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Road map of the transit future

Kazakhstan, located in the center of Eurasia, is doomed to become one of the transit hubs on the continent. Several international transport corridors, connecting Russia, European countries, South-Eastern Asian countries, Central Asian states, Transcaucasia, Turkey, and the Persian Gulf, traverse through our country.

Points and directions of growth

By now, the international community has recognized 4 air corridors, 6 railway corridors, and 6 motorway transport corridors, crossing Kazakhstan. According to the Eurasian Development Bank experts, proceeds from cargo transit between Europe and Asia in 2007 was more than $50 billion (of that, $500 million, or 0.6% of GDP was our country’s share). The overall commodity turnover volume between Europe and Asia reaches some $700 billion. By the year 2015, this figure is likely to increase to $1 trillion, income from transit to $80 billion, and the Kazakhstan’s share to $1.1 billion. Theoretically, big growth is possible. Today, 98% of transit between the Asian-Pacific region and Europe goes by sea. According to experts, railway and motorways can cover up to 5% of freight. The Ministry of Transport and Communications estimated that by 2015 the volume of transit of cargo by land carriers through Kazakhstan is likely to increase from the current 4 million tonnes to 32.2 million tonnes, while by air transport from 100 million to 190 million aircraft-kilometers.

Indeed, an upward trend in transit traffic has been observed in the recent years. The trend is that transit traffic increases by 12–13% a year, in average. This is caused, to a greater extent, by an increase in transshipment of traditional transit cargoes, such as timber, petroleum products, vegetables, fruit, sugar, and other foodstuff, transported in the direction of Russia – Central Asia and back. The strengthening of trade relations between states of the region, Russia, and Belarus adds to that. Thus, for example, according to the State Committee of Uzbekistan, Russia’s share in the commodity turnover of this republic in January-March of 2009 came to 22.1% that is by 13.6% more, compared with the same period of 2008, while the share Belarus was 0.8%, having increased by 33.7%.

The commodity turnover of Central Asian countries with China has quickened. Mainly, these are foodstuff, construction material, chemicals, machinery, and equipment. The greater part of freight flow goes by railway through the cross border terminal Dostyk – Alashankou. As a result, in 2008 the share of international traffic in the overall freight turnover by railway in Kazakhstan reached 72%. On the whole, trains that had crossed that cross border terminal in the last year numbered 520–550, and in the some periods the number of railroad cars per day reached 620. It is worth to mention that 70% of cargoes were transported in containers. According to the Kaztransservice Company, the official operator of the container fleet of JSC National Company Kazakhstan Temir Zholy, 109,700 TEU (twenty-foot equivalent) went through the Dostyk cross border terminal in 2007, including 74,500 TEU from China and 35,100 TEU in the reverse direction. According to Kaztransservice’s forecast, the volume of carriage in containers in 2015 will likely come to 730,000 TEU that is two and a half times more than the current indicators.

However, just statement of the possibilities will not automatically provide the budget with new revenues from transit. To make this wish come true, would take a lot of effort.

For example, the first thing to be solved is the problem of the low capacity of the cross border terminals at the Kazakhstan-Chinese border. Despite plans for the Dostyk expansion, it is necessary to force the construction of one more railway pass near Korgas.

The other task is the renewal of the locomotives fleet. American corporation General Electric built a locomotive assembly plant, based in Astana, and with time this will allow to meet the local carriers’ demand for diesel locomotives. Electric locomotives stand in a row: Here, in this field, Kazakhstan Temir Zholy is going to cooperate with the Russian company Transmashholding.

To renew the railroad cars and gondolas fleet, Kazakhstan Temir Zholy has plans to set up a joint venture on the territory of Kazakhstan with the Abakan plant (Russia), but this will take time.

The railroad track and relevant infrastructure encounters serious problems, as it has not been renewed since the seventies. Today’s railroad track is seriously worn-out, has limitations as to the rate of movement of trains, and is not capable to let pass to modern high-speed trains.

Motor transport will get its way

Trucking also has a relatively big potential. For this, Kazakhstan has specialized cross border terminals at the Kazakhstan-Chinese border. The most promising of them is the cross border terminal Khorgos. Right here in 2006 the Chairman of the State Council of China Hu Jintao and the Kazakhstan President Nursultan Nazarbayev agreed to set up a border trade center.

The motorway corridor Western Europe – Western China with its start point at Khorgos promises to become an important transit project. This is the shortest road, connecting China with Europe, with the minimum number of participant-countries (Kazakhstan and Russia), and therefore the minimum number of borders. The project was launched in 2007, and, as domestic mass media reported recently, Kazakhstan is to start implementing the active phase of it in September of 2009. The total length of the corridor is 8,445 km, including 2,787 km through the territory of our republic. It will traverse from the Eastern Chinese seaport of Lianyungang from east to west with a branch towards Shanghai, further through Khorgos, Almaty, Taraz, Shymkent, and Kyzylorda, reaching the Kazakhstan-Russian border near the Ozinki Settlement, and then in the direction of Orenburg and Moscow. The finishing point will be the seaport of St. Petersburg.

According to the Transport and Communications Ministry, the value of the Kazakhstan part of the project is estimated at some KZT900 billion, or about $7 billion. By now, $3.5 billion of funds has been raised for the project implementation from international financial organizations (EBRD, ADB, IDB, and others). The borrowing of funds was approved both by the RoK Parliament and President. The rest of the required funds will be provided as co-financing from the state budget and also by engaging private business on a concessional basis.

To launch the motorway corridors to operate at the full capacity, an extensive road network development is required. According to the transport strategy of Kazakhstan, the republic intends before the year 2015 to improve the national motorway infrastructure and bring it in line with international standards, thanks to concentrated investments. In particular, it is planned to lay 1,600 km of new roads, and to make capital repairs and reconstruction of some 50,000 km of the current roads. The parameters of some parts of the highways will be brought to those of the first category with the parallel development of roadside service.

The latter thing is especially important, considering the practically full lack of roadside infrastructure in Kazakhstan to be in line with the international carriers’ requirements. To a greater part, the roadside service appeared spontaneously, that is why it is distinguished by the low quality. In the opinion of the market participants, to solve this problem, it is necessary to engage a large foreign managing company, capable of creating a roadside infrastructure, meeting world standards. Depending on the amount of investments and the terms of concession, this company can be given an opportunity to manage the domestic roadside infrastructure for a term of 15–30 years.

One more bottleneck in the field of motor transportation is the wearing-out of the stock of vehicles, which often does not meet the Euro-2 requirements. This is despite the fact that in Europe, in the direction of which a huge share of the commodity flows from the Asian-Pacific region is transported, the Euro-4 standards are operating already. Considering the above, domestic transport companies are faced with a task to totally renovate the motor transport park. It is hardly possible to solve this problem without interference of the state (a credit tranche or preferences on the import of new trucks).

Offshore prospects

The project of expansion of the seaport of Aktau in the northern direction has been implemented since 2006. Its completion will allow increasing the capacity of this the only international seaport of the country twice, from 11.5 million tonnes to 23 million tonnes a year.

The port is part of the TRASECA and North-South international transport corridors. From there, one can reach any Caspian littoral state, as well as any country of the Black Sea or Mediterranean basins. Today, the port of Aktau’s share in the overall cargo turnover, transported through the Caspian Sea, is some 33%, or about 30 million tonnes.

The Kaztransservice Company announced recently new prospects of loading the seaport. Until recent times, the greater part of Kazakhstani grain exports to Iran and Afghanistan went by railway through the cross-border terminal Galaba – Hairaton at the Uzbek-Afghani border. Along with that, its capacity is limited, and this was the reason why the Kazakhstani exporters have faced a potential failure of fulfilling their contractual obligations. Thus, Kaztransservice proposes to bypass the Uzbek territory by sea and to transport grain in special 20-foot containers.

To support offshore operations, the implementation of one more project, the development of the seaport of Bautino, will start soon. There, the cargo transportation volume is expected to come to 4 million tonnes by the year 2012.

Nevertheless, the capacity of Kazakhstan in the field of transit traffic by sea is limited by that fact that only Aktau can be regarded as an international seaport, while Bautino will be operating as a regional terminal only. In connection with that, it is important not only to increase the traffic potential of Aktau, but in parallel to tailor it to the international transport corridor North – South. The idea came to mind of the Russian carriers to set up a seaports complex, comprising three Russian seaports and Kazakhstan seaport of Aktau. According to experts, such a seaport complex will considerably add to the development of this transport corridor. However, the given idea has not been shaped into a certain commercial proposal.

The seaport of Aktau can be combined into a single transport center with one more strategically important railway project, Uzen’– Gorgan. As a result, Kazakhstan will get a high capacity transport center with the possibility of multi-modal traffic.

Air castles

The length of the air routes, followed by the air carriers of Kazakhstan, is almost 70,000 km at present. The republic borders with six states with relevant air corridors. These are Russia with 27 corridors, Uzbekistan (27), Kyrgyzstan (6), China (4), Azerbaijan (3), and Turkmenistan (2). 9 additional parts of international air routes and 15 additional domestic routes were open in Kazakhstan in 2007–2008.

The most prospective directions of transit flows through Kazakhstan are trans-continental flights from the USA and Canada to India, UAE, Pakistan, Thailand, and Singapore. These are so-called polar-crossing routes, by which the air companies from the USA (American Airlines, Continental Airlines, and Delta), India, Pakistan, and Singapore make regular flights.

It’s too early to say about the maturity of the domestic market of air freight, since it is carried out in parallel with the passenger traffic, and Kazakhstani air companies now have a specialized freight carrier fleet. For example, the Air Astana Company caries out freight flows from Europe and Russia to Kazakhstan on passenger planes.

At what expense is the transit?

On the whole, the prospects of transit are alluring, but they are not to arouse euphoria. The aggregate expenditure of Kazakhstan for the transport infrastructure and investments in the logistical support facilities construction are estimated at some $10–15 billion without taking into account inflation. Concerning the said construction, it is supposed to set up 10–15 logistical centers both along the border perimeter and in the metropolises. The republic plans to raise the money partly by borrowing funds, partly from the state budget, and partly at the expense of business on the basis of state-and-private partnership.

Meanwhile, the practice of the first concession agreement on the railway part Shar – Ust’-Kamenogorsk, where JSC Doszhan Temir Zholy is the concessionaire, aroused many questions, mainly, those related to the lack of preparation by public agencies to solve the problems of the business, which undertook to implement this investment-extensive infrastructure project. The problems appeared first in the listing of infrastructure bonds, issued by the concessionaire. Then, the situation became even worse because of the unwillingness of the state to provide additional guarantees for the raising of money. The project was developed in 2005. The 2008 year inflation had made it more expensive, as a result of which Doszhan Temir Zholy faced the problem of a liquidity deficit. The situation was resolved by volitional decision, when the government obliged Kazakhstan Temir Zholy and Kazakhstan Investment Fund to buy out the stake controlled by the concessionaire. However, the regular applying of this scheme is impossible because of danger of losing businesses’ trust in concession projects, in particular, and to the state-and-private partnership, on the whole.

The failed project of the state-and-private partnership proved to fail again in the course of preparation for construction of another important project, the railway Korgas – Zhetygen with the length of 298 km. Its implementation will allow opening a second border station at the railway cross-border terminal with China and considerably relieving the capacity of the cross-border terminal Dostyk – Alashan’kou. The concessionaire for the project was selected as early in the last year, following bids, held by the Transport and Communications Ministry. It was LLC ENRC Logistics, a subsidiary of the same name group. However, in August of this year Eurasian Natural Resources Corporation PLC reached an agreement with the government as to termination of the concession contract for the construction and operation of the above-said railway. First of all, this was reasoned by very high investments risks, as the subsidiary of the ENRC Group undertook to raise the entire amount of investment on its own.

In his interview to Kazakhstan mass media, the Chairman of the Board of ENRC Logistics, Orifdzhon Shadiyev, referred to the problems of land allotment, imperfect operating laws, benefits and preferences provided to concessionaires. The company was not satisfied with some items of the agreement. For example, under one of them, “all commercial risks of the project shall be borne by the concessionaire”. According to Mr. Shadiyev, a concession project is, first of all, the partnership of two parties, dependent on each other, which are mutually interested in gaining a positive result. Thus, the state should demonstrate more interest in reducing the risks for the concessionaire, furthering the efficient project implementation, where it is possible. For instance, by providing various tax exemptions and preferences. In connection with the above, the ENRC Logistics head pointed out the necessity “to retain those norms for concession infrastructure projects, which already exist in the Tax Code, in particular those concerning the exemption from VAT, or other tax exemptions related to corporation income tax”.

The procedure of leaving the project by the concessionaire is clear. The state did not choose the option of sharing risks on the project, while ENRC Logistics decided not to risk large investments in such conditions, part of which it was going to borrow. On August 3rd, immediately after the concessionaire’s leaving the project, Kazakhstan mass media reported on the commencement of construction of the railway, now at the expense of the state budget funds and Kazakhstan Temir Zholy funds.

So, that was the way the matter was settled. On the one hand, the strategic importance of the Korgas-Zhetygen railway is evident, since it will allow reducing by 550 km the distance from China to southern regions of Kazakhstan and Central Asian countries. Projects of this kind in the world are constructed under state control and from state budget funds. On the other hand, the value of the above-mentioned concession project is estimated at $769 million. Thus, taking into account the whole range of planned and launched transport projects the state will hardly manage all of them without cooperation with private investors.

Launched projects

Motor transport. There are six major operating routes that are part of international motorway corridors:

Tashkent – Shymkent – Taraz – Bishkek – Almaty – Khorgos (Silk Road).The length of it is 1,150 km. The reconstruction of the motorway route parts Almaty – Khorgos (301 km), Tashkent – Shymkent – border of Zhambyl Oblast (203km), Big Almaty Ring Road (65 is planned on the concession basis. km)

Shymkent – Kyzylorda – Aktobe – Uralsk – Samara.Its length is 2,029 km. The reconstruction of parts Border of RF – Uralsk – Aktobe (118 km) and Karabutak – Irgiz – Border of Kyzylorda Oblast of the motorway Samara – Shymkent (63 km) is in progress.

Almaty – Karaganda – Astana – Petropavlovsk.The length of the route is 1,724 km.The reconstruction of the motorway Astana – Karaganda (238 km) with the changing of the first technical category is also supposed to accomplish the reconstruction of the part Astana – Shchuchinsk (224 km) of the motorway Astana – Petropavlovsk, traversing through Kokshetau.

Astrakhan – Atyrau – Aktau – border of Turkmenistan. The length of the route is 1,402 km. The reconstruction of part of the motorway Atyrau – Beineu is in progress (94 km).

Omsk – Pavlodar – Semey – Maikapshagai. The length of the route is 1,094 km. Also, the reconstruction of the motorway Border of RF (towards Omsk) – Maikapshagai (road to China) with the length of 90.5 km is supposed.

Astana – Kostanai – Chelyabinsk.The length of the route is 891 km. the reconstruction of the motorway Astana – Kostanai – Chelyabinsk (91 km) is supposed.

With the completion of the given projects, the share of motorways of the 1st and 2nd technical category is expected to increase from 18% to 65%. New projects will be implemented with a view to strengthening the road surface in order to increase the permissible axle load from the current 6 tonnes to 13 tonnes. 

Railwaytransport. The five major corridors, including the Central Asian, Western, Central, Northern corridors and TRASECA are:

Central Asian corridor. The length of it is 2,147 km. The period of delivery of cargo by this route in Kazakhstan is 11 days. It crosses the western regions of Kazakhstan from south to north in the direction of Sary-Agach – Arys’ – Kandyagash – Ozinki. In the framework of this route project, one of the largest and prospective projects is the construction of a new railway Beineu – Zhezkazgan with the length of 988km. The project value is $2.3 billion. The project will allow reducing the route for trains, moving between the West and Asian countries through the port of Aktau, by 600km in average, and to reach 30% to 50% of the all cargo transit volume, transported between China, Europe, and Caucasus.

Western corridor. Its length is 832 km. The time of delivery of cargo by this route in Kazakhstan is four days. The main route Aksaraiskaya II – Makat – Beineu – Aktau services the major oil-producing region of the country. On April 12, 2009 the construction of the railway part Yeraliyevo – Kuryk started, the purpose of which is the development of the Caspian Sea onshore infrastructure. The value of the project is $53 million.

Central corridor has the length of 1,831 km. The time of delivery of cargo by this route in Kazakhstan is nine days. The major route here is Dostyk – Aktogai – Almaty – Arys’ – Sary Agach. At the eastern border with China measures are taken to increase the capacity of the Dostyk railway station and the railway part Aktogai – Dostyk to bring its capacity from the current 15 million tonnes a year to 25 million tonnes a year by the year 2011. Also, it is planned on the concession basis to implement the projects of electrification of the railway parts, the most active in cargo transportation: They are Almaty – Aktogai (558km), Dostyk – Aktogai (312 km), Aktogai – Mointy (521 km). This will allow replacing diesel locomotives with more functional and economical electric locomotives, to increase the average rate of movement on the given railway parts by 15%, and to reduce the cost of freight.

Northern corridor. It has the length of 1,910 km. The time of delivery of cargo by this route in Kazakhstan is ten days. The main routes here are Western Europe – China, Korean Peninsula, and Japan through Russia and Kazakhstan (on the railway part Dostyk – Aktogai – Sayak – Mointy – Astana – Petropavlovsk).

TRASECA (Transport Corridor Europe-Caucasus-Asia). It was launched by the European Union in 1993. The TRASECA project provides for organization and development of transport communication between the European and Central Asian countries through Caucasus.

The Transport and Communications Ministry started implementing the project of construction of the railway Uzen’ (Kazakhstan) – Kyzylkaya – Bereket – Etrek (Turkmenistan) – Gorgan (Iran). It will become the alternative to the old railway to Iran through Uzbekistan and Turkmenistan and a good solution for transit in bypass of the Uzbek border. The new railroad will reduce the time for transit of cargo by two days and will give direct access to the Iranian nonfreezable seaports. The total length of the railway will be 677 km, including 137 km in Kazakhstan, 470 km in Turkmenistan, and 70 km in Iran. The start of the Kazakhstan railway part construction is planned for the second half of 2009, while its completion is scheduled for 2011. The cost of the project is KZT60.8 billion. The planned volume of transit in the first year of operation is 9.6 million tonnes.


Table of contents
Caspian Gas: One for All?   Sergei Smirnov 
Insurance Market: Sight from Outside  The special report of Standard & Poor’s 
Macroeconomy. September 2009  Sergey Kasyanenko, Edilberto L. Segura 
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