The Ukrainian Cabinet of Ministers has published the annex to the State Economic Stimulus Program aimed at dealing with the aftermath of the Covid-19 pandemic.
As previously reported, business associations, experts, and analytical centers, including the Center for Transport Strategies, participated in the preparation of the document.
The program focuses on all sectors of the economy. Part of the program is intended to use trade protection instruments to protect domestic producers from unfair and growing imports by; protect domestic producers in the trade and economic sphere, including from other countries’ protectionist measures by preventing, liberalizing, and lifting trade barriers against Ukrainian goods in foreign markets.
According to the document, the share of the passenger and freight transport sector in Ukraine’s GDP could reduce by 24% and the share of the sector in employment may decrease by 19% by the end of the second quarter of 2020.
It proposes resuming transportation and reopening infrastructure through adaptive quarantine and implementation of additional anti-crisis measures by the government.
According to experts, airline companies will be the worst affected by the coronavirus crisis because passenger transportation accounts for a significant proportion of their revenue (83%). Rail, water, and road transport companies are also suffering because of the reduction in demand for freight transportation, which is due to the slowdown of the economy and the reduction of production and exports by their major customers.
A 5% drop in freight transport volume is expected in the railway industry in the first half of 2020 alone because of the slowdown of the economy. Moreover, since most of the railway’s assets of are critically worn, this negatively affects the cost, quality, speed, and safety of transportation. To modernize Ukrzaliznytsia, it is necessary to invest USD 30-60 billion by 2030. According to experts, the launch of a private traction market will help to modernize rolling stock with the help of private capital.
According to the document, the number of passengers transported by road has almost halved since 2013, and the quarantine will only strengthen this trend. Passenger traffic fell by 16% in the first quarter of 2020 as a result of the ban on intercity and interregional transportation.
The document states that Ukrainian ports are one of the most expensive in the Black Sea region and in comparison with similar international ports. According to the document, the current level of port charges is economically unjustified and it is even more noticeable during the pandemic and quarantine restrictions.
Nevertheless, according to the document, the crisis can be used as an opportunity to create prerequisites for growth. For example, the crisis can become an impetus for implementation of key reforms in the port and railway sectors, launch of a domestic transport market, preparation of concession projects, introducing international safety standards, and revision of infrastructure construction technologies.
As an incentive for the transport and infrastructure sector, the government program proposes ensuring access to finance, effective regulation, and modernization.
In particular, it proposes lowering the tax and administrative pressure; financing salary costs when enterprises are terminating operations; helping to cover fixed operating and maintenance overheads.
In addition, the document proposes introducing tax holidays; introducing moratoriums on fulfilment of payment obligations; providing state support to manufacturers of road equipment; partially canceling rental and lease payments; providing financial support to the aviation sector; introducing a zero VAT rate for domestic transportation.
Effective regulation should entail improvement of the regulatory system and reduction of the tariffs and fees of natural monopolies and improvement of market regulation to increase competition. The document proposes creating a National Transport Regulation Commission, changing the methodology for calculating the rates of port charges; limiting the increase of railway tariffs; simplifying the training and certification of seafarers; adopting a new methodology for procurement of road construction works.
To modernize the industry, the document proposes encouraging capital investment in replacement of worn fixed assets, as well as liberalizing and ensuring full functioning of markets. Among other specific measures, the document proposes breaking up Ukrzaliznytsia into infrastructure, freight transport, and passenger transport operators; adopting a quality law on inland water transport; creating a special tax and customs regime for merchant fleets; reorganizing the Ukrainian Seaports Authority; using alternative resources for road repairs; etc.
As reported, the Cabinet of Ministers has approved an economic stimulus program aimed at dealing with the aftermath of the Covid-19 pandemic at its meeting on May 27.