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. Last Updated: 07/27/2016

Duma Gives a Nod to Railroad Reform

The State Duma gave initial approval Wednesday to a raft of legislation paving the way to a three-stage reform of the railroads that will lead to their eventual privatization.

Lawmakers passed four bills in the first reading that will lay a legislative foundation for the reform of the giant state-owned monopoly.

Deputy Railways Minister Anna Belova told the Duma that the legislation was crucial to the government's plans to revamp the railroads.

"The railroad reform must be carried out with absolutely no mistakes," Belova said, RIA Novosti reported.

The government has long been struggling to restructure the loss-making railroads, and the need for the reform is obvious. In overseeing rails, the Railways Ministry is tasked with the contradicting missions of running a $10 billion per year commercial operation that carries 80 percent of the country's cargo while at the same time acting as a government regulator.

Such organization has left the railroad system unprofitable and cash-strapped. The ministry estimates that up to 80 percent of train cars and the railroad infrastructure is worn out.

Reform will bring investment while increasing the safety and stability of rail transport, according to the Railways Ministry.

One bill approved Tuesday, the draft law on rail transport, identifies and gives legal rights to the three key users of the railroad -- the customer, the carrier and the infrastructure owner.

Another bill, the draft law on rail transport charter, lays out how carriers should handle cargo and passengers from the start to the end of their trips. It also defines what corresponding services should be offered.

A third bill contains amendments to the law on natural monopolies that give the state control over just the railroad infrastructure.

A last bill, the draft law on managing railroad property, provides the framework for the privatization of the railroads, which includes the formation of the 100 percent state-owned Russian Railways Co. in its first phase.

In an attempt to maintain stability in the railroads, the government wants to slowly implement the reforms over 10 years. In the first stage, which will take 1 1/2 years, the ministry's functions as state regulator and a commercial company will be split up, with Russian Railways taking over the commercial side.

All decisions regarding infrastructure will be made through general shareholders meetings rather than by individuals, according to the bill on managing railroad property.

Belova said Russian Railways may be set up already in the first quarter of next year.

This first stage opens the door to the merger of the Railways Ministry and the Transport Ministry.

Under the second, two- to three-year stage, Russian Railways is to be divided into several financially independent subsidiaries responsible for cargo and passenger trains, repairs, social institutions and infrastructure.

The last stage calls for a wholly competitive market by 2010.

For the reform to start, the government needed a legislative base. Government officials had been hammering out the bills heard by the Duma on Wednesday for six months and submitted them to the Cabinet last month.

The bills may face a tough ride in their final two readings.

Arkady Volsky, president of the Russian Union of Industrials and Entrepreneurs, complained earlier this month that the bills did not take into account any of the proposals offered by Russian big business.