RZD Takes a Ride on High Prices
By 2010, the prices for freight railway carriage will surge above previous outlooks. Russian Railways (RZD) will generate 3.5 trillion rubles, post profits by results of 2008 to 2010 and its debt-to-EBITDA ratio won’t be bad at all. At the same time, the financial success of monopoly will drive down profits of cargo owners, which will actually pay for the RZD achievements.
The moderately optimistic outlook for Russia’s economic advance sets forth higher increase in freight tariff rates than the Economic Development Ministry forecasted previously, the sources with RZD said yesterday. This outlook has formed the basis of the country’s three-year budget, which is currently considered by State Duma.
It was First Vice Premier Alexander Zhukuv that personally initiated the additional surge in prices. So, the scheduled growth in 2010 tariff rates will be 1.5 percent above the growth requested by RZD.
The new rates will enable RZD to generate profits by results of 2008 to 2010. The revenues derived from core business of monopoly are forecasted to reach 927 billion rubles in 2007 and step up to 1,051 billion rubles in 2008, 1,169 billion rubles in 2009 and to 1,288 billion rubles in 2010, according to preliminary estimate of the company. The initial outlook of RZD set forth the loss from 13.6 billion rubles in 2008 to 6.2 billion rubles in 2009 and 12.9 billion rubles in 2010.
The company’s debts won’t stand still, of course, but the growth won’t be disastrous. So, the debt-to-EBITDA ratio is estimated at 0.78 this year, at 0.8 in 2008, 0.89 in 2009 and at 1.33 in 2010. “Those are good figures for any company,” said Uralsib analyst Anton Tabakh. “The problems usually begin when the debt-to-EBITDA ratio is well above 2.7 to 3"
At the same time, the potential prosperity of RZD will hardly rejoice the consignors, which will actually pay for it. “For us, any increase in railway tariffs materially affects the business,” said Silvinit briefer Anton Subbotin. “In certain time, when the river navigation is closed, the railway carriage accounts for 80 percent.” According to Subbotin, it is cheaper to produce a ton of raw material than to deliver it to Far East’s Nakhodka port.
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All the Article in Russian as of May 16, 2007
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