The Railways Ministry has announced that the latest stage of railway-tariff unification has been completed. But you would have a hard time convincing industry leaders of that.

The new railway freight-transport price list came into force on Aug. 1, essentially keeping in place the difference between internal and export freight-transport costs. For the industry, this means lower profits from sending goods outside of the country.

Until the price list was officially approved, freight senders were hopeful that export-import freight tariffs across Russia via land border-crossings and Russian ports would be unified with internal tariffs, which would optimise freight flows between Russian and foreign ports and keep export operations profitable.

The problem is that freight transport to, for example, ports in the Baltic states costs Russian companies three to four times more than to Russian ports. That leads to overloading at Russian ports, and companies have to wait in line to get goods through to them. Tariff unification would relieve the burden on Russian ports by diverting some goods to ports abroad. But the Railways Ministry has kept the differential in place with its latest tariff plan.

The first stage of the unification program involved synchronizing internal and import-export tariffs for transport to Russian ports. The second stage was supposed to unify internal tariffs and tariffs for transport across land border-crossings, but that portion had been delayed. A meeting of the Federal Energy Commission finally approved a unified tariff price list in June, and Railways Minister Gennady Fadeyev announced that the unification program was complete.

But neither transport companies nor freight senders were enthusiastic about the new price list, as the real costs of export-import freight transport through Russia remain different, depending on whether the freight is going to a Russian port or crossing a land border.

Russian companies still face the choice, then, of either delivering their goods quickly through Baltic and Finnish ports but paying the railways three to four times as much, or waiting their turn in the crowded Russian ones. With the economy so dependent on the world situation, time is often of the essence – getting exports to global markets while world prices are high is crucial.

"Yes, the unification is complete, but we are not happy with it," said Igor Cheplanov, deputy general director of Metallurgtrans, which represents the interests of metals companies. "It is more than twice as cheap to send freight to Russian ports now. This discriminates against the senders because the ports can’t handle this flow, and the freight owners end up incurring extra expenses because of delays or failure to meet contracts."

"This situation is to the Railways Ministry’s advantage," said Alexander Reznitsky, marketing director at freight-transport company OTEKO. "Their earnings from freight transport are still rising, so they’ve been delaying unification since 2001."

Reznitsky said the Railways Ministry agreed to complete the unification only because it does not really change the situation.

Analysts say that the Railways Ministry is keeping the differentiated tariffs in place because the state wants it to help encourage the development of Russian ports. Indeed, ports have the most to gain from preventing the second stage of the unification program from going ahead. In 2002, for example, the volume of freight coming through the St. Petersburg port rose by 42 percent, in Kaliningrad by 70 percent and in Murmansk by 33 percent.

If conditions were more equal, some of this freight would have gone instead to Baltic and Finnish ports, where freight-handling conditions are more attractive.

Realizing this, the Association of Sea Trading Ports even asked the government last year to postpone the plan until this year. Serik Zhusupov, chairman of the association’s working committee on economic and social issues, said at that time that, if this wasn’t done, "35 percent of the freight that currently goes through Russian ports will go to the Baltic states, Ukraine and China." The government, it seems, took heed and delayed the issue until the middle of this year.

Ruben Terterian, director of the St. Petersburg-based Agency for Special Studies, said that there is no reason to maintain incentives for Russian port development through railways tariffs.

"There is not so much sense anymore in increasing the freight flow to the ports," he said. "The October Railway is already having trouble handling the flow because of bottlenecks at the entrances to the ports and insufficient trains."

To even out the cost of internal and export freight transport

First stage: 2001-2002

Internal freight-transport costs in Russia and the costs of transporting export deliveries to Russian ports were brought into line with each other.

Second stage: 2002-2003

Internal freight-transport costs and costs for exporting freight from Russia to foreign ports or directly to European consumers were brought into line with each other.

Result

The Railways Ministry says that this process is complete, but so far only the international-transport tariff has been abolished, and the new price list still has differentiation between tariffs.

Freight senders are having increasing trouble meeting their delivery contracts on time as a result. On a number of occasions in the spring, the Railways Ministry had to put temporary bans on unloading freight in Russian ports because they were so clogged.

"It’s not that there are real breakdowns in the work, but the time it takes to ship the freight is increasing," Terterian said. "It should be possible to send more freight through the ports, but railways and customs-handling time keep increasing. That’s why there is a trend now to send large shipments out of St. Petersburg."

Some of this freight ends up going to small Russian ports that still have room to increase their freight capacity. In June, for example, the Arkhangelsk port announced plans to increase export shipments of coal and metals. However, after standing idle for some years and seeing their infrastructure fall into disrepair, the small ports offer limited capacity.

Difficulties in the ports are pushing some freight onto land transport instead. According to Agency for Special Studies, the rapidly increasing flow of container goods tends not to go to the railways, as it is cheaper to send a container to Moscow and back by truck. Using the railways takes longer, and there is always the risk of not getting the container back on time, which means having to pay a large fine.

Freight senders say the Railways Ministry could increase its revenue and make a positive contribution to developing the economy by encouraging freight exports to Baltic ports, relieving the load on the St. Petersburg port.

"There was a very favorable situation for a lot of types of goods last year and at the beginning of this year," said Metallurgtrans’ Cheplanov. "This was the case for metals, oil and petroleum products, for example. Also, last year, there was a big grain harvest. This forces freight senders to look for new ways of exporting their products."

But one Russian analyst, who wished to be anonymous, said that the fact that tariffs remain different means that delivery routes are more expensive and export-import operations much less profitable.

"Some exporters are even deciding against shipping goods altogether," the analyst said. "Oil and petroleum products, for example, are very sensitive to freight tariffs at the moment because of the imminent downturn on the world oil market."

The state has not made any gains from the Railway Ministry’s tariff policy, as, even though freight flows through the ports are increasing, they are not paying more taxes than they were before. "Tax-minimization schemes make it possible to reduce taxes a great deal," said Terterian.

So far, then, the new tariff price list seems to have benefited no one but the Railways Ministry.