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Financing Requirements for the Railway Sector



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Financing Requirements for the Railway Sector


The financing requirements for Belarusian Railways include two categories of future expenditure needs: (i) annualized capital expenditures needed to preserve the existing transport capacity of the railways infrastructure network; and (ii) expenditures for the development of the rail network and to modernize infrastructure and systems, mainly to keep pace with growing traffic demand on Corridor II and Corridor IX. Generally, financing requirements for railway infrastructure vary heavily from country to country depending on the condition of the network and related development needs. Figure illustrates average funds allocated for track renewal in selected countries over the period 1992-1997.

Figure . Allocation of Funds for Track Renewal in Selected Countries 1992-1997 (million Euro per km of network)

Source: OECD Estimates.



The World Bank estimates that recurrent annual expenditures required to keep the railway network (infrastructure) at its current capacity amounts to about BYR292 billion (US$ 98.4 million) on average. This estimate is based on average unit costs provided by Belarusian Railways for specific activities, such as for the maintenance of one kilometer of railway track, for catenary systems, for semi-/automatic block system, etc. (see Table ). It is important to note that these estimates are rather conservative, as unit costs in Belarus are currently below international market prices and are expected to increase in Belarus over the next 10 to 20 years.

Table . Estimated Average Annual Railway Maintenance Needs (US$ million)



Infrastructure

Total Length/ Number of Units

Life cycle (years)

Annual average

Annual average number overhaul/ replaced

Necessary investment

Total number of km of railway lines (main circulation lines + receiving / departure lines in stations)

11,771

50

235.42

76.70

Total number of km of electrified lines (AC and DC)

897

40

22.43

3.04

Total number of km of lines equipped with automatic block system

3696

30

123.20

10.04

Total number of km of lines equipped with semi-automatic block system

1,884

30

62.80

0.29

Total number of electric sub-stations for traction

16

30

0.53

3.62

Total number of relay interlocking systems on the network

385

30

12.83

4.15

Total number of electronic interlocking systems on the network

3

30

0.10

0.52

Grand Total

98.41

Source: Data reported by Belarusian Railways. Estimates developed by the World Bank.

Average unit costs for overhaul/replacement for the above calculations (as reported by Belarusian Railways):

1 kilometer of railway track (US$325,957), 1 kilometer of catenary system (US$135,815), 1 kilometer of automatic block system (US$81,489), 1 kilometer of semi-automatic block system (US$4,672), 1 kilometer of electronic sub-station for electric traction (US$6,8 million), 1 relay interlocking system (US$323,241), and 1 electronic interlocking system (US$5.2 million)


According to the Government’s strategy for the railway sector, the development needs of the network entail spending additional BYR997 billion (US$340 million) on the modernization of Corridor II and IX over the next 25 years. In order to keep its current market position, Belarusian Railway needs to modernize the infrastructure and systems of Corridor II and IX to achieve full interoperability with the network of the EU. This includes the full electrification of lines, increased transport speed, increase in the use of electronic interlocking systems, extension of automatic block systems, and introduction of European train control systems. An extremely conservative estimate for financing these components as a package is about Euro 4.2 million (US$5.5 million equivalent) per kilometer of railway track. This includes full rehabilitation of the track in order to accommodate speeds up to 160 km/hours. Based on the above assumptions, Table presents estimated investment needs for the modernization of railway corridor II and IX.

Table . Estimated Investment Needs for the Modernization of Railway Corridor II and IX in Belarus (US$ million)



Railway Corridors in Belarus

Length

(km)

Modernization Cost

(US$ million)

Corridor II

611

3,485.29

Corridor IX (Terjukha - Gomel - Vitebsk -Ezerishche)

489

2,789.38

Corridor IX (Gudogai - Molodechno - Minsk - Gomel)

372

2,121.98

Total

1,472

8,396.65

Annual Average (25 Years Modernization Plan)

58.88

335.87

Source: Data reported by Belarusian Railways. Estimates developed by the Bank’s team.

Belarusian Railways are currently fully financing expenditures related to maintenance, repair and new investment, but this favorable situation may not last much longer. Given the high volume of traffic, Belarusian Railways was able so far to finance the full costs of operation. At present, there are no backlogs in the maintenance works and speed restrictions currently only exist on very short sections and over short period of times. However, the current rhythm of investments is not sufficient for sustaining the long term development of Belarusian Railways. The proposed annual need of about 2 trillion BYR (more than US$600 million) for investment in the Belarusian Railways system is a conservative estimate based on rough calculations. In 2008, Belarusian Railways accumulated 372,409 million BYR for depreciation and realized a profit of 888,517 million BYR; this totals 1,261,926 million BYR, which theoretically could be considered as a source of investment. Even if the entire sum would be allocated for investments, it would only cover the costs for maintaining the current business (current rolling stock and existing infrastructure), but will not be sufficient to develop the railway transport system so that it can preserve its market share. At present, there are no funds available to cover the development of Belarus’ international railway corridors. An in-depth assessment is therefore needed to identify additional financing sources that are needed to finance a prioritized set of concrete projects that will allow further consolidation of Belarusian Railways.

The future of Belarusian Railways is determined by the availability of adequate financing. Four possible scenarios are presented below (Table ) which summarizes the potential development strategies and the corresponding levels of needed investments. At present, Belarusian Railways seems to follow the scenario called “preserve current business”. The levels of investments realized during the past 3 to 5 years however indicate that a tendency exists to move into scenario “focus on selected lines of business”. The World Bank strongly recommends that Belarusian Railways develops a clear strategy for development and that the Government identifies sources of financing to move up to the scenario called “grow business”.

Table . Scenarios for the Development of the Belarusian Railways system



Strategy

Scope

Effect

Estimated average annual financing requirements (million BYR)

Grow business

Upgraded lines

Upgraded rolling sock



Corridors with more capacity

Higher quality services



1,045,000 –

2,050,000



Preserve current business

Reliable lines

Reliable rolling stock



Full capacity of existing network and rolling stock

1,045,000

Focus on selected lines of business

Reliable lines on selected routes

Acceptable services on remaining routes



Reliable railway transport on lines important for commercial and public interest

700,000

Continuous reduction of business

Unreliable lines and rolling stock

Dying network



No serious freight and passenger transport business

>700,000

6. Recommendations for Improving Transport Sector Performance




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