Russian Railways puts losses from tariff freeze in 2014 at 77 bln rubles, might cut capex
MOSCOW. Sept 11 (Interfax) - Russian Railways (RZD) estimates that it would lose about 77 billion rubles as a result of a proposed freeze on rail freight tariffs in 2014, a source on the company's management board told Interfax.
The company is currently assuming that tariffs will increase by 6%, he said.
He also said that the company will lose an estimated 15 billion rubles as a result of changes in the structure of freight turnover in 2014. Margins on shipments are falling, with growth seen only in low-margin segments, particularly coal shipments. RZD chief Vladimir Yakunin confirmed the figures to Interfax on Wednesday during a visit to the Moscow district of Shcherbinka. The tariff freeze could entail very serious consequences "if that money is not made up with additional government subsidies," Yakunin said. "As you know, there is no money in the budget," he said.
The company plans to offset the losses by cutting spending by the total amount of lost revenue, the source said. Since costs were already cut by 80 billion rubles in 2013, RZD will resort to downsizing its workforce and plans to lay off about 62,000 of the group's approximately 1 million employees.
The company also plans to slash its investment program by two thirds in 2014. It was previously estimated at 360 billion rubles. Yakunin told journalists on Wednesday that capex might be cut 75%. Specifically, RZD plans to cut investment in repair of 3,500 kilometers of rail line.
Also in question is the allocation of National Welfare Fund (NWF) money for the development of the Baikal-Amur Mainline (BAM) and Trans-Siberian Railway - about 150 billion rubles - since the company will not have the money to service these resources. "If we will not service [these obligations], let them give," the source said.
It also might drop plans to place infrastructure bonds in 2014, which is the proposed mechanism for allocating NWF funds to the company. "There was an understanding that they would be issued on the principle that the return equals 'inflation plus one percentage point.' If you reduce the tariff increase to zero, that means we will miss out on the funds that we counted on receiving, that were would be used to service that borrowing," Yakunin said.
"If the tariff [increase] is zeroed out then, accordingly, the introduction of long-term tariff policy will be deferred for a year. The company will not be able to increase borrowing, because there are distinct parameters for our investment rating," he said. Plans were to switch to regulatory asset base (RAB) tariffs in 2014. That methodology, which received the Federal Tariff Service's approval on August 30, would enable RZD to secure the financing it needs to develop infrastructure, given indexation of tariffs in 2014-2018 of no more than 6% a year on average in that period.
Last Friday, Prime Minister Dmitry Medvedev instructed the ministries of Economic Development, Finance, Transportation and Energy, as well as the Federal Tariff Service, to prepare and submit to the government by September 9 socioeconomic development forecasts for 2014-2016 that assume the natural monopoly tariffs are frozen at the 2013 level. Economic Development Minister Alexei Ulyukayev clarified to Interfax that the tariffs will be indexed in 2015 for inflation in 2014. In effect, the 2014 indexation will be "skipped," he said.