St. Petersburg State University

Graduate School of Management

Master in International Business Program

How political connections of russian transportation firms influence their international activities

Mid-term report for class

International Business Strategy

by the 1^st year MIB students

Roman Shapurko

and

Elena Shatalova

St. Petersburg

2013

Introduction

State Regulation of transportation is an objective reality

In accordance with the program documents of the government, transport is one of the sections of the economy, which is critical from the point of view of satisfying public needs and ensuring steady functioning and development of the economy as a whole.

The principle of separating the government objectives of industry regulation and fulfillment of private enterprises’ operational functions underlies the transport strategy. At the same time the state, while limiting its functions as an operating entity, strengthens its role as a regulator of market relations and remains responsible for the safety of the transport process, the state of transport infrastructure, the provision of transport services in sectors where the market is still underdeveloped.

While accepting definite typological and regional differences in the transport system, at the macro level, the state considers transport as a single entity for control.

Coordinated development and organization of the interaction of different types of transport make the industry not simply the sum of individual industries, but a single system, which provides an additional systemic effect for transport users.

The unity of government transport management means:

• development based on the common principles of the legal framework of transport

• development based on the common principles of state regulation of all modes of transport;

• balanced allocation of budgetary resources between the different modes of transport;

• coordination of infrastructure development of different modes of transport;

• coordination of provision of security and defense with transport;

• reconciliation of interests and joint efforts of different levels of the executive branch in the development of the transport system and merging of transportation systems in individual regions,

• regulation of inter-modal competition;

• formation of single information space in transport;

• Reconciliation of interests and joint efforts of government and business in the development of the transport system.

The state proceeds from the principle of avoiding unjustified interference in transport industry.

State involvement in the transport activities is currently, generally speaking, redundant, both in the transport business sphere and in issues of regulation of transport activities. The economic basis for the functioning of the transport system is the competition of independent operators - suppliers of transport services and transport infrastructure. The state should end its participation as an entrepreneur in the competitive markets of shipping transportation services. With regards to infrastructure services, its usage needs to be commercialized, and private operators need to be attracted for its establishment and operation. In the future, gradual privatization of individual elements of the transport infrastructure is possible. In sectors where privatization is not possible, the state should encourage the use of different forms of public-private partnership.

The State is responsible for the following spheres in the management of transport:

• Elimination of legal and administrative barriers in the process of transport of passengers and goods, and the provision of related services to them;

• Improvement of the legal framework of transport;

• Solving the problems of defense and mobilization;

• Security in transport;

• Maintenance main infrastructure in working condition;

• Development and enforcement of competition rules and terms of access to infrastructure;

• Development and monitoring of the safety standards of transport processes and the impact of transport on the environment;

• Ensuring minimum standards of transportation services for all segments of the population and regions of the country, targeted support for users or operators, in cases where the market fails to meet these standards;

• Ensuring that the development of transport infrastructure, the development of productive forces;

• Ensuring the integration of the transport system of Russia in the global transportation system, including as part of the integration processes in the post-Soviet space;

• Implementation of structural reforms in transport.

Areas in which the state encourages and supports the changes are:

• Development of competition in the transport market;

• Creating the conditions for innovation in transport;

• Implementation of investment projects, particularly important for the elimination of "bottlenecks" and "missing links" in the transport infrastructure;

• Development of export of transport services and the creation of favorable conditions for domestic transport operator in international transport markets;

• Increasing the availability of transportation services for the most disadvantaged groups and people with disabilities.

Public transportation management includes measures tailored to increase the "universality" of transport

Increased availability and use of vehicles - cars, ships, boats and aircraft - for personal needs and the needs of the household requires appropriate forms of regulation and control, aimed primarily at the safety standards and environmental performance of the transport process in the field of commercial vehicle use.The most important task in this regard is the systemic control over the process of motorization in the country.

Within the framework of separation of powers between the federal, regional and local management of transport at the federal level:

• statutes and codes, and other basic laws relating to individual modes of transport are being adopted;

• uniform requirements for safety and environmental performance of the transport process are being established;

• fundamental decisions for the development of basic transport infrastructure are being made;

• issues related to the international integration of transport and regulation of nternational transport are being addressed;

• regulations relating to inter-regional transport, and by their regulation are being adopted.

Federal legislation should provide for the possibility of differentiated social, environmental and other regulations.

At the same time such individual characteristics of individual regions, as security needs for transport services, the safety of the transport process, the environmental situation, utilization of transport infrastructure, etc. should take into account.

State transportation management agencies are entrusted with delegation of certain functions related to the regulation of the transport activity.

Delegation of functions is being gradually introduced in accordance with the development of the market of transport services and self-regulatory organizations of transport, as well as with the improvement of the management system. Certain management functions can be transferred to specialized government agencies and state unitary enterprises, non-profit organization created with the participation of operators and users of transport services, specialized structures, as well as associations, unions and other self-regulatory organizations.

The taxation system is one of the most effective tools for public transport regulation.

The taxation system in the transport sector, as well as taxes associated with transport should:

• Take into account the peculiarities of the international transport market and provide for the Russian transport organizations, at the minimum, a level playing field when working in this market;

• take into account the significant differences in the profitability of different types of transport and not to give a single operator undue competitive advantage over others;

• to provide for the normal creation of transport infrastructure, many of the objects that are "age-old" in nature, given their high capital ratio and long periods of amortization;

• encourage the use of the most cost-effective, safe and environmentally-oriented traffic engineering and technology

In the future, the tax system should transition to the 'user pays' basis, according to which the cost of transport services, including taxes, is close to full economic costs, above all - related to environmental damage caused by transport activities, and the use of infrastructure.

Budgetary financing of the transport sector should primarily be directed to:

• enforcing the fulfillment of transport functions of the government;

• ensuring maintenance of the government transit property in operational condition;

• stimulating or equity financing of major projects related to the elimination of "bottlenecks" in the transport infrastructure, including in the form of budget support or foreign commercial borrowing;

• guaranteed financing of state obligations as laid out in normative regulations, including financing for social mandates issued by the federal and regional authorities;

• targeted subsidies to users or operators of certain types of transport;

• compensation for loss of income for infrastructure owners, carriers, resulting from state regulation of tariffs;

• Implementation of measures to support the mobilization and readiness of transport