Metallurgists ask the government to introduce a two-year moratorium on Ukrzaliznytsia tariff increases: we risk losing the economy

photo ua.depositphotos.comThe 37% increase in freight rates proposed by Ukrzaliznytsia will have catastrophic consequences for the economy, as it will lead to the shutdown of strategic enterprises and a reduction in foreign exchange earnings. Given the state of the domestic industry, the government should introduce a two-year moratorium on Ukrzaliznytsia’s rate hikes, and conduct an audit of the state-owned company to deal with uncontrolled cost growth. This is stated in the letter of OP Ukrmetallurgprom (UMP) to Prime Minister Denys Shmyhal and Deputy Prime Minister for the Reconstruction of Ukraine – Minister of Development of Communities and Territories of Ukraine Oleksiy Kuleba.

“According to the available information, on November 28, 2024, Oleksiy Kuleba met with the management of Ukrzaliznytsia, where it was decided to prepare a draft order on the indexation of freight railway tariffs with an increase of the latter by +37%. This decision caused great concern among miners and metallurgists of Ukraine, who are categorically against such a step. It seems very strange that the Ministry of Community and Territorial Development “Ukraine conducts such backroom discussions without the participation of the business community. After all, the consequences for the economy of Ukraine will be catastrophic with the shutdown of strategic enterprises and a significant reduction in foreign exchange revenue,” the letter states.

The UMP reminded that in Ukraine the railway is the main means of freight transportation: if in Germany the total share of freight transportation by rail does not exceed 20%, then in Ukraine railway transport provides almost 82% of freight and 36% of passenger transportation.

“Understanding its monopoly position in the matter of freight transportation, Ukrzaliznytsia has throughout its existence tried to solve its own financial problems at the expense of shippers. The Ukrainian industrial business community has already felt significant financial pressure after a series of increases in freight rates in 2021 and 2022, which led to a record increase expenses for railway transportation – yes, tariffs for transportation of coal, ore, etc of limestone increased by 140% (!), metal – by 70%, fertilizers – by 70%, grain – by 96%, and empty coal wagons – by 158% (!), – stressed the UMP.

The union emphasized that raising tariffs will not solve the problems of the UZ unless the structure of the UZ is reformed and internal resources are not involved — because currently Ukrzaliznytsia’s expenses are growing faster than revenues, which is an alarming signal and requires an urgent review of the spending policy.

“Due to the constant unjustified increase in freight rates, a significant number of domestic industries are gradually abandoning UZ services, preferring alternative means of transportation, and in the worst case, significantly reducing production or stopping. And UZ, instead of keeping cargo on the railways and increasing the cargo base, uncontrolled and rapid expands its cost base, and is not interested in additional revenues, because since September 2023, UZ has not sold any lot of scrap metal – although the sale of scrap metal provides billions of hryvnias of additional income. The short-sighted tariff policy of Ukrzaliznytsia will have a critical impact on the entire economy of Ukraine and, accordingly, on its defense capability and national security,” the UMP emphasized.

The association called on the government to initiate measures to improve the financial condition of Ukrzaliznytsia, in particular, to develop the cargo base and optimize costs, as well as to increase the efficiency of the state monopoly’s assets. It is also necessary to introduce a moratorium on the increase of freight railway tariffs until the abolition of martial law and for a period of at least two years after the end of hostilities.