Russia’s government is exploring options to support Russian Railways, the largest commercial employer in the nation, which is facing a significant debt of 4 trillion roubles ($50.8 billion). The state-owned company, employing around 700,000 people, has seen a decline in its revenue amidst a recession in Russia’s war economy, while debt service costs have increased due to high interest rates.
Officials have been discussing various strategies to assist Russian Railways with its debt, primarily owed to state banks. Possible solutions include raising cargo prices, increasing subsidies, cutting taxes, or utilizing funds from the National Wealth Fund. However, raising cargo prices could negatively impact exporters of bulk commodities like coal, metals, and oil products, who are also struggling with economic challenges.
Meetings have taken place to review the situation, with more planned in December. There are ideas yet to be debated in the government, such as capping interest rates for Russian Railways at 9% or converting its debts into shares, effectively giving banks a stake in the company. One proposal involves converting 400 billion roubles of debt into equity, which could save 64 billion roubles in interest over three years, reflecting efforts to stabilize the company.
The government’s final decision remains uncertain, as differing opinions exist among finance, economy, transport, and trade ministries. For the year 2024, Russian Railways is projecting revenues of 3.3 trillion roubles against expenditures of 2.8 trillion roubles. The firm reported a net debt of 3.3 trillion roubles as of June 30, with an unclear reason for its sharp increase of 0.7 trillion roubles in just six months.
Russian Railways is crucial to the Russian economy, reflecting the larger economic issues faced by state-dominated enterprises heavily indebted to state banks, especially during a time when military spending is prioritized amid the ongoing conflict in Ukraine. While President Putin claims the economy has performed better than anticipated despite sanctions, concerns about investment and high interest rates persist. The economy is projected to slow, with GDP growth expected at around 1% next year.
With information from Reuters
