The role of transport is especially significant in uninhabited regions with a low territorial specific funding value.
    In practically all spheres of activity the share of transport in the manufacture of various products and services is of
more importance in uninhabited areas than in inhabited areas: to assist this a high-capital capacity and long-term investment cycle is necessary.
    This can be shown by statistics. For example, in the cost price of transporting goods by road, the proportion for road costs in the southern regions of Russia is 20-25 per cent, whereas in the north it approaches 70-80 per cent. The absence of roads plays an analogous role in the costs of agricultural production and in social instability (withdrawal of qualified personnel, high rates of sickness and mortality for transport-related reasons and so on).
    There are often specialist branches of industry in the north (ore-mining, metals, fishing and forestry), where at the same time transport appears to be a brake on the development of the economy. For example, the proportion of transport in general materials expenditure in the Far East in the branches averaged from 18 per cent to 40 per cent, reaching 76 per cent in material-technical supplies. Moreover, in the northern zone of DVEP, these costs are five to six times higher than in the south. The proportion of transport and communications in the gross communal product of this region amounts to 14.7 per cent, while imports account for 37 per cent of consumer goods resources.
    According to reports from the Institute of Economic Research DVO RAN, the lateness factor puts a brake on the extension of production volumes and is stable at 12-13 per cent a year, where the contribution of transport to this braking effect is almost one half; that is, the annual loss from inadequate investment in transport amounts on average to 1.5-3 per cent of WP and, taking into account the inertial consequences of the braking (due to short delivery of production), to 5-6 per cent.
    For the whole of the northern part of Russia, it is characteristic that there is a sharp discrepancy between the relatively high rates of specific growth in haulage and the development of the transport network. At the time of writing not only does the government's investment policy not promote the lagging development of transport, it also hinders it, so that the northern regions' share in the planned investment for road development depressingly decreases from 15.1 per cent in 1995 to 14.8 per cent in the year 2000.
    Prerequisites of TEO (Technical and Economic Feasibility Study) for investment in transport. A peculiarity of investment in the north is the almost complete absence of political risks. It is reckoned, however, that there are increased commercial risks here. In our view, the overstatement of commercial risks, particularly in transport investment, has an artificial character originating from the depths of a centrally planned economy, when the emphasis was on the national economic effectiveness of capital investment.
    The analysis of TEO investment, worked out by the firm Geograkom, showed the important role of the differentiation of returns on investment in transport for each area of management (more widely, the consumer of transport services). Roughly speaking, with such
Can approach the sum of the effects of each consumer exceeds the general economic effect calculated by traditional methods; for example, according to the minimum incurred costs. One can say that this is the effect of emergence (the sum of the parts is not equal to the whole), which will be more obvious with the gradual drift toward the market.
    Until 1994, however, normative documents were absent, allowing the country's  businessmen to  carry out evaluations of investment projects on a new basis. Also the experiment of the. West may not always be helpful in this respect (business plans, pre-tender basing and so on).

    The basic conflict of investment policy, strangely, has an ideological underlying cause, which was once clearly expressed by the writer S Cohen. He complained that the two sides of the post-industrial existence, democracy and universal prosperity, were not united in both camps. In the first place things are going better in the West with considerable differentiation of the levels of consumption; in the East, however, it is better with general prosperity (read

 

Load capacity of national income    (tonne km / US$1)
	1910	1940	1955	1990	1992
Former Soviet Union	3.0	7.5	10.1	16.1	3.6
Komi Republic	-	-	-	13.7	2.3
France	1.6	1.8	1.5	1.3	0.2
Germany	-	-	2.9	-	0.3
Japan	-	-	1.4	1.0	-
USA	4.9	4.6	4.2	3.1	0.6
India	0.4	0.7	1.0	1.9	0.5
Great Britain	-	1.5	1.7	1.7	0.3
Source: C. Clark. Regional and Urban Location. NY 1982.  • Gross communal nroduct corrected for buyer's capacity (source: Report on the situation in  the branch. Strategy of the Russian Federation in the transport field. MBRR, 1993)

social justice), with a generally lower level of economic development. In other words, due to bottlenecks in the evalu ation of investment projects in the West, there remained until 1994 an unsatisfactory calculation of the social interests of the population of the regions.   New investment conception On the basis of TEO investments in transport there are two principles: the calculation of effects in emerging market relationships and the priority of territorial interests (from village councils to republics), while the interests of various hierarchical territorial formations may not coincide. The uniting of these two principles is realized on the basis of producing a normative transport-communication environment for the region. Investments in transport should be directed not toward conveying more goods (this is a private and, as will be shown below, an ambiguous aim), but to create normal transport conditions for life's activities and management.
    With such an approach, transport is considered to be an instrument for improving the quality of life of the population and the market possibilities of management, and also a stabilizing factor in the consumer market. In short, this is the essence of TEO investment.
    Such an approach, however, also requires new indicators for evaluating the quality of the transport-communication environment. One of these was the index of reliability of functioning of the United Transport Network (UTN) in the region — the Integral Transport Accessibility (ITA), measured in average weighted expense of time, taking goods and passenger conveyance separately.The index has a systematic character and thus one has the possibility of evaluating the global effect of local investment, as a result of which the effectiveness of a project is really increased.
     In this way, the transport infrastructure becomes a powerful factor for extending the field of market relations. It is not by accident that the World and European Banks, in a separate paragraph, were willing to credit the development of a road network linked with an understanding 6f the importance of a logical chain: successful introduction of market relations, all-round competition, creation of various communication conditions for investment and business undertakings as a whole. In other words, road transport conditions also exist on equal terms with the general economic conditions of functioning of the market.
    In the connection between transport infrastmcture and market, however, lies its peculiarity. First, development of the road network leads to the redistribution of economic activity. In particular, unusual situations arise in the local network. As the experiment of countries entering the market shows, on average over 1.5-3.5

 years, in places where the road has arrived, a reduction in activity is taking place, as well as the destruction of local producers and a substitution of their goods and services with higher quality imports from large towns on the newly constructed or reconstructed road. The populations do not lose from this, but replenishment of the road fund in these places is unsuccessful, so that places of capital investment and returns from them cannot coincide.

    The conception of the rationality of transport-economic connections is changing in a fundamental manner. Now its rationality is determined only by the consumer of transport services, proceeding from his opportunities and the new concepts. They are the following: with a general trend toward absolute reduction of transport expenses connected with growth in revenue, for the consumer of transport services the relative reduction is more important.     Expenses can also grow, but if the prof tability of the company does not suffer or improve, then one can speak of a relative reduction of transport-economic connections. In conditions of growth of independent producers of transport services, of permanent change in the state of the market, the transport-economic connections, even of large companies, become unpredictable.
    It should be remembered that even in the conditions of a centralized planning system, the trustworthiness of a forecast of transport-economic connections did not exceed 85 per cent. In present conditions, even taking into account balance-method adjustments and the method of dynamic series, the trustwor thiness of the forecast for goods traffic did not exceed 60 per cent. For this reason, it is necessary to reject a preferential orientation on a forecast of traffic in planning the development of transport infrastructure investment projects.     The return on investment must be sought outside the transport sphere. This conclusion is linked with the report of the World Bank on the strategy of the Russian Federation in the field of trans port, where the basic conclusion seemed to be that there was under-utilization of existing transport capacity.
     In practically all countries the load capacity of the national income is falling (calculated per US$1), and only in Russia is growth prolonged.     This leads to a series of unfavorable consequences, in particular the incorrect correlation of investment in permanent structures, vehicles and rolling stock. Worldwide, the proportion of the former exceeds the latter, particularly signifi cantly in regions of new assimilation, where correlations are at the level of 70 per cent and 30 per cent (not counting forms of transport by water). In Russia the scene is completely different.
     As a consequence, the level of transport-communication provision in the northern regions is several times lower than in other regions (Table 2).     From what has been shown, it follows that prioritization of investment is neces sary, namely in infrastructure and not in vehicles and rolling stock. That is, the $300 million credit from the World Bank
 

Level of transport provision of several regions of Russia
region	Integral Transport Accessibility  quantity  North	Norm  quantity	Percentage  Provision
Kamchatka District (1984)	52.7  37,7	14.5  13.0	28.0  34.1
Magadan District (1985)	36.0  28.4
Komi Republic (1993)	8.2  8.0	5.6  7.1	67.6  88.7
Vologda District (1993)	7.2  7.8	5.4  6.4	75.0  82.0
Kabardino-Balkaria (1991)	2.5  3.1	2.0  2.9	97.8  96.4
Checheno-Ingushetiya (1991)	3.4  4.0	3.8  3.3	109.7  81.1
Numerator: Carriage of passengers.  Denominator: Carriage of goods.

 

    List of prospective investment projects in transport in the north

1. Transcontinental   railway   from Yakutsk to Anadyr with constmction of a tunnel under the Bering Straits (more details will be given later).
2. Transcontinental gas pipeline from North Yakutiya to South Korea.
3. Gas transport system Teriberska-Murmansk-Belomorsk-Petrozavodsk- Volkhov.
4. 126-km railway line Ledmozero-Kochkoma to connect Arctic ports with the Baltic Sea.
5. Railway line from the Timansk bauxites to Archangelsk.
6. Construction of road freight terminals in Archangelsk, Vyelsk, Nyandoma and Surgut with a total capacity of 3.3 million tonnes.
7. Construction of road-rail terminals for large-assembly containers in Petro zavodsk, Murmansk and Archangelsk with a total capacity of 1 million tonnes.
8. Construction of marine terminals in Magadan, Amderm, Dixon, Pevek, Khatang,    Naryan-Mar,    Anadyr, Petropavlovsk-Kamchatskiy with a total
9. capacity of 2.8 million tonnes.
10. Development of sea ports in Archangelsk, Naryan-Mar, Murmansk, Kandalaksha, Magadan, Ekveginote, Anadyr, Beringovy, Pevek, Tiko and Provideniya.
11. Reconstruction of main highways: Kola (St Petersburg-Murmansk) and Kolyma (Magadan-Yakutsk).

Effectiveness of investment programs    

Geograkom has worked out road programs for a series of regions in the Russian Federation, in which the priorities of territorial interests are realized. A peculiarity of such programs is the possibility of alternatives, in which three investment programs are generated for each territory from the point of view of priorities of social and economic aims of development, and also of the maximum increase in the reliability of functioning of the United Transport Network (UTN). The same objects may appear in each of them, but in a different sequence. For that reason, a reconciled program is prepared from the better proposals of the three alternative programs.     The whole cycle of the search for a decision is accomplished at PEVM with the  help of a specially developed program complex with the expert system, Geograkom-2. The system allows the expert to intervene with his proposals, if necessary.    Geograkom-2 also forecasts the potentially dangerous sections of UTN where, in the case of the system getting out of order, the region will suffer the greatest damage. Thus in the Vologda District, PEVM considered more than 2000 investment proposals, of which, according to the set of effectiveness indices and taking into account financial limitations, about 1000 were accepted.    In this case, the investment programs are accompanied by a differentiated evaluation of benefits, which users receive in various places. Just this differentiation of the interests of users of road services also produces interested investors among them. In this way a mechanism is created, more in a kind of program product, which allows one to operate investment processes in a new way and increases the level of TEO validity.
   One can understand the peculiarities of the investment market, which are characteristic of the whole of Russian transport, by looking at the example of road building and reconstruction. Among the multitude of causes explaining the shortage of investments in the road economy, with their considerable requirement according to the Federal Roads Department Program (Table 3), one may pick out three in general.     Weakly forming markets     The process of dividing customers and contractors is going slowly. Without it (when he who orders is also the one who pays himself as contractor), talkingabout the market does not come into the question at all. Competition by contractors is absent, although in every region, in spite of the organization, Avtodor,there are sub-divisions of the former MinTransStroya, AgroProm-DorStroya and military constructors. Even there, however, where division has takenplace, open contractors' auctions are a rarity. Two to three years are necessary to break the family ties with. one's for mer sub-divisions.    At this time, where competition is manifested, albeit partially, results are impressive. In the Vologda District in 1993, the specific value of contracts incomparable prices was reduced on average by 11 per cent, which, in the final reckoning, led to the bringing in of roads exceeding the level of the most satisfactory year, 1988.
    In places where conditions for competition have been created, private road building firms are gaining strength, for instance in the Likhoslavsk region of the Tver District and in several remote regions of the Komi Republic. In spite of this, an inter-regional market is emerging, where with the shortage of proper capacity, alien organizations are attracted.
 

      Inadequate investment opportunities of road funds

    The basic source of finance — the territorial road fund, is basically raised from tax on the road-user. Its rate is in the hands of the local organs of authority.The average value of the rate in Russia does not exceed 1.5 per cent, with rates varying from 0.4 per cent in Moscow to 3.5-4 per cent in the north-east of thecountry. The rate of this tax is a reculiar indicator of the economic thinking of the representative authority, which in a series of cases, regrettably, is alignedwith an achieved level of the road branch and not with the requirement of developing the network. It does not take into account the necessity of convertingan important pan of the departmental roads in the general network that are ful filling the general-user function. Thus in the Archangelsk District, the deputies,already for the second year, reckon that 1.2 percent is adequate (taking account of privileges to the logging industry, the real value is less than 1 per cent), whilein the Moscow District it is 1.5 per cent, and in the Komi Republic in the neigh borhood of Archangelsk District, where the position is similar with regard to thelevel of the lack of roads, 2.3 per cent is accepted (in Vologda District, it is 2.38 per cent and in Kemerovsk District it is 3 per cent).
   As a result of falls in production volumes (from the value of which payments to the road fund are derived) the investment possibilities for the fund arefalling by 18-20 per cent. Their contribution and the laws on NDC and Payment for Land and also legislative acts are submitted, based on utilizationof forest (10-12 per cent), incomplete collection of tax, delays in passing accounts through the banking system (13-15 per cent) and escalating pricesof materials and equipment, GSM (7-10per cent).
   Analysis shows that the higher the negative role of roads is in the life of the region (in the form of a high roads-share building up in the cost of basic kinds ofproduction and also of a high proportion of the population living in limited zones of transport accessibility), the higher the rate of tax should be on theuser of the roads: from 1.5 per cent in well assimilated regions with a developed supporting network to 3.0-3.5 per cent in newly assimilating regions,  where the supporting network has not been formed.
   These recommendations, however, can come into conflict with insufficient amounts and people's ability to pay. In this case, a second source of financeshould manifest itself — subsidies and grants from the federal road fund. Due to the reduction of its tax-taxable base in 1994, one should expect an importantreduction in receipts from this source. One further source is local budgets; it is unlikely that one can consider this seri ously.
   In the middle of May 1994, a launch seminar took place on the utilization of the whole of the $300 million credit from the International Bank. It was intendedbasically, however, for the development of the federal road network. In conditions of a deficit of resources, an unclaimed source remains a more important one - private investments and the facilities of interested investors. Thus, in the Komi Republic 18 per cent of the road program could be covered at the expense of interested investors, in the efficiency of factories of which the road program constitutes too large a part. For this reason they were vitally interested in all its reductions, but one had to show convincingly how and when the investment of money is to return to them, at the same time reward ing them with the title of local benefactor, because the road has also a powerful social influence There is no one to show it to, however.

    Non-development of road consultancy

    As a matter of fact, there are no analogs of business plans for road projects. Owing to their specific features, one should speak about TEO road investments. This is connected with the fact that, in the conditions of transition to the market, there is a change in the methodical provision of such TEO investments in connection with the conception of the new investment, which was mentioned earlier.
    The TEO investments worked out by the consultancy firm Geograkom for a series of regions in Russia indicate the high return on investment in the development of a road-construction complex, if one unconventionally takes into account all the above-mentioned peculiarities. Thus 28 per cent of all investments in the Komi Republic, 25 per cent in the Vologda District, 12 per cent in Kabardino-Balkaria, have repayment plans of less than three years. Project analysis of roads and investment on the basis of the original expert system,
 

Effectiveness of road programs
	Effect per billion roubles investment
	Russia	Komi	Vologda  District	Kabardino-  Balkaria
Direct benefit to  road user	1.87	3.07	2.08	1.65
Increase of gross  communal product	0.6	1.03	0.7	0.4
Effect in the  social sphere	0.5	0.8	0.6	0.5

Geograkom-2, allows one to examine the different alternative scenarios of development of a road branch, depending on the chosen rates of tax on road users, the prioritization of efficiency criteria and to draw certain conclusions. Thus calculation of inflation expectations through discounting costs reduces the real effectiveness of new road construction as a rule by 2.5 to 3 times, and investments in repairs and pre-repairs of an existing network is more effective by 1.5-2 times compared with investments in new construction projects. In many regions the comparable effectiveness of programs of road development is higher than in Russia as a whole (table.)
    Particularly careful project analysis is important for large-scale projects. Expert opinion on inter-continental road projects, Paris-Moscow-New York, the
routes: Baltic Way and Moscow-St Petersburg-Scandinavia show either their impracticality or a highly conditional investment attractiveness. The most promising in this respect are toll bridges: the idea has already been successfully realized in the Districts of Saratov, Voronezh and Tyumen; TEO investments are being set up for the combined bridge across the River Amur near Blagoveshchensk.

  Transcontinental railway and tunnel under Bering Straits

    One should distinguish between the short-term and long-term aspects of this project. The short-term aspects encompass the period approximately from 2002 to 2015, when there will probably be construction and the first results of operating the tunnel. The long-term aspects are beyond the limits of 2015, when entercontinental co-operation and involvement in the sphere of exchange with China and south-east Asian countries begin to be fulfilled.
    According to various estimates the value of the project varies from $30 billion to $45 billion. Sources of return on investment from the Russian side could
be as follows:

1. Accelerated involvement in the operation of prospective ore and non-ore useful minerals and their attractiveness for foreign investors as a consequence of the rational cost of extraction owing to relatively low transport costs.
2. Dramatic broadening of the logging zone useful for exploitation with the primary working of timber.
3. Essential reduction of budget costs of the state in seasonal transport of loads to the north and liberation (re-profiling) of about 40 large supply-marketing bases.
4. Until the year 2000, inter-regional carriage of loads in the north-east alone amounts to about 15 million tonnes. For this reason, construction of the main rail
   way line reduces the level of above-normal stocks (approximately by 60-70 percent and leads to redistribution of the role of every form of transport. Thus, if in 1985 the share of railways in the total economy of costs in the system of material-technical supply amounted to 52 percent, in 2005 with active     exploitation of the Amur-Yakutsk main line, it could amount to 67 per cent, then with the introduction of the Yakutsk-Anadyr railway line, to 84 per cent. The role of road transport will also increase: correspondingly from 2 to 3 per cent, and then to 5per cent. The role of water transport will materially decrease.
5. Reduction of costs of industrial production on account of increasing the reliability of deliveries (completing, raw materials, energy carriers) and sales leading to     an increase in turnover; thus, reduction of expenses of time of goods haulage by 1 hour within the limits of  the northern zone of the Far East as a whole leads approximately to a lowering of the cost of SMR. by 8-9 per cent, the cost of extraction of coal by 4-5 per cent and non-ferrous metals by 1.5-2 per cent. These are extremely high equivalents of a 1 hour saving of time; in the European part of Russia they are 8-9 times lower.
6. Changing the schemes of delivery, structure (according to forms of transport), and carriage of goods (to a lesser extent, people) with a view to making them cheaper. The mechanism of this source is as follows: with an absolute increase in the volume of goods haulage, the relative load volume (in  the calculation per million roubles of  national income) is reduced. The share of road and air transport in the north-east of Russia, at present amounting to 83 per cent, will come down to 45-50.per cent.
7. The revenues from intercontinental haulage (after 2015).
8. Social effect, being expressed as follows:
9. Increase in trade turnover and chargeable services, made accessible to the population, the size of which, in the zone of attraction of the main railway line,will grow substantially
10. Reduction of the withdrawal of the population into the center and stabilization of the qualification potential of the employed, and
11. Lowering of the chronic sickness and mortality rates due to transport effects (tuberculosis, infections, death of young people)

The investment climate in the zone of building the transcontinental railway (TCR) may be established as favorable according to non-commercial risks and insufficiently favorable according to commercial ones. According to expert estimates, the probability of a return on invested funds to "the year 2020 may be fixed with respect to TCR at the level of 0.85, with respect to the tunnel at the level of 0.3.
The additional expenses arising in the case of realization of the project should also be borne in mind; neutralization of ecological damage, protection and
development of a reservation for the nationalities of the north.
    According to the results of research by the firm Geograkom, the reliability of transport provision of the Magadan District (with the Chukotski NO) and Yakutiya, measured in average weighted expenses of time (hours) made up the following picture (Table).
 

Region	Average weighted   expense of time (hr)
	1985	1991	2015
Magadan District  Goods traffic  Passenger traffic	28.4  39.5	27.0  38.0	20.0/24.0  32.0/36.0
Yakutiya  Goods traffic  Passenger traffic	45.0  62.2	42.0  60.0	38.0/39.0  55.0/56.0
Value equivalent of Ihr in comparable prices (million roubles)
Magadan District  Yakutiya	28.2  52.3	32.5  59.5	44.0  70.0
Numerator: southern alternative route (TCR).  Denominator: northern route.

    As can be seen from Table  the value of saving one hour is increasing. If it is based on the forecast expense of time in 2015 after completing the construction of the railway to Anadyr and the main road routes, the effect in comparable prices would amount to 0.31 billion roubles in the Magadan District and 0.28
million roubles in Yakutiya (1988 prices).
    The condition of vitality of the intercontinental tunnel project is the construction of the approach railway lines, both m Alaska and north-east Russia, and also the parallel construction of the roads. In this case it should be borne in mind that not less than one-third of the railway from Yakutsk to Anadyr should be funded with investments from abroad (in the first instance in the form of equipment and part-construction of a metallurgical complex in the town of Svobodny, the basic supplier of rolled sections in the future).
    Only two of the largest accompanying investment objects have been named, although it would be more correct to talk about the whole program of foreign investments in the creation of an industrial base of transport construction, which at present is extremely lacking in power in the north-east of Russia.
    The value of the construction of the main railway lines in comparable prices amounts to 15.2 billion roubles for the southern alternative, 13.2 billion roubles
for the northern one, the collective effect amounts to 0.58 billion roubles and 0.29 billion roubles, the repayment period is25.5 and 45.5 years, respectively. In this
case the southern alternative is obviously preferable.
    The prospects of increasing the goods traffic is connected with a considerable degree of development of the zone of attraction of the transcontinental railway
in Yakutiya, in Magadan District and Chukotka. According to data from NIIKTP the volume of rail traffic in the TCR railway attraction zone within the
boundaries of Magadan District in the year 2000 is expected to be at a level of 7.8 million tonnes, somewhat less than this within the limits of Yakutiya. The
 total figure is around 15 million to The working of deposits of tin ? cent of all Russian resources), and (total of 50 per cent of all RL resources), gold, wolfram and leacores could become the main sourc increasing goods traffic. Most of t however, are situated in places re: from the proposed TCR route. export of coking coal from s' Yakutiya to Alaska and Canada is being seriously considered by any ol developers.
    A characteristic of the Far East :  whole is the inertia of export-im{ flows in the direction of Primorye Japan, which will be difficult tolov come and even to balance in the eoi and north directions in connection w the construction of the TCR and the tinel. The mutual complementation of economic structures of north-east Rus; on the one hand, and Alaska and tl Canadian North on the other, cou become an important factor of the exp'diency of the project. On the wholiaccording to the data of IEI DBO RAf1the proportion of mutual trade in thnorthern part of the Pacific Oceai(higher than 50° latitude) amounts t(only 5 per cent of the genera] trade balance of countries in the Pacific Ocean basin.
    Proceeding from the proposed structures of sources of revenue follows the proposal of a minimal specific profitability with an aggregate volume of goods
carried of 16 million tonnes a year.

Material for this article was obtained in advance of many political and economic
changes in the region and care should be
taken in interpretation of facts, figures and other data.