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Growing inflation is threatening key investment projects being pursued by Russia's railroad monopoly
Growing inflation is threatening key investment projects being pursued by Russia's railroad monopoly, a popular daily reported Thursday. Gazeta wrote that Russian Railways' biggest projects - oil deliveries to China and the construction of a high-speed railroad from Moscow to St. Petersburg - were in danger of collapsing. According to the paper, in the first six months of 2005, the transport monopoly's sales profits fell year on year by 29.2% to reach 25.9 billion rubles (about $900 million), and its net profit had fallen by 72.2% to 3.26 billion rubles ($114 million). Expenses were up for Russian Railways in this period, as prices rose for everything from fuel to metal for rolling stock and track maintenance. The company expects to make 8-9 billion rubles ($315 million) instead of the planned 16 billion ($560 million) in its end of year results. The monopoly said growing inflation was responsible for the drop in performance. On Wednesday, the company had to announce that corrections would have to be made to its investment program for 2006 and a strategic development plan for 2010. Initially, the program set spending at 200 billion rubles ($7 billion) against 148 billion rubles ($5.18 billion) this year, but Fyodor Andreyev, a high-ranking company official, said the increase in investment could not be justified given falling revenues. According to Igor Nikolayev, the head of analysis at a Moscow-based consultancy, FBK, Russian Railways will have to give up infrastructure projects. First, it will have to slow down oil deliveries to China and the construction of the high-speed railroad linking Russia's two biggest cities. At $2 billion, the Moscow-St. Petersburg line, which is a joint venture with German electronic giant Siemens, is the company's most ambitious project. It remains unclear how the project will recoup its costs, Nikolayev said, because there is already a railroad on the route and it is in fairly good condition. However, Andreyev said there were currently no plans to revise the agreements with Siemens. The Russian Railways board will make a decision in November on what parts of the investment program it will give up, Gazeta said.
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