Ukrainian Railways needs a full-fledged reform, not another tariff increase — Metinvest CEO

The rail market needs an independent regulator to set fair fares

Ukrainian Railways (UZ) initiative to “harmonize” freight transportation tariffs makes no sense, as it costs more to transport a ton of grain than a ton of ore. Accordingly, the tariff for these transportation services should be different.

This was stated by Yuriy Ryzhenkov, CEO of Metinvest, in an interview with Forbes.

“Ore transportation involves a direct route train from point A to point B, that is, from the plant to the port. In this case, the mining and processing plant forms the route train itself. Ukrainian Railways only needs to provide a large mainline locomotive and its own infrastructure: the track. Grain transportation is a significantly more expensive operation for Ukrainian Railways. The train must be assembled by small locomotives, collecting a few wagons from various elevators at different railway stations before heading to the port. This means that Ukrainian Railways’ costs to deliver a comparable volume of grain are significantly higher than for ore,” Ryzhenkov said.

He also noted that during the war, UZ’s freight rates more than doubled for steelmakers. Logistics now accounts for 40% of production costs, so another increase in the railroad tariff will reduce their competitiveness.

«A comprehensive reform of Ukrainian Railways is needed. It should be split into several independent companies: infrastructure, traction and passenger. Each of these companies should set its own transparent tariffs for its services. An integral part of this reform should be the introduction of an independent regulator, as in the energy market. This regulator should serve as an arbitrator between business and Ukrainian Railways in terms of tariffs for monopoly services. Because now there is a railway monopolist that can set whatever tariffs it wants and no one can check whether they are reasonable,» Ryzhenkov summarized.

Ukrainian Railways transported 57 million 740 thousand tons of cargo for export in January-August 2024, which is 65.8% more than in the same period last year. This allowed the company to make a profit of more than UAH 3 billion in six months. At the same time, Yevhen Lyashchenko, CEO of UZ, said that the company expects losses at the end of the year and initiated another increase in freight tariffs.

As GMK Center previously reported, according to the draft order sent by UZ to the Ministry of Community, Territorial and Infrastructure Development in August 2024, tariffs for rail transportation of ore and coal will increase by 19%, coke – by 12%, and grain cargo – by 11% (including increases for freight and empty runs).

In view of this, the Federation of Transport Employers of Ukraine (FTU) urged the government to avoid raising tariffs for rail freight transportation.

According to Ksenia Orynchak, Executive Director of the National Association of Extractive Industries of Ukraine, unification of Ukrainian Railways’ tariffs will increase business costs by 10-15%, which is in addition to the previous record increase in 2022.