Volodymyr Omelian: I Am Aware That This Is Not a Startup (Part 2)

In the second part of this interview, we ask Omelian what he expects from Ukrzaliznytsia’s head Wojciech Balczun, whether there will be highway concessions in Ukraine, and to whom he "made an offer" in the Ukrainian port Authority.
Olga Bystritska 17 May 2016 17:18

In the first part of the interview, we asked Omelian about the main objectives he is setting himself, what his predecessor left for him in the anecdotal "three envelopes," and whether a technocrat or a politician makes the better minister. In the second part, we focus on industry and personnel issues.

Many changes have recently taken place in the railway industry, but there is a lack of common vision. Can you clearly outline where the industry is moving?

I hope that Wojciech Balczun will be able to do what he did in Poland. Definitely, we have to complete the corporatization of Ukrzaliznytsia. This year, it is necessary to pass the law on rail transport and the law on the National Transport Regulation Commission. There should be increased responsibility for managers in the following areas: freight transportation, passenger transportation, etc. We need to begin serious work on modernization of locomotive traction and railway infrastructure. Without this, it will be all over for us in two years. At least, we need a clear five-year program, together with attraction of the world’s strategic manufacturers to Ukraine to establish joint production. There is desire on the part of Bombardier, Siemens, and General Electric to come here to launch joint production, but they are demanding to know the exact extent to which Ukrzaliznytsia is ready to place orders for products. In addition, private operators will be able to enter the market after adoption of the law on rail transport, thus providing some relief to Ukrzaliznytsia.

You said that the world’s leading manufacturers of locomotives were ready to launch joint ventures in Ukraine. In addition to guaranteed orders, under what conditions are they ready to do so? Who will provide the funds?

I hope that freight transport tariffs will be raised on 1 May. We have already passed all the stages of approval. As a result, Ukrzaliznytsia will be able to spend more than UAH 10 billion on capital investments, some of which will be spent on modernization. I will demand a clear action program from Balczun: how many locomotives need to be purchased this year and how many next year... In addition, we already have an approved loan of USD 90 million for purchase of railcars. There was a paradoxical situation during our visit to Iran: on the one hand, we are screaming that we want to deliver our products and, on the other hand, when they tell us that they are willing to buy 20,000-30,000 railcars we "quacked and sat down." This is because we do not have the capacities, people, and equipment to fulfill such a large order. When we talk to our producers, we tell them that, firstly, they must participate in Ukrzaliznytsia’s tenders directly and not through intermediaries that add 300-400%markups. Secondly, with our help and the help of the Ministry of Economy, they must enter foreign markets actively. There is no need to engage in gigantomania by thinking that only our country can produce airplanes, railcars, etc. The whole world is a big assembly plant. We can easily produce components and supply them to manufacturers.

I will demand a clear action program from Balczun: how many locomotives need to be purchased this year and how many next year...

You once said that the oligarchic lobby was obstructing the reform of the railway industry. Recently, a bill on rail transport was withdrawn from the parliament. Was this due to the lobby or the change of the Cabinet of Ministers?

No, the withdrawal of the bill had nothing to do with the lobby. This is the normal procedure – when the Cabinet of Ministers changes, all the bills initiated by it are returned automatically unless they have already passed the first reading. We will once again hold a public debate, modify it quickly, and return it to the parliament. In relation to Ukrzaliznytsia, the oligarchic lobby does not currently bother me. If Ukrzaliznytsia works like a Swiss watch, it will be much easier for them to operate and develop their businesses. It seems they are hearing me. I hope that the law will be adopted in the version that the country needs and not in the version that an individual group needs.

Can you say that consensus has now been reached with businesses?

Of course, we have not reached full consensus. Even in a family, there can be no complete consensus – my wife thinks I should be at home right now and not at work. However, I think that we will reach an understanding. At this stage, tariffs for freight transportation should be increased. We should look into the efficiency of Ukrzaliznytsia itself and subsequently formulate a tariff policy transparently based on a new independent tariff agency. We are taking this step deliberately – transferring control of tariffs from the ministry and Ukrzaliznytsia to an independent regulator. Businesses should support this and understand that all "I want" and "I do not want" will be discontinued. Tariffs will be raised if there is a legitimate need and tariffs will remain unchanged of there is no need.

Let us switch to the aviation industry. On Friday, you said that the Open Skies agreement with the EU could be signed in July. What will you do next if the signing fails to take place again? Some levers of pressure, perhaps?

What pressure? The method will be the same: I will take a tent – the parliament will be on recess precisely at that time – and go to Brussels. By the way, this is the normal practice in Brussels. The headquarters of the lobbying companies for the world's major producers are located there. I cannot aspire to have a headquarters there, so I will pitch a tent to exert pressure on Brussels to finally resolve the dispute between Spain and Britain over Gibraltar.

A program for development of airports has been adopted. When will the mechanism for its implementation be determined?

Honestly, the main issue for me is about personnel. I hope that the head of the air transport department, who will fully lead the process, will be appointed soon. There are objections to the program from various sides, so we will be holding a public discussion again. I think they will be held after the May holidays.

I will pitch a tent to exert pressure on Brussels to finally resolve the dispute between Spain and Britain over Gibraltar

When will a new competition for the post of director of the Boryspil airport be held?

This is a decision for the Ministry of Economy and the Cabinet of Ministers. The situation is frozen – there is a winner who has not been approved by the Cabinet of Ministers and there is an acting director. This has been going on for six months. We should hold a proper competition, choose the best candidate, and appoint him.

Like the railway industry, can you see a foreigner in the top management position?

I proceed from people’s qualifications. Balczun has only two advantages – he is a professional and he has no ties to Ukraine. If we find a Ukrainian manager who will be capable of saying “no” and firmly defend his position while receiving only a salary without making compromises with his conscience, I will clearly be the first to support him. However, I have met very few such people.

Regarding reform of the maritime industry, Viacheslav Voronyi said that subsidiaries of the Ukrainian Port Authority would be consolidated. Can you provide details?

The issue is not about consolidation of subsidiaries. The issue is that the Ukrainian Port Authority has become too much of a cumbersome bureaucratic machine that is becoming worse managed. This is the problem in front of me. I hope that it will be discussed publicly. We should not pretend that everything is fine and that we will perform miracles after we consolidate the number of its subsidiaries from 13 to six. There must be a radical approach; we must remove the sore spots, which involve dredging, fees, and the spending of money.

Market participants have repeatedly been dissatisfied with the distribution of the Ukrainian Port Authorities’ money...

Yes, I have openly told the management of the Ukrainian Port Authority that either we will implement this reform together or I will have to do it without them.

Are you suggesting that there could be personnel changes within the management of the Ukrainian Port Authority?

No, I am not suggesting that. I simply made a proposal. "You can either get married or not get married."

The Ukrainian Port Authority has become too much of a cumbersome bureaucratic machine that is becoming worse managed

What option did Andrii Amelin choose?

Three weeks ago, he promised me that he would submit a modified vision of reform in two weeks, but I have not yet received it...

The issue of seaport concessions was raised at the last meeting of the EBA, and the Ministry of Economy proposes concession of the Oktiabrsk seaport as a pilot. On your part, you have previously said that concession will be granted on major ports and small ports privatized. So, what is the vision?

There is no contradiction here. By my logic, state-owned stevedores should remain in state ownership, but concession may be granted on them for 49 years. Smaller ports that are not of such importance can be privatized. However, in order to understand how the concession mechanism, which should be adopted this year, works, we should apply this mechanism to some facility. I believe that it is too much of a risk to test the new law on the Yuzhny or Illichivsk port. There is a small port called Oktiabrsk, which is 100% state-owned. There is interest in it both abroad and within the country, so the concession mechanism can be tested there. We can move to the big ports if we see that this model is effective.

Regarding the road sector, it is necessary to adopt two laws, which are currently stuck in the parliament. What needs to be done besides this?

Definitely management. Real decentralization of the State Automobile Road Service (Ukravtodor) and transfer of the functions of contractor and regulator from it are also necessary. Transparent tenders for repair of roads and participation of market-oriented, professional, and honest companies in them. We are now seeing that repair of roads has become cheaper, but I am sure that this is not the limit – it can be made even cheaper and better. We are not yet looking at the cost of components. Proper monitoring of the implementation of repair and construction works and, of course, weight control are also necessary.

It is now widely believed that highway concession is not even in the foreseeable future. What is your opinion on this issue?

I am also inclined to think so. We do not have the volume of traffic that is required to recover investments. On the other hand, traffic volumes were also quite small before the emergence of fully-fledged motorways in Poland and Spain. People started to travel after motorways were built. Therefore, we can have the same effect in Ukraine.

Are we ready for concrete roads?

I am ready, but Ukravtodor is not. There is the issue of funding – we cannot get through without a road fund. However, it is clear that concrete roads are essential for eastern and southern Ukraine. Only they are capable of withstanding constant heavy loads. With proper maintenance, they will last 20-30 years, at least. Therefore, it is definitely the right approach.