Main agenda item: Exporting metallurgical products from the Russian Federation
Mikhail Mishustin’s opening remarks
Government meeting
Mikhail Mishustin: Good afternoon, colleagues,
Let’s start the Government meeting by discussing social support for citizens. As per the President’s instructions, two new benefits are being introduced from 1 July.
Today, we will allocate over ten billion roubles for special payments, due to be paid to women who have been registered at a prenatal clinic in the early stages of pregnancy. We are talking about future mothers facing financial problems. Prior to giving birth, they will be getting about 6,300 roubles monthly. The specific sum will depend on their home region. Over 400,000 pregnant women will get these benefits throughout 2021.
Single-parent mothers and fathers who often encounter serious challenges raising their children on their own will receive another benefit that will make things easier for them. From July, we will pay monthly sums for children aged eight to 17 years in underprivileged single-parent families. We will spend over 36 billion roubles on this. These benefits amount to half of the regional subsistence minimum per child or about 5,500 roubles on average. Single parents, who have among them a total of over one million children, will receive the benefits until the end of the year.
I would like to note that it is possible to obtain the new benefits from 1 July, including via the government services website that will feature a special form. This will provide targeted assistance to people facing financial difficulties. The Government will continue to streamline a social treasury system in order to help these people. Mr Kotyakov (Addressing Anton Kotyakov), please inform the people in great detail about the possibility of obtaining the new benefits and please offer all the required explanations, including to media outlets.
Another topic. In line with the President’s instructions, amendments to the legislation have been drafted in order to ensure the stable financing of specialised educational scientific centres, above all the accommodation and catering of children who study there. We had a detailed discussion of this matter during the working trip to Novosibirsk when I visited such a centre. I mean that talented children, future scientists, should have a chance to study at such centres for free, develop their talents there, dive into creative science and fulfill their potential in the field of research and innovation. And the state should create all the necessary conditions.
Now such centres will be financed from the federal budget and not via a grant system like before, which would make it possible to attract more talented children from all across Russia regardless of their families’ financial situation.
There is another social item on the agenda of the meeting: organising regular flights between the Far Eastern regions. In order to do this, the government is completing the creation of a joint Far Eastern air company based on Aurora in line with the President’s instructions. In July it will start flying the first 20 subsidised routes.
It is important that ticket prices are affordable for people living there. The government will allocate over 1.5 billion roubles for this purpose, so that more than 100,000 people can use the reduced prices. They will be able to buy a ticket, for example, from the town of Sovetskaya Gavan to Yuzhno-Sakhalinsk for a reasonable price: about 2,200 roubles. One of the longest flights, from Khabarovsk to Yakutsk, will cost around 10,700 roubles.
In order to create a unified regional air network in the Far East, the joint air company will add 45 Russian aircraft to its stock during the next five years. This year, they should get the first Sukhoi Superjet. In addition to this, an agreement has already been signed to deliver eight Let L-410 short-range aircraft to use for local flights. A large up to date flying stock will allow flights to over 500 destinations.
Today people living in the Far East can also buy inexpensive tickets to fly to cities in other federal districts. The Government has already allocated five billion roubles for this purpose. Thanks to this programme, at least 450,000 people will be able to take advantage of these low prices this year.
Today we will also discuss the Additive Manufacturing Development Strategy for the next 10 years. It will focus on equipment, services and materials that use the capabilities of 3D printing. Their active application is an important part of the work to implement the national goals set by the President.
This is a large and promising market. New technologies make it possible to significantly decrease the time between designing a product and producing it, reduce energy consumption during production and, most importantly, create products and structures that seemed impossible yesterday.
The demand for additive products is growing steadily all over the world. This is an industry that can readily offer original solutions and quickly scale up production. Just like during the coronavirus restrictions, when new technologies made it possible to speed up the production of emergency medical equipment, such as respirators and components for artificial lung ventilation devices.
Over the last year, our companies’ exports of additive equipment and components have more than quadrupled. Sales on the domestic market have also increased: they amounted to over 800 million roubles.
We will have to address an entire range of tasks in order to boost the competitiveness of Russian manufacturers working with 3D technologies, such as creating the legislative framework necessary to incorporate them into the production process, ensure the training of specialists at universities and secondary technical schools, encourage import substitution of foreign innovations with Russian-made products, and of course, to promote our technologies on foreign markets more actively.
Colleagues, let us get down to discussing the agenda.
Minister of Economic Development Maxim Reshetnikov, tell us about exports of metallurgic products from the Russian Federation, please.
Maxim Reshetnikov: Mr Mishustin, colleagues,
Today, I would like to discuss the situation now taking shape with the national metalware market. Since late 2020, we have been posting global ferrous and non-ferrous metals’ price hikes. From January to May 2021, export prices for ferrous metals soared by 30 percent in terms of their 12-month equivalent, with those for non-ferrous metals skyrocketing by 50 percent. Considering the fact that metallurgy is an export-oriented sector (Russia exports about 35-40 percent of ferrous metallurgy products), skyrocketing global prices serve to increase metalware prices on the domestic market because of rising construction costs. First of all, this concerns social facilities and the utilities infrastructure. State defence contractors also complain about systematic price hikes.
Export volumes also continue to rise. From January to April 2021 (Preliminary May 2021 statistics are available so far), ferrous metals export volumes increased by almost 13 percent (plus 12.9 percent), and the April increment alone totaled 33 percent. This past April, production of fittings and hot-rolled stock went up by 55 and 23 percent on April 2020.
Notably, these trends helped make the financial balance sheet grow together with the sector’s profits. First-quarter profits totaled 570 billion roubles or 3.5 times more than the average first-quarter profits posted in 2017, 2018 and 2019. Consequently, profits are up 3.5-fold on mid-term all-time high levels.
The sector may post 2.1 trillion to 2.3 trillion roubles in profits by late 2021. We can see that prices are continuing to go up in the second quarter, too. Moreover, there are no pre-requisites for reducing them before the year is out. Although analysts voiced some hopes in March and April, but it became obvious by late May and early June that this was a mid-term trend, to say the least.
Consequently, affiliated sectors largely feel the consequences of these global price hikes. For example, the current mechanisms for delivering metallurgical products under long-term contracts and for fixed prices mostly apply to major partners and large-scale economic contracts. So far, their share remains low here, and the economy therefore has to quickly respond to these external shocks.
And, of course, more expensive construction of social and infrastructure facilities is a particularly acute issue. Contracts are liable to be terminated, deadlines might not be met, and other negative consequences lie ahead, unless we find sources for financing these price hikes.
Following joint studies with the Ministry of Trade and Industry, the Finance Ministry and other departments, we suggest introducing temporary export duties on major commodities in ferrous and non-ferrous metallurgy, starting 1 August and running through 31 December 2021, that is, for five months. During this period, we must develop a permanent mechanism that will allow us to collect part of the revenue from this very favorable situation – if, of course, it exists in the next few years – already in the budget.
This would include a broad range of commodities: rolled stock, rebar, billet, wire, ingots, as well as low-grade copper, nickel and aluminium. To prevent export price manipulation, that is, the temptation to understate the value of export contracts, we recommend introducing a combined duty that would consist of the 15 percent basic rate and a specific rate to be established as a minimum per tonne on the products in question.
How can we best establish this specific component of the duty? This is probably one of the most important issues in this proposal.
We have formed four price corridors for ferrous metals and calculated a minimum export duty for each of them. For pellets and other products with indicated costs of under $400 per tonne, the specific duty component would be $54 per tonne; for flat hot-rolled products and rebar – $115 per tonne (not below this figure); for cold-rolled mill products and wire with an indicated cost of $1,300 per tonne, the duty would be a minimum $133 per tonne. Finally, stainless steel and ferroalloys (everything above the threshold I mentioned) would be $150 per tonne of product.
The duties on non-ferrous metals would depend on the type of metal: copper – $1,226 per tonne (minimum specific rate); nickel $2,321; and aluminium – $254. These amounts reflect prices in the first five months of 2021.
These measures would only apply to exports outside the Eurasian Economic Union. We will continue exporting these products to the EAEU countries duty-free in accordance with our treaty. At the same time, we must hold talks with our EAEU partners to prevent the re-export of Russian products via their territory. We plan to address this task now.
There are also a couple of very important legal issues.
First, a resolution on introducing duties can only come into force 30 days after it is published. In other words, the resolution must be signed no later than 30 June. Therefore, Mr Mishustin, if you support this initiative today, we will have a meeting of a sub-commission on customs and tariff regulation today and will quickly prepare a draft resolution. We are asking our colleagues to promptly accommodate all points and offer the required conclusions. We are also asking you to include these points in the instructions given at the government meeting.
The second point. We must expedite the adoption of a resolution on the list of goods not to be covered by incomplete or periodical customs declaration. Unfortunately, we have a loophole in our law that allows some of our partners to export goods under the old duties.
The amendments to the law were adopted in the spring session, and now we must issue this resolution. According to the Ministry of Finance, this document is now at the Ministry of Justice. We are asking you to promptly supplement this list with ferrous and non-ferrous metals right here, at the Government Executive Office.
According to our estimates, the expected revenue from the duties collected in August-December 2021 would total approximately 110-115 billion roubles for ferrous metals (this equals about 30 percent of the additional super profit, or unplanned profit for ferrous metallurgy companies in 2021) and about 50 billion roubles for non-ferrous metallurgy.
We will use the funds produced by these duties to make up for the higher prices on the construction of budget-funded projects and prevent a failure to build social, engineering and transport facilities that our country needs so much.
Please review and support this initiative.
Mikhail Mishustin: Thank you.
Mr Manturov, please, go ahead.
Denis Manturov: Mr Mishustin, we have to agree to a proposal from our colleagues at the Ministry of Economic Development, given that this is a temporary measure. Our approach, as well as that of our colleagues, was prompted by the sharp rise in the prices of metal products that we have been seeing since last autumn, given that these prices are pegged to world prices. Prices are also surging in China, the United States and Europe. In Russia, the prices of many metal products have really increased by 70 to 80 percent, and in some cases the increases are even higher. This surge in prices is affecting metal-consuming industries and other sectors of the economy Mr Reshetnikov listed.
We believe we need to respond quickly. You remember our initiative on this, including the introduction of an export duty on scrap metal early this year. Regrettably, this measure failed to have the effect on the rolled metal market that we expected, so additional steps need to be taken.
As a matter of fact, there are plenty of stabilisation scenarios to choose from. We could, for example, follow China, which rescinded the export VAT refund, or introduce individual taxes for major corporations receiving excess profits, a measure taken by the United States, Britain, Norway and several other countries at different times. In our view, this is a very harsh initiative in terms of steel companies’ losses and much tougher than the Ministry of Economic Development’s proposals.
Speaking objectively, the steel industry carries the important burden of social responsibility. Some integrated plants have spawned single-industry towns. In addition, steel mills allocate huge resources to fund environmental programmes and technological upgrade projects. We also need to consider this.
So, the proposal to introduce an export duty on all exported domestic metal products is the most sparing measure for the industry. It is important that this is a temporary measure effective through the end of December of this year.
Mr Mishustin, that said, we believe it is important to ring-fence the amount to be received from export duties, something that Mr Reshetnikov proposed, so that these funds can be allocated for the support of metal-consuming industries, primarily, companies carrying out government defence contracts – as we must make sure they deliver on schedule without increasing prices – and other sectors that depend on metal products.
Please consider our proposals when taking the final decision.
Mikhail Mishustin: Thank you, Mr Manturov.
I would also like to know the opinion of the Finance Ministry.
Mr Siluanov, the floor is yours.
Anton Siluanov: Mr Mishustin, colleagues,
Export duty is an operational tool for regulating export goods volumes and setting domestic prices.
We see that this year the export volumes for the Ferrous Metals group alone have increased by 60 percent. We see that prices on the domestic market have also grown. And metals companies, in fact, have received windfall rent revenue that is not related to any increase in labour productivity or any modernisation-related factors.
So, we analysed the best practices to find out that a number of countries that export ferrous and non-ferrous metals have regulatory tools including export duties.
We consider it necessary to introduce export duties this year as a rapid response measure and, in the future, we consider it necessary to fine tune our systems for taxing metals in the event that prices go up due to a favourable external economic environment. To reiterate, we support the proposal to introduce export duties starting in August.
Mikhail Mishustin: You mean temporarily until 1 January, 2022?
Anton Siluanov: Yes, correct, Mr Mishustin.
Mikhail Mishustin: Then, Mr Belousov, please give us a summary if this is the consolidated position of the economic bloc, including the Finance Ministry.
Please go ahead, the floor is yours.
Andrei Belousov: Mr Mishustin, colleagues,
I certainly also support this measure, as a temporary measure, I want to emphasise this, until 1 January, 2022, but I have three points to make.
First, supporting non-raw material and non-energy exports remains our unwavering priority as set by the President. In accordance with this priority, ambitious plans have been drafted, including our KPIs for non-raw material non-energy exports. In 2020, it was $137 billion; in 2024 it should be $174 billion in comparable prices; and $233 billion by 2030. A favourable situation on the market for metals and other commodities is certainly good for this.
At the same time, our economy is not ready, let me be straight, for such an avalanche, the shock, I would even say, of transferring international prices to the domestic market, which we have been observing over the past year. The increase in domestic prices for certain metals has ranged from 60 percent to 100 percent, and now we see that under the pressure of such an increase in domestic prices, economic ties are beginning to break down, contracts are being canceled, and the contracting process for 2022–2024 still lies ahead.
So, I want to emphasise that the introduction of duties is not a punishment for the metals industry, especially since Mr Manturov was right when he said that steelmakers bear a large social and environmental burden, etc. This is part of a package of protective measures for the domestic market. We must protect our domestic consumers against developments on the global markets.
Second, this is a temporary measure of a fiscal nature, and its purpose is to create a source of compensation for the rise in prices for the state defence order, state investments in housing construction, the construction of roads and a number of other construction programmes.
I want to make clear right away that the additional revenue we estimate bringing into the budget based on this duty (about 113-114 billion roubles for ferrous metals and about 50 billion roubles for non-ferrous metal products) is an insignificant portion, about 20-25 percent, of the windfall profit that the companies are now receiving from the favourable prices on international markets.
In this regard, this temporary measure will not affect the existing volume of exports in physical terms which, of course, we must support in every possible way.
And last, third, I would like to draw your attention to the fact that the measures taken are not an alternative solution and should not slow down the work that has now been launched by state customers and metallurgical companies to adjust contract prices – the work that the companies are now doing with assistance from the Ministry of Industry and Trade and the Ministry of Construction. Moreover, this applies not only to this year, but also to subsequent years, specifically 2022 through 2024.
Based on the results of this work, starting from 2022, we will need to make corresponding system-wide – this time taxation-related – and more or less permanent decisions to protect the domestic market. The current situation may be repeated, and the probability of it continuing in at least the medium term is high.
Of course, we must look at this package of measures keeping in mind the results of the current efforts to adjust contract prices and to streamline the investment activities of the metals companies based on what portion of their revenue and windfall profits they will use for business investment and social investment.
Mikhail Mishustin: Thank you, Mr Belousov.
Colleagues, the question that you brought up is critically important for the country.
Please act swiftly to draft all the documents that are necessary for decision-making and submit them to the Government, literally, as soon as possible.
