By Pavel Polityuk and Max Hunder
KYIV (Reuters) -State-owned Ukrainian Railways has prepared a recovery plan that includes raising freight tariffs to help control its debt amid intensified Russian attacks and falling cargo deliveries, CEO Oleksandr Pertsovskyi said in an interview.
The company, which employs 170,000 people and dominates freight and passenger transport in Ukraine, has seen cargo traffic almost halved since early 2022, while operation costs are rising because of war damage.
If the recovery plan, which is under government review, is not approved, the company will need a 30-billion-hryvnia ($728-million) injection from the state budget to cover low tariffs, repairs and debt payments next year, Pertsovskyi said.
He said Ukrzaliznytsia had spent up to 10 billion hryvnia ($242 million) during Russia’s war on Ukraine just to keep the company running after persistent and escalating attacks, and the figure to properly repair the damage would be far higher.
The potential arrears and maintenance spending have not previously been reported.
TRADITIONAL MODEL IS NO LONGER SUSTAINABLE
Traditionally in Ukraine, high freight rates offset low passenger fares, but with low cargo volumes this model is no longer sustainable without incurring fresh debt – a problem because the company is already heavily indebted.
“If we face the truth, these 160-165 million tons are our new norm,” Pertsovskyi told Reuters, adding that before the full-scale war that began in February 2022, the company had transported over 300 million tons of cargo a year.
Ukraine has lost more than 100 coal mines because of the war and coal deliveries – one of the main cargoes – have fallen by 62% since early 2022. Ore and grain shipments have also declined because of Russia occupying Ukrainian territory and pollution of farmland by landmines.
Despite attacks on railways and seaports, Russia has failed to slow Ukrainian exports, an important source of revenue for both military and social spending.
THE $728-MILLION QUESTION
The loss of Russian cargo transit, once worth $1 billion annually, added to upcoming Eurobond payments and costly network repairs following Russian attacks, have forced Ukrzaliznytsia to act quickly.
Its recovery plan proposes higher tariffs, cost reductions and new revenue sources, Pertsovskyi said.
Transport tariffs have not been indexed for years, and costs have soared – power by 216% and diesel by 57% – while wages have risen 65%.
Some important customers have criticised the proposed tariff increases, calling the business inefficient and threatening to stop using its services.
“We are not able to transfer this extra cost to the end users and we will lose all the market,” said Mauro Longobardo, Chief Executive Officer of ArcelorMittal Kryvyi Rih, Ukraine’s largest steel maker.
In 2022, Ukrzaliznytsia secured a deal to delay payments on its $895 million Eurobonds, including $594.9 million due in July 2024 and $300 million due in July 2026.
The company is in negotiations with debtholders, as it faces total payments of around 60 billion hryvnia next year.
“We do not have the economic basis to pay all these interest rates and the principal, but it is essential for us to work with the market in a transparent and predictable manner,” Pertsovskyi said.
(Reporting by Pavel Polityuk, Max Hunder; Editing by Mike Collett-White and Timothy Heritage)
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