Privatization of Russian Railways. What does this mean and what is the probability of an event?

Talks about the privatization of "Russian railways" have been going on for a long time. And if almost all representatives of the older generation brought up in the USSR are categorically against it, others still wonder how beneficial this process is for the economy as a whole and for citizens in particular. Such conversations still cause some concern, because Russian Railways is one of the largest companies in the Russian Federation. Transportation by rail is included in the list of the most important industries, even if it does not bring significant profit.

Who is the owner of Russian Railways

JSC "Russian Railways" is currently the largest owner of railway infrastructure in the Russian Federation, a carrier of passengers and cargo. All 100% of the shares belong to the state. That is, the Russian Federation is the sole rightful owner of Russian Railways.

Officials are entrusted with the functions of forming the board of directors and compiling annual reports. The management of the company is handled by the Management Board. It consists of several top managers, each of them is engaged in a certain direction.

The structure of JSC is quite extensive. It includes more than 30 branches. But not all of them are directly engaged in transportation by rail. Only 16 branches of Russian Railways have this right. They have a special status ― a Regional Corporate Governance Center. 

What is privatization

This is the reverse process of nationalization. Note that the term "privatization" is used only for state or municipal enterprises. It is understood as a form of property transformation, in which shares are transferred to private investors. 

Analysts believe that privatization can improve the efficiency of the economy. The state wins by selling enterprises, especially if they do not bring a lot of profit. Private investors pay a large sum to the seller when buying property. But that's not all. Next, the new owner will pay taxes monthly. As a bonus, filling the market with products and creating jobs.

In the case of the privatization of Russian Railways, the meaning remains the same. Enterprises can be reorganized at the request of the new owner. Development strategies will be set by the new management. Privatization increases competitiveness in the economic sphere and improves the quality of services, which is important for consumers.

Have there been attempts to privatize Russian Railways

Talks about the transfer of shares to "private hands" have been going on for a long time. Discussions were particularly active in 2005, 2012 and 2017. Economists talked about the pros and cons of privatization, but it didn't come to that. Although some decisions were made that pushed the state to sell Russian Railways.

In 2016-2017, there were rumors that the Federal Antimonopoly Service (FAS) wanted to introduce laws prohibiting state-owned companies from buying new assets. Moreover, the state should get rid of some enterprises. FAS experts agreed that even profile assets can be sold. 

Special attention was then paid to Russian Railways. This is a purely state-owned company that has quadrupled the number of its assets from 2005 to 2015. During this time, cargo turnover increased by 37%. But net profit has decreased significantly. If in 2005 this indicator was at the level of 114.4 billion rubles, then 10 years of public administration led to its significant decrease. The report for 2015 says that the net profit of Russian Railways is only 318 million rubles. A huge difference, given the growth opportunities of the joint-stock company. This was the main argument to promote the idea of privatization of this structure. 

"Rosimushchestvo" in 2012 planned to sell part of the shares of Russian Railways. A preliminary schedule was drawn up. Until 2015, they intended to sell 5% of the carrier's securities. Already by 2017, this indicator was intended to increase fourfold. But until the end of 2022, the shares of "Russian Railways" were not sold.  

It happened thanks to some changes. Instead of a direct sale of shares, officials decided to implement a "palliative scheme", according to which some assets of Russian Railways were transferred to the ownership of subsidiaries. However, this did not lead to anything. 

The process of privatization of state structures is called indecisive. And this is against the background of high interest from investors. Over the past 15 years, many organizations have expressed a desire to acquire Russian Railways assets. Among them are the First Cargo Company, FESCO and the Russian Direct Investment Fund.

Optimal scheme of privatization of Russian Railways

Economist Vladislav Inozemtsev proposed his own option of transferring assets of "Russian Railways" to private investors, in which some property will still remain in state ownership. He briefly told me what can be sold and what must be left. According to the expert, the state should retain such assets in its ownership:

• railway tracks;
• train stations;
• power supply systems;
• other important objects of railway infrastructure.

The state should get rid of wagons, locomotives, terminals, various warehouses and repair services. And you can sell them to different companies. This contributes to the optimization of these assets. Improvement will lead to an increase in the quality of services. As a result, the railway will become more competitive and will be able to claim customers who previously chose other modes of transport. 

Over time, the volume of container traffic will increase. They are considered the most profitable on the railway. And still this indicator is an order of magnitude lower than that of European transport companies.  

Consequences of the privatization of Russian Railways

Many economists are confident that the sale of assets of "Russian Railways" to private companies will optimize infrastructure and increase revenues. But not everyone shares this opinion. For example, the current CEO of the structure is Oleg Belozerov. He said that the current format of the holding's work is the most effective. In his opinion, the corporatization will not bring good results.

At the same time, Oleg Belozerov does not exclude the possibility of privatization of Russian Railways. This will be possible if an optimal price list system is compiled with excellent profitability and profitability indicators. 

The General director of the holding said that if the privatization is approved, it is advisable to sell packages of no more than 5% of shares. Belozerov himself prefers portfolio investors, as he previously stated.

Thus, opinions on the privatization of the holding differ. While some are talking about possible profits after the sale of assets, others say it is inappropriate. This is mainly motivated by the fact that Russian Railways is a strategic object.