United Company RusAl is seeking a 30 percent discount on railway tariffs starting next year to help it reduce costs, sources with knowledge of the talks said.
Oleg Deripaska's aluminum giant is in talks with Russian Railways and the Federal Tariffs Service on lowering its rail transport costs by roughly 30 percent starting next year, according to a copy of a presentation that RusAl made to investment banks last week.
A representative for the tariffs service and a source in Russian Railways, or RZD, confirmed that they had received a request from RusAl but declined to comment on its details. RZD wrote to the tariffs service that it was willing to help RusAl as long as the state compensates it for the lower revenue, the RZD source said.
Any significant decision about a discount will be made by the government, not the Federal Tariffs Service, a source in the service said.
RusAl has also made its request to the government, one of the sources said. Government spokesman Dmitry Peskov said the request had been received and needed to be discussed. But RusAl shouldn't expect a 30 percent discount, an official in the government said, since the company is already receiving considerable help from the state and aluminum prices are beginning to rise.
Spokespeople for RZD and RusAl declined to comment.
In the past, RusAl has managed to reach agreement with the rail monopoly on discounts. From 2004 through 2012, the state railroads agreed to transport RusAl cargo at a fixed rate in dollars.
The idea of seeking a discount was more relevant in the first half of 2009, when the price for aluminum fell below $1,300 per ton and all of RusAl's plants were loss-making, said a source close to the holding. The RusAl request links the discount to the price of the metal, he said. The discount would be in effect until the price of aluminum passed $1,650 per ton.
Three-month futures contracts for aluminum were trading near $2,000 per ton Tuesday afternoon on the London Metal Exchange.
For 2009 and 2010, aluminum will average $1,792 per ton, said Dmitry Kolomytsyn, an analyst at Morgan Stanley. But even if RusAl does get the discount, it won't be a great source of savings since the company's main expenses are electricity and raw materials, he said.
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