Reforming Russian Railways: Introduction of Competition and New Regulatory Challenges
Railway reform in Russia aims at opening the room for competition. The paper assesses the impact effect of new tariff structure on internal on-track competition and investigates its’ state at the early stage of reform. It shows that lack of tariff flexibility makes the emerged industry structure unsustainable when vertically integrated state-owned infrastructure company serves the downstream market. This provides strong incentives for the infrastructure owner to establish ‘daughter’ (unregulated) train operating companies in order to prevent cream-skimming by competitive fringe. Thus the industry structure gravitates toward complete vertical separation with access to infrastructure charged likewise Ramsey formula and the final services being unregulated.