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Keys to visible change in “Ukrzalisnytsia” railway company: time, strategy and transparency – results of discussion

Kyiv, February 13, 2017.

Results of reform in “Ukrzalisnytsia” railway company will become visible in at least 3-5 years. “The corporation of such size needs a step-by-step reform, with support and trust of the government and joint decision-making. In such case we will see real and visible improvements in maybe 3-5 years,” stated Finance & Analysis Director of the company Adriy Ryazantsev at a discussion at Ukraine Crisis Media Center.

Performance of the new team is not satisfactory – Ministry of Infrastructure

According to Andriy Lavreniuk, Deputy Minister of Infrastructure of Ukraine, the new team has not achieved visible results during the first year of its work. “Ukrzaliznytsia” has not issued shares and has not organized audit of its assets, it has not restructured its debts and was not negotiating with potential investors. In addition, there was a number of questionable appointments. According to Lavreniuk, rate increases were not backed by financial rationale. There are doubts about fairness of tender procedures. According to Volodymyr Datsenko, director of the project “Railways without corruption”, 47 per cent of tenders were not successful or were cancelled. In 49.1 per cent of tenders there were procedural violations, in over 70 per cent there was low competition.

The main point of criticism is the fact that the company has no clearly defined strategy and financial plan. “The financial plan has been adopted in 2016. As of today, there is no information on results of its implementation, especially regarding capital investments, and there is no information about the financial plan of this year – there is no such document in public assess,” stressed Sergiy Vovk, director of the Center of Transport Strategies. “There is no vision where the company is going and how this way differs from what we had in previous years. […] Perhaps, it exists as object of discussions, but there is no document to read and make a comment”.

 “Ukrzaliznytsia” management: 2016 was more fruitful than the previous years

According to “Ukrzaliznytsia” Finance & Analysis Director, over UAH 6 billion were invested into rolling stock and infrastructure in 2016. This is 1,5 times more than in 2015. The railway purchased over 1100 units of rolling stock, which is more that during the previous three years. In addition, the Ministry of Finance and the Ministry of Economic Development and Trade are currently analyzing a project on cooperation with EBRD on procurement of 6 thousand railroad cars. More than 30 thousand of freight cars and more than 2 thousand of passenger cars had been repaired, as well as 213 km of railways, which is 4,5 times more than in 2015. Moreover, 12 pairs of new trains, a new transformer train and Kyiv-Przemysl train have been launched. The company also launched a system of automatic distribution of empty cars for cargo traffic.

In 2016, “Ukrzaliznytsia” cleared over UAH 6 billion of debt. Its revenue in 2016 constituted UAH 308 billion.

Andriy Ryazantsev also denied accusation that the company has no financial plan for 2017. “The Ministry of Infrastructure adopted the 2017 draft financial plan with several remarks. At present, it undergoes comprehensive analysis in the Ministry of Economic Development and the Ministry of Finance. The Ministry of Finance has already issued its conclusion with several remarks,” he noted.

According to the plan, investments into rolling stock and infrastructure will constitute UAH 27,4 billion and 9 billion will be spent on repairing works. “These 27,4 billion is 4,5 times more than in 2016, and the amount allocated for repairing works has grown by 67 per cent comparing to the same period in 2016,” Ryazantsev noted. The company is going to purchase about 9 thousand units of rolling stock; this is 1,5 times more than over the last eight years. In addition, it will introduce a one agreement procedure for cargo traffic [instead of particular agreements with each regional subunit of the company]. Novelties for passengers include modernization of railway stations, complete renovation of bed sheets sets and eco-toilets in passenger cars.

“Ukrzaliznytsia” approved rolling stock strategy for 2017-2021, according to which the company will modernize and renovate 96 thousand units of rolling stock. It will cost UAH 108 billion.

Andriy Ryazantsev added that “Ukrzaliznytsia” will continue transition to mainly daytime traffic. “In the perspective of 3-5 years the share of daytime traffic is expected to grow up to 60 per cent”, he noted. Moreover, the company will introduce a new hub system instead of direct connection from one city to another. “This mechanism will create optimum routes through a number of hub stations,” Ryazantsev explained.

He also mentioned that in the previous week the Supreme Court of Ukraine stated in its decision that “Ukrzaliznytsia” shall not be regarded as legal successor of public enterprise “Donetska Zaliznytsia”. “We will address to relevant instances with request to revise their decisions on cases related to “Donetska Zaliznytsia” debts according to which these amounts have been withdrawn from “Ukrzaliznytsia” accounts,” he added.

There is no authority directly responsible for “Ukrzaliznytsia” strategy

According to experts, de facto there is no authority which could be considered as the main responsible for “Ukrzaliznytsia” strategy”. “According to legislation, the Ministry of Infrastructure is responsible for transport policy of the country, therefore for the railways policy as well. “Ukrzaliznytsia” Board is responsible for detailed development and implementation of this policy. The formal right to make orders to “Ukrzaliznytsia” is within the mandate of the Ministry of Economic Development, while management appointments and key decisions are within the mandate of the Cabinet of Ministers. […] In this situation I have no idea who shall considered as the main responsible,” explained Sergiy Vovk.

SBU cancelled company’s right on access to security information

Yuriy Lavreniuk said that in January 2017 the Security Service of Ukraine cancelled “Ukrzaliznytsia” license on access to security information due to the fact that company’s director has no Ukrainian citizenship. He reminded that several operations are related to supplies for Ukrainian army in the conflict zone and supplies of fuel for nuclear power plants. “These operations have been suspended for already more than one month, because the license is cancelled,” he added. According to Lavreniuk, the question whether Wojciech Balczun could be granted access to security information “is not even discussed because of evident position of the Security Service and because of law on the national security information.”

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