Russia’s freight rail sector has a number of characteristics that make it unique, specifically its dominance over the other means of freight transport; its close correlation to industrial production and the fact of ongoing market liberalisation.

Rail forms the backbone of freight transportation in Russia

• Dominant position accounting for 85%¹ of overall Russian freight turnover in 2010 excluding pipeline traffic.
• Second largest network in the world by length and third largest by Freight Rail Turnover².

Correlation between rail freight performance and industrial output

• Demand for freight rail transportation services is tightly correlated to level of industrial production (in the last 5 years correlation was over 90%³).
• Overall Russian Freight Rail Turnover increased period-on-period by 7%⁴ in the first six month of 2011, reaching 96%⁴ of the pre-downturn level of 2008.

Reform of rail industry to continue

• Non-discriminatory access of railcar operators to rail infrastructure along with unregulated pricing for all railcar operators.
• More than 47%⁵ of Russian railcar fleet is privately owned.
• Further industry liberalisation envisages that competition for locomotive traction services will be introduced for up to 10% of the overall Russian Freight Rail Turnover by 2015⁶.

An ageing industry asset base

• Significant part of railcar and locomotive fleets owned by RZD and its subsidiaries are old and require replacement in the coming years.

^{1. According to Rosstat; Company calculations.}

^{2. Annual report of OAO Russian Railways for 2008.}

^{3. Correlation ratio is calculated between Russian Industrial Production Index and overall Russian Freight Rail Turnover as variables, on a monthly basis for a period of last 5 years; Company calculations based on Rosstat data.}

^{4. According to Rosstat.}

^{5. As of 1 October 2010; according to the target model for the development of the freight rail transportation market in Russia until 2015 (www.economy.gov.ru).}

^{6. According to the target model for the development of the freight rail transportation market in Russia until 2015 (www.economy.gov.ru).}