Railway Market Liberalisation in Ukraine

On 12 June 2019, the Ukrainian Think Tanks Liaison Office in Brussels held closed-door breakfast, where leading economist Volodymyr Kuzyo from Kyiv-based Center for Economic Strategy andJuan José Montero from the Florence School of Regulation, presented the finding of their joined research on “Railway market liberalisation in Ukraine and the EU”. Representatives from the Community of European Railway and Infrastructure Companies, The European Rail Research Advisory Council, European Commission, European Trade Union Confederation, Embassy of Ukraine in the Kingdom of Belgium and the Mission of Ukraine to the EU participated in the discussion. This research, which presents Ukraine’s current railway market design and discusses key infrastructure challenges for Ukrainian railway system, is commissioned by the Ukrainian government. The findings will serve as an important input to the development of the infrastructure law, the implementation of which is set to the end of 2019.

The experts highlighted that in order to achieve key goals outlined in the transport section of the Association Agreement, such as increasing railway trade and travel flows between EU and Ukraine and integrating Ukrainian transport infrastructure in the Trans European Transport network, Ukraine must implement a number of reforms within the railway sector specifically.

Railway tariff policy is one of the areas where changes need to be made. Cargo operations remain the major profit generation for Ukrzaliznytsia, whereas passenger transportation costs exceed the profits almost twofold.  The efficiency gains could be achieved by cutting costs of passenger transport and increasing average transportation tariff by at least twofold to cover the cost of service.

The discussion, which followed the presentation, evolved around the assessment of the Ukrainian railway system. The experts highlighted that the Ukrainian rail network is very large and generated large traffic, while only a quarter of the network is profitable, as was in 2017. A large portion of the railways is overdue with maintenance. This requires large investments in infrastructure. As agreed by the experts, the system is not sustainable. To keep it working, and make it profitable, more investments are required, price transparency, prices oriented to costs. Therefore, improvement of Ukrzalyznitsia’s financial position for sustainable capital investment is crucial in order to attract investors thus making the system more competitive. Moreover, the experts stressed the need for separation of management and accounting of infrastructure management and transport operations within the Ukrzalyznitsia.

Concluding, the experts and the participants agreed that there is still a number of reforms, which need to be carried out, before the process of liberalisation of the Ukrainian railway market, will bring tangible results. A consensus was reached, that a set of clear rules and regulations must be established before opening the market.