Vladimir Putin gives instructions to support water transport but the devil is in the details

Representatives of water transport industry outlined their proposals on state support of the sector at the meeting held by the President of Russia. Although the Ministry of Finance says that water transport companies can use the existing support mechanisms, Vladimir Putin gave instructions to consider inclusion of water transport into the list of sectors most affected by the pandemic. Yet, the instructions were somewhat indistinct.

Vladimir Putin held a meeting, via videoconference, on problems of the transport sector amid the COVID-19 pandemic.

The meeting’s key outcome, albeit not distinct yet, was the instruction to include water transport companies into the list of sectors most affected by the pandemic. That would make them eligible for privileges and state support measures, specifically deferred taxes and duties, lower social insurance contributions, and a temporary moratorium on inspection. In addition, companies of this kind are entitled to non-repayable financial aid and interest-free loans for paying out salaries if they keep a specific share of their workforce on the payroll.

When speaking at the meeting, representatives of the industry emphasized the need to support water transport but their efforts were finally disavowed by Anton Siluanov, the Minister of Finance. According to him, many companies operating within the sector can use the existing support mechanisms, including small and medium-sized businesses. That sounded strange enough as the industry is represented by quite large holding companies.

“As for the proposal of our colleagues on expansion of the list of most affected sectors, river transport is mainly represented by small and medium-sized enterprises and they can use support measures we have already adopted. The same is about other measures of our colleagues, systemic measures can be used: interest subsidizing and guarantees applicable to companies in a challenging situation”, said Anton Siluanov.

Actually, the Minister’s words can be interpreted as there is no reason to undertake any additional measures to support the sector.

Vladimir Putin, who seemed to be ready for inclusion of water transport into the list of most affected sectors, was speaking more carefully after that:

“I propose expanding the list of sectors most affected by the epidemic. …The Finance Minister (Anton Siluanov - Ed.) has just said that while many companies operating within the sector can use the existing support mechanisms, including small and medium-sized businesses, others are left out. There are gaps that need to be filled, so we need to look carefully into this issue and add inland water transport and commuter rail service to the list. We need to understand whether companies in these sectors can benefit from the measures that we have introduced so far. This is all there is to it. If not, in this case we need to think about how we can help these companies, so that practically all transport types and segments are covered by state support measures” said the President.

In practice, such a cautious choice of words will most probably mean time wasting for additional analysis of the situation and, consequently, for approval of its findings by ad hoc executive authorities including the Ministry of Finance.

What did the businesses propose?

Head of Aeon Corporation Roman Trotsenko, Chairman of the Chairman of the Marine, Inland Transport and Port Industry Subcommittee of the Russian Union of Industrialists and Entrepreneurs (RSPP), suggested subsidizing of the expenses on salaries and maintenance of property of passenger shipping companies. According to him, RUB 4.7 billion are needed for that purpose till the next navigation period. That amount is to be distributed by the Ministry of Finance among the entitled shipping companies.

Another proposal was to introduce a three-year long system of guarantees for linked industries. Such guarantees could be provided to companies with a limit set by the ad hoc ministry. If companies fail to pay back, their shares can be taken over by the state and sold to cover the budget expenditures.

Besides, fixed leasing rates are to be offered to companies for the entire life cycle of a ship. That would allow for long-term planning of expenses. Leasing companies’ authorized capital should be increased to ensure this measure and those will be repayable funds.

Finally, Roman Trotsenko suggested VAT free sale of tickets for foreign cruise tourists.

Victor Olersky, Chairman of Vodohod BoD, said in his turn that the shipping company’s revenue is equal to zero because its vessels could not leave for voyages with the beginning of the navigation season of 2020 amid the pandemic.

“It looks strange that river transport has not been included into the list of most affected sectors and we consider it to be a mistake that should be corrected”, said Victor Olersky.

According to him, it is also important to extend the relief of bank reserve requirements for loans granted to businesses till the end of 2021, introduce e-visas this summer for encouraging of incoming tourism and to introduce amendments into the Tax Code in the part of bunker excise refunding: it is to be based on the purchase rather than on the use since the bunker will not be used this year because of the disrupted navigation.

Victor Olersky also drew attention the deficit of resources under the programme for subsidizing the rates on loans and leasing payments for ships built by domestic shipyard. He asked to prevent it in the future. The head of the cruise company believes it is important to ensure proper level of waterways on a yearly basis.

Sergey Shishkaryov, head of the Delo Group, suggested subsidizing interest rates on loans under large-scale investment programmes in ports and projects on renovation of the rolling stock as well as tariff for transportation of containerized cargo from east to west and backwards.

“We estimate such a subsidy at about $900, while revenues of transport companies, Russian Railways and stevedoring facilities are estimate at $2,500-$3,000 per container”, said Sergey Shishkaryov. According to him, those measures will let increase the flow of transit containers by 200,000-250,000 TEUs per year.

He also asked for setting tariffs in foreign currency with payments to remain in rubles since part of expenses for equipment are in foreign currency.

Sergey Shishkaryov asked the President to facilitate the creation of a free economic zone in the Astrakhan Region (for the Casian Basin development) and to subsidize ta of coal towards Lavna, Ust-Luga and Taman.

The proposal on subsidizing transportation of containers was backed by the President while the fate of other proposals will be clear after publication of the presidential instructions.

Vitaly Chernov