Translated material
Russian Railways is “not a cash cow”
Vladimir Yakunin announced a new course of development for the company
Vladimir Yakunin, who replaced Gennady Fadeev as president of Russian Railways (RZD), at a conference call on Friday for the first time outlined his idea of the state of the company and the prospects for its development. “Our profitability is minimal. The depreciation of fixed assets is close to critical. We require huge investment resources. And our market positions tend to worsen. We are losing markets for highly profitable cargo,” said the head of Russian Railways. As a result, Russian Railways received less than 10.5 billion rubles in six months. (almost $300 million) from the income planned by the board of directors. Mr. Yakunin laid responsibility for this state of affairs on the former management of Russian Railways - according to him, anti-crisis measures were developed back in February, but were not adopted, which aggravated the company's situation. To maintain the company's profitability at a minimum level, railway workers are asking the government to further increase freight tariffs by 4% this year.“Optimistic declarations that everything is fine with us and our future is cloudless seemed to be either a reflection of the saying “An optimist is an ill-informed pessimist,” or a misunderstanding of the essence of business in market conditions,” Mr. Yakunin said. -- We are in a long process of reform, and there is a risk that Russian Railways, instead of becoming an infrastructure and transportation company occupying 50% of the transportation market by the end of the third stage of reform, will gradually turn into a company, on the one hand, providing capital-intensive infrastructure services, and on the other hand, it carries out low-profit freight transportation, without which the functioning of the basic sectors of the Russian economy is impossible... And we should not be misled by the small increase in individual, usually quantitative, performance indicators. Moreover, the reporting system raises more and more doubts about its adequacy.”
The results of Russian Railways for the first half of the year, according to his assessment, turned out to be almost the worst in recent years. According to Mr. Yakunin, Russian Railways may lose at least 17 billion rubles. income. The income received from transportation was less than 47% of the annual plan, which is only 9.6% more than in the same period last year. Although, taking into account the indexation of tariffs and the planned growth, the volume should have increased by 15%.
The company, as Mr. Yakunin says, cannot itself compensate for the loss of income arising from changes in the structure of cargo turnover (due to lower tariffs of shipping companies, shippers during the navigation period prefer to use the railway exclusively for delivering goods to ports). Therefore, Russian Railways is making persistent requests to state regulatory bodies to increase the tariff for freight transportation this year by 4%. However, according to him, together with the proposed set of measures to reduce costs, this will ensure only “a minimum level of profitability for the company this year.” In the meantime, according to Mr. Yakunin’s forecasts, Russian Railways’ profit in the second half of the year could amount to $223 million.
Mr. Yakunin said at the end of May that Russian Railways was negotiating with the FTS on pre-indexation of freight transportation tariffs in 2005 (at that time he was the first vice-president of Russian Railways). According to him, Russian Railways tariffs this year should be indexed by 8.5%, despite the fact that the inflation rate could reach more than 10%. If this does not happen, Russian Railways, he said, will receive about 22 billion rubles. losses. However, the leadership of Russian Railways, headed by Gennady Fadeev, then failed to win the government to its side. At a meeting of the company's board in June (when Mr. Yakunin was appointed its president), Mr. Fradkov said that the government was ready to consider the possibility of pre-indexation of tariffs, but expressed doubts about the quality of the justifications presented by Russian Railways. Deputy Prime Minister Alexander Zhukov pointed out that the decision on additional indexation goes against the government’s line to curb inflation and will necessitate an increase in the budget of departments that use the services of Russian Railways (Ministry of Defense, Ministry of Emergency Situations, Ministry of Health, etc.). In addition, the Deputy Prime Minister argued, the financial plan for the development of Russian Railways for 2006-2008 does not contain a cost optimization program and is of an inertial nature. This point of view was also supported by the Ministry of Finance.
It is unknown whether the position of the financial department has changed now. The Ministry of Economic Development told Vremya Novostey that they agree to support Russian Railways' proposals to index freight tariffs, but only by 2-3%. “And this is provided that next year railway tariffs will be lower than planned by the same percentage as they will be increased this year,” explained a ministry official. According to the source, such a measure will allow Russian Railways to make a profit now, and in 2006 the effect of the tariff increase will be smoothed out, since the growth will not be so sharp. The issue of post-indexation of tariffs, according to the official, should be finally resolved in August, when the development programs for natural monopolies will be adjusted.
After the conference call, Mr. Yakunin went to the board of the Federal Tariff Service, where, according to him, the issue of increasing railway tariffs was to be considered. And the president of Russian Railways expressed confidence that it will be resolved positively. “A detailed justification has been prepared, which has been agreed upon with all departments,” he explained. However, the FTS press service reported on Friday that the results of the board will be known only on July 18, clarifying that the issue of railway tariffs was not discussed separately.
However, Russian Railways has also outlined some other corporate steps aimed at improving financial performance. Mr. Yakunin recalled that a management reform will be carried out, as a result of which the number of members of the company's board will be sharply reduced, and branches (roads) will also be consolidated. In addition to the transition to a new management structure, according to the head of Russian Railways, it is necessary to learn how to work with clients and introduce a differentiated approach to them, and introduce different classes of services into practice. “We need to subordinate our entire transportation technology to the interests of the clientele,” said Mr. Yakunin, “and finally enter the market with integrated transport services, become a kind of transport integrator, and extend our influence beyond the railway infrastructure. It is necessary to increase the transparency of its activities, ensure equal access to infrastructure and, on this basis, achieve deregulation of the carriage component. One of the elements of an individual approach to working with a client should be long-term contracts with the shipper with the definition of mutual financial responsibility - according to the “bring it or pay” principle. Only by receiving guarantees of traffic volumes on agreed routes and a stable revenue base can we support decisions to provide exceptional tariffs.”
Mr. Yakunin especially emphasized: the company must work in such a way that the country and officials do not perceive it either as a federal ministry, or as “a state within a state, or, excuse me, as a cash cow.”