"Banks need to be paid about UAH 10 billion in loan principal plus debt servicing this year. Meanwhile, the budget allocates only UAH 15.2 billion for roads. However, the requirement for road construction in one year alone is UAH 32 billion. Simple arithmetic shows that the money available amounts to UAH 1 per meter of road. This is ridiculous," Minister of Infrastructure Maksym Burbak said on March 24.
The state of the Ukrainian road network is now one of the long-standing problems of the country because few have tackled this problem since Ukraine attained independence. As a result, road surfaces are wearing out quickly because of lack of proper maintenance. If the volume of road maintenance work was about 30,000 kilometers per year at the end of the 1980s, that figure now rarely reaches 2,000 kilometers per year. The situation is further complicated by the fact that the roads that were built during the Soviet era were designed for completely different levels of traffic and axle loads.
As a result, Ukraine has about 170,000 kilometers of roads that require very quick and decisive action by the authorities. Otherwise, experts believe that Ukraine could lose its road network. However, the problem is that such a huge sector requires investment of UAH 40-50 billion per year, and that kind of money currently does not exist in the state budget today and it is not expected to be available in the near future. For example, the authorities plan to spend a little more than UAH 15 billion on the road system this year, out of which UAH 10.5 billion plus the exchange-rate difference (which is about UAH 650 million) will be used to repay debts. It is true that the state budget is expected to be revised soon, but the money it allocates for maintenance and development of roads is unlikely to increase because of the current crisis...
Debt Restructuring What should Ukravtodor do in this this situation? According to Ukravtodor’s new head Oleksandr Malin, Ukravtodor may partially restructure its loans to enable it to spend more money on roads. "All our country’s obligations on international loans and contracts with international financial organizations and banks will be fulfilled promptly no matter how hard it may be for us to fulfill them. At the same time, a number of borrowings in the domestic financial market in the form of direct loans and funds raised through placement of securities with interest, which is absolutely unprofitable and further servicing of which makes no sense, will be restructured through redemption of these securities and floatation of new securities at lower interest rates. I can tell you that the maximum interest rate on the bonds is 16.3%. It is very expensive for the category of funds that are borrowed under government guarantee. Therefore, partial restructuring – if one can say that – will certainly take place,” Malin said.
The maximum interest rate on the bonds is 16.3%. This is very expensive for this category of funds
However, it is unclear whether Ukravtodor will return the unused UAH 6.7 billion remaining from the floatation of bonds worth UAH 9.25 billion in connection with this. Malin’s predecessor Yevhen Prusenko planned to use these funds to finance roads. Moreover, Ukravtodor still has to pay contractors nearly UAH 3.6 billion for the work they performed.
Excise duty on fuel However, restructuring domestic debts is clearly not enough to cover road financing needs. Therefore, the new management of Ukravtodor is hoping that generation of funds from one of the main sources – the excise duty on fuel, which was often lost because of shady schemes for supply of fuel – will resume soon. "The shortfall in revenues into the Road Fund from excise and import duties on various types of petroleum products has ranged from UAH 4 billion to UAH 7 billion over the past two years, according to various expert estimates. This is a fairly significant amount of money that could have been translated into concrete repair and construction work on our roads. This scheme has now been eliminated, and I very much hope that it will never be revived. Accordingly, since the market for consumption of petroleum products in the country has not narrowed and nature abhors a vacuum, international oil companies will gradually occupy this niche. The volume of petroleum products entering the country legally will increase. We will have – and we have such projections – a substantial increase in the volume of the Road Fund, which will be used immediately to finance road maintenance and, if money is left, to finance overhauls,” Malin said.
However, none of the previous Cabinet of Ministers of Ukraine was able to solve the problem of smuggling of petroleum products. When he headed the Ministry of Infrastructure, Borys Kolesnikov complained that proceeds from excise duty were being stolen. The current government, which needs to respond to foreign-policy challenges urgently while simultaneously handling urgent infrastructural needs, such as roads, appears to be focusing on a presidential election campaign. Although, what Ukraine will manage to preserve by the time the election takes place is an important question.
Returning to the subject of excise duty, it is necessary to say that the authorities are unlikely to get rid of the black market for fuel and that there is a high degree of probability that other companies friendly to the authorities will fill the vacuum. Therefore, any serious financial support from fuel taxes can hardly be expected.
Western aid The management of Ukravtodor is also hoping for financial aid from Western countries, which may come in the near future. "The funds that we will receive from the European Central Bank, the United States government, and the International Monetary Fund, God willing, will be directed centrally toward reviving the economy and, accordingly, they will have an indirect effect on the ability of Ukravtodor to administer certain financial resources," said Malin.
Even here, there are certain nuances. The fact is that all funds, regardless of their designation, go into the accounts of the State Treasury. Therefore, as has often happened before, money that is intended for financing road works can suddenly be diverted to solving some other urgent tasks. The previous management of Ukravtodor initiated the opening of separate accounts for the Road Fund with state banks, thereby reducing the risk of misuse of these resources. However, it is not yet clear whether the current government will support this initiative. Moreover, aid from the West will be a one-off.
Weight control Another way of preserving the road network will be to transfer control of vehicle weighing equipment to the State Road Safety Inspectorate (Ukrtransinspektsia), which, for its part, will use them to regulate trucks. "Large trucks are often overloaded, which adversely affects the conditions of roads. Transfer of operation of weighing equipment to Ukrtransinspektsia will allow state regulation of road transport to be more mobile and effective," said Ukrtransinspektsia’s head Valerii Chernenko. However, everything will depend on how effectively this idea is implemented. After all, the human factor and corruption can nullify all the benefits of the idea, leaving trucks to continue damaging long-suffering roads.
Considering all the above, it remains to summarize that rehabilitation of roads will be a very challenging task. The problem of acute shortage of funds for financing this work is unlikely to be solved in the near future. Therefore, quick improvement of Ukrainian roads should not be expected.