Ukrainian Railways tariff initiatives pose real risks for the country's economy

Industry associations called on the authorities to initiate measures to improve the financial condition of the railway operator

A number of leading Ukrainian industrial associations have sent an open letter to the President of Ukraine and a number of ministers regarding another attempt to raise tariffs for freight transportation by Ukrainian Railways (UZ).

As noted in the letter, the railroad is critically important for the Ukrainian economy, as it provides 82% of freight transportation in the country, while in the EU this figure is only 20%.

The Ukrainian business community, the industry associations emphasize, has already felt financial pressure after a series of tariff increases for freight transportation in 2021 and 2022. For example, tariffs for the transportation of coal, ore and limestone increased by 140%, metal by 70%, and grain by 96%. New increases are currently planned: by 19% for iron ore and coal, 12% for coke, and 11% for grain.

Industry representatives point out that high logistics costs due to the rapid increase in UZ freight tariffs make Ukrainian products uncompetitive on the international market.

The industrialists believe that in times of war, instead of keeping cargo on the railroad, increasing the cargo base, and improving the company’s efficiency, Ukrainian Railways is uncontrollably and rapidly expanding its cost base and inflating its costs.

“UZ’s proposal to establish a single average tariff for all, which will cover all possible and impossible costs, including related unprofitable segments of activity, regardless of the technology of transportation of each individual consignment, will, on the one hand, destroy the economic potential of the industries, (agriculture, mining and metals, construction) and basic for the entire Ukrainian economy, and on the other hand, will make UZ chronically uncompetitive in comparison with road transport and other types of transportation,” the appeal states.

Therefore, the short-sighted tariff policy of UZ will have a critical impact on the entire economy of the country, and, accordingly, on its defense capability and national security.

The industrial associations call on the authorities to initiate measures to improve the financial condition of UZ, in particular, to set the following tasks for its management

to establish work to support and develop the freight base of Ukrainian Railways;
ensure continuous work on cost optimization;
improve the efficiency of the state monopoly’s asset utilization, and facilitate the transfer of unprofitable assets to the State Property Fund of Ukraine or their write-off.

In addition, the letter calls for a moratorium on raising railroad tariffs until martial law is lifted and for a period of at least two years after the end of hostilities and for finding opportunities to reduce freight tariffs by 15% in 2025 through the above measures.

The appeal was signed by the heads of Ukrmetalurgprom, the Union of Chemists of Ukraine, the National Association of Mining Industry of Ukraine, the Ukrainian Association of Producers of Ferroalloys and Other Electrsteel Products UkrFA, and the All-Ukrainian Union of Building Materials Manufacturers.

As GMK Center reported earlier, the unification of UZ tariffs will result in a 10-15% increase in business costs. To stimulate economic development, it is necessary to reduce, not increase, railway freight tariffs This opinion was expressed by Ksenia Orynchak, Executive Director of the National Association of the Extractive Industries of Ukraine.