Senior Ukrainian railway officials and Polish railway-industry reformers gathered in the same room at the Polish embassy in Kiev on 19 February to discuss the issue of free access to the appropriate infrastructure. Ukraine’s western neighbor fully liberalized its railway industry a long time ago in accordance with the requirements of the European Union, and it can demonstrably prove that the idea of competition in this sector fully justifies itself. Locomotives owned by foreign companies operate on the Polish market. At the same time, PKP Cargo (Poland), which is the second largest rail carrier in the European Union in terms of freight turnover, has gained access to the port of Rotterdam and secured a license to operate in several European countries. The Polish railway market is already considered one of the most open in Europe.
Recently, the Ukrainian Ministry of Infrastructure said that Ukraine would be guided by the experience of Poland during implementation of reforms in the transport sector. However, one could not but notice a certain dissonance when watching the forum at the embassy. While their Polish guests were overflowing with enthusiasm and expressed great faith in reforms in Ukraine and revolutionary liberalization based on the template of the European Union, representatives of Ukraine reacted without much interest. When the time came to begin making presentations, it became clear that many of the things being proposed by the Poles are not yet acceptable to Ukraine’s State Railway Administration (Ukrzaliznytsia). After all, why would the monopolist bite the hand that feeds it in the name of market liberalization? Ukraine, judging by everything, is proposing a gradual evolutionary path while preserving all the existing positions of Ukrzaliznytsia.
Oleksandr Kava, Ukraine’s Deputy Minister of Infrastructure
The issue of granting access to private locomotives is an issue for public debate. According to the program for reform of Ukrzaliznytsia (the State Railway Administration), this can be discussed in approximately five years.
Ukrainian railways differ from European railways not only in terms of gauge width. Rail transport accounts for about 60 percent of the transport volume in Ukraine. In Europe, the average figure is only 10 percent. For example, the share of rail transport is about 18 percent in Germany. The traffic density in Ukraine is four times higher than in Germany. In addition, German railways annually receive EUR 5 billion from the state while the opposite is true in Ukraine: Ukrzaliznytsia transfers about USD 2 billion into the state budget every year.
Maksym Blank, acting General Director of Ukrzaliznytsia
To properly model the conditions for granting private rolling stock access to railway infrastructure, the main aim of Ukrzaliznytsia should first be determined, a model of its interaction with the state should be built, and an integral, effective economic model for Ukrzaliznytsia should be created. The contractual relationship between Ukrzaliznytsia and the state would be clearer than implementation of laws that are not implemented.
Ukrzaliznytsia’s economic model is currently unprofitable and incomplete. The state sees Ukrzaliznytsia as a source of revenue to supplement its budget and solve a number of social problems, but this is contrary to the economic essence. This model does not work for Ukrzaliznytsia. A transport monopoly is better at solving the mathematical transport problem of transport optimization only on paper and in theory, but we forget that we lose the customer-oriented approach without competition.
I am confident that Ukrzaliznytsia will operate as a monopoly under a joint-stock company, for which specific tasks will be set, in the next few years. We will approach a dialogue on individual, narrow issues such as access to infrastructure only after that.
Rostyslav Diomin, director of technical policy at Ukrzaliznytsia
The existing fleet of rolling stock requires immediate renovation because of its high degree of deterioration, but the current financial state of the industry does not permit investment in acquisition of rolling stock in the next few years. In Ukraine, there is no ban on participation of private locomotives in rail transport. Moreover, there are cases of use of private diesel locomotives in western Ukraine. Even now, a shipper can make considerable savings by using its own locomotive because Ukrzaliznytsia makes provisions for discounts. Therefore, access of private carriers to Ukrainian railway infrastructure is promising.
Kostiantyn Skorik, board chairman of Freightliner PL (a Polish private carrier)
We have experience of operation on various markets, but these markets have one thing in common – private rolling stock has access everywhere. If the share of rail transportation in Ukraine is about 70 percent then it will be difficult to support this sector without investment in modernization and attraction of private funds. To stimulate private carriers in Ukraine, it is necessary to offer everyone equal access to the infrastructure. In Poland, the rates are transparent and known to everyone. There are no transport tariffs as such: there is a fee for access to the infrastructure, which is 20 percent of the total cost of transportation. Our company recently invested EUR 18 million in purchase of electric locomotives. They will be produced in Poland, the deal was financed by a Polish bank, and the money will consequently remain in the country. In this case, it is important that it is not the government but the carrier that decides which traction to use. This is an example of how money goes into the railways without government participation.