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Russia's Crumbling Infrastructure Needs $2 Trillion for Major Modernization

Economics / Russia Sep 21, 2009 - 02:47 AM GMT

By: Pravda

Economics

Best Financial Markets Analysis ArticleThe 2009 Sayano–Shushenskaya Hydroelectric Power Station disaster once again made everyone think of modernization of the entire Russian infrastructure.


Turbine #2 broke down right before its 30th birthday, its service limit. Usually service limits are extended to 50 years, but not this time. They were not extended on a couple of other occasions – in Kuzbass mines in 2007 when 150 miners died, and in Moscow in May of 2005 when power in the city completely shut down because of an overload. Not to mention multiple smaller accidents. Is worn-out equipment the only problem?

Problem 2010?

In the beginning of this century Russian scientists were talking about “problem 2003,” the technical doomsday of Russia. Everything – from sewage pipes to oil rigs – was built in the Soviet years. The government was concerned that in 2003 the infrastructure would be worn out to the maximum, which would result in catastrophes and casualties. However, 2003 was pretty uneventful. Oil prices were climbing, and Russia was making a lot of oil money, but none of it was invested into the infrastructure.

“It’s not surprising, because the main goal of our government is to fight inflation,” says Alexander Privalov, Science Editor of Expert magazine. “When everything collapses, there will be no inflation. If the government is willing to prevent degradation of the country’s technical potential, they must make investments. There must be a development strategy for every sector.”

Most experts talked about it several years ago, but the Ministry of Finance preferred to save money in the Stabilization Fund.

Reform of the energy industry has not begun

Right after the Sayano–Shushenskaya accident, Rostechnadzor - the Federal Service for Ecological, Technical and Atomic Surveillance - rushed to check all hydroelectric power stations in Russia. They were planning to find more violations to prevent future accidents, although everyone knows that 80 percent of the power equipment is worn out.

The first step towards the modernization of power stations has been made. Almost every power station has private owners who promised to invest $400 billion in renovation before 2020. The current financial crisis interfered with these plans.

The coal industry is closely connected to the power industry. Methane explosions at “Ulyanovskaya” and “Yubileynaya” mines that killed 150 miners are still fresh in memory. The reason for the accident was simply greed. The operators turned a blind eye to technical failures because they did not want to stop the mine and lose their salary. The mines were equipped with the newest safety systems.

Half of apartment buildings in Russia must to be leveled

The communal services sector is the leader in deterioration. Every Russian knows it from personal experience. Every year communal services turn off the water and repair leaking pipes. There is a story that in one such repair workers found a sewage pipe stamped “1915.”

According to the Ministry of Regional Development, there are over 2.6 million of residential buildings in Russia. Half of these buildings require complete overhaul. The other half is worn out 30-65 percent.

The Foundation for Communal Services Reform recommends that all tenants of apartment complexes create householders associations and manage their houses on their own. They believe that the buildings belong to the owners, not the government, and the owners should take care of their apartments themselves.

Metallurgy

The metallurgic industry is one of the oldest in Russia. Eighty percent of its funds are worn out. But in the recent years the situation has changed dramatically. Metal prices rose, and western companies whose automobile plants are located in Russia have higher quality standards. To meet these standards, metallurgists had to invest in new technology, although some problems remain.

Aviation

The aviation industry has a similar story. Old Tupolev aircraft still serve well, but high oil prices made them unprofitable. Tu-154s consume almost twice as much fuel as Boeings or Airbuses. Many companies started purchasing used and new foreign aircrafts since they are unable to use their planes built in the 1970s and 1980s.

Oleg Panteleyev, the head of Aviaport’s analytics department said that the age of the aircraft has little influence on flights safety. “Maintenance systems are much more important. There are strict procedures that must be followed. As soon as people start cutting corners problems occur.”

Russian roads

The total length of Russian roads is 746,000 km (about 464,000 miles). But it is the quality, not the length of the roads that matters. According to the Ministry of Internal Affairs, 35 percent of traffic accidents happen because of the poor condition of the roads.

It does not pay for the officials to build roads that will last forever. Vladislav Inozemtsev, the head of the Postindustrial Society Center believes that repairs bring more money than construction itself because of bribes and huge kickbacks at every stage of work.

The expert thinks that market technologies will not work in the public roads system. The problem should be solved at the administrative level by setting strict limits in prices and quality.

According to statistics, 80 percent of accidents occur due to the human factor. Should we blame it on Russian negligence? It appears that aircraft fall, plants burn down and power stations blow up because of the people who are in charge of maintenance. This means that besides investing in new technologies we would probably need to modernize our conscience, which would be pricier.

The price of the issue

The modernization of Russia on a large scale will require from one to two trillion dollars.

Expert Opinion

Ruslan Grinberg, Director of Institute of Economics, RAS:

“According to our preliminary calculations, our technological funds in those industries, where we are still internationally competitive, will run out in seven years. This issue will require immediate solution. We need overall sci-tech programs of reconstruction and modernization of our economy. The government should finance the industries that can still be saved – the aircraft industry, the shipbuilding industry, the machine-tool industry and even the chemical industry. Otherwise, we are doomed to have primitive economy that depends on 10 to 12 raw commodities.”

Komsomolskaya Pravda

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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