Appendix A: Traffic Forecast Market Segmentation for Forecast

Appendix A: Traffic Forecast

Market Segmentation for Forecast

• 
  Overall gross domestic product
  
• 
  Industrial sector gross domestic product
  
• 
  Construction sector gross domestic product
  
• 
  Personal consumption
  
• 
  Exports
  

The map on the following page illustrates some of the geographic considerations that were taken into account in developing the traffic forecast.

• 
  Blue Xs indicate the border crossings that have been and remain closed as a result of the post-independence conflicts that occurred in the region.
  

• 
  Blue highlighted rail routes show the higher density segments of the railroad. While these are very light density by international standards, the great bulk of both passenger and freight traffic occur on these lines in northern and central Armenia.
  

• 
  Locations of Armenia’s gold, copper and cement production industries are shown, as these have been significant factors in domestic Armenian rail traffic and conceivably could be in the future. Note that neither copper or gold extraction mines were located on the Armenian railway main lines, that refining facilities were located relatively far from the mines, and that rail access to Armenian copper mines has been severed by border closures. Currently, Armenia has yet to attract a private sector operator to renew gold operations and a joint venture for copper production has yet to undertake substantial production. We expect copper production to expand substantially in the forecast period unless borders reopen, and do not anticipate a near term renewal of transport of gold-bearing ore under either scenario. (If an investor is attracted to the gold production business, processing could be moved nearer to the mine to reduce transport costs.)
  

• 
  The highlighted earthquake damaged region of Armenia, still in need of reconstruction, is located a significant distance from the country’s largest cement plant (and other construction/industrial assets). Reliable rail transport can play a major role in the reconstruction effort and the railroad should be able to recover its costs on this bulk transport.
  

Petroleum and Petroleum Products

In 1999, this category accounted for 32.6% of Armenian Railways ton kilometers and 45.7% of imports. Armenia will remain highly dependent on oil for power production, transportation, and heating for the foreseeable future. We selected industrial production in Armenia as the best available predictor for petroleum transport. No exports are projected for this commodity group.

Grain and Grain Products

Grain and grain products accounted for 25.6% of Armenian Railway ton kilometers and 32.8% of import ton-kilometers in 1999. As with oil products, Armenia will remain dependent on grain imports. We selected personal consumption in Armenia as the best available predictor for this market segment. No exports are projected for grain products.

Minerals and Mineral Raw Materials

Minerals and mineral raw materials accounted for some 11.3% of 1999 Armenian Railways ton kilometers. These movements are principally domestic traffic and exports: the former largely inputs to cement and other construction uses; the latter mostly specially additives (perlite, bentonite). Prospects for expansion of exports of these products over the low current base are positive, and exports are tied to the general pace of expansion of Armenian exports.

Ferrous Metals

Ferrous metals (steel products and steel scrap) accounted for some 7% of 1999 Armenian Railways traffic. It may best be related to growth prospects in industrial production. The modest level of exports is tied to the general pace of expansion of Armenian exports

Non-Ferrous Metals and Raw Materials

Non-ferrous metals are currently only 1.7% of Armenian Railways traffic, but could grow significantly if copper production begins and if exports of this commodity expand. This is deemed most likely in the border reopening scenario, which may permit rail hauls from the southern Armenia copper mine to the northern Armenia plant to resume. Exports are tied to the general pace of expansion of Armenian exports.

Cement

Cement was some 3.6% of 1999 Armenian Railway ton-kilometers. Though a traditional export commodity, export prospects here are bleak because of developing local capabilities in neighboring countries and no growth is projected. Domestic prospects are positive as the economy revives and long-deferred reconstruction of the earthquake zone gets underway and rail business should expand with construction output.

Other Freight

4.3.1All other freight products transported by Armenian Railways accounted for 18.6% of ton-kilometers. These were dominated by imports, led by sugar, and a wide array of other products. For imports and domestic traffic, this diverse group appears best tied to Armenian GDP growth. Exports are tied to the general pace of expansion of Armenian exports.

Passenger

The demand for passenger service is expected to grow with the overall gross domestic product of Armenia. Since this market is extremely unprofitable for Armenian Railways, AR it is expected to limit the provision of the service to the trains currently in operation.

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