On May 28, 2022, the Russian government set an additional indexation of freight rail tariffs by 11%, starting from June 01, 2022. The increase will not affect imports of consumer goods and domestic shipments of food and construction materials.
In addition, from June 01 to August 31, 2022, Russian Federal Antimonopoly Service (FAS) is suspending the lowering coefficients for coal transportation, including 0.4 ratio for long distance shipments and 0.895 ratio for thermal coal exports.
Among shippers, coal mining companies will be affected the most, primarily in Kuzbass, as other regions are closer to the ports.
According to the FAS, these measures are intended to help Russian Railways (RZD) implement its investment program as planned, since the total amount of funding lost by RZD due to a general decline in loading and freight turnover, as well as higher borrowing costs and inflationary pressures, exceeds 620 billion RUR (10 billion USD).
Market participants see the measures as benefiting only RZD, while the increase in tariffs is in no way helping to improve the issues with cargo transportation. However, the benefit will be short-lived, as the additional burden on suppliers will lead to a reduction in loading volumes. As a result, production and investment plans of companies will inevitably decrease, which will negatively affect the industrial sector, especially the coal and steel industries. As a result, RZD will again face the problem of lost income resulting from reduced shipments. This approach does not create any incentives for Russian Railways to address the critical issues of suppliers to reorient freight flows to the east and south and to remove bottlenecks on the railway network.
According to market participants, it makes sense for RZD to use the received funds for improvement of key performance indicators, such as speed of delivery and rail freight turnover, which is not yet the case, despite government efforts and subsidies. If Russian Railways were to fulfil the investment programme for the Eastern range with the expansion from 144 to 158 mio t in 2022, as outlined in the comprehensive infrastructure modernization plan, there would be enough room for all the shippers, and even for additional cargos,
Overall, rising rail tariffs amid high freight costs and Western sanctions are adding pressure on Russian suppliers, especially thermal coal producers.