世界发展银行-Ukraine---Ukrzaliznytsia-Modernization-Strategy-_-Summary-Report---Using-Market-Opening-to-Catalyze-Railway-Reforms_53页_1mb

Summary of UKRZALIZNYTSIA (UZ) Modernization Strategy

Core Content

This report outlines the modernization strategy for Ukrzaliznytsia (UZ), the state-owned railway company of Ukraine, with a focus on market opening as a key driver for reform. The strategy aims to align UZ with the EU rail acquis, enhance financial sustainability, and improve operational efficiency through structural and institutional changes. The report is based on five policy notes prepared by the World Bank and includes insights from peer reviewers and Ukrainian stakeholders.

Main Challenges Facing UZ

• Financial Instability: UZ faced significant financial losses between 2014 and 2016, totaling around US$2.4 billion. Despite a net profit of US$1.4 million in 2017 due to increased freight charges, the financial situation remains fragile.
• Aging Infrastructure: Over half of the rolling stock was purchased in the 1980s and requires replacement. About a quarter of the track is overdue for major overhaul, and 80% of the machinery has reached the end of its useful life.
• High Debt Levels: As of December 31, 2017, UZ's debt was estimated at UAH 33.5 billion (USD 1.3 billion), with 70% denominated in USD and an effective interest rate of over 10%.
• Lack of Government Support: The government has not provided budgetary allocations for the railway sector, and UZ receives no direct financial support.
• Operational Inefficiencies: There are issues with investment backlog, low market perception of services, and inconsistent freight tariff indexation.

Market Opening as an Anchor for Reforms

The EU-Ukraine Association Agreement (2014) mandates Ukraine to harmonize its railway sector with EU standards, including market opening by 2022. Market opening is seen as a catalyst for reform, aiming to improve efficiency, attract investment, and foster competition.

Key Elements of Market Opening

1. Management Independence: UZ has undergone corporatization, but it still faces heavy regulation and internal cross-subsidization.
2. Financial Stability: UZ's current financial situation is insufficient to meet debt obligations and sustain operations without reform.
3. Infrastructure-Transport Separation: There is a need to separate infrastructure management from transport operations and establish financial accounting distinctions.
4. Public Service Obligations (PSOs): PSOs are a critical element for financial stability and a competitive market. UZ is working on defining and estimating the costs of PSOs.
5. Licensing of Railway Undertakings: Mol has drafted licensing documentation, but its implementation depends on the new Railway Law and the establishment of the State Agency for Railways (SAR).
6. Infrastructure Access Regime: Several key elements of the rail acquis, including capacity allocation, infrastructure charges, safety certification, and the network statement, are still in the preparatory phase.

Benefits and Risks

• Benefits: Market opening can bring more choice, attract new participants, and generate investments in infrastructure and operations. It may also reduce road transport usage, leading to environmental and safety benefits.
• Risks: UZ may face intense competition, particularly in bulk cargo transport, leading to downward pressure on tariffs and potential loss of market share. This could worsen UZ's financial situation and reduce its ability to support other parts of the railway business.

Strategic Readiness for Market Opening

To ensure a successful market opening, Ukraine must meet three main preconditions:

1. Strong and Competitive UZ Cargo Carrier: UZ needs to develop a commercially structured cargo division capable of competing in an open market.
2. Sustainable Funding Framework: A new funding model is required to support loss-making passenger services and infrastructure.
3. Effective Governance Institutions: Strong regulatory and institutional frameworks must be in place to manage the new market environment.

Key Actions for Strategic Readiness

• Amend the Railway Law: To grant UZ greater commercial freedom and remove unnecessary restrictions on cargo tariffs.
• Relax Tariff Regulations: Prior to market opening, existing UZ tariff regulations (excluding social services) should be relaxed to allow for market-based pricing.
• Establish UZ Cargo Company: This would improve accountability and separation between infrastructure and transport operations.
• Develop Infrastructure Access Charges Framework: Mol is working on this, which will support the implementation of the new regulatory regime.
• Prepare for PSO Implementation: UZ must define and estimate the costs of both service and network PSOs.
• Create SAR and NCRT: These institutions are essential for regulating the new market and overseeing the implementation of the rail acquis.

Additional Recommendations

• Tariff Management: UZ must implement a transparent and market-driven tariff system to ensure competitiveness.
• Network Infrastructure Asset Management: A life-cycle costing approach is necessary to prioritize and manage infrastructure investments effectively.
• Labor Optimization: The need to improve labor efficiency is highlighted as a key factor in reducing costs and increasing operational effectiveness.
• Customer Focus and Service Quality: Enhancing customer service and perception is crucial for attracting and retaining business in the competitive environment.

Conclusion

The modernization of UZ requires a comprehensive strategy that includes market opening, financial restructuring, and institutional reforms. While the legal and regulatory framework is being developed, strategic readiness is equally important to ensure that UZ can successfully transition to a competitive and sustainable railway operation. The report emphasizes the need for immediate action to prepare for market opening, particularly in the areas of governance, financial sustainability, and operational efficiency.