous 99% subsidy was replaced with a 75% subsidy. In other words, they had been paying 1% of the cost; now they must pay 25%.
This twenty-five-fold (!!!) increase in cost falls entirely on regional budgets. The federal budget comes out ahead. Russian Railways keeps getting its full 100% either way — a very convenient reshuffle.
I do not understand what guided the people who adopted this law. And what sense there is in forcing the regions to pay 25 times more when right now they are not paying at all is equally inexplicable.
It is even more absurd to read all this knowing that less than a month later, the government would allocate a huge subsidy to urgently restart the commuter trains after Putin’s reprimand. So they made all these decisions on January 5, Medvedev signed the papers, and a month later it all turned out to be meaningless.
On Vologda Region, the Northern Suburban Passenger Company, and the REC
Now let’s move on to the specific example of Vologda Region. We had the opportunity to study the REC’s internal documents and examine the actual figures. From a pile of technical paperwork, we selected a simple example of how a suburban company manipulates this so-called economically justified price.
Everyone has read in the news that Vologda Region owes the Northern Suburban Passenger Company 702 million rubles.
That is the figure in the suburban carrier’s filing. It is made up of the nine expense lines we saw above.
In its analytical memo, the Vologda Region REC provides alternative calculations and argues that the region’s debt to Russian Railways is much smaller.
Let’s compare these two sets of calculations:
What immediately stands out is the difference in the calculations for the first line item — infrastructure rental. The Regional Energy Commission believes the region owes almost five times less for infrastructure than Russian Railways’ subsidiary claims.
Indeed, in the Northern Suburban Passenger Company’s filing, infrastructure rental is somehow calculated at the full 100% rate, even though under the government decree of January 5, 2015, the rate should be 25%.
This is perhaps the simplest example of how many questions the suburban carrier’s calculations raise.
There is a clear federal decree establishing the subsidy coefficient. The Northern Suburban Passenger Company simply ignores it and sends a bill as if no subsidy existed at all. Russian Railways issues an ultimatum: if the full amount is not paid, there will be no commuter trains. And the trains are canceled.
No less interesting is the fact that the REC proposes a "compromise" option: 5 rubles per kilometer instead of 11. That is still twice the actual ticket price, and it would at least partially compensate some of the costs — but partial compensation does not satisfy Russian Railways.
So what is the problem here? Conclusions
The economically justified fare is not really justified at all. Or rather, it may be justified for someone inside Russian Railways, but it is completely opaque both to regional authorities and to passengers. Although the REC is supposed to perform an oversight function in setting the fare, it has no way to verify the efficiency or legitimacy of the costs in PPC–Russian Railways contracts. It sees only the final figure, without any breakdown by component or any concrete supporting detail (such as work completion certificates).
The overwhelming majority of the estimate that suburban companies bill to the regions consists of costs arising from their contracts with Russian Railways. These are contracts between a subsidiary and its parent company, and the amounts cannot be independently verified.
Using the example of Vologda Region, we saw just how dubious the Northern Suburban Passenger Company’s calculations are. The company ignored the preferential coefficient for infrastructure rental and issued a bill four times higher than the law allows.
Russian Railways is an extremely opaque corporate monster headed by a friend of the president. The Anti-Corruption Foundation has repeatedly caught Russian Railways involved in corrupt schemes, including the fact that the Yakunin family built a business empire tied to rail-adjacent industries.
We cannot assess how market-based the terms of the contracts with Russian Railways really are. In total, 87% of the economically justified fare remains a mystery both to the REC’s supposed “watchdogs” and to the public. There are no grounds whatsoever to trust Russian Railways’ calculations.