At the end of 2024, during a meeting in London, the bondholders of Ukrainian rail company “Ukrzaliznytsia” rejected the company’s proposal to restructure its debt of nearly $900 million.
For many, this came as a surprise, given the challenging situation in Ukraine’s transportation sector due to the war. However, this decision only highlighted the magnitude of problems in the financial and management systems of the state company.
Now, “Ukrzaliznytsia” faces a critical task: paying $83 million in interest in January 2025 without burdening businesses through tariff increases.
Where Do Ukrzaliznytsia’s Problems Stem From?
At first glance, the financial crisis in “Ukrzaliznytsia” seems to result from the war, destroyed infrastructure, and reduced freight flows. But the real causes run much deeper. They include decades of chronic underfunding for modernization, inefficient management, corruption, manipulative tariff policies, and abuse of monopoly power. Facing these challenges, the company often chooses the easier path, avoiding real changes.
Instead of optimizing operational costs, “Ukrzaliznytsia” resorts to the simplest strategy—raising tariffs. Arguments about “objective difficulties” and rising expenses sound like convenient excuses.
After all, a company that posted a net profit of 1.7 billion UAH in the first nine months of 2024 is now planning a 37% increase in freight transportation tariffs. Why does “Ukrzaliznytsia,” instead of seeking internal reserves and pursuing reforms, increase the financial burden on its clients?
In its own explanations, “Ukrzaliznytsia” claims that tariff unification is necessary due to the unprofitability of transporting certain types of freight, however, this reasoning seems more like manipulation. Losses arise from the constant rise in costs, most of which are unrelated to specific types of cargo. All expenses—from transportation and track repairs to maintaining low-activity stations and administrative costs—are pooled into a general fund and diluted.
As a monopoly controlling the market, the company understands that its clients have little choice but to rely on its services, even if quality and efficiency leave much to be desired.
The Danger of Tariff Shock
The planned 37% tariff increase on freight transportation, set for February 2025, poses a serious challenge for Ukraine’s economy. Farmers, who depend on affordable logistics for crop exports, risk losing competitiveness in global markets. Metallurgists, exporting most of their products, foresee annual additional costs amounting to millions of dollars. This not only undermines their profits but also threatens production cuts, job losses, and reduced foreign currency earnings for the country.
The repercussions could be even broader. Higher tariffs might lead to an overall decline in freight volumes, as businesses seek alternative logistics solutions. A shift to road transport will bring new problems: road damage, increased product costs, and added strain on infrastructure. As a result, “Ukrzaliznytsia” stands to lose even more revenue, some Ukrainian enterprises may face closure, and the state will need to allocate billions for road repairs.
As a monopoly in freight transportation, “Ukrzaliznytsia” has repeatedly attempted to address its financial issues at the expense of shippers. Ukraine’s industrial business community has already experienced significant financial pressure following a series of freight tariff hikes in 2021 and 2022, which led to record increases in transportation costs. During that period, tariffs for transporting coal, ore, and limestone increased by 140%, metals by 70%, fertilizers by 70%, grain by 96%, and empty wagons from coal by 158%.
Therefore, the current tariff policy, shaped without consulting representatives of key industries, once again demonstrates a disconnection from the real needs of the market. Raising tariffs is merely a temporary solution that creates the illusion of stabilization. Within six months to a year, the company could once again declare losses, along with the need for another price adjustment.
What Does Business Propose?
As the owner of the Ukrainian multi-industry industrial and investment group “Aurum Group,” which regularly uses the services of “Ukrzaliznytsia” and is well-acquainted with the sector, I have repeatedly emphasized the need for deep reforms.
Raising tariffs is only a short-term solution that could further exacerbate the crisis. Instead, the company should focus on key steps that will lead to long-term changes:
How to Avoid Disaster?
The problems of “Ukrzaliznytsia” are not just a challenge for the company itself but also a threat to the country’s economic stability. The resilience of the railway infrastructure is critically important, especially during wartime. Therefore, immediate action is required:
The European Context
Railway infrastructure is a key element in integrating Ukraine into the European economic space. The reliability and efficiency of “Ukrzaliznytsia” affect not only the domestic market but also international logistics chains. European partners expect Ukraine to take a responsible approach to managing strategic sectors, as this determines the compatibility of our infrastructure with European standards.
Reforms in “Ukrzaliznytsia” could serve not only as a signal to international partners but also as an example for other state-owned enterprises. This would demonstrate Ukraine’s readiness for transparency, efficiency, and sustainable development. Such changes would also strengthen the trust of international investors and creditors, which is critical for the country’s post-war recovery.
“Ukrzaliznytsia” has the potential to transform from a symbol of crisis into a model of successful transformation. This requires political will, professional management, and determination for change. Businesses are ready to support these reforms, but only if they are transparent, effective, and considerate of the interests of all stakeholders.
Joint efforts by the state, businesses, and international partners can preserve Ukraine’s economic potential, strengthen its position on the global stage, and make it a reliable partner in global logistics processes.