Maksym Burbak assumed the leadership of the transport industry at a difficult time of change, and this primarily requires him to show the qualities of an efficient crisis manager. Where will the money come from? This is the question on his mind as he goes to work and returns home. For example, the State Automobile Road Service (Ukravtodor) has been quick to say that it has no money even for patching roads, not to mention money for financing more or less large-scale projects.
The second problem - the annexation of the Crimea - has disrupted the normal operation of the Ukrainian transport system in the direction of the peninsula, broken a number of technological chains, and created a problem involving port property. Added to this list of issues are lobbying efforts by several parliamentary deputies, who are seeking to curtail the reform of ports, which will jeopardize the country’s entire port industry, as well as friction over the signing of an Open Skies agreement between Ukraine and the European Union.
What steps should be expected from the ministry in the near future, what does the minister think about the reforms of ports and the State Railway Administration (Ukrzaliznytsia), when will low-cost airline companies enter Ukraine, when will drivers be able to drive on quality roads, and what is the logic behind the new authorities’ personnel policy? The CFTS portal received answers to these questions during an exclusive interview with Burbak.
The maritime industry will not survive the shock of another reform
Has the Ministry of Infrastructure’s new team been created already, and should we expect more appointments to key positions in the industry?
The main requirement is for a person to be a professional and to have knowledge of the subject. It is not compulsory for him to have worked in this industry. Sometimes, they are people from related sectors or contracting parties, but they know the way things are. One of the most important appointments in the near future will involve replacement of the leadership of the Administration of Seaports. However, this is not in any way associated with curtailment of reform. It is just a change of approach.
How will the approach to port reform change?
I meet with representatives of trade unions, and they are concerned that the Administration of Seaports has taken all the financial resources for itself and that work is being performed not at all ports. Therefore, there are suggestions to undo the changes that have been made. But I am sure that the maritime industry will not survive another shock of reform. We are already seeing the results of a 180-degree turn in the direction of the country’s foreign policy. However, port reform clearly needs to be adjusted. Currently, steps are being taken to introduce the principle of decentralization of powers under the existing law.
Are we talking about a more equitable distribution of funds?
I would even say a fair distribution of the types of work that the Administration of Seaports performs at each individual port. However, there is a small "but:" not all ports have submitted their proposals on the types of work they want. For example, dredging work aimed at bringing a port’s indicators to the rated values should be performed at all ports. A representative of the Ilyichevsk seaport has come to me to say that funding is needed for this. We are open to dialogue and we are ready to discuss plans for 2015, especially since the time is right.
In addition, I think that concession will not be the only kind of public-private partnership at ports after the adjustments. There could be other mechanisms, such as rent and joint operations. We are considering any form of cooperation. The most important thing is for our cargo turnover to increase as a result of this work.
Another important point is the social component. If a lease or concession contract is awarded for a facility, it will be necessary to protect the facility’s staff against loss of jobs and stipulate this clearly in the obligations of the investor.
When can we expect the implementation of the first investment projects to begin?
My first working trip was to the Odessa merchant seaport for meetings with the companies HPC-Ukraine and Brooklyn-Kiev. They familiarized us with the progress of the implementation of their investment projects, made their proposals, and showed the areas where they plan further construction work. The only thing that obstructed the Brooklyn-Kiev company was an old abandoned building that is currently not in use. We went to the site to take a look. Given the fact that the investor will finance the demolition of the structure with its own funds and pay its residual value to the state, then why not? Especially considering the fact that the transshipment capacity will be increased to 5 million tons per year. This is a project that is ready for implementation, and Brooklyn-Kiev has an agreement with the EBRD on financing it.
A concession project at the Yuzhny port is also ready for implementation. All the others are under preparation. We have looked at the terminals of the Transinvestservis stevedoring company (TIS). They are ready to build infrastructure, particularly a railway junction. However, everyone was waiting to see what would happen in the country. Now, I am sure that the situation is stabilizing and that everyone will begin making investments. They see the attitude of European investors. They see that the European Union will open its borders in May and that it will be necessary to send our goods to the other side. We, for our part, must help them to protect their investments.
Do ships going to Azov ports currently have any problems passing through the Kerch Strait?
There are currently no problems. The only thing is that their passage through the strait will be serviced by the Russian Pilotage Service from April 7.
How are operations with Crimean ports currently going?
Until April 1, the ports operated and generated money into the accounts of the Administration of Seaports of Ukraine. However, it all stopped after April 1. They registered their own local businesses. However, we do not recognize any company that was established based on property that was under the control of the Ministry of Infrastructure. The Autonomous Republic of Crimea is part of Ukraine. The ministry promptly conducted an inventory of all the property on the peninsula and submitted these documents to the Ministry of Justice, which will prepare a lawsuit in connection with damages inflicted on Ukraine, particularly damages related to the Ministry of Infrastructure’s facilities. Moreover, we have submitted written statements to the Prosecutor-General’s Office in each case of seizure of property. Courts of first instance have already issued rulings.
We will fight for lucrative passenger traffic
The changes that were planned for implementation at Ukrzaliznytsia have somewhat stalled. Will you continue the transformation of the railway industry?
The reform of Ukrzaliznytsia will continue. It is needed, and foreign investors and experts have welcomed the essence of the reform. It is about separation of administrative and economic functions, essentially about what happened to ports. In Ukrzaliznytsia, it is necessary to create a management company and entities that will be responsible for specific areas. As an example, it could be entities responsible for passenger transportation, freight transportation, or infrastructure maintenance. I think that this reform will come into fruition in the near future.
As for passenger transportation, we will fight to make it profitable. Primarily, it is necessary to optimize costs. We do not need the old commuter trains that carry two or three people. Rail buses that are more efficient and consist of 2-3 cars can replace them. The Lviv railway routes, on which such a scheme is being used successfully, could serve as an example. Secondly, fares will have to be reviewed. If you look at things objectively, i.e. the increase of fuel prices, fares cannot remain at the same level. Of course, this should be done very carefully to ensure that passengers do not suffer. It will be necessary to go for a minimum level of indexation when the price of fuel stabilizes, taking account of the excise tax and exchange differences.
For railways to improve their financial situation, it is also necessary to eradicate corruption. This is also a big plus because tenders were invited for purchase of anything but not the things that were really needed. In addition, we plan to reduce the share of imported spare parts and increase the number of orders placed with domestic enterprises that are idling.
But Ukrzaliznytsia is sorely lacking money for financing its own upgrade
Here, we will obtain credit resources. Cooperation with the EBRD was once suspended because the previous government engaged in implementation of mock reforms. We are now meeting with representatives of the bank, and there is about USD 150 million for upgrading rolling stock. In principle, UAH 3 billion does not grow on trees. It can be invested and recouped. If we spend it on orders from our factories, we will generate work for them and provide a new impetus for the Ukrainian economy.
When can we expect resumption of the reform? This is not the first year we are hearing about creation of a joint-stock company based on Ukrzaliznytsia...
The law was passed two years ago, and it is introduced by a Cabinet of Ministers resolution. I have a question to the previous government: what prevented it from adopting the resolution within three months, as specified in the law? Perhaps someone was not interested.
Is there a consensus on this issue now?
Yes, a resolution of the Cabinet of Ministers will be adopted in the near future. I have already signed it as its initiator, and it is now undergoing approval. We are obliged to do this because it cannot be delayed any longer. Our Western consultants that performed the audit of railways are registering an annual decline in its profitability. Ukrzaliznytsia will be in a sorry state if we do not take action.
Local councils will place orders for road works
The road network is currently in a deplorable state. How do you plan to solve this problem?
Unfortunately, we are currently experiencing a catastrophic shortage of funds for maintenance and operation of roads and sometimes even for payment of salaries. This is a fact that should be admitted. At the same time, the funds that are stuck in treasury accounts – and that is about UAH 6.8 billion – would be more than enough to finance payment of wages and repairs, even leaving a little for capital investment. The state budget for 2014 allocates only UAH 15.6 billion for roads, out of which UAH 2.5 billion will be used to finance repair of communal roads, but debt servicing will "eat" about UAH 10.5 billion out of this money. Ukravtodor’s head Oleksandr Malin has held talks with Ukrainian banks and reached preliminary agreement on restructuring debts totaling around UAH 3 billion.
What should be done about the excise duty on fuel?
It has already been raised. A draft resolution on establishment of a Road Fund has also been signed so that the excise tax on fuel can go straight toward roads. We had the first meeting of the governmental committee on April 7, and many asked for a return of the Special Fund. They are all unanimous in saying that they currently do not have the amounts of money that were previously spent on meeting their needs. However, the pessimism will be somewhat softened within one or two months because the customs and the tax agencies have begun working better. We have lost about UAH 4 billion over the past two years due to smuggling of petroleum products. That money will now go into the budget.
However, there are also positive aspects. Recently, we met with the head of the Transcarpathian regional administration, Valerii Lunchenko, who proposes starting implementation of a project for reconstruction of roads in the Transcarpathian region jointly with Hungary's Eximbank this year. It will be a loan at a very low interest rate.
What is the amount of this loan?
For now, I cannot say.
The issue of reforming Ukravtodor itself and transferring the responsibility for local roads to local authorities was raised previously…
I think that this reform will not only continue, but it will also be improved in terms of what we want to transfer to local authorities. Our predecessors also wanted to transfer roads, but no one said how much money would be transferred for these same roads. That is where everything stalled. Now, we will transfer not only roads, but also funding for them, and communities themselves will decide what to do with them, how to maintain them, and which company to hire for this.
We also have an idea – to transfer control of regional divisions of Ukravtodor to local councils, which will now be responsible for placing orders for road works. Everyone has forgotten that they also have economic functions and can generate money.
In our country, some build and others - regional divisions of Ukravtodor - use. They do not operate throughout the year. In the summer, when it is possible to earn money, private companies perform repair and construction work while regional divisions of Ukravtodor - which are state-financed organizations - are forced to watch, licking their lips and thinking how they will survive the winter. Private companies do not want to work in the winter, but that should not be the case.
How do you assess the proposal to pay for the condition of roads and not per square meter during road maintenance?
A very positive experiment. It is widely practiced around the world: a company takes a section of road for long-term maintenance and the community watches to see whether potholes appear and how quickly they are patched.
Will you return to the project for construction of a Ring Road around Kiev?
I would like to return to projects that can be implemented in the near future and not stretch it over five-year or ten-year periods and trumpet the extent of our plans to the whole world. Yes, Kiev needs it, but I do not see an opportunity to bring the idea to life. For now, the issue is not on the agenda.
Europeans do not understand why a ticket from London to Kiev is cheaper than a ticket from Kiev to Odessa
What is the situation in the airspace over the Crimea?
We see that our neighbors are grossly violating all the norms of international law. When we closed the Simferopol airport because of the inability to ensure flight safety, they continued flying.
Because Ukraine cannot ensure the safety of flights over the Crimea, we issued a NOTAM and notified everyone of a ban on aircraft flights over this territory. In addition, we asked the competent international organizations, including the ICAO, to respond to the situation.
According to unofficial information, there are plans to reduce the number of railway crossings on the Ukrainian-Russian border and the number of passenger trains between the two countries. Is this true?
There is no such thing for now. We are currently seeing a slight reduction in passenger traffic from Russia to Ukraine. Ukrzaliznytsia has reduced the number of wagons in trains traveling in the Crimean direction because of a fall in passenger traffic. In addition, it is necessary to transport our troops from the peninsula, so we are providing flat wagons for equipment and wagons for people. In short, we are fulfilling all the requirements of the Ministry of Defense. Our citizens have problems involving mail because the self-proclaimed authorities in the Crimea stopped accepting our mail from around April 1. Therefore, we have partially suspended acceptance of correspondence for postage to the Crimea, since the Crimean authorities are demanding payment of international rates. However, we cannot apply them to the Crimea.
Why was the launch date of a zone for domestic flights at the Boryspil airport postponed?
There are no problems at the airport. However, the commissioning dates of several construction projects have been postponed. This is connected with approval of the airport’s financial plan for 2014. As you know, the airport’s financial plan, which is initially approved by ministries and then approved by the Cabinet of Ministers, provided funding for the airport’s construction projects. As of today, the Ministry of Infrastructure has approved the Boryspil airport’s financial plan and sent it to the Ministry of Finance, the Ministry of Economic Development, and the Ministry of Revenue & Duties.
When will the financial plan be approved?
I think it will be approved in the first trimester of May. We need to sign an agreement on Common Aviation Area no matter what because the airport’s terminal F - a new building that needs to be in operation - is idling. This agreement will provide a specific impetus that will allow attraction of low-cost airline companies. Europeans do not understand why a ticket from London to Kiev is cheaper than a ticket from Kiev to Odessa. It is necessary to do something.
We can allow cabotage operations in Ukraine, but low-cost airline companies, particularly Wizz Air Ukraine, have said that there is a lack of interest in the domestic market, where it is necessary to fly at least daily, and it is simply unprofitable for them to fly half-empty Airbus 320 airplanes under such circumstances...
We have told the head of the State Aviation Service that when companies take lucrative European destinations, it is necessary to somehow encourage them to fly domestically. We have spoken to the Ukrainian State Air Traffic Services Enterprise (UkSATSE) about the possibility of reducing the rates for services within Ukraine. We can talk about changing airport charges at state-owned airports or engaging in dialogue with local councils regarding utility enterprises. After all, they need it too because airports are idling.
Moreover, the Europeans are ready assist us in certifying our products and allow Antonov airplanes to operate on regional routes.
