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Central Asia: Railroads Play Crucial Role In Developing Central Asian Economy

Since the collapse of the Soviet Union, the two largest states in Central Asia -- Uzbekistan and Kazakhstan -- have chosen radically different approaches to developing railway systems to carry their exports to world markets.

Prague, 10 March 2003 (RFE/RL) -- The states of Central Asia have faced numerous economic problems since the collapse of the Soviet Union in late 1991. Among them has been assuming responsibility for transportation infrastructure.

In the case of Uzbekistan and Kazakhstan -- both huge countries without direct access to any ocean port -- finding a way to deliver their exports affordably to foreign markets remains key to their economic health. For both countries, rail transport is a cheaper and faster way of exporting such commodities as coal and steel than either air or road freight.

The Central Asian Railway, based in Tashkent, was created in the first decade of the 20th century as a separate, regional railway system servicing Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan, and Kazakhstan. Its operations were controlled and largely subsidized by Moscow.

When the Soviet Union collapsed, each of the five Central Asian states was faced with the problem of modernizing its share of the rail system's dilapidated infrastructure. The governments launched a campaign to promote the development of rail and freight-transport lines, recognizing that economic growth depended on it.

A look at the map shows why cooperation among the Central Asian states in rail transport is so important. Transporting freight by rail from Tajikistan and Kyrgyzstan requires a long journey through both Uzbekistan and Kazakhstan.

All freight transported west from China enters Kazakhstan at the Dostyk border crossing. From there, there are two alternatives routes: one across Kazakhstan to Russia, and the second southwest through Uzbekistan, Turkmenistan, Iran, and Turkey.

But Uzbekistan's growing tensions with Turkmenistan has Tashkent reportedly seeking an alternative route via Iran. Uzbekistan also wants a link to China via Kyrgyzstan.

But according to Kyrgyz parliamentary deputy Orozbek Duisheev, the cost of building such a railway through Kyrgyzstan would be prohibitively expensive. "This [railway] will go through about 200 kilometers of land with difficult terrain. Its price would be $3 [million] to $4 million per kilometer. The entire railway construction will be about 220 to 240 kilometers, so its price would be [at least] $600 [million] to $700 million. It is hard to find such money. I would say that nobody will give the [Kyrgyz] government a loan that size," Duisheev said.

Rail transport is of particular importance to the economies of Kazakhstan and Uzbekistan, both of which are vast countries with bulky export commodities like coal, iron, and steel that are best transported by rail. In 2000, Kazakhstan's rail network transported an estimated 81.8 million tons of freight, which represented approximately 90 percent of all freight transported in the country. (How much of this total was freight in transit from China or other countries, and how much was Kazakh exports is not clear.)

But despite their shared reliance on their respective railroad systems, Uzbekistan and Kazakhstan have opted for diametrically opposed approaches to their long-term management. While Uzbekistan plans to privatize its railroad system, Kazakhstan's will remain state-owned.

In March 2001, Uzbek President Islam Karimov signed a decree on transforming Uzbek Railways into an open joint-stock company as the first step toward its eventual privatization. The Uzbek government subsequently signed an agreement with the European Bank for Reconstruction and Development [EBRD] under which the bank provided a $68 million credit to purchase diesel-generating and support equipment and to modernize diesel locomotives.

Two years later, in late February of this year, Uzbek Railways and the EBRD signed a further agreement under which the bank will provide a $1 million-euro ($1.1 million) grant to help finance the restructuring and privatizing of the rail-cargo-transport sector.

An unidentified Uzbek Railways official explained to RFE/RL that the most recent EBRD loan will be used to provide experts to advise on the bookkeeping in five smaller joint-stock companies created during the first stage of the privatization process. Those companies deal with refrigerator service, container service, passenger-wagon services, reconstruction of a factory, and freight wagons: "The money will be spent to provide legal assistance to those offices that have been privatized and to those offices that are in the process of being privatized. That means that this money will not be given directly but will be sent in the form of advisers."

Kazakhstan, meanwhile, is still considering ways to improve its railroad system, despite its plans to maintain state control. The parliament has amended the law on Kazakh railways to restrict government ownership to main lines only. The Kazakh Railroad Company has been divided up to create smaller regional-based companies that must compete among themselves.

Kazakh Railroad Company spokesman Quat Borashev told RFE/RL: "There will be a competitive environment in [Kazakhstan's] railroad system in the future. There will be rival companies. But the main lines continue to be government-owned."

Referring to the goals of the railroad project, Borashev said: "The main goal here is to marry [Kazakhstan's] railroad system to the market economy. The main idea is to create competition. If the [Kazakh Railroad Company] owns 100 percent of the stock of the system, the idea of the reform program is to create rival companies."

(RFE/RL's Kyrgyz, Uzbek, and Kazakh services contributed to this report.)