Main Journey of Ukrzaliznytsia: Reform Cannot Be Postponed until Victory

In the first months of the full-scale invasion, the railway became one of the main ways to evacuate the civilian population. Thanks to the brave work of Ukrainian car attendants and drivers, the systemic problems of Ukrzaliznytsia were forgotten for some time. However, at present, changes in Ukrzaliznytsia are proposed to be postponed for several years after the end of the war. 

In our opinion, we must not wait so long. Ukrainian railways are in for almost the largest reintegration from the post-Soviet railway into the modern European transport network. This is a long and complex process that needs to be started now. This is confirmed by the results of the report, in which Transparency International Ukraine experts studied the main examples of large-scale railway restructuring in other countries and outlined the main steps for the reconstruction of the railway in Ukraine.

Ukrainian railway is critically important, but problematic

Until February 24, 2022, the Ukrainian railway accounted for 60-75% of the total cargo turnover of Ukraine. This is a very high figure. For example, in the EU, this share is 12-18% of all freight transportation. Currently, the European Union is making efforts to increase it to 30% by 2030.

However, the Ukrainian railway still has a number of significant problems: corruption, inefficient management, outdated normative regulation, deteriorated infrastructure. The role of the state in the railway is excessive, it is difficult for private investment to enter it.

Corruption abuses in Ukrzaliznytsia have led to dozens of NABU investigations, the losses amounting to billions of hryvnias. During the audit of Ukrzaliznytsia’s activities for 2017–2020, the State Audit Service found violations and risks worth UAH 61 bln (more than USD 2 bln). At one time, the Ministry under Omelyan and the Groysman government even had a dispute about the influence on Ukrzaliznytsia. 

Unless these issues are addressed, the majority of freight transportation may switch to road transport. This, in turn, can significantly increase the cost of maintaining roads and traffic.

Unlike rail networks, which are predominantly customer-funded, the highway network is a burden on the budget. The loss of the role of the railway can double budget expenditures on road maintenance or increase it threefold.

In addition, rail transport is more environmentally friendly than other types of transportation. In the EU, by increasing the share of freight turnover through the railway, greenhouse gas emissions are planned to be reduced by about 275 mln tons of CO2, as well as carbon fuel consumption in the transport sector.

Lengthy reform of Ukrzaliznytsia

The reform of Ukrzaliznytsia began in 2012, after the adoption of the Law On Features of Establishment of Joint-Stock Company of Public Railway Transport. Entities of dozens of individual state-owned enterprises, usually divided on a regional basis, were merged into a single joint-stock company. 

But later the process stretched for years. As of now, it has not been completed.

For example, Ukrzaliznytsia has not yet abolished the regional division of railways inherited from the times of the Russian Empire and limited distances of locomotive traction. In the 21st century, when locomotives are able to cover distances across the country, this division is an archaic inheritance.

The second attempt to carry out large-scale changes took place in 2019, when the Government approved the Railway Reform Action Plan. Ukrzaliznytsia was to be divided into operators in the areas of activity: freight, passenger transportation, and other areas. In addition, it was planned to introduce a European model of management and competition on the market. 

However, this attempt was not successful. Railway transport in Ukraine still does not meet the requirements of EU directives; without them, the full integration of Ukrainian railways is impossible.

Changing east vector to west vector

Ukrzaliznytsia needs to move from the post-Soviet state to the modern European one. This applies to both management and infrastructure.

Ukraine’s railway network was designed at a time when most goods were transported in the direction of the east. Now, Ukraine is already experiencing a shortage of opportunities for transborder crossings towards the EU countries. 

To ensure a stable export of Ukrainian products, our railway should become a full-fledged part of the single European transport network TEN-T. To do this, we will also have to resolve the issue of track width, which differs in Western Europe (1,435 mm) and countries that were influenced by the Russian Empire (1,540 mm).

Ukraine can benefit from the example of Spain and the Baltic countries, which also had different track widths and are in the process of integrating into the EU rail network, in terms of large-scale railway upgrade. 

For example, Spain was able to change the model of passenger transportation by implementing a large infrastructure project for the development of a high-speed railway, with a total cost of more than USD 56 bln. Prior to it, the country had a track width that did not correspond to the European one (1,668 mm). The role of rail transport in transborder travel was minimal. 

After the implementation of the project, Spain had one of the most extensive high-speed networks in Europe, known as Alta Velocidad Española (AVE). It is integrated with the general network of high-speed railways of the EU countries. In general, the project was a significant breakthrough for Spain and contributed to an increase in travel with the EU countries. 

The development of high-speed rail passenger traffic is one of the key fields for the EU countries, the area and population of which are close to Ukrainian ones, such as France, Germany, Spain, etc. Ukraine also needs to make a speed jump.

It is necessary to reduce the monopoly of Ukrzaliznytsia and attract private companies, in particular, to the locomotive traction market. This will allow faster updating and adaptation of the railway system.

In order for the Ukrainian railway to cease to be an instrument of enrichment and political bargaining, it is important to carry out systemic anti-corruption reforms and minimize political influence on the company. Management should be selected not according to political quota, but through transparent competitions, and their work should be evaluated in accordance with transparent KPIs. Only a change in management approaches and the introduction of absolute openness can change the situation with high corruption in Ukrzaliznytsia.

Of course, we need to modernize the specialized legislation, which will determine the key principles of organization and models of the railway transportation market in post-war Ukraine, and a developed reform plan.

We can start implementing a part of the changes now. Yes, it is unlikely that we will launch a large-scale project on changing the track width or updating locomotives right now. However, for example, the necessary documents and plans can be developed now, without waiting for the war to end. This is a stage that we need to go through anyway, so we should not waste time. It needs to be implemented in preparation for a full-fledged post-war reconstruction of the railway, which will allow us to start implementing reconstruction programs without delay. Given the number of problems with our rail transport, the cost of doing nothing is very high — are we willing to pay it? 

The publication was prepared with the support of USAID / UK aid project Transparency and Accountability in Public Administration and Services/ TAPAS