Railway Tariffs To Rise

Ukrazaliznytsya to increase cargo shipment tariffs by 19%-100%. Ukraine’s national rail carrier will raise tariffs starting April 1. Passenger tariffs for first and premium class will grow 50%. Steel mills will face the largest increase of 100% from USD 5.7 to USD 11.3 per ton. Mining output constitutes 53% of railroad cargo transportation. Ukrzaliznytsya says the move will decrease profits of metallurgical enterprises. The 50 largest enterprises of different industries have appealed to the president and government, saying that the move will decrease the competitiveness of Ukraine?s output on foreign markets and boost inflation. Concorde Capital: Ukrzaliznytsya decision to raise tariffs is a pro-state and budget-improving move. According to Ukrzaliznytsya, the move will force the industrial groups that own the steel industry to decrease transfer pricing. Industrial groups will be forced to spend more money on railway tariffs, rather than leaving the money offshore. The tariff hike will contribute USD 943 mn to the budget in 2005. The odds are high that the government and president will not respond to industry demands to cancel the tariff increase. In mid-2004, producers already accommodated a railroad tariffs hike (of 25% on rolled steel, 96% on iron ore exports and 22% on nitrogen fertilizers) without damaging their businesses. Most exporters still posted higher profitability margins for the year. In 2005, the growth on the global markets may not be as impressive as in 2004, while tariff adjustments for steel producers will be much more significant. Therefore, the pressure on margins will be noticeable.