Russia Seeks to Draw Beijing Closer With $60 Billion Rail Link

Russia is seeking to build a high-speed rail link to further bolster ties with China after agreeing on the biggest natural gas supply deal in history.

OAO Russian Railways plans a high-speed link from Moscow to Beijing that may require as much as 2.8 trillion rubles ($60 billion) of investment to reach the border, said Alexander Misharin, a first vice-president at the state-run company. It would cut the trip from Moscow to Beijing to 30 hours from more than five days now, according to Misharin.

As Russia’s economy slides toward recession and relations with the U. S.  andEurope deteriorate amid the Ukraine conflict, the world’s largest energy exporter is turning to China for trade and financing. Natural gas exporter OAO Gazprom reached a $400 billion deal with China in May to build a pipeline — similar in cost to the rail link — and start supplies after more than a decade of talks.

“We are essentially creating a new transport network that could be compared to building the Suez Canal in terms of scale and significance,” Misharin said in a Nov. 18 interview.

Chinese banks and companies have shown interest in the project, on a concession basis, to carry freight and passengers from Asia to Europe, he said.

Last month, during Chinese Premier Li Keqiang’s visit to Moscow, a delegation signed accords including high-speed rail cooperation, a three-year 150 billion yuan ($24 billion) local-currency swap deal and a double-tax treaty.

Growing Reliance

Increasing dependence on China may not bolster Russia’s economy. With the ruble near a record low and foreign investment disappearing, luring Chinese cash may deepen Russia’s reliance on natural resources and derail government efforts to diversify the economy, while negotiations on oil and gas deals have stumbled over pricing.

The rail route would stretch 7,800 kilometers (4,800 miles) to 8,000 kilometers, depending on whether it runs through Kazakhstan, Misharin said. The Russian section alone will cost 2.5 trillion to 2.8 trillion rubles, and the line will need as many as 170 specialized freight and 400 passenger trains, he said.

Russia doesn’t yet have a rail line capable of reaching 350 kilometers an hour. A project to link Moscow and Kazan, the capital of the Tatarstan region, was delayed by at least a year after the government balked at providing 20 billion rubles needed to start design and surveying work. Russian Railways now plans to start work as early as next year and complete construction in 2019.

Moscow-Kazan

The Moscow-Kazan link may provide a model for financing, according to Misharin. The project, which may cost 1 trillion rubles and would form part of the Beijing route, may draw on private Western funds in addition to money from China and Russia, he said.

Russia’s government may contribute 670 billion rubles for the Kazan link, including money from thefederal budget, borrowing from the National Wellbeing Fund and the sale of infrastructure bonds to the state pension fund, Misharin said. The government will make a decision on cash from the Wellbeing Fund after analyzing the project, which was declared strategically important in May, theEconomy Ministry said in an e-mailed response to questions.

“Chinese investors can provide long money in the current environment, though this is not the only option,” Misharin said. “A figure of about $10 billion isn’t scaring them off at any rate.”

The link to Beijing would take eight to 10 years at most to build, after financing is decided, Misharin said.

 By Ekaterina Shatalova