Konstantin Skorik, the head of the Polish division of Freightliner PL, a major British rail operator with an annual income of GBP 360 million, was born in Kiev. He worked at the World Bank for six years after graduating from the Kiev Polytechnic Institute. The turning point in his life was when he decided to continue his studies at the London Business School. In Britain, as a result of a turn of events, he found himself in the Freightliner company, which was the leading intermodal container carrier in Britain at that time and was developing a heavy freight transport business.
"I have been working for the Freightliner group for more than 12 years. The company had no business outside Britain when I arrived. I was interested not because it was the railroad but because the company was developing rapidly and there were new opportunities for me with my experience and education, as well as for the company itself. At some point, I was in charge of international business development and headed the relevant department. Later, I focused on business development in Europe and eventually assumed the leadership of our structural divisions in Poland and Germany," said Skorik.
Freightliner was established in the mid-1960s as the intermodal container part of the state-owned British railways. Then, it was privatized in 1996, just like the entire British railway. Since then, the owners of the company have been various investment funds, and Genesee & Wyoming, a major North American rail operator, recently acquired a controlling stake in it.
How did Freightliner enter Poland?
The Polish market was the first business that we created from scratch. We found young and ambitious local managers and created Freightliner PL together with them. The company was established as a legal entity in Poland in 2005. The process of licensing, obtaining a safety certificate, and ordering wagons and locomotives took some time and the first train took off in mid-2007.
We made the first sufficiently large investment at the time –GPB 30 million. We invested this money in locomotives and new wagons despite the fact that the Freightliner group's turnover at that time was about GPB 250 million. This decision has paid off over time, although the first few years of operation in Poland were not that easy. Later, we set up a company in Germany. Freightliner later bought a large intermodal carrier that operates in several European countries, mainly serving the railway corridors from Rotterdam and north German ports.
How did the process of liberalization of access to the Polish railway infrastructure take place, can it serve as a model for Ukraine, or do we have a different situation?
Part of the European reforms was the creation of an independent regulatory body that, in theory (and that was the case in many countries), must be subordinate to the Prime Minister and not the Ministry of Transport.
Why was a regulator necessary? Because someone has to monitor safety, issue licenses, certify rolling stock, and, in the final analysis, someone has to regulate tariffs (the infrastructural component) and fair competition, i.e. open access to the infrastructure. This is very important moment, and the regulatory body is very strong in most markets in Europe.
For example, the Polish regulator operated very transparently. Recently they introduced a practice under which it is impossible to enter their office without registration. That is, if a person went to a meeting with someone involved in certification of wagons, that meeting will be recorded. There is suggestion of corruption there. However, at the same time, the market would probably be better if the Polish regulator had greater control over the infrastructure operator. The main function of the regulator is to check the openness of access.
What did this give to customers?
In countries where liberalization has been more decisive, the quality of service has improved, traffic volumes have increased, and prices have fallen. In Britain, for example, the fleet of locomotives has been fully reinvested and the average age of locomotives is now about 10-15 years.
New freight locomotives and wagons will appear on the market, and the government is not involved in this process. That is, carriers themselves look for funding and choose the locomotives that suit them best. For example, even Deutsche Bahn, which is formally owned by the government of Germany, operates as a concern and invests in itself.
The Polish operator PKP Cargo has a different situation. It still prefers to compete on price and almost does not invest in new rolling stock. However, customers decide in the end - some are more in need of new wagons and the best-quality service at a competitive (but not necessarily the lowest) price. Such a customer can choose us or any other independent carrier.
In Ukraine, there is currently a big problem with rolling stock (locomotives and wagons). How do you think these problems can be solved?
Ukraine needs investments in purchase of rolling stock. The openness of the market of wagons has already helped - new wagons have been built with private investment in recent years, although Ukrzaliznytsia’s fleet of wagons remains in a deplorable state. The situation involving locomotives is worse, especially given the situation in the east – the Lugansk diesel locomotive plant is unlikely to be able to build locomotives now. Locomotives are built in Russia and Kazakhstan.
Considering the potential market demand, production of locomotives could interest large manufacturers such as Caterpillar, Siemens, General Electric, Bombardier, and Alstom if there is a good investment climate in Ukraine. However, this will take years. Locomotives can be upgraded. Poland has a lot of experience in modernization of old Lugansk-made locomotives.
Anyway, in my view, it is very difficult for the state to make the optimum decision on investments in locomotives and wagons. There are many manufacturers and, for example, in Poland, that decision may be different for each operator. However, considering the average age of the locomotives and rolling stock in the Ukrainian network, procrastination is fraught with the danger that all this will start to fall apart eventually.
In your opinion, how should the Ukrainian railway industry be reformed?
In Europe, the foundation for railway reforms were the European directives that were adopted in 2001 and the market began to open in 2003-2004. There is a basic principle for building the industry – it is separation of functions. In this case, I believe that it is also applicable in Ukraine. That is, the government handles the infrastructure (tracks, electrification, etc.) and freight transportation is transformed into a separate company and opened to competition. It should be said that former state-owned freight transport companies have been privatized in many European countries.
In my opinion, the European model is quite applicable in Ukraine. The basic idea is freedom of private enterprise, freedom of investment and innovation. Carriers will use different models, but, in any case, nongovernmental operators will think up more options than the government alone can.
There are other models for reform of the railway industry - vertically integrated regional monopolies with shared access to infrastructure. This model works in the United States, but the country’s railway was created and developed differently - with private investment in private railway roadbed.
Ultimately, reform of the railway will not occur in six months. It is a process that takes 5-10 years and, in my view, the longer these reforms are delayed, the more difficult it will be to maintain the turnover of these railways at the current level.
Based on the Polish experience, what tariff-formation system will be profitable to both the carrier and the state?
In Europe, freight carriers have the right of free access to infrastructure. That is, we can buy a train path on equal terms with PKP Cargo (the former state carrier in Poland). It is the same in Germany. All carriers have equal rights and equal responsibilities in terms of payment of the infrastructure tariff. We all pay for using this network. Rates are different in all European countries, but the basic principle is that carriers (both freight and passenger carriers) cover only the operating costs of the railway from this infrastructure tariff. The government covers investments. If carriers had to pay for modernization or investments in railway infrastructure, they would not be able to compete with truckers because truckers do not pay for highways and bridges but pay for traveling on these roads and bridges, at best.
The infrastructure tariffs are known and transparent to everyone. In various European countries, the level of tariffs for access to the railway infrastructure is different, but the carrier is always sure that we are paying for a train of a certain size on a certain track the same amount as PKP Cargo or Deutsche Bahn.
Free access to the network is a necessary condition for liberalization, but access to terminals and loading/unloading stations is also needed. Some consumers of railway services (such as power plants or coal mines) have their own terminals, and they are interested in increasing traffic volumes. Some stations in Poland are owned by the state, and PKP Cargo tried for a long time to maintain control over them one way or another by limiting competition. Even now, PKP Cargo still has "pockets of resistance to liberalization." For example, their transshipment terminals on the borders with Ukraine and Belarus. Independent carriers have found another solution – they have concluded the relevant agreements and begun using the transshipment terminals on the eastern side of the border.
Is Freightliner interested in the Ukrainian railway market?
Firstly, it will be interesting to local companies. For example, Lemtrans and Ukrmetalurgtrans. I think that local operators will be the first.
What is necessary for a carrier such as Freightliner to enter the market? This is something that I heard a lot back in the 1990s, when I was working at the World Bank - investment attractiveness and stability. Why did we go into Poland? Because there was legislation, a regulator, and open access to the network, which seemed almost perfect, at least on paper. The foundations for reform on the market were also laid. About 10 independent carriers were operating by the time we arrived.
If we imagine that Ukraine will implement broad reforms in the next year or two, create an independent regulator, create a system of access to infrastructure, and establish rules for licensing and certification of rolling stock.... If all this happens, then the development of the existing operators and their opinion about the real situation on the ground will be the real litmus test for me.
My British board of directors will not allow me to enter the market now, at a time when the main components of reform are absent and the track gauge is different. We are already entering Ukraine and Belarus through cross-border terminals. We have an agreement and we can work on transshipment and cross-border transportation. However, it is very risky to travel on tracks with a gauge of 1520 millimeters in the absence of a legal framework, and most Western investors will not do it.
The DTEK company has begun importing coal from Poland. According to our information, your company engages in transportation of this coal. Is this true? If yes, tell us about terms of its transportation
It is true that we worked with a Polish mine that wanted to sell coal to DTEK. However, according to our information, nothing significant happened there, so I do not know... We will travel (to the transshipment terminal) with pleasure if Polish coal goes to Ukraine in large quantities, but I think it will be in the next heating season.