"180 ЛЕТ В ПУТИ"
Railwaymen had no margin for error
Vladimir Ivanovich Yakunin ran Russian Railways JSC for 10 years. Under his leadership the company overcame the most difficult stages of structural reforms and transition to a market basis. At the same time, he concedes, not all plans were implemented. In this anniversary year for Russian Railways, Chairman of the Supervisory Board of the Dialogue of Civilizations Research Institute, Vladimir Yakunin, gave an exclusive interview to RZD-Partner magazine, and shared his thoughts on the key events in the sector's history.

Interviewed by Elena Ushkova
On the path of progress

– Mr Yakunin, what stages in the development of railways in Russia, in your opinion, had the greatest impact on their specifics and their current, modern, operation?

– The role of railway transport in Russia cannot be overestimated. The decision to build the railway network was testimony to the fact that the country was trying to keep up with technological progress. These efforts were primarily focused on the British experience, as the most powerful rail nation. The Russian Empire purchased a great deal of technologies abroad, but the establishment of a rail network became a powerful incentive for the development of its own industry and engineering sector. Personally, I would point to several important phases in the history of Russian Railways. The first is its first few steps. The introduction of a new mode of transport became an extremely important factor, because it resulted in the opening of joint stock companies, laid the grounds for the further growth of the industry, and even contributed to the formation of the healthcare system in the country. The Imperial government made industrial development in the regions through which the railway passed a priority. A striking example is Alexander III's decision to build the Great Siberian Railway. I have seen historical documents that not only outlined plans to build the rail line, railway stations, water towers and repair shops, but also detailed the social and living arrangements for the railway workers. It went into details, even noting the particular type of house or and small-holding (or farm) should be made available to the stationmaster. This is a reflection of the integrated approach to the construction of the railways.
The second important step was the decision to build the Trans-Siberian Railway. A powerful impetus to the development of rail transport was made in the pre-1905 period, when the Circum-Baikal railway was created. The record-breaking speed with which tracks were laid remains unsurpassed to this day. Of course, technology and other labour requirements were different, but the fact remains: at the turn of the century this exemplary speed of construction was reached. The Trans-Siberian Railway was the vital supply line to the Far East for the armed forces, bringing them ammunition and weapons. Even disassembled small submarines were carried on flatcars.
Railways played a great part in the Great Patriotic War (part of the Second World War). Although railway infrastructure received heavy war damage, it nontheless made an invaluable contribution to the final victory. "The war was also won by railwaymen", said Marshal Georgy Zhukov.

In the postwar period, the railways again acted as a powerful stimulus to industrial development. During those years new types of traction rolling stock were created. First, there was the transition from steam traction to diesel and later to electric – all this raised the technical level of the railways and improved the overall security of transportation. Throughout history – from Imperial times to the present day – the profession of a railwayman was considered elite and respected.

The next important step was the subsequent transformation of the industry. Reforms related to the disbanding of the Ministry of Railways, was accompanied by a restructuring of the outdated company structure into a fundamentally new type of joint stock company with 100% state participation. A new management system was created, a new administration was formed, including the Company Board and the Board of Directors. Interaction between Russian Railways JSC, and the various ministries and departments was piloted. Great attention was paid to engagement with the public, who were given access to previously closed aspects of rail transportation. In fact, during these years, the reforms were carried out under close scrutiny of Russian society.

It would not be inaccurate to say that building the infrastructure for the Sochi Winter Olympics can be considered the next stage in the formation of the railway sector, really bringing it up to the best global standards. Another step, perhaps a slighlty smaller one, might be the infrastructure development linking to the North-Western ports, the opening of the ferry service between Ust-Luga and the Baltic. I remember there was a lot of talk about the fact that this was unprofitable and unreasonable.
How much controversy was there?

– In your opinion, during your leadership of Russian Railways, was the company principle of customer focus put into practice?

– It was in 2005-2008 that, for the first time in the railway industry, the concept of "customer centricity" was given so much attention. Decisions were taken through a prism of "what it would give to the passenger or shipper". Today it is difficult to imagine life without intermodal transport links to airports (primarily, of course, in Moscow as a powerful international hub). However, even projects focused on passenger convenience initially prompted mixed reactions.

We saw this, for example, when running Sapsan trains. People threw stones at them, made things up. It is clear that this reaction was due to lack of information about high-speed trains, and we, realising this, opened the doors of the company to the press to tell people about those trains, and the principles of operation of the railway. Speaking of customer focus, particularly in this example, we ensured the timetables work well for passengers. Now we can see that this project was a success! Tickets for Sapsan trains are selling like hot cakes. Then other types of new rolling stock followed – the Strizh and Lastochka trains.

In 2007, RZD JSC started actively developing online ticket sales, and a few years later passengers were able to board trains without a paper ticket. Wi-Fi appeared at stations, station upgrades have brought modern food courts and shopping malls to passengers, and a regulated taxi system was established. There are plenty of examples.
Again, as at the dawn of the industry, improving the infrastructure and railway system helped boost production. When signing contracts with foreign partners, we set them the condition that a large part of their production capacity should be located in Russia. As a result, we transferred high-tech production from Western countries to Russia. We became able to create new types of traction rolling stock in the Urals (that never happened before). Heavy engineering entered a phase of active development. Ural Locomotives and Transmashholding have begun to actively cooperate with foreign manufacturers such as Alstom and Siemens. Of course, this cooperation has enriched the industry, and it is also the most important milestone in the development of railway transport in Russia.

– The period of your leadership of RZD JSC coincided with the structural reform of rail transport. How do you assess the results achieved? What results, achieved during those years, in your opinion, are the most important for the industry, and what goals have not been achieved?

– Most importantly, the company began to operate as a joint stock company. The unprofitable structure, the Ministry of Railways, could not survive in the new environment. A major achievement was cooperation with the government on determining liability of the administration and of the Board of Directors of the company for the implementation of the programs set. At the same time, interaction in the economic sphere was developing apace, and the inability to establish cost-based tariffs was compensated by public sources. The railway company is not just a commercial enterprise that operates on economic principles. It is a natural monopoly, and, accordingly, the state determined the degree of freedom of decision-making in the economic policy of RZD JSC.
An important result was that we came close to signing a network contract for the carriage of passengers. During that time "many lances were broken", and I am grateful to the government for its support in dialogue with the regions regarding regional authorities' responsibility for establishing economically justified tariffs for suburban and commuter passenger transit. Where this was not possible, compensation for losses which have arisen at the company was determined. During that period, large-scale projects, as I have mentioned, were implemented.
Preparations for the Sochi Olympics not only involved state budget funding, but also a considerable outlay by RZD to improve railway infrastructure to carry passengers from central Russia to Sochi. All these operations were accompanied by an enormous burden – the need for completely new rolling stock in order to meet IOC requirements. This was the first time we had to provide a service for such a large number of people in a single cluster. We had to be able to carry about 7,000 people per hour. After the opening of the Olympics, 42,000 people chose to travel by rail, and, to be honest, my heart sank, because we did not expect it. The railways rose to the challenge, and coped with this demand, and for the entire Olympic period, there were no complaints. This is something we can be rightfully proud of.

It can also be attributed to the development of projects related to the port at Ust-Luga. It took immense determination to achieve. Today, Ust-Luga is the most modern hump complex in Russia, which works in fully automatic mode. It is better than those you can find abroad. And this was down to Russian Railways.
I mentioned the ferry service, which itself was extremely problematic, but this project was also implemented. The creation of intermodal transport related to carrying passengers to the Moscow transport hub, in Vladivostok, Khabarovsk, Krasnoyarsk and Novorossiysk, was also all aimed at increasing passengers' comfort and safety. However, the most important thing was that this was done by implementing modern models of railway transport management, including financial models. We cooperated with foreign consultants and Russian research institutes – the Academy of Sciences, the Institute of Pricing and Regulation of Natural Monopolies and other organisations. All this provided the same evidential basis – thoroughly grounded in research – which was necessary for the development of railway transport.

Reforming such a massive industry with such a huge number of employees required, in the figurative expression of Vladimir Putin, an approach with no margin for error, so we had to carefully consider every step. It concerned not only us, but government, as we actually were executors of its will. However, we made our suggestions, and they were often adopted. So as to the question: "What have you done?" I would answer with the words of Igor Shuvalov, that RZD JSC is the most effective company owned by the state. I am extremely grateful to him for these words.

At the same time, we failed to translate plans for the development of high-speed transit into a reality. A lot of work was carried out towards this goal, but it was not completed. I think that there is more that can be done in terms of establishing a legally grounded relationship between the company and the government, which would allow, long-term, a strategy for railway transport development to be formed in the interests of the Russian economy and passengers. Of course, we failed to completely solve the problem of ensuring passenger traffic breaks even under the existing network contract. Due to the crisis that erupted in 2008, and then due to the difficult situation of 2013, we failed to implement a program of long-term tariffs.
Not to the point of absurdity

– What do you think about outsourcing services in railway transport? Could you talk a little now about where outsourcing has been most successful and where it still can be used?

– I think that almost everywhere, where there is no question of a unified system of traffic control and safety in rail transport, outsourcing is appropriate. However, sometimes, unfortunately, the implementation of this tool was less than easy. For example, we started to apply it in the sphere of passenger service, in particular, conductors. However, whether due to issues in the regulatory framework, or the irresponsibility of the private sector partner, we saw that often the quality of service left a lot to be desired and we therefore had to refrain from outsourcing in some areas. Removable service equipment has long been outsourced, and now, as far as I am aware, works well.

You can also talk about outsourcing in the construction industry. Zheldorstroy was not physically able to provide the necessary infrastructure development facilities, therefore, a large number of companies provided construction services. We also thought about how to outsource financial management, and some of our subsidiary companies even tried this, but, again, we had to face the challenge of breaking the General Directors' assumptions that outsourced accountants knew less than in-house accountants. And there are many examples of this.

– According to your own experience, how important and necessary is competition in rail transport?

– This is a very profound question. In view of my current activities, including at the Department of State Governance, at Lomonosov Moscow State University, I can say that we often tend to view things in terms that are far too absolute. This is the case for privatisation and competition. Competition is evident in all spheres of human life, and we forget that cooperation is also an option. There is a perception that more competition is better. Let's imagine a situation where, for example, a patient comes to the hospital and two doctors begin to compete. Absurd? This can be extended to natural monopolies. After all, they are not called natural for nothing.
So I repeat: everything that is not related to traffic safety can be outsourced, and to come to agreement with a partner, it is necessary to conduct comparative analysis and tenders. This is competition. While fulfilling obligations under the contract, the company competes on time, cost, and seeks to provide the best quality, as it meets the terms set out under the contract.
Another issue I always wondered about: why are we talking about competition within the industry, but not between rail and road transport? Why do we not consider an environment in which trucking and fully regulated rail markets exist? Churchill said: "Where there are 10,000 regulations, there can be no respect for the law." Therefore, the definition of competition and its importance involves a huge number of factors.
Modeling the future

–You always emphasise international cooperation, exchange of experience, working with UIC and global suppliers. Why was this area so important?

– For me, international cooperation is a way to go beyond the constraints that inevitably exist in a particular country. If you don't know anything, everything seems fine, but if you look ahead, you can see the situation in a completely different light. International cooperation enriches and adds an element of collaborative endeavour. When people do not interact with each other, they do not have that sense of partnership, that desire to help and to provide mutual support.

For example, when we were preparing some documents, including the first contract for the purchase of railway equipment, we used the services of our foreign colleagues who had already built up experience of concluding similar contracts. This allowed us to make our contract more clear and objective, to exclude possible errors.

– What important international projects can you name?

– They are primarily projects in the field of railway equipment, the contract with Siemens. It was the first one and the first will always be remembered. Then other agreements that may have been better were signed, but that was the first experience and, most importantly, successful. This contract was the beginning. A contract for the purchase of GEFCO was serious. There was a lot of reflection and discussion around this subject, but we were supported by the government, and today's experience shows that the purchase decision was absolutely correct, because it is an asset that brings profit.

– You often spoke on the topic of high efficiency of investment in infrastructure. Are you still unconvinced?

– You know, in my research, I have encountered the alternative view, i.e. the view that investment in infrastructure can bring a negative result. Not the effect, which we focused on (1 ruble of investment in infrastructure brings 1.2 ruble income), but on the contrary, such investments sometimes delay state and community resources, creating an element of stagnation.
Investments in infrastructure require a strategic vision of the development of a particular country and region. You cannot just go and make a decision about their construction. It should be based on the method of input-output balance calculation, which allows you to reliably determine the prospects of the sectors of the economy and from this point of view, to predict the need for volumes of freight and passengers. So when we talked about the need for the modernisation of the Baikal-Amur Mainline and the Transsib, we focused not on forecasts but on facts: today, trains on the Trans-Siberian railway run with intervals of a few minutes. The traffic is so intense that the development of railway infrastructure has become vital.
– Mr Yakunin, one last question. This year Russian Railways celebrated the 180th anniversary of its founding. How do you see the industry and transport in general in the next, for example, 100 years?

– We can't even imagine the future of transportation: will there be teleportation? Will you use the vacuum tubes, which are currently being tested in China and Japan? Will there be rolling stock operating on the principles of magnetic levitation? All of these are different variants of transport systems. Whether trains will fly at some height above the ground or go under the ground is not important. The main thing is that land transport in one form or another is necessary. And speaking of this fantastic future, do not forget that today there are a number of constituent entities of the Russian Federation where there is no rail transport at all and which can be reached only by helicopter.

I remember that many years ago I came across a document approved by Lavrenty Beria. At that time, the NKVD was responsible for the development of the transport system of Siberia and the Far East. It was a document about the construction of the railway to Kamchatka. It offered an insight into how this infrastructure was perceived and developed in a very different time fromours. This infrastructure development can, I hope, form the basis for the development of intercontinental roads across the Bering Strait. I'm sure it will happen. Unmanned vehicles have been invented, so I wouldn't be surprised if soon we will see an expansion of this into other branches of infrastructure, including railway networks, with remotely managed trains moving in automatic mode.

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Редактор специального проекта: Елена Ушкова
Автор концепции: Кристина Александрова
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