Page 139 - RusRPTJun21

The law imposes mandatory emissions reporting on ‘large emitters’ who produce more than 150kt CO2e a year up to 2024, and 50kt CO2e a year after 2024 (the criteria for classifying activities that qualify as large emitters are due to be set by the government). In addition, all interested companies will be able to join in the reporting if interested. No verification requirement is in place, while there would be no punishment for delayed reporting, not reporting or disinformation. The law also sets the target level of emissions, taking into account the absorption capacity of forests and other ecosystems. Finally, the law allows for the implementation of climate projects aimed at reducing emissions (the criteria for which are to be set) and carbon footprints. The information on these projects would be part of the register of carbon units and the companies would be able to exchange the units, which basically introduces a system of carbon trading. According to the Head of the State Duma Committee on Ecology and Environmental Protection, Vladimir Burmatov, the law is the first step toward the formation of Russian legislation to allow for CO2 regulation. Proposals on adjustments to the law are to be accepted by 19 May when the second reading is scheduled. Once the law is fully approved, it would start in 180 days from its publication, and half a year after validation, the government would define the procedure for maintaining the register of carbon units and determine the operator of this register.
9.1.11 Metallurgy & mining sector news
First Deputy Prime Minister Andrey Belousov threatens to hit metal sector with a RUB100bn extra charge on May 31.
· First Deputy Prime Minister Andrey Belousov gave an interview to RBC, during which he noted that state infrastructure and military projects might incur an additional RUB 100bn in costs above the budget in 2021 due to higher metal prices. Belousov suggested that the industry discuss ways to compensate the state for these additional costs. He also noted that he was against export duties on steel as a means of compensation, given that this would compromise exporters' competitiveness on the export markets. No final decision has been taken yet on this initiative.
· Although the discussion about the growth of metal (we think primarily steel) prices with the government is intensifying, in our view the fact that there is no support for export duties on either side creates the possibility for a compromise between steel names and the government.
· RUB 100bn equates to 5% of companies' spot EBITDA run-rate, on our numbers, and would create mild downside risks to our 2021F forecasts, given the material improvement in earnings that we expect in 2021, even if iron ore/steel prices decline in 2H21. MMK, NLMK, Severstal and Evraz have underperformed global steels peers by 4-8pp in recent months, so we think this risk might be already be priced in.
· At the same time, we estimate that an additional income tax from the industry could be up to RUB 355bn, were spot steel/raw materials prices to stay for the next 12 months. This would more than cover the RUB 100bn costs overrun by the state, again creating the possibility of a compromise between the state and the industry.
139 RUSSIA Country Report June 2021 www.intellinews.com