September 27, 2018, 00:21 / Business

Dmitry Kozak supported metallurgists

Russian Railways, energy and tax authorities will help the industry, Deputy Prime Minister Galina Starinskaya decided

Dmitry Kozak supported metallurgists / Andrey Gordeev / Vedomosti

Last week, on September 19, Deputy Prime Minister Dmitry Kozak held a meeting on the development of ferrous metallurgy. The meeting was initiated by the Russian Steel Association (which unites nine enterprises in the steel and pipe industries and is headed by Vladimir Lisin, the main shareholder of NMLK). Seven main, in the opinion of metallurgists, restrictions for the development of the industry were discussed: modernization of thermal generation at the expense of industrial consumers of electricity (5.5 trillion rubles of additional burden on the real sector until 2046, including 260 billion rubles for ferrous metallurgy) ; cross-subsidization of the electric power industry (RUB 136 billion); bottlenecks in railway infrastructure; additional environmental assessment (RUB 40 billion); the idea of giving regions the right to limit the activities of enterprises and introduce emission quotas; tax burden (5–6 billion rubles per year); tax on real estate equipment.

Railway

“The meeting was positive <...> Instructions were given to the relevant departments,” said Alexey Sentyurin, executive director of Russian Steel. Instructions were given on all issues of the meeting, Kozak’s representative confirmed. Vedomosti reviewed a copy of the minutes of the meeting (the document was confirmed by an official and Vedomosti’s interlocutor close to one of the meeting participants). It follows from it that Russian Steel will participate in clarifying the investment program of Russian Railways . The issue is being studied, says a representative of Russian Railways . The Ministry of Transport must submit the agreed version of the investment program to the government by October 25.

A representative of the Ministry of Transport confirmed that the department had received an order from the government to study Russian Steel’s proposals for the development of public railway infrastructure. The department's position is being studied, he added.

Lisin, on behalf of Russian Steel, has already sent a letter to Kozak, in which he proposed a list of 14 public infrastructure projects that Russian Railways needs to expand. Vedomosti reviewed the letter, its authenticity was confirmed by two interlocutors familiar with its contents. Metallurgists are ready to increase production by 3 million tons, and loading of finished products and raw materials, including for export, by 12 million tons, but for this it is necessary to clear bottlenecks on the railway, Lisin points out. Russian Railways' revenues from metallurgical companies will increase by 3.5 billion rubles. annually. “Russian Railways’ funds invested in the development of such infrastructure will be returned quite quickly,” states Lisin.

Every year, the transportation of metallurgical cargo (more than 300 million tons) accounts for 25–30% of the total revenue of Russian Railways , according to Russian Steel. “Metal products belong to the most highly profitable class and, in fact, through subsidies, support many unprofitable transportation for Russian Railways. The profitability of transporting metal products per ton-kilometer is four times higher compared to transporting a number of other goods,” a representative of the association told Vedomosti.

The use of Russian Steel’s proposals in the investment program of Russian Railways may become a continuation of the story with Belousov’s list, says General Director of Infoline Analytics Mikhail Burmistrov. In July, presidential aide Andrei Belousov proposed seizing part of the income from 14 companies; in the end, it was decided that taxes would not be increased, but businesses themselves would increase investments in socially important projects. “Apparently, metallurgists will be obliged to participate in co-financing all or some of the infrastructure projects they propose,” Burmistrov believes. “And for them it will be a more effective investment than participation in projects that do not directly affect them, such as the bridge to Sakhalin or the high-speed railway.” According to Russian Steel, investments in increasing the transportation of metallurgical cargo are not as significant as injections into unprofitable directions, but they are the most effective and cost-effective, notes a representative of the association.

The meeting with Kozak is most likely a reaction of metallurgists to Belousov’s list, in which most of the members of Russian Steel were included, agrees Maxim Khudalov, director of the ACRA corporate ratings group.

Energy

Another order from Kozak is that the Ministry of Energy, the Ministry of Economic Development and the Federal Antimonopoly Service, together with Russian Steel, must decide whether it is possible to exempt industrial consumers with their own power units from paying for power reserves. In August, they were obliged to pay grid companies for connected capacity, regardless of actual consumption. The increase should be gradual: in 2020, consumers will pay for 10% of reserved capacity, and by 2024 - 100%. Large industrial consumers spoke out against the new system. According to Russian Steel, the measure will cost metallurgical plants about 100 billion rubles. in year. Power plants were built at many large industrial sites; the Deputy Prime Minister’s proposal should exempt them from paying for a reserve equal to the capacity of their stations, notes Sergei Pikin, director of the Energy Development Fund. The own generation of industrial consumers accounts for up to a quarter of the available network reserve, said ACRA analyst Natalya Porokhova: “The risks of rising electricity tariffs for them, if the reserve is fully paid, can reach 30% of the increase in the final price of electricity.” Kozak also instructed to study the possibility of revising the thermal power plant modernization program (reducing the period for the first selection of modernization projects from three to one year and setting a quota for modernization at 3 GW).

Taxes

Another problem that they agreed to resolve was the long-standing dispute between companies and tax authorities over which property is considered movable and which immovable. From the first, businesses did not pay tax from 2013 to 2018, when the authorities decided to restore the tax to 1.1%. More than 20 regions have decided to reduce the rate or eliminate the tax altogether. This is what the government eventually did, exempting movable property from taxes from 2019 as compensation for the VAT increase.

But the business faced a new problem - tax authorities began to reclassify equipment as real estate and retrospectively tax industrial companies, the Russian Steel report said. This is confirmed by lawyers interviewed by Vedomosti. The main victims are large manufacturing companies in the oil and gas, chemical and metallurgical sectors, as well as energy, says Taxology partner Alexey Artyukh.

The definition of real estate in the Civil Code is formulated very vaguely and the courts in each case try to derive from it the criteria for classifying property as real estate, explains Shchekin and Partners lawyer Evgenia Mironova. Now the Ministry of Economic Development and the Ministry of Finance must do this: by October 10, amendments establishing clear criteria for real estate must be submitted to the government. Until the adoption of the law, the Federal Tax Service will not be able to reclassify property that its owner classified as movable. The representative of the Federal Tax Service forwarded questions to the Ministry of Finance and the Ministry of Economic Development, the Ministry of Finance - to the Ministry of Economic Development, his representative is not familiar with the instructions.

The Ministry of Energy is working on instructions, said Deputy Energy Minister Vyacheslav Kravchenko. FSK presented the Deputy Prime Minister with a position on the introduction of a network reserve; discussions are ongoing at the departmental level, a company representative noted.

NLMK , Mechel , Evraz , MMK , Metalloinvest , OMK , Industrial and Metallurgical Holding, Severstal and TMK declined to comment. Representatives of the Ministry of Industry and Trade, the Ministry of Natural Resources, the Federal Antimonopoly Service and Rosseti did not respond to requests from Vedomosti.

Polina Trifonova, Elena Vavina, Anna Kholyavko, Vladimir Shtanov participated in the preparation of the article