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. Last Updated: 07/27/2016

Gref, Fadeyev Clash On Railway Reform

With railways reforms promising to spin off a $42 billion chunk of the state monopoly as a commercial enterprise, two ministers Friday painted contrasting views of how to handle what assets would remain in the Railways Ministry.

Railways Minister Gennady Fadeyev said his ministry's role as a state regulator should grow during the reform process, countering speculation that his ministry would be folded into the Transportation Ministry after its commercial assets are reborn as joint stock company Russian Railways Co.

The railways require close government regulation, Fadeyev told a host of top government and regional officials attending the Railways Ministry's board meeting.

Economic Development and Trade Minister German Gref, however, said the Railways Ministry will lose its oversight and inspection functions over the sector as a result of administrative and railways reforms.

The Railways Ministry will maintain "enough levers" to influence railway operations and the sector's strategy, he said. It will also set pricing in noncommercial areas, he said.

Construction, maintenance and social infrastructure, such as kindergartens, must not be spun off with the ministry's commercial assets, Gref said. "If non-core assets are transferred to Russian Railways, the company would require additional state investments," he said.

Fadeyev said the law on managing railway property, without which the restructuring cannot move ahead, will come into force in February after new amendments pass the State Duma, Federation Council and are signed by the president.

The other bills in the railways reform package have already been approved. Transport and charter bills are effective May 18. Amendments to the law on natural monopolies already have come into force.

At the board meeting, Fadeyev gave a glowing report of the Railways Ministry's results for 2002.

"The 2002 results serve as an assessment for an entire era of rail transport," Fadeyev said. "2002 is the last year for the Railways Ministry working traditionally."

The Railways Ministry took in 419 billion rubles ($13.4 billion) in revenues from transportation services last year, a 31 percent increase over 2001, Fadeyev said.

The ministry is not planning further tariff hikes in the near future, although "electricity prices skyrocketed in a number of regions," Fadeyev said. Long-distance passenger and cargo rail tariffs were raised 12 percent each as of Jan. 1 and Jan. 15, respectively.

Cargo volumes grew 2.7 percent to 1.08 billion metric tons in 2002 and should rise 3.5 percent to 1.12 billion tons in 2003, Fadeyev said.

The number of independent rail operators will grow to 100 companies in 2003, he said. The 74 companies licensed as operators in the past two years run more than 10,000 cars and have invested 6.6 billion rubles ($207 million) in rolling stock.

The ministry invested 80 billion rubles, including 75 billion rubles of its retained earnings in 2002, Fadeyev said. Earlier this week, the government approved the ministry's 2003 investment program at 122 billion rubles. The Railways Ministry plans to allocate 85 billion rubles to improve railway safety and the sector's infrastructure, Fadeyev said.

Following Fadeyev's report, Gref took the opportunity to slam the Railways Ministry's wage policy, which, he said was "a very big issue and of a very significant importance."

Railway employees' wages rose 46.4 percent in 2002 and would increase 350 percent by 2007, Fadeyev said.

"When wage growth exceeds labor productivity increases in an industry, it can lead to a disproportional development of the industry and threatens the stable development of the whole economy," Gref said. Since 1999, wages in the sector grew 230 percent while labor productivity grew less then 40 percent, he added.

The key issue for the Railways Ministry and the future of Russian Railways is reducing cargo fees to stimulate production and gross domestic product growth.