The New Law For Ukrainian Railways: Five Key Aspects

The draft law on railways that was published for debate includes several revolutionary aspects. For example, it provides for creation of private locomotive traction and equal access to infrastructure. This is because of the need for the law to meet the standards of the European Union.
Olga Bystritska 15 June 2015 12:23

The draft law on railways was published on the website of the Ministry of Infrastructure at the end of last week. The document was discussed with market players and representatives of the European Union’s member countries that already have successful experiences of railway reform.

The draft law was prepared in accordance with the European directives that Ukraine undertook to implement, and it provides for a number of fundamental changes on the market. Of course, the most important aspect involves granting private carriers access to the railway. Ukraine’s Minister of Infrastructure Andrii Pyvovarskyi expects to be harshly criticized for this.

Tariffs According to the draft law, tariffs will have infrastructural, investment, locomotive, and railcar components.

On the issue of tariffs, it is necessary to remember the experience of Europe, where transporters pay only for access to infrastructure. These funds are used to finance the infrastructure owner’s recurrent expenditures. Investments are covered by the state.

"In Europe, the government is indeed investing in development of infrastructure. Unfortunately, this is not possible in this country," said Yevhen Kravtsov, the head of the department of reform and development of rail transport at the State Railway Administration (Ukrzaliznytsia). In addition, carriers said during the debate of the draft law that they would not mind paying the investment component if the proceeds from it would be spent on development of railway infrastructure (creation of a new gauge, electrification of tracks, etc.).

Creation of NTRC The National Transport Regulation Commission (NTRC) will regulate Tariffs. Attempts to create the NTRC were made in the period of 2012-2013 but without success. The issue of creation of the NTRC was included in the current government’s coalition agreement in November last year.

The draft law prepared by the ministry also provides for creation of an independent agency, the main functions of which will be regulation of railway tariffs and approval of investment plans. The NTRC is expected to be under the control of the Cabinet of Ministers. "We had the task of separating tariff formation from the railway," said Pyvovarskyi.

Access of private carriers and investments Probably the most revolutionary aspect of the draft law is the fact that it provides for granting market access to private carriers. "I expect to receive a lot of criticism over the granting of access to private locomotive traction," Pyvovarskyi said while commenting on the draft law. For their part, railway workers fear that private carriers will operate only on profitable routes after the market is opened to them, thus depriving Ukrzaliznytsia of its main source of revenue.

The draft law also provides for creation of an independent agency, the main functions of which will be regulation of railway tariffs and approval of investment plans

On the other hand, there are no funds for investment in the State Railway Administration (Ukrzaliznytsia) and locomotive traction is – to put it mildly – in a deplorable state. If we return to the experience of Poland, specifically private companies provided investments. For example, the British company Freightliner invested GBP 30 million in locomotives and wagons when it entered the Polish market.

Equal access The draft law stipulates that Ukrzaliznytsia will be the operator of the railway infrastructure and operate as carrier after its transformation into a joint-stock company. A situation could arise in which the former monopolist will enjoy privileged access to the infrastructure. Some European countries also encountered this problem at certain times.

However, representatives of the Ministry of Infrastructure have stressed that equal access would be granted to all market players and that Ukrzaliznytsia as carrier would be spun off into a separate entity. Equal access will be regulated by the independent State Rail Transport Agency. In addition, one of the functions of this agency will be to coordinate the operations of the Ukrzaliznytsia joint-stock company, as well as to register and coordinate the operations of carriers and operators.

European Directives The draft law was prepared in accordance with directives of the European Union. The most important among them are creation of a competitive market for carriers in the freight and passenger segments, state control over equal access to infrastructure, and financial independence of the infrastructure operator from the carrier.

"We implemented European directives in this law. It is our obligation. Attempts are currently being made to challenge some of these directives in several European countries because they may not be quite beneficial to railway workers, but we assumed these obligations when we signed the association agreement with the European Union," said Pyvovarskyi.

However, according to the minister, allowance will be made for a transition period because it will not be possible to implement the necessary provisions immediately.

Read also: “Interview with Freightliner PL: the Litmus Test will be the Development of the Existing Operators in Ukraine”