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Market Overview

Russian Transport Infrastructure Market: History of Development

The Russian transport infrastructure construction market historically has been underfinanced. As a result, the capacity and quality of the country's transport infrastructure remains poor, costing the Russian economy it is estimated over RUB1.3 billion or 3% of GDP annually, according to the Research and Design Institute for Regional Development and Transportation.

Only 64% of the total roads length complies with the relevant regulatory requirements for transport and operating parameters. The existing quality and availability of transport infrastructure are insufficient to support the country's economic growth.

Acknowledging the situation, the Russian government made development of transport infrastructure its priority. Following a period of chronic under-financing in the 1990s, transport infrastructure is currently a booming sector of the Russian construction market. Road, bridge, railroad, airport, port and shoreline infrastructure construction and rehabilitation accounted for 11%1 of RUB 6,125.2 billion in total construction investments in Russia in 2015 according to Rosstat.

The Federal Target Program (FTP) «Russian Transportation System Modernization in 2002-2009» was successfully completed in 2009. Projects and ideas initiated as part of the program were endorsed in the new FTP for the period 2010-2015, adopted by the Russian government in 2008. Implementation of the new FTP as part of the Transportation Strategy of the Russian Federation is currently underway.

Approved by Government Order 319 of 15 April 2014, the State Programme “Development of the Transport System for the Period 2013-2020” anticipates distinct financing for two separate federal target programmes: “Development of the Transport System of Russia (2010-2020)” and “Modernisation of the Unified Air Traffic Management System of the Russian Federation (2009-2020)”, as well as for sub-programmes “Mainline Rail Transport”, “Public Road System”, “Civil Aviation and Air Navigation Services”, “Maritime and Inland Waterway Transport”, “Transport Surveillance and Control”, “Highway Development within the Framework of Public-Private Partnerships”, “Transport Support for the 2014 Olympics and the 27th World Summer Universiade in Kazan”. 

The bulk of total State Programme budget financing has been allocated to the federal programme “Development of the Transport System of Russia (2010-2020)” (58%). The Programme places considerable focus on the need to attract investment into the transport sector through implementation of the following measures:

  • long-term (life cycle) contracts for design, construction and subsequent maintenance of transport infrastructure, including development of optimal organisational, managerial and financial schemes for contract implementation;
  • improvement of rules and regulations for project design, pricing, and Government assessment;
  • development of measures to improve public-private partnership mechanisms;
  • development of project financing mechanisms, prioritisation of projects and funding sources, including through the use of Government guarantees, bonds, funding from the RF Pension Fund and the National Welfare Fund.

The total volume of investments in transport infrastructure in Russia increased by 33% in 2007-2015. The government's focus on transport infrastructure development made the sector relatively resilient to crisis. Indeed, the transport infrastructure construction sector not only remained unaffected by the crisis but also posted growth of 5% growth in 2009, compared to an 11% fall in housing construction volumes. The most significant achievement of 2013 was the completion of the construction sites in Sochi and Kazan. All preparatory measures to ensure transport support to the 2014 Sochi Olympics and the 2013 Kazan Universiade were implemented in full. The downward readjustment seen in the market was a natural consequence of the ending of these projects in 2013. During the last two years of crisis 2013-2015 market decline was around 10%.

Russian Transport Infrastructure Construction Market, 2007-2015, RUB billion (excl. VAT)
20082009201020112012201320142015
566.5594.4591.8660.1654.7648.8623.8594.5

Source: PMR and EMBS Reports

Market Structure

Russian Transport Infrastructure Market Structure in 2015, RUB billion (net of VAT), %
Roads and bridges438.574%
Railways36.56%
Airports and airfields76.513%
Ports and other infrastructure43.07%
Total 594.5

 

2015 Transport Infrastructure Market Structure, RUB billion (net of VAT), %

Source: EMBS Group report

Roads and Bridges

2015 construction and reconstruction projects delivered 422.8 km of federal roads, including 53.7 km of highways administered by Avtodor SC. This was respectively 41% and 60% less than in 2014.

Implementation of priority measures aimed at ensuring overhaul, repair and maintenance of public federal roads and road safety in 2015 allowed to increase the length of federal roads compliant with the relevant regulatory requirements by 5.3 thousand km compared with the previous year. The share of federal public roads compliant with the relevant regulatory operating requirements was 63.6% of the total road network.

PPP Highway Development

As of 1 January 2016, Avtodor SC acted as the trust manager of the M-4 Don, M-1 Belarus, M-3 Ukraine, M-11 Moscow - St. Petersburg highways, as well as a section of the A-107 Moscow Smaller Ring Road, with a total length of 2,860.0 km.

The state company has entered into and is currently executing 12 operation, long-term investment and concession agreements for a total of RUB522 billion, of which RUB125 billion is co-financed from extrabudgetary sources.

As part of the key measure «Overhaul, Repair and Maintenance of Federal Roads Administered by Avtodor SC», road sections with a total length of 41,396.2 km, including 281.2 km of repaired and 115.0 km of capitally repaired roads, were commissioned in 2015, increasing the total length of roads compliant with the relevant regulatory operating requirements to 1,932.5 km. In addition, 26 repaired and capitally repaired bridges with a total length of 3,388.17 m were commissioned.

TENDERS

A total of 45 tenders were held in 2015, compared to 94 in 2014. The total volume of tenders was RUB386.3 billion2, a 29% decrease year-on-year. About 67% of the total volume passed through the Federal Road Agency, driven by the signing in 2015 of the RUB211.8 billion (including VAT) contract for construction of the Kerch Strait Bridge. 28% of tenders were held by the City of Moscow, while Avtodor SC offered virtually no tenders in 2015.

Average tender size , RUB million (incl. VAT)
2009201020112012201320142015
2,5772,7563,2443,5104,0055,7908,866

Source: The Official Russian Federation public procurement information website http://zakupki.gov.ru

Railroads

In 2015, 45% of total national freight was carried by rail (excluding pipeline transportation: 86%).

Total length of commissioned additional rail mainlines and new railroads was 118.8 km (2014: 100.7 km), including:

  • 60 km as part of the Moscow Transport Hub development program
  • 11.7 km as part of the Baikal-Amur and Trans-Siberian railways modernization and throughput/carrying capacity development program.

Due to adjustments in 2015 to Russian Railways JSC project schedules amid a challenging economic environment and in accordance with Russian Railways JSC financial capacity, 2015 total investment in railway construction was RUB43.0 billion, a 31% decrease year-on-year. The share of investment in railway infrastructure in total investment in transport infrastructure development was 7% (2014: 10%).

Airports

2015 saw a reduced demand for air transportation, due to weaker macroeconomics and an unfavorable external economic and geopolitical environment. Total air passenger turnover was 92.1 million pax, compared with 93.2 million last year. The reduction occurred in international traffic, while domestic passenger traffic was up 14%. Strong dynamics on domestic routes was largely due to state support measures aiming to develop regional air transport.

Key civil aviation infrastructure development projects included reconstruction and development of the Moscow Air Hub airport complexes, including ongoing construction of a new runway at Domodedovo. 2015 saw rapid development of the Simferopol Airport, which is already one of the five largest airports in Russia with a traffic volume of over 5 million pax.

In 2015, the airport construction and reconstruction segment received 6% of total investment in the industry (2014: 9%). In absolute terms, the total volume of investment in the segment was RUB36.5 billion, a 36% decrease year-on-year. A significant volume of investment in the reporting period was allocated to aircraft fleet renewal (+ 56% YoY), which limited investment into airfield and airport construction and reconstruction projects as such.

Seaports and Inland Waterway Infrastructure

Investment in port infrastructure development was the only growing segment with more than a 2x increase from RUB36.1 billion in 2014 to RUB76.5 billion in 2015. The share of investment in the segment in total industry investment was 13% (2014: 6%).

2015 saw an improvement in qualitative metrics of inland waterways. Maintenance of inland waterways and navigable hydraulic engineering constructions was carried out in accordance with the categories of aids to navigation and their useful life, guaranteed navigation pass dimensions, as well as operating schedules of navigable hydraulic engineering structures.

Incremental growth of production capacity of Russian ports in 2015 was 23.1 million tons, driven by implementation of the following projects:

  • Stage 1 commissioning of Bronka Multi-Purpose Sea Transshipment Complex (St. Petersburg) (8.08 million tons)
  • Commissioning of a facility under the project «Temporary Raid Reloading Complex» at the seaport of Murmansk (15 million tons).

2016 Development Outlook

On March 1, 2016, the Russian Government approved an action plan aimed at ensuring sustainable socio-economic development of the Russian Federation. The plan includes emergency measures to stabilize the socio-economic situation in prevailing macroeconomic conditions and structural measures to ensure sustainable socio-economic development. A set of urgent measures is aimed at supporting specific economic sectors, including the transport sector. Structural measures are aimed at creating favorable conditions for attracting investment and reducing economic costs.

According to the federal target program, federal budget financing for the transport infrastructure construction sector will be increased by 5%. At the same time, the Federal Road Agency intends to invest RUB86.7 billion3  (2015: RUB93.3 billion4) in federal highway construction and reconstruction projects and RUB205.5 billion5 (2015: RUB186.1 billion6) in existing federal road and bridge repair and maintenance projects. The amount of 2016 budget financing for the Kerch Bridge construction is estimated at RUB65.4 billion .

At the same time, 2016 will be affected by the consequences of reduction in 2015 of financing of construction projects and a significant decrease in the number of newly started projects. And while the volume of commissioned sites in 2015 was higher compared to the reduction of financing, slowdown in project commissioning in 2016 will outstrip adjustment in financing volumes. Such a significant change in conditions will require new approaches to the implementation of roadwork programs, with a stronger role of mutual coordination in road network development and road maintenance projects.


[1] Company estimates based on EMBS Group Report and Rosstat data
[2] Customers: Avtodor SC, Federal Road Agency, and Moscow City. According to the RF government official public procurement website zakupki.gov.ru. Including VAT.
[3] Federal Road Agency Management Report on 2016 Targets and Priorities, dated 31 March 2016. Excluding road repair and maintenance costs and investment in Kerch Bridge construction
[4] Federal Road Agency Management Report on 2015 Results. Excluding road repair and maintenance costs and investment in Kerch Bridge construction
[5] Excluding VAT. RF Transport Ministry Report on 2015 Results and 2016-2018 Targets and Priorities
[6] Including VAT. FTP «Social and Economic Development of the Republic of Crimea and the City of Sebastopol until 2020»