Transit freight drives KTZ expansion

New line construction and fleet renewals have cemented Kazakhstan’s position as a key node in the Eurasian transit market. Further expansion is now in hand, with more investment planned by 2030.

This article appeared live in the July issue of the Railway Gazette International, see (https://www.railwaygazette.com/digital-magazines/railway-gazette-international-current-issue-july-2024/66806.article )

Year 2024 marks the 120th anniversary of railways in Kazakhstan, which began with the opening of the northern section of the 1 668 km Toshkent – Orenburg line in January 1904, and President Kassym-Jomart Tokayev participated in celebrations on February 28 to mark the occasion.

The three decades since independence in the early 1990s have been a period of rapid change for the country’s railways, with national railway group KTZ refocusing from the north-south orientation of its inherited ex-Soviet network to develop new east-west flows and strengthen the country’s position as a crossroads of Eurasian rail logistics.

The country is criss-crossed by 13 recognised ‘economic corridors’ linking east-west and north-south. The first years following independence saw an acute crisis for the railways, with freight traffic dropping from 407 billion tonne-km to just 125 billion between 1990 and 2000. But thanks to the expanding transit business, Kazakhstan’s railways are now back to carrying 400 billion tonne-km per annum, as much as Brazil or Canada. The country is third in the world by load factor, handling an average of 19 million tonne-km per route-km per year, behind only Russia (30 million) and China (23 millon).

In 2023, Kazakhstan transported 980·7 million tonnes of freight by all modes. Rail accounted for 416·4 million tonnes, (269 billion tonne-km), a 7% increase on 2022. Container traffic reached 1·18 million TEU, or 24·8 million tonnes. That may only be 10% of the tonnage transported by rail, but thanks to some lengthy transit routes it accounted for more than 50% of tonne-km.

The hub on the Belt

Ever since the eight CIS countries in the Caspian region became independent, they have been establishing their own national identities and institutions.

Whereas in Soviet days all links ran north to Russia, new transport routes have been opened up, increasing trade options for producers and consumers. The region has now reached a critical crossroads in politico-economic terms, and its future success will depend on whether the various countries can take advantage of the opportunities available.

Four of the eight are effectively landlocked — the Caspian Sea is not connected to global trade routes, while the Aral Sea has almost disappeared as a result of exsiccation.

Kazakhstan is the undisputed leader among Central Asian economies, with a GDP of nearly US$260bn. It is the world’s largest landlocked country, and the ninth largest by land area, with more than 2·7 million km2. Yet its population only reached 20 million in late 2023, little more than half that of neighbouring Uzbekistan. Dominant industries include agriculture, mining, oil and gas.

Transport has been a significant contributor to Kazakhstan’s GDP, but its contribution was hit hard by the Covid-19 pandemic, falling from 8% (5·6tr tenge) in 2018 to 6·5% in

2022-23, of which railways accounted for about a third. The country’s goal is for the logistics sector to contribute 9% of GDP by 2026, increasing from US$14bn last year to US$34bn.

National operator Kazakhstan Temir Zholy JSC (Qazaqstan Temir Joly in Kazakh) was established in 1997 to replace three regional railway directorates

inherited from the Soviet structure. It became a wholly state-owned joint- stock company four years later, and the infrastructure and rolling stock

maintenance units and related property were spun off as standalone businesses. In 2011 KTZ was transformed into a transport and logistics holding group, with specialist subsidiaries.

The state holds its KTZ shares through the Samruk-Kazyna National Welfare Fund. Since 2006, the regulatory structure has been designed to facilitate the use of state railway infrastructure by independent operators, although this has not yet been realised.

As at 2023, the network totalled 16 100 route-km, of which only 30% was double-tracked and 4 217 km was electrified. All lines are 1 520 mm gauge; a project from the early 2000s to develop a seamless standard-gauge corridor linking China with Iran and Turkey failed to make progress.

Reflecting the post-Soviet borders, 514 route-km of Russian railways and 60 km belonging to Kyrgyzstan pass across Kazakh territory, including a section of the Trans-Siberian Railway at Petropavl. Conversely, 259 km of Kazakhstan’s tracks run through Russia and 16 km through Kyrgyzstan. As a result, Kazakhstan has 12 railway crossings on its lengthy border with Russia, compared with two each to China and Uzbekistan and a single crossing to Kyrgyzstan. The newest connection is a link with Turkmenistan, built with an eye to the transit market.

A separate network of more than 500 route-km serves the Baikonur Cosmodrome in Kyzylorda Oblast, which has been leased by Russia until 2050.

International logistics

Following the anniversary celebrations, President Tokayev visited the Innovation Centre established by KTZ to implement its Smart Railway project in conjunction with Huawei. He also participated via a video link in the opening of a Kazakh logistics centre in Xi’an, which has been developed by KTZ in co-operation with Xi’an Free Trade Port Construction & Operation Ltd.

This is the largest of 125 logistics hubs in China, and will process 66 500 TEUs per year. It is expected to handle up to 40% of all container trains between China and the EU, reducing significantly the time taken to move freight between China and Kazakhstan. In October, KTZ and XFTP began construction of a matching terminal in Almaty. They are also working with Russia’s Slavtrans- Service to develop a facility at Selyatino in the Moscow region.

Earlier this year, KTZ signed agreements with logistics hubs in Xi’an, Jiangsu, Beijing, Zhengzhou and Chongqing to route 3 500 transit container trains through Kazakhstan, totalling around 350 000 TEU.

Chinese transit traffic plays a special role in Kazakh trade policy, and a significant proportion of the business moves by rail. Last year, more than 28 million tonnes passed through the two railway checkpoints on the Chinese border, up 22% year on year. A similar volume is anticipated for 2024. Meanwhile, bilateral freight movements have also been growing steadily, exceeding US$41bn in 2023.

The Dostyk/ālāshānkoˇu rail connection with China was opened in 1990, just one year before Kazakh independence, and transit traffic began running a year later. Such is the volume of traffic today that the 1 000th freight train of 2024 passed through Dostyk at the end of February, bound for Ma?aszewicze in Poland. Work has been under way for some time to double the capacity of the border crossing facilities.

Since the launch of the Belt & Road Initiative in 2013, no fewer than 36 622 container trains have passed through Dostyk, while the second connection at Altynkol/Khorgas has handled 33 403 since its inauguration in 2012. Last year Altynkol handled 7 762 freight trains in both directions. Upgrading works have reduced the average train dwell time at the border from more than 12 h to between 6 h and 8 h.

Earlier this year, KTZ began piloting a seamless ‘digital corridor’, which uses Kazakhstan’s Tez Customs platform for the automatic processing of transit declarations. The digital corridor has been developed in co-operation with the Global DTC subsidiary of PSA International (formerly the Port of Singapore Authority). It is being trialled on the route from Altynkol to Sarya?a? for traffic bound for Uzbekistan, and from Dostyk to Brest Severny for transit traffic to the EU via Belarus.

New lines reshape the network Around 75% of Kazakhstan’s railways were built before 1970. However, the construction of 2 440 km of new lines between 2001 and 2019 helped to reshape the network and support its transit role.

Among the most significant projects was the 293 km Jet?gen (Alatau) – Altynkol/Khorgas line to establish a second Chinese border crossing, completed in 2009-12 at a cost of 148bn tenge. Similarly, the 145 km Jana?zen – Bola?aq/Serxetyaka link to Turkmenistan was built in 2011-13 for 65bn tenge as part of an emerging international corridor to Iran.

Other new lines include the 150 km ?ar – ?skemen route, which opened in 2009 to unify the domestic network. Costing about 14bn tenge, this was the first line in Kazakhstan to be built on a concession basis. In 2001, a 180 km route was opened in the northeast to connect Pavlodar with the East Kazakhstan region. This was followed in autumn 2004 by the 403·9 km Altynsarin – Hromtau line, connecting the northeast with the Caspian Sea port of Aktau and avoiding the need to transit through Russian territory. At the same time, a branch was opened to serve the new Quryq ferry port at a total cost of 32·7bn tenge, while more than 300 km of the Almaty – ?u main line has been double-tracked.

Rail-port links

Geography dictates close connectivity between rail and water transport. Of the largest ports on the Caspian Sea, Quryq is owned directly by KTZ, while 100% of the shares in the port of Aktau are held in trust by the national railway group.

Aktau port was originally built in 1963 to export oil and uranium from the Mangystau plateau but it has been expanded over the past two decades, including the opening of the North Terminal in 2014. Quryq port, 50 km south of Aktau, was built in 2016 specifically to serve the Middle Corridor. Both have train ferry infrastructure.

The two ports handled 2·8 million tonnes in 2023. Over the next couple of years, US$618m is to be invested in further development, aimed at increasing container throughput to 300 000 TEUs. Dredging at Quryq is planned for this year and Aktau will follow in 2025. Last year the Kazakh authorities signed an agreement with the Chinese port of Lianyungang to create a container hub at Aktau, on which work is scheduled to begin this year.

The two ports also play a role in the North-South Corridor, notably for the movement of grain. Last year Kazakhstan’s Semurg Invest and UAE’s AD Ports Group signed an agreement to build the Sarja grain terminal at Quryq, while in December AD Ports and KTZ established a joint venture to help develop north-south flows. AD Ports is expected to launch another joint venture in mid-2024, working with KTZ Express to process Kazakh and Russian cargoes bound for the Gulf ports via Iran.

Restoring stability

KTZ revenues increased by a third in 2023 to 1·9tr tenge, with net profit quadrupling to 154bn tenge, which Chairman Nurlan Sauranbayev described as ‘historically the company’s best performance’. Freight accounted for almost 93% of revenue. Turnover is expected to grow by further 15% to 18% this year, with an Ebitda margin of 28% to 30%.

However, KTZ’s debt burden reached 2·9tr tenge by the beginning of 2024, growing by 329bn tenge last year alone. The debts have mainly accumulated as a result of infrastructure investments not being recouped through tariffs. The group has traditionally financed its investment from internal and external sources as well as government loans.

According to Sauranbayev, 80% of regulated domestic freight tariffs are below cost. He believes that the government should allow the railway to increase its rates or else provide support if it wants to keep them low.

Transit traffic contributes the bulk of the railway’s profits, given that tariffs are unregulated. The dynamic growth of this sector has seen transit income increase from 27% of total revenues in 2015 to more than 40% by the end of 2023. Nevertheless, transit traffic only accounts for 5% of total rail freight by volume, compared with more than 60% for domestic flows and around 35% foreign trade (mainly exports).

Prime Minister Oljas Bektenov has pointed out that Kazakhstan’s unified railway tariff is the lowest among the EEU and CIS countries, but freight rates were raised three times in 2023 and have been increased by 5% since the beginning of 2024. KTZ Freight Transport has recently applied to raise its charges for traction services by 35%. And in March, KTZ applied to increase tariffs for exporters in 2024 and 2025. It estimates that this would bring in up to 535bn tenge, of which 179·6bn would be used for debt repayment.

According to recent comments by Marat Karabayev, the Minister of Transport, the state is considering removing the infrastructure management task from KTZ, transferring it to a separate state- owned body. KTZ would retain only the functions of a train operator, and could in the longer term be privatised through an IPO.

Capacity constraints

The main obstacles to growth have been identified as a lack of infrastructure capacity and a shortage of locomotives, both of which are attributed to KTZ’s financial position. According to the head of the Ministry of Trade Arman ?akkaliyev, exporters applied to

ship 8·5 million tonnes of freight in November 2023, but only 3·6 million (42%) could be accepted. Reflecting the availability of suitable rolling stock and the break of gauge, 70% of grain exports to China by rail moves in containers. In the first 10 months of 2023, more than 1 million tonnes of grain were exported via Dostyk and 396 000 tonnes via Altynkol.

Staff shortages are another constraint. Against a background of active growth in Kazakhstan’s transport industry as a whole, KTZ was short of 3 500 skilled personnel at the end of 2023, while the proportion of older workers aged 50 or more had grown to 30%.

Over the past 15 years, Kazakhstan has invested US$35bn in its transport infrastructure, notably rail and ports. It is now planning further targeted investments totalling €40bn over the next five years.

Last year, KTZ repaired or renewed 1 369 km of track and it aims to tackle 1 400 km this year, of which more than 570 km will see replacement of both rails and sleepers. The railway aims to renovate 11 000 track-km and build 5 000 km of new track by 2030, with 6tr tenge allocated for its 2024-28 infrastructure programme. Work began in 2022 on a 938bn tenge project to double the 836 km route from Moyynty to Dostyk/ ālāshānkoˇu, boosting its capacity from 12 to 60 freight trains each way per day. The scheme was reported to be 70% complete by the end of 2023.

Three more initiatives were launched at the end of last year, aimed at increasing export-import capacity. All are expected to have at least 85% local content, and together they are projected to create 2 000 extra jobs. On November 14, construction started of a 73 km double-track line from Jetigen to Qazybek-Bek bypassing Almaty. Due for completion in 2026-27, this line will have three stations, including a new Almaty-3 for both freight and passenger traffic.

The bypass is expected to reduce the pressure on the Almaty hub by 40% and reduce delays to freight traffic, which can currently add up to two days to transit times. Other plans to improve efficiency include the construction of a hump marshalling yard, the optimisation of container transhipment and the introduction of ‘interval’ train working.

November 25 saw the start of work on the 152 km Darbaza – Maqtaaral line, which will provide two new connections to the Uzbek rail network serving Jizzax in the west and Sirdaryo in the east (RG 1.24 p7). This 161·8bn tenge project is being financed from extra-budgetary sources. The post- independence borders cut through the former direct line between Toshkent and Jizzax, and about 15 km between Jetisay in Kazakhstan and Yerjar in Uzbekistan was dismantled in the 1990s. The new route with nine stations is intended to relieve the border crossing at Sarya?a?, which handled

31 million tonnes last year. It would enable freight traffic between the two countries to increase by 10 to 14 million tonnes per year, with the potential for handling up to 25 million tonnes. In addition, the line would provide farmers in this remote region with a connection to the KTZ network.

Thirdly, December 2023 saw the start of work on a 272 km double-track route from Ayag?s on the Semei – Aqto?ay line to a third Chinese border crossing at Baqty/Tacheng (Chuguchak). Costed at 321bn tenge, this line is due for completion in 2027, increasing throughput capacity between Kazakhstan and China from 28 million to 48 million tonnes/year.

Passenger expansion

Rail accounts for 57% of local and long-distance passenger traffic in Kazahkstan, with more than 13·5 million passenger journeys in 2023. This is less than the 16·5 million carried in 2019, despite a post- pandemic recovery from lows of 8·3 million in 2020 and 7·6 million in 2021. Ridership is forecast to increase gradually over the next eight years, mainly due to population growth.

A total of 144 passenger services currently run in the country, of which JSC Passenger Transportation, a KTZ subsidiary, has around 74% of the market. It runs 45 long-distance passenger trains, while another 60 services are operated by KTZ’s suburban arm. In addition, 29 services are provided by 13 private companies, and 10 inter-regional routes are operated by neighbouring administrations. International passenger services between Russia and Uzbekistan operated by RZD pass through Kazakhstan.

Given the size of the country, many inter-city trains run overnight, with the longest 2 812 km route between Almaty and Mangystau taking 54 h. Talgo services between Astana and Almaty cover the 1 337 km in 16 h, operating at up to 140 km/h. A feasibility study was undertaken in 2013 to build a 250 km/h line to relieve this partially single-track main line and reduce the journey time to 5?h but the project has not progressed.

However, in June 2019 a bilateral agreement was announced to build an international high speed line between Toshkent and Türkestan, which was predicted to increase tourist traffic in Kazakhstan to 4·5 million visitors per year. Work was due to start in 2021, but the project fell victim to the Covid-19 pandemic and it is unclear whether the endeavour will be resumed.

To date, the biggest KTZ passenger infrastructure built since independence is the Nurly Zhol terminus in Astana, which was opened for the international Expo 2017. This award-winning six-storey structure with 45 000 m2 of floor space was designed by Turkey’s Tabanl?o?lu Architects.

At the end of April 2024, KTZ announced plans to launch a tourist train from Almaty to Xi’an via the Altynkol/Khorgas border crossing. These are expected to use the paths of the Urumqi – Almaty-2 trains 103/104, which have not operated since the start of the pandemic

Rolling stock renewals

At the end of 2023, KTZ had more than 1 600 locomotives on its books. There were 134 100 wagons in circulation, of which 43% were open box wagons. Since deregulation in 1999, privately owned wagons have increased to more than half of the fleet. This external investment has helped to meet increased demand and facilitated a significant renewal.

The passenger fleet available to KTZ and the other operators totalled 2 151 vehicles, of which a third are more than 20 years old. This includes a handful of multiple-units used in the Karaganda, Almaty and Astana regions. Between 2003 and 2016, 13 EP-3D and ED9E EMUs totalling 106 cars were purchased from TMH’s Demikhovo plant, while one two-car DMU came from Pesa.

Last year, KTZ ordered 138 locomotives with its own resources. Described as the largest procurement in the company’s history, this helped to reduce the average depreciation of its traction fleet from 68% in 2020 to 52% at the end of 2023. In total, the railway bought 254 locomotives in 2021-23, but it needs another 553 to reduce the average depreciation to not more than 40% by 2029; most locomotives are considered life-expired after 40 years.

KTZ obtained funding in November 2022 allowing it to continue purchases under earlier contracts, such the 2011 agreement with Alstom for the delivery of 250 freight and 119 passenger locomotives. This year, Astana-based Lokomotiv Kurastyru Zauyty is expected to deliver 57 diesel freight, 26 passenger and 18 shunting locos, while Elektrovoz Kurastyru Zauyty, located in the same city, will supply 44 electric locos, of which nine arrived in the first quarter.

Despite the development of the domestic supply sector (right), locomotives and rolling stock are still imported. Between 2002 and 2022, 70 Siemens-designed KZ4A passenger locos were built by CSR Zhuzhou Electric Locomotive. CRRC has delivered more than 6 000 wagons and about 100 coaches over the past two decades.

In autumn 2023, KTZ and CRRC signed a framework co-operation agreement worth US$1·3bn, of which the Chinese will contribute US$200m. This covers the delivery of another 100 mainline and 100 shunting locomotives and a network of servicing depots. The first four locomotives should arrive this year. Obtaining an EEU certificate of conformity would allow them to be used across the entire territory of the union. TMH is supplying 50 2TE25KM diesel locomotives to KTZ Freight Transport, under a contract signed in April 2023.

During President Tokayev’s visit to the USA last September, KTZ signed an agreement with Citibank, supported by the US Export Credit Agency, to provide a US$900m credit line for the purchase of 240 locomotives. A framework agreement was also signed for a strategic partnership between KTZ and Wabtec, under which LKZ will produce hydrogen locos and establish an engineering centre. KTZ previously signed a memorandum with Wabtec in 2022 covering the supply of 150 battery- powered shunting locomotives using FLXdrive technology and conversion of main line diesel locos to LNG fuel.

KTZ subsidiary Kaztemirtrans operates the largest freight fleet, running to more than 40 000 wagons. It has acquired more than 25 000 new vehicles over the past 10 years and plans to buy another 3 000 by 2025. In February, Transport Minister Marat Karabayev announced the purchase of 3 000 wagons and 100 coaches from national suppliers for 184bn tenge, financed by the Unified Accumulative Pension Fund, adding that 16 000 wagons would be procured by 2030.

In December 2022 Stadler received a €2·3bn order for 537 coaches of four types, including 20 years of maintenance. It was described as the company’s largest ever contract for loco-hauled coaches, and Chairman Peter Spuhler said the company aimed to reach 35% localisation by 2030.