Russia Price Freeze to Boost Metals to Oil, Ministry SaysEvgenia Pismennaya and Irina Reznik
Russia’s planned freeze in state-regulated tariffs next year will benefit the oil, metals, coal and chemicals industries, according to an Economy Ministry report sent to Prime Minister Dmitry Medvedev.
Keeping tariffs such as transportation unchanged will provide oil companies with savings of 99.8 billion rubles ($3.1 billion) in 2014-2016, while the metals industry will save 38.1 billion rubles, coal 37 billion and chemicals and petrochemicals 18.1 billion rubles, according to the report, a copy of which has been seen by Bloomberg News.
With economic growth at the slowest since a 2009 recession, the government is seeking ways to tame inflation so the central bank can cut interest rates. Companies such as OAO Russian Railways object to the plan, with the rail monopoly saying a 2014 freeze in tariff’s would prompt it to slash its investment program by 75 percent.
Canceling next year’s tariff increases will lower domestic profit at natural gas export monopoly OAO Gazprom by 590 billion to 600 billion rubles from 2014 to 2016, according to the report. Raising tariffs in line with inflation would reduce that figure to 190 billion to 200 billion rubles, the report shows.
Gazprom can offset some of the impact of the tariff freeze through internal cost savings and higher productivity, the Economy Ministry said.
Electricity network companies may lose 97.3 billion rubles during those three years, while Russian Railways may lose 250 billion to 260 billion rubles, according to the report.
The aluminum industry’s financial performance will improve as a result of the freeze because electricity represents 25 percent to 30 percent of companies’ costs, while gas purchases make up 10.6 percent and rail transportation accounts for 8.9 percent, the ministry said. The world’s biggest aluminum producer, United Co. Rusal, will benefit in particular according to the report.
Falling revenue at state companies will increase profit at other industrial companies by 2.5 percent to 3 percent a year, the ministry estimates. The economy as a whole, excluding the financial industry, will save 438 billion rubles in 2014-2016, while citizens will save an extra 129.1 billion, the report shows.