Norilsk Nickel proposes lifting export duties, spending proceeds on shutting plant
MOSCOW. Jan 29 (Interfax) - Norilsk Nickel is asking the Russian government to eliminate export duties in 2014 on all the metals the company produces so that it can use the money thus saved to shut down the old nickel plant at its Polar Branch on the Taimyr Peninsula.
This idea was discussed at meetings held by the government at the end of 2013 on state support for metals companies, a source who was involved in the discussions told Interfax.
The idea transformed into an agreement that Norilsk Nickel reached with the Economic Development Ministry and Industry and Trade Ministry, he said. The parties are now discussing a draft agreement on a targeted investment program.
Norilsk Nickel has submitted proposals on its possible investment obligations, a source close to the mining giant said. "The ministries are now working on formulating an approach applicable specifically to the obsolete facilities of the nickel plant," he said.
The amount Norilsk Nickel would save if the export duties were eliminated in 2014 is approximately equivalent to the cost of shutting the nickel plant and tackling the consequent social problems, including retraining and relocation of workers, a source close to the company said. These costs are estimated at 12 billion-15 billion rubles.
However, Deputy Economic Development Minister Alexei Likhachev said on Tuesday that his ministry does not support the accelerated reduction of export duties on metals for fiscal reasons, as this would cost the government budget about $240 million.
Norilsk Nickel's customs payments will total about $300 million in 2014, Societe Generale analyst Sergei Donskoi reckons. However, the source close to Norilsk Nickel said this estimate was somewhat high, as for copper it factors in only exports of cathodes, though the company also sells copper wire rod (the duty on which rose to 4.8% in January 2014 from 1.3%), but sells some of it on the domestic market.
Export duties are currently 3.75% on nickel, 10% on copper and 6.5% on platinum group metals. Under Russia's obligations to the WTO, the duties on nickel and copper will be eliminated on September 1, 2016.
Norilsk Nickel plans to begin shutting down its obsolete and inefficient nickel plant, built in the 1930s, in 2016. All concentrate for smelting will be shipped to the Nadezhda Plant, which will produce nickel matte. There will not be a shortage of smelting capacity, in part because nickel content in concentrate will increase thanks to the modernized Talnakha enrichment plant.
Nickel generates about 45% of Norilsk Nickel's revenue, copper generates 25% and palladium and platinum account for respectively 19% and 10%.
Russia's biggest copper producers - Ural Mining and Metallurgical Company (UMMC) and Russian Copper Company (RMC) - are also in favour of eliminating export duties as soon as possible. UMMC argues that the elimination of the 10% duty on cathode copper would help to stabilize the situation in Russia's copper industry, since domestic copper consumption amounts to about 40% of production. RMC could save up to $12 million if export duties were eliminated.
Russian Platinum, the country's second largest platinum producer after Norilsk Nickel, is not commenting on the proposed accelerated elimination of duties.