JSC Russian Railways again proposes to introduce ship-or-pay contracts on railways

JSC Russian Railways again proposes to introduce ship-or-pay contracts on railways, which imply mutual guarantees for cargo transportation and infrastructure development. The reason was the boycott by coal companies of the OTEKO terminal in Taman due to high transshipment rates. JSC Russian Railways believes that the situation threatens the return on government investments in infrastructure, which ship-or-pay agreements with terminals would help to avoid. Analysts note that the state is interested in using the southern railway route and it would be better for the parties to agree on the terminal’s capacity rather than wait for stricter regulation from the state.

The situation with the reduction and then stop of coal loading to the OTEKO terminal in Taman due to high tariffs (see Kommersant on February 6 and March 6) prompted Russian Railways to once again raise the issue of introducing ship-or-pay agreements on the railways (“take it or pay”). On March 14, the head of Russian Railways Oleg Belozerov wrote a letter to First Deputy Prime Minister Andrei Belousov (“Kommersant has seen the document”), in which he indicates that in January, loading destinations at the OTEKO-Portservice terminal decreased to the level of January 2023, to 1.4 million tons (by 41.7%), including coal exports – up to 1.1 million tons, or by 48.5%. Shippers have not announced coal shipments to the OTEKO-Portservice terminal for February and March, the letter notes; coal loading losses for the first quarter are estimated at 6 million tons.

Shippers, Mr. Belozerov reports, explain the lack of applications by the excess of “total logistics costs over the selling price of hard coal on the main sales market in China in conditions of its decline.” In this regard, writes the head of Russian Railways, there is a “risk of non-recoupment of investment investments of Russian Railways and the state in the development of railway transport infrastructure on the approaches to the ports of the Azov-Black Sea basin.” Therefore, JSC Russian Railways proposes to return to the idea of ​​concluding mutually binding long-term contracts for the transportation of goods on the principles of ship-or-pay when issuing initial data for the connection of non-public tracks to the infrastructure of JSC Russian Railways; such contracts should include “conditions on the obligations and responsibilities of the parties for their non-compliance” . The letter notes that Russian Railways OJSC has repeatedly offered OTEKO to conclude such agreements, but the company refused.

JSC Russian Railways proposes to return to the development of amendments to the Charter of Railway Transport, suggesting the possibility of concluding ship-or-pay agreements. The idea itself has been under consideration for more than five years (see, for example, “Kommersant” dated May 30, 2017), but without much success. In 2021, a corresponding draft was submitted to the State Duma, but in May 2023 it was withdrawn by the government.

JSC Russian Railways, as a railway carrier, which is also the owner of the public railway transport infrastructure, does not have shippers’ guarantees for the presentation of goods for transportation, the monopoly says. “Such guarantees would make it possible to effectively use the created infrastructure capacity, which is especially important in the context of the implementation of a comprehensive plan for the modernization and expansion of the main infrastructure,” they believe. “On the other hand, shippers whose products are delivered by rail are interested in planning their production activities taking into account carrier guarantees for the removal of goods on the basis of long-term contracts.”

OTEKO declined to comment. A market source says that Russian Railways is “shifting issues from a sore head to a healthy one.” “The monopoly promised to transport more than 90 million tons of cargo per year to the OTEKO terminals in the port of Taman, the company set the port’s capacity at 60 million tons per year, but in fact the railway transports three times less (at the end of 2023),” says he. “With a high degree of probability, it can be argued that it was the chronic lack of supplies that provoked the current crisis.” Kommersant’s interlocutor expects that coal shipments towards Taman will soon resume.

The head of Infoline-Analytics, Mikhail Burmistrov, says that for ports in the North-West and Far East, the ship-or-pay mechanism is definitely not needed, because there is a sufficient level of competition there. In the south, there is a unique situation, since there are no alternative terminals to OTEKO, it is not very advisable to build them, since OTEKO has a large capacity reserve, and the port itself is not captive. The conflict over pricing between OTEKO and coal miners, the expert believes, is non-trivial, but quite commercial: the desire of the terminal to have a large share in the total costs of coal miners for transshipment and freight is understandable, since freight in the southern direction is relatively cheap, and the reluctance of coal miners to pay this share. However, Mr. Burmistrov believes that resolution of this conflict is now needed primarily by the state, which is interested in diversifying routes and relieving congestion in the Far East. He sees the best option as negotiations involving the Ministry of Energy, the Ministry of Transport and the Federal Antimonopoly Service, which would lead to the agreement on commercial terms that would allow the port to be provided with cargo traffic. If the situation continues as it is now, the expert believes, the risks of more stringent decisions, such as transferring the port to a regulated tariff, cannot be excluded.

Natalya Skorlygina