The 2017 Financial Plan and Development Strategy for the Ukrainian Railways public joint-stock company (Ukrzaliznytsia), which were announced at a government meeting and "legitimized" the transfer of control of the state rail transport monopoly from the Ministry of Infrastructure to the Cabinet of Ministers and the Ministry of Economic Development & Trade, should be presented in the coming weeks. These two documents will not only determine the development of Ukrzaliznytsia this year, but also help to provide a reasoned answer to the question that has been asked in industry circles for almost one year: “Who is Mister Balczun?” Is he really a top European-level manager or a visiting rock star authorized to manage the largest state company in the country? The answer should become clear before the end of May, when the Ukrzaliznytsia board chairman’s current contract is due to expire.

Regardless of who makes the final assessment of the Polish management team’s effectiveness at Ukrzaliznytsia, it is important to move away from the "discussion model" that was imposed during the period of 2016-2017, which was based mostly on political statements and manipulation of financial statements.

Creation of a system of key performance indicators for Ukrzaliznytsia, which would allow the company and the authorities to monitor the monopolist’s operations, could offer a way out. Ukrzaliznytsia itself should benefit from creation of such a system because it will improve the company’s operational (turnaround time, routing, etc.) and commercial (period/cost of services, cargo safety, compliance with deadlines, etc.) efficiency and improve the qualitative parameters of the company’s locomotive and railcar fleet (productivity, working fleet ratio, operating costs) and infrastructure (operational safety and throughput).

On the eve of publication and public debate of Ukrzaliznytsia’s Development Strategy and Financial Plan, the CFTS portal is initiating an expert discussion on the indicators that should form the basis for such a system. We have divided the main indicator of Ukrzaliznytsia’s efficiency (the cost of transporting a ton of cargo) into the 10 KPI indicators that we consider to be of priority to Ukrzaliznytsia based on its 2016 operations.

Our task is not to make assessments but to ensure that these and other KPIs are reflected in the new contract with the board chairman of Ukrzaliznytsia, whatever his name is, and for businesses and clients of Ukrzaliznytsia to have an opportunity to monitor the monopolist and its key performance indicators after the expert discussion.

Railcar turnaround time

2016 reality: railcar turnaround time fell to 8 days. The problem areas were gondola cars and grain cars.

The average monthly turnaround time of key types of railcars reduced in 2016: the average monthly turnaround time of gondola cars reduced by 37% to 8.3 days compared with 2013 and the average monthly turnaround time of grain cars reduced by 13% to 7.6 days. The turnaround time of grain cars reached 15 days during peak periods. The main reasons for this are a general reduction in operational controllability within the Ukrzaliznytsia system, a shortage of traction, a reduction of infrastructural capacity (especially at port railway stations), etc. Consequently, only 50-60% of the demand for transportation was met in peak periods, deadlines for delivery of goods were missed, and shippers’ freight costs increased. According to estimates by industry associations, increase in railcar costs accounted for 10-15% of the real increase in costs (excluding the 25% tariff increase in May).

KPI for 2017: Improve turnaround time to 6-7 days (for gondola cars) and 5-6 days (for grain cars).

Upgrade of railcar fleet

2016 reality: a shortage of 10,000 railcars for filling transport orders.

It was announced that about 7,000 railcars would be acquired in 2017, but Ukrzaliznytsia has not performed a full analysis of the reasons for the shortage of railcars (the shortage of traction, the throughput of infrastructure bottlenecks, etc.). In addition, the fall of freight volumes as a result of the blockade of the non-government-controlled areas of the Donetsk and Lugansk regions and private operators’ plans to expand their fleets are not taken into account. Ukrzaliznytsia also buys and produces railcars at significantly higher costs than private operators do.

KPI for 2017: Purchase railcars based on an analysis of the dynamics of the cargo base and supply of railcars.

Overhaul/upgrade of the locomotive fleet

2016 reality: a shortage of 100 locomotives.

Currently, 539 electric locomotives (31% of the fleet) and 956 diesel locomotives (44% of the fleet) are in a state of disrepair. The wear and tear of the electric locomotive fleet is 95.7% and 99.7% for the diesel locomotive fleet. Untimely repair of locomotives leads to a shortage of traction and railcars idling for long periods (more than one week) while awaiting dispatch. It is necessary to adopt a plan for repairing the locomotive fleet in order to balance the fleet at a time when write-offs are taking place. The memorandums that were signed with international manufacturers General Electric, Bombardier, Pesa, Siemens, and Newag in 2016 remain at the level of declarations and statements.

KPI for 2017: develop a plan for overhauling/upgrading the locomotive fleet.

Tariff revenue

2015 reality: "Eating" of revenues: only 22% of the funds generated from the increase of tariffs were spent on upgrade and repair of rolling stock and infrastructure.

The increase of revenue from the tariff increase in 2016 amounted to UAH 3.8 billion and the increase is expected to total UAH 10 billion in 2017. However, the additional revenues were used to cover the company’s operational inefficiency and current costs instead of being used to develop the company: out of the UAH 7.3 billion that was generated from tariff increases in 2015, 47% was used to service Ukrzaliznytsia’s debts, 19% to pay for electricity, and 12% to increase wages. Only 22% was spent on upgrade and repair of infrastructure. At the same time, the share of capital investments reduced by 19 percentage points to 54% of the plan in 2016, compared with 2015. It is necessary to implement at least 90% of the capital investment plan.

KPI for 2017: use at least 80% of revenues from the tariff increase to finance capital investments.


2015 reality: Ukrzaliznytsia has one of the worst freight turnovers per employee.

In 2015, Ukrzaliznytsia’s freight turnover per employee was 0.89 million ton-kilometers. This is one of the worst indicators among the countries in Ukraine’s region. It is necessary to increase pace of productivity growth, obviously, backed by staff optimization and staff reduction. The number of Ukrzaliznytsia’s employees has reduced by 90,000 in five years, but this was offset by a reduction in the volume of transportation during this period. Ukrzaliznytsia expects 15,500 employees to retire in the next four years, which will positively affect its efficiency indicator.

KPI for 2017: increase this indicator to 1-1.1 million ton-kilometers per employee.

Speed of freight trains

2015 reality: The average service speed dropped to 38.8 kilometers per hour.

An incentive in the form of linking tariff increases to transportation efficiency, for example, the speed of a train, is one of the factors that could facilitate an increase in the speed of freight trains. The average service speed of freight trains in in Ukraine was 38.8 kilometers per hour in 2015, which is 2.3% lower than the average in 2013 and 1.8% lower than the average in 2014. It is necessary to increase the average service speed to 40+ kilometers per hour.

KPI for 2017: increase the speed of freight trains to 40+ kilometers per hour.

Transparency of public procurements

2016 reality: purchase of diesel fuel at prices more than 15% higher than the market price.

Ukrzaliznytsia canceled 48% of its procurements in 2016. Cancellation of tenders continued for various reasons in 2017. In particular, tenders for supply of 3,000 new gondola cars have been canceled. In addition, additional agreements are often signed to adjust prices upward during procurement of fuel. As a result, Ukrzaliznytsia bought a ton of diesel fuel at a price that was more than UAH 2,000 higher than the price paid by other major buyers. Ukrzaliznytsia needs to step up its work with suppliers, build a system for training and improving the qualifications of its procurement specialists, and switch to direct purchases from producers (based on formula pricing), especially with regards to diesel fuel.

KPI for 2017: purchase fuel and electricity based on average market benchmarks.

Average daily productivity of locomotives

2015 reality: productivity dropped by 5% year-on-year to 1,376 ton-kilometers.

This indicator at Ukrzaliznytsia was 1,376 ton-kilometers in 2015. For comparison, the average daily productivity of locomotives was 2,037 ton-kilometers at Russian Railways and 2,013 ton-kilometers at KTZ (Kazakhstan) in 2014. It is necessary to increase productivity gradually to at least the 2014 level of 1,450 ton-kilometers. 

KPI for 2017: Increase the average daily productivity of locomotives to 1,500 ton-kilometers.

Restructuring of external debts

2016 reality: a high debt load and repayment of UAH 21.5 billion in foreign-currency loans over the next 5 years.

The stabilization of the overall macroeconomic situation in the country allows Ukrzaliznytsia to restructure its external debts, which will allow it to normalize its financial situation and secure access to external capital markets. Loans totaling UAH 21.5 billion are expected to be repaid in the next five years, which could negatively affect the company's profits and its development opportunities. It is necessary to restructure Ukrzaliznytsia’s debt while searching for an opportunity to improve the terms of the loans and "stretch" payments over time.

KPI for 2017: restructure external debts while improving loan and repayment terms.

Identification of core and non-core businesses

2016 reality: Poor performances by divisions that remain united under a single company.

It is necessary to complete the process of corporatization of Ukrzaliznytsia, separate its freight and passenger transport businesses, and dispose of its non-core and surplus assets. According to the valuation of Ukrzaliznytsia’s assets that the Deloitte company performed in 2015, the company’s non-core assets had a book value of more than UAH 3.3 billion. It is necessary to reduce the cost of maintaining these assets and dispose of them through transparent privatization mechanisms and public-private partnerships (concessions).

KPI for 2017: separate infrastructure, freight transportation, and passenger transportation into individual companies. Identify non-core assets and sell them.