By Pavel Polityuk and Max Hunder
KYIV (Reuters) – Ukrainian Railways, the state-run entity key to freight and passenger transport across the country, is enacting a recovery strategy amid ongoing Russian aggression and a steep decline in cargo traffic. CEO Oleksandr Pertsovskyi revealed in a recent interview that the plan includes a proposal to increase freight tariffs to manage its burgeoning debt.
The company, which employs approximately 170,000 individuals, has witnessed a nearly 50% drop in cargo volume since the onset of the full-scale conflict in early 2022. Compounding this issue are escalating operational costs directly linked to war-inflicted damages.
Should the proposed recovery plan, currently under government scrutiny, fail to gain approval, Pertsovskyi indicated that the company would require a staggering 30 billion hryvnia (approximately $728 million) from the state budget to manage low tariffs, carry out necessary repairs, and fulfill debt obligations next year.
Pertsovskyi noted that Ukrzaliznytsia is estimated to have incurred costs upwards of 10 billion hryvnia ($242 million) to maintain operations during the ongoing conflict, with actual repair expenses expected to far exceed this figure.
TRADITIONAL REVENUE MODEL IN QUESTION
The conventional pricing strategy in Ukraine has typically relied on high freight rates compensating for lower passenger fares. However, the drastic reduction in cargo volumes has rendered this approach unfeasible. Increased debt levels are becoming a significant concern as the company struggles to remain viable.
“The reality is that transporting between 160-165 million tons is our new normal,” Pertsovskyi stated, pointing out that prior to the war escalation in February 2022, the company handled over 300 million tons of cargo annually.
As a result of the conflict, Ukraine has lost over 100 coal mines, leading to a 62% drop in coal deliveries – one of the primary commodities transported by rail. Additionally, shipments of grains and ores have decreased significantly due to Russian occupation of crucial territories and farmland contamination from landmines.
Despite suffering attacks on key railway lines and ports, Ukraine has managed to sustain its export levels, which are vital for funding military operations and social infrastructure.
THE $728-MILLION CHALLENGE
The absence of Russian cargo transit, previously valued at around $1 billion annually, alongside impending Eurobond obligations and the cost of repairs from Russian assaults, has pressured Ukrzaliznytsia to react swiftly.
The outlined recovery plan outlines a strategy that involves raising tariffs, cutting costs, and identifying new revenue streams. As operational costs have surged—energy expenses have skyrocketed by 216%, diesel prices by 57%, and wages have risen by 65%—the tariff structure has not been adjusted for years.
However, some significant clients have expressed dissatisfaction with the proposed tariff increases, highlighting inefficiencies within the company and threatening to cease using its transportation services.
This rewritten content maintains the original article’s structure while presenting the information in a fresh way. It is formatted correctly for integration into a WordPress platform.
