The modernization and automation of railway infrastructure in Russia is not merely an issue of maintaining technological leadership; it is a fundamental condition for sustainable economic growth. As freight volumes increase due to route reorientation, the need for import substitution, and the ongoing digital transformation of the sector, a critical question emerges: where can the necessary resources for such large-scale transformation be found? At present, private investment, even when supported by major corporations, is insufficient to meet the enormous capital demands on its own. In this context, the state assumes a leading role, acting not only as a regulator but also as an active catalyst for lending through introducing mechanisms that are not available within a purely market-based system.
In the current environment, financing projects for the modernization and automation of railway infrastructure relies on a combination of market-based instruments and government support measures. Major industry participants, including Russian Railways, attract funding through bank loans – among them syndicated loans – and also make use of debt market instruments such as bonds and promissory notes. The selection of a particular financing tool depends on the scale of the project, ranging from the implementation of digital systems to the construction of major infrastructure facilities, such as the parallel tunnels on the Baikal-Amur Mainline.
A central instrument supporting digital transformation is preferential lending provided through the Ministry of Digital Development, Communications and Mass Media. This program enables companies to secure financing at interest rates between 1% and 5% per annum for the deployment of domestic automated systems. To support this mechanism, the state compensates banks for lost income by covering 90% of the Central Bank’s key interest rate. The primary advantage of this approach lies in its ability to provide accessible funding for priority initiatives related to import substitution and digital transformation. In particular, approximately 9 billion rubles were allocated to Russian Railways by the state development corporation VEB.RF under this program. Yet, the total volume of such financing is constrained by the limits set within the state program.
For capital-intensive initiatives, such as the development of high-speed rail networks or the expansion of the Eastern Operating Domain, syndicated loans are used. This mechanism brings together the resources of multiple banks, making it possible to mobilize funding volumes exceeding one trillion rubles. State participation in such projects, particularly through VEB.RF, often plays a crucial role in attracting commercial lenders and reducing overall project risks. However, organizing such financing structures comes with challenges. These include the need to reconcile the interests of all participants, as well as strict profitability requirements that may deter some financial banks from taking part.
Another promising financing instrument for railway modernization and automation is infrastructure bonds. These securities allow for raising long-term capital from the financial markets, backed by guarantees from the state or large corporations, thereby ensuring a balanced distribution of financial obligations.
In summary, within the current system of financing Russia’s railway infrastructure, the state acts not solely as a source of funding but as a systemic catalyst. Preferential lending programs from the Ministry of Digital Development, the involvement of VEB.RF in syndicated lending, and state guarantees for infrastructure bonds each serve distinct purposes – from targeted support of digital import substitution to the launch of large-scale, multi-billion-ruble projects. While certain challenges persist, such as limited budgetary resources and the complexity of coordinating creditor interests, it is unlikely that private capital alone, without the state’s involvement, could effectively address the long investment horizons and elevated risks associated with capital-intensive railway automation. Consequently, the continued development of state-driven catalytic instruments – such as expanding preferential lending programs and refining the infrastructure bond framework – remains essential for the successful modernization of Russia’s railway network.
By Oleg Shevtsov, Deputy General Director, Project No. 7