By TBY | Kazakhstan | Apr 12, 2017
Kazakhstan is the largest landlocked country on Earth, ranked ninth in the world by land area at 2.72 million sqkm. Thus, the country is home to an abundance of untapped potential when it comes to the transportation of both goods and passengers. At 8.1% of national GDP—or USD17 billion—Kazakhstan’s transportation sector plays an important, yet largely underdeveloped, role in the local economy.
Kazakhstan boasts geographical access to the borders of China and Europe, as well as ports in both the Gulf and Turkmenistan, between which freight is expected to be transported via both upgraded and brand-new railway networks, expanding trade in the region. Dozens of countries from around Eurasia, with China and Kazakhstan at the helm, are participating in the development of the New Silk Road project, an initiative that seeks to revive instrumental trade routes throughout the region. In tandem, Kazakhstan is building key logistics hubs, including the Khorgos-Eastern Gate free zone, to prepare for a new influx of activity. Managed by the UAE’s DP World and sponsored by Chinese investments of up to USD600 million, the construction of the zone is a starting point for Kazakhstan’s transition into a global transportation juggernaut.
Currently, Kazakhstan’s exports are comprised of bulk products, specifically oil and grains. The vast majority of products are transported via rail, a segment of the sector that meets all of the country’s current shipping needs and will continue to do so over the medium and long term. Despite rigorous efforts to diversify, economists foresee that hydrocarbons and agricultural products will remain prominent in coming years. Nevertheless, the government has committed to the construction of 1,302km of railways by 2020, all while upgrading 650 locomotives, 20,000 wagons, and 1,138 passenger coaches.
According to the latest figures, the total freight volume shipped in Kazakhstan is approaching 500 billion tkm per year, excluding inland waterways and pipelines. Approximately 215 billion tkm is shipped via railways, 155 billion tkm is carried by road, and 46 billion tkm is air cargo. A further 2.5 billion tkm is shipped via marine transportation annually, with numbers consistently on the up since 2013.
Passenger numbers for both air and rail travel are also increasing, and are estimated to grow even further in 2017, as Kazakhstan plays host to the World Expo 2017. According to some estimates, Kazakhstan will see approximately 12 million railway passengers travelling domestically in 2017 and beyond. Meanwhile, over 5 million people traveled by air in Kazakhstan in 2015, a figure that reflects exponential growth over the past two decades, and an over 20% growth rate since 2012. In total, 3.8 million of Kazakhstan’s air passengers in 2016 flew on the national carrier, Air Astana.
Of nine government committees supervised by the Ministry of Investments and Development, three are dedicated to the improvement of transportation and logistics infrastructure: the Transport Committee, the Roads Committee, and the Civil Aviation Committee. The Transport Committee is operated by 10 units, which manage road, water, rail, and infrastructure development, as well as government purchasing. Meanwhile, the Roads Committee’s six units manage the construction, funding, maintenance, loans, reconstruction, and project preparation matters for the country’s overland transportation network. For air travel and transportation, the Civil Aviation Committee runs 13 units for aviation safety, administration, legal, quality assurance, flight operation, international relations, finance, and airport management. Together, these three government authorities are paving the way for the development of Kazakhstan’s upcoming passenger and cargo transportation corridors, with a proposed budget of USD19 billion through to 2020.
ROAD TO RAIL
Propelling major overhauls in the transportation and logistics sector is undoubtedly the New Silk Road initiative. For Kazakhstan, the project will offer a multifaceted, multinational network composed of enhanced overland and maritime economic corridors that pass through the country to connect China and Europe in various ways. When completed, Kazakhstan will be instrumental in connecting the region, comprising over 60 countries—nearly 60% of the global population—and contributing 75% and 70% of the world’s energy resources and GDP, respectively.
Nearly 25% of Kazakhstan’s transport income, or USD500 million, is sourced from activity along the already existing key transport corridors. If progress developing the New Silk Road continues on course, Kazakhstan could see east-west transit income shoot up to USD1.5 billion by 2020 and USD2 billion in 2025, creating a new source of sustainable revenue in several non-hydrocarbon sectors. While many transport-sector operators continue to use the less expensive option of maritime shipping, railway lines are expected to speed up processing times threefold. As the New Silk Road blossoms, Kazakhstan will be seeking to attract transportation operators that value quality and efficiency as opposed to low-cost, slower options.
However, experts agree that Kazakhstan’s railway infrastructure is on the brink of a major overhaul in order to remain competitive by global standards. Like many post-Soviet nations, Kazakhstan has relied on aging rail infrastructure for decades. According to current reports, up to 70% of the locomotives in Kazakhstan’s fleet will need replacement by 2023. Kazakhstan Temir Zholy, the state railway company, has already shown a strong commitment to the improvement of the rail lines, against the backdrop of the New Silk Road vision. All of the company’s projects fall within the routes mapped out on the New Silk Road project—routes that connect China, Kazakhstan, Russia, and a host of other neighboring countries. Kazakhstan Temir Zholy has identified three main directions. One is from Shanghai to the sea port Duisburg in Germany through China, Russia, and Kazakhstan, which has already been completed, and offers transit time of just 14 days from east China to West Europe. A second route, now under construction, connects the Caspian Sea from the border between Kazakhstan and China and runs through Aktau, where a USD252 million port is being built, as well as through a new vessel port station in Kuryk. A third route also under construction stretches from the Kazakhstan-China border to Turkmenistan and then to Port Bandar Abbas in Iran, which will become the gateway to the Gulf.
Kazakhstan Temir Zholy is building 700km of railroad to the border of Turkmenistan, helped build the railroad in Turkmenistan, as well as the existing road in Iran in order to link to the port there. Currently, the company employs over 150,000, the largest workforce in the country. The company’s focus is to create business opportunities for the private sector, giving it the opportunity to concentrate on the core business of logistics and infrastructure.
As for passenger freight along the New Silk Road, the local government has spearheaded new facilities designed to accommodate increasing numbers. “Astana will have a beautiful train station with the qualification of the large gauge body from our neighbors that go for passenger trains,” Bernard Peille, General Director of Alstom, to TBY.
Built as a vital node on the New Silk Route on the border between China and Kazakhstan, the Khorgos East Gate Special Economic Zone (SEZ) is now completed, and has been divided into three areas. The first is a dry port called Khorgos Gateway, where the railway from China connects to the Kazakhstani railway. The second area is a logistics zone with warehousing, while the third is primarily an industrial zone. The Khorgos Gateway covers an area of nearly 130ha, with six berths where multiple trains can be processed simultaneously. Khorgos East Gate began operating in July 2015, initially able to facilitate basic transshipment between China and Kazakhstan. However, as of 2017, the entire SEZ is fully operational; ready to handle over 500,000 TEUs per year. “Khorgos will not only increase the transit potential of cargo between Asia and Europe, but will also create a whole set of services that will bring value added to the supply chain,” Hicham Belmaachi, COO of Management Company Khorgos East Gate SEZ, told TBY, adding “With its strategic location, high efficiency, and connectivity, Khorgos will create a diversified and self-sustained economy, attracting new skills and fostering new opportunities for SMEs.” Ongoing expansions in the zone are set to increase its handling capacity to 1 million TEUs per year over the medium term.
Along with being modeled off of Dubai’s Jebel Ali free zone, Khorgos East Gate SEZ is managed by DP World for a 10-year term. These elements combined may be destined to spark the birth of a burgeoning port city in Kazakhstan, akin to counterparts in the Middle East and Asia.
With a government budget of over USD324 million, and USD31 million of financing from the EBRD, Astana International Airport is set to benefit from dramatic improvements over 2017 and beyond. The planned reconstruction of a takeoff runway and a new terminal at the airport will allow Kazakhstan, and specifically Air Astana, to increase passenger traffic to 7 million people a year, doubling the current capacity of the airport. The government is also spearheading efforts to rebuild 11 airports, runways, and passenger terminals around the country, as well as encouraging Air Astana to open 75 new international routes by 2020. As the principal airline and the flag carrier of the country, Air Astana operates over 56 routes from its headquarters in Almaty, as well as from two secondary hubs in Astana and Aktau.
Emphasizing the prime location of the country, Peter Foster, CEO and President of Air Astana, explained to TBY in an interview that “Kazakhstan’s geographical position is a great advantage… it is in fact right at the center of the main east-west trade routes. With the new Airbus 321 NEOs we can fly to any city in China, India, Europe, Russia, the CIS region, Southeast Asia, or Japan. Our location is absolutely our greatest asset.” Capitalizing on the transit business’ 92% growth, the company recently launched a promotion to attract passengers seeking to extend their layovers with a “one-dollar stopover” program. Through the promotion, transit passengers traveling on Air Astana can pay a nominal fee for a longer layover and accommodation, all to boost both passenger numbers and tourism revenue.
Air Astana management expected an additional 11% increase in business for 2016, with two more Airbus aircraft on order for delivery in mid-2017. Thanks in part to the significant efforts of government in terms of infrastructure and employment, the airline has a positive outlook over the short and medium term.
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