Tariffs change targets railcar problem

The rail tariff changes approved by Russia's federal tariffs service (FTS) for 2007 will help resolve me railcar shortage problem that plagued the coal industry this year As a result of resolving the transport problem, coal export volumes could increase, the FTS says.

The tariff changes put forward by trie FTS would increase the differentiation in transport costs for those using railcars owned by RZD and those using the railcars of private rail operators. The rail tariffs are set to grow by about Spc on all destinations, both export and domestic, but only when RZD-owned rail-cars are used. The tariffs will remain at the 2006 level for coal transported in privately owned railcars. This result is achieved by raising the railcar segment in the tariffs by 30рс (see table) Tariffs for transportation in RZD-owned railcars include an infrastructure segment and a railcar segment In the case of transportation in private railcars, there is no railcar segment in the tariff but there is a payment for empty return.

The move is designed to increase the income that RZD can use on railcar purchase and to stimulate coal transportation and the purchase of railcars by private-sector companies. Private rail operators agree that the approved changes will make coal transportation more attractive for them.

"The decision by FTS to differentiate the tariffs is set to stimulate the development of railсаг-operating companies and the transport market as a whole the director-general of Novaya Perevozochnaya Kompaniya (NPK), Igor Asaturov tells Argus "The profitability of coal transportation is set to grow," he says

Some additional changes in the tariffs system designed by the FTS will make the period when investments into open-lop railcar purchase can be reimbursed equal irrespective of the cargo transported Asaturov points out. "This will make coal transportation more attractive for rail operators," he says. Until now, the differences in tariffs have made coal transportation the least attractive cargo for transporters, which opted in favour of other cargoes Thanks to the FTS decision, the reimbursement period for railcar purchase is likely to decrease to eight to nine years, compared with 13-15 years now, NPK estimates.

NPK transports coal for a number of companies, including Suek. Yakutugol and Russian Coal, but only to domestic destinations In 2006, the company slashed the volumes of coal transportation sharply in favour of other cargoes. In January-September 2006 its overall cargo volume went up by 14pc on 2005 to 28,75 mn t, while coal transportation fell by 50pc to 3mn t. NPK owns 14,000 open-lop railcars suitable for transporting coal NPK was among the companies that lobbied for tariff changes.

Mechel's transport subsidiary Mechel-trans decided to buy an additional 2.000 open-top railcars for coal transportation following the decision of the FTS. The company plans to use a financial lease scheme for the purchase It currently has 1,600 open-top railcars under financial leasing. 293 open-top railcars in full ownership and rents 1,210 open-top coal railcars.

Mechel-trans has already started to rail coal to export destinations in its own railcars In 2007, the company plans to use its railcars on the routes to Murmansk and the far east port of Posiet Mechel's cargo transportation with its own railcars has increased by 27.4pc in 2006 compared with last year. Ensuring the fulfilment of export contracts, which were under threat this year due to transport problems, is going to be one of the priorities for the company in 2007 Mechel says, and to this end the company is expanding its railcar park.

The shortage of open-lop railcars has become a real problem in Russia, limiting coal exports and leading to the disruption of export contracts. Starting from August, Russian coal exporters were unable to ship the required volumes of coal to the Baltic and Ukrainian ports. In some cases, cargoes were cancelled in some cases the delivery of delayed volumes will continue in 2007.

The problem was caused by an ageing Russian railcar fleet combined with an increase in transport volumes. About 110,000 open-top railcars are to be taken out of operation due to their old age by 2010, the FTS says. This means that over 30,000 new railcars need to be built each year until 2010. But only half that amount is set to be bought in 2007, with RZD taking 10 500 and private operators buying 5.000 open-top railcars. The FTS hopes that after the tariff change, these plans will be revised and some 30,000 new open-top railcars added to Russia s fleet by market participants.