Business does not support the increase in tariffs for railway transportation

06/ 07/ 2022

At the end of June, the Ministry of Infrastructure of Ukraine adopted an order according to which the tariffs for rail transportation of goods within Ukraine and related services are increased by 70%. That is order No. 441 On making changes to the Coefficients applied to the tariffs of the Tariff Book for the transportation of goods by rail within Ukraine and related services. It is worth noting that the European Business Association, which unites hundreds of companies in Ukraine, categorically does not support this decision. Anna Derevyanko. EBA Executive Director. Undoubtedly, Ukrzaliznytsia, like other industries and sectors, suffered significant losses as a result of hostilities and needs financial support. However, the compensation of these losses cannot be placed only on business – because it is a difficult time for everyone, and everyone has losses. Thus, Ukrainian exports were reduced by more than half, and logistics routes and supply chains are damaged during the war. Besides, the workload of companies has fallen significantly since the beginning of the full-scale military invasion of the russian federation and, according to the EBA member companies, the increase in railway freight tariffs can potentially cause the collapse of key industries, and therefore have an extremely negative impact on the economy of Ukraine as a whole. Therefore, it is important to find additional sources of financing, including for the purposes of restoring damaged/destroyed infrastructure, for example, international financial and technical assistance, loans, etc., so as not to put the entire burden on business. With the blocking of the ports, the cargo flow was reoriented in the direction of the western border crossings, due to which the cost of logistics increased significantly because the transportation distance to the EU ports increased many times. Thus, according to the EBA experts, the increase in railway tariffs will contribute to the shutdown of working companies in Ukraine (which currently pay taxes, provide jobs and assistance to the defense sector). Moreover, railway tariffs for such sensitive cargoes as coal, cement, ore, and fertilizers have already increased by 42% since January 1, 2022, compared to the beginning of 2021, which will lead to at least UAH 2.9 billion in additional transport costs by the end of 2022. And a further increase in tariffs creates a risk of stopping the economic activity of companies because the transportation of certain cargoes by railway will become unprofitable for cargo owners, which in the final case will lead to a decrease in the cargo base. That is, in fact, the increase in tariffs may not solve the issue of Ukrzaliznytsia having a shortage of funds. Besides, existing significant problems with the export should be taken into account. Thus, according to business representatives, 40,000 wagons are queueing now at border crossings. Also, 21% of cargo there was shipped more than 30 days ago. And it is still waiting to cross the border. As a result, the wagon turnover increases more than twice, and at some border crossings – three times, which leads to even greater additional costs for shippers. Such long-term waiting at the borders significantly complicates the export of products of enterprises and has negative consequences for the economy of Ukraine. Unfortunately, the proclaimed capacity of 3,400 wagons per day passing through the western border crossings is not realistic. And significant problems with transportation are also observed in domestic communication. If we talk about specific industries, for example, due to the blocked ports, farmers were forced to direct their export flows through the western borders of Ukraine, receiving more expensive and much slower logistics in return. At the same time, the whole world is currently talking about the restoration of food supply to global markets from Ukraine – so it is important to help create the best conditions for providing agricultural products (grains, oil, etc.). Unfortunately, the decision on tariffs is unlikely to contribute to this. Besides, an increase in tariffs may lead to the shutdown of coal industry enterprises, particularly, 40% of working mines will be forced to stop operations due to an increase in the cost of production and transportation of products. Following the shutdown of mines, approximately 7,600 workers will be laid off/retrenched, and tax revenues for the budgets of various levels will decrease. Besides, this will have an impact on the energy industry. In the absence of a sufficient amount of coal in TPP warehouses, Ukraine’s readiness for the autumn-winter heating season of 2022-2023 may be put under question. Therefore, the European Business Association appeals to Head of the Office of the President of Ukraine Yermak Andrii, Head of the State Regulatory Service of Ukraine Oleksiy Kucher, Head of the Antimonopoly Committee of Ukraine Olga Pishchanska, Minister of Infrastructure of Ukraine Oleksandr Kubrakov and Chairman of the Board of Ukrzaliznytsia Kamyshin Oleksandr with a call to cancel the order that provides for an increase in tariffs. Moreover, it is necessary to introduce a moratorium on tariff increases during martial law and for 12 months after its end. At the same time, it is important to focus the efforts of Ukrzaliznytsia on expanding the capacity of the railway infrastructure, particularly, in the direction of the western border crossings, which will allow increasing the volumes of transportation and revenues of Ukrzaliznytsia without the need to increase tariffs. Also, business is ready to help attract financial support for Ukrzaliznytsia from international partners until the ports are unblocked. We sincerely hope that the voice of transparent business will be heard!

It is worth noting that the European Business Association, which unites hundreds of companies in Ukraine, categorically does not support this decision.

Anna Derevyanko EBA Executive Director

Undoubtedly, Ukrzaliznytsia, like other industries and sectors, suffered significant losses as a result of hostilities and needs financial support. However, the compensation of these losses cannot be placed only on business – because it is a difficult time for everyone, and everyone has losses.

Thus, Ukrainian exports were reduced by more than half, and logistics routes and supply chains are damaged during the war. Besides, the workload of companies has fallen significantly since the beginning of the full-scale military invasion of the russian federation and, according to the EBA member companies, the increase in railway freight tariffs can potentially cause the collapse of key industries, and therefore have an extremely negative impact on the economy of Ukraine as a whole. Therefore, it is important to find additional sources of financing, including for the purposes of restoring damaged/destroyed infrastructure, for example, international financial and technical assistance, loans, etc., so as not to put the entire burden on business.

With the blocking of the ports, the cargo flow was reoriented in the direction of the western border crossings, due to which the cost of logistics increased significantly because the transportation distance to the EU ports increased many times. Thus, according to the EBA experts, the increase in railway tariffs will contribute to the shutdown of working companies in Ukraine (which currently pay taxes, provide jobs and assistance to the defense sector).

Moreover, railway tariffs for such sensitive cargoes as coal, cement, ore, and fertilizers have already increased by 42% since January 1, 2022, compared to the beginning of 2021, which will lead to at least UAH 2.9 billion in additional transport costs by the end of 2022. And a further increase in tariffs creates a risk of stopping the economic activity of companies because the transportation of certain cargoes by railway will become unprofitable for cargo owners, which in the final case will lead to a decrease in the cargo base. That is, in fact, the increase in tariffs may not solve the issue of Ukrzaliznytsia having a shortage of funds.

Besides, existing significant problems with the export should be taken into account. Thus, according to business representatives, 40,000 wagons are queueing now at border crossings. Also, 21% of cargo there was shipped more than 30 days ago. And it is still waiting to cross the border. As a result, the wagon turnover increases more than twice, and at some border crossings – three times, which leads to even greater additional costs for shippers. Such long-term waiting at the borders significantly complicates the export of products of enterprises and has negative consequences for the economy of Ukraine. Unfortunately, the proclaimed capacity of 3,400 wagons per day passing through the western border crossings is not realistic. And significant problems with transportation are also observed in domestic communication.

If we talk about specific industries, for example, due to the blocked ports, farmers were forced to direct their export flows through the western borders of Ukraine, receiving more expensive and much slower logistics in return. At the same time, the whole world is currently talking about the restoration of food supply to global markets from Ukraine – so it is important to help create the best conditions for providing agricultural products (grains, oil, etc.). Unfortunately, the decision on tariffs is unlikely to contribute to this. Besides, an increase in tariffs may lead to the shutdown of coal industry enterprises, particularly, 40% of working mines will be forced to stop operations due to an increase in the cost of production and transportation of products. Following the shutdown of mines, approximately 7,600 workers will be laid off/retrenched, and tax revenues for the budgets of various levels will decrease. Besides, this will have an impact on the energy industry. In the absence of a sufficient amount of coal in TPP warehouses, Ukraine’s readiness for the autumn-winter heating season of 2022-2023 may be put under question.

Therefore, the European Business Association appeals to Head of the Office of the President of Ukraine Yermak Andrii, Head of the State Regulatory Service of Ukraine Oleksiy Kucher, Head of the Antimonopoly Committee of Ukraine Olga Pishchanska, Minister of Infrastructure of Ukraine Oleksandr Kubrakov and Chairman of the Board of Ukrzaliznytsia Kamyshin Oleksandr with a call to cancel the order that provides for an increase in tariffs. Moreover, it is necessary to introduce a moratorium on tariff increases during martial law and for 12 months after its end.

At the same time, it is important to focus the efforts of Ukrzaliznytsia on expanding the capacity of the railway infrastructure, particularly, in the direction of the western border crossings, which will allow increasing the volumes of transportation and revenues of Ukrzaliznytsia without the need to increase tariffs. Also, business is ready to help attract financial support for Ukrzaliznytsia from international partners until the ports are unblocked. We sincerely hope that the voice of transparent business will be heard!