Ukraine to have more railroad routes to Europe

Ukraine’s railroad companies keep ahead of the pack as compared to other carriers. They rank sixth in the world and fourth in Eurasia in terms of freight deliveries, lagging behind China, Russia, and India. They also account for nearly one half of Ukraine’s passenger traffic. The ongoing crisis has altered this positive statistic, but there is no great loss without some small gain. Ihor MATVIIV, head of Ukrzaliznytsia’s PR department, comments on his company’s progress in working out anticrisis measures, finding new international partners, and Ukraine’s prospects of participation in pan-European railroad projects.

How has this crisis altered Ukrzaliznytsia’s performance?

“There are two aspects to the answer to this question. First, Ukrzaliznytsia is changing its policy so it can deal with its customers on a more personalized basis. However, this does not mean that things were totally different before. At present, our traffic is down by up to 30 percent. Under the circumstances, Ukrzaliznytsia has to make do with bits and pieces. Whereas previously sending one or two railroad cars was regarded as unprofitable, with some railroad company officials preferring to look the other way, this attitude is simply impossible now. We’re doing our best to detect all such cases and impose harsh punishments on such employees. Ukrzaliznytsia, in its current condition, cannot afford to choose between customers.

“Another aspect has to do with deliveries that are not typical for Ukrzaliznytsia. We are actively working to set up new container routes. Previously, their share in the overall rail freight turnover was less than one percent, while now it’s getting close to three percent. We want to make Western-style door-to-door deliveries and develop highly profitable piggyback deliveries.

“However, we have problems here, considering that the motor carriers are also showing a serious business decline and are fighting for clientele. They have better ways of changing the tariffs because they can make their own decisions on such changes. Ukrzaliznytsia gets its clear-cut tariff scale, leaving no loopholes. What I mean is that this company has markedly fewer tariff-maneuvering opportunities.”

Can you specify the countries that you will focus on?

“Ukraine’s next door neighbors are Poland, Hungary, Slovakia, Romania, Moldova, Belarus, and Russia. These have been our traditional partners, but now Ukrzaliznytsia has an opportunity of establishing contacts with other business partners. These new partners will before long help expand the scope of our international freight deliveries.

“The liberalization of European railroad transport legislation allowed the Deutsche Bahn to buy out the Polish PCC railroad carrier. In the absence of a physical frontier with Germany, it is now possible for Ukraine to start cooperating with German railroad company at the customs checkpoints.

“The same is true of Hungary’s number one railroad carrier, MAV Kargo: it was bought out by the Austrian company, OBB. Our partners have certain designs and logistics patterns, and we intend to jointly implement them in the nearest future. We are handling their freights from Hamburg, from the Baltic seaports, using DB-controlled terminals, all the way to Ukraine. The prospects look fantastic!

“Both our new partners are Europe’s largest railroad companies that keep track of the newest trends and can instantly change their freight turnover policy. Our cooperation with them is our biggest chance of getting Ukrzaliznytsia out of its crisis. The first such freight deliveries will be carried out shortly.”

How much will such new European freight deliveries add to Ukraine’s railroad transit percentage?

“We are intensively doing the groundwork for negotiations and contracts, considering that we have practically no experience in this field. At this stage we are like a boy and a girl in their teens, looking at each other, trying to figure out what their feelings are all about. As soon as both fall in love, there will be prospects — in our case, 10–20 percent of growth, perhaps even more.”

What is impeding Ukrzaliznytsia’s rapid integration into the international framework?

“I don’t see any big obstacles on the road leading to our integration into Europe. The only difference between Ukraine and Europe is the rail gage, but there are options here, including rail conversion for passenger trains. If it is decided to introduce express trains (moving at 300 km/hr), our gage will be made to conform to the European standard (1,435mm wide).

“As a rule, such construction projects, including the infrastructure, are very expensive and receive financing from the central budget. Considering Ukraine’s current budget status, I believe that such projects are unlikely to be launched in the next three to four years. Of course, much will depend on how quickly Ukraine will overcome the negative consequences of the world economic crisis.

“Regarding freight deliveries to Europe, Ukrzaliznytsia meets most European requirements, including speed. It’s also true that Europe has high requirements for all vehicles in terms of noise pollution and its effect on the populated areas, as well as carbon dioxide emissions. Also, according to European standards, there must be no crossings between railroads and highways.

“Ukraine meets the European electrification and delivery rate requirements 100 percent, but budget appropriations are needed to meet the rest of the safety and environmental requirements.”

Does Ukrzaliznytsia plan to make its international investors co-owners for the purpose of speeding up the upgrading process? After all, this practice exists elsewhere in the world.

“This is a normal perspective. However, any such plans are the sole prerogative of the Ukrainian government. According to its statute, Ukrzaliznytsia is merely an agency that is authorized to manage state property.”

Does our cabinet have any such proposals on its agenda?

“Not that I know of, although our proposal is that the rolling stock is to be owned by the investor who provided money to purchase it. The trouble is that our legal framework has been changing over the past 17 years, while the structure of Ukrzaliznytsia has remained practically the same.

“After Ukrzaliznytsia was formed our parliament passed the bills ‘On Rail Transport’ and ‘On Transit.’ That was as far as they went about upgrading the laws on railroad transport. Our closest neighbors, including Russia, have changed their railroad companies’ ownership by reorganizing them as government-run joint-stock companies. This kind of ownership allows for more freedom in terms of management, which is especially important now that we have the crisis.

“As it is, Ukrzaliznytsia has to have all decisions coordinated with the Ministry of Transport and other relevant ministries. A joint-stock company has its board of directors who monitor the efficiency and lawfulness of the actions made by the appointed executive. He also has to make every decision in accordance with the company policy adopted by the board.”

Does this mean that you support the idea of Ukrzaliznytsia being reorganized as a government-run joint-stock company?

“What I mean is that international business practice shows that this kind of ownership is the most effective one for developing and maintaining railroads. However, there could be a different kind of ownership. Given today’s economic crisis and international business dynamics, Ukrzaliznytsia has to be a more flexible business entity. As it is, we are being choked by our legislation that doesn’t allow us to make quick and effective decisions. Sometimes you have to act on the spur of the moment, yet such decisions are possible within six months or even a year. In the current conditions this is simply unacceptable. Also, having more authority should imply a higher degree of responsibility on the part of the company’s management.”

Will Ukraine take part in the construction of new pan-European transport routes?

“Some projects are being considered along these lines, like new ferry routes. In fact, we have the Kerch–Poti/Batumi route, although the required legislative framework is still in the making.

“Also, the possibility of Ukrzaliznytsia’s participation in the Iran–Azerbaijan–Russia–Finland transport corridor is being discussed, which means adding a side route to it. We have duly submitted the pertinent documents and are keeping track of the situation. Of course, the development of this ‘corridor’ was impeded by the strained situation in the Caucasus, but this situation appears to be stabilizing.

“The project will be fully implemented as dictated by economic necessity. In other words, the transport infrastructure will be in place and then deliveries will start. Then we will promptly advise our freight owners and buyers of this advantageous option.”

What is the status of the Moscow–Kyiv–Uzhhorod–Bratislava–Vienna transport project involving Ukraine?

“The Austrian railroad company has set up an enterprise with a small authorized capital (six million euros). It will involve Russia, Ukraine, and Slovakia. It will work out project documentation to attract investments, and will take care of the tenders. This project involves the construction of over 400 km of rail tracks with the 1,520mm gage, all the way from Ko ice to Vienna. The timeframe is one year.

“Ukrzaliznytsia must buy out its share in this enterprise this year by paying n1.5 million euros. Ukrzaliznytsia is a government-run business entity, which means that central budget appropriations are to be made. We are receiving basic instruments from Austria, translating them, and sending them to the Ministry of Transport of Ukraine, so we can get the authoizations to take part in this project. We expect to complete the procedures within one to one and a half months from now. At this stage the project costs are estimated at four billion euros, but the price may change after the technological and economic evaluations.

“There is no doubt that this project will be profitable. Logistics findings show that there is a considerable market demand for this Asia-Europe transport route. After all, the bulk of big-time freight turnover originates in Central Europe and China, and most traffic occurs between these two regions.

“I don’t expect problems with investors; we already have a waiting list. I cannot disclose any specific information at this stage. Suffice it to say that this list includes reputed European and US investment funds that are interested in generating stable and transparent revenue.”