Ukrainian industrial associations ask govt not to raise freight rail tariffs
MOSCOW. Oct 15 (Interfax) - The Ukrmetalurgprom association, the Union of Chemists of Ukraine, the National Mining Industry Association of Ukraine, the Ukrainian Association of Producers of Ferroalloys and Other Electrometallurgical Products (UkrFA), and the Ukrainian Union of Construction Material Manufacturers have called for a moratorium to be imposed on freight rail tariffs until martial law is lifted and for a period of at least two years after the end of the crisis.
"The tariff policy of the state monopolies should be aimed at reducing the financial pressure on real production and be the basis for its recovery," Ukrainian media quoted the associations as saying in their letter to President Vladimir Zelensky, Prime Minister Denis Shmygal, Finance Minister Sergei Marchenko and other high-ranking Ukrainian officials.
The authors of the appeal also ask the government to cut the freight tariffs by 15% in 2025. They believe that it could be done by providing support and facilitating the development of JSC Ukrainian Railways' freight base, optimizing the company's costs and make more effective use of the state monopoly's assets, including by transferring unprofitable assets to the State Property Fund or writing them off.
Rail transport accounts for nearly 82% of freight traffic and for 36% of passenger traffic in Ukraine, according to the letter. In 2021 and 2022, transport tariffs for coal, ore and limestone rose 140%, for metal by 70%, for fertilizers by 70%, for grain by 96%, and for empty coal cars by 158%, whereas passenger transport services are expected to sustain losses of UAH 20 billion in 2024, it said.
According to the letter, Ukrainian Railways is initiating a hike in transport tariffs for iron ore and coal by 19%, for coke by 12%, and for grain by 11%. However, such a cross-subsidizing step will not help resolve the unprofitability problem in the long term, the associations said. Rather, it is necessary to focus on reforming Ukrainian Railways' own structure and searching for internal resources. In support of their opinion that Ukrainian Railways can be profitable, they cited the company's profit of UAH 5 billion in 2023 due to a rise in tariffs in 2022 and an increase in shipments after the sea route resumed operations.
High logistics costs dent Ukrainian products' competitive edge on the international market, they said.
"The way the situation in the mining and metals sector has been unfolding shows that iron ore enterprises' workload at the end of the first half of the year was 55% of the pre-crisis level, while smelters' workload was 65% [of the pre-crisis level]. Ferroalloy enterprises, which accounted for a considerable portion of exports and ensured forex revenue for the country before the crisis, are almost not profitable today," the letter said.
The Ukrainian chemical industry's exports of some commodities, which were significant in 2022 and in previous years, such as ethyl acetate, titanium dioxide pigment, polyester resins, nitrogen fertilizers, etc.) have dropped or are currently zero, it said. Ukraine exported only 21,000 tonnes of nitrogen fertilizers and did not export any virgin plastics in January-August 2024, it said.
In the mining industry, the transportation of manganese ore by rail dropped by 13.2%, of coal by 11.2%, of coke by 38%, of oil by 22%, of limestone products by 31%, and of mining and smelting sector products by 10.6% in 2023, the letter said.
Ukrainian Railways used to sell scrap metal to earn addition proceeds, but has not done it since September 2023, it said.
"Ukrainian Railways' proposal to establish a single average tariff for all companies covering all possible and impossible costs, including related unprofitable sectors, regardless of the technology of transportation of each individual consignment, on one hand, will ruin the economic potential of the industries that form Ukrainian Railways' budget (agricultural, mining and metals, construction) and the fundamental industries for the Ukrainian economy, and, on the other hand, will make Ukrainian Railways' chronically uncompetitive compared to road transport and other types of transportation," the letter said.
The associations say they have many times proposed creating an independent regulator, a national commission for state regulation in transport, modeled after the National Commission for State Regulation of Energy and Public Services.
As previously reported, for the past few months, a number of industrial associations have vigorously opposed Ukrainian Railways' initiative to introduce a unified tariff, which, in turn, will lead to an increase in transport tariffs for their cargo, and have dismissed such a hike as unjustified.
Last week, Yevgeny Lyashchenko handed in his resignation from the post of Ukrainian Railways CEO. The company's new CEO is expected to be appointed soon. However, the Restoration Ministry's leadership, whose duty is to approve this change in tariffs, was absent until recently.