Russian Railways proposes to index freight transportation tariffs by 17%
According to Kommersant, Russian Railways wants to raise freight rates quite significantly in 2025. We are talking about indexation by 17.2% to finance the company's minimum investment program of 1.1 trillion rubles, according to the monopoly, or by 22.7% to ensure 1.8 trillion rubles of investment. The monopoly also still proposes switching to the principle of indexing the rate not according to consumer inflation, but according to industrial inflation, adding debt burden to this indicator. Experts believe that the likelihood of Russian Railways' proposals being accepted is quite high and shippers should negotiate with the monopoly not so much about reducing requests, but about transportation preferences.
Russian Railways proposes to significantly increase the indexation of freight rail tariffs for 2025. As Kommersant was told by sources in the industry, the current proposal of Russian Railways is either to index tariffs by 17.2% in total, but to index them by 3.6% from November 1, 2024, and then index them by another 13% from January 1, 2025, or to conduct a one-stage indexation of 22.7% from January 1. In the first case, this will ensure financing of the investment program for 2025 in the amount of 1.1 trillion rubles - the minimum, in the opinion of Russian Railways, necessary amount - and in the second case - in full 1.8 trillion rubles.
The company also proposed switching to a new principle of tariff indexation. Now (formally) it is "inflation minus 0.1%", and specifically the average arithmetic index of consumer prices (CPI) for four years - the two previous, current and subsequent - minus 0.1%. The new principles involve the use of a composite index of price pressure and taking into account the annual increase in the debt obligations of JSC Russian Railways in the tariff, says a Kommersant source familiar with the situation.
Russian Railways has long been asking to switch to a price pressure index, that is, in essence, taking into account various items of not only consumer but also industrial inflation in the tariff: rising prices for materials, fuel, electricity, etc. (see Kommersant of September 13, 14 and 30, 2021, August 18, 2022, October 2, 2023). The monopoly's additional income from the transition to this system was estimated at approximately 30 billion rubles per year. Taking into account the growth of debt obligations was not envisaged at that time. Russian Railways did not explain to Kommersant what the contribution of the new indexation principle to the company's income should be, and also declined to comment further.
The company also proposes to maintain the current target surcharges to tariffs for the long term, not to return the cancelled preferential coefficients to tariffs for coal transportation for export, and to increase tariffs for the transportation of containers, construction materials and empty wagons, a Kommersant source says. Both the companies themselves and the Ministry of Energy insisted on the return of benefits for coal miners, while Russian Railways estimated its losses from this at 295 billion rubles per year (see Kommersant of May 22).
Over the past ten years, the indexation of the tariff for rail freight transportation has generally remained within 10%, and in 2014 it simply did not exist. But in 2022, the tariff was indexed twice: by 6.8% at the beginning of the year and by 11% from June, giving a final indexation to the 2021 level of 18.6%, excluding the effect of the benefits for coal exports suspended in the same year. Later, such sharp jumps were not observed, the indexation for 2024 was 10.75%.
A Kommersant source among shippers believes that the requests of Russian Railways, given the economy’s transition to a war footing and the global change in logistics flows, could be understood if not for the catastrophic decline in service quality, the growth in wagon turnover, and the slowdown in traffic. At the same time, another Kommersant source says that in recent years he has not observed such a stormy protest from large clients in response to Russian Railways’ tariff requests as in the late 2010s. Thus, a source familiar with the progress of last week’s meeting on Russian Railways’ tariff proposals says that large shippers generally agreed to indexation, but asked that either the second part be smaller or be moved to March, or that Russian Railways’ minimum investment program, which must be covered by these fees, be reduced. In exchange, they wanted an increase in the volume of their exported products, tariff preferences for deliveries to non-premium export destinations, compensation for tariff increases by canceling export duties, and so on.
The Ministry of Transport, the Ministry of Economy and the Federal Antimonopoly Service did not respond to Kommersant’s request.
Mikhail Burmistrov, head of Infoline-Analytics, says that in reality, the ability of export-oriented industries to bear this indexation rate directly depends on the devaluation of the ruble: if it weakens by 10% in six months, which there are all the prerequisites for, it will be quite bearable. He assumes that the government will satisfy the demands of Russian Railways, and in this situation, exporters realize that there is no point in "going to meet the train": they need to agree, but at the same time try to negotiate better conditions for themselves - in terms of increasing the volume of exported products. Shippers benefit from a lower investment program of Russian Railways, since a higher one means a larger volume of construction, says Mr. Burmistrov, and, consequently, a smaller volume of transportation. At the same time, he warns, what is tolerable for exporters will not necessarily be tolerable for shippers focused on the domestic market, and the increase in tariffs could lead to a further increase in the outflow of domestic cargo to road and inland water transport.
