Russia and China signed an intergovernmental agreement in October 2008 permitting the joint construction, operation and maintenance of a new railway bridge over the Amur River, which forms the border of the Russian Far East with Northeastern China. The proposed bridge is to connect Nizheleninskoiye in the Jewish Autonomous Region (JAR) in Siberia with Tongjiang in the province of Heilongjiang, China. This bridge is well-positioned to facilitate and develop cross border trade, in particular for bulk commodities such as iron ore and coal, much in demand in China.
China and Russia are among the largest economies in the world and, naturally, trade has been growing steadily between them in the past few decades. Their respective governments have been active in promoting bilateral relations and have instigated many Accords, which have encouraged economic and industrial development on both sides. In July 2001, the Chinese and Russian governments signed the Treaty of Friendship, Good-Neighbourliness and Co-operation, creating, in the words of the former President of the People’s Republic of China, Jiang Zemin ‘a new model for the twenty-first century.’ It is often said that trade breaks down walls, bringing countries and governments together and so an opportunity has been created to write a new page in history.
IRC Ltd is part of a group that has invested in the Russian Far East for the past two decades. The company has several operations in the region, including Kuranakh and Garinskoye in the Amur area and Kimkanskoye and Sutarskoye (K&S) in the JAR. IRC has invested heavily, acquiring exploration licenses to develop mines for industrial commodities, notably iron ore. The company has also invested in more than just mining: it is employing new technologies to build processing facilities so that the mined ore can be beneficiated into higher quality products. These solid investments have proved worthwhile and successful for the region, creating over 2,000 new jobs.
At the helm of IRC is a young and dynamic entrepreneur, Jay Hambro. Aged 37, he has risen through the ranks to the position of Executive Chairman and is excited about the prospects that the bridge will offer, not only to IRC, but also to the entire region.
‘Russia holds one of the world’s major under-exploited reserves in minerals, metals and hydrocarbons, and as a result, is becoming a leading powerhouse in the global supply of these raw materials. A great portion of these reserves is to be found in the far eastern region of Siberia where Russia shares an extensive border with many Chinese provinces. As it stands, Russia is heavily dependent on its revenues from its oil and gas industries, which are the backbone of its economy. While this has been essential in encouraging economic growth and prosperity, it also leaves Russia susceptible to market volatility, exposing it to a potential reversal of fortune. The diversification of revenues is therefore essential to consolidate its social and financial stability and independence.’
Hambro also points out that while China is one of the major consumers of global supplies of metals and mining goods, the government is implementing a new five-year plan to invest in its provinces. This will encourage growth in these regions, which have not benefited to the same extent that the cities and the eastern seaboard have in the recent increase in prosperity. Hambro’s neighbour is Heilongjiang Province, just one of the areas benefiting from Beijing’s focus on regional development.
‘For these provinces to develop with the rest of China, they will need to import great amounts of raw materials such as iron ore. It is wise that China expands and diversifies its supplier base. It needs to ensure a steady supply of commodities. And at the same time, they can safeguard their purchasing power by maintaining competitive pricing conditions.’
Asked why Russia would be more competitive for China than other suppliers, Hambro replies unhesitatingly: ‘For many companies like IRC, this is an opportunity to carry out a more efficient logistics operation. By cutting out unnecessary, extra railroad travel, not only will it reduce transport costs and times but will also facilitate improvements in inventory management and trade financing costs. Obviously these savings are passed on to the customer. A further bonus, and an important factor of IRC’s company policy, is that a more efficient and modern infrastructure will have the added advantage of being a more environmentally-friendly solution. Journey lengths will be significantly reduced and therefore impact positively on carbon emissions.’
China and Russia share a frontier that stretches over 3,500 kilometres. Russia is home to the world’s longest railway, the well known Trans-Siberian Railway which was built at the end of the nineteenth century. It runs along parts of its border with China out to the Pacific Coast and is an important mode of cargo transport in the region. Mirroring the Trans-Siberian runs a second lesser-known line, the Baikal-Amur Mainline. This complementary line also runs from east to west, and was built in the twentieth century as a strategic alternative, while today it also serves to handle passenger and freight traffic. Although Russia enjoys world-class rail infrastructure along its border, the distance between the two closest permanent railway crossing points and dry ports to China is 3,450km.
‘The resulting growth in trade between the two countries has contributed to a great increase in the transport of cargo, much of which is done by rail,’ says Hambro. ‘This has created the need to improve elements of the transport infrastructure to allow a more efficient flow of goods. Cross-border volume capability has come under pressure with the increase in trade and the need for further capacity has become evident,’ he continues. ‘Governments and businesses alike have therefore proposed this idea of a railway bridge which crosses over the Amur River halfway between the two existing permanent stations.’
‘It is a true cross-border enterprise,’ affirms Hambro. ‘I am proud to say we are bridging frontiers,’ he says, adding ‘It has been an interesting challenge for both of these countries as it presents elements that have required much analysis. The expertise of several governmental departments and institutions has been necessary to approve the various legal and
technical requirements and implications. For instance, the project not only involves cross-border joint construction, but unusually, the boundary falls within the Amur River. In this case, the legitimate line is the deepest point in the river, which is significant in defining conditions of ownership, and the inherent legal and financial commitments. Another consideration is the need for customs checkpoints. Then the engineers have had to consider differences in the Russian and Chinese railway gauges (the distance between the tracks), which has had an impact on the design of the bridge.’
All this work building bridges has costs. Current estimates suggest that both projects will cost the Russian side a total of US$236 million. It has been agreed that there will be a public-private investment scheme established to complete this project. However, an agreement on the strategy of funding has yet to be reached, which is delaying the project.
‘We have brought a solution to the table, and we proposed that we finance the construction of the entire project on the Russian side. The investment will then be financed by a slight increase in rail tariff which Russian Railways will use to repay the scheme and take full ownership of the bridge. IRC will just facilitate it and have received various proposals of project finance. And by the way, IRC will not be the only beneficiary of trade that the bridge will generate. The bridge has an annual capacity far greater than we need. I wholeheartedly believe that it is a win-win solution for everyone,’ declares Hambro. ‘We commissioned, at our own expense, the design of the bridge. It is a point of leverage for the region to carve out an industrial zone on the back of the bridge with trade going both ways.’
At the Baikal Economic Forum in Irkutsk, Siberia, in September of this year, Chief of Russian Railways, Mr Vladimir Yakunin, spoke positively about the project, sharing general expectations that the bridge would bring greater capacity and thus relieve the constraints of freight bottlenecks at the other points of crossing. On the other side of the border, at the Harbin Intergovernmental Conference, in the Heilongjiang province, IRC was the only corporate body to be invited to participate.
‘This testifies to the confidence that both parties have in our company and our sincere interest in bettering the region. Our subsidiary has been officially appointed to act on behalf of the JAR government as the vehicle which will implement the contract for the Russian party. IRC has also participated in the Russian-Chinese work group involved in the development of the project.’
‘At the end of the day, the benefits for both countries are evident,’ Hambro declares. ‘For Russia, the project will boost the local economy, create jobs, increase the general standard of living and contribute to pushing Siberia to the forefront of the Russian economic drive. For China, it will contribute to consolidating a reliable and continuous supply of raw materials at competitive market prices. It is a wonderful opportunity for both countries to cement their relationship and develop a stable and sustainable partnership. For IRC it will bring significant transport and logistics savings whilst also opening up wider markets for the business to access.’