On Jan. 22, 2020, a memorandum of understanding between the Ministry of Infrastructure of Ukraine and Deutsche Bahn AG on further cooperation in the transportation and development of Ukrzaliznytsia JSC was signed at the Davos Economic Forum.

Implementation of Deutsche Bahn’s best practices for improving rail efficiency should be helpful in reforming rail transport in Ukraine. Development within the Trans-European Transport Network TEN-T is a strategic goal for Ukraine. An important component of the implementation of the Association Agreement between Ukraine and the EU is the adaptation and implementation of European Union directives concerning rail transport, including through the adoption of appropriate legislative changes. The Verkhovna Rada of Ukraine is planning to adopt a new law on railway transport in 2020, and the DB experience of is important for its practical implementation.

The signing of this memorandum is the signal of deepening cooperation between the railway operators of Germany and Ukraine to ensure the exchange of technologies and experience:

  1. analysis of the possibility of forming a strategic partnership (alliance) between the national railway operators of Ukraine (JSC “Ukrzaliznytsya”) and Germany (DB AG and its subsidiaries) in order to exchange experience, practices, progress made by DB and discuss possible decisions on improving the efficiency of rail transportation in Ukraine and applying best management practices;
  2. an assessment of the possibility of co-operation with a view to implementing the European experience in reforming the railway transport sector, as well as adapting important European Union railway transport directives;
  3. elaboration of the proposal for the development of the railway network and rolling stock, taking into account the modern standards of environmental friendliness and innovation of transport.

In 2019, DB signed similar agreements with Kazakhstan Railways KTZ, which provide mutual support in the field of passenger transportation, assistance in extending the geography of freight traffic routes.

DB Engineering & Consulting is preparing a project that aims to transform Kazakhstan’s KTZ railway company in two years and will consist of two stages:

– Preparation of a corporate development strategy for the purchase of new trains, the modernization of equipment and maintenance of existing rolling stock, as well as the sale of tickets.

– Implementing strategies in business operations and monitoring their impact to effectively manage change.

Accordingly, this type of relationship is most appropriate between UZ and DB – it is the signing of cooperation agreements for the audit and revision of the strategy of development of Ukrzaliznytsia in the context of the adoption of the draft law on railway transport and distribution to 3 operators of infrastructure, freight and passenger transportation.

As part of a strategic partnership, KPIs need to be defined:

– holding a tender in accordance with the terms of a consulting contract with DB Engineering & Consulting GmbH (signed in September 2019) on the preparation of documentation for the purchase of electric locomotives and localization of production in Ukraine;

– development of an investment program – concession of railway stations and privatization of non-core assets with World Bank technical support;

– providing mutual support in the field of passenger transportation and development  of freight transit routes (China-Ukraine-EU Silk Road);

– preparation for IPO, attraction of international financing and sale of a part of Ukrzaliznytsya stake on the international exchange to a strategic or institutional investor.

Possible obstacles to the partnership between UZ and DB are political risks, such as the rejection of the railway draft law, the lack of funds in the state budget to compensate for passenger transportation, or the disapproval of Ukrzaliznytsia’s investment program.

Viktor Dovhan is an adviser to  the minister of infrastructure of Ukraine