Business assessed the state of development of transport infrastructure in Ukraine

04/ 12/ 2020

This year, the European Business Association conducted for the first time an Infrastructure Index, an expert study of the general state of transport infrastructure development in Ukraine in partnership with law firms Agreca and Sayenko Kharenko. The integrated value of the index reached 2.58 points out of 5 possible. View the presentation Experts of the EBA member companies have a quite moderate assessment of the level of development of the infrastructure industry. The majority, namely 54% of respondents consider the general state of infrastructure in Ukraine satisfactory, 35% say that it is negative, and another 11% assess it positively. The assessment of the level of investment attractiveness of Ukraine for the implementation of infrastructure projects turned out to be somewhat worse. Only 8% of experts consider it high, while, according to 47%, it is satisfactory, and another 45% consider it low. Respondents included the three main challenges of the infrastructure market: Lack of transparency in the decision-making process on infrastructure projects; Lack of an independent transport regulator; Lack of qualified personnel in government. The level of state implementation of transport development strategies received the worst assessment among the components of the index. The vast majority, namely 53% believe that it is low, another 40% consider it satisfactory, and only 7% praised the state′s implementation of transport strategies. Andrii Pidhainyi. Managing Partner, Agreca. The importance of strategic documents cannot be overestimated. The sectoral policies declared by the state embody fundamental approaches, directions of development and are the basis for planning and further implementation of reforms. Monitoring the state′s compliance with relevant strategies is similar to a litmus test, which signals to society the ability of the government to act effectively in achieving its goals. Lets analyze the level of infrastructure development in terms of each transport industry - rail, road, sea, river, air transportation. Most EBA companies use rail transport in their activities, while road and sea transport take the second and, the third place respectively. The worst assessment was given to the level of railway infrastructure development, the best - to air transport. Rail transport Most respondents assessed the general state of railway transport development negatively. Thus, 51% of experts hold this opinion, another 45% believe that it is satisfactory and only 4% gave a positive assessment of the state of the railway industry. Among the priority reforms needed for the development of the railway, the business singled out the reorganization of Ukrzaliznytsia, the opening of the private traction market, changes in tariff policy, and the introduction of a legislative opportunity to attract private investment in public railway infrastructure. Maryna Sharapa. Partner, Agreca. All areas of railway reform identified in the survey are related to the adoption of a new law on railway transport and a law on an independent transport regulator. While the reorganization of Ukrzaliznytsia, the liberalization of the traction market, and the improvement of tariff policy do not raise doubts about the need for their introduction, the issue of private investment in strategic railway infrastructure remains open. The results of the survey show that this problem deserves more attention from the state and should be addressed in the context of the adoption of a new law on railway transport. Road transport The vast majority of experts, namely 63% believe that the current state of development of road transport is satisfactory, 35% - negative, and only 2% - good. To improve the road infrastructure, the business expects to strengthen the dimensional and weight control and liability, to involve international independent players in technical supervision and monitoring of road construction, and to apply transparent and non-discriminatory public procurement procedures. Volodymyr Yaremko. Advisor, Sayenko Kharenko. The infrastructure index is the first of its kind. We are already waiting for the results of 2021 to compare them with this year. The fact that only 2% of respondents rated the development of road transport as good indicates the urgent need for reforms in the industry. These include the need to involve independent players in road construction supervision and monitoring (54% of the vote) and the application of transparent and non-discriminatory public procurement procedures (47% of the vote). Despite all the obvious successes and advantages of the Big Construction program, we must state that not many foreign contractors with valuable foreign experience and know-how are ready to enter the Ukrainian market. Air transport The largest number of positive assessments from the EBA experts was received by air transport - 33% of respondents believe that it is well developed, 50% report on a satisfactory state of the industry, and another 17% say that it is unsatisfactory. The most anticipated reforms and changes are the development of Boryspil Airport as an international hub, the introduction of state aid to Ukrainian air carriers, and the transfer of airports to the private sector on PPP/concession terms. Vladlena Lavrushyna. Lawyer, Sayenko Kharenko. Respondents were most satisfied with the condition of air transport, as 33% rated it as good. Unfortunately, due to the pandemic, the aviation industry is now at risk. Even large-scale business-supported projects, such as the development of Boryspil Airport as an international hub (83% of the vote), may become less realistic in the near future than in previous years. We would also like to note the support of business (67% of votes) for such a form of investment in infrastructure projects as a public-private partnership (PPP), which is becoming increasingly popular in Ukraine and is actively supported by the state. Further development of the PPP system, including concessions, may allow modernizing and expanding Ukraine′s infrastructure in the most efficient and least costly way for the state. Maritime transport Most respondents, in particular 73%, gave a satisfactory assessment of the state of development of maritime transport, another 21% - negative and only 6% - positive. The main reforms and changes in this area that business expects are the reduction of port fees and deductions of the USPA’s net profit to the state budget, the establishment of an independent regulator - the National Commission for State Regulation of Transport, systematization of services provided by USPA. Andrii Pidhainyi. Managing Partner, Agreca. All the most priority areas of port reform, identified by the results of the Infrastructure Index survey, are directly related to the Ukrainian Sea Ports Authority, which is a key link in the system of functioning of ports and their administration. Thus, the solution of issues related to the reduction of port fees, budget deductions, the autonomy of port administrations is impossible without further implementation of the reform, which will be based on new approaches to the role and mission of the port administration and its legal status. River Transport When assessing the level of development of river transport, none of the respondents gave it a positive assessment, but the vast majority rated it as satisfactory - 76% and another 24% consider it negative. To accelerate the development of the industry, the business proposes to provide state support for public infrastructure and the shipbuilding industry, to create the State Fund of Higher Education as part of a special fund of the state budget, to create conditions and mechanisms for attracting private investment in public infrastructure. Maryna Sharapa. Partner, Agreca. River transport is the only transport industry that has operated without its own law since independence. Its regulation is deprived of a systematic approach and priority areas of development. The adoption of the Law on Inland Water Transport is only the first step to address the problems, including those identified in the Infrastructure Index survey. Next, no less important is the issue of creating an Inland Water Transport Fund and finding sources of funding. For reference: Infrastructure Index was first conducted by the European Business Association in 2020. The index consists of four equivalent components: The general state of the infrastructure in Ukraine Average assessment of the general state of development of the five transport industries Investment attractiveness of Ukraine for the implementation of infrastructure projects The level of state implementation of development strategies for the transport sector The index is measured once a year. To calculate the index, we use the Likert scale, which has 5 gradations, where: 1 is extremely negative, 3 is satisfactory, 5 is extremely positive. Altogether, 104 transport and logistics specialists from the EBA member companies took part in the survey. Agreca and Sayenko Kharenko are our research partners, while Gemius is our analytical partner. Research partners Analytical partner

This year, the European Business Association conducted for the first time an Infrastructure Index, an expert study of the general state of transport infrastructure development in Ukraine in partnership with law firms Agreca and Sayenko Kharenko. The integrated value of the index reached 2.58 points out of 5 possible.

View the presentation

Experts of the EBA member companies have a quite moderate assessment of the level of development of the infrastructure industry. The majority, namely 54% of respondents consider the general state of infrastructure in Ukraine satisfactory, 35% say that it is negative, and another 11% assess it positively.

The assessment of the level of investment attractiveness of Ukraine for the implementation of infrastructure projects turned out to be somewhat worse. Only 8% of experts consider it high, while, according to 47%, it is satisfactory, and another 45% consider it low.

Respondents included the three main challenges of the infrastructure market:

Lack of transparency in the decision-making process on infrastructure projects;
Lack of an independent transport regulator;
Lack of qualified personnel in government.

The level of state implementation of transport development strategies received the worst assessment among the components of the index. The vast majority, namely 53% believe that it is low, another 40% consider it satisfactory, and only 7% praised the state′s implementation of transport strategies.

Andrii Pidhainyi Managing Partner, Agreca

The importance of strategic documents cannot be overestimated. The sectoral policies declared by the state embody fundamental approaches, directions of development and are the basis for planning and further implementation of reforms. Monitoring the state′s compliance with relevant strategies is similar to a litmus test, which signals to society the ability of the government to act effectively in achieving its goals.

Let’s analyze the level of infrastructure development in terms of each transport industry – rail, road, sea, river, air transportation. Most EBA companies use rail transport in their activities, while road and sea transport take the second and, the third place respectively. The worst assessment was given to the level of railway infrastructure development, the best – to air transport.

Rail transport

Most respondents assessed the general state of railway transport development negatively. Thus, 51% of experts hold this opinion, another 45% believe that it is satisfactory and only 4% gave a positive assessment of the state of the railway industry.

Among the priority reforms needed for the development of the railway, the business singled out the reorganization of Ukrzaliznytsia, the opening of the private traction market, changes in tariff policy, and the introduction of a legislative opportunity to attract private investment in public railway infrastructure.

Maryna Sharapa Partner, Agreca

All areas of railway reform identified in the survey are related to the adoption of a new law on railway transport and a law on an independent transport regulator. While the reorganization of Ukrzaliznytsia, the liberalization of the traction market, and the improvement of tariff policy do not raise doubts about the need for their introduction, the issue of private investment in strategic railway infrastructure remains open. The results of the survey show that this problem deserves more attention from the state and should be addressed in the context of the adoption of a new law on railway transport.

Road transport

The vast majority of experts, namely 63% believe that the current state of development of road transport is satisfactory, 35% – negative, and only 2% – good.

To improve the road infrastructure, the business expects to strengthen the dimensional and weight control and liability, to involve international independent players in technical supervision and monitoring of road construction, and to apply transparent and non-discriminatory public procurement procedures.

Volodymyr Yaremko Advisor, Sayenko Kharenko

The infrastructure index is the first of its kind. We are already waiting for the results of 2021 to compare them with this year. The fact that only 2% of respondents rated the development of road transport as "good" indicates the urgent need for reforms in the industry. These include the need to involve independent players in road construction supervision and monitoring (54% of the vote) and the application of transparent and non-discriminatory public procurement procedures (47% of the vote). Despite all the obvious successes and advantages of the "Big Construction" program, we must state that not many foreign contractors with valuable foreign experience and know-how are ready to enter the Ukrainian market.

Air transport

The largest number of positive assessments from the EBA experts was received by air transport – 33% of respondents believe that it is well developed, 50% report on a satisfactory state of the industry, and another 17% say that it is unsatisfactory. The most anticipated reforms and changes are the development of Boryspil Airport as an international hub, the introduction of state aid to Ukrainian air carriers, and the transfer of airports to the private sector on PPP/concession terms.

Vladlena Lavrushyna Lawyer, Sayenko Kharenko

Respondents were most satisfied with the condition of air transport, as 33% rated it as good. Unfortunately, due to the pandemic, the aviation industry is now at risk. Even large-scale business-supported projects, such as the development of Boryspil Airport as an international hub (83% of the vote), may become less realistic in the near future than in previous years. We would also like to note the support of business (67% of votes) for such a form of investment in infrastructure projects as a public-private partnership (PPP), which is becoming increasingly popular in Ukraine and is actively supported by the state. Further development of the PPP system, including concessions, may allow modernizing and expanding Ukraine′s infrastructure in the most efficient and least costly way for the state.

Maritime transport

Most respondents, in particular 73%, gave a satisfactory assessment of the state of development of maritime transport, another 21% – negative and only 6% – positive. The main reforms and changes in this area that business expects are the reduction of port fees and deductions of the USPA’s net profit to the state budget, the establishment of an independent regulator – the National Commission for State Regulation of Transport, systematization of services provided by USPA.

Andrii Pidhainyi Managing Partner, Agreca

All the most priority areas of port reform, identified by the results of the Infrastructure Index survey, are directly related to the Ukrainian Sea Ports Authority, which is a key link in the system of functioning of ports and their administration. Thus, the solution of issues related to the reduction of port fees, budget deductions, the autonomy of port administrations is impossible without further implementation of the reform, which will be based on new approaches to the role and mission of the port administration and its legal status.

River Transport

When assessing the level of development of river transport, none of the respondents gave it a positive assessment, but the vast majority rated it as satisfactory – 76% and another 24% consider it negative. To accelerate the development of the industry, the business proposes to provide state support for public infrastructure and the shipbuilding industry, to create the State Fund of Higher Education as part of a special fund of the state budget, to create conditions and mechanisms for attracting private investment in public infrastructure.

Maryna Sharapa Partner, Agreca

River transport is the only transport industry that has operated without its own law since independence. Its regulation is deprived of a systematic approach and priority areas of development. The adoption of the Law on Inland Water Transport is only the first step to address the problems, including those identified in the Infrastructure Index survey. Next, no less important is the issue of creating an Inland Water Transport Fund and finding sources of funding.

For reference:

Infrastructure Index was first conducted by the European Business Association in 2020.

The index consists of four equivalent components:

The general state of the infrastructure in Ukraine
Average assessment of the general state of development of the five transport industries
Investment attractiveness of Ukraine for the implementation of infrastructure projects
The level of state implementation of development strategies for the transport sector

The index is measured once a year. To calculate the index, we use the Likert scale, which has 5 gradations, where: 1 is extremely negative, 3 is satisfactory, 5 is extremely positive.

Altogether, 104 transport and logistics specialists from the EBA member companies took part in the survey.

Agreca and Sayenko Kharenko are our research partners, while Gemius is our analytical partner.

Research partners