Apr 20, 2021
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Gilding BAM: “Business” held their breath before the “big hapk”

Gilding BAM: "Business" held their breath before the "big hapk"

Photo: Sergey Krasnoukhov / TASS

The next stage of modernization of the Baikal-Amur Mainline (BAM) and the Trans-Siberian Railway (Transsib) in order to increase the throughput capacity of transporting export goods to the ports of the Far East from 144 million to 180 million 40 billion rubles. The reason for this, according to representatives of the OFO Russian Railways, will be the rise in metal prices.

According to them, over the past few months, ferrous metal has already risen in price by more than 30%, while the situation with non-ferrous metals looks even more depressing, so something needs to be done to prevent a galloping increase in the cost of the project, the initial estimate of which is already gigantic. – 720 billion rubles.

In March of this year, the President of Russia Vladimir Putin admitted that the railway workers can receive financial assistance from the National Welfare Fund (NWF) to expand the infrastructure of the eastern section of the BAM. Earlier, at the end of December 2020, the Minister of Finance Anton Siluanov stated that VEB could come to their aid by purchasing an additional issue of prefs of Russian Railways.

However, if we take into account that more than 70% of the load of BAM and Transsib in the eastern direction falls only on the export of coal to the Asia-Pacific region, the question arises – do we really need a project to modernize these highways, if the only thing they do is serve interests of coal exporters?

There is one more vague moment here. Is the rise in metal prices so strongly influencing this investment project, and what will happen to it if suddenly this resource on international markets drops sharply?

– In the current conditions, the transportation of goods along the BAM is largely unprofitable and is subsidized by other railroad transportation, because, apart from coal, little else passes through it to China, – believes Associate Professor, Department of Financial Markets and Financial Engineering, RANEPA Sergey Khestanov… – Against this background, the increase in the cost of the project for its reconstruction looks very doubtful, especially since the Trans-Siberian Railway largely duplicates all “BAM” industrial transportation. Perhaps, if the money that has so far been poured into the BAM went to the Transsib, the result would be trite, because it would be impossible to achieve profitability from the BAM in any reasonable future, in my opinion.

“SP”: – That is, if the boom in coal in China ends, we will not need BAM at all?

– Of course, as long as it is possible to transport coal to China along this highway, it means that sooner or later other cargoes will also pass along it, – says economist Leonid Khazanov… – It’s another matter that now the choice is really not great. In the event of a drop in demand for coal in the Middle Kingdom, we can replace the shrinking traffic volumes only with timber sent, again, to China, and aluminum from RUSAL, which now, after more than ten years of construction, is to launch the Taishet aluminum plant. Moreover, perhaps, it will be possible to transport alumina from Far Eastern ports for RUSAL’s aluminum enterprises along the BAM. Here, perhaps, is the entire range of alternatives, if you do not take into account some small volumes of traffic of local importance.

“SP”: – What about the transformation of BAM into an alternative to the Suez Canal in the chain of delivery of oil containers from point “A” to point “B”? This thought has haunted some experts since the recent grounding of the container ship “Ever Given “.

– In theory, of course, this is possible. But we must understand that BAM has a vulnerable spot in the form of the Severomuisky tunnel. This is such a “bottleneck” that trains are forced to take turns. “Sibanthracite” seemed to be going to do something about it, but in connection with the death of its owner, Dmitry BosovI suspect this initiative has logically ended. So the bottleneck is not going anywhere yet. Of course, the Severomuisky tunnel can be expanded. But it will cost such colossal funds that it is difficult even to imagine.

“SP”: – The launch of the project will mean that “golden times” will come for our metallurgy. Or not?

– Our “ferrous” metallurgists are more focused on the world market. It was they, by the way, who were the main lobbyists for Russia’s accession to the WTO, – continues Sergey Khestanov. – On the one hand, any order is not superfluous under the current conditions, but, on the other hand, the significant volumes of purchases of their products by railroad workers cannot be called particularly significant for our metallurgy. It is much more profitable for it to export and the construction sector, which periodically divide among themselves the first or second places in the rating of metallurgical priorities in a given period.

“SP”: – I wonder if tomorrow the metals suddenly become cheaper, what will happen to BAM? Will his budget be cut too?

“Both in the past and this year, prices for rolled metal products continue to grow, despite the discussion of this problem and the adoption of some decisions at the federal level,” admits Leonid Khazanov. – But if, suppose, tomorrow, for some reason, its value on the world market falls, it is not at all a fact that it will fall in the same way in Russia itself.

There are many reasons for this. Yes, the domestic market is now recovering pretty well against the background of the coronavirus pandemic that has not yet ended, but it is still very weak, and its capacity is much less than before. The problem here is not in the spread of the virus, but in the structure of our economy itself, which has been systematically stagnating since 2014, and there is no end in sight to this process.

So if our producers reduce prices, then, perhaps, a maximum of a thousand by 2 rubles, which at a cost of a ton of metal in 60-90 thousand rubles does not seem to be a significant amount.

“SP” “: – Why the expected decline will be so small?

– Because our metallurgical companies need to cover production costs, which are growing due to an increase in transportation costs, electricity tariffs, and so on. Finally, they may simply want to cut some money. After all, a construction site of this level is always an opportunity to make good money. And this process involves not only manufacturers, but also sellers of rolled metal.

In order to really reduce the cost of modernizing the BAM, it is necessary to carefully understand a number of things. For example, why suppliers charge such prices and not others. For example, I would generally offer them an ultimatum – if you want to participate in the modernization of BAM, lower the default prices, but if you don’t want to, we will find others. In the end, manufacturers from China or Japan will gladly supply rails at lower prices in order to gain a foothold in our market.

“SP”: – But what about the president’s recent calls for the effective use of every ruble invested in the economy?

“We all know very well that the overhead costs that inevitably accompany any project and are not formally corruption are higher than in all other countries,” emphasizes Sergey Khestanov. – This tendency is typical for any of our economic sectors, for any industry, but it is especially high in those where competition is low. And from the point of view of ineffective spending of funds, our railway workers are no better and no worse than everyone else.

Perhaps the only consideration that can somehow justify such an expensive project lies in the military plane, the expert summed up. The Trans-Siberian Railway, he recalled, runs dangerously close to the external borders of Russia in places, and in the past it has been subjected to various provocations and even shelling more than once. Therefore, at the end of the 70s of the last century, a strategic decision was made to duplicate its individual sections of the BAM so that there would be no problems during the transfer of troops.

However, since the mid-1980s, the Soviet Union reached full understanding with its neighbors in that region. However, now we see how the coronavirus pandemic actually puts an end to the continued existence of the former economic world system. And since the escalating tension may well turn into a serious military conflict, does this mean that Russia, desiring peace, is nevertheless preparing for war, modernizing BAM “just in case of fire.”

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