Where the world sees a slow, aging network of trains and a bloated workforce, Olexander Zavgorodnyi, the head of the state railway monopoly Ukrzaliznytsya, sees progress and potential.
“Ukrainian railways is a developed company, we are not backward. We start and finish every week with reforms,” he said at a roundtable organized by the American Chamber of Commerce on Aug. 7.
Even though Ukrzaliznytsya finished 2014 with a Hr 284 million ($12.9 million) loss, Zavgorodnyi sees potential.
“We are still the biggest and the most valuable company in Ukraine,” Zavgorodnyi said, although another state-owned behemoth, oil and gas monopoly Naftogaz, is worth at least four times as much.
As of June 30, 2014, an external audit by EY estimated the company’s assets at Hr 73.4 billion, or $6.2 billion. In contrast, Ukraine’s vast gas transportation system has been valued at $25-35 billion alone, Naftogaz CEO Andriy Kobolev said in late July.
Zavgorodnyi is trying to find revenue growth from the some 6 billion tons of cargo transit handled by the rail network, and after the railway company becomes a corporation and a single legal entity on Sept. 1, Zavgorodnyi expects investment to start.
The carriage suppliers market is already close to being competitive, according to the CEO.
A free market for the railways is crucial for sector development, meaning cargo tariffs will have to be revised and adjusted, experts at the roundtable agreed.
Currently tariffs are set by the state monopoly based on an obsolete state-approved “tariff scale,” often with non-transparent discounts to certain players.
A rise in tariffs is unavoidable because current rates do not cover costs, despite recent increases.
“Businesses say they are ready to pay more, but want to know where the money is going,” said Serhiy Vovk, the director of the Center for Transport Strategies consultancy, referring to the need for improved infrastructure and service quality from the railways.
Another Big Four representative, PwC, is already working on attracting investments. But investors need to see a long-term development plan and better management. Both are already being developed with the help of numerous international consultants, experts from the Ministry of Infrastructure, and industry specialists, Zavgorodnyi said.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected]
