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President of Russia Dmitry Medvedev: It has been half a year now that the sector has been working in new conditions. I would like to hear from you about the current situation, the results achieved, the difficulties, and what results you hope to achieve for the year overall. Are any legislative changes needed? Overall, what is your assessment of the situation, taking into account the fact that the sector represents the bulk of passenger and freight transport in our country?

President of Russian Railways Company Vladimir Yakunin: I will start with the last question. The sector is stable, there are problems of course, but the company’s freight transport growth was almost 1.7 times higher than freight transport growth in Russia’s transport system as a whole, and this underscores the sector’s stability. This is also a sign of economic growth in general of course, and it is evidence that the policies decided by the country’s leadership, the government, are being implemented in the programme to reform the railways sector and are producing positive results overall. Over this time we have had a significant increase not just in so-called low-revenue freight, but also in high-revenue freight: construction materials, coke, ore and ferrous metals.

It is also good to see that we are transporting more finished products. Transport of agricultural machinery was up 31 percent, for example, and transport of machines and equipment increased by around 31 percent. The railway sector is especially sensitive to any changes in the economy.

Dmitry Medvedev: This probably means simply that now there is something to transport.

Vladimir Yakunin: Absolutely right.

One of our most important tasks was to deliver energy supplies for the winter, and there were some difficulties at moments in this respect. I think you and the government were informed of this.

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Today, there is not a single region facing a critical situation with regards to energy supply deliveries. We are resolving all the problems.

I think the fact that freight transport tariffs have increased 74 times since 1990 is significant. Over this period, industry has grown 230 times, the energy sector around 300 times, and the metals sector 400 times. In other words, rail transport prices cannot in any way be seen as something holding back economic growth. I think this is also the real embodiment of the reform plans being implemented today by the board of directors and the Government.

Dmitry Medvedev: Am I right in concluding that you consider the tariff policy in the rail transport sector to be balanced?

Vladimir Yakunin: Forgive my frankness, but with the President things need to be said as they are. I think that the policy really was balanced until last year. This year, unfortunately, this balance has been lost somewhat due to the international situation and internal problems. Over the first half of the year price growth was lower than the planned inflation level, but many processes, including inflationary processes, make it necessary to raise prices. The balanced character lies in the fact that rail transport costs as a share of the overall costs of goods have been steadily declining over all these years. I think this is the most important and convincing argument in answer to the question of the impact price rises have on economic growth prospects. In 2003, price rises led to inflationary growth of around 0.7 percent, while in 2008, price growth has led to a rise in inflation of 0.24 percent. This is also evidence of a balanced tariff policy in the railways sector.

You asked about the problems that we encounter, Dmitry Anatolyevich. Of course, there is the tension that arises from the price pressure on the sector, and this means that we can earn only as much as the tariffs we set make possible. Our expenses are growing not in proportion with our revenue, and we are thus unable to channel as much money into investment, into buying new rolling stock. The tension is not serious, but just to answer your question, I can say that we are working actively with the Government on the tariffs and investment issues.

There are other matters we need to resolve. You asked about the need for legislative changes, for example. I think that we need to move away from the system of three-year planning for compensating loss-making passenger transport activities, for example, to a system where it would be stipulated in the law that this is compensated by the state. The period covered by the subsidies from the state – three years, five years, ten years – is not important. I think this would be the right decision.

Another issue is the development of high-speed rail transport. We have no legal framework and regulations covering this area. With your permission, we therefore propose developing a legislative framework, perhaps even in the form of a presidential decree, setting the legitimate basis for carrying out projects to develop and finance high-speed rail transport.

Dmitry Medvedev: Let’s reflect on this matter. Of course, there should be modern and relevant laws in place for new types of rail transport. Let’s decide whether they should take the form of laws or presidential decrees. I am ready to give all the necessary instructions.

I would also like to hear your comments on the state of railways in the two new entities under international law – I mean Abkhazia and South Ossetia. We have to help them. We are close now to signing a treaty on friendship and mutual assistance. What is your evaluation of the railways in these countries?

Vladimir Yakunin: The situation is different in each country. In Abkhazia our cooperation never really ended. As you know, there was a time when we were looking with the Georgian and Abkhazian railways at restoring rapid traffic on this section, but then this project stalled. Of course, the infrastructure in Abkhazia leaves much to be desired today. We are doing what we can to help. We have provided assistance in rebuilding infrastructure and our colleagues, military railway workers, have carried out considerable work. So there is a de-facto railway link with Abkhazia. We know how much investment is needed to bring the infrastructure up to the standards we require. This is fairly sizeable investment. But we know too that transport needs today can be met.

The situation in South Ossetia is completely different. There is effectively no direct rail link between Russia and South Ossetia. I have already got some work underway in this area. We have instructed our design institutes to work on it and I can show you the maps. We have begun this work already but it can only be carried out with state support and on state instructions.

Dmitry Medvedev: Good, we will talk about this too. There are also a number of international projects. Our Armenian colleagues were here recently, and colleagues from other places. We will also talk about these projects and about what steps we need to take to move forward in these areas.

Vladimir Yakunin: Incidentally, regarding Ossetia, I can tell you that on the second day, Russian railway workers, the staff teams, decided to transfer their wages for the day into a special fund, and on the fifth day humanitarian supplies from the railway workers were sent with the help of Emergency Situations Minister Sergei Shoigu to South Ossetia. In other words, we are not overlooking these issues either.

Dmitry Medvedev: Good. Thank you.