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Would Ukraine benefit from cooperating with Deutsche Bahn?

Author : Serhiy Vovk

Source : 112 Ukraine

The statement of Ukraine’s Prime Minister Oleksiy Honcharuk on the transfer of Ukrzaliznytsia JSC (Ukrainian Railways) to German national railway operator Deutsche Bahn AG for 10 years, is rather political
09:27, 27 January 2020

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The statement of Ukraine’s Prime Minister Oleksiy Honcharuk on the transfer of Ukrzaliznytsia JSC (Ukrainian Railways) to German national railway operator Deutsche Bahn AG for 10 years, is rather political. The specific conditions for a possible partnership will be announced later.

I studied the text of the memorandum, signed with the company the day before. This is more a working document fixing the very fact of the Strategic Partnership. I believe that information on the format of cooperation, its period and specific content will appear in the near future after the agreements are documented.

Related: Ukraine signed memorandum with German railway operator Deutsche Bahn

Now we can say that cooperation with Deutsche Bahn will be beneficial and interesting to Ukraine. It is customary to speak of a company as a German entity, but it has long been leading a wide international expansion, working in more than 50 countries around the world. If you look at the company’s website, the company works in various formats with almost all European railways. This is the largest freight transport operator in Europe, it cooperates with Qatar, the UAE in terms of railway management and freight transportation, and is represented in all areas, including passenger transportation and infrastructure projects. Deutsche Bahn works with our closest neighbors, in particular with Kazakhstan. There have been reports that they will prepare the Kazakhstan Railways, establish operational efficiency and prepare the company for an IPO. With the Russian railways, Deutsche Bahn is developing a project for the transit of goods from China to the EU.

A similar project can be implemented with the participation of Ukraine. Our railways can be used to make us work as a transit country between Europe, Central Asia, and China. The development of such a project is possible only with a powerful partner in the EU.

Related: Ukraine wants to give Ukrainian Railways management to German company for 10 years, - PM

In Ukraine, in particular at the first stage, we might talk about a certain consulting component: the company needs some time to learn the situation within the company and would probably conduct its audit. In order to make real changes, they will need to enter the management panel. It is possible that appointments will occur at the level of the board, heads of branches.

Does this mean that the new team will be totally German? I don’t think so. Most likely, these will be competent managers who share the values ​​of Deutsche Bahn. This might mean improving the overall controllability of the railway transport system, simplifying the conditions for attracting international capital, implementing Deutsche Bahn's public procurement and logistics solutions. Today, Ukrzaliznysia has a huge need for capital investment.

Related: In 2019, Ukraine's state-run railway company carried 942,000 passengers to EU and back

Why Deutsche Bahn might be interested in cooperation with Ukraine? The company has long been active outside Germany. Ukraine is one of the stages of their work in foreign markets. Railways in Europe are currently experiencing a difficult period: the volume of freight flows is decreasing, and in Ukraine (due to the fact that we have large volumes of grain, coal, and iron ore), there are prospects for market growth and revenue growth. This is an interesting market for cooperation between UZ and a German company.

I that the talks about the potential privatization of Ukrzaliznysia in the context of cooperation with Deutsche Bahn are just speculation. Today, this is legally impossible. In addition, the company is listed on public markets, they will not go to some covert games. This is an international giant with a turnover of more than 40 billion euros, which is more than 10 times higher than the revenues of Ukrzaliznysia.

Related: Deutsche Bahn denies statement of taking management over Ukrainian Railways

Another thing, the issue of cooperation with Deutsche Bahn might be heavily torpedoed by beneficiaries from corruptive Ukrzaliznysia circles, in particular, the procurement and distribution of rolling stock. If the Germans with their zero tolerance for corruption come in, such schemes will be destroyed.  

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