Oil Companies Celebrate a Local Victory Over Other Cargo Owners in the Battle for VIP Access to Infrastructure

"Liquid gold" has gained support at the highest levels: the Russian government has postponed the implementation of the Nondiscriminatory Access Rules (NDA Rules) to the last day of 2024 (instead of September 1, as previously proposed). This delay allows oil products to retain logistical priority.

The decision is aimed at "ensuring economic stability and supporting businesses." This measure will enable "prompt responses" to emerging situations and help "mitigate economic impacts" for railway companies. But what lies behind this bureaucratic phrasing, and how will the industry react? Vgudok spoke with players in the rail freight market to find out.

The decision to extend the current NDA Rules until the end of 2024 may have been influenced by the ban on gasoline exports introduced in August 2024, later extended through September and October. The ban is expected to reduce the profitability of gasoline production, as oil companies have more pricing freedom on external markets without regulatory constraints.

Simultaneously denying oil companies priority in the transportation of oil products could have led to additional costs. Thus, this measure was postponed until next year when the export ban will no longer be in effect, Sergey Tereshkin, founder and CEO of the OPEN OIL MARKET marketplace for oil products and raw materials, told Vgudok.

"The fact that oil companies have incurred significant costs in recent months due to the forced downtime of several refineries also plays a role. This is indirectly evidenced by the dynamics of oil product exports. According to S&P Global Platts, Russia’s seaborne exports of oil products dropped from 2.69 million barrels per day (b/d) in January 2024 to 2.13 million b/d in June 2024. Exports only began recovering last month.

In July 2024, the volume of seaborne exports to foreign markets increased by 140,000 b/d to 2.27 million b/d.

Overall, regulating the industry is always a balance between 'carrot and stick.' It's no coincidence that the latest export ban coincided with the Finance Ministry’s draft law on splitting the fuel damper mechanism.

Currently, oil companies may lose damper payments if exchange prices for AI-92 gasoline or diesel fuel exceed the threshold set in the Tax Code. However, under the draft law, the damper would only be nullified for the specific type of fuel whose price exceeds the legally established maximum.

This measure will support the profitability of oil product production and sales, while the changes to the NDA scheduled for 2025 will reduce it."

The NDA Rules were finalized in late May this year. Initially, the document was planned to take effect on September 1 after a two-year temporary suspension. The suspension was justified as necessary to transport products from enterprises that had lost their traditional European markets.

"I don’t think there will be significant competition between oil and coal in this context. Coal primarily creates problems for transporting other goods through the Eastern Polygon," Igor Yushkov, an expert at the Financial University and the National Energy Security Fund, told vgudok.com.

"Prioritizing rail transportation of oil and oil products is crucial in the European part of Russia, particularly in the south. Last year, shortages of diesel fuel and even gasoline occurred not because of low production but because they couldn’t be delivered to regions in time for consumption.

This issue arose in August, September, and October. In August, a significant amount of diesel was diverted for the Special Military Operation (SMO) and civilian vehicles traveling to and from the south. Additionally, the sowing season took place in September and October. All this resulted in delays in deliveries to southern regions such as Krasnodar Krai and Rostov Oblast.

Currently, if some refineries are under maintenance, oil products must be transported from neighboring refineries. These products are delivered by rail.

Such interchangeability of refineries is only possible with the efficient operation of Russian Railways (RZD) in transporting oil products.

Stabilizing the fuel market and preventing a repeat of last year’s fuel crisis are now among the government’s priorities. Maintaining transportation priority reflects this. They might even push coal aside if necessary.

However, coal shipments are primarily for export, while the priority is to meet domestic market needs. If required, coal shipments will be deprioritized," the expert said.

The latest series of RZD orders on prioritizing oil cargo loading shows that oil companies are little concerned with the existing queue on the network. They can lobby for passage along both the Eastern Polygon and the North Caucasus Railway. However, the delay in implementing new NDA Rules is likely not driven by oil companies, Denis Semyonkin, Deputy Chairman of the NP Association of Private Railway Carriers, told Vgudok.

"Most likely, the new rules have not taken effect because they were developed too quickly, rushed through consultations with market participants, and launched by the government without addressing all feedback.

The government seems unwilling to take full responsibility for the state of the transportation process. Apparently, it wants Russian Railways to bear the full brunt of managing the current network collapse.

There is likely an understanding within the government that those responsible for the collapse must face the consequences. The government does not want to be associated with those who caused it.

Authorities have not allowed violations of the NDA Rules. Instead, all eyes will be on how RZD handles loading, traffic flow, and negative feedback under its own rules, while the government remains uninvolved," our source concluded.




Translated using ChatGPT

Sourse: https://vgudok.com/lenta/neftyanoe-polovode-rzhd-vladelcy-nalivnyh-gruzov-poluchili-podderzhku-kabmi.