Railways Minister Nikolai Aksenenko, under investigation for misuse of office, left his office at the end of October and took what might be an open-ended vacation. Before his "leave of absence," federal prosecutors formally charged him with misuse of office under article 286 (3) of the Russian Federation Criminal Code, which carries a possible sentence of 3 to 10 years’ imprisonment.

The current charges focus on the alleged misallocation of around 70 million rubles ($2.35 million) and unpaid taxes of 11 billion rubles. However, investigators have indicated that much larger sums are involved, including funds linked to the annual shipments of fuel and other necessities to remote northern regions before the winter. Investigators claim that the central apparatus of the ministry was financed from a "black cashbox," from which funds were allocated to purchase apartments for senior ministry officials and to pay them unauthorized bonuses.

In recent years, Aksenenko and his colleagues have been the focus of numerous investigations and allegations concerning commercial relationships between the ministry and various shipping companies allegedly controlled by ministry insiders or people close to them, including companies linked to both the minister’s son and his nephew. In 1999 the Duma became concerned about the relationship between the ministry and the Swiss-based company Transrail, and asked Aksenenko to explain it. He refused.

Aksenenko claims that the case against him has been initiated by opponents of rail reform, and that the investigators do not understand the specific character of his ministry’s work. The Ministry of Railways is one of two ministries—the other being the Ministry of Atomic Energy—authorized to undertake commercial activities as well as government functions. Whether Aksenenko is guilty or innocent, the mixing of commercial and governmental functions in these ministries makes policing corruption more difficult.

At any rate, Aksenenko and the ministry have tended to take an extremely conservative approach to restructuring the ministry. Critics argue that Aksenenko and his team are less interested in radical reform than in creating a Gazprom on rails. The more liberal elements of the government fiercely criticize the ministry’s proposal. Two major issues are in contention, first, the restructuring of the railways to boost efficiency, investment, and so on; and second, the allocation of control over the enormous financial flows that the ministry currently controls.

The government is scheduled to finalize and submit to the Duma soon the first package of legislation governing rail restructuring. In the first phase of the planned restructuring, the new state-owned monopoly, Russian Railways (RZD), will take over all ministry enterprises, including the country’s 17 regional railways. With an annual turnover of $10 billion to $15 billion, RZD is likely to be even larger than Gazprom or the electricity monopoly EES Rossii. The ministry’s regulatory functions will be separated from its business activities, and activities that are natural monopolies will be separated from those that are not. The cross-subsidization of passenger services by rail freight will gradually be phased out. The government will preserve intact the single state-owned network infrastructure and the unified management of regulators. Competition is to be developed in the sector where possible, especially by providing independent companies engaged in freight and passenger services, maintenance activities, and other services equal access to this federal infrastructure.

The government and the ministry believe that these measures, together with steps to increase the sector’s financial transparency, will make investment in rail transport more attractive, not least for foreign investors. However, how restructuring along these lines would attract investors, one of the key aims of the reform, is not clear. Aksenenko estimates that the sector requires around 600 billion ruble ($21.5 billion) in investment over the coming five years.

The ministry’s proposals would mean that RZD would exercise just as much control over rail finances as the ministry currently does. The more radical reformers would rather organize RZD as a holding company and transform the 17 regional branches into independent companies initially, but not permanently, owned by the holding company. Opponents argue that such demonopolization would reduce the efficiency of the rail network and undermine the country’s economic unity. They also argue that the costs of reform could easily exceed its projected benefits.

The battles over rail reform are thus set to continue for some time.