Client is always wrong - Ukrainian Railways preparing tariff increase for businesses

Author : Ihor Vorontsov

Source : 112 Ukraine

PJSC "Ukrzaliznytsia" (Ukrainian Railways) announced plans for the next multi-stage increase in its tariffs for cargo transportation in 2019. If the government supports this initiative, the situation in the industry will seriously deteriorate, and the company will only lose traffic volumes as a result. But the monopolist in its decisions was not guided either by market logic, or by state interests, or simply by common sense
22:47, 5 December 2018

Kravtsov Evgen Facebook

Using the old recipes

I can’t say that some of the Ukrzaliznytsia clients - the major shippers - were surprised or shocked by the new initiative to raise freight rates in 2019, voiced by the acting Head of Board of Directors Yevhen Kravtsov on November 27 at the European Business Association.

According to him, it is proposed to raise tariffs by 16.6% from February 1, 2019 and then from May 1, from August 1 and from November 1 - by 2.5% each time. It goes without saying that the presentation of Ukrzaliznytsia did not contain any assessments of such an increase impact on the cost of production for the metallurgical or cement enterprises, the mining industry and grain traders. And in this case the cost of production will significantly increase.

That in turn will affect the exports and domestic sales - and therefore, in the end, the volume of freight. In addition, this entails a decrease in foreign earnings from exports, a reduction in tax payments and jobs in the country - if Ukrainian producers worsen their competitive position in foreign markets.

But, as already noted, Ukrzaliznytsia does not care about national interests. Although, its heads should understand the significance of the rail transport influence on the situation in the Ukrainian economy and the "domino effect" that the proposed so-called "indexation" will cause. It is no coincidence that Prime Minister announced on August 31 that Ukrzaliznytsia should take into account the state of the country's economy when planning freight rail tariffs and look for a balanced solution for the business.

Instead, all the leaders of Ukrzaliznytsia, at least in the last 12 years, are active in tariff increase. Issues such as updating the wagons and locomotives, improving production performance and, above all, railcar turnover as a measure of operational efficiency, reducing procurement costs by bringing prices to market ones — for some reason, are always postponed.

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As a result, the state of Ukrainian trains has reached a scale that threatens a traffic collapse. Which in general is already happening. Nevertheless, the current team of "reformers" in Ukrzaliznytsia led by Kravtsov sees its task primarily in making the growth of tariffs automatic - that is, introduce a mechanism for their quarterly increase. And thus avoid the need to support their proposals by at least some economic calculations.

“This allows private operators, private customers to understand what the tariff policy of Ukrzaliznytsia will be for many years to come in accordance with macroeconomic indicators,” the head of the company explained. Everything seems to be in the interests of business.

Although for a moment: why should we improve dispatching, service maintenance, reduce wagon downtime and repair time of the locomotive fleet, reduce purchase prices — in a word, reduce our costs if you can just wait for the next economics report and raise your tariffs?

By the way, why the metallurgical enterprises or agroholdings do not do the same - do not index the prices for rolled steel and grain according to the inflation rate of industrial producers? That's right, because then their customers would prefer to buy products from competitors who have the rates remained the same.

Well, since the mining and metallurgical plants will not be able to carry iron ore and steel products on trucks - then they will be our clients, they believe in Ukrzaliznytsia.

The initiative of the company about the quarterly automatic increase of tariffs indicates the unwillingness of its leadership to engage in dialogue with the business - since now any increase in tariffs requires discussion, taking into account comments and suggestions of major shippers and recipients.

And they all the time insist on the targeted use of additional revenues, received from the increase in tariffs. The point is that these "extra" billions of hryvnias do not dissolve in the budget of railway workers, as if in a bottomless barrel, but used for specific projects.

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Because of the events in the Kerch Strait, there is a high probability that the logistics in the Sea of Azov will be blocked or difficult - and then the metallurgists must redirect the shipment of finished products to the Black Sea ports. This cannot be done without expanding the capacity of the Kamysh-Zarya-Volnovakha railway section, otherwise Ukraine will lose 1.5% of GDP due to a decrease in the capacity of the Mariupol plants.

And railway workers, for example, can spend additional billions from automatic “indexation” to increase salaries and bonuses to management instead. It is much more difficult to do this if, in the course of consulting with a business, one has to take on certain obligations to customers. Obviously, it would be much more pleasant for a monopolist to spend money at his discretion - but authorities shouldn’t allow it to do this.

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