The Moscow-St Petersburg High-Speed Railway Update Meeting

The Kremlin provides this introduction:

Vladimir Putin arrived in Verkhnyaya Pyshma (Sverdlovsk Region), where he visited Ural Locomotives LLC. On the site of the enterprise, the President held a meeting on the construction of a high-speed railway line between Moscow and St. Petersburg….

The Ural Locomotives plant creates equipment for both passenger and freight transportation (the Granit and Sinara DC freight locomotives, and the new Malachite mainline freight locomotive). Today, Ural Locomotives specialists are working together with Russian Railways to create an unmanned train.

The Sinara Group is a conglomerate that owns Ural Locomotives along with many other corporations. The very informative history pages at its website are in Russian and English, the Russian page going through 2022 while the English stops in mid 2019. Just looking at the photos gives you an idea of what it’s involved with. Some of it’s listed 2022 accomplishments:

SKB-Bank completed its rebranding and started operating under the name of Sinara Bank

Sinara Group has completed the acquisition of CryoGas LLC, the operator of the industrial gases business, from Gazprombank

The Ural Locomotives plant held a presentation of a new 3ES8 electric locomotive with an asynchronous traction drive.

It does much more that railway locomotives. The President of Sinara Group is Mikhail Khodorovsky and its General Director Viktor Lesh.

Shunting diesel locomotive TEMG1 running on liquefied natural gas.

Below is a picture of their newest creation, 3ES8 Malachite, designed to pull trains of 9 thousand tons over the mountains of the Trans-Siberian. Yes, just that three sectioned unit. all the axels are powered and a tunnel through the middle connects the three cars. Video here.

So, enough about the company and its cool locos, what about Russia’s high-speed rail that’s lagging so far behind China? The key is the roadbed must be used for HSR and not for freight, and that means designating different rights-of-way and likely lots of elevated sections. Look at China’s. The discussion is just 20 minutes and follows:

Vladimir Putin: Dear colleagues, good afternoon!

Today we will discuss the construction of a high-speed railway, or rather, the beginning of work in this direction.

In fact, this is a pilot project, I mean the construction of the Moscow – St. Petersburg branch line at the first stage. This work will be, and should be, the first, initial stage in the development of high-speed rail services in Russia. And this is a fundamentally different level of technology and transport services, modern jobs and advanced competencies, new opportunities for citizens and our regions.

I would like to add that the willingness to undertake such complex projects and the ability to implement them is a kind of integral indicator of our increased technological, scientific, human and industrial potential. These are new competencies, and, apparently, we have come to implement them.

I repeat, the construction of a high-speed highway between Moscow and St. Petersburg is just the beginning. In the future, the organization of such a service in the direction of Ryazan, Kazan, Yekaterinburg, Adler, as well as the capital of Belarus – Minsk. Quite natural, implemented [programs]. As for Minsk, we discussed this issue with President of Belarus Alexander Grigoryevich Lukashenko, and he also supports it.

Dedicated high-speed routes will help significantly increase the capacity of railways, relieve airports, and contribute to the growth of domestic tourism and business activity.

We have been discussing and analyzing approaches to the construction of the Moscow – St. Petersburg high-speed railway for a long time, if not a very long time. (To Mr. Gref.) Herman Oskarovich, right? A long time ago, when we were still working in St. Petersburg, we already talked about this.

Today I ask you to submit your prepared proposals on sources and mechanisms of financing, indicate the terms and stages of work, as well as conditions for attracting investors and our development institutions.

I would like to emphasize once again that all these issues and possible risks must be thoroughly worked out and calculated in advance.

What else would you like to say and draw your attention to?

The implementation of the project, the creation of all the necessary infrastructure and rolling stock should be carried out precisely on our own technological base. Now at the company, we talked about this with the shareholders and managers of the company. In general, they are ready for this. (To D. Pumpyansky.) Right, Dmitry Alexandrovich?

D. Pumpyansky: That's right, we're ready, Mr Putin.

Vladimir Putin: It's clear.

Today we showed at the Ural Locomotives site what has been done in recent years by the company and the engineering center and what we are ready to do in the very near future. That is, all the groundwork has been created.

The plant successfully designs and produces truly modern, advanced railway equipment, electric locomotives and trains. And it is assembled on domestic materials and components, equipped, among other things, with our software product.

Mass production of high-speed trains can already be set up at the plant's facilities.

I would like to emphasize that this is the most important technological project for our mechanical engineering industry as a whole. After all, dozens, if not hundreds of labor collectives, research institutes, and contractors across the country will take part in a large, long-term, technologically complex program for the development of high-speed communication. That is why we need to deal with issues of close cooperation and building efficient production chains right now.

And of course, the project of the Moscow – St. Petersburg highway should be worked out in detail with the regions through which this route will pass. I ask the heads of the constituent entities of the Russian Federation to take the most responsible approach to solving problems related to this project. These are six regions: Moscow, St. Petersburg, Leningrad, Novgorod, Tver, and Moscow regions. In total, they are home to about 30 million people. This is 20 percent of the total population of the country.

In general, I expect that regional authorities, federal agencies, Russian Railways, our other leading companies and businesses will take an active and interested part in the upcoming large-scale work.

I would like to emphasize once again that following our meeting, we need to come up with concrete solutions in order to start practical work as soon as possible.

As I understand it – my colleagues will say, both the Transport Minister and the head of Russian Railways-we still need to build additional capacities on the Oktyabrskaya Railway, right? To ensure the transportation and speed of movement of goods along this important highway. And this in itself is a decent amount-about half a trillion.

(To O. Belozerov) Yes, Oleg Valentinovich?

Oleg Belozerov: Yes, Mr Putin, 580 billion [~$6B].

Vladimir Putin: Well, over half a trillion rubles. Therefore, what we are talking about is not just some toys, sorry, wishlist. It will still be necessary to develop this part of the Russian railways. We need to take a businesslike approach to this and see to it that this work, complex work, is built in the most optimal way. Both the cargo part should be provided and then the existing highways should be used, and the high-speed part should be made.

Please, Vitaly Gennadievich, I would ask you to start. Minister of Transport.

Vladimir Savelyev: Dear Vladimir Vladimirovich, Dear colleagues!

In the course of my report, I will refer to the presentation material that we have prepared for today's meeting.

Mr President, last August you approved a scheme for the development of high-speed railways, which includes five key areas that you have just mentioned. Thus, when all these projects are implemented, it will connect six federal districts with a high-speed connection, which is home to about 110 million citizens.

I would also like to express my gratitude to German Oskarovich Gref and Sergey Semenovich Sobyanin for their initiative in developing the HSR in Russia.

The implementation of the HSR is the project of the century for Russia and will make it possible to enter the circle of countries with high-speed rail connections, make a big leap in the direction of technological sovereignty, acquire new competencies in railway construction and mechanical engineering, and ensure a qualitatively new level of mobility and life for our citizens. The HSR project from Moscow to St. Petersburg is the first one that has no analogues in Russia.

Dear Vladimir Vladimirovich, as part of the execution of your assignment, starting from August 2023, I will chair the project implementation working group approved by Prime Minister Mikhail Vladimirovich Mishustin, with the participation of Oleg Valentinovich Belozerov, First Deputy of Sberbank of Russia Alexander Alexandrovich Vedyakhin, and Deputy Mayor of Moscow Maxim Stanislavovich Liksutov. Federal and regional authorities also participate in the working group.

At the meetings with Andrey Belousov, we discussed the most effective financial and economic models of projects. Based on the results of the working group's activities, the main project parameters were determined. We are talking about creating a separate HSR line, which will allow returning freight traffic to the main route between Moscow and St. Petersburg, which will additionally create opportunities for cargo transportation in the north-west direction in the amount of about 74 million tons in 2030, including 30 million tons due to the implementation of HSR. Oleg Valentinovich Belozerov will report in more detail on cargo transportation and its effects.

We are talking about creating a high-speed rail system that will reduce travel time. There are actually unique characteristics of the road here. Soon we will reduce the travel time between Moscow and St. Petersburg by almost half-from four hours to two hours and fifteen minutes.

Between Moscow and Tver, the journey time is only 39 minutes. Saint Petersburg and Veliky Novgorod – travel time for citizens will take only 29 minutes. Trains will run with a frequency of 10-15 minutes.

In fact, these cities will become one, unified agglomeration with a huge positive effect for every resident of our country.

I will focus on passenger traffic on the route Moscow – St. Petersburg. In 2019, passenger traffic totaled 32.3 million people across all modes of transport. With the launch of the HSR in 2030, we forecast an increase in total passenger traffic by 35 percent-up to 43.4 million passengers, of which 23 million people will be on the HSR.

Separately, I want to note that our aviation assumes a loss of passengers by 14 percent, the transition to HSR will amount to 3.2 million passengers, which is not critical for Russian aviation. The released planes will be reallocated to other destinations. We agreed on the forecast of passenger traffic and the amount of fares for travel with the Ministry of Economic Development of the Russian Federation.

I would like to point out, Mr President, that the HSR project provides for two sections of construction, as well as the purchase of rolling stock.

The first section is from St. Petersburg to Zelenograd. Its cost is estimated at one trillion 755 billion rubles. Construction is proposed to be carried out within the framework of the concession agreement.

The second section is the construction of exits from Moscow. Construction is planned to be carried out within the framework of the Russian Railways investment program. The total cost is estimated at 221.5 billion rubles. I would like to note that Russian Railways has already invested about 40 billion rubles in its development.

In terms of purchasing rolling stock, 148 billion rubles are required for the first batch, consisting of 28 trains planned to be delivered to the line by 2028.

When forming the financial model of the concession site, the working group participants calculated four options and eight scenarios. We have developed options that take into account the inclusion of entrances to Moscow in the concession perimeter or implementation within the framework of the Russian Railways investment program.

We considered various scenarios of raising funds from the National Welfare Fund in the amount of 580.6 billion rubles in the first scenario, 300 billion rubles in the second scenario, and the third scenario in the absence of funds from the National Welfare Fund.

According to our working group and the non-governmental pension fund Gazfond, options other than the basic one are not feasible. This is due to the inability to attract debt financing of more than 1.5 trillion rubles and for a period of more than 20 years due to the existence of a limit per borrower, as well as the lack of sufficient liquidity in the banking sector.

In this regard, the working group adopted the following funding structure as a baseline scenario.

The first is 218.5 billion rubles. These are contributions to the main authorized capital of the concessionaire.

The second is 290 billion rubles of bonds issued by the Gazfond pension fund.

903.8 billion rubles – attracted loan funds from Sberbank, VTB, Gazprombank, which are ready to participate in the project.

Fourth – it will also require total state support in the amount of 609 billion rubles for the period of construction of the project, including 580.6 billion rubles - at the expense of the National Welfare Fund at three percent per annum with full repayment by 2050-I emphasize once again, these are refundable funds, and 28.5 billion rubles - a cap grant for the purchase of land plots at the expense of the federal budget.

In addition, a federal budget subsidy of 299.4 billion rubles will be required in 2028-2038 to support the concessionaire's operations at the initial stage of operation. German Oskarovich Gref will report in more detail on the parameters of the financial and economic model in his speech.

Special thanks to Sergey Sobyanin for involving the non-state pension fund Gazfond in the project, as well as for interacting with colleagues from interested regions regarding the formation of the authorized capital of the concessionaire and the provision of tax benefits. Sergey Semyonovich will report on the agglomeration effect of the project implementation in the interested regions of Russia.

In order to start operating the HSR initially, as I have already said, 28 trains are needed by 2028. To do this, in 2026 it is necessary to create a prototype of the train and start certification tests. We envisage the creation of a fully domestic train based on the production capacities of leading Russian transport engineering companies – Sinara Group, where we are located, and Transmashholding.

Dear Vladimir Vladimirovich, on your instructions, Russian Railways has been designing the train since 2020, and Oleg Valentinovich Belozerov will focus on the current results of this work in his report.

We also developed an organizational chart for the project. It provides for public-private partnership on the basis of a concession agreement to be concluded. A company has already been created that plans to act as a shareholder of the concessionaire, they called it "HSR-Two Capitals". The Federal Agency for Railway Transport of the Ministry of Transport of the Russian Federation is supposed to be designated as the concessor.

The implementation of the project will bring huge effects both for the country's economy and for our citizens: import-independent high-speed rolling stock will be created, orders and additional jobs will be provided, all transport engineering will be greatly developed, regional connectivity will increase, which will positively affect the increase in tourist flow and population mobility, tax revenues will increase, the development of adjacent territories and agglomerations. Direct effects for budgetary and extra-budgetary funds already at the construction stage will cover the requested amount for the project. If we also take into account the indirect effect of the implementation of [the project] in the regions [for] business, from the increase in freight transportation by Russian Railways, then the taxes and contributions that the country will receive cover the costs almost three times.

The experience of implementing similar HSR projects, for example, in China, where about one thousand kilometers of high-speed tracks are built annually, fully confirms these effects. The population and economy of regions with HSR is growing faster than in other regions.

Dear Vladimir Vladimirovich, taking into account the detailed study of the parameters, we ask you to support the implementation of the project with its launch this year. To start it, a number of key decisions must be made.

The first is to support the conclusion of a concession agreement. This will allow signing a contract for the supply of rolling stock and start upgrading the plant's production facilities. We offer to sign a concession agreement – if you support our colleagues-by the 15th [day] or by the end of April, because this creates prerequisites for ordering a train. Without this, we cannot start and order a train that still requires development, certification and design.

The second solution is to support the allocation of funds from the National Welfare Fund in the amount of 580.6 billion rubles at three percent per annum. There is a question here. I think that in the course of our exchange of views, we will exchange our views on this issue in more detail.

The third decision is to allocate funds in the federal budget of 327.9 billion rubles, of which, as I have already noted, 28.5 billion rubles is a cap grant for the purchase of land plots starting from this year. This year, for example, only three billion rubles of this amount will be needed. And 299.4 billion rubles starting from 2027 to 2038 to subsidize operating activities in order to cover cash gaps at the beginning of construction and during the operation of the line. Of these, only 69.1 billion rubles will be required for the period up to 2030.

Fourth – the Russian Railways Board of Directors needs to make two decisions to implement the project. The first is the inclusion in the investment program this year of funds in the amount of 8.3 billion rubles to complete the design of the line. We discussed this issue with Andrey Ramovich Belousov, who previously supported this proposal. The second is to plan the necessary financing in the investment program of Russian Railways for the construction of exits from Moscow and St. Petersburg in the amount of 248.7 billion rubles.

Fifth, the decision is aimed at changing the Tax Code to apply the zero percent VAT rate to transportation and organization of transportation, as well as excluding property tax from calculating the tax potential of subjects during project implementation.

Sixth – we also propose to provide for market regulation when transporting passengers on HSR. This is very important: the ticket price will determine the payback of the project.

Seventh and last – we ask you to give recommendations to the Bank of Russia to consider using funds from non-profit pension funds and reducing the project's risk weight to 20 percent.

Of course, as you noted in your speech, we understand that certain risks are likely to occur during the implementation of the project, and we have worked through them. We have an understanding of how to solve these problems. At the same time, despite all the risks, the effects of the HSR implementation are many times higher than the funds invested in it. Oleg Valentinovich Belozerov and German Oskarovich Gref will report in detail on them and on measures aimed at leveling them.

In conclusion, Mr President, you said that the time has come for the implementation of this project, and we fully agree with this. Today, future project participants are ready to start implementing it if you approve it.

This project will give an impetus to the development of technologies, regions, companies, and the state. Our colleagues will report in more detail in their section.

Thank you for your attention. The report is over. [My Emphasis]

Russians don’t have a “car culture” like those in the USA and are accustomed to using rail and other public transport, most of which are public utilities like Russian Railways. Two Trillion rubles is about $22.5 billion to get the train moving. And it’s all Russian materials and labor. A rather good system could be complete by 2030 when Putin retires. As a potential tourist around that time, I’d like to see it and use it along with those in China. Russia knows how to do railroads.

One other note. Sinara is one example of a good dozen Russian conglomerates having various degrees of public ownership. Sinara’s a joint-stock company and trades on the Moscow exchange. And I’d buy those railroad bonds, too. If only I weren’t sanctioned from doing business.

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