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Viewing cable 06MOSCOW12161, DOT DEPUTY SECRETARY CINO'S MEETING WITH RUSSIAN

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Reference ID Created Released Classification Origin
06MOSCOW12161 2006-11-01 11:47 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow
VZCZCXRO6188
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMO #2161/01 3051147
ZNR UUUUU ZZH
O 011147Z NOV 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4738
RULSDMK/DEPT OF TRANSPORTATION WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEAIIA/CIA WASHDC IMMEDIATE
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
UNCLAS SECTION 01 OF 02 MOSCOW 012161 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB AND EUR/RUS 
USDOC FOR 4321/ITA/MAC/EUR/RISA EDWARDS AND BEADLE 
USDOC FOR 3004/CS/ADVOCACY/BLOOM 
NSC FOR GRAHAM AND MCKIBBEN 
 
E.O. 12958: N/A 
TAGS: ECON ELTN OVIP PREL RS
SUBJECT: DOT DEPUTY SECRETARY CINO'S MEETING WITH RUSSIAN 
RAILWAY VP MOROZOV 
 
 
1. (SBU) SUMMARY.  In a October 24 meeting with Deputy 
Secretary Cino, Russian Railroads (RZhD) Vice President Vadim 
 
SIPDIS 
Morozov discussed on-going RZhD restructuring efforts and 
competition in the rail sector.  Morozov said GE's diesel 
engines had been found incompatible with Russia's mostly 
electrified rail system, but left open the possibility of 
using GE's radio technology for their signaling system. 
Morozov supports the creation of a working group between RZhD 
and U.S. transportation authorities.  END SUMMARY. 
 
2. (SBU) On October 24 Deputy Secretary of Transportation 
Cino met with Russian Railroads (RZhD) Vice-President Vadim 
Morozov.  Morozov presented an overview of RZhD's 
restructuring efforts and recent accomplishments.  RZhD is 
one of three large state-owned natural monopolies (Gazprom 
(gas) and RAO UES (electricity) are the other two) currently 
undergoing reform.  The first two stages of rail reform were 
completed by November 2005, and in August 2006, RZhD 
President Yakunin signed a new government approved plan for 
the 2006-2010 period that calls for: increasing competition 
in the sector; modernizing RZhD's capital stock; selling off 
non-essential assets; attracting investors; and eliminating 
cross subsidies between its freight and passenger operations. 
 
BUSINESS BOOMING 
---------------- 
 
3. (SBU) Morozov rattled off a list of accomplishments to 
date.  RZhD had kept rate of freight tariff (price) increases 
at or below inflation, and, since 2003, growth in freight and 
passenger operations has averaged four percent a year.  RZhD 
transported one billion passengers this year and was 
increasing the quality of its services.  As one of the 
largest employers in the country, RZhD has raised wages, in 
line with increases with labor productivity.  The financial 
situation has been stable and profits in 2005 exceeded $4.2 
billion. (Note: According to press reports, this is a 50 
percent increase over the previous year.)  The three 
international rating services, Fitch, S & P, and Moody's have 
given RZhD high ratings.  RZhD is important to the economy -- 
one out of every four rubles of RZhD's revenue goes into 
federal coffers. 
 
RAIL REFORM CONTINUES 
--------------------- 
 
4. (SBU) RZhD subsidiaries have been established to deliver 
services in container, refrigerated, automobile, and timber 
transport.  By the end of 2007, Morozov expects 40 new 
companies to be set up.  After creating separate companies, 
they will be sold off to increase available funds for 
investment.  RZhD was investing $6 billion a year on 
infrastructure and upgrading its capital stock. 
 
5. (SBU) Private competition has been developing at an 
unexpectedly rapid pace.  According to Morozov, non-RZhD 
companies increased the number of cars they were operating 
from 200,000 in 2003 to 310,000 in 2006.  There has been a 50 
percent growth in the high profit end of the market.  Whereas 
RZhD works under a regulated tariff regime that is 
established by the Federal Tariff Service, RZhD's competitors 
are free to set their own prices. (Comment: the inference 
here is that competitors are undercutting RZhD's set prices. 
End comment.) Competition is also heating up in the market 
for passenger service.  There are now four competitors 
operating on the busy St. Petersburg - Moscow line.  RZhD is 
planning on forming a holding company dedicated to passenger 
service.  However, the government will continue to subsidize 
RZhD's passenger service. 
 
6. (SBU) Further reforms will require additional amendments 
to the Charter on Railroads and Rail property.  RZhD is 
working closely with the Ministry of Transportation, 
inspection agencies, and both chambers of the legislature. 
 
ASIA-EUROPE CORRIDOR 
-------------------- 
 
7. (SBU)  Morozov said that the distance from Nakhodka to the 
Baltic states was 10,000 km long and different electrical 
currents used by the trains along the way slowed down freight 
transportation.  RZhD transports up to 350,000 containers 
from Asia to Europe.  He sees great potential for the 
 
MOSCOW 00012161  002 OF 002 
 
 
Trans-Siberian line to increase this number threefold. 
Currently, there are 17 million containers stacked up in 
Korea and Japan awaiting shipment to Europe.  It takes 30 to 
35 days to ship the containers by sea.  RZhD could deliver 
the same containers in 12 to 15 days.  Admittedly, Russia is 
lagging behind in transport logistics.  RZhD is working on 
joint projects with China, Korea, Germany, and Poland to 
improve the integration of their transportation 
infrastructure.  He joked that if North Korea wasn't busy 
blowing up bombs, Russia would already have a direct rail 
link to South Korea. 
 
RZhD-GE COOPERATION 
------------------- 
 
8. (SBU)  When Deputy Secretary Cino raised comparisons 
between the U.S. and Russian rail systems, Morozov said that 
U.S. freight cars are solid, but heavy, and Russian trains 
can travel 10-12 km faster because they are lighter.  Turning 
to GE engines, he said that their diesel engines are not 
compatible with the Russian rail system, which is 80 percent 
electrified.  In comparison tests conducted between U.S. and 
Russian engines, Russian engines won out when both engines 
were subjected to extreme weather conditions, not an uncommon 
phenomena in Russia.  Morozov held out hope for cooperation 
with GE using its radio control technology.  RZhD has chosen 
foreign equipment over Russian technology in the past, like 
the decision to purchase eight German high speed engines for 
the planned Moscow - St. Petersburg express line.  The deal 
includes local content provisions and requires production to 
take place in Russia. 
 
FUTURE COOPERATION 
------------------ 
 
9. (SBU)  Morozov responded favorably to Deputy Secretary 
Cino's suggestion that RZhD and U.S. Transportation 
authorities conduct working group meetings to discuss areas 
of common interest in the future. 
 
10. Deputy Secretary Cino's party has cleared this message. 
BURNS