Last week, there was a scandal over pressure Armenian government put on Russian railways: Russian Deputy Minister of Transport Vladimir Tokarev said that the South Caucasus Railway, the railway infrastructure operator and subsidiary of Russian Railways, has to work in conditions, under which normal operation was impossible: all records for the past 10 years were seized, false charges were initiated, arguments of the Russian side about fulfillment of concession conditions were ignored. Tokarev stressed that due to this, Russia is considering all options for development of events, including termination of Russian Railways management of SCR. Vestnik Kavkaza discussed what this outcome would mean for Armenia with energy and infrastructure issues expert Vahe Davtyan.

– What does termination of the Russian Railways' management of the South Caucasus Railways means for Armenian infrastructure?

– Today South Caucasus Railway is responsible about 20% of all cargo transportation in Armenia, both export-import and domestic ones. If Russian Railways leaves, this segment will be paralyzed. The fact is that in 2008, when concession agreement was signed between the government of Armenia and Russian Railways, the Russian company bought all trains previously owned by Armenian Railway CJSC, which is about 2500 units – freight and passenger cars, locomotives and electric sections. The agreement stipulates that if it's terminated due to non-fulfillment of obligations by Armenia, SCR will sell everything back to Armenia at a residual value, but there's a problem: over the past years, a large number of trains were simply decommissioned, and this obligation doesn't apply to new equipment acquired by SCR. Meanwhile, during over 10 years of work in Armenia the Russian company has acquired many diesel locomotives, electric locomotives and construction equipment, so if the contract is terminated, the transport deficit will begin in the republic.

– What are the consequences of Russian Railways' departure for economy and citizens of Armenia?

– Obligation of SCR to resell previously purchased trains to Armenian side creates financial difficulties for the state budget of Armenia, because buying back about 2000 cars is simply expensive, there are no reserve funds for this. In other words, there's no budget money. If Armenia will just rent it, freight transportation tariffs will immediately begin to increase, which will result in higher prices for gasoline, diesel fuel, wheat and so on.

Right now we can already see how much money Armenian government will need. If we tak

e one half-open freight car as a basis, today it costs around 1.5 million rubles in Russia, taking into account ten-year operation, they will be worth about 1 million rubles each. Even without taking into account the rest of the financial costs, purchasing freight cars alone back will require about $35 million. I would like emphasize that that's just freight cars, and it will also be necessary to buy locomotives – electric and diesel locomotives – which are much more expensive.

– How do you assess actions of the Armenian government in this situation with Russian Railways?

– In my opinion, they initially chose wrong tactic. Problems that arose on the Armenian railway during management of the SCR had to be resolved not by presenting them to the media, but through diplomatic channels, through work between special services or at the level of state leaders. Over the past year and a half, four meetings have been held between Prime Minister Pashinyan and President Putin, and it was possible to resolve this situation without going to the media. Issues are displayed in the information field only when all other tools have been exhausted – and we haven't even used these tools, everything went public and there were many scandals since the beginning. As a result, it became clear that situation with the railway, which we are now observing, is indicative of Russian-Armenian relations.

– What is Russian Railways' contribution to the development of infrastructure and economy of Armenia over the years of cooperation?

– Total investments of Russian Railways in the Armenian railway, according to concession agreement signed in 2008, is about $579 million, $250 million of which has been invested in the first 10 years. Lion's share of these investments, about 70%, was aimed specifically at upgrading infrastructure – track and station facilities. We can state that, as a result of the investment policy pursued by Russian Railways over the years, safety conditions in rail transport infrastructure of Armenia have been significantly improved. This, in turn, had a positive effect on commercial attractiveness of cargo transportation in Armenia. At the same time, the main problem of SCR was its loss-making: the company works without bringing profit, it works at a loss, wages of the three-thousandth railway staff are paid mainly from the funds of the investment program. This, as well as the fact that the company has modernized trains through the same investment program, is also a part of the claims of the current government: Yerevan demands Russian Railways to invest more in the republican infrastructure.