RZD Reduced 2017 Net Profit Forecast by 2/3

OAO RZD reduced 2017 net profit forecast by 2/3 - from 10 B RUB (168.4 M USD) to 3 B RUB (50.5 B USD), the Vedomosti reports. The media got a copy of OAO RZD 2017 finance plan.

The 10 B RUB forecast implied maximal tariff increase, the Vedomosti’s source explained. However, the Government decided to reduce tariff increase factor from 1.134 to 1.1. Furthermore, oil freight unification was limited and OAO RZD freight transportation tariff subsidy was reduced from 9% to 4%. The Government though allowed OAO RZD to get an increased (+4%) tariff for container transportation and provide lower discounts to some freight transportation (e.g. coal transportation discount was reduced by approx. 7%, iron ore - for approx. 38%).

It is to be noted, however, that OAO RZD’s 2017 costs will be higher compared to 2016, especially transportation costs (1.35 T RUB (22.8 B USD) out of 1.5 T RUB (25.3 B USD) of total OAO RZD costs). Another restrictive factor for OAO RZD is annual cost reduction: President Vladimir Putin ordered a 2 - 3% annual cost reduction for state-owned companies since 2014; but in 2016 Russian Property Agency increased that level to 10%.