Kazakhstan's railways to get $36bn overhaul

By bne IntelliNews September 30, 2009

Clare Nuttall in Almaty -

Kazakhstan's national rail operator Kazakhstan Temir Zholy has outlined plans over the summer for a massive KZT5.5 trillion ($36.5bn) modernization programme, which the government hopes will turn the country into land bridge for transiting goods between China and Europe.

The programme, which includes the upgrade of 14,500 kilometres of railway as well as the purchase of thousands of new locomotives, freight and passenger cars, is due to be completed by 2020. According to Temir Zholy CEO Askar Mamin, the programme is intended to dramatically improve the economic performance of the railway, improve safety, increase capacity and bring rail transport in Kazakhstan into line with international standards. Rail transport speeds will also be increased; a 22% increase in the speed of freight trains and a massive 82% increase in the speed of passenger trains is planned. "Kazakhstan Temir Zholy has set itself ambitious plans, which will be implemented in the coming years," Mamin said on a conference call. "A programme of modernization and renewal of assets by 2020 has been drawn up, which is to ensure adequate transport based economic growth in the post-crisis period."

In June, Temir Zholy signed an agreement with the European Bank for Reconstruction and Development (EBRD) to work together on reforming the railway sector. The two organisations will identify priority projects for EBRD funding. Their efforts will focus on increasing efficiency, strengthening corporate governance and transparency, improving regulations and tariffs and encouraging competition in the freight sector. "The EBRD has long identified improving the railways sector as one of its priorities for Kazakhstan, as key to unlocking its full economic potential, enhancing efficiency and promoting sustainable growth for the country," the EBRD's president, Thomas Mirow, said on signing the agreement with Temir Zholy.

Eurasia bridge

In addition to improving transport conditions for its own companies, the Kazakh government also hopes to turn the country into a land bridge for transit between China and Europe. Rerouting freight through Kazakhstan rather than using the existing route through Russia will cut days off the transit time.

Four new railway lines, due to be completed by 2015, will reduce the time to transport freight from the Chinese border to the Caspian port of Aktau by two days. According to a spokesperson for Temir Zholy, construction of these routes has already started. In addition to the investments in new East-West rail links, Kazakhstan has also started construction of its section of another line that will run south through Turkmenistan to Iran, opening up new markets to the south.

Temir Zholy and the Kazakh government are currently exploring various ways to fund the new lines including concessions and public private partnerships. The first line to be built under a concession agreement, between Sber and Ust-Kamenogorsk, opened in December 2008.

However, plans to attract private investment to the rail sector suffered a setback in July when the Kazakh mining group Eurasian Natural Resources Corporation (ENRC) pulled out of the China Gateway Project. This would have seen the construction of a new railway between Zhetigen near Almaty and the Chinese border, as well as related infrastructure. The project is now going ahead without ENRC.

ENRC had been interested in the project both for potential revenues and to secure a route to deliver its products to the Chinese market. A spokesperson for ENRC said the company had pulled out of the project since it was unable to reach agreement on terms with the Kazakhstan government, but that it expected to still use the line on the same terms as any other commercial customer.

The other area where Temir Zholy is investing is in manufacturing capacity for engines and rolling stock. It is investing alongside General Electric in a new locomotive factory in Astana, where GE Evolution Series locomotives will be assembled. Initially stock will be produced for domestic use, but in the longer term it will supply other Central Asian and CIS markets.

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