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Russian Railways to Shelve $3 Billion of Bonds on Tariff Freeze

Sept. 11 (Bloomberg) -- OAO Russian Railways will probably drop plans to sell 100 billion rubles ($3 billion) of infrastructure bonds if the government freezes prices to fight inflation, Chief Executive Officer Vladimir Yakunin said.

The state rail monopoly may lose more than 70 billion rubles of revenue in 2014 if regulated tariffs are held at this year’s level, Yakunin said. That would compound the effect of a slowing economy, cutting a total 91 billion to 93 billion rubles from revenue, he said.

Russia’s government is seeking measures to jolt the economy out of the worst economic slowdown since the 2009 recession. Inflation has outpaced the central bank’s target of 5 percent to 6 percent for 12 months. Prime Minister Dmitry Medvedev last week ordered a study of the effect of a tariff freeze next year on so-called natural monopolies, including Russian Railways, OAO Gazprom and electricity network OAO Russian Grids.

The drop in revenue means Russian Railways won’t be able to increase its debt level and service borrowings, Yakunin said. The company also may fire 62,100 staff to cut costs, RIA Novosti reported today, citing an unidentified person with knowledge of the matter.

Without state subsidies, Russian Railways won’t be able to finance its investments in full, Yakunin said. The spending program may shrink 75 percent, he said. Russian Railways planned to invest about 389 billion rubles next year, according to RIA Novosti.

While holding down tariff growth would help contain inflation, a moratorium may raise the risk that monopolies cut investments sharply, hindering economic expansion, Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said last week by phone. Tariff growth accounts for about one-third of inflation and monetary factors contribute the rest, she said.

To contact the reporter on this story: Ekaterina Shatalova in Moscow at

To contact the editor responsible for this story: Torrey Clark at

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