The roundtable "Changing Traffic: Reform of the Transport Infrastructure in Ukraine," which was organized by the Logistics Committee of the European Business Association, brought together top managers from the industry’s major companies, including the Ukrainian Railways joint-stock company (Ukrzaliznytsia), the Ukrainian Seaports Authority (USPA), the Boryspil airport, and the State Air Traffic Services Enterprise (UkSATSE), as well as the minister of infrastructure and business representatives. The number of meetings has decreased this year due to objective circumstances, as a result of which market participants have accumulated a large number of questions. Therefore, the meeting was held in a question-and-answer format. The CFTS portal publishes some of the key issue discussed at the roundtable.
Sea and river transport
What are the Ministry of Infrastructure’s plans regarding privatization and further concessions in seaports? Which seaports are next in line for concession or privatization? Are there plans to concession the Izmail seaport?
Minister of Infrastructure Vladyslav Kryklyi: We are satisfied with the way we handled the first concession tenders for the Kherson and Olvia seaports. We have already prepared three ports for privatization: the Ust-Dunaisk, Bilhorod-Dnistrovskyi, and Skadovsk seaports. There is already interest from both domestic and foreign investors. In addition, we have already announced and launched the preparation of a feasibility study for the Black Sea ferry crossing. We understand that a private company has significantly many more tools to develop faster. Therefore, concession tenders will be organized for the Izmail seaport, the Black Sea port, and the Black Sea ferry crossing. The Berdiansk seaport will also be prepared for concession. As for the Pivdennyi seaport, that will be a little later. We will definitely begin preparing feasibility studies for these projects this year.
Concession tenders will be organized for the Izmail seaport, the Black Sea port, and the Black Sea ferry crossing. The Berdiansk seaport will also be prepared for concession.
What is the current state of resolution of the issue of compensation for investments in strategic port infrastructure?
Infrastructure Minister Vladyslav Kryklyi: We are interested in resolving this issue. There should be a simple and transparent mechanism. If a business invests, it should recover its resources, especially when it comes to dredging. For our part, we have drafted the relevant documents. The Ministry of Economy will definitely support this decision, but it is always more difficult with the Ministry of Finance. This is where the support of will businesses be needed.
Oleksandr Holodnytskyi, the head of the state-owned the Ukrainian Seaports Authority (USPA): I am sure that the procedure for compensating for investments is a document that will give a very big impetus to the development of port infrastructure. The two main aspects in the document are compensation for current investments, that is, the projects we are currently working on, and compensation for past investments.
Does the Ministry of Infrastructure plan to change the methodology for port dues, and will port dues be lowered in the near future?
Kryklyi: The issue is complex, and it is related to the approach to payment of dividends, among other things. The more we can reduce dividends, the greater will be the prospect for reduction of port dues, excluding the investment component, which is necessary for development of enterprises.
Has the USPA already prepared a financial plan for next year, when does it plan to adopt it, and what is the planned amount of capex on projects?
Holodnytskyi: The formal financial plan for 2021 has been submitted to the supervisory board and the Ukrainian Ministry of Infrastructure. However, I emphasize that it is formal because we obtained the financial plan for this year only in August, as a result of which contractors were unable to start capex. We are now deciding how much we can spend in 2020 and how much will need to be postponed to next year.
What main goals and requirements has the Ministry of Infrastructure set for the new head of Ukrzaliznytsia?
Ukrzaliznytsia’s head Volodymyr Zhmak: To perform a miracle by returning Ukrzaliznytsia to profit by New Year.
Kryklyi: …And abolish the company employees’ four-day workweek. Volodymyr and his team will have to work in many areas simultaneously, which was not the case before. Previously, the approach was to resolve issues one by one. I see a different approach here, and I think that the market will feel it very soon.
When will Ukrzaliznytsia be reorganized? When is its organizational and financial division into verticals?
Kryklyi: We do not have the required legislation, but we are moving towards unbundling with or without the legislation, and this is one of our priority goals. I hope that we will reach a final understanding at the end of the year to enable us to finally bring this to life in 2021.
What is the fate of the railway law and the private traction project?
Kryklyi: I am very dissatisfied with the Law on Rail Transport. I do not understand why the parliamentary subcommittee on rail transport met 10 or 11 times but never once discussed the issue of the law. There is a summit with the European Union next month, and if we show progress on inland waterways – and I hope that a vote on it will have taken place by that time – then, we will go there with the issue of rail transport having moved from the parliamentary subcommittee to the committee, at best. We hope that businesses will support us on this issue and that there will be great demand. It is very important for businesses not to disagree and to express a common position. When there is no common position, anyone can take advantage and the issue will be postponed further and further.
Regarding private traction, we have a deadline of September 26, if I am not mistaken. This is the deadline for finalization of everything and commencement of operations by the first operators selected via the competition. We will do this carefully, because we saw problems during the pilot, when businesses were not fully prepared.
What are the next plans regarding tariffs? Instead of raising tariffs, Ukrzaliznytsia should focus on developing through alternative means that will not impose additional financial burden on businesses, i. e., abolition of the land tax and avoidance of cross-subsidization.
Kryklyi: We are moving according to this logic. I hope that we will begin financing the passenger sector and electrification from the state budget for the first time in 2021. On the issue of land tax, we are trying to speed things up as much as possible because the cost could increase even further after revaluation of land. Therefore, at the beginning, we must jointly resolve the issue of additional burden on the company, which prevents it from developing.
Grain is transported 250-300 kilometers by road. I want to take this grain from motorists and return it to Ukrzaliznytsia. For this, I suppose it will be necessary to reduce tariffs.
Zhmak: The idea that rates will only increase is wrong. There will be areas in which we will reduce rates. For example, grain is transported 250-300 kilometers by road. I want to take this grain from motorists and return it to Ukrzaliznytsia. For this, I suppose it will be necessary to lower rates. Rates are a complex two-part story. One part is regulated by the state and the second is determined by Ukrzaliznytsia’s coefficients. We are counting on adoption of the law and the possibility of introducing an independent regulator, which will give us a mechanism for rapidly responding to the situation on the market. This is because it will be winter by the time we approve the rate for transportation of grain, for example, if we start approving rates through the Ministry of Infrastructure, the Ministry of Economy, the Ministry of Finance, and the State Regulatory Service.
How will the issue of corruption be resolved?
Zhmak: The problem of corruption must be solved by eliminating shortages. Our first steps are optimization of traffic to reduce the shortage of locomotives. We have freed up 18 locomotives this way. As for the rest, it is not even corruption but theft. We will use exemplary punishments in this case. We will publicly dismiss employees, and I think the rest will think carefully after two, three, or four such public dismissals. As for theft by members of the public, we will be very harsh, but only to ensure that people understand that good work will bring them an honest reward. We are changing the motivation systems. We will introduce EVA-based motivation for employees to ensure that every employee understands that his success in the workplace leads to the success of the entire company, and the delta between the current and previous year's EVA will be used to motivate employees. In my understanding, this will be about 30%.
Our first steps were optimization of traffic to reduce the shortage of locomotives. As a result, we have freed up 18 locomotives.
How and when do the Infrastructure Ministry and Ukrzaliznytsia plan to implement the antimonopoly committee’s decision regarding low-density train stations? When will this status be removed from all low-density stations?
Zhmak: We have full synergy with the Ministry of Infrastructure on this issue. We cannot make a decision on all stations in one fell swoop. There will be a differentiated approach and we will take into account seasonal stations, for example, those that work with grain.
Kryklyi: We already have private freight transport operators. They will be able to travel through those railway stretches where some did not want to operate. It will be only a matter of price.
When is a new cargo terminal expected to be built at the Boryspil airport and what is the approximate completion date?
The Boryspil airport’s General Director Pavlo Riabikin: Our previous project involved closure of half of our warehouses for 18 months. We took the wishes of businesses into account and, with the help of the Ministry of Infrastructure, found an opportunity to start construction on a new plot of land without closing the existing terminal. The process of transfer of property is currently underway, and the next step is land acquisition and start of design work. The concept has already been developed. We have a design cycle of 6-8 months and a construction cycle of 18 months, depending on when land is allocated to us. In total, we will build a new 15,000-capacity terminal within two years without closing the existing terminal. After its opening, we will return to the reconstruction of the existing one, where additional special-storage warehouses – for refrigerators, especially dangerous goods, etc. – will be created, and the warehouses that are currently used for imported goods will be used by the Ukrposhta postal company and express mail operators.
We will build a new 15,000-capacity terminal within two years without closing the existing terminal.
Development of Ukraine’s transit potential and airspace: which new destinations do you plan to launch?
UkSATSE’s head Andrii Yarmak: Since 2004, Ukraine has been a full member of Eurocontrol, which has a powerful analytical department that makes forecasts on resumption of air traffic flows throughout the network, which consists of more than 40 countries. The first forecast was at the end of April, and it was based on two scenarios for development of air traffic. Based on the pessimistic scenario, the volume of traffic is forecast to fall by 25% at the end of the year, compared with last year. Based on the optimistic scenario, it is forecast to fall by 15%. A new forecast was released last week, according to which only a 50% resumption is expected compared with last year. The main reason is that the population’s mobility is currently severely limited due to quarantine restrictions in many countries. This suggests that the crisis is dragging on. As for UkSATSE, we have the opportunity to attract additional transit flows. In late August, the European regulator confirmed the safety of six additional air routes in the Black Sea area, which were inaccessible after the annexation of the Crimea.
How can Ukrainian airlines compete with international airlines, which have received significant financial assistance from their governments? How does the government plan to support the aviation industry and what is the plan for this assistance?
Kryklyi: I am also thrilled with the amounts of support that various countries have provided to their aviation industries. We are also trying to find some solution. Tour operators have already received a little help, and we hope to be able to help air carriers. There must be a support mechanism, and not only in the form of loans.