After a short stint in the Kyiv city administration, Oleksandr Kava was invited to take over the reform of rail transport in the team of new Minister of Infrastructure Andrii Pyvovarskyi. In the government, he will oversee the railway industry. The new deputy minister discusses how Ukrzaliznytsia will upgrade its rolling stock at a time of acute shortage of funds, what the State Railway Agency will do, and the routes on which high-speed trains may appear in an interview with the CFTS.
What priority tasks has the government set for you regarding reform of rail transport?
We need to improve the efficiency of rail transport. Despite the fact that Ukrzaliznytsia is one of the 10 largest railways in the world by almost all indicators, we still have to address many challenges: to improve the financial condition of the carrier, make its operations more transparent, and introduce a customer-oriented approach.
At this stage, our first priority task is creation of a joint-stock rail transport company in the form of PJSC Ukrainian Railways, in which the state will own a 100% stake. The process of valuation of assets is currently underway, and it is being performed by the Deloitte company. When this is completed, we will proceed to registration of the joint-stock company. This will allow us to separate the functions of governance state management and economic management.
Now, we clearly understand that the state administration has already fulfilled its role, and it now needs to be reformed in the same way as it was done in other European countries. That is, the economic functions of the entity are being transferred to the joint-stock company and its regulatory functions are being transferred to government agencies. These are the Ministry of Infrastructure, partly the transport safety inspectorate, and, possibly, we will have to create another entity - a state railway agency. However, we are still analyzing the feasibility of such a step.
What will this agency do?
It will maintain a register of rolling stock, which a business entity cannot do. In addition, it will be in charge of the register of carriers, operators of rolling stock, and infrastructure. The agency also will place state orders for transportation and monitor train timetables.
When can the joint-stock company based on Ukrzaliznytsia be registered, considering the fact that there are opponents of reform, as well as the recent parliamentary decision to postpone the corporatization of railways?
We are working not on corporatization of the railways but on creation of a joint-stock company based on six regional railways and enterprises businesses that are separate legal entities but are involved directly in the organization of the production process. I also want to note that 100% of the shares remain owned by the state, without the right of alienation. In addition, the entire infrastructure remains in the hands of the state and will not be contributed to the authorized capital of the joint-stock company.
In the European model of organization of the railways market, there is no precedent for circulation of shares in such large integrated companies as Ukrzaliznytsia freely on the market
Preliminarily, we expect the company to be registered in the spring of this year. At the same time, we understand that this is a complex and multi-component process. Therefore, we are not pursuing for dates but quality.
Does that mean that Ukrzaliznytsia will not raise capital by allowing part of its shares to circulate freely on the stock exchange?
We are thoroughly studying foreign experience, and we want to introduce only the best practices and not repeat the mistakes and failures of other countries or conduct experiments that could stop the operation of the system. The role of the railways in our economy is much more than the roles of the railways in France or Germany. Ukrzaliznytsia accounts for about 60% of the cargo turnover in Ukraine if pipelines are taken into account and 83% if pipelines are excluded. Compared with Europe, the average is 10%, with the highest of 18% in Germany.
Therefore, the role of the railway in our economy is extremely important. Moreover, in the European model for organization of the railway market, there is no precedent for circulation of shares in such large integrated companies as Ukrzaliznytsia freely on the market. I want to note that Germany’s Deutsche Bahn and France’s are both state owned.
At one time, Estonia attempted to privatize its railways by selling 66% of the shares in it for EEK 1 billion. However, optimistic expectations were not fulfilled because the government eventually had to buy back the assets from the investor, but these shares cost taxpayers more than EEK 2.3 billion. Moreover, the state of the infrastructure deteriorated significantly because dozens of locomotives with axle loads of 30 tons operated on routes while the standard maximum axle load is 22.5 tons. This led to a rapid deterioration of track superstructure and many engineering structures. We cannot take such risks.
At the same time, we will work on creation of an enabling environment for the operations of private operators and carriers in our network while ensuring non-discriminatory access.
The military-political events in Ukraine have changed the map of the country and slightly shifted the focus of development of infrastructure. In what areas will you focus your main efforts?
The Dolinskaya-Nikolayev-Kolosovka route remains the priority electrification project, albeit in a modified form. This move will allow significant broadening of the ability to supply goods to ports in Greater Odessa, as well as facilitate an electrified exit to the port of Nikolayev. The Dolinskaya-Nikolayev section will be done with the laying of additional tracks. Previously, work was performed there involving the laying of a second track on many lines. In the process of electrification, all train stations will be reequipped to allow the opportunity to lay a second track throughout the length of the line from Dolinskaya to Nikolayev in the future.
We are also interested in electrification of the line from Kovel to Izov and, possibly, to the Polish city of Hrubieszów. The Kovel-Izov line is the Ukrainian access to the Polish line LHS (Linia Hutnicza Szerokotorowa) - the deepest penetration of the broad gauge of 1520 mm into Europe - about 400 kilometers, reaching the city of Katowice in Silesia. The LHS, the length of which constitutes less than 2% of the network of Polish railways, accounts for more than 9% of their cargo turnover. A switch to electric traction will enable us to increase the speed of freight trains on the Ukrainian section of this corridor. They currently lose 3-4 hours each at the Kovel station because of the change from electric locomotive to diesel locomotive and restructuring of trains to reduce their weights. After implementation of the project, it will be possible to send trains to the Izov border train station without stops. If the Polish side wants to electrify its tracks to Hrubieszów, we will be able to pull our trains to this station with Ukrainian electric locomotives.
To the Poles, it will also be an interesting project because their railways now operate on direct current with a voltage of 3000 volts. On this segment, locomotives will operate on alternating current with a voltage of 25,000 volts, which will provide a new experience to our neighbors.
In addition, we will intensify the electrification of two routes to Belarus and Baltic ports with the aim of eventually creating a corridor on electric traction from Odessa to Klaipeda. With the Belarusians, we will coordinate the work on the Slovechno-Korosten-Zhitomir-Berdichev and Chernigov- Gornostaevka-Gomel sections. In addition, our counterparts intend to launch the electrified Zhlobin-Gomel route in the first quarter of 2015. A project for electrification of the Molodechno-Novaya Vilnya section is being implemented simultaneously with the Lithuanian railways. Electric trains will be able to operate on the Minsk-Vilnius route in 2016. After that, the travel time of a Minsk-Vilnius high-speed train will not exceed two hours. Therefore, our citizens will also have a good opportunity to travel to the Baltic States by rail with transfers in Minsk.
How should the problem of cross-subsidization on railways be solved?
We plan to take the typical European approach - introduction of direct subsidies for the transportation of passengers by rail. On the other hand, we understand that the process will not be quick, but we have found understanding in the Ministry of Economy and the Ministry of Finance. Everyone is aware that the current system has diverted resources from the railway industry for many years. Ukrzaliznytsia has always subsidized the economy and the social sector, but it has now exhausted its ability to do that.
Railways in Europe receive public funding while railways in Ukraine transfer large sums - an average of about USD 2 billion - into the budget annually. Now, it is necessary to invest in rolling stock and track facilities. Therefore, we will have to find ways to compensate Ukrzaliznytsia for its losses from passenger transportation.
Following the start of the reform process, many international financial institutions are looking at projects in the railways sector with great interest
Ukrzaliznytsia is experiencing an acute shortage of funds for upgrading its rolling stock. The level of depreciation of the locomotive fleet is very high. The Ukrzaliznytsia’s First Deputy General Director Maksym Blank recently proposed allowing private companies to have its own haulage equipment. How do you feel about this initiative?
Here, it is necessary to look for a solution that is optimal for the market and Ukrzaliznytsia. As we have seen in neighboring countries, private capital often "skims the cream," leaving low-profit transportation for the public sector. This only leads to an increase in the financial burden on the state. Therefore, I think that it is necessary here to find a balance of interests that will allow us to meet the country's need for transportation of goods and passengers. We are not opposed to the idea of Ukrzaliznytsia leasing locomotives: it is a common practice in many countries.
How else can financial resources for upgrading the fleet be raised?
Following the start of the reform process, many international financial institutions are looking at projects in the railways sector with great interest. Therefore, I am not excluding the possibility that will have the opportunity to upgrade both traction and rolling stock in cooperation with them.
Shippers and private operators complain about the operation of the Ukrainian transport logistic centre's (UTLC) shipment planning system. How should this problem be solved?
Such a problem exists, and it needs to be solved. The railways should ensure client-oriented cooperation with partners. It has competitors in many segments of cargo transportation: automobiles, river fleet, and grain terminals on River Dnipro. This compels Ukrzaliznytsia to gradually withdraw from the position of a monopoly and start operating in a competitive environment. To improve the UTLC, we will consider the possibility of public dissemination of information about the availability of railcars so that any client can see what rolling stock is located near its facilities. This will allow optimization of the use of the fleet and allow shippers to better plan transportation.
In a recent interview, the Yugozapadnaya railway’s head Oleksii Kryvopyshyn said that Ukrzaliznytsia was losing about UAH 850 million in revenue annually after ceding forwarding operations to third parties. Do you share his view?
The railways should focus on its direct customer and minimize the usual work with intermediaries. It is clear that small companies can sometimes be more flexible than the huge Ukrzaliznytsia. They offer additional services, i.e. not only transportation of goods in railcars, but also, for example, transportation in automobiles. Ukrzaliznytsia practically does not operate in this direction, although, in my opinion, it should be more active and go for the end customers. The cargo business should be transformed into a logistic company with modern solutions.
Maksym Blank proposed letting freight rates go into "free float," with only an upper limit set for them. What is your position on this issue?
This is an interesting proposal because the tariff policy in the cargo segment, especially the railcar component, should be able to offer flexibility. Now, there is significant supply of freight wagons on the market not only from Ukrzaliznytsia, but also from numerous private operators. Ukrzaliznytsia should have the opportunity to compete. However, at the same time, it is necessary to create an extremely transparent mechanism that will not lead to corruption. Very often, discounts may be granted to one client or another without objectivity. The granting of discounts should be regulated clearly - for example, for large transport volumes facilitated by a sender. I repeat: in the past Ukrzaliznytsia was able to subsidize certain sectors of the economy and other modes of transport, but it does not have such abilities now. It has reached the limit of its ability.
We are currently considering the possibility of launching Intercity express trains between Kiev and Nikolayev, using locomotive-hauled railcars
How will the passenger rail sector be reformed?
There is a positive change here. However, we will be forced to take a number of unpopular steps, particularly to review the network of passenger trains in view of the fact that the financial situation of the railways is not very favorable. It is necessary to take measures to reduce costs. Traffic to those destinations where Ukrzaliznytsia incurs big losses will be stopped, but can offer passengers an alternative in the form of other trains or other modes of transport. It is premature to talk about specific trains because we will perform a comprehensive analysis. It will show whether our citizens have alternatives for getting from one point to another. Naturally, trains will not be canceled if there are no alternatives.
In addition, we are looking at attractive segments that can increase revenue from passenger transportation. These are primarily the Intercity+ and InterCity train networks, which we will launch to new destinations. For example, we are currently considering the possibility of launching Intercity express trains between Kiev and Nikolayev, using locomotive-hauled railcars. It will be hauled to the Dolinskaya station by electric locomotives and further by diesel locomotives. Here, it will also be necessary to resolve one organizational issue, since there are only four diesel locomotives capable of providing passenger trains with electricity in Ukraine. It is the TEP150, which is assigned to the Kremenchug depot on the Yuzhnaya railway, while the Dolinskaya-Nikolayev shoulder already falls within the competence of the Odessa railway. The preliminary travel time of this express train will be about five and a half hours.
Simultaneously, we are studying creation of a system for transportation of passengers to junction stations for subsequent transfer to other trains (something similar to a hub airport in the aviation industry). For example, we are considering the possibility of taking such an approach to Kiev-Lvov Intercity+ trains, handling part of the passenger traffic from Ivano-Frankivsk. Extension of the route to the Yaremche or Vorokhta station in the winter and during long holidays is not ruled out. We will possibly do something similar on the Kiev-Ternopol route, transporting passengers to the Khmelnitsky station from another tourist Mecca - Kamenetz-Podolsk.
Another thing we would like to do is create four trains with a European capacity - from 350 to 400 passengers - from the railcars of the two EKr1 Tarpan electric trains with a capacity of more than 600 passengers. This issue is currently being discussed with Ukrzaliznytsia and representatives of the Kryukov Railcar Building Works. We are faced with the fact it is very difficult to fill a daytime train with 600 seats; there are few such routes.
In the daytime segment, the frequency of trains and the departure and arrival times are more important than the number of seats. The routes on which the railway can have an advantage in the Intercity and Intercity+ segments are quite many. For example, there is the Kiev-Vinnitsa route. Here, the railroad compares favorably with other modes of transport in terms of travel time. A train covers this distance in a minimum of 2 hours and 12 minutes while an automobile require at least three and a half hours. Moreover, since there are many trains going in this direction, passengers buy tickets for the express trains Kiev-Odessa, Kiev-Chernovtsy, or Kiev-Lvov, but only travel as far as Vinnitsa. Consequently, trains travel with many empty seats. If we launch regular, high-speed trains at relatively small intervals, this will allow us to not only offer a comfortable ride to Vinnitsa, but also allow Ukrzaliznytsia to offer more seats to Odessa, Ivano-Frankovsk, Khmelnitsky, Ternopol, and Lvov.
If Polish carriers are willing to operate on the Warsaw-Kovel or Lublin-Kovel lines, we, for our part, will do everything to give them that opportunity
Another promising route is Lvov-Rovno. Currently, without investment in infrastructure, an electric train can cover the distance between these two cities in 1 hour 57 minutes, with stops in Dubno, Zdolbunov, Brody, and Krasne. The line Zdolbunov-Lvov line coincides with the corridor of the Intercity+ express trains. A bus covers this distance in 4 hours. It will take at least three hours to cover the distance by car if road traffic rules are observed. That is, the railway has a competitive advantage. Regional express trains based on the ER9M electric train currently operate on the Lvov-Rovno route with a maximum speed of 120 km/h and a travel time of 2 hours and 38 minutes. If modern rolling stock that can accelerate to 160 km/h is operated on this route, the travel time will be reduced by one third to 1 hour 57 minutes. Furthermore, it will be possible to operate two trains at intervals of three hours.
The head of the Yugozapadnaya railway has also criticized the leadership of Ukrzaliznytsia for canceling international trains because, in his opinion, they are profitable. In your opinion, to what extent are such routes needed?
It is necessary and appropriate, and I have already instructed Ukrzaliznytsia to develop international routes, which could appear in the near future. However, it is necessary to look for comprehensive solutions here: for this, we need rolling stock of the appropriate quality and a more flexible tariff policy. Today, prices are being set at an economically justified level, which is often so high that the railway ceases to be competitive compared with road and air transport.
We have opportunities for new routes to Poland, Hungary, and Belarus. For example, we can theoretically launch a train from Gomel to Kiev, which will have a travel time of about four hours. Today, three trains travel between these cities with a travel time of about seven hours, but none of them makes it possible to take an effective one-day trip from the second largest city in Belarus to Kiev.
In addition, we planned to hold talks with the Polish side on the issue of launching trains to Kovel on railway tracks of the European gauge (1435 mm). This is the European gauge with the deepest penetration in Ukraine, but its infrastructure has not been used for many years been. If Polish carriers are willing to operate on the Warsaw-Kovel or Lublin-Kovel lines, we, for our part, will do everything to give them that opportunity. If the project works and there is demand for it, we will be able to organize transportation of passenger to Kovel and create a convenient timetable for such transportation.
We also plan to discuss the prospects of launching fast Lvov-Warsaw trains with representatives of the European Commission and Poland. However, suitable technological solutions are needed here. This applies to the use of trains with interchangeable gauges, for example, based on Spanish technology, or, if the European Union is willing to finance such a project, we could consider modernizing a segment from the border to Lvov to allow combination of the 1520 and 1435 mm gauges. Such an option would allow passage without change of bogies.
