TIIF: Central Asian Railways Become New Strategic Asset

Tashkent, Uzbekistan (UzDaily.com) — The railway sector of Central Asia is undergoing a fundamental transformation, changing from a Soviet legacy into a strategic asset for trade, sustainability, and regional competitiveness.

This thesis served as the starting point for a panel discussion at the Tashkent International Investment Forum dedicated to modernizing the railway sector, developing new international corridors, and mobilizing private investment in transport infrastructure.

Session participants — representing international financial institutions, the legal community, rolling stock manufacturers, and government bodies — reached a common conclusion: the legal and institutional framework for attracting capital to the Uzbek railway sector is generally in place. The main task now is to transition from reforms to specific implemented projects.

The discussion was moderated by Dilshod Khabibullaev, a partner at Kinstellar specializing in infrastructure and transport projects. The session featured Jasurbek Choriev, TRACECA Secretary General and Deputy Minister of Transport of Uzbekistan; Mansur Bustoni, Senior Transport Specialist at the World Bank; Alexei Skatin, CEO of the Eurasian Development Bank; Innokenty Ivanov, partner at Freshfields; and Roman Sorkin, Vice President for Sales in Central Asia and the South Caucasus at Skoda Group.

Scale of the System and Economic Importance

Before analyzing the reforms, the World Bank outlined the baseline parameters of the system. The Uzbekistan Railways (UZHD) network comprises around 4,700 km of track, transporting approximately 60 million tons of cargo and about 50 million passengers annually. The cargo base includes extractive industries, manufacturing sectors, and transit flows, collectively accounting for about 8% of the country's GDP. A significant share of the cargo is directly linked to export operations that generate hard currency revenue. For a doubly landlocked country like Uzbekistan, railway infrastructure is structural rather than optional.

World Bank Senior Specialist Mansur Bustoni pointed out that this circumstance defines the organization's investment thesis: the task is to transform the state monopoly into a commercially viable enterprise capable of attracting financing from international financial institutions and private investors.

Reform: From Monopoly to a Holding of Six Companies

The transformation of the industry was launched in October 2023 by presidential decree PP-329, which established the legal framework for unbundling and market liberalization. A year later, a new law on railway transport was adopted, consolidating the reforms at the legislative level.

Historically, UZHD functioned as a vertically integrated monopoly combining infrastructure, freight and passenger transportation, maintenance, and auxiliary services under a single management. As a result of the unbundling, the company was divided into six specialized structures: an infrastructure company, a freight operator, a high-speed passenger rail operator, a railway station management company, as well as maintenance and auxiliary service operators.

The market liberalization that followed the reorganization opened the sector to private operators, created conditions for competition between state and private carriers, and granted clients the right to freely choose service providers. In parallel, the privatization of non-core assets began with the aim of concentrating the company's resources on core operational functions.

The corporate transformation included hiring international consultants, introducing independent directors to supervisory boards, transitioning to IFRS financial reporting standards, implementing KPI-based management systems, and establishing risk control mechanisms. At the operational level, transit travel times were reduced by up to 50%, car fleet turnover was improved, and throughput capacity on the approaches to Tashkent was increased. The digital transformation affected the ticket sales system and customer service, with plans to introduce AI-based optimization tools.

Financial Turnaround as Evidence of Reform Validity

Bustoni called the dynamics of UZHD's financial indicators the central argument in favor of the sector's investment attractiveness. A net loss of US$188 million in 2023 was followed by breaking even in 2024 and a profit of US$138 million by the end of 2025. According to the World Bank, this turnaround is not a one-time effect but reflects systemic changes in management and the operational model.

For foreign investors, a concrete entry mechanism has been established: the UZHD infrastructure company has been included in the UzNIF fund — a US$2.4 billion investment portfolio managed by Franklin Templeton with a dual listing on the London and Tashkent stock exchanges.

The World Bank identified six structural steps required to achieve full bankability of the system: separating an independent infrastructure manager, transitioning to cost-reflective tariffs, introducing multi-year targeted infrastructure contracts, opening access to private operators, ensuring transparent financing of socially significant transport through a public service obligation mechanism, and linking funding to service quality. The program covers 44 transformative activities across seven reform blocks.

Tariff Reform as a Regulatory Foundation

The tariff reform was presented by Bustoni as a key regulatory element of the entire investment case. The current model involves situational tariff increases that raise trade costs and generate inflationary pressure. The reform provides for a transition to a stable formula based on three components: base costs and return on investment, specific costs for individual traffic categories, and an incentive component tied to service quality. This will eliminate cross-subsidization and create a predictable revenue model suitable for long-term financing. The reform is being implemented with the support of the World Bank and EU-funded French experts.

Aviation as a Model for Railways

Jasurbek Choriev, who has extensive experience in the aviation industry, drew a parallel between the transformations in the two sectors. According to him, Uzbekistan's aviation has demonstrated record growth rates over the past five years, recognized by the Airports Council International and ICAO. The country's air fleet has exceeded 100 aircraft, compared to 40–50 a few years ago; the strategic goal for 2030 is 180 units. In 2025, Uzbekistan accounted for about 1.5% of cargo turnover on Asia–Europe routes; by the end of 2026, this figure is projected at 5.4%. E-commerce serves as the key growth driver. According to Choriev, the railway sector currently handles about 90% of the country's domestic and international freight transport and is destined to play the same role for land logistics that aviation plays for passenger and air cargo transport.

Two Strategic Corridors

Choriev elaborated on two projects capable of fundamentally altering Uzbekistan's transit potential.

The construction of the China–Kyrgyzstan–Uzbekistan railway corridor, which began in 2024, is scheduled for completion by 2028–2029 — ahead of the originally established 2030 deadline. The line will shorten the distance between China and Europe by approximately 1,000 km. Projected cargo turnover will stand at 15 million tons per year by 2032, with subsequent growth to 20 million tons by 2040. The EDB forecasts a fivefold increase in transit traffic along the corridor by 2030.

The 649-km Trans-Afghan corridor will, for the first time, provide Uzbekistan and other Central Asian states with direct access to the Pakistani seaports of Karachi and Gwadar. The preliminary cost of the project is estimated at approximately US$7 billion; more than 100 km of the route will pass through tunnels in mountainous terrain. The feasibility study, co-financed by the governments of Uzbekistan, Afghanistan, and Pakistan, is planned for completion by the end of 2025.

A 2023 pre-investment review by Ernst & Young projects cargo turnover at 20 million tons per year by 2040. The UAE, Qatar, and Kazakhstan are showing interest in participating in the project's financing. Choriev also noted that the total volume of South Asian markets is estimated at approximately US$750 billion, while Central Asia's share in mutual trade with this region currently does not exceed one percent.

Railway electrification was named by Choriev as a distinct priority: 52% of the network is currently electrified, with a target of 70% by 2030. A thousand kilometers of high-speed electrified lines are already in operation; two new trainsets entered the routes in May 2025.

EDB: A Comprehensive Approach to Logistics Infrastructure

The Eurasian Development Bank, which opened a representative office in Tashkent a month ago, is a leader in non-sovereign project finance in the region. The bank's CEO, Alexei Skatin, presented a database of 400 transport and logistics projects in Central Asia, created by the bank as an open tool for monitoring infrastructure development. Out of the ten largest transport and logistics projects in the region, six are directly connected to Uzbekistan; the total volume of 31 projects in the country is about US$17 billion.

Skatin identified three priority segments for investment: roads as a primary need for a doubly landlocked country, railway infrastructure as an optimal combination of delivery speed and cost, and airports.

However, the bank's key conceptual thesis was not investing in each of these segments individually, but rather their synchronous development within a single system. Roads, railways, and warehouses are viewed as interconnected elements — dry ports and transit hubs — which collectively provide a synergistic effect for regional logistics.

Skatin detailed the potential of warehouse infrastructure. Given the current volume of just under 1 million square meters, the total area of warehouse space in Uzbekistan could grow 7–9 times — a conclusion based on comparing the warehouse space per capita with data from the US and UK. The bank has formed a target portfolio of US$500 million for investment in warehouse infrastructure and established a special fund at the Astana International Financial Centre for equity participation in projects jointly with partners in Tashkent. Skatin stressed the absence of regulatory barriers to foreign investment in this industry, pointing out that the main constraining factor remains the market's lack of awareness regarding quality storage standards rather than administrative restrictions.

Legal Framework and PPP Mechanisms

Freshfields partner Innokenty Ivanov reviewed the reform from a regulatory perspective, highlighting three key changes: expanding private sector participation, increasing competition, and transitioning to market mechanisms. As a specific example of new opportunities, he cited the institution of private freight operators, whose emergence indicates that the reform is creating conditions for commercially oriented business and more efficient asset utilization.

As an international benchmark, Ivanov turned to the experience of the Deutsche Bahn reform in Germany, where Freshfields served as an advisor to the government. A key element of the German model was a system of long-term contractual agreements between the state and a dedicated infrastructure company, where funding is linked to measurable goals and performance indicators rather than annual budget cycles.

The model integrated investment grants, equity capital, government loans, and targeted modernization programs within a single architecture. According to Ivanov, this experience clearly demonstrates that the successful development of the railway sector requires not only institutional reforms but also a predictable financial infrastructure.

Looking at instruments for attracting private investment, Ivanov outlined a spectrum ranging from network-wide concessions — which are relatively rare and closely tied to a state's political choices — to project-specific structures, such as joint ventures for individual assets or business segments.

For large infrastructure projects, international practice increasingly leans toward PPP mechanisms, which allow construction, operational, and market risks to be allocated between the parties best prepared to manage them. Regarding cross-border projects, Ivanov pointed to an additional layer of complexity requiring intergovernmental agreements on regulatory standards, technical rules, and border procedures.

Several discussion participants supported a proposal to adopt a special law on the transformation of the railway sector, which could enhance the bankability of the industry given the scale of the upcoming transformations. Choriev confirmed that relevant work is underway and the law will be submitted upon completion of the preparatory stage and preliminary coordination with the Cabinet of Ministers.

Skoda: From Deliveries to a Mobility Ecosystem

Roman Sorkin, Skoda Group's Vice President for Sales in Central Asia and the South Caucasus, presented a company strategy that differs fundamentally from one-time deliveries of rolling stock. Skoda, with a history of more than 160 years, was the sole supplier of mainline passenger rolling stock for the entire Soviet Union for four decades, delivering over 70,000 units. A significant portion of this fleet is still operating in the countries of the region.

The company views the signed contract for the supply of 10 trains with speeds up to 160 km/h as the starting point for a long-term presence. Sorkin announced plans to localize assembly and production chain elements in Uzbekistan, open a joint training academy with the Transport University, and supply metro cars and trams. The company positions itself as a future home manufacturer for the Uzbek and broader Central Asian market, with access to the South Caucasus.

Sorkin named a barrier-free transport environment as the conceptual core of Skoda's offering. The company intends to supply low-floor vehicles for passengers with reduced mobility — a format not previously presented in Uzbekistan.

Sorkin called on international financial institutions to support feasibility studies in this area before rapid urbanization leads to the formation of "traffic gridlocks."

Sorkin described the innovative financial structure of the first deal as a significant achievement. Supported by the European Investment Bank, Skoda developed a mechanism that reduces the cost of export credit by approximately 15%. According to him, this is the first time that through a minor adjustment of OECD agreement parameters, European manufacturers have managed to come close to the conditions of Asian export credits. The scheme involves covering part of the risk costs in the export financing structure with the participation of the EIB.

Furthermore, Sorkin raised the issue of technical standardization: without unified interoperability rules for the 1520 mm gauge, the cost of integrating new technologies will be unjustifiably high. Skoda initiated the development of TSI 1520 standards within a working group under the European Commission involving DG Move, the European Rail Railway Association (UNIFE), and the European Union Agency for Railways. Uzbekistan and other Central Asian countries were invited to delegate national experts to this structure, with participation costs covered by the European Commission.

Urban Mobility: The Nearest Investment Horizon

The World Bank identified a separate priority area — Tashkent's suburban rail service. The daily commuter passenger flow in the capital exceeds 1 million people; the city is growing rapidly, and transport must not become a bottleneck for economic growth. The World Bank views the development of rail links with Chirchik — one of the nearest satellite cities of the capital — as a pilot project. The financing model involves using a land value capture mechanism: developing territories along transport corridors and around stations will provide self-financing for the project. According to the bank's assessment, this is the nearest-term investment opportunity in the sector, backed by real passenger traffic and a built-in monetization model.

The Caspian Issue and Shipping

When asked about the feasibility of Uzbekistan acquiring its own fleet for transshipping cargo across the Caspian Sea, Choriev replied that this issue is under review. Two private enterprises are already seriously studying this possibility, and the established Uzbek–Azerbaijani joint fund could serve as a source of financing. According to him, the competitive advantage will not be tonnage but the frequency of sailings, as long waiting times in Caspian ports currently constitute the main bottleneck of the Middle Corridor. He called smaller capacity vessels in larger numbers the optimal solution.

Discussion Results

Summarizing the session's outcomes, the participants stated that Uzbekistan is at a qualitatively new stage of transport sector development. The reform has taken place institutionally and is confirmed by financial results. Corridor initiatives are backed by political support at the highest level and concrete financing mechanisms. Private capital has clear entry points.

The session participants equally emphasized the need for consistent execution of adopted commitments — from tariff formulas to technical standards — without which the realization of declared opportunities will remain unfulfilled.