The Cabinet of Ministers should impose a moratorium on increasing railway freight tariffs. This was announced in a letter to Prime Minister Arseniy Yatsenyuk, the heads of the Ministry of Infrastructure, the Ministry of Economic Development, the Ministry of Economy, and the State Regulatory Service by the heads of the largest mining and processing enterprises—the Poltava, Yuzhny, Ingulets, Severny, and Central Mining and Processing Plants, the Kryvyi Rih and Zaporizhzhia Iron Ore Plants, and PJSC EVRAZ Sukha Balka, UNIAN reports.
The statement states that Ukraine earns over $2 billion annually from iron ore exports. However, this source of income risks being lost, along with the loss of approximately 50 jobs. Since the beginning of 2014, global ore prices have fallen threefold, and competition has intensified significantly. Many mining companies from the US, Australia, China, and Africa have announced production cuts. Meanwhile, logistically, ore suppliers from Australia and South America enjoy more favorable conditions, with shorter delivery distances and the ability to load large-capacity vessels that are unable to service Ukrainian ports.
Iron ore prices are projected to decline by another 15-20% in 2016. Under these circumstances, the Ministry of Infrastructure's planned sharp increase in railway tariffs will lead to unprofitable iron ore production in Ukraine, discourage investors from working with Ukrainian companies, and significantly reduce the country's overall investment attractiveness.
“The likely scenario is a 50% drop in production in the industry and a 75% reduction in exports,” the statement notes.
The document emphasizes that the Ministry of Infrastructure (MIU) is declaring a 30% tariff increase. However, taking into account additional factors such as the increase in the empty railcar rate, the escalating coefficient for shipments over 500 km, and so on, the actual tariff increase over 2016 will be nearly 50%. For Class 1 cargo, which includes ore, the tariff will increase by 65%.
Meanwhile, in Ukraine's neighboring countries, such as Russia and Turkey, rail transportation costs are already lower than in our country. Falling commodity prices are forcing governments in other countries to accommodate their producers. For example, starting next year, Russian Railways will increase the maximum discount for customers from 12,8% to 25%. This will give Russian companies an advantage over Ukrainian ones, allowing them to displace domestic producers from foreign markets.
According to industrialists, there is no reason to believe that current freight tariffs are economically unjustified or unprofitable for Ukrzaliznytsia. The state monopoly earned approximately 15 billion hryvnias in profit from freight transportation in 2014-2015.
"The corporatization process of Ukrzaliznytsia is currently underway. We believe that only after its completion, with a clearer understanding of the company's real situation, can we return to the issue of revising tariffs and pricing policies for freight transportation," the statement concludes.
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