Tariff indexation proposed by the government poses problems to RZD’s investment programme

Fitch Ratings says that the freight tariffs indexation proposed by the Russian government may make it more challenging for Russian Railways (RZD; ‘BBB’/Stable) to finance its ambitious investment programme, unless it is accompanied by other sources of funds from the Russian Federation, its sole shareholder.
The Russian government is considering a 7% indexation of freight tariffs for RZD effective from 1 January 2013, which would fall short of RZD’s proposal of an 11% tariff increase. However, the agency’s expectations also include subsidies and capital injections for RZD.
RZD is now proposing to add a so-called investment component of 4% to the tariff indexation for 2013 as a source of funds for its capital investment program, which stands at RUB 342 Billion (EUR 8.7 Billion) for 2013.
RZD is keen to carry out its previously announced asset disposal plans in order to finance its RUB 428 Billion (EUR 10.9 Billion) capital investment program in 2012. RZD plans to raise as much as RUB 70 Billion (EUR 1.8 Billion) from asset sales in 2012. The expected disposals include RZD’s remaining 21.8% stake in JSC TransCreditBank and may potentially include the remaining 25% stake in JSC Freight One.
Source: www.rzd-partner.com