Networks in exchange for transit

The Government of the Russian Federation approved the draft Russian-Azerbaijani agreement on cooperation for the development of transport along the western route of the international transport corridor North-South. The document fixes the volume of freight traffic, which will allow Azerbaijan Railways to cover its costs for the modernization of railway infrastructure.

The costs of implementing only the first phase of modernization of the Yalamah-Astara railway, through which Russian goods transit to Iran through the territory of Azerbaijan is estimated at $571 million. The amount of expenses to be offset is $316 million.  Completion is planned before the end of 2027. 

After that, JSC «RZD» commits to submit annually to the transport of Azerbaijani railways at least 5 million tons of transit cargo. In case of non-compliance with this obligation, the Russian side will pay compensation for unreported quantities. If the Azerbaijani railway companies refuse to accept the declared volumes of cargo for transport, they will pay. This arrangement will be in effect until the full settlement of the amount of expenses offset by Russian payments is secured by agreement.

The second phase of reconstruction of the railways of Azerbaijan envisages increasing the transit flow to 15 million tons. However, its cost and timing have yet to be agreed.

This is the first agreement of its kind in the economic zone of the MTC North-South, which legally enshrines specific obligations on transit of cargo, emphasizes expert of the Caspian Institute of Strategic Studies Alexander Karavayev. He also points to the agreement on the volume of goods - only 5 million tons from 2028. 

Bilateral freight traffic between Russia and Azerbaijan by rail is already fluctuating in the range of 3.5 - 4 million tons. At the Verona Forum, the First Deputy Director-General of JSC «RZD» Vadim Mikhailov recently stated: «On the western route we will provide infrastructure development in our country with an increase in the capacity of transport to 20 million tons per year by 2027, which corresponds to the forecast of cargo flows». According to Alexander Karavayev, the figure of 5 million tons means that the Russian side is trying to hedge against unforeseen circumstances.

When asked whether similar agreements will be concluded with Kazakhstan and Turkmenistan, through which the east branch of the north-south corridor passes, the analyst responds rather negatively.

While there is some parallelism in the interaction of railway companies on the western and eastern segments, the coordination agenda differs slightly. The Russian-Kazakh interaction is already at a more advanced stage, a joint venture is being formed», - recalls Alexander Karavayev.
 
There is also a through-traffic to Iran on the eastern branch, and Russia is ready to participate in infrastructure modernization. In the west, the situation is different: Baku is modernizing its network by itself, attracting loans from infrastructure banks, and certain volumes of transit are required.