Search for investor in Kyzyl-Kuragino railway project continues amid persistent challenges

The proposed Kyzyl-Kuragino railway remains on the agenda as part of Siberia’s transport infrastructure development, despite a lack of tangible progress and interested investors.

The 2,250 km line (including a 410 km priority section from Kyzyl to Kuragino) is planned with a possible extension to Mongolia (Khovd) and China (Urumqi). Freight would include coal, iron ore, non-ferrous and rare-earth metals from deposits in Tuva and neighboring regions. Coal from the Elegest deposit, with reserves of 855 mio t, is seen as the primary cargo base. Total estimated coal resources in the region amount to 20.2 billion t (Elegest, Ulug-Khem, Kaa-Khem), with active licenses issued for only 13% of that volume.

Initial agreements to build the 410 km section were reached in 2008. In 2018, a 30-year concession was signed with license holder Ruslan Baisarov and his company TEPK (Tuva Energy Industrial Corporation), with a projected cost of 2.4 billion USD. By 2021, the agreement was suspended due to lack of financing, market risks, and difficulties securing export contracts. Since 2022, the project has been considered part of the Central Eurasian Transport Corridor, with a target implementation date of 2035 or later.

The main external risk is competition from Mongolia, the largest supplier of coking coal to China (56.8 mio t in 2024).

Mongolia’s rail infrastructure expansion, including the Tavan Tolgoi-Gashuunsukhait line with 30 mio t annual capacity and a new segment to the Chinese border, lowered transport costs to about 12 USD/t, compared with a projected 18–22 USD/t for the Russian route. As Mongolia dominates the coking coal trade to China, it has little incentive to support Russian transit projects. An alternative direct route to China via the Altai region did not advanced, given mountainous terrain and lack of firm agreements with Beijing.

The project also faces systemic challenges:

·        economic (payback period exceeds 15 years, even under optimistic load forecasts);
·        political (dependent on Mongolia’s stance on Russian cargo transit);
·        technical (complicated geological conditions and high seismic activity along the route).

Current government plans call for a new investor, following a model similar to the Elga project, but prospects remain unclear. TEPK’s experience highlights the core risks: reliance on Chinese demand, the need for state guarantees, and competition from Mongolian corridors.

Meanwhile, capacity limits on the Eastern route persist, with Russian Railways (RZD) unable to resolve bottlenecks despite heavy investment and regular tariff hikes. This leaves coal shipments to terminals in the Russian Far East significantly constrained. Under these conditions, projects of questionable economic viability often surface as strategic initiatives.

Kyzyl–Kuragino remains dependent on external political agreements, requires substantial investor commitments, and lacks a guaranteed freight base. Without guaranteed cargo volumes or resolved geopolitical hurdles, the railway project risks joining the long list of Russian rail projects discussed for decades but never built.

Source: CCA Analysis