UzbekLineLocomotives.htm

UZBEKISTAN LOCOMOTIVE INFORMATION
 
 

INTRODUCTION http://www.traceca.org

1. PRELIMINARY STUDY OF THE NATIONAL RAILWAYS OF UZBEKISTAN

The project study covers the 8 Central Asian countries, namely Kazakstan, Tajikistan, Kyrgyzstan, Uzbekistan, Turkmenistan, Azerbaijan, Georgia and Armenia, whose rail networks form a corridor (the Traceca Corridor) via the Caspian Sea ferry crossing.

The final objective is to make this corridor economically efficient and profitable thanks to a study that can be used to make structural improvements in the following areas:
transport : scheduling, service quality, flexibility, speed, firm commitments on the part of the countries involved
costs, in market-oriented economic conditions
current rates
revenue distribution between these countries.

To facilitate studies, a management information system specifically adapted to transport companies is to be made available to the National Railways of each of these 8 countries.

The railway companies in each of these 8 countries operate following CIS rules and basically share the same organization and structure.

Because the study requires detailed information concerning organization and structure, it was decided to start with detailed analysis of the National Railways of Uzbekistan, since the corridor has to go through Uzbekistan. Georgia will be the second country to be analyzed. The purpose is to configure a reference base. Then, when studying the 6 remaining countries, it will suffice to note how they diverge from this reference base.

The first stage, described in Section 1, constitutes a preliminary study of the organization of the pilot site, the National Railways of Uzbekistan.
 
 

1. PRELIMINARY STUDY OF THE NATIONAL RAILWAYS OF UZBEKISTAN

1.1. The Economic Environment

Data collected from the Economic Expansion Desk (PEE) at the French Embassy (i.e. from the half-yearly trends report) indicate that GDP for the first quarter of 1996 was 1.4% higher than in the previous year.

Industrial activity, which had abruptly collapsed in the two previous years, seems to be recovering :

Inflation has been cut to about 4% on average per month during the first half-year and is half what it was in the same period of '95.

Despite a sudden hike of 25 to 50% in prices under public control and of specific consumer goods on April 1^st, official statistics indicate that household purchasing power has gone up by about 20% in the first half-year. We should point out that purchasing power declined by 40% in '95.

The Government is pursuing a drastic monetary policy. The national currency, issued on 4^th July '94, was devalued by 40% in '95. Since the beginning of this year, the official exchange rate has only declined by 13%. Exchange controls have been reinforced in an effort to curb black market operations.

The State still drains all foreign currency resources. Almost all exporters must repatriate all export income and exchange it into local currency at their central bank.

The IMF estimates that the country has six months in foreign currency reserves to finance foreign trade (USD 2 billion, which seems to be adequate).

Furthermore, the amount needed to serve the foreign debt does not exceed 10% of export revenues.

The deregulation of the currency exchange market, announced since late '95, has been put off once again until next year.

Uzbekistan’s foreign trade is changing rapidly in structural terms, although imports and exports within the CIS have remained virtually constant.

According to data supplied by Uzbekistan’s Ministry of Statistics :

The legal status of the National Railways of Uzbekistan is that of a National Corporation (Uzbekistan Temir Yollari). The organization chart figures in Appendix 1.

The corporation is managed by a Chairman and Managing Director, appointed by the Council of Ministers. The Deputy Managing Director is also appointed by this Council.

The rail organization is divided geographically into six " regions". Each " region " is headed by a Director appointed by the Chairman and Managing Director.

List of regions :

Services continue to be organized as they were prior to independence, but a reorganization project has been started (elimination of the hierarchical echelon for regional divisions). A few Establishments have already been placed under the responsibility of Management.

The rail network encompasses 3,656 km of line, of which 489 are electrified (see diagram in Appendix 2).

A fleet of 98,856 wagons is available.

Staff totals 56,863 people, including 41,031 assigned to the Transport Sector ('95 data, furnished by the Institute of Technical and Economic Services of the MPS - CNIITEI for all countries belonging to the CIS).

The Company also includes a number of auxiliary bodies :

The National Railways, although autonomous in terms of management by virtue of its by-laws, is under direct State control via several permanent regulatory mechanisms.

Each Ministry performs its own audits depending on its duties.

The echelon composed of divisions and production units comes under the authority of Regional Committees.

N.B. : The Railways is examining ways to reorganize completely and achieve a SNCF-type set-up ; this would involve making infrastructure separate (it could be placed under the direct authority of the Cabinet of Ministers), and establishing business activity sectors (Passenger Transport - Freight Transport - Related Activities).

We have not been informed of any plans to implement such a reorganization. It is self-evident that the State will not help create this type of organization, which would force it to cover infrastructure costs.
 
 

UZBEKISTAN LOCOMOTIVE INFORMATION

1.3. Railway Activities

The Company engages in three separate activities :

Freight carried (thousands of metric tons) 46,209

including :

 coal  3,615

 oil products  10,156

 chemical products  2,723

 cement  3,396

 wood  29

 miscellaneous  20,290

Freight transported (billions of tonnage-km)  16.8

i.e. an average distance of 364 km.

 Average load/wagon 60.1 metric tons

 Average round trip/wagon 4.51 days

 Average gross weight/freight train 2,903 metric tons

 Average speed/freight train 41.4 km/hr

 Average technical speed 30.7 km/hr

 Per-day output/locomotives

1,000 tons-km 860.7

Wagon tons-km 3,112.0
 
 

PASSENGERS

Passengers transported (thousands) 14,476

Passengers transported (millions of passenger-km) 2,498

i.e. an average travel distance of 173 km.
 
 

OTHER ACTIVITIES

 Small-scale maintenance by depot workshops

(number of wagons handled) 25,464

Source of information:

Institute of Technical and Economic Services of the MPS (CNIITEI).

Statistics concerning CIS countries.
 
 

The same procedure applies to non-rail services.

It is useful to recall that, from now on, " barter " contracts—the exchange of goods that involves no payments—are prohibited in Uzbekistan.

 The " Transport " Activity

Four transport sectors have been distinguished, based on revenue classification criteria :

This particularly profitable sector has attracted widespread attention, especially in light of the considerable drop in traffic levels on record until late '95.

According to the data collected, this decline seemed to have bottomed out by early 1996, when a turnaround seems to have started. This situation is probably tied directly to overall economic trends (See § 1.1 Economic Environment).

The Railways have carried out research on optimizing freight traffic, e.g. :

The freight rates applied are those approved by the CIS Rates Council. Rates depend on distance and type of goods, and are expressed in Swiss francs instead of local currencies (the Sum for Uzbekistan) to simplify computation. Payments are made in cash, in foreign currency for international transport or by bank transfer. The latter is fairly complicated: the request to transfer an amount from one account to another one is accompanied by forms to fill in specifying the contract number, mode of transport, description of contents, origin of goods carried and destination.

Each CIS member country has some latitude with which to grant certain discounts.

For domestic rates, a discount may be applied (not to exceed 35%).

For international traffic, the Company Chairman and Managing Director can grant discounts, which are set on a case-by-case basis, according to criteria such as the volume and type of goods to be carried and transport distance. A special rate schedule has been used for the Traceca Corridor since March '96 (See § 1.4.1.1.).

The Rates Committee is not a standing committee. There is one meeting per year since 1993, usually in January, to fix the rates to be applied within the CIS from 1st April to 31st March of the following fiscal year (Alma Ata in January 97).

The 12 countries of the CIS attend this meeting organized each year in a different country. The chairman is the leader of the receiving country.

They work on two basic documents:

- distance travelled,

- wagon loading percentage (tonnage conveyed/carrying capacity),

- type of freight carried,

- type of wagon.

The rates proposed are amended by the MPS according to the evolution of cost prices indicated by the Committee for Tariffs and Currencies with the MPS, and to the economic data of each country (cost of fuels, energy, wage level, price of metals, inflation rate).

During the meeting, the representatives of each country express their opinion and the proposals may be modified.

In Uzbekistan, the finance department fixes the cost prices for the company so as to make a comparison with the MPS proposals.

Tariffs are expressed in Swiss francs and, each quarter, adjustments are made based on the evolution of the Swiss franc/US dollar parity.

Each railway administration of the 12 countries can apply different rates for a given freight over a given route.

For international transport, this entails an array of route changes in order to avoid transiting through the country which increases its rates. The example of Kazakstan was mentioned to us: this country recently fixed a higher price for carrying cotton and foodstuffs. In this respect, Uzbekistan is discussing with Iran in order to find an opening through the Persian Gulf.

In order to stand up for the interest of the railways of each country, an Inter-State Economic Committee was set up in early 1995 at the CIS level. The head office of this committee is in Moscow; it is made up of leaders of each country and its role consists in coordinating tariffs.

As can be seen, the organization with regard to tariffing provisions is very complex. Despite certain modifications, it is still very close to that existing in the ex-USSR.
 
 

1.4.1.3.Customer Base - Shipping - Transport

A consignment note (printed in 5 copies) is the basic transport document. It is filled in by the customer at the station, where it is checked and a copy (receipt) given to the customer.

The freight station has the necessary equipment and means to pick up goods at the customer’s door, load goods onto wagons or into containers (20 foot or less), unload and deliver goods to the customer’s door. These " extra " services are billed using a price schedule defined by the State. Part of the corresponding revenue provides the station with income (on average, 40% of the invoiced amount).

The freight station plans shipments, but generally does not collect the portion of the payment that covers transport costs, which is done by the shipping companies. Shipments are generally prepaid.

To a significant extent, the customer base is composed of State bodies that are part of the relevant Ministries, with the status of National Associations, National Corporations or Consortia.

Several of these bodies were mentioned to us. They are connected with :

International freight customers must work with Railways-approved shipping enterprises :

As of January 97, the Shos-Trans company (See Appendix 3) will work directly with the Railways in handling container transport.

The customer pays the shipper directly for transport. The shipper pays then the Railways an amount corresponding to the rates applied (with or without a discount, depending on the case, and in line with decisions made by the Chairman and Managing Director of the railway company of Uzbekistan).

At the national company, this payment procedure is supervised and checked by a department known as the Center for International Payments and Contracts, which reports directly to the Chairman and Managing Director. A rule of reciprocal payments between CIS member countries has been enforced for the last three years. For an international shipment, the share of revenue assigned to each railway company is written on the back of one copy of the consignment note. The customer never knows what amount the railways actually receive for a given transport job.

According to collected data, the margin collected by the shipper is not regulated and is not subject to any schedule.

Due note must be taken of the department’s specific role in the process, it carries out both commercial and financial duties :

1.4.1.4.Comments

The existing freight system has evolved to become different from that prevailing in the ex-USSR. However, in three key areas, the National Railways of Uzbekistan have remained very dependent on the CIS and the old ways.

Perhaps the development of companies like Shos-Trans will have a commercial impact such as to limit loss of market share.
 
 

This trend is probably caused by increased household purchasing power (See § 1.1. Economic Environment).

Three rates apply to passenger transport :

Tickets are sold and data collected via the Express 2 network covering the ex-USSR. Ticket sales terminals are hooked up to the centralized information system in Tashkent. This network covers regional and international transport.

The Platzkart System developed by the MPS is used. When a customer pays for a ticket, he is actually paying the sum of two prices:

Using Platzkart, and especially for international transport, one can also make a direct allocation to the " departure country " to cover train formation services.

The rail links connecting the main cities in the country, i.e. : Tashkent, Samarkand, Namagan, Andijan, Bukhara and Fergana are not fast and offer very little comfort.

At large rail stations, a number of customer services are developing under the supervision of station managers : shops, newsstands, cafés, shoe repair shops, hair salons, porter services, hotels, etc. The people working to provide these services are on the Company payroll because the service sector in this country carries a heavy tax burden which considerably reduces the profit margin.

As the economy develops further, the automobile market could develop quickly and massively and air transport could become a serious competitor. This would particularly have a negative impact on the rail sector, which might lose significant transport market share.

It is certain that the national company, locked into an inflexible pricing system and subject to State supervision, does not have much room to maneuver. Moreover, investment opportunities are extremely limited.
 
 

The costs of maintaining equipment and handling are such that the activity is always likely to post a deficit.

The National Railways of Western Europe have had to face the same problem, but have not found any miracle solution. Only effective organization relying on a computerized management system can help improve the situation. Inevitably, to balance expenses and revenue, a portion of this activity will have to be transferred to the road network and rates adjusted.
 
 

In our opinion, the national company might well find it beneficial to focus evaluations and studies on auxiliary activities related to transport, strictly speaking, e.g. :

 Industry Sector

There are 9 main companies in this category. Most carry out major repairs and overhauls for locomotives of all types, freight wagons, passenger cars and track equipment.

Routine maintenance operations for rolling stock are carried out by depot workshops (See § 1.4 Transport Activity).

This sector also provides services for companies other than the national company.

A specific quarterly and annual balance sheet is drawn up for this sector.
 
 

 Buildings - Construction Sector

The main tasks performed by this sector relate to the construction and maintenance of Company buildings (service buildings and staff housing).

Ninety-five percent of the housing units are privatized, and occupants have the opportunity to buy.

The sales price is based on the residual depreciation value.

Specific quarterly and annual balance sheets are drawn up for this sector.
 
 

Accounting Rules
 
 

. 2% tax on the initial value of capital assets

. drinking water tax

. water consumption.

Expenses are further broken down by sector of activity and type of service.

Between the old list and the new one, there are major differences relating to the separation of production costs and so-called administrative expenses.

The accounting methods are closer to cost accounting than to a financial accounting system, although the concepts of depreciation and reserves for major repairs have been integrated. It complies with the coding rules published by the Association of Accountants and Auditors of the Republic of Uzbekistan (1995 issue), the legislation on production and sales expenses (Works and Services), and the prescribed steps for drawing up financial statements. Therefore, they meet the company's external needs. Company activities cannot be assessed in terms of production and profitability on the basis of extensive itemization alone.

Basic accounting data are collected from all Establishments and, in particular, crews. Daily, monthly or quarterly reports, drawn up by hand, generally contain information in the form of work units and task designations, often coded.

The overall approach is to have each Establishment check and compile all of these documents and send them for the 28th of each month to the regional division's computer center. The center takes the report data, assigns the appropriate values, then submits a statement for the Establishment to compile monthly, quarterly and annual reports. These statements include the following:

No. of workshop or crew - item - wages and salaries - payroll taxes - materials - fuel - energy - depreciation - expenses engaged for other workshops or assistance received from others.
 
 

Depreciation

Each financial statement includes depreciation as a function of the depreciable life for the equipment concerned. Depreciation is calculated by means of a straight-line method.

The general standards applied are those defined by the ex-USSR:

"Depreciation payments to restore basic fixed asset funds in the economy of the USSR". Ordinance No. 1072 handed down by the Council of Ministers of the USSR on 22 October 1990".

Since 1991, four reevaluation coefficients have been applied to depreciation items. These coefficients are fixed by special ordinance by the Government of Uzbekistan.

Hereunder are a few depreciable life periods used in Uzbekistan:

" Rail Transport Financial Activities Report"

Form No. 69, approved by Ordinance No. 154 of the State Finance Committee in charge of USSR statistics dated 16 October 1991 (See Appendix 4).

Each Establishment or corporate entity belonging to the Company fills out a quarterly document like this to report activity and, at year-end, it provides a balance sheet for the past fiscal year.

Each of the 6 divisions centralizes the documents for its geographical sector.

The Financial Department draws up a global document for the National Railways. It represents the sum of data furnished by all divisions for core (or basic) activities, industrial activities and what is called subcontracting for auxiliary activities.

The overall company balance sheet, drawn up quarterly and at year-end, requires consolidation of 135 partial balance sheets.

Basic Activities: 116 Establishments ('95 in transport, the core business)

Industry Sector: 4 industrial firms - rolling stock, track materials

4 industrial firms - rolling stock repairs

1 company - marble quarrying

Sub-Contractors: 8 firms - construction, housing units and buildings

1 firm - construction, telecommunications centers

1 firm - construction, electric power substations.

All balance sheets are filled out manually, which means a considerable amount of work. Computers are not used in accounting except to enter and assign values to the data in reports submitted by crews in the field. Data valuation and pay slips are handled by each regional division's computer center. Depreciation data are then added.

The computer center prints out a statement for each month, quarter and fiscal year that includes the data needed to draw up the balance sheet.
 
 

The Computer Center supplies the Establishments with global and detailed statements for each section, based on the "List of expense items for the main railway activities". The Establishment verifies and notifies the Computer Center of any adjustments to make in these statements. In the following month, the Center sends the Establishment a corrected version. The corrected statement is used by the Establishment's accounting manager when drawing up the "Statistics Report" manually.

Section of an Establishment

Technical production reports

Data entered manually

Establishment Management

Verification by management of technical reports, which are to be sent to the Computer Center on the 28th of the month

Manual

Computer Center

Entry and valuation of work units, submission of accounting statements in line with the "List of expense items for main Railways activities"

Data entered on computer,

processed and printed
 
 

Establishment Management

Verification and notification of any adjustments to be made in these statements

Manual

Computer Center

Modification of accounting statements and submission of new ones the next month

Data entered on computer,

processed and printed.

Establishment Management

Drawing up of Establishment statistics report based on Computer Center statements

Manual
 
 

 Information System Structure (Company)

The only data on computer are traffic-related. Freight and passenger data are processed separately.
 
 

Other information is also entered in this database: facts concerning loading and unloading operations, routes (origin, destination, train make-up, etc.).

All data are provided by entities in the field (freight stations, shippers, marshalling yards).

Data are checked and centralized at the computer center for each of the 6 regional divisions.

Each center is hooked up to the main computer center in Tashkent, which processes the data.

The results for month M are available on 10th of month M + 1.

Data concerning international traffic are processed by a specific entity (a center set up to oversee international payments and contracts).

A priori, the only management departments to be connected to the computer center are those responsible for traffic (centralized train control) and statistics (to estimate daily traffic volume).
 
 

Suburban traffic data are centralized at the regional division level and sent each month to the computer center.
 
 

They receive all documents filled in by the workshops and crews. Data contained in these documents are then entered and assigned values. Virtually all of the elements needed to draw up a balance sheet appear on this statement, which is then sent to each Establishment for verification. Any errors are corrected by the Computer Center and a new statement issued in the following month.

These computer centers are equipped with Latvian-made computers (the 1984 VKM-5100 or the '90s SMK00 models) with 13-megabytes hard disks, able to transfer data onto magnetic tape.

The software and processing methods developed by rail computer staff may vary from one division to the other, but their statements of results comply with set standards. The languages used to develop software are Fortran 77 for data entry and preparation, and Assembler for all computing. Some divisions still use the program that MPS developed in the 1970s. It is difficult and sometimes even impossible to retrieve processed data (incompatible file formats).

Data are stored in the memory for no more than two months.
 
 

However, it does carry out a few traffic-related operations to assist Turkmenistan and Tajikistan.
 
 

Statistics

Thirteen people are assigned to the statistics department, which fulfills two functions:

. the labor and payroll section

(data provided on a quarterly basis only).

At this stage, all data for all Company activities are centralized:

- Transport Sector

. freight

. passengers

. baggage

. auxiliary activities

- Industry Sector

- Buildings - Construction Sector.

The Statistics Department is also responsible for submitting monthly results to the State Committee for Statistics and Forecasts set up by the Cabinet of Ministers (Goskomprognozstat). It has all data necessary to carry out research for the latest three fiscal years.

Monthly results are compared: month M of year Y is compared to month M of year Y-1. These calculations are performed manually, and data must be entered yet again.

For everything concerning import/export traffic within the CIS, the Statistics Department works directly with the MPS in Moscow.

Note: The statistics available are very complete but classified according to a list that is not always oriented towards internal analysis needs with respect to production or profitability. The statistics are oriented towards traffic volume, very little towards the production corresponding to said volume. In fact, one can find the volume in metric tons and tonnage-km with the corresponding revenue per freight category for a given fiscal year.

Moreover, a considerable number of documents are kept. Because they are kept manually, and data are entered several times, errors are certain to occur. Therefore, the reliability of detailed data is relative although they lend themselves to compilation with other data.

A list of the principal documents kept by the Statistics Department is included in Appendix 5.

Statistical results are used by the Economics Department which carries out traffic planning and forecasting for the next fiscal year, based on financial performance and economic conditions.

Planning is carried out in three phases:

October

It makes an initial examination, working with the Passenger and Freight Departments and making a breakdown per regional division.

November

It develops a first draft.

December

The Economics Department mainly reasons in terms of work units. To perform its task of predicting expenses, it analyzes them in detail:

Wages/Salaries - Payroll Taxes - Rolling Stock - Fuel (Vehicles) - Fuel (Heating) - Energy - Depreciation - Reserves for Major Repairs - Other Miscellaneous Expenses.

Values are not assigned to the elements supplied by this department. However, the Finance Department performs the same estimates but by analyzing revenue forecasts.
 
 

 Financial Flows

Services and monthly wages/salaries are paid in the country, in cash only, with part being paid on the 15th of the month. Inevitably, a number of problems arise:

In August '95, the Company submitted a request to the Vice Premier of the Republic of Uzbekistan for the establishment of a Central Railways Bank. The Central Bank turned this request down. To our knowledge, this request was not supported with a file explaining all the reasons why this would be financially beneficial for the Company.

Due note should also be taken of the additional difficulties encountered in keeping revenue—especially freight revenue—under control:

The Company also needs to spend foreign currency to pay neighboring countries for the distance traveled on their territory (Kazakstan, Turkmenistan, Tajikistan).

The Company has funds in local and foreign currency with which it must manage. It does not borrow from banks because the interest rates are so high and because it would not be able to meet the loan payments.
 
 

Management Control

The Company's Central Management organization does not include a Management Control Department.

Within the confines of our study, the checks carried out involved verifying the reliability of information relative to accounting methods, statistics, bank transactions and payroll. This can be explained as follows: under the present system, the chief objective of each manager at every echelon is to produce a balance sheet at year-end, along with quarterly reports. There are no production or productivity goals: regulations are very detailed and stringent, which has an impact on means.

The "budget" made available to each manager has two basic components:

Audit findings are reported and, if errors are noted, penalties are applied. These penalties, which vary according the magnitude of the error, are codified in penalty tables; a manager might have to pay a fine out of his own pocket.
 
 

Financial Results

The management monitors financial results and statistics to the virtual exclusion of all else. Comparisons are made on a monthly, quarterly and/or yearly basis.

The Company must integrate the 135 balance sheets drawn up by its various constituent entities to come up with total revenue and expenditure.

A financial results report is filled out at every level, both quarterly and annually, using a form called Form #2, approved by the Ministry of the Republic of Uzbekistan (Decree No. 9 of 27 January 95). This document uses figures expressed in the local currency (thousands of Sums) and includes expense and revenue data for the previous year.

The following are determined:

The existing system is the same as the one applied prior to Uzbekistan's independence, excepting a few changes.

Its major shortcoming resides in the fact that capital investment financing, previously supplied by the MPS during the USSR era, is no longer provided to the same extent by the Government of Uzbekistan.

Previously, Uzbekistan received the following equipment every year:

This year, the State only financed electrification and new line projects.

Although the railway company claims that, for the time being, it does not need any new rolling stock (locomotives, passenger cars, wagons), it deplores the fact that, due to a lack of foreign currency, it cannot purchase the track equipment and spare parts it needs.

Because Uzbekistan's international passenger and freight routes are fairly short, they only generate low amounts of foreign currency.

As specified in the preceding section, foreign currency earnings are amputated by payments to neighboring countries for distances traveled on their territory, and because the Company is required to change a portion of said earnings into the local currency at the official rate (50 to 55% lower than the black market rate).

We were not permitted to evaluate the condition of installations and rolling stock, but it is clear that delayed maintenance operations will accumulate; there is a risk of seeing an alarming situation develop.

Now that economic recovery seems to be getting under way, one might well fear that the National Railways might lose market share to other modes of transport.

In this case, both freight and passenger transport stand to lose market share.

The National Railways must offer products that meet market demand, and evolve over time but do not appear to recognize the importance of this approach, because it lacks sufficient funding and still depends a great deal on the CIS (organization, rates, using the freight business to cover passenger traffic deficits, etc.).

For the production units, the goals and means are practically all defined in texts established by the Company or the State. "Budgets" are fixed as a function of work unit performance. There is very little room for initiative left for the production units themselves. Any initiative would be limited to auxiliary activities related to production. In the transport activities, production units do not practice management control (management ratios are not monitored, etc.).

The balance sheets periodically drawn up by each management echelon provide some incentive in view of the value of the assets managed, but cannot be used for management control or to compute productivity. This is especially regrettable: accounting and statistical data are fairly extensive and detailed but are only exploited to a very limited extent. The quantity of paperwork—documents to fill out, consult and check—is considerable.

The National Railways' most serious problem resides in that the rule prevailing in the ex-USSR, whereby revenue and expenses must be balanced, has not been abolished. The margin yielded by the freight business must cover the large passenger traffic deficit. The State pays no subsidy to the Company, so it must cover all infrastructure costs and, above all, absorb a very large passenger traffic deficit, due especially to suburban lines. Divisions with heavy suburban traffic are heavily penalized. In addition to these difficulties are the costs of social services (35 schools, 96 preschool facilities, 3 technical schools, 1 institute, 18 hospitals and polyclinics). Clearly, drastic cost-cutting is a prerequisite to balancing revenue and expenses. Consequently, there is not enough money for proper maintenance of installations and rolling stock, and any modernization to increase comfort and speeds remains out of the question.

Unless measures are taken soon, the network itself as well as service quality will gradually deteriorate. The situation could worsen to a point of no return even if the Company then decides to undertake efforts to reorganize and to control costs.

But the much-needed cost study could be distorted because a portion of the expenses, especially maintenance expenses, do not correspond to what they should be, but to what it has been possible to do.

Furthermore, one may doubt whether the accounting data for expenses are reliable, especially as nearly 40% are given with few details.

The modeling to be performed in Uzbekistan with the assistance of SysManagement can only result in very rough approximation. And the Railways is far from finding itself in a position of structural stability. The results obtained will not be very realistic and will correspond to the current mode of operation which should integrate the operational and financial difficulties mentioned in this report. Only a more detailed study can identify railway costs.

Taken collectively, these difficulties do not facilitate the development of a market-oriented economy in Uzbekistan. Frequently, we heard our contacts praise the merits and living conditions of the past. It is true that salary and wage levels are very low: a top executive earns about USD 15 per month. This is one reason why a number of managers reject the principles of a market-oriented economy.
 
 

Managing Director - Ikram. A. SHADMANOV

Share corporation established in 1994.

Shareholders : Trans Rail 21 %

The National Railways Company of Uzbekistan 39 %

Trans Business (Russian-American) 15 %

Trans Sib (Semi-public joint venture, Sea Land) 15 %

Uzbek Trans Turkestan Company 10 %

The Company presently employs 375 people.
 
 

Results and Forecasts

1995

Disclosed on 21/03/96. USD 700,000 in dividends.
 
 

1996

Forecasts concerning the fiscal year and areas of development.