Vladimir Loyevetsky
Good road: prosperity or bankruptcy?
On October 22, 2008, Russian Prime Minister Vladimir Putin will chair a meeting in Krasnoyarsk (East Siberia) devoted to Russia's transport strategy for the period through 2030. The problem, discussed by the Government many times throughout the year, has not become less pressing, but in fact, appears to be more acute than ever. The thing is that under the present-day conditions, the announced projects (we will discuss motorways here) cannot be subsidised as lavishly as before, which is, perhaps, only for the better.
This is not to say that the Government has been overenthusiastic about road construction cost estimates, but it has not been indignant, either. However, even before the global financial crisis entered its most intense phase, Vladimir Putin began to show concern over the enormous appetites of the projectors. In late April 2008, he signed the federal target transport programme for 2010-2015, which amounted to 13 trillion roubles ($469.82 billion).
When visiting the Russian Transport-2008 international exhibition in May, he was immediately approached by Moscow Mayor Yuri Luzhkov, who wanted to show him the Moscow display. After talking about other things for quite a while, the Mayor turned to money matters: Moscow needs 4 trillion roubles ($144.56 billion) for transport projects, and it wants at least half of this sum to be provided from the federal budget, he said.
The Prime Minister only laughed in return. When discussing the spiralling inflation at a meeting with the United Russia party in June, Mr Putin said that the construction standards and rules adopted in the past century "increase construction costs enormously. So many extra costs are added that it is impossible to build at all." Two weeks later, in July, Mr Putin set the task for legislators - to adopt new construction regulations. "We are facing a unique situation: construction costs are much higher in Russia than in neighbouring European countries. At the same time, labour costs are lower and land, water, and other resources are much cheaper here." The result is "complete nonsense", due to the outdated regulations.
One can only imagine that, in trying to explain the unexplainable, the Prime Minister got very worked up about the building regulations when looking through some urgent documents.
However, nearly a year ago, on December 5, 2007, the Vremya Novostei daily held a round table discussion that raised the issue of unprecedented road construction costs in discussing public-private partnership. Outdated state standards and construction regulations were given priority. The participants explained that it would be difficult to revise them because hundreds of building organisations, among others, were living off them.
It was also said that high construction costs put private investors' participation in road construction projects in question. Their investments cannot be compensated by tariffs (in the case of toll roads) and road services. While the reality is not so pessimistic and some companies agree to invest in road projects, the fact that they reconcile themselves to such huge cost estimates is saddening enough. In private, some builders and even government officials admit that road cost estimates are higher than real costs by two to three times. Bribes and kickbacks, the deliberate use of poor materials, and sloppy work in general, are par for the course and make these projects unprofitable for the country and beneficial for their designers and builders.
Therefore, it is not surprising that there are applicants even for non-recoupable projects. If you add to this a 20%-30% increase in construction costs due to the use of obsolete technologies and materials, the difference in the cost of Russian and foreign roads becomes all too obvious.
Our designing and building companies used to officially explain this by inflation, the climate, and numerous facilities and obstacles on the route. "What is there to compare? We will build an eight-way road, while the one you have mentioned is a four-way one." In reality, the construction of an eight-way instead of a four-way one cannot double construction costs. As for obstacles, densely-populated Central Europe does not face any less. As for inflation, many projects were announced before a surge in inflation, but were nevertheless much more expensive than European ones. Even considering a surge in prices between 2007 and 2009, the price dynamics cannot be reconciled with the fantastic rise in construction costs over the past two years.
The climate is another reason that is often referred to: "temperatures in Russia often fall below zero, damaging the road surface, so companies have to spend more money to prevent this." However, if this can explain the poor quality of roads (which remains as such), it is no explanation for an enormous gap in costs. In some countries (like Finland and Canada) the climatic conditions are similar to those in Russia, but road construction costs are normal there.
We have a special report for this issue, "How much does a German autobahn cost?" (see page 6), prepared by a Vremya Novostei correspondent. The author means not just Germany, but other European countries as well (Poland, the Czech Republic and Switzerland), and he is talking precisely about an autobahn, not just a good federal road. He is describing a top-quality road which complies with the most stringent requirements. He cites the structure of costs, the sources of financing and even provisions of the German Constitution related to roads. Note that our correspondent interviewed both officials (from the federal and provincial governments) and independent experts.
To sum up: under a [German] cost estimate, a first-class road costs between $11 million and $14 million (8-11 million euros) per kilometre. This includes all costs, together with the buyout of land and other real estate on the route and even such exotic requirements as the building of special tunnels under the road for amphibians.
A project for a new autobahn is being drafted now in Eastern Germany. It will run from north to south and cost $8 million per km. In neighbouring Poland, the costs are the same: $7-$8 million per km. In fact, Poland is the best case for comparison: the terrain relief is similar and labour costs are nearly the same, etc. However, our road costs can only be compared to those of Switzerland, with its rocky ground, numerous tunnels and overpasses, and a cost of $35 million per km.
It looks as though our roads are being built in Switzerland's natural conditions, and each time the builders have to buy out, destroy, and restore on a new site something as big and valuable as the Moscow Kremlin, at least. It seems that no other explanation can be found for Russian road costs.
In the Volgograd Region, the builders estimated a kilometre of a six-way road at $17 million (in 2007 prices). This is a modest plan, exceeding German road costs by 1.5-2 times. The Krasnodar-Novorossiysk road was estimated at $32 million, and a new ring road around Moscow at $40 million per km. The cost of the first small section of the new Moscow-St Petersburg road rose from $54 to $66 billion ($65 million per km). The situation is even more complicated with regard to the 47-km long western high-speed diameter in St Petersburg.
Consider the dynamics: in 2006, the project was estimated at 83 billion roubles, in 2007 at 120 billion, and in May 2008, then Prime Minister Viktor Zubkov signed the order requiring 213 billion roubles for the project ($180 million per km, if this figure is final). And now Moscow, where the first section of the future fourth transport ring road, about 3.9 km long, was estimated at 67 billion roubles. Add to this another 13 billion roubles that may be needed to buy out the garages and wastelands lying along the route. Thus, the cost will exceed $700 million per km. An official explanation is that only 2.2 km of the road section will run on the ground, the rest being overpasses. This means that 1.7 km of a city overpass costs nearly as much as two nuclear-powered submarines.
There was another episode recently, unique in a different way. In spring 2008, Olympstroi cancelled the project of a 14.7-km long road from the Roza Khutor ski resort to the biathlon sports centre, for which the construction company asked 13 billion roubles. As a result, the cost estimate was cut by 40% - from $35 to $21 million per km. No other "feats" of this sort have been reported of late.
It is not that we must look to the West. However, there must be some criteria, considering that we have nothing but outdated construction standards and regulations. Seriously, our roads must be cheaper than German ones, or could even cost just as much. If we accomplish this, we will have nuclear submarines, autobahns, normal living conditions, and many other things. There is another way that leads to a road: it is paved with good intentions, but at the current ruinous price.