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Oleg Belozerov, President, OAO Russian Railways (RZD): Speech at the Meeting of the Russian Federati

Dear Dmitry Anatolyevich [Medvedev, Russian Prime Minister - RRC note], dear members of the Government, let me thank you for your continuous attention and support to the railway transport.

The finance plan and investment program have been discussed in detail with federal authorities and expert community. Let me thank [Deputy Vice Prime Minister - RRC note] Arkady Vladimirovich Dvorkovich, OAO RZD Chairman, for analyzing corporate issues and proposals to solve them.

We have gained a new level of interaction with the Federal Antimonopoly Service, Ministry of Economic Development, Ministry of Finance. Let me separately thank leaders of these authorities. The company is vigorously cooperating with Open Government and Federal Corporation for Small and Medium Business Development. I believe that all these actions are very important as we are interested to improve transparency of our activities.

The 2016 finance plan is a result of this joint activity. As noted earlier, the plan has no subsidies for a general corporate balance. Let me remind you that preliminarily 75 B RUB [1.14 B USD - RRC note] was discussed for this purpose.

Our analysis shows that implementing this plan will allow a reduction of the transport load onto the Russian economy. Monitoring the transport component in the price of freight we will use tariff corridor so that this component does not go up. The prime cost of the transportation is to rise 5% only, which is 30% below the average annual inflation forecast, and we will do it thanks to optimizing acquisitions, reducing the infrastructure life cycle costs, introducing innovations and improving energy efficiency.

I would like to emphasize that we have already optimized our costs at 100 B RUB [1.52 B USD - RRC note] in 2015, which is equal to the company’s monthly expenses. Our labour efficiency rate is nearly twice better than the labour efficiency nationwide. The company has ambitious transportation plans. The freight turnover is forecasted at the maximal level reached in the new Russia’s history - i.e. since 1992 - at 3 T ton-km.

The income of freight operations is to be above the 9% tariff increase. The improvement is obtained thanks to specific actions aimed at improving customer management. We have also agreed with the Federal Antimonopoly Service that the our clients’ effective rate will not exceed 7.5% due to tariff corridor application. We need to work out a more flexible tariff strategy. We set a goal for next year to increase the delivery speed at additional 5%. This year we have already improved it 12%. As for the section speed, we are now 4th worldwide.

Speaking about passenger operations, let me once again speak about the decisions taken this year and request their extension for an unlimited period. In 2016 the company will provide transportation to 1.29 B passengers, which is 1% improvement. We will reach this goal by launching operations at the Moscow Railway Smaller Ring. As for long-distance, we will increase our service portfolio in state-of-the-art passenger coaches. Tver Car-Building Plant is to supply coaches at the total of 10 B RUB [152.25 M USD - RRC note], which is a 20% increase; double quantity of innovative double-decker coaches will be supplied.

Let me also request you to decrease the value-added tax level [18% - RRC note] to 10% for long-distance operation. It is already applied in civil aviation for several years. It will allow our passenger company to operate in a low-income segment. We justified it with our calculations that the budget’s lost profit will be reimbursed with other taxes; furthermore, there will be less need for a special subsidy. The investment program, as we noted, is 432 B RUB [6.58 B USD - RRC note].

All the projects are to be included into the Federal Dedicated Investment Program. We sent our proposals on using the Program’s requirements for new projects; as for existing ones, we would like to request retaining the current procedure provided that the expenditure is duly audited. The procedure of such audit has been drafted and implemented. Let me request you to support these proposals as it will allow retaining the current tempo.

The company will add 440 B RUB [6.7 B USD - RRC note] of fixed assets in 2016, which is 1.5 times over 2015. We will complete the design of the Moscow - Nizhny Novgorod high-speed mainline section. In the last 3 years the company added over 1 T RUB [15.2 B USD - RRC note] of fixed assets, which, together with cancelling the property tax benefit in 2013, resulted in a nearly double tax increase. We would like to request a return of this benefit. I am sure that effective taxation will give an impetus to the development of not only the company, but the national economy, too. The income tax we have in the finance plan is 24 B RUB [365.4 M USD - RRC note] over the 2015, while the total tax plan is to reach around 300 B RUB [4.57 B USD - RRC note].

Dear Dmitry Anatolyevich [Medvedev - RRC comment], let me assure you that the company will fully meet the order set by the economy of the Russian Federation for railway transport services as well as other tasks. Thank you.

Original Text Available: Upon request

Translated by: Russian Rail Consulting LLC

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#RZD #Belozerov #Speech #Strategy

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