Where is Ukrzaliznytsia going?

In recent days, Joint Stock Company ‘Ukrainian Railways’ has attracted public attention with its announcements of tenders on the website of the electronic public procurement system ‘Prozorro’, namely:

1) procurement of 940 sets of ‘PC-24T_0293_ВО. Double sun shades for passenger cars’ worth UAH 7.01 million

2) procurement of ‘TsN-24P_108_VO. Legal services (services of an external legal adviser) for providing advice on the application of English law and the law of other countries’ worth UAH 26 million.

What is the reason for such procurement?

In early August 2024, it became known that the management of JSC Ukrzaliznytsia wanted to carry out the so-called ‘unification’ of tariffs for freight transportation by reducing the number of Coefficients applied to the tariffs of the Collection of tariffs for the carriage of goods by rail within Ukraine and related services, as well as eliminating the disproportion between the cost of transportation of different types of goods.

The Cabinet of Ministers of Ukraine approved the consolidated financial plan of the joint-stock company ‘Ukrainian Railways’ for 2024 by its Resolution No. 1166-r dated 17 November 2023 (the official website of the Cabinet of Ministers of Ukraine does not contain the financial plan itself, but only states that it is ‘attached to the original’).

This document, which does not provide for the attraction of funds from the state budget, plans to generate a total of UAH 103.2 billion in revenue, including net income from the sale of products (goods, works, services) in the amount of UAH 98.6 billion.

Total expenses are planned at UAH 115.8 billion, including a 13% increase in the cost of goods sold, mainly due to the need to increase wages and electricity tariffs.

EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation – an analytical measure equal to earnings before interest, taxes, depreciation and amortisation) is planned at UAH 11.8 billion. The EBITDA margin will be 12%.

Revenue from freight transportation is expected to reach UAH 80.1 billion, and from passenger transportation – UAH 9.3 billion.

Losses are projected at UAH 12.6 billion, which will be covered by the developed break-even plan. Capital investments are planned to amount to UAH 38 billion. These funds will be used, in particular, to restore the infrastructure damaged by the enemy and to build railway crossings with the EU.

At the same time, Ukrzaliznytsia has long-standing problems related to

imperfection of the legal acts regulating the railway transport (for example, the Verkhovna Rada of Ukraine has been considering the draft Law of Ukraine ‘On the National Commission for State Regulation of Transport’ / Reg. No. 3927 of 22 July 2020/, ‘On Amendments to the Law of Ukraine “On Transport” /reg. No. 6514 of 13 January 2022, ‘On Amendments to the Law of Ukraine “On Transport” on the Establishment of the National Commission for State Regulation of Transport’ /Reg. No. 6514-1 of 31 January 2022);
inconsistency of its organisational structure with the conditions of development of the country’s market economy;
cross-subsidisation of unprofitable passenger transportation at the expense of freight transportation;
insufficient transparency of the industry’s financial activities (for example, it is almost impossible to obtain information from the management of JSC ‘Ukrzaliznytsia’ on the cost of transportation for certain types of cargo);
low level of competition in the railway transportation market;
constant corruption scandals in the acquisition of material and technical resources, as well as their theft;
frequent change of the company’s management (for example, Ukrainian Railways was established by the Resolution of the Cabinet of Ministers of Ukraine No. 200 of 25 June 2014. Over 10 years, 11 people have held the position of Chairman of the Board of JSC ‘Ukrzaliznytsia’, six of whom were acting, seven worked for less than one year, and two (E.P. Kravtsov and I.I. Yuryk) were appointed twice).

In July-August, Ukrzaliznytsia suffered losses of UAH 600-700 million and expects a small loss in 2024, despite profitable operations in the first half of the year. This was stated by Yevhen Liashchenko, Chairman of the Board of the company, at the Business Breakfast of Forbes Ukraine on 4 September this year.