What Siemens Thinks About Investment In Ukraine - Interview

Dmitry Chornenky, the head of the Integrated Transport Systems Department at Siemens Ukraine, discusses private locomotive traction in Ukraine and the conditions under which his company will be interested in cooperation with Ukrainian companies.
Olga Bystritska 15 October 2015 15:52

Reform of the State Railway Administration (Ukrzaliznytsia) will create conditions for private investment in upgrade of Ukrainian railway rolling stock. Given the catastrophic deterioration of locomotives, it is a big, promising market, and a number of Western locomotive manufacturers are already actively exploring ways of make money on the market. As of today, it seems that Siemens has made far more progress than others have. Ukrzaliznytsia’s acting head Oleksandr Zavhorodnyi recently said that the Germans would deliver a Vectron locomotive to Ukrzaliznytsia for testing. However, according to the CFTS portal, Alstom and Bombardier are also showing interest in Ukraine.

We asked Dmitry Chornenky, the head of the Integrated Transport Systems Department at Siemens Ukraine, why his company is afraid to create in Ukraine a full-fledged joint venture similar to the enterprise it created in Russia, how many locomotives Siemens expects to sell, his ideas on upgrading municipal transport, as well as about other projects that the Germans are implementing in our country.

Reform of Ukrzaliznytsia is already in the finishing straight. Do you think Ukraine chose the right path to railway reform?

Reform is needed and it is good that it is taking place. It will be possible to say whether it is the right path or not when, at least, the intermediate results become available. However, everything is going well - at least in words - because the main thing is to separate the key business processes.

How do you feel about granting access to private locomotive traction? Have any private entities contacted you?

The fact that private traction is being discussed is specifically one of the indicators of the fact that the reform is going in the right direction. We have not communicated with any private entity, and none has so far declared its intention to engage in private traction on the Ukrainian railway network. However, there is no problem here. We will immediately start talking as soon as they appear.

During every discussion of the issue of granting access to private traction, many expressed concern that private entities will take over the most profitable routes and leave Ukrzaliznytsia with the unprofitable routes…

They will pay for the use of infrastructure. In that case, Ukrzaliznytsia will earn net money with no problems related to the servicing of locomotives. On the contrary, its operation will become more profitable. Private companies will pull heavy trains, ensure good utilization of the network’s capacity, pay sufficiently large amounts of money for this, and, at the same time, take care of all the problems involving rolling stock.

What volume of orders can you expect if private traction is allowed in Ukraine?

It all depends on how intensively they are used. Private operators will use locomotives at the maximum intensity. If a locomotive covers 500 kilometers per day now, then a private operator can reach 600-800 kilometers per day. Therefore, it is difficult to give an exact figure. I assume that it will be possible to expect 500 locomotives.

Ukrzaliznytsia has told us that its technical board will soon meet to determine the parameters of the locomotives that will be used in Ukraine’s railway network. Do such boards also exist in Europe?

In Europe, they talk about access of locomotives to railway networks, and there are actually parameters that are determined by the network operator – the track width, the traction parameters, and the axle load. The locomotive manufacturer itself develops everything else based on requests from customers. However, there is no technical board anywhere in Europe. They exist only on the territory of the former Soviet Union.

Is the Siemens company interested in organizing joint production based on one of our facilities?

Our company is interested in cooperation with Ukrainian companies but not in the form of joint production because this involves investment of capital in any form. For us that is currently unacceptable in Ukraine.

We have a wonderful experience of working with the Dnepropetrovsk Electric Locomotive Plant, and we are ready to work on such terms. That is, to participate in design, supply components, and participate in commissioning/startup and future maintenance.

Why is it that you established a joint venture in Russia but you are not interested in doing it in Ukraine?

Firstly, the volumes of the markets differ very significantly. Secondly, clearly established rules of the game exist there, but they do not exist in Ukraine.

What do you mean by "clearly established rules?"

If an order is made, the order will be fulfilled. If technology is brought in under certain conditions, those conditions do not change.

What is the minimum production volume required for establishment of joint production?

I repeat: a joint venture depends primarily not on the volume of orders but on the rules of the game on the market. The volume of orders does not matter if the rules do not change... The risk will rise to unacceptable levels. Nobody wants to lose money, regardless of the volume.

Do you have projects that have been implemented successfully in Ukraine?

If we consider the fact that we created the DSZ electric locomotive (produced at the Dnepropetrovsk Electric Locomotive Plant) and it is still in operation, then that is success. However, if we consider the fact that only 18 out of the 100 locomotives have been bought, then that is completely unsuccessful. There will be only one answer to the question about joint ventures as long as the situation involving the DSZ remains and it will probably not change.

How much money did the company lose on this contract?

We remain in the red on this project. We still have five or six sets of components for locomotives in various states of readiness in our warehouses.

The new advisor to Infrastructure Minister Andrii Pyvovarskyi previously worked with Siemens. Are you familiar with him? What can you say about his appointment?

Yes, he worked for Siemens and headed its division for "turnkey" projects, but he no longer has anything to do with the company. I can only say that it is a good thing that Western experts are coming into the transport sector. This is a big plus for the ministry.

Have you proposed any new solutions for railways in Ukraine?

Yes, Siemens created the world's first fully automated system for classification yards (marshalling yards). We have already implemented such projects successfully in the Baltic States and Russia.

There are 33 classification yards in Ukraine. We have offered our system to Ukrzaliznytsia. It is an interesting project for them because it will help improve the operating efficiency and turnaround of railcars. Trains will be collected a few days faster. The result will be visible immediately.

Such classification yards offer a chance to influence businesses and improve transportation. Furthermore, it is a good project that may well attract investors.

Ukrzaliznytsia has long been saying that all the systems in the classification yards are old and that they need to be modernized, but they were previously unsure that something could come out of it. We have shown them technologies that really work.

Have you proposed any projects for development of urban infrastructure? If yes, what are these projects and to which cities have you proposed them?

Smart City Kiev is an interesting project that was organized with the support of the city administration. Under this project, we have proposed our vision of development of Kiev’s urban infrastructure. The first part involves implementation of an urban lighting project that can also serve as the basis for urban video surveillance, open parking, and so on. The second part consists of a system for urban automobile traffic management. The third is urban passenger transport, which should be based on the Kiev subway and the Kiev municipal electric train.

Have you proposed any projects to other Ukrainian cities?

I have spoken with members of Saakashvili's team in charge of investments in the Odessa region. They are currently creating a pool of projects. They will later determine which of these projects can and should be implemented.

We have agreed that to cooperate. We have offered our consulting services and said we that we will help them to find consultants other than Siemens. In addition, they plan to build several road segments, and they are seeking funds for these projects. We do not engage in construction of roads, but various control systems, toll collection systems, etc. are connected with roads. We have offered all these to them.