During the formation of the new government, it was not clear until the final day who would head the ministry responsible for transportation. The president of the Association of International Road Carriers (AsMAP), Leonid Kostiuchenko, had a great chance on February 26. Maidan activist Yevhen Nyschuk presented Kostiuchenko to the public as a candidate for the post. However, the parliament elected Maksym Burbak, a person close to interim Prime Minister Arsenii Yatseniuk, as the Minister of Infrastructure the next day. In the parliament, Burbak headed the Parliamentary Committee on Taxation and Customs Policy’s subcommittee on strategy for development of customs policy, free trade, and economic integration. He was not a member of the Parliamentary Committee on Transport and never registered a legislative initiative on transport issues.
The government currently headed by Yatseniuk is considered an interim government. Indeed, this government will most likely be in office until elections, when a permanent executive government will be formed. However, one cannot assume such a post as the head of the Ministry of Infrastructure without a strategy, regardless of the period for which one remains in the post. This is important because the problems in the transport industry demand immediate solutions. Much will depend on how well the new minister acquits himself in the post.
Railways Currently, it is quite difficult for railways to operate efficiently with outdated rolling stock. This indicator varies between 80% and 95%, depending on the type of equipment. Constant repairs require financial expenditures and deprive railcars and locomotives of the opportunity to operate on routes and generate revenue. Despite promises by every minister to buy 5,000 gondola cars annually, the number actually bought rarely reached 1,000.
Railway traction equipment also needs upgrading. For example, morally and technically outdated VL8 locomotives, which have completed more than one rated service life, are widely used on the Donetsk and Dnieper railways, which account for a large proportion of the freight transported in the country. However, purchase of the 300 new locomotives that the railway industry previously spoke about requires huge amounts of money: about USD 2 billion. Unfortunately, the State Railway Administration (Ukrzaliznytsia), which is in a difficult financial situation, does not have such funds. It is also not easy to borrow the funds because a single bank will not be able to provide such an amount. Therefore, a syndicated loan will be needed. The management of Ukrzaliznytsia has decided to resort to leasing. However, the government of former prime minister Yulia Tymoshenko did not welcome such an approach and it is possible that the new government will also reject it. How railway traction equipment will be upgraded remains a big question.
The situation involving passenger rolling stock is no less critical. Purchase of passenger railcars must now be financed with funds from the state budget, where there is never enough money for anything. Therefore, the head of the Ministry of Infrastructure will have to think about legislative changes and simplify the procedure as much as possible or actively lobby for funds for financing the upgrade of outdated rolling stock. Recently, experts estimated the required investment in the railways at UAH 23-27 billion per year.
Another problem facing Ukrzaliznytsia is the tariff policy in the freight sector. The cost of transporting freight is not tied to the actual cost of transportation. That is, different charges are levied for transportation of different products in the same railcars and at the same cost. As a result, Ukrzaliznytsia has long been making money on transportation of some types of freight and losing money on transportation of others.
In addition, Ukrzaliznytsia has not been able to resolve the dilemma of cross-subsidization in the industry since Ukraine gained independence. Freight transportation, which is more profitable, covers the losses from passenger transportation, which exceeds UAH 5 billion per year. This prevents Ukrzaliznytsia from investing the necessary amounts of funds in upgrade of rolling stock and infrastructure. However, it cannot raise ticket prices because of the low payment capacity of passengers. Therefore, the new minister will also have to develop an effective compensation mechanism that will allow the railways to develop.
Automobile roads Ukraine inherited quite an extensive network of 169,000 kilometers of automobile roads after independence. Most of them have already reached the end of their rated service lives and remain without proper repair. The situation is also aggravated by the rapid increase in traffic intensity and an increase in axle loads. The head of the state automobile road agency (Ukravtodor), Yevhen Prusenko, recently said that automobile roads could be lost in 2-3 years if reconstruction and repair were not performed now. Prusenko estimates that it will be necessary to invest about UAH 50 billion per year in road management to avoid this. Of course, there are no such funds in the state budget. In addition, Ukravtodor will have to spending about UAH 10 billion annually on repayment of loans to pay off the debts from previous years.
Ports According to Deputy Minister of infrastructure Dmytro Demydovych, modernization of port infrastructure will require investment of UAH 25 billion. The reform that was started by the predecessors of the current head of the Ministry of Infrastructure provides for generating investment by granting concessions. Whether this will continue or whether an alternative will be offered will become known soon. In any case, while Ukraine is losing transit goods (the volume of transit of goods through Ukraine reduced by 22.9% in 2013), its competitors in the Black Sea continue to develop their capacities and provide a more comfortable environment for cargo owners. Therefore, the new minister will have to do a tremendous amount of work involving infrastructure renewal and interaction with border and customs services to simplify the control procedures and create a "single window" system. Otherwise, it will be very difficult for Ukraine to take advantage of its geographical location.
Read also: “Yatseniuk Open To Dialogue On Port Reform”
The other problems awaiting the head of the Ministry of Infrastructure include the uncertainty in the river transport sector, which currently does not have a full legislative framework and is unable to compete with railways because of its tariff policy. After all, River Dnieper is also an important transport artery that could recover at least part of the cargo flows that were lost after the collapse of the USSR.
Aviation In the air transport sector, the authorities will firstly need to decide how they want to see the aviation industry. For now, statements by industry officials have been limited to expressions of support for state-owed airports. According to the previous management of the Ministry of Infrastructure, carriers should take care of themselves because they are considered private businesses. However, the sad experience of the AeroSvit airline company demonstrated that state-owned airports experience difficulties when private airlines depart from the market. This is not surprising because an airport cannot exist without airline companies. If the government wants to develop transit flows and build an international transport hub based on the Boryspil international airport, it should think about developing a powerful flagship carrier because no foreign company will develop a transfer hub in Kiev based only on direct passenger flights. If the strategy is to ensure that the largest possible number of carriers operates on routes, the agreement on a Common Aviation Area should be signed with the European Union and the market should be liberalized.