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. Last Updated: 07/27/2016

Rail Freight Tariffs To Drop 5% Oct. 1

Russia will cut railroad freight tariffs by 5 percent starting Oct. 1 as part of a program to reform the country's railway system, First Deputy Prime Minister Boris Nemtsov said.

"Restructuring will be carried out starting from these cuts," Interfax quoted Nemtsov as saying Saturday.

The proposed cuts come barely three months after Russia halved railroad freight tariffs for timber and coal and slashed oil shipping prices by 25 percent.

The new measure, which will affect a variety of freight cargos for an overall cut of 5 percent, will cost the government 3.7 billion rubles ($640 million), but is expected to stimulate production and freight transfers.

Valery Zudin, a spokesman for the Railways Ministry, denied the measure would escalate the ministry's losses.

"Lower tariffs will mean we transport more," he said. "We believe that lowering the tariffs will come as a gulp of oxygen for Russia's production sector."

Other cost-cutting reforms at the Railways Ministry that could follow the government's tariff reductions include improving technology, moving some functions such as social benefits to other organizations and paring excess staff.

Vladimir Gubernatorov, a spokesman for the Russian Chamber of Trade and Industry, welcomed the reduction.

"This will be a big help to the manufacturing sector, especially to enterprises located in far-flung regions," Gubernatorov said. "At the moment, high transportation costs make our goods noncompetitive, and even a small difference in tariffs goes a long way."

A tentative move to separate the freight and passenger transport divisions also comes as a relief to the railways. From 1998, the onus of subsidizing passenger transport is to be lifted from the railroads and will be shared by federal and regional governments.

"So far, there is a kind of cross subsidies system, which meant that high cargo tariffs were making up for losses incurred by the passenger transport division," Zudin said.

While no increases in passenger fares are planned for 1997, plans have already been made to reduce the Railways Ministry's budget for passenger traffic to just $73 million from an anticipated $323 million in 1998.

"The government must rectify the imbalance between the passenger and cargo sectors," Gubernatorov said.

The railroads posted a 1.6 trillion ruble ($300 million) loss last year, and is expected to post losses of 9 trillion rubles for 1997. One factor in the increased losses for this year could be Nemtsov's call to reduce the number of barter transactions that currently account for more than half of all payments to the railroads.

The government has ruled out privatization of the railway network through the end of the century.