New Vision with Focus on Logistics and Logistic Services
Georgian Railway director general Mamuka Bakhtadze talks about the company potential and opportunities.
-Railway is one of the main infrastructures in any country. How does Georgia use the transit corridor benefits?
-The railway potential is determined by geographic location and characteristics. Georgian Railway is not a major railway infrastructure, but we serve a quite vast space, including the countries without a direct access to the Sea such as Azerbaijan, Armenia, Kirgizstan, Tajikistan, Uzbekistan, Turkmenistan, and Afghanistan. This is a quite vast geographic space, the central part of the Eurasian continent, the Central Asia that is rich of mineral resources and consequently, Georgia’s transit potential doubles and triples. Our country receives consignments from these historical routes. At the same time, a new management has come to Georgian Railway and we have considerably revised this vision. We say we are not a railway company that provides services from the Azerbaijani border up to the Black Sea ports. Moreover, railroad is not our main business, as we make focus on logistics and providing logistic services to our major partners.
The financial reports clearly show positive outcomes of this strategy. According to the 2014 report, the ratio of logistic operations in total revenues marked 10% and in operating profits – 22%. As to the global picture, besides the mentioned countries, we have targeted China and especially its western region. Naturally, in February 2015 we substantiated to everybody and sent signals to the market that Georgian Railway possesses technical opportunities to transport consignments in 9 days instead of previous 40 days through an alternative way. This issue has been valuably promoted since then and Georgia has become a participant of the Silk Road joint space initiative. Coordination with Azerbaijani and Kazakh railway systems is one of the most important points in this initiative, because all of us belong to one corridor space. To better implement and manage the initiatives, in 2013 we set up a coordination committee that unites all companies that participate from the Kazakh-China border up to the Black Sea ports. This committee basically unites companies of mainly three countries such as Azerbaijan, Kazakhstan and Georgia. We could not achieve such results without a coordinated performance as part of this committee. The committee makes accents on joint marketing, introduction of united and transparent tariffs, development of joint technological basis, and adjustment of information technologies. Moreover, the committee makes focus on harmonizing customs procedures to cut customs clearance time and on implementing joint infrastructure projects and visions.
The transit coordination board aims to better coordinate infrastructural projects and the Karsi-Akhalkalaki railroad is a good sample. Not only Georgia and Azerbaijan, but also Kazakhstan, China, Turkmenistan, Uzbekistan are waiting for inauguration of this railroad section. We find the Afghan direction also very interesting.
-Does the Karsi-Akhalkalaki new transportation corridor project implementation meet the schedules?
– As to schedules, we expect the first cargo train to be off in the Georgian section by the end of 2015. As to the Turkish section, the inauguration schedules may be extended by several months, but infrastructural projects are often accompanied by similar postponements and there is nothing critical.
-How efficiently does Georgia employ the existing opportunities? What challenges does Georgian Railway face in terms of drawing new clients and consignments?
– To answer this question I will refer to the official statistics. Our objective is to increase living standards in Georgia and reach an economic growth. In the developed countries the ratio of the transport logistics sector in GDP exceeds 12%. Regretfully, our country cannot satisfy this standard yet. This signifies the sector is capable to at least double the current indicators. I think it is difficult to name any other sector in Georgia with similar potential and with similar achievements in a short period.
This is our responsibility and therefore, we have decided to set up a logistics company on the basis of Georgian Railway to better defend the state interests. Naturally, only the state sector’s zealous efforts cannot valuably employ the country’s transportation potential. Our cooperation with the private sector is of vital importance in this respect. We have already created certain precedents, for example, the Batumi Railway Station opened in 2015 in the aftermath of cooperation between the state and private sectors. As a result, Batumi has acquired a new beautiful and necessary asset. We plan to continue this practice in the part of transportation and I would like to urge the business society to show more interest in our sector.
-You have stressed the role of the Silk Road inauguration and the potential for considerable growth of the sector’s ratio in GDP. How long will this process proceed and when should we expect touchable results?
-Naturally, the whole process will take enough time. We are sure it will be difficult for Georgia to valuably develop its transportation policy without developing deepwater seaports. Therefore, the Anaklia seaport inauguration is of vital importance and it is our priority. According to our estimations, the Anaklia Seaport will at least double our container transits to the Black Sea direction. Moreover, oil processing volume will considerably increase in the Middle Asia and our cargo transportation turnover will further grow. Therefore, we have positive expectations in this direction. We should also remember that the power sector and the oil business record a quite high volatility level and this factor directly or indirectly hits the transportation sectors. Nevertheless, these challenges are of short-term character and we believe in the midterm perspectives our forecasts will come true.
– What will be the effect of the railroad modernization project implementation and how important is the project?
-The main mission of the railroad modernization project is that historically the Rikoti Pass limits the Georgian Railway transportation capacity. There are the most complicated geographic conditions there with heaviest operational sections – high rocks, difficult sections and our trains have to decelerate moving. The Anaklia Seaport development, naturally, has actualized an intensification of moving in this section and a growth in transportation capacity in this zone. This is the first challenge. The second task is that we should resolve problems with rocks and curves to considerably improve the safety degree. These measures will also reduce the Tbilisi-Batumi passenger train’s travel time and cut exploitation expenditures in the mentioned section, – in whole these arguments are firm and financially justified.
–Do you plan implementing joint projects with the business sector like the Batumi Railway Station? Are any negotiations underway with companies?
_We hold four subsidiaries and we relate with the business sector through these subsidiaries. As to other projects, I would name advancements in the IT direction. We have started introducing SAP system for the first time in the Region. We plan significant investments in the electricity supply. Our network has been electrified by nearly 100% and the valuable electricity supply network is of vital importance. To this end we plan to fully rehabilitate transformer substations. The Vale direction development is also worth noting. Vale was a closed space for 15 years in terms of cargo transportation and two weeks ago we have received the first coal consignments that will be further transported to Turkey. We also pay much attention to multimodal and combined transportation services to transport consignments that are related to new technologies. For example, we are providing an intense job to arrange a railway transportation of trucks. We need special trains to this end, but considerable funds are required to implement this project and we have been performing zealous job in this direction.
-Opponents assert and the statistics also proves last period cargo turnover has dropped. How would you comment on these assertions? What job do you perform to draw new clients and consignments?
-In 2011-2012 there were various forecasts the liquid cargo turnover would drop in the railway sector, because the pipeline infrastructure has been considerably developed, their transportation capacity has almost tripled. Railway is unable to compete with pipeline systems, in practice. When talking about a contraction in oil transportation volumes in the corridor, it should be noted, regretfully, incorrect information is delivered to our society, because the Baku-Tbilisi-Ceyhan pipeline is considered a part of Georgia’s infrastructure. It is our transit potential. The oil that was previously transported by railroad is now transported through the BTC pipeline.
Our operating profits and revenues have tripled since 2010 and this signifies we follow a correct strategy. In 2010 the ratio of oil transit in our total revenues was 50%; today this segment makes up only 7%-8% in total revenues. A formation of sustainable transportation relations is of huge importance. Today our cargo structure is diversified. We have businesses in maximally top margin products. Oil has gone to pipelines, but oil products transportation has considerably increased, doubled, in practice. Oil products business is by 40% more profitable business than crude oil.
A financial report is a main document and we have recorded a historical maximum in these indicators. I am sure we will improve the 2014 indicators in 2015. Our company bonds were placed at the London Stock Exchange (LSE) and our bonds trend show how optimistic and reliable analysis is made by analysts and investors concerning our performance. Therefore, I believe in this case we should be based on maximally unbiased criteria.
-Tbilisi is hosting the Silk Road Forum. The transportation corridor is one of the relevant issues along with a number of panels. What are the messages Georgia should send to the forum participants in this respect?
-We are hosting a genuinely historical forum. The list of participants and their status prove this consideration and the world’s leading media agencies will widely cover Tbilisi Silk Road Forum. More than 300 delegates are arriving from only China… We welcome this process and I hope the forum should become a traditional event. Our main messages should make focus on Georgia’s transit potential, liberal and legal environment in our country for doing business in this field. We should also make accents on international agreements, including the associated membership agreement with the EU that provides free trade opportunities to our country. In 2015 Georgia will become the first country to start talks about free trade regime with China. Moreover, Georgia enjoys free trade regime with all countries of the CIS, as well as with Turkey…
The transportation sector is tightly connected with trade and international trends. In this term we should emphasize our transit and trade potential. The transportation infrastructure development also signifies additional investments in the infrastructure, more tourists, intensification of businesses activities and so on.