According to the non-discriminatory access rules coming into effect on January 1, 2025, the priority for the transportation of oil and coal by railway will be reduced from the third priority to the sixth. In the transport sector, they are reassuring producers that nothing drastic will happen and everything will be delivered. But under one important condition: everyone must comply with the notorious NDP (Non-Discriminatory Access) rules. "Everyone" refers to Russian Railways (RZD), operators, and, of course, cargo owners.

Whether it is possible to carry out this "jewel-like" operation within the rules without deviations will be seen early in the year. However, the market is greeting the upcoming NDP changes without panic or excessive emotion—more as a routine. The challenging months of 2024 have hardened the industry, as Vgudok discovered by listening to the "voice of the market."

One of the first to calm the logisticians working with fuel and energy cargos was Deputy Minister of Transport Alexey Shilo. The official, who recently transitioned from RZD to the government, sought to somewhat shield the monopoly.

“If we work strictly according to the NDP rules, oil products already have a fairly high priority, that is, if it’s a subsidized transport, it’s the fourth priority, if it’s domestic transportation, it’s the sixth,” reminded the deputy head of the department, urging strict compliance with the latest NDP rules.

Those who say that, under strict compliance with the NDP, oil product producers—meaning oil producers—will not lose out are right. Because, if we take the new cargo transport priorities that will be in effect from 2025, it follows that the transport of export energy raw materials, carried by specialized rolling stock, will be two positions higher than the transport of export non-energy raw materials in universal rolling stock, explained energy expert Kirill Rodionov to Vgudok.

"This means that de facto, the transportation of oil products has a higher priority than the transportation of coal. So, overall, under strict adherence to these rules, oil producers will indeed not be at a disadvantage. However, I think the broader trend and context are more important.

The trend is that global coal prices are falling, making it increasingly difficult for coal producers to cover transport costs. For example, coal prices in the first 10 months of 2024 dropped by 60% compared to the same period in 2022.

As a result of this price drop, coal producers are struggling with profitability, which will lead to a reduction in mining activities.

What is even more important is that Russian Railways (RZD) plans to increase the profitability of using the Eastern Polygon by reinvesting some of its profits into modernizing it. And as you probably know, RZD plans to abandon export quotas for many coal-producing regions, except for Kuzbass."

Oil products are not new to being moved up the priority ladder in the NDP rules. Earlier in March, these cargos were elevated to the third priority. However, the decision was later made to return liquid fuels to the familiar "sixth priority"—alongside their close partner, coal, which is often mentioned together with oil. Deputy Minister Shilo even hinted that if no changes are made for coal, oil would not suffer:

“If a decision is made to elevate a large volume, for example, of coal, to the third priority, then possibly some additional decision will be required. But once again: if coal is not moved to the third priority, oil products can rest assured—they will be transported in accordance with the rules. There are 12 total priority levels, and oil products and fertilizers have a relatively high priority."

Oil product producers will not suffer losses if the updated non-discriminatory access rules are strictly followed, said Sergey Tereshkin, the founder and CEO of Open Oil Market, Russia's first independent marketplace for oil products and raw materials.

“Oil products fall under the category of ‘export energy raw materials transported in specialized rolling stock,’ while coal falls under the category of ‘export non-energy raw materials and export energy raw materials transported in universal rolling stock’ (according to the terminology of the document).

Specialized rolling stock includes, for example, tank cars used for transporting diesel fuel and liquefied petroleum gases (LPG).

Universal rolling stock includes hopper cars used for transporting coal. According to the updated NDP rules, the export transport of energy raw materials in specialized rolling stock has a higher priority than the transportation of coal in hopper cars.

Thus, oil product shippers will only face losses if the government once again grants preferential conditions to coal shippers. However, this is unlikely, as RZD opposes preferential treatment, preferring to diversify cargo flows along the Eastern Polygon."

REFERENCE: The non-discriminatory access rules for railway infrastructure ensure equal access for all companies to transportation services. The existing order prioritizes special, repair, passenger, postal, and international transport over freight, which is further divided into categories based on importance—from special transports (including to disaster-affected regions) to the transport of perishable goods and energy raw materials.

This situation indicates that, in general, coal producers' negotiating positions are weakening. There are projects that will grow, such as the Elga coalfield project—Pacific Railway, which will transport coal to the Sea of Okhotsk coast via a route independent of the Eastern Polygon. Thus, once again, coal producers' negotiating positions are weak, continues Kirill Rodionov.

"The key weakness is that regardless of regulatory actions, the situation in the Russian coal industry will worsen. In particular, the position of coal producers whose assets are far from export ports will deteriorate. This is why there will be a structural shift in the Russian coal industry.

That is, the share of coking coal in the production structure will increase, and the geography of mining will shift eastward. As a result, everything far from seaport locations will see reduced mining.

Overall, this negative trend for the Russian coal industry will benefit RZD’s position in discussions with regulators, while oil producers will have stronger positions with regulators compared to coal producers. The reason is simple: the oil and, to some extent, the oil refining industries contribute more to the Russian budget, particularly in terms of mineral extraction taxes (NDP) on oil, as well as to regional budgets, than the coal industry.

This budgetary factor is very important in administrative bargaining.

Because coal producers contribute much less to the budget, their administrative position will be weaker. As a result, I do not believe that coal producers will win in the administrative bargaining with oil producers.

No, they will lose. They will lose overall, and in particular, in everything related to railway transportation conditions. The government will definitely not put oil producers in an unfavorable position because, from a budget perspective, the oil industry is far more important than coal mining,” summarizes Vgudok’s interlocutor.

Translated using ChatGPT

Sourse: vgudok.com/reforma/neft-i-ugol-pobegayut-v-shestyorkah-eksperty-vgudok-ocenili-pozitivnye-obeshchaniya-rzhd