France jumps aboard Russia’s great railway revival

In normal times, Alstom’s announcement that it has clinched a strategic alliance with Russia’s leading railway rolling stock manufacturer would have commanded a great deal more interest than the curt statement put out by the international news wires on Monday. But these are not normal times, with the credit crisis and collapsing stock markets overshadowing virtually everything else in the business world.

Yet, the Russian venture does deserve some attention. After all, the French group managed to beat tough competition from Canadian rival Bombardier – long regarded the front-runner to win the Russia deal – and Germany’s Siemens.

Alstom is to take a 25 per cent-plus-one share stake in the Russian company – Transmashholding (TMH) – after completing the necessary due diligence. This could cost it anything up to $700m given that an Ernst & Young valuation commissioned by the Russian authorities puts a value of $2.9bn on the Russian company.

There are risks and challenges investing in Russia these days. Yet the longer-term rewards can be equally great, especially in a key sector such as railways, which in post-Soviet Russia are in urgent need of renovation. This in large part explains why Alstom and its main western competitors have been falling over themselves to become Russia’s leading rail partner.

Moscow and the railway operator, RZD, unveiled last month ambitious plans to revive and expand the rail system by ordering thousands of locomotives and coaches, developing high-speed services, and building a further 20,000 kms of new tracks by 2030 to extend what is by far Europe’s biggest passenger and freight rail network. All this is expected to cost a whopping €375bn over the next two-and-a-half decades.

These huge figures, like other grand Russian investment programmes in energy and other essential infrastructures, must be taken with a pinch of salt. The Russians themselves are the first to admit that money is tight these days and investments deemed non-strategic will inevitably be delayed if not scrapped.

Yet, Russia must quickly modernise its most heavily travelled railway services connecting, for example, Moscow and Saint Petersburg, as well as developing high-end services linking Moscow to Sochi on the Black Sea, which hosts the Winter Olympics in 2014. Alstom has signed a contract with a joint venture between Russia and Finland to supply high-speed tilting trains to operate between Saint Petersburg and Helsinki, starting in 2010. In its latest venture with TMH, the first step will be competing for the batch of 1,210 new double-decker carriages the Russian railways are to order.

Indeed, Alstom and TMH are creating a separate joint venture to build what they are calling “double-decker hotel cars” equipped with every convenience – couchettes, showers, restaurants – for passenger travel over long distances.

But the competition to become a preferred partner for the Russian railway revival is not only limited to rolling stock manufacturers. The French state railways, SNCF, are also interested in forging close links with the Russian railways to develop trans-Siberian railway freight services connecting Europe and China. Here, the Deutsche Bahn has taken a lead by running this year an experimental freight train from Beijing to Hamburg; the Russian railways have expressed interest in taking a 5 per cent stake in the German railways as part of the Bahn’s partial privatisation. The turmoil in the financial markets is expected to force Berlin to postpone the Bahn’s flotation. This could offer the SNCF an opportunity to stick its foot in the Russian door. As always the discomfort of some is the good fortune of others.Quixotic Giscard

Valéry Giscard d’Estaing has taken up a new crusade by tilting at the windmills being put up all over France. Together with Marcel Boiteux – the former EDF chairman often described as the father of the French nuclear electricity programme – the former French president believes that wind power is an economic nonsense that risks scarring the French countryside.

Protests against wind farms have been growing steadily in France. But the wind energy lobby seemed to have commanded the high ground given Europe’s ambitious objectives for renewable energy and the hefty subsidies wind turbines attract. Yet the favourable winds pushing these investments appear to be dying down. Not only are many of the best sites snapped up, but the subsidies are starting to dry up.

So the wind industry is going to have to start proving it can flourish unaided. If it cannot do so, then Mr Giscard d’Estaing would be vindicated. But this is likely to be small consolation for the former president as he gazes on all those clusters of what he calls “irresponsible, wasteful and inconsiderate” wind farms that have been erected in his beloved French countryside.european.view@ft.com

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