EBA Open Letter regarding tariffs for railway transportation of cargoes
The representatives of the Logistics Committee reviewed the draft order of the Ministry of Infrastructure of Ukraine “On Amendments to Certain Regulatory Acts of the Ministry of Transport and Communications of Ukraine”, which was promulgated for public discussion on the official website of the Ministry of Infrastructure on January 11, 2017.
In accordance with the Regulatory Impact Analysis of the Draft Order, “it is envisaged to implement, from February 2017, the indexation of tariffs for the carriage of goods within Ukraine by 25% … and the deregulation of the carriage component in tariffs for the carriage of goods in their own wagons at Ukrzaliznytsya PJSC <…>”.
According to the experts of the Association of Logistics of the Association, the proposed Order of the Ukrainian Parliament may have a negative impact on the individual industries of Ukraine’s economy, including the medium- and long-term competitiveness of industry and agro-industrial complex of Ukraine (indicators are added), and may lead to an increase in the cost of road transport as an alternative type of freight transport.
In connection with this, the member companies of the Association Committee consider it expedient to hold:
– a more thorough analysis of the impact of increasing rail tariffs on the Ukrainian economy and compare with the effect of attracting the necessary amount of revenues to Ukrzaliznytsya;
– elaboration of alternative financing sources for Ukrzaliznytsia;
– analysis of possible negative consequences for Ukrzaliznytsia due to falling volumes of cargo for transportation (the main source of income), in particular, due to the transition to automobile / river transport.
Taking into account the above mentioned, the members of the Association Committee do not support the Draft Order in the proposed wording and propose to open an open dialogue between representatives of the Ministry of Infrastructure, the State Regulatory Service of Ukraine, Ukrzaliznytsya and other interested executive bodies with representatives of the business community on the issue of indexation of state regulated tariffs in the near future. transportation of goods by rail within Ukraine.
Information provided by the member companies of the Logistics Committee (hereinafter – the Committee) of the European Business Association (hereinafter – the Association)
- Metallurgical industry
According to the member companies of the Association’s Association, in 2016 the volume of iron ore production in Ukraine decreased by 7% in relation to 2015, while steel production after a slight increase in the first half of 2016 (12.4 million tons) in the second half of the year In 2016, it dropped to 11.8 million tons, indicating a difficult situation in one of the leading sectors of the Ukrainian economy. The main factors influencing the production capacity of the steel industry were: increased competition in foreign markets, internal logistic constraints, and the negative impact of rising prices on key resources and services in the second half of 2016 (coal, coke, natural gas). Significant increase in tariffs (+ 25%), stipulated by the draft Order of the Ministry of Infrastructure of Ukraine “On Amendments to Certain Regulatory Acts of the Ministry of Transport and Communications of Ukraine” (hereinafter referred to as the Draft Order) dated January 11, 2017, according to one of the key articles the costs of the metallurgical industry of Ukraine, namely the transportation of goods by rail, may lead to further reduction of production and, as a consequence, export revenues.
- Coal industry
The draft Order on the increase of tariffs for rail freight by 25%, as estimated by experts of the Association Committee, can lead to an increase in the cost of production of coal by 0.8-1 USD. US per tonne, as well as to increase the cost of transportation of coal products by more than $ 80 million. US per annum, which, in turn, will lead to an increase in electricity tariffs by $ 0.16. US $ 100 kW per year. This will result in an additional economic burden on industry and the population.
- Agroindustrial complex of Ukraine
According to the Association member companies, the large volume of transport of fixed assets and finished products of the agro-industrial sector is carried out by rail. The foregoing indicates a significant dependence of the industry that produces such a socially important product, such as sugar, from the tariff policy of PJSC “Ukrainian Railways”. The proposed increase in tariffs will have a negative impact on the activity of producers of grain products, as transportation of a significant amount of means of production, as well as 90% of the volume of finished grain products is carried out by rail.
According to experts of the Association, at the expense of transportation of means of production and finished products in 2017 in the amount of 350 million UAH, with an increase in the level of railway tariffs, additional costs, according to the most conservative estimates, will amount to less than 130 million UAH. Such costs, in turn, will be included in the cost of production, which is socially and economically important (that is, it is either consumed by Ukrainian citizens or exported).
- Other industries
The analysis of the regulatory impact of the Draft Order stipulates that, in connection with the indexation of tariffs for rail freight transportation, PJSC “Ukrainian Railways” will additionally receive about UAH 10.5 billion, that is, this amount of financial resources will be withdrawn from the economy, which may lead to a decrease in the competitiveness of a number industries, falling margin manufacturers in the metallurgical, chemical, cement and construction sectors. Moreover, the Draft Order proposes that the level of indexation of railway tariffs (+ 25%) exceeds the forecasted Industrial Producer Price Index for 2017 (+ 8.5% – scenario 1) *.
* The Industrial Producer Price Index, approved by the Cabinet of Ministers of Ukraine “On Approval of the Forecast of Economic and Social Development of Ukraine for 2017 and the Main Macroeconomic Indicators of Ukraine’s Economic and Social Development for 2018 and 2019” # 399 dated July 1, 2016.