RAILWAY INTEGRATION

Being a transit centre of the Caspian region, Azerbai-jan has made every effort to take advantage of its geographical location. As part of the implementation of the Silk Road and North-South transport corridors, a modern port and rail infrastructure is being formed designed to sustain a multiple growth in freight traffic. The process of diversification of transport routes is nearing its logical end: the Baku-Tbilisi-Kars (BTK) trunk railway will come into operation next year, and the other day President Ilham Aliyev ordered that the formation of railway infrastructure on the Azerbaijani leg of the North-South Corridor be accelerated.

In recent years, Azerbaijan and its partners in the region have invested several billion dollars in the development of the railway and port infrastructure and logistics base within the framework of projects geared towards the formation of the Trans-Caspian transport corridor (TTC), primarily intended for moving freight between China and Europe. In particular, Azerbaijan emerged as the main donor of an essential component of the Silk Road project, the BTK trunk railway, not to mention investments of Azerbaijan Railways CJSC in the project on radical reconstruction of a major segment of the 317 kilometre-long Baku-Boyuk Kasik railway line. No less important for the TTC infrastructure formation was the construction of Yeni Baki Port's facilities in the Alat settlement.

According to Askar Mamin, the President of Kazakhstan Temir Zholy JSC, such impressive capitalization of rail and port infrastructure in Azerbaijan is a fully justified decision. He believes that the growth in through transportation between China and Europe, as well as the expansion of trade between the South Caucasus, Turkey and the Old World, will make it possible to significantly shorten the payback period for infrastructure investments in Azerbaijan. It is expected that by 2020, the potential of freight traffic through the territory of Azerbaijan may increase to 600m-700m dollars per annum. Notably, the logistics of multimodal transhipments will allow the processing of about 300,000 containers every year.

The BTK trunk railway, to be commissioned in 2016, will play the most important role in ensuring the effectiveness of the Trans-Caspian transport corridor. Experts opine that at the initial stage, BTK's traffic performance will be at a level of one million passengers and 6.5m tons of cargo, whereas peak traffic volumes are estimated at 17m tons of cargo per year.

The country's participation in infrastructure projects of the Silk Road transport corridor is not the only advantage of the geographical location. Since 2005, Azerbaijan has been an important partner in the process of forming another large transnational land-and-sea corridor called the international North-South transport corridor (INSTC). Some 15 years ago, the initiators of this project - the railway administrations of Russia, Iran and India - agreed to establish a through rail route covering a distance of 7,200 km and extending from Baltic ports to harbours of the Persian Gulf and the Indian Ocean. Azerbaijan's railway system is going to become part of this corridor.

In the course of numerous negotiations, especially those held in the last five years, the heads of the railway departments of Azerbaijan, Russia and Iran decided to establish a joint venture (JV) with its headquarters in Moscow and two branches in Baku and Tehran. The priorities of the joint venture included the preparation of a business plan, attraction of external funding and construction of a 365-kilometre segment of the Qazvin-Rasht-Astara railway. However, the international sanctions regime introduced seven years ago significantly reduced investment activity of Iran, having frozen the implementation of the North-South project for a long time.

At the same time, a delay in the construction of the Qazvin-Rasht-Astara segment has to a large extent been associated with Iran's active participation in another regional endeavour that has a similar purpose. We are speaking about an alternative North-South railway corridor being implemented by Central Asian countries. Works initiated by Kazakhstan, Turkmenistan and Iran at the end of 2009 were completed only recently, resulting in the construction of a 650-kilometre Uzen-Kyzylkaya-Bereket-Etrek-Gorgan railway line. The line segment passing through the territory of Kazakhstan will be connected with the Russian Railways network.

However, the western branch of the North-South corridor (the railway line Russia-Azerbaijan-Iran) still retains its main advantage - half the length compared to the Central Asian route, which makes a positive impact on the timing of delivery of goods. In addition, the complicated discussion of tariff harmonization and unification of customs and border legal bases are still going on among the Central Asian transit states, Iran and Russia.

It has finally become possible to reach a historic agreement on the Iranian nuclear program this year, and therefore the United States and Europe have expressed their willingness to lift the burden of years-long sanctions against the Islamic Republic, which, among other things, switched on the "green light" for the implementation of the North-South project. In view of the above objective factors, Russia and Azerbaijan have agreed all outstanding issues with Iran, and the process of INSTC construction has gained new momentum.

"The lifting of sanctions will attract external funding and accelerate the implementation of the North-South railway project: over the next two years, the construction of the remaining 160 kilometres of the corridor will be completed, and the rails will be joined in the border town of Astara," head of the secretariat of the Iran-Azerbaijan intergovernmental commission Mehdi Mohtashami said. By the way, despite the lack of definitive agreements on the consortium and the regime of international restrictions, the Iranian railway department has independently carried out more than two-thirds of the construction work on the Qazvin-Astara segment of the railway in recent years. This segment runs through a rather difficult mountainous terrain, and the greater part of the planned 22 tunnels and 15 railway bridges has already been built.

Under the circumstances, Azerbai-jan will have to make efforts to accelerate the construction of its segment of the trunk railways. Russia has long been connected to the 511-kilometre Yalama-Astara line of Azerbaijan's railway system, much of which is electrified and double-track. Azerbaijan only needs to lay the rails and provide service lines at an 8.5-kilometre segment from the Astara station and to build a 85 m bridge over the border river Astaracay.

To solve this problem as soon as possible, Azerbaijani President Ilham Aliyev ordered that work on the segment of the international North-South transport corridor should be sped up. In this regard, the head of state instructed the Ministry of Foreign Affairs, the Ministry of Economy and Industry and Azerbaijan Railways CJSC to finalize a framework agreement on cooperation between Azerbai-jan and Iran on the issue of coordination of railway systems of the two countries, as well as a draft bilateral agreement on financing the construction of a border railway bridge. Furthermore, Azerbaijan Railways is commissioned to design and build a railway segment from the Astara station to the border, and the Cabinet of Ministers, to ensure allocation of land for this project. During the project implementation, the country's Cus-toms and Frontier Services will also have to ensure the formation of checkpoints and other related infrastructure.

Benefits derived by Azerbaijan from participation in the North-South project are undeniable, as a small amount of funds invested in the railing and creation of cross-border infrastructure can be recovered within a very short period. In the meantime, it is predicted that with the commissioning of the North-South route, the volume of freight passing through the country's territory may reach 6m tons already at the first stage, while in the future, it can increase to 15m-20m tons.

Thus, having formed railway and port infrastructure of the Silk Road and North-South corridors within a period of one or two years, Azerbaijan will gain status as a leading regional transport hub. However, the attraction of the greatest possible amount of freight to the country to utilize its transport potential requires the adoption of a set of measures to form a coordinated pricing policy and coordinate the operation of maritime and land modes of transport.

Towards this goal, and in keeping with a presidential decree, the Coor-dination Council on Transit Freight (CCTF) was established in Azerbaijan in October this year. Operating under the authority of the Ministry of Economy and Industry, the new structure is designed to provide for commercial attractiveness and increase the competitiveness of transit corridors running through the country. A provisional task of the CCTF is to ensure the creation of new transit capacities through maximizing the potential of existing infrastructure facilities and attracting additional freight volumes. However, the most important task of the Coordination Council is to improve the quality, ease the administrative procedures and reduce the time of handling. According to the decree, the Council also aims to create conditions for a unified, flexible and transparent tariff policy on cargo transhipment on railways and through sea ports and terminals, to form unified simplified mechanisms of border crossing and cargo handling, and to ensure coordination of relevant organizations, transport and forwarding companies involved in these processes.

To optimize the solution of tasks posed, the head of state has ordered that all procedures and administrative mechanisms required for cargo transportation by rail or sea transport, involving the infrastructure of sea ports and terminals, be organized in accordance with the "one stop" principle, and identified the CCTF as a single body authorized to implement this regulation.

At its first meeting in November, the CCTF approved a cap for tariffs on the provision of services in oil and oil products transportation from Azerbaijan's territory in different directions along railway and sea routes. In addition, entities providing transportation and logistics services (primarily structures of Azerbaijan Railways and the Caspian Shipping Company) were allowed to offer a 30 per cent discount to attract additional freight traffic to the transit corridors, whereas final decisions on such issues would be taken by experts of the Coordination Council.

In early December, the CCTF took another important decision, reducing by 40 per cent the charges paid by transit vehicles outbound from Aktau Port for their passage through the country. Ferry service rates for lorries were also reduced by 20 per cent, down to 2,100 dollars for a round trip.

According to experts, the activity of the Coordination Council will simplify and speed up cross-border procedures, unify rates and allow Azerbaijan to capture a significant portion of transit traffic between Tur-key, South Caucasus, Central Asia and China, and will increase the transhipment of goods between Russia, Iran and India in the future.