Russia’s Rails on New Track

IRKUTSK, Russia â€”  There’s a lesson to be learned from the controlled chaos that breaks out in the restaurant car whenever the train screeches to a halt in some remote wayside on the Trans-Siberian Railroad.

The cook, the waitress, the manager and the busboy leap into action from the little-patronized dining section, hurling cartons and packing crates to waiting customers at trackside. Goods are taken on, cash changes hands, and the black-market deliveries are toasted with comradely gulps of vodka, all cleanly executed within the two-minute stopping time.

By contrast, the railroad’s freight yards are scenes of sloth and dysfunction. Increasingly, businesses are limiting their rail cargo to automobiles, lumber and other shipments too bulky to be delivered by air because it can take weeks for indolent federal cargo handlers to unload containers.

The lesson, as the freelance capitalists in the dining car long ago realized--and the federal government in Moscow is now heeding--is that competition fosters better service, higher income and personal incentive.

Russia’s oft-thwarted reformers are now trying to impart that free-market credo to the masses, having undertaken the herculean labors of transforming bloated transport and utility monopolies into more efficient and competitive public services.

Starting with the rail network that links the far-flung regions of this unwieldy country, those managing the economic transition are quietly spreading the word that the 1.5 million men and women working on the railroad will keep their jobs only if they learn to do them better.

“Monopolies have become sources of stagnation in this country,� First Deputy Prime Minister Boris Y. Nemtsov observed when he was put in charge of the colossal reform project a year ago. “They hamper development of potentially competitive sectors and are hotbeds of corruption.�

Huge subsidies are needed to keep trains rolling and energy flowing, and Nemtsov has warned that the noncompetitive public services could eat up one-third of Russia’s budget by 2000.

But how to avert bankruptcy without leaving Russians stranded in the cold and dark is a quandary worrying both the anti-monopoly activists and those Russians who have come to equate reform with destruction.

Passenger and freight trains may operate at staggering losses, but the 56,000 miles of track are the country’s circulation system. Built to move the precious metals and minerals mined by convict labor, the railroads are the only integrated transport network functioning in Russia, which remains without a highway system and is only spottily served by fledgling private airlines.

“The country is virtually held together by the railroads,� said Mikhail G. Delyagin, an economic advisor to Nemtsov. “But the whole system is threatened by antiquated management. As shipping and passenger volumes have dropped, prices have been raised to make up for the shortfall, which makes rail transport all the less attractive for the consumer.�

State subsidies have long carried the railroads, but in the leaner and meaner reality of capitalism, the network has been ordered to shape up so that it can pay its own way by 2005.

Transforming ‘Natural Monopolies’

If the reformers succeed, against all odds, their formula for dismantling the federal rail behemoth into more functional and competing regional networks could become the blueprint for transforming the rest of what the government calls its “natural monopolies.�

From the Unified Energy Systems electricity grid to the Gazprom natural gas empire, the monopolies beggaring state coffers and consumers alike are remnants of the Soviet era, when public works were designed on the principle that bigger was inherently better.

Russia’s economic architects already have succeeded in breaking up the air transport monopoly, Aeroflot, into more than 300 independent domestic carriers--albeit with a stunning erosion of safety.

But travelers and shippers doubt that even token change will result from the newly launched railroads project because the legions of Railroad Ministry employees are fighting the effort with self-interested vigor. Those familiar with America’s Amtrak also have a convenient counter-argument to point to, noting that even the wealthiest country in the world has to subsidize its rail service despite more than a quarter-century of attempts to make it independent.

The entrenched bureaucracies managing other transport and energy systems are likewise resistant to pending changes, fearing that the hot breath of private competition will undermine the security of their jobs.

And the opponents are gaining ground with the public by warning that anti-monopoly activists are replicating the destruction of the Soviet Union by dismantling its functioning, if flawed, infrastructure before anything better is built in its place.

“It will never happen,� Alexander I. Kasyanov, deputy chief of the eastern Siberian department of the sprawling railroad, insisted from an office still under the glare of Soviet founder Vladimir I. Lenin’s portrait. “This reform is just an idea someone had in Moscow, to look at how things could be restructured over the next five years. But a lot can change in this country by then.�

While breaking up the monopolies is Nemtsov’s pet project, it is also his millstone. The charismatic 38-year-old is seen as a promising candidate to run for President Boris N. Yeltsin’s job in 2000 and his fate probably hinges on what might be the reform era’s tallest order.

The railroad restructuring has already begun with a decision in March that peripheral property, activities and services be spun off. As was the case with most Soviet operations, the railroad owned everything from workers housing to hospitals to summer recreation lands, as well as all factories producing track, wagons, locomotives and even customized teacups for use in passenger compartments.

Some of the properties, such as schools and hospitals, have been deeded to municipal authorities in the towns and cities where they are located, and housing has been “privatized� by giving it to existing tenants.

“The second phase of the reform is more difficult. It involves dividing the railroad’s activities into a competitive sector and infrastructure,� said Oleg A. Moshenko, deputy railroads minister. “We still haven’t drawn the line between what is best produced by the state and what could be converted to private enterprise.�

Private firms offering cargo handling, delivery, food service, cleaning or maintenance are expected to take shape and bid for the railroad business, renting use of the rails, wagons and other infrastructure from the state, Moshenko said.

Although passenger traffic on the rail system has fallen to a third of its Soviet-era volume, the trains still carried 1.5 billion passengers last year--an average of more than 10 trips for each of Russia’s 148 million citizens. And for every passenger wagon rolling along the rails, two freight cars are in motion, even if they are often underutilized. Nearly 78% of all cargo moved within Russia was carried by rail last year, said ministry press service editor Lyudmila Yangel.

But to keep the trains running, the government this year has budgeted $75 million in direct subsidies and millions more to prop up other consumer services, such as fuel and electricity, used by the railroad network but not paid for in full or on time.

Passenger traffic is down primarily because hard times have meant Russians have less money to travel, but with the price of a rail ticket now twice what it would cost to fly the same distance on some of the newly competitive airlines, those running the railroads realize their passenger volumes are unlikely to ever make a comeback.

Shippers too have demonstrated a sharp preference for sea or air transport, which has caused a substantial drop in cargo volume. Figures for freight carriage are unreliable, Yangel said, because Russia’s customs union with its Baltic exclave of Kaliningrad and neighboring Belarus allow much of the volume to be registered elsewhere. But the number of freight trains has been halved since 1992, and container cars on average carry only 30% of capacity, Yangel said.

Railroad employees note that encouraging the emergence of competitive companies will take more than government edicts. A growth in cargo volume is needed, as well as more cost-effective handling, and there is little expectation that an industrial production boom is on the horizon.

The ministry has embarked on a sales campaign with Russia’s Asian neighbors, touting the Trans-Siberian’s nine-day trip for freight from the Pacific coast to the Belarussian city of Brest, which is a gateway to Western Europe. That compares, the officials contend, with a 36-day sea journey and offers a 20% saving.

‘I Never Send by Railroads Anymore’

Those pitches so far have made few inroads with Asian shippers, and two out of three container carriages roll along empty. At the Batareinaya freight yard just outside this key junction on the Trans-Siberian, which handles all cargo destined for eastern Siberia, vast open spaces yawn with stillness, broken only by rusting overhead cranes and a few auto-laden wagons waiting to be unloaded.

“I never send anything by the railroads anymore. I’ve learned my lesson,� said Alexei Aksyutin, head of the Irkutsk-Press newspaper and magazine distribution service.

Aksyutin stopped using the railroad only weeks after he started his private business in 1993 because the paperwork was pointlessly voluminous and time-consuming and deliveries too unreliable for his time-sensitive products.

“You can’t even complain to anyone. The railroad is such an unapproachable monolith that customers who make their dissatisfaction known are treated like troublemakers and their goods are held up even longer,� he said.

In the workers settlement next to the Batareinaya freight yard, the despair of a dying company town was already in the air despite widespread ignorance about details of the reform plans. Squat brick housing blocks were surrounded by stray dogs, smoldering dumpsters and dust clouds that had been churned up on the unpaved roads that lead to the freight yard.

Residents had heard little to nothing about the planned streamlining that probably threatens many of their jobs. Some shrugged off the risk of being aced out by competition as a blow they’ve been expecting.

“What do we need a railroad here for anyway? There’s no industry working, not even the lumber mill,� said Nadya Korovyakina, a 39-year-old grocery store clerk whose husband works at the freight yard.

Others echoed the refrain that has played throughout Russia’s torturous economic transition, wondering aloud, like freight handler Lida Gavrilova: “What will become of us?�

Like other state employees, she complained that ill-executed reforms have already left a trail of human casualties throughout the country. Rather than closing idle state factories or laying off excess workers at the monopolies and training them for new work, the government simply withholds their pay for months to cover budget shortfalls. Those who have succeeded in making the transition to private enterprise mostly did so without any help from the state.

Miners Learn From Rail Workers

Railroad workers have had more clout than redundant miners and factory workers because strikes and disruptions anywhere along the track can wreak havoc with the schedules and budget of the entire network. But miners have learned a lesson from their railroad counterparts: A recent miners strike blocked the Trans-Siberian for 10 days.

Although the railroads are vital to the economy of Russia today, some analysts contend that their role as primary carriers of cargo are numbered. They believe that the potholed back roads linking the hinterlands will one day be replaced with a network of freeways.

“Considering the huge territory we have to cover in this country, we will probably never be fully independent of the railroads,� said Valentin V. Korshunov, head of the federal postal service that relies chiefly on rail and air services to carry mail. “But Russia will one day have a modern highway and trucking network, and then we will be able to ease our dependence.�

In the meantime, the only competition is unsanctioned back-door dealings like the dining-car delivery team and conductresses who, for token bribes, sell open compartments in the first-class carriages to second-class passengers.

“We all have to make ends meet, and I couldn’t do it on my state salary,� said Slava, a burly cook who said he makes twice his normal pay with the internal moonlighting.

But it has never occurred to him or his colleagues to form a small company that could bid for the contract to handle the goods he already delivers for friends they have made along their regular route.

“I’d be taxed and regulated into poverty,� the career railroad worker said, wiping at the sweat produced in the two-minute melee at the remote Mogocha station. “It’s easier to be a private businessman if you have a state job as cover.�