The long-awaited reform of the railway industry! It was the only topic of discussion at Ukrzaliznytsia just a couple of years ago - the opportunities that the reform will create and how the situation of Ukrzaliznytsia will improve. At the same time, government agencies were actively drafting regulatory acts, and some of them were even adopted in the parliament. The creation of a joint-stock company based on the current Ukrzaliznytsia was supposed to have taken place by the end of 2012. This was later postponed to the first quarter of 2013. However, 2013 is ending, and the relevant resolutions of the Cabinet of Ministers still do not exist. Without these resolutions, creation of the authorized capital of the joint-stock company, which also requires time, is impossible. Moreover, there is less talk about reform as such nowadays.
Intractable lenders What is the reason? Perhaps, one should start with the fact that international financial institutions were the catalysts for the reforms. They did not like the structure of the railway administration - which simultaneously operated as a state agency and a business entity - because it was complex and incomprehensible to them. Credit agreements were often aimed at regional railways, three of which have the status of state-owned enterprises, two the status of state-owned territorial industrial groups, and one the status of a statutory territorial industrial group. Bankers openly expressed their dissatisfaction and even threatened to stop funding further projects if the railways did not begin making changes.
However, a conservative and cautious Ukrzaliznytsia needed money. The condition of its rolling stock leaves much to be desired and infrastructural constraints on several routes inhibit increase of freight traffic and do not allow it to generate revenue. In addition, tariff regulation, which does not link the cost of transportation of various types of cargo to the actual cost of their transportation, has long exhausted itself. The domestic industry’s powerful lobby has also reduced the railway administration’s revenue from delivery of its products because of the economic crisis.
The catalysts for the reforms were international financial institutions. They did not like the structure of the railway administration, which was complex and incomprehensible to them.
The railway administration made concessions. The relevant ministry, together with Ukrzaliznytsia, immediately began talking about corporatization of the railway administration, separating its various operations, abolishing the use of revenues from freight transportation to subside passenger transportation, and creating commuter rail companies. The financial institutions later renewed the partnership, after which Ukrzaliznytsia successfully placed its debut Eurobonds for USD 500 million in May this year. Consequently, the need for urgent changes disappeared.
Poring over documents Certain steps were taken nevertheless. For example, the Ministry of Infrastructure prepared a new draft law entitled "On Railway Transport" in conjunction with Ukrzaliznytsia. “Legislative acts that are intended to become the basis for the first phase of the reform are currently being drafted. A new law on rail transport is also being drafted. I think this will be a fundamental framework act that will regulate rail transport for more than a decade. This is because the old law has already fulfilled its role. It was adopted in the early 1990s, when our railway market had only just been created,” said Oleksandr Kava, the coordinator of the reform of the transport sector at the Presidential Coordination Center for Implementation of Economic Reforms.
That is, the industry is poring over documents because there is no hurry. This is quite logical, since Ukrzaliznytsia’s caution could play into its hands in this case. The reorganization proposed by Europeans looks progressive in theory, but there is no guarantee that it will yield the desired effect in the industry in practice. For example, separating Ukrzaliznytsia’s infrastructure and creating a large number of operators will significantly complicate the management of traffic flows and dispatch services. This, in turn, will affect the efficiency of the process because it is much simpler to manage a vertically integrated entity.
For example, we can compare several key indicators of the German and Ukrainian railways. The Deutsche Bahn has about 33,500 route-kilometers of rail lines. Germany’s gross domestic product (GDP) was USD 3.4 trillion last year, when the volume of freight transportation by rail did not exceed 399 million tons.