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Belkomur report (E. Khudazarov, North Investment Forum 15 November 2007)

BELKOMUR Project History.

In the 20th century Russian rail ways development was based on a latitudinal approach (West-East connection). Because of that now there is a lack of meridional rail ways that has lead to a shortage of convenient communications between raw and industrial regions of the country and existence of dead-end industrial centers. A shortage of communications has been in the North for a long time. Rail way construction in a planned Belkomur location began together with establishing Northern Coal and Metallurgy Industry in the middle of the 1930s. In 1944 rail way Kotlas-Vorkuta connected Pechora Coal Basin and Cherepovets metallurgical works. Rail road construction continued in Polar Russia further but due to a mass amnesty of the main work force GULAG prisoners it was stopped in 1953-1954.

The project came to life again in the 1990s. Belkomur had to integrate economically the Northern regions - Perm and Kirov regions, the Republic of Komi and Komi-Perm Autonomous District.

In 1995 a large scale meridional project was proposed - a rail way connecting Arkhangelsk, Syktyvkar, Kudymkar and Perm with the name Belkomur (White Sea-Komi-Urals).

The General Rail Ways Scheme Development for Russian European North (1994) was the basis of the project, it contained necessary technical and economical grounds. The General Scheme was considered and supported by Komi Government, Arkhangelsk and Perm regional administrations, Komi-Perm Autonomous District.

To implement the project in September 1996 in Syktyvkar a company project operator was established called Interregional JSC Belkomur. Its main share holders were the Russian Federation and its subjects as the Republic of Komi, Arkhangelsk region, Komi-Perm Autonomous region, Perm region and a number of large enterprises of those regions.

Institutes Lengiprotrans and Uralgiprotrans with participation of Giprotrans TEI began to develop the project.

In the beginning of 1998 JSC Belkomur began to construct a Northern link of the new rail way from opposite directions simultaneously: from Arkhangelsk region, from Karpogory to Sharda 22.2 km by Sevtransstroy as a contractor and from the Republic of Komi Ertom-Vendinga 17.85 km by JSC Pechorskoye Stroitelstvo as a contractor. JSC Komistroymost built 290 m long bridge over the Vashka river.

For the Southern link Syktyvkar-Perm a feasibility study was made and positive expertise was received.

Object

The project includes a construction of a new rail way 1252 km long, including a new construction of 795 km, the rest is reconstruction and modernizing of the existing lines. Belkomur consists of 2 parts: Northern and Southern. The first one crosses Arkhangelsk region and the Republic of Komi, the second one crosses the Republic of Komi from Syktyvkar to Perm region.

The implementation of the project will reduce the transportation distance at 800 km (from the Urals to Arkhangelsk sea port). At the same time the new line will improve dramatically transport services for the bordering territories and help to develop rich wood resources the annual estimated cut of which is used at 30-40% now. The new line has a strategic importance for Russia as it connects the Urals, the Republic of Komi directly with non-freezing ports of Arkhangelsk, Murmansk and Finland. In future the new line will provide the shortest way to the Northern Europe, Siberian regions, Kazakhstan and Middle Asia proposing good conditions for cargo transportation through Russia and make possible to consider internal and international intermodal transportations.

Targets

The rail way network development of Russian European North, liquidation of infrastructural dead-ends, reduction of transportation distances, a creation of a new Russian crossing for international cargo, creation of a new international track within Euro-Asian transport corridor, shorter connections for the country regions, economical use of idle territories, rail way transportation costs reduction, increase competitiveness for adjusting enterprises.

Creation of a shorter connection is extremely important. Comparing to a before perestroika period when rail way tariffs were very low and a distance for cargo senders was of little importance, in market economy conditions current tariffs may significantly influence transported products costs making their manufacturing unprofitable. Evidently the new rail will contribute greatly to foreign trade of the neighboring regions due to transportation costs reduction.

Today an industrial decentralization in Russia, solving more economical questions in regions, establishing new market structures make necessary to integrate the Urals economy with other close regions, especially with European North as well as to provide a direct excess of those regions to the world trade markets.

For to solve this problem it is necessary to create an infrastructure, firstly its basis as a rail way with a year round work and accessible for a wide public. Because of that in the General Rail Ways Scheme Development for Russian European North (Lengiprotrans and Uralgiprotrans, 1994) an objective to develop a direct transport line from the Urals, Siberia, Middle Asia to the Republic of Komi and further to Arkhangelsk port, from Scandinavian countries to the world trade markets was set. After technical and economical expertise of a few options it was agreed that the best way is to build a meridian rail way Arkhangelsk-Syktyvkar-Kudymkar-Perm by joining existing dead-ends.

The project of the new rail way Arkhangelsk-Syktyvkar-Kudymkar-Perm within the Northern Transport Corridor Finland-Urals-Far East and Middle Asia will serve a quicker economic development of Russian North-West regions, business, foreign trade expansion of the Republic of Komi, Perm region, Arkhangelsk and Sverdlovsk regions. The rail road will involve into economical use territories with a huge potential, assist integration into the world economy.

On September 6, 2007 the Government of the Russian Federation approved the project "Russian Federation Rail Way Transport Development Strategy till 2030". The construction of the links Syktyvkar-Perm 579 km, Karpogory-Vendinga 215 km are included into the strategy as a part of minimum and maximum options for the rail way transport development till 2030.

Project Stages

1 stage. North Link - Karpogory-Vendinga.

Priority - construction and setting into use the rail way Karpogory-Vendinga

Next - reaching full capacity of the rail way Karpogory-Vendinga

The link will connect idle and unprofitable dead-end lines Arkhangelsk-Karpogory and Syktyvkar-Vendinga. Thus a shorter way from the Republic of Komi to Arkhangelsk sea port will be created, as well as to Kola peninsula and Finland that will make possible to develop interregional and foreign relations of the Republic of Komi and Arkhangelsk region, minerals and wood resources.

At the moment rail way cargo transportation between the Republic of Komi, Arkhangelsk region and other North-West regions is made by a circular track through Konosha station. A direct access from Arkhangelsk to Mikun-Syktyvkar begun to be built after the World War II was not completed, two dead-end lines were built from Arkhangelsk to the South to Karpogory 222 km and from Mikun to Vendinga 176 km. Previously these lines worked to transport significant volumes of wood. Now they are idle and unprofitable because harvesting was decreased.

A rail way Karpogory-Vendinga will connect two dead-end stations mentioned above and give a direct way. Transportation distance will be reduced at 160-400 km and transportation costs at 20-65%, also there will be good possibilities for wood harvesting near the Pinega river. Today wood transportation from that remote place causes big problems and made by trucks by forest roads and a rail way combined which is as much as 3.5-4 times more expensive comparing to a rail way transportation, sometimes it leads to losses. Because of that estimated annual cut is used only at 30-40%.

The construction of the missing link Karpogory-Vendinga is a priority and principally important for Belkomur as a whole.

2 stage. Southern Link. Syktyvkar-Perm.

Priority - construction and setting into use the rail way Syktyvkar-Perm.

Next - reaching full capacity of the rail way Syktyvkar-Perm.

The link gives a direct access to the main Transsiberian Rail Way Moscow-Vladivostok and reduce distance for cargoes from the Urals to Arkhangelsk, Murmansk and Finnish sea ports.

The Southern link is a second stage of the meridian rail way. The new rail way Syktyvkar-Kudymkar-Perm 580 km should be built which will connect Syktyvkar and Komi North shortly (800 km distance reduction) with a well developed rail way network of the Urals near Perm. This will make possible to deliver Timan bauxites, chromium ores, Pechora coal, other Polar Urals minerals to the Urals processed industries.

Belkomur as a part of the Complex Program for Industrial and Infrastructural Development of the Republic of Komi, Perm region and Arkhangelsk region

The transport infrastructure condition arises a big concern of the government. In his message to the Federal Assembly of the Russian Federation President V.Putin said: "Bad condition of our transportation routes and sometimes the lack of them is a serious break for development. Annual amount of losses is estimated at 3% of the GDP and population mobility in Russia is 2.5 times lower than in the developed countries. The projects financed by development institutions must be dedicated to solve principal economical issues. Budget financing must not be in this respect the main source but a catalyst for private investments. To provide budget financing for the economy the state much do that as a support in the cases where risks for private investors are too high."

The President of Russia practically for the first time in his message to the Parliament was so detailed in analyzing all aspects of transport infrastructure and gave concrete orders to prepare long term automobile roars, rail ways, airports, sea ports and river transport development programs.

According to the new concept Belkomur rail way construction is included into the Complex Program for Industrial and Infrastructural Development of the Republic of Komi, Perm region and Arkhangelsk region. It also includes a creation of a new deep part of Arkhangelsk sea port with an annual turnover of 30 mln tons that can serve ships up to 70,000 tons dead weight (Sukhoye Sea bay).

Due to this Perm Government proposed a new route for the rail way:

Solikamsk-Gainy-Syktyvkar-Arkhangelsk. - Total length 1252 km
- New construction included 795 km
- Northern link 215 km
- Southern link 580 km
On the territory of
- Perm region 392 km
- The Republic of Komi 243 km
- Arkhangelsk region 160 km

Both options are considered in the Rail Ways Development Strategy till 2030 of JSC Russian Rail Ways. The project coordinators, Perm region authorities, Ministry of Transport of the Russian Federation are inclined to the second scenario. The truck destination will be defined after the feasibility studies are made.

The Governor of Perm region Oleg Chirkunov thinks that "it is strategically right to build Belkomur not from Kudymkar but from Solikamsk - thus Ekaterinburg, Solikamsk, Murmansk and the transport corridor Finland-the Urals will be in the incidence of Belkomur. The cargo transportation distance from the Urals to the North-West of Russia will be reduced at 800 km and costs at 40%. The total cargo of Belkomur is estimated at 24 mln tons per year, principal cargoes will be coal, bauxites, alumina and potassium chloride.

From the Kama river to the White Sea approximately 11 mln tons of potassium chloride will be delivered for export annually".

In this regard, the Memorandum of Cooperation in joint implementation of the Complex Programme of Regional Industrial and Infrastructural Development has been signed by the tree RF subjects.

Interregional Investment Company Northwest-Prikamiye, Co. Ltd. has been established with the authorized capital stock shared participation of the RF subjects and private companies; the company will be in charge of organizing the preparation of the investment rationalization survey for the tender of public project funding made from the assets of the RF Investment Fund.

Northwest-Prikamiye, Co. Ltd. has been authorized to act as the initiator of the Project titled "The complex programme for industrial and infrastructural development of the Republic of Komi, the Perm Region and the Arkhangelsk Oblast" to be submitted to the investment commission and to represent the regional and investors' interests in the governmental commission for investment projects to be of public importance.

The brief characteristics of the Project "The complex programme for industrial and infrastructural development of the Republic of Komi, the Perm Region and the Arkhangelsk Oblast"

Project goal: The complex programme provides for implementation of the investment business projects in the regions and the Solikamsk-Arkhangelsk Railway Link Project that will allow to eliminate infrastructural dead-ends, provide an access to the currently idle timber resources and create a new shorter transit track to connect the Ural and Siberia with the Russian northern ports, as well as the new deepwater section construction project for the Arkhangelsk Sea Port.

The project will be implemented as public-to-private partnership.

The basic principles of public-to-private partnership within the framework of the complex programme implementation:

• The state undertakes to fund the main line designing and construction;
• The railway will remain the public property after the complex programme has been implemented;
• The private investors will undertake to fund designing and realization of the local industrial projects from their internal or borrowed assets;
• The newly constructed or renovated projects will remain the investor's property after the complex programme has been implemented.

The basic project goals:

• Renovation or construction of new businesses and operations in the Republic of Komi;
• Renovation or construction of new businesses and operations in the Perm Krai
• Construction of a new sea port deepwater section in the Arkhangelsk Oblast
• The Solikamsk-Arkhangelsk Railway Main Line Construction Project (the Belkomur Project)
• The total amount of project investment will be over RUR 350 bln.

Republic of Komi:

- Total amount of investment up to 2012 года: over RUR 110.0 bln.
- 23 mln. tons of freight flow per year (2006)
- Increased industrial output up to 2010-2012: over RUR 20 bln. more
- Freight flow increased by 40-50% up to 2010-2012

The projects planned for implementation in the Republic of Komi:

• The Yarega Mining Chemical Complex Construction Project with the capacity of 650,000 tons of ore p.a.
• The Vorkuta Project: bottom-line development of the Vorkuta Coal Field
• The business construction project for high-level dressing of bauxite ore in the Mid-Timan Area (Close Corporation Komi Aluminium)
• The Step Project: primary process equipment renovation and reconstruction for JSC Mondi Business Paper-Syktyvkar Pulp and Paper Mill
• The pulp and paper mills construction projects in the Udora and Troitsk-Pechorsk Districts

The Perm Krai (the Bereznikovo-Solikamsk Industrial Hub):

- Total amount of investment up to 2012: over RUR 120 bln.
- Industrial production volume to be increased by over RUR 20 bln. up to 2010-2012.
- The freight flow to be increased by 30-40 % up to 2010-2012.

The projects planned in the Perm Krai:

• The JSC Ural Potassium Project: potassium chloride production capacity to be increased by 6.2 mln. tons.
• The JSC Sylvinite Project: potassium chloride production to be increased by 1 mln. tons.
• The Newsprint Process Line Construction Project for JSC Solikamskbumprom
• The Chlorine and Potassium Hydroxide Production Project for Soda Chlorite, Ltd.
• The A-brand Soda Ash and Cement Production Project for JSC Bereznikovsky Soda Mill

The Archangelsk Oblast:

• The deepwater port:
  - Annual freight flows: 30 mln. tons.
  - Total amount of public and private investment: RUR 45 bln.
  - Number of jobs: over 9,000
  - Admission of ships with deadweights of over 70,000 tons
• The construction project for a 55 km railway link to the port. The project has been integrated in The Russian Railway Transport Development Strategy up to 2030.

The project will create tens of thousands of more jobs and attract over RUR 25 mln. as annual tax incomes in all budget levels. The total amount of investment to be tied up in regional development is estimated at RUR 350 bln., the private investment being RUR 275 bln.

The amount of freight flows after the railway line commission taking into account all of the projects integrated in the Complex Programme (the new and renovated ones):

Solikamsk-Syktyvkar: 25 mln. tons p.a.
Syktyvkar-Solikamsk: 5.7 mln. tons p.a.
Syktyvkar-Arkhangelsk: 20.5 mln. tons p.a.
Arkhangelsk-Syktyvkar: 1.5 mln. tons p.a.
Arkhangelsk Port: 5 mln. tons p.a. (container transportation)

The Belkomur Project as a component of the Northern Transportation Corridor

The northern transportation corridor issue was initially raised in 1995. The Northern Transportation Corridor Project will be another logistical alternative that can promote reduced transportation costs for consignors within the global framework of world commerce.

The development of different modes of transport within the Corridor is viewed under the different names:

Barents Link: railway connection development within the scope of the Barents Region;
N.E.W. Corridor: marine and railway communication development within the North America-Northern Europe-Asia transcontinental scope;
Russian Northern Corridor: latitudinal motor road communication.

Transportation corridors are not established following administrative resolutions but rather by the efforts made to cut the freight flow distances to make use of the shortest possible routes between the freight generators. These generators include the industrial or mineral production hubs and sea ports.

Historically, the transportation communication astride the EU/RF borderline were predominately developing north-south, but the market economy has made us consider seriously the issues of optimized transportation routes and reduced transportation costs to be a life-and-death situation for a great many sectoral consignors.

With the 50-70% amount of the production price, the transportation costs make the products uncompetitive in the domestic or foreign markets. A range of the newly initiated projects focusing on the creation of the missing links have got the process of consistent use of the optimized transportation schemes off the ground. The projects have been initiated by the territorial authorities and business community, since it was quite evident that they would bring a positive effect as reduced transportation costs and more competitiveness of the local producers.

The major interregional projects proposed in the Russian part of the Barents Region are as follows:

• The Ledmozero-Kochkoma Railway Link (connecting the Karelian Railway Network with the Finnish Railway Network)
• The Karpogory-Vendinga-Syktyvkar-Kudymkar-Perm Railway Link (connecting the railway networks in Arkhangelsk Oblast, the Republic of Komi and the Perm Krai to provide the inland regions with an access to the ports of the Barents and White seas) that got the name of the Belkomur Project
• The Kotlas Highway Bridge (connecting the western and eastern parts of the motor road network in Arkhangelsk Oblast)
• The Motor Road Networks Communication in the Republic of Karelia and Arkhangelsk Oblast
• The Motor Road Networks Communication in Arkhangelsk Oblast and the Republic of Komi

As the list of the projects indicates, the initial territorial challenge was to integrate the scattered territorial transportation networks along the west-east vectorial directions. To date, out of the projects listed, only the Belkomur Project has failed to be tackled. Due to the efforts of the interested territorial parties, the rest of the projects have been realized to handle railway and motor freight flows along the route of the Northern Transport Corridor.

The major impact of the transport corridor lies in the trend to level out territorial development due to the U-tube effect. The basic potential benefit for the territories in the Russian part of the Barents Region lies in their close vicinity to the Nordic countries. Economic cooperation and interpenetration will be the only way imaginable to raise the living standards in the Russian part.

The shortest distance between the Northern Europe, on the one part, and Central Asia and the Far East, on the other part, lies in the Solikamsk-Gainy-Syktyvkar-Arkhangelsk Railway Main Line that is under construction. Compared to the route available today, the new track will reduce the overall length running from the countries of the Northern Europe to Central Asia by 800 km. The completion of the new main line project will give a good opportunity to handle the perspective freight traffic.

At present the products of the countries of the Asian Region are chiefly transported to Europe and America by ship. The transportation deadline, say to the European continental part, takes 30 days or more, on average. All the same, sample shipments of similar cargoes were made by train from the Pacific Ocean to the Baltic Sea in 9-12 days.

The Belkomur Project will allow to:

1. Get an access to foreign markets for the domestic industrially developed regions in the Ural and the Western Siberia and kick-start their economic development.
2. Reduce load distances, transportation costs and the transport component both for export goods (the competitiveness element) and import ones (the increased public living standards element for inland territories).
3. Give rise to new freight flows of export cargoes, since the acceptable shipping logistics will help to upgrade marketability of the inland territorial products.
4. Produce the catalytic effect and generate increased economic returns from the investment in the construction of the Ledmozero-Kochkoma Railway Link that will receive the extra freight flows from the inland territories of the Ural and Siberia.
5. Load the ports of the countries in the Northern Europe with international through traffics (container transports).
6. To integrate the underdeveloped territories in the Republic of Komi, the Perm Krai and the Arkhangelsk Oblast in human activity (primarily, the focus will be made on the development of forestland and the establishment of new wood-processing businesses adjoining the railway tracks) and, as a consequence, create more jobs, increase the living standards, etc.

The practicality of the railway network finalization is quite evident when looking at the map. The creation of the previously missing links would provide more variety and optimize the logistical schemes for consignors.

Conclusion

The challenges behind the Belkomur Project are large-scale and extremely important. The new main line is of strategic importance for Russia, since it will directly connect the Ural and the Republic of Komi with the ice-free ports in Arkhangelsk, Murmansk and the Northern Europe. Moreover, putting the Belkomur in operation would cut the costs for rail traffic by 40-65% and encourage the economic development of the regions in the Arkhangelsk Oblast, the Republic of Komi and the Perm Krai as well as the adjoining areas that are currently cut off from the foreign market. Ultimately, the new railway main line will provide the shortest distance to the Northern Europe and the regions in Siberia, Kazakhstan and Central Asia with good conditions for freight transit traffic via Russia and domestic and international multimodal transport management.

This track must, above all, fit in the economic reality and operate for the benefit of multiple regions and the Russian Federation as a whole.