The associations "Ukrmetallurgprom," the Union of Chemists of Ukraine, the National Association of Mining Industry of Ukraine, the Ukrainian Association of Ferroalloy Producers and other electric metallurgy products "UkrFA," along with the All-Ukrainian Union of Construction Material Producers, are requesting the introduction of a moratorium on the increase of freight railway tariffs until the state of martial law is lifted and for a period of at least two years following the end of hostilities.
"In order to preserve the industrial complex and to avoid negative consequences for the economy and defense capability of Ukraine, we believe that the tariff policy of state monopolies should focus on reducing financial pressure on real production and serve as a basis for its recovery," they argue in their letter to President Volodymyr Zelenskyy, Prime Minister Denys Shmyhal, Deputy Prime Ministers Yulia Svyrydenko and Oleksii Kuleba, and Minister of Finance Serhii Marchenko.
Moreover, according to a copy of the letter dated October 10, provided to the agency on Monday, the authors of the appeal request a 15% reduction in freight tariffs in 2025. They believe this could be achieved by establishing a support and development framework for the freight base of "Ukrzaliznytsia," optimizing its expenses, and enhancing the efficiency of the state monopolist's asset utilization, including the transfer of unprofitable assets to the State Property Fund or their write-off.
The letter notes that rail transport in Ukraine accounts for nearly 82% of freight and 36% of passenger transportation. Its authors pointed out that between 2021 and 2022, tariffs for transporting coal, ore, and limestone increased by 140%, for metal by 70%, for fertilizers by 70%, for grain by 96%, and for empty coal wagons by 158%, while the expected loss from passenger transport in 2024 is projected to reach 20 billion UAH.
According to the appeal, "Ukrzaliznytsia" is initiating a 19% increase in the transportation cost of iron ore and coal, a 12% increase for coke, and an 11% increase for grain. The authors of the appeal believe that such a step towards cross-subsidization will not solve the problem of unprofitability in the long term, and it is necessary to focus on reforming "Ukrzaliznytsia's" own structure and finding internal resources. To support their opinion on the potential for profitable operations of the state company, they cite a profit of 5 billion UAH for "Ukrzaliznytsia" in 2023 due to tariff increases in 2022 and an increase in transport volumes amid the resumption of the maritime corridor.
The letter highlights that high logistics costs render Ukrainian products uncompetitive in the international market.
"The situation in the mining and metallurgy complex is such that by the end of the first half of the year, iron ore enterprises were operating at 55% of pre-war levels, while metallurgical enterprises were at 65%. Ferroalloy plants, which had a significant share of exports and provided foreign currency inflows into the country before the war, are now operating at a near loss," the document states.
According to it, in the chemical industry, virtually all major sectors in exports have decreased or "zeroed out" for certain commodity positions that were significant in 2022 and previous years (ethyl acetate, pigment titanium dioxide, polyester resins, nitrogen fertilizers, etc.). It is specified that nitrogen fertilizer exports from January to August 2024 amounted to only 21 thousand tons, and the export of primary plastics is almost nonexistent.
As for the mining industry, it is noted in the appeal that in 2023, the volumes of railway transport for manganese ore decreased by 13.2%, for coal by 11.2%, for coking coal by 38%, for oil by 22%, for limestone products by 31%, and for mining and metallurgy by 10.6%.
As an example of potential additional revenues for "Ukrzaliznytsia," the authors mention the sale of scrap metal, which has been absent since September 2023.
"The proposal from 'Ukrzaliznytsia' to establish a single average tariff for everyone, covering all possible and impossible costs, including those of related unprofitable segments of activity, regardless of the transportation technology of each individual cargo batch, will, on the one hand, lead to the destruction of the economic potential of industries that are budget-forming for 'Ukrzaliznytsia' (agriculture, mining and metallurgy, construction) and fundamental for the entire economy of Ukraine, and on the other hand, make 'Ukrzaliznytsia' chronically uncompetitive compared to road transport and other modes of transport," the appeal states.
Ukrainian industry associations also remind that they have repeatedly advocated for the creation of an independent regulator – the National Commission for State Regulation in the Transport Sector (NCRTS) similar to the National Commission for State Regulation in the Spheres of Energy and Utilities (NERC).
As reported, several industry associations of "Ukrzaliznytsia" have been actively opposing its initiatives for tariff unification over the past few months, which would lead to increases in tariffs for their goods, deeming such increases unjustified.
Last week, the Chairman of the Board of "Ukrzaliznytsia," Yevhen Liashenko, resigned, and a new board chairman is expected to be appointed soon. Additionally, until recently, there was no leadership in the Ministry of Restoration, which is supposed to approve such tariff changes.