Ukrainian metal cos seek railway, energy subsidies

MOSCOW. Aug 2 (Interfax) - Ukraine's mining and metals sector is experiencing its most severe crisis ever and a set of measures needs to be adopted to save the industry, industry association Ukrmetalurgprom said in a letter to the government, Ukrainian media reported.

Possible measures include Ukrainian Railways introducing special rates for transporting raw materials and finished products for mining and metal companies that are 70% lower than the current level, the association said.

It also proposed to lower electricity prices for companies in the sector by having Energoatom, the operator of Ukraine's nuclear power plants, sell power at a special price equivalent to the one for Ukrainian Railways and reduce power transmission rates.

The association also called on the government to temporarily eliminate rent payments for iron ore.

It also proposed to eliminate environmental taxes, scrapping the tax on CO for good since European Union countries do not have such a tax and lifting the tax on CO2 and other emissions, runoff and waste temporarily.

Ukrmetalurgprom also called for eliminating import duties on goods and materials not made in Ukraine or produced in quantities that are far below demand, such as large tires for mining equipment and refractories, while imposing a temporary moratorium on exports of scrap metal in order to eliminate the risk of shortages of this key raw material.

In addition, wage taxes and fees (personal income tax, social security contributions) need to be replaced with a unified social tax in the amount of 10% that would be withheld from employees' wages, the association said.

"In addition, it is extremely important to include Ukrainian metal products and iron ore products in the program for exports from Ukrainian seaports in order to sell inventories accumulated in warehouses and increase capacity utilization at Ukrainian mining and metal companies," the letter said.

In order to accelerate the sector's recovery, mining and metal companies should be allowed to take advantage of the benefits of industrial parks with the provision of all available preferences that Ukrainian law provides, such as reduced duties and value-added tax on foreign equipment and exemption from tax on profits for ten years if they are reinvested, the association said.

The implementation of the program to maintain the mining and metal sector's production potential will enable it to resume production soon, preserve many thousands of jobs and prevent mass layoffs in the industry and related sectors, Ukrmetalurgprom said.

In light of this, the association is asking the president to give the Cabinet and relevant parliamentary committees orders to implement this program, the letter said.

The current difficult situation in the mining and metals sector is due to the more than 50% decrease in the throughput capacity of infrastructure for exporting iron ore products and ferrous metals and high logistics costs due to transit of exports through the EU and the rapid rise of rail freight rates in Ukraine (141% for ore/coal/coke and 70% for ferrous metals in the past year), which make Ukrainian products uncompetitive, Ukrmetalurgprom said. Meanwhile, prices are also climbing for electricity, imported materials and raw materials. As a result, capacity cannot be used fully and production costs are rising.

Another negative factor is the rapid drop in prices for the industry's products, including 34% for iron ore concentrate and 27% for hot-rolled coil in the past few months compared to average prices last year. Leading analytics agencies expect prices to fall further going forward, which combined with rising production and logistics costs will push Ukraine's mining and metals sector into a deep crisis, the association said. As a result, companies are operating at a loss and only so as to preserve jobs.

Mining and metals is a key sector of Ukraine's economy, accounting for about 10% of the country's GDP in recent years, Ukrmetalurgprom said. The Industry exported more than 80% of its products, thereby accounting for up to 33% of Ukraine's exports and being a key source of foreign currency earnings, which topped $22 billion in 2021. The industry employees more than 130,000 people, and with related sectors it provides about 530,000 jobs.