Russian Economic Reform

Past Articles on the work of each of the 21 Expert Groups can be accessed here:

Road, rail and GPS

Published on July 17 2011
Posted by: jeff

Group 19 says that the “most capital-intensive and socially-conflicted issues of Russian federal transport policy are in the areas of railways and roads”. It makes a number of suggestions including: very significant increases in taxes related to road transport and the possibility of a Dutch-style GPS based road tax system; better management of road building contracts; and possible introduction to Russian Railways of a freer “wholesale market” system.

Jeff says that ….

(Not surprisingly, Group 19 has focused on road and railways which are, and always will be, mainly natural monopoly in character.  ICT, aviation and water get a run in the reports, but many of the problems in each of these can be addressed by private investment and appropriate competition laws administered by the FAS — and at least Moscow has three significant airports, in contrast to Sydney where the only airport has been privatized with resultant monopoly pricing policies and resultant clumsy competition policy “access regimes”. The most interesting issue is a GPS based road tax system. The Ministry of Economic Development is reportedly against very large increases in excise taxes – which are 4.35 rubles per litre and with small increases planned – and would like more action to reduce the cost of road construction.)

According to this Group, annual Russian investment in development of transport systems is 2.0-2.2% of GDP. In countries with highly developed transport infrastructure (USA, Canada, Western Europe) it is around 3% of GDP, while in China more than 6% of GDP. According to data for 2009-10, and also fiscal forecasts for 2011-13, Russian investment in developing transport system is (and will be) within 2-2.2% of GDP, with the Federal budget accounting for 0.8-0.9% of GDP.

Russia needs to take a strategic decision about increasing investment in transport systems to a level of 4-4.5% of GDP. Paying for this will require “unpopular measures” connected with the cost of owning motor vehicles and transportation tariffs.  

Official forecasts for investment in roads to 2020 are in the order of 1.2-1.3% of GDP. Private investment in roads (including foreign investment in framework of concessions and state-private partnerships) may be implemented in only a few separate projects, and cannot change the situation in the road sector of country as a whole.

The contribution of general budgetary financing to roads (that is, by general taxes not connected with motor transport), must be restricted to projects of national significance (APEC, Sochi Winter Olympics etc).

Thus, taxes connected with motor vehicles need to be increased. Now motorists cover only 40% of budgetary expenditures on the road system (30% from excise on fuel, 10% from transport tax). During  2012-15 excise on motor fuel should be increased by not less than 7-8 rubles per litre.

The share of transport expenses in costs of producing goods and services is estimated at 20-25%, of which up to a quarter is motor fuel. The suggested excise approach would increase the price of benzene by about 25%. The “inflation effect” would be up to 1.2-1.5%. 

There needs to be modifications to the local transport tax system so that it reflects motorists use of municipal territory for parking. There may need to be an additional tax.

Russia could also introduce a tax on kilometers travelled, as in Holland. This tax will be charged/collected at differential rates, depending on category and location of roads, and also on a number of characteristics of an automobile and its owners. Size of payments is calculated as a result of using GPS-tracking of automobile movements (in Russia it would be GLOSNASS). Such a system could be used to help resolve a number of issues, such as controlling access to city centers etc.

According to this Group, a reasonable level of investment in railway infrastructure would be about 1-1.5% of GDP per year. The investment plans of Russian Railways in period to 2020 (not including measures to develop passenger communication) are the equivalent of only 0.33% of GDP, and forecast numbers for 2011-13 suggest even less. This Group has made a number of possible suggestions, including freeing up the “wholesale markets” in a similar way to the wholesale market in electricity, and says that it will work with Group 18 (on natural monopolies) to further consider these issues.