You may remember that ACF began a detailed analysis of the Audit Chamber’s report on Russian Railways (RZD). For obvious reasons, that analysis was put on hold, but we would like to continue.
It is important for everyone to understand how one of the country’s largest state-owned companies operates—one headed by President Putin’s closest ~~accomplice~~ ally.
Incidentally, I would also draw your attention to an interesting article by Maxim Mironov in Vedomosti on how to lower suburban rail fares.
So, what does the Audit Chamber’s report on Russian Railways tell us (thanks to Lyubov Sobol and ACF’s investigations department for their work with the data):
1. The overall inefficiency of the suburban rail management system
The report confirms that the current system for managing suburban rail transportation is inefficient. Russian Railways has failed to meet requirements for demonopolizing the market, and the 2010–2011 reform that spun off suburban passenger companies (PPKs) from RZD was carried out in such a way that a host of important issues remained unresolved. All of this drives up fares for passengers.
2. The main expenses of suburban passenger companies (PPKs) are obligations to their parent company, JSC Russian Railways. These costs are opaque, and measures to optimize them have not been implemented
Let me remind you that the economically justified fare level is the fare calculated by the operating companies (PPKs) and submitted for approval to the regional energy commissions. Passenger ticket prices are then based on that figure. The fare calculated by the PPKs includes both the PPKs’ obligations to JSC Russian Railways (that is, the subsidiary’s expenses owed to the parent company) and the companies’ own operating costs. The former account for more than 80% of the fare: for example, in Vologda Region, the first region to be hit by a complete cancellation of commuter trains, the PPKs’ obligations to JSC Russian Railways amount to a staggering 87%. These costs are made up of several components, the main ones being infrastructure rental and the rental, management, and operation of rolling stock. The Audit Chamber report pays special attention to contracts between the PPKs and JSC Russian Railways concerning the lease of rolling stock. As far back as 2001, plans called for rolling stock to be transferred into the ownership of the PPKs:
In 2011, acting on instructions from the Prime Minister of the Russian Federation, the Finance Ministry also developed proposals providing for the transfer of assets to the PPKs in 2011–2012 so they could carry out transportation operations. Despite this, the PPKs still lease assets from JSC Russian Railways—including rolling stock and even train drivers. The lease of rolling stock includes not only payment for the use of the commuter trains themselves, but also charges for major and routine repairs, operation, and management of the rolling stock. Under some contracts between the PPKs and JSC Russian Railways (the report includes references to them), the annual payment amounts to 42.5% of the value of the assets. And 77% of the rolling stock covered by certain contracts was manufactured between 1975 and 1994.
The single most expensive item in the PPKs’ budgets is infrastructure rental. But the specifics of these costs are not visible even to auditors. The Audit Chamber report states that a list of services to be attached to infrastructure lease agreements had been approved, but was never actually used. In turn, when regions tried to verify whether the fare-setting was justified, they were unable to check the accuracy of the calculations, which is why they refused to pay the bills submitted by the PPKs. Constant conflicts arose between the regions and the PPKs because the latter did not provide the regional energy commissions with complete sets of documents. At ACF, we encountered the lack of transparency in how infrastructure rental costs were calculated in the case of Vologda Region, and the Audit Chamber report confirmed that the same situation existed in other regions as well.
3. In previous years, no checks were carried out on whether the budget subsidies provided to JSC Russian Railways were used for their intended purpose. The Audit Chamber was also unable to conduct such a review because of deficiencies in JSC Russian Railways’ accounting and reporting practices
Each year, JSC Russian Railways received budget subsidies totaling 25 billion rubles (about US$700 million at the time), yet Roszheldor (the Federal Agency for Railway Transport) did not check whether those subsidies were used as intended, nor did it verify the accuracy of reports on revenue losses resulting from state fare regulation.
When the Audit Chamber tried to verify whether the figures were justified, it found that it was simply impossible to confirm the reliability of JSC Russian Railways’ data—the company’s reporting was that convoluted.
Moreover, the figures in JSC Russian Railways’ subsidy-supporting documents did not match.
4. Measures to reduce the burden on regional budgets—which are now used to cover the “lost income” of the PPKs/RZD—have not been implemented
We have already written that the burden on regional budgets will increase this year because the coefficient used to calculate payment for the PPKs’ infrastructure costs has been raised twenty-fivefold. Regions that somehow managed to cope with the excessive demands of the PPKs/RZD last year will now have to scrape together every last ruble. The federal authorities have long understood that the burden on the regions is excessive. Specific measures to reduce it were already envisaged back in 2011, but they were never implemented.
5. Overall, the problem with suburban commuter trains is far larger than the authorities admit
The cancellation of commuter trains across entire regions is only the tip of the iceberg. Regions had already been unable to keep up with the compensation demands of the PPKs/RZD before this.
Officials are now talking about restoring 312 canceled commuter trains in the regions, but in reality 894 trains were canceled between 2012 and 2014, including 586 in 2014 alone.
How many more commuter trains will be canceled is unknown. But I am convinced that the problem with suburban rail service will remain as long as commuter trains are handled by RZD’s subsidiaries. Meanwhile, RZD itself will continue to be an inefficient state monopoly with an opaque and corrupt management system, whose main policy consists of endlessly begging for money from the federal and regional budgets.
The problem has not been solved—only postponed. And it will not be solved as long as Yakunin remains president of Russian Railways.
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