BAM RAILWAY TO BECOME EXPORT ROUTE?

The Baikal-Amur Railway line (BAM) was originally designed to become a strategic alternative to the Trans-Siberian Railway. The BAM was also supposed to give the development of Eastern Siberia a much-needed boost. But instead of powering new industries in the region, BAM appears on its way to becoming yet another export route to sell Russian natural resources overseas.

BAM has started funneling crude from smaller oil fields near Irkutsk at initial rate of some 10,000 tons per month. The crude is currently being funneled from the Dulismin and Yaraktin deposits via a local pipeline and from the Markov deposit by river. Oil is reloaded at Ust-Kut and subsequently funneled by rail to Komsomolsk-on-Amur and to the port at Vanino.

A 110-kilometer oil pipeline linking Ust, Kut, and Markov is currently being built, while the Ust-Kut-Verkhnechonsk 320-kilometer pipeline is due to be completed by 2006. Verkhnechonsk reserves are estimated at 200 million tons and some 100 billion cubic meters of natural gas (Itar-Tass, April 25).

Russian Railways plans to funnel crude oil via BAM, according to director Gennady Fadeyev. From January 2006, the Uyar railway oil terminal in Krasnoyarsk region would resume operations for the first time since 1983, added said (Interfax, March 21).

BAM was rescued from oblivion after Kremlin Chief of Staff Dmitry Medvedev discussed development of Siberia and the Russian Far East in an unprecedented interview last April. However, Medvedev cited BAM as an example of the wasteful projects to be avoided in the future. “We do not need yet another huge construction project with unpredictable outcome, as happened with BAM.” The proposed Pacific pipeline, with an annual capacity up to 80 million tons, comes “as a mega-project that may boost development in Siberia and the Russian Far East,” comparable to the BAM in scale, he said. However, money allocated for pipeline construction must be wisely spent.

The BAM route, which traverses Eastern Siberia and the Russian Far East approximately 400 to 500 kilometers north of and parallel with the Trans-Siberian railway, was first proposed in the 19th century. Most of the Eastern section was built during the 1930s and 1940s by prison labor. In 1953, following Stalin’s death, the project was abandoned.

When relations with China deteriorated in late 1960s, Moscow feared that its former ally would try to seize part of the Trans-Siberian Railway, which runs close to the Chinese border. Construction of the nearly 4,000-kilometer rail system resumed in July 1974.

The railroad starts in Tayshet, bends around the northern coast of Lake Baikal, and goes further eastward to Sovetskaya Gavan on the Pacific coast. BAM was finally declared complete in 1991 at an estimated cost of $10 billion. However, BAM’s true price tag remains almost impossible to verify because the bulk of the investment was made during the Soviet-era.

Between Taishet to the west and Komsomolsk-on-Amur in the east, the BAM route is 480 kilometers shorter than the Trans-Siberian route, thus BAM could siphon off some of the Trans-Siberian’s cargo traffic.

However, BAM stills runs well below capacity. Some six trains operate each day along the entire line, and these run infrequently. According to Russian Railways, BAM funnels about 8-10 million tons of cargo annually, although actual capacity is closer to 18 million tons per annum. Russian Railways plans to funnel 18.7 million tons of freight through the BAM by 2010.

BAM is expensive to operate. Power supplies are infrequent through the taiga, but the alternative, diesel-powered carriages, are less cost-efficient. BAM traverses the permafrost area and runs through swamps, taiga, mountain ranges, and over hundreds of rivers, making maintenance expensive.

Subsequently, the cost of BAM freight is roughly 2.4 times higher than via the Trans-Siberian Railway, effectively pricing BAM out of the cargo market. Its current revenues cover less than half of the maintenance costs. Russian Railway’s annual BAM-related losses are estimated at 2 billion rubles ($72 million).

The railway still serves as the gateway to the BAM Zone. Before 1970s, the BAM Zone was a complete wilderness, uninhabited taiga, and small villages of indigenous people. Now the BAM Zone population is about 300,000, including several urban hubs.

Railway designers planned new major industrial centers along the Baikal-Amur corridor to process its timber, coal, gold, silver, copper, jade, lead, zinc, iron, titanium, and other resources. But these projects remain only on paper, and the government does not have the money to build them. So far, only some coal mines were opened and their high-quality coal from Southern Yakutiya is being shipped to Japan for use in making steel.

Fadeyev has earlier indicated that Russian Railways plans to invest up to 30 billion rubles ($1.08 billion) to develop the BAM in order to make the railway operate profitably. But BAM has no capital to invest in developing the industry that could eventually ensure its success.

Russian Railways is also mulling joining projects to develop the Chineisk iron ore deposit in Chita region, as well as the Elginsk coal deposit in Yakutiya. The Elginsk project would require completion of the Berkakit-Tommot-Yakutsk railway, an offshoot from the BAM.

Investments, both domestic and overseas, remain virtually non-existent because of BAM’s remote location, extreme climate, and expensive electricity. Subsequently, BAM charges high price for hauling cargo, thus undermining its own competitiveness.

Therefore, the BAM railway is likely to continue struggling to make the ends meet as a commercial enterprise. Its strategic value as an alternative route to the Trans-Siberian Railway has been also dropping into irrelevance amid today’s fast changing geopolitical environment. Subsequently, BAM appears destined to become increasingly export-oriented.