Russian Railways proposes steep rate hike for freight shipments - report
MOSCOW. Sept 18 (Interfax) - Russian Railways (RZD) has proposed to significantly increase the indexation of freight rates for 2025, national daily Kommersant reported on Wednesday, citing industry sources.
RZD is proposing to either index rates by a total of 17.2%, but index them by 3.6% as of November 1, 2024 and by another 13% as of January 1, 2025, or index them in one go by 22.7% as of January 1, the sources said.
The first scenario would raise 1.1 trillion rubles in financing for RZD's investment program for 2025, which is the minimum the company believes it needs, while the second would raise 1.8 trillion rubles.
The company has also proposed to switch to a new model for indexing rates. The current principle is technically "inflation minus 0.1%," meaning the arithmetic average consumer price index over four years (previous two years, current and subsequent year), minus 0.1%.
The new model would use a composite price pressure index and factor in the annual growth of RZD's debt burden, a source familiar with the situation told the paper.
RZD has long called for switching to a price pressure index, which essentially means factoring various elements into rate increases, such as industrial inflation (growth prices for materials, fuel, electricity, etc.), not just consumer price inflation. It was previously estimated that switching to this model would generate about 30 billion rubles of additional revenue for RZD annually. Factoring in the company's debt burden was not proposed before.
RZD did not say how much revenue the new principle for indexation would generate and declined to provide any other comments, the paper said.
The company is also proposing to maintain the current targeted surcharges on rates for the long term; not reinstate cancelled discount coefficients on rates for shipping coal for export; and to raise rates for shipping containers, construction freight and empty freight cars, a source told the paper.
The reinstatement of the discounts for coal has been demanded by coal companies and the Energy Ministry, while RZD estimated its losses from them at 295 billion rubles per year.
Railway freight rates in Russia have been primarily indexed by up to 10% for the past ten years, while in 2014 there was no indexation. But in 2022 the rate was indexed twice, by 6.8% at the start of the year and another 11% in June, resulting in an increase of 18.6% from 2021, not including the effect of the suspension of the discounts for coal exports the same year. There have not been any such steep hikes since then, and rates were indexed by 10.75% for 2024.
The paper reported a source at a freight shipper as saying that RZD's proposals would be understandable if not for the catastrophic decline in the quality of its services, growth of railcar turnaround times and slowing traffic.
However, another source cited by the paper said that they are not seeing such strong opposition to RZD's rate proposals from major customers as there was in the late 2010s. A source familiar with what happened at last week's meeting on RZD's rate proposals said that major freight shippers generally agreed to the indexation, though they asked for its second part to be either smaller or postponed to March, or for the reduction of the minimum RZD investment program that needs to be covered with these rate hikes. In exchange, they want to increase shipments of their products, rate preferences for shipments on non-premium export routes, compensation for the rate hikes through the elimination of export duties and so on.