According to the program approved by the government of the Russian Federation, structural reform of domestic railway transport will take three years. By the end of 2002, the entire sector will be prepared for large-scale reorganization, including inventory of railway-enterprise property, preparation of a legislative base for reform, establishment of independent structural units within the framework of open joint-stock company Russian Railways to perform special types of operation (passenger transportation, cargo transportation, repairs, etc.).

In the second stage, which is scheduled to take place from 2003 to 2005, Russian Railways will be split into independent structural units. The competitive branches will begin free pricing, providing conditions for acquiring rolling stock, including main-line locomotives, by operating companies.

In the third stage, slated for 2006-2010, blocks of shares of Russian Railways subsidiaries will be offered for sale to rise financing for the sector. According to the authors of the railway-reform program – experts at the Railways Ministry, the Antimonopoly Ministry and the Ministry of Economics – this is not a complete privatization, but only allowing shareholding in the sector. Furthermore, during the first two stages, 100 percent of shares will be owned by the state, and only in the third stage may private shareholders appear.

In accord with international experience, private owners will be engaged primarily in purchasing modern rolling stock because the sector – or, to be more precise, the state – has no funds to do so. Since 1999 when the commercial production in the country began to grow, there has been a constant lack of the rolling stock. Thus, in 1998 more than 60,000 freight cars were purchased; in 1994, 8,500; in 1999, only 1,450 cars (for the Railways Ministry) and, in 2000, even less. From 1998-2001, car purchases were reduced by 42 times. Moreover, the total number of cars and containers of rolling stock is being reduced due to their poor condition. From 1992-1998, more than 300,000 cars were written off because they had exceeded their terms of service, and only 56,000 new cars were purchased.

The absence of a rolling-stock structure is particularly felt at the main railways. For instance, the Novosibirsk-based West Siberian Railways is short 11,000 cars every month. According to expert estimates, 366,000 new cars must be purchased and 75,000 repaired by 2010 to resolve the problem. Taking into account that new cars cost up to $50,000 (depending on type), about $20 billion needs to be invested. Under the circumstances, the only way is for the state to engage private rolling-stock owners and facilitate car purchases through various methods, including low transportation rates for state rolling stock.

Currently, 20 percent of the carriage rolling stock used in Russia, which is about 4,000 units, is not state-owned. The joint-stock company Russky Mir owns 11,000 oil-tanker cars out of 110,000 in the country. The sector-reform program stipulates that over 60 percent of rolling stock will be privately owned by 2010. If the shortage of cars is made up for, the pricing policy may be changed.

Charges for cargo transportation increased 136 times from 1992-2001, while consumer prices grew 73 times over the same period. Nevertheless, the demand for transportation still exceeds supply, basically due to a lack of rolling stock. Critics of the reform program are afraid that the increase of the number of private operating companies may result in increased tariffs. However, the price should not increase significantly, as, besides remedying the above-mentioned lack of cars, another factor, namely the competition on the part of other types of transport, will play a positive role, as it will require the railway companies not to charge too much for transportation.

The share of pipeline transportation in total cargo-transportation volume is constantly growing, as charges are much lower, and speed and quality of delivery are higher.

River vessels are also actively used. For example, the joint-stock company Severstal actively uses river vessels to carry raw materials and finished products. Time loss is two days, and the cost difference compared to railway transportation is $10 per ton.

Trucks are seriously competing with railways, especially along the St. Petersburg-Moscow and Minsk-Moscow routes. According to the authors of the governmental reforms program, they have taken into account the experience of foreign countries in this sphere, in particular, the German railways. Arthur Andersen was the independent auditor of the project, and the program's final version included all the recommendations made by foreign experts.

In particular, special measures to reduce social strain were developed; the Government of the Russian Federation has approved a "Branch Program of Assistance in the Employment of Railway Transport Discharged Workers for 2001-2005," which provides for laying off nearly 500,000 workers and employees within five years. The federal budget will finance the creation of new jobs and personnel retraining programs. Heads of railways, employees, trade unions, and heads of local administrations are involved in the project.

This year will test the plans to reform the railway branch. This is the year when privatization of transport enterprises will start and Russian Railways will be established. Once the new organization appears, the process of reforms will go faster and become irreversible. If, under this or that pretext (for example, a financial audit of the Railways Ministry), structural reforms are postponed, this would become a clear indicator that the state is not ready to transform one of the largest natural monopolies and transfer it to the market. But then the state would inevitably face another question: If not private financing, what is going to finance its modernization?