(bne) – While the bulk of national rail operator Kazakhstan Temir Zholy’s (KTZ) profits are from its freight services, the company’s multi-billion-dollar investment programme, to be partly funded by borrowing and asset sales, is concentrating on improving passenger services.
By Clare Nuttall (business new europe)
The day before the Nauruz holiday weekend in Kazakhstan in March, would-be passengers were fighting to get to the booking desks at the Almaty 2 railway station. “No Spaces” said the announcements board against trains to Astana, Shymkent, Aktobe and other major cities. For some routes, travellers were relieved to get tickets for the uncomfortable top bunks in the open plats cartny carriages for the trip back to their families for the New Year celebrations. Others trailed disconsolately off to the bus station.
Kazakhstan’s large size and rundown infrastructure makes inter-city road transport difficult, and while air transport is becoming more popular, it remains expensive for most. So while the bulk of national rail operator Kazakhstan Temir Zholy’s (KTZ) profits are from its freight services, the company’s multi-billion-dollar investment programme, to be partly funded by borrowing and asset sales, is concentrating on improving passenger services.
KTZ plans to improve existing lines to trains to travel faster – cutting journey times by up to two-thirds – and to invest in a new fleet of modern carriages and locomotives. This will allow KTZ to accommodate increasing numbers of travellers and increase its revenues from passenger transport. “There is an issue with a shortage of passenger cars, and we are working to resolve this,” KTZ vice president Yermek Kizatov tells bne. “In the Soviet times, the focus was on freight transportation. Now the situation has changed. Kazakhstan is a massive country with poor road infrastructure, so people prefer to travel by train because it is easier and cheaper.”
KTZ announced a KZT5.5-trillion ($36.5bn) long-term investment programme in July 2009. “The main investment areas are the construction of railway lines and factories, railway line overhaul, modernisation of the locomotives, freight and passenger car fleet, and the upgrade and rehabilitation of infrastructure,” Kizatov says.
In 2010, passenger turnover reached 13.9bn passenger-kilometres, 7.8% higher than the previous year. By 2015, this is expected to increase to 26% above the 2010 level. Freight turnover was up 8% year on year to 268m tonnes.
During Kazakh President Nursultan Nazarbayev’s visit to Beijing in February, KTZ and the Chinese Ministry of Railways signed an agreement on the reconstruction of the Almaty-Astana line. A new, more direct line will be built by the two countries, allowing trains to travel between Kazakhstan’s capital and its business centre at up to 360 km per hour. Journey time will be cut from overnight to just four hours. Research into the European market by consultancy SDG has shown that when rail journeys are cut to four hours or under, the popularity of rail transport in comparison with air transport increases rapidly.
KTZ is also organising a high-speed long-distance railway service between six junctions across the country. By 2014, the total length of the railway network will increase to 7,800 km, while the speed of passenger trains will more than double. For example, the journey time from Astana to Atyrau in west Kazakhstan will be cut from 43 to 19 hours.
Cost of travel
KTZ’s short-term investment plans are to spend KZT1.36 trillion on maintenance and development between 2011 and 2015. Some KZT928bn (68% of the total) will come from the company’s own resources, a further KZT321bn (24%) will be borrowed on international markets and KZT63bn (5%) on the domestic market.
According to Kizatov, KTZ can borrow on favourable terms from domestic and foreign banks due to its high credit ratings and reputation as a reliable borrower. KTZ plans to borrow $482m to fund the purchase of Evolution series locomotive components between 2011 and 2015. The company is currently in talks with General Electric, which manufacturers the locomotives, over a financing scheme to be covered by the Export-Import Bank of the US. It is also negotiating with French import-export agency COFACE, as it works to attract investments for the purchase of equipment for the new Alstom locomotive factory.
The list of companies that will be part of the Kazakh government’s “People’s IPO” programme, which will see the listing of around 10% of wholly or party state-owned companies on the local stock exchange, has not yet been finalised. However, Kizatov says that KZT plans to sell 10% of its stake in telecoms business Transtelekom in 2011, and 10% of its stake in cargo company Kaztemirtrans the following year.
The investment programme also includes construction of new international routes and related infrastructure, as Kazakhstan seeks to take advantage of its position in the heart of the Eurasian landmass. “The China-Europe route is a priority in the development of traffic in transit through the territory of the Republic of Kazakhstan, which will attract additional traffic flows,” says Kizatov.
Steps being taken include improvements of the Dostyk border station and Dostyk to Aktogai line, and the construction of the a new line from Zhetygen near Almaty to the second border crossing at Korgas. KTZ is also looking at ways to organise container trains from China to Europe and to make tariff conditions more competitive.
On the north-south route, the construction of the Iran-Turkmenistan-Kazakhstan railway is in progress. The new line will be 600 km shorter than the current one, and will improve Kazakhstan’s links with Turkmenistan, Iran, the Gulf countries and south Asia.