ABOUT THE NECESSITY OF FURTHER LIBERALISATION OF TARIFES IN THE RAILWAY

RANIN MITAISHVILI

Price (tariff) liberalisation in the railway is necessitated by the incompleteness of this process in the country as compared with other developed countries where state and regulating authorities stay away from the imposition of tariffs on railway transport.

The railway has many competitors in the goods transportation market. In case of regulation, an economic responsibility should be undertaken by a regulatory body.
According to the law of Georgia about basis for prices and price formation a regulating tariff is set by a government in case competition is limited. Competition is limited when the share of entrepreneurial subject in the market is more than 35%.
This provision is confirmed by clause b, article 23 of the Georgian law about “the government control and regulation rules of transport and communication sphere” according to which the railway administration should confirm that non-competitive situation was created around a particular service in a certain period of time.
Some examples are given below to determine the market share of the Georgian railway in the goods transportation sphere.
Goods transportation by rail are divided into local, import, export and transit.
To put it in a more simple way, see the below-given volume of flour and wheat production and import (table 1). The volume of wheat production in Georgia was 306,5 thousand tons in 2001, that of import – 82,3 thousand tons, local transportation- 6,9 thousand tons, transportation import – 91,3 thousand tons, re-export – 14,4 thousand tons. 83,8 thousand tons were transported by rail exclusive of re-export, i.e. 21,4% of the total number of produced and imported production.
The flour production in 2001 made up 82,5 thousand tons, that of import – 8,07 thousand tons, flour transportation by rail – 55,0 thousand tons and stealthily imported wheat – 78,0 thousand tons. Thus, the total number of railway transportation is 22,8%.
The below-given table shows the volume of transported goods by rail in 2001 in accordance with kinds of transportation. As far as we can see from the table, the number of transportation totalled 13,2 million tons of which 76,5% fall at the share of transit, 6,1% at import, 3,5% at export, and 13,9% at local transportation.
If we consider all kinds of transportation except transit, we will see that the transportation volume is so small that in case of price surge the significant part of transportation might be transferred to vehicular transport where in 2001 more than 20,0 million tons of carriage was registered. This significantly exceeds the volume of local, import and export railway transportation as well as growth rate. Thus, for example, in 2001 the volume of railway transportation was 3,11 million tons up from 2,62 million tons in 1999 (growth rate 18%) with 15,0 and 20,0 million tons falling at the share of vehicle transport (33,3%).
As for transit transportation, an intergovernmental commission of “TRACECA” and its permanent secretariat was formed with the goal of increasing competitiveness of “Silky Road” corridor. Appropriate representations have been created in all countries of “TRACECA”. The commission’s main objective is fulfilment of the terms and conditions of the famous Baku agreement on “TRACECA” corridor. It is clear that in the event of competition, a state is justified in interfering with the price formation process only with the goal of subsidisation while staying away from the economic activity of an enterprise. Does the Georgian railway has rivals in transit transportation?
Its rivals are:
– Russian railway with its corridor. Its tariffs are determined by the railway Ministry of Russia independently without asking other’s agreement. (the volume of transit goods volume in this corridor is much greater as compared with “TRACECA”). In fact, transportation tariffs are completely liberalised in countries of market economy.
– Railway corridors of Turkmenistan, Iran and Turkey are a completely new example. The export volume of Uzbekistan and Turkmenistan cotton was transported to Istanbul through the mentioned corridor as the tariff was much lower there than in other alternative corridors
– Pipeline transport. 6,0 million tons of oil are reloaded from Sups terminal to tankers. Pipelaying from Tengiz oilfields to Novorosyisk cost the Russian railway 18,0 million tons of crude oil.
– Motor transport. This kind of transport develops at an increasing rate. In Georgia the major part of total volume of transportation is transported by road (75%), which is, mainly, stipulated by low tariffs.
Proceeding from the above-mentioned, we think that it is illogical when in the conditions of tough competition tariffs in Ltd “Georgian railway” are established by a person not versed in sales opportunities who is not, thus, responsible for its actions.