"From every liter of gasoline sold, UAH 2.6 in the form of excise tax goes into the Road Fund. Whoever buys a liter of diesel fuel pays an additional UAH 2 at today's prices," said Orest Klympush, the head of the Federation of Transport Employers of Ukraine.
It is not difficult to calculate that the total excise duty should amount to UAH 36 billion if 4.2 million tons of gasoline and 5.4 million tons of diesel fuel are sold in Ukraine per year. "Where is this money? I see no reason for the ministry to impose additional taxes on carriers," Klympush said indignantly.
Meanwhile, trucks weighing 50 and even 100 tons are traveling on Ukrainian highways despite the fact that the permissible trailer weight is 38 tons. On the one hand, carriers are optimizing their costs while, on the other hand, they themselves are destroying the roads without which their businesses would be impossible. Consequently, they later spend all that money on repair of vehicles or incur costs associated with the increased period of delivery of goods.
As a result, road wear is reaching a critical level. "85% of roads have already undergone 3-5 inter-maintenances periods," said Oleg Fedorenko, the head of the department of operational maintenance of roads and traffic safety at the State Automobile Road Service (Ukravtodor).
According to the World Economic Forum’s in 2014 Global Competitiveness Report, the quality of roads in Ukraine is one of the worst in the world – Ukraine is ranked 139th among 144 countries. Roads are slightly better in Russia, as a result of which Russia is ranked 124th in 2014, compared with 136th in 2013. For comparison, Poland is ranked 89th (compared with 105th a year earlier) and Georgia 65th. Only roads in Moldova, Mozambique, Libya, Guinea, and Timor are worse than roads in Ukraine.
Some figures for clarity: work was performed on 29,000 kilometers of roads per year during the period of 1988-1990, including overhaul of about 9,000 kilometers and intermediate repair work on more than 18,000. Today, the volume of work fluctuates between 300 and 600 kilometers per year. The reason is simple - chronic underfunding.
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"Ukraine provides funding for maintenance and development of roads at the level of USD 1,000 per kilometer. The figures for our neighbors are USD 13,000 in Belarus, USD 17,000 in Poland, and USD 19,000 in the Russian Federation,” said Fedorenko.
The amount of money required is about UAH 40 billion per year, but far less is allocated for road needs. The amount of funds that the state budget for 2014 allocates for the industry is UAH 16.9 billion. Of these, UAH 11.1 billion is intended for repayment of debt and UAH 2.5 billion as subsidies to local government agencies.
Thus, the road sector receives about UAH 3.2 billion, of which UAH 440 million goes toward payment of debts to contractors for the work they performed and UAH 100 million toward co-financing projects implemented by international financial institutions. Only UAH 2.6 billion is intended for operational maintenance of roads.
Difficult options Officials have proposed various solutions to this problem. For example, the propose reforming Ukravtodor to leave only roads of national importance under its control and transfer control of local roads to local authorities. However, such an approach will only relieve Ukravtodor of part of the responsibility without improving the situation. This is because there have always been little money local budgets, there continues to be little money, and this situation is likely to remain unchanged. What will they use to improve the quality of roads? Responsibility? The level of responsibility in the country has always been low. Even the roads that are under the control of municipal authorities do not always meet the relevant requirements. Therefore, changing the order of addends will not affect the sum.
The authorities have also proposed that carriers bear responsibility for destruction of roads and that an additional tax be levied on trucks weighing over 12 tons on roads
The authorities have also proposed that carriers bear responsibility for destruction of roads and that an additional tax be levied on trucks weighing over 12 tons on roads. The relevant draft law is being debated actively in industry circles.
However, some experts suggest that the economic effect of such measures would be negative and unlikely to benefit the country. In particular, according to a letter that the American Chamber of Commerce wrote to Minister of Infrastructure Maksym Burbak, introduction of the tax will reduce the competitiveness of road transport and affect the cost of goods being transported. "For example, if the cost of transporting agricultural products is currently about UAH 0.9 per ton-kilometer at the maximum permissible weight of 38 tons, it will drop to UAH 0.6 per ton-kilometer if transported by a road train with a combined weight of 56 tons. Therefore, to accelerate economic development and intensify development of road transport, it is necessary not to reduce but to increase the maximum permissible weight on automobile roads and look for other sources of funds for compensating for the damage that large vehicles cause to roads,” the document states.
In addition, according to experts, vehicles use roads normally, taking account of their prospective loads and wear and money for their maintenance is budgeted. The sources of this money are fees, excise taxes, etc. Indeed, it is necessary to think about these sources because they exist only in theory. Meanwhile, the opaque and improper use of excise taxes deprives the road sector of the necessary amounts of funding that would help to improve the quality of road surfaces.
Instead of paying the funds into separate accounts belonging to the Road Fund, the State Treasury retains them and uses them to plug holes in a deficit-ridden budget. "If the Road Fund finances roads exclusively and not budget holes, it will be possible to bring the industry out of the crisis and restore most of Ukraine’s road network within a few years. Besides, I think it is appropriate to introduce accountability to the public for the use of funds," said Leonid Kostiuchenko, the head of the Association of International road Carriers (AsMAP).
The limit of control However, funding is only part of a complex problem. No less an important factor in the road problems is the fact that the maximum load on roads is being exceeded. As we can see, the regulation of vehicle sizes and weights on roads is not effective. "Firstly, given the corruption within our government, we estimate that UAH 2 billion worth of road is destroyed per season by temperatures alone (overloaded trucks are still allowed on roads in hot weather despite formal restrictions). Secondly, there has been no proper financing of roads since the country attained independence. Ukravtodor says that the Kyiv-Odessa road has already been destroyed. Has anyone been held responsible for this?" said Valerii Chernenko, the head of the State Road Safety Inspectorate (Ukrtransinspektsia).
Indeed, do supervisory authorities bear responsibility for their work or do they try to blame others for the situation? After all, the head of Ukrtransinspektsia opposed installation of automatic size and weight measuring systems on roads.
Nibulon is trying to find alternative ways of delivering its own cargoes. For example, by constructing barges for transporting its own products by river
"There is one system that is not working, and UAH 1.12 million was invested in it. Its measurement error is 15%, which is unacceptable for such a weighing system. Who needed to invest this money is a question for the law enforcement agencies," he said. There is logic in this, especially considering the fact that Chernenko proposes buying mobile weighing devices as an alternative. "They cost about USD 4,000. I do not know why they were bought for astronomical amounts. For Ukraine, not 38 but hundreds are needed," Chernenko said earlier. However, he did not announce any plans or dates for acquisition of mobile weighing systems, thus far limiting himself to accusations against unscrupulous carriers.
Cargo owners, for their part, say they are in a hopeless situation and that they would use an alternative if it were available. "In order to impose a limit of 12 tons, it is necessary to offer an alternative. At present, there is none. The number of Ukrzaliznytsia’s railcars is reducing by the day. What should be used to transport goods? When rapeseed ripens, it will rot in the fields if we do not take it out within three days. Who might benefit from this? Its price will rise if we carry 12 tons each. Who would benefit from that?" said Oleksandr Hryhorenko, the Nibulon agricultural holding’s deputy general director for logistics.
At the same time, the State Railway Administration (Ukrzaliznytsia) says that its working fleet of grain cars has increased by 2,091 to 12,983 within one year, which allows it to transport 3.5 million tons of grain per month and 42 million tons per year.
At the same time, according to Hryhorenko, having realized the scale of the problem, the Nibulon agricultural holding is trying to find alternative ways of delivering its own cargoes. For example, by constructing barges and transporting its own products by river. "With our barges and tugs, we are relieving the load on roads. We carried 1.2 million tons via water transport last year, and we plan to bring this figure to 2 million tons this year," said Hryhorenko.
In short, for now, solution of this complex problem requires fulfillment of two conditions: ensure efficient use of the Road Fund and targeted financing of the sector and introduce proper control over observance of size and weight requirements. Then, the chances of improving the condition of roads will increase.
