High Speed Line Highlights Rail Sector Priority

French railways specialist Systra has been awarded a contract to design and supervise the construction of Kazakhstan's high-speed rail link between the capital Astana and the city of Almaty . The complex project will run a 1 , 05 0km double track across regions that have up to a 75°C temperature variation betwe en summer and winter. The project 's cost ha s yet to be announced , but it is due to be operational by the W orld E xpo in 2017 . It is to be built by the Chinese after the ir Ministry of R ailways signed a memorandum of understanding w ith KTZ in February 2012.

Systra is a key player in the high-speed rail sector, with contracts to work on high profile projects around the world. Prominent developments include HS2 in the UK and a consortium with SNCF-Alstom to bid for the Rio de Janeiro-Sao Paulo-Campinas high-speed rail project in Brazil. Whilst the involvement of Systra lends weight to this project, its progress will ultimately rest on the Kazakh government's ability to fund it to completion. This should not pose too high a risk, however, considering the revenue being generated by high oil prices in particular, particularly high commodity prices, which Kazakhstan also benefits from as an exporter of metals.

Railways To Gain

The confirmation of the high-speed rail project continues the trend for Kazakhstan to invest heavily in its rail infrastructure. Kazakhstan's road infrastructure dates from the Soviet era and is in chronic disrepair , with rail infrastructure seen as key for Kazakhstan's continued export success. Barring this latest high-speed venture , Kazakhstan already had US$4.7bn of rail projects in the pipeline according to BMI 's K ey P rojects D atabase . Notable schemes are :

  • T he US$981.69mn , 300km Zhetigan-Khorgos railway linking into C hina's Xinjiang province .

  • The US$404.9mn , 929km Zhetigan -Gorgen line to connect to Iran through Turkmenistan .

  • Initial phases of both the Astana and Almaty metro systems .

  • A May 2012 announce ment by KTZ to purchas e 19,000 train cars and 300 locomotives over the following three - year period.

Connecting To The Region
Kazakhstan Rail Projects Connecting To Iran, China And Major Cities

This focus on rail investment is reinforced by an agreement between Kazakhstan, Azerbaijan, Georgia and Turkey to simplify tariffs on the movement of goods between the territories. BMI's Freight Transport analysts forecast rail freight will increase from an estimated 288.79mn tonnes in 2012 to 365.07mn tonnes by 2017. This 4.7% average year-on-year growth is likely to grow even more when the rail lines are fully operational, presenting a strong upside risk to our freight forecasts. The rail line linking to Iran via Turkmenistan has been floated as a means by which to export Kazakh oil to the Persian Gulf, which will provide Kazakhstan a significant revenue stream and reduce its reliance on Russia for oil exports.

Rail Investment To Facilitate Greater Demand
Kazakhstan Rail Freight, tonnes, And Rail Freight, % change year-on-year

The New Silk Road?

The improvement of rail infrastructure across the region has been highlighted as one of the most important developments in the rail sector ( see our online service, October 24 2008, 'The Iron Silk Road'). Envisaged to export goods from China to major European markets, the Asia-Europe landbridge in comparison to shipping takes longer, due to border crossings, and presents higher costs, due to trains being able to carry less cargo. Despite this, the shorter distance and diversification of export routes has attracted increasing attention from Russia, China and big name electronic manufacturers like Samsung. Kazakhstan's positioning leaves it well placed to benefit from this trend, particularly in the southern region surrounding Almaty where lines to both China and Iran converge.

Vulnerable Inside And Out

Despite the generally positive outlook, investment in Kazakhstan's rail sector still holds a multitude of risks. The high-speed line suffers from an extremely tight timescale, which is need for it to be able to meet its 2017 operational date. Our Country Risk team highlights the main risk to investments as being Kazakhstan's vulnerability to external forces as a commodity exporter. A fall in the price of commodities, which Kazakhstan's economy is dependent on, could threaten investment in the sector. China's slowdown is a particular cause for concern in this regard. Additionally, there is heightened political risk, due to continued uncertainty surrounding the succession of President Nursultan Nazarbayev. A protracted handover period could, at worst, lead to instability as rival groups vie for power, but even a swift change will have inherent risk as the current president has been in power since 1990.

This article is tagged to:
Sector: Infrastructure
Geography: Kazakhstan