Movement toward the European Union is impossible without reforming Ukrzaliznytsia
Oleksandr Kalenkov, President of the association of enterprises Ukrmetalurgprom
The year 2025 is coming to an end, and all enterprises of the mining and metallurgical sector remain in survival mode, as they have for the past four years. The negative impact continues to accumulate: now all enterprises are in the worst situation since 2022.
The problems remain unchanged: a shortage of personnel, energy issues, and global market conditions. But the most serious problem is the rise in production costs — even for enterprises that still operate on territory controlled by Ukraine.
Since the beginning of the war, Ukrzaliznytsia’s tariffs have increased more than twofold. And this is not even in hryvnias, but in dollar terms — that is, including devaluation. This leads to our enterprises becoming less competitive. Already today, transportation in the EU is cheaper than in Ukraine. And this is absolutely abnormal. It is not related to external factors, shelling, or anything else. It is primarily connected to the way Ukrzaliznytsia operates.
The main problem is that Ukrzaliznytsia is essentially two enterprises with completely different business models. The first is freight transportation, which is fully profitable. It has always been profitable: last year operating profit amounted to 20 billion UAH, and next year it will also remain profitable. The second, entirely different business, is passenger transportation — and it is loss-making: for every hryvnia of income, there are more than three hryvnias in expenses.
This year UZ spent more than 30 billion UAH on passenger transportation. It received — at most — 7 billion. This 23–24 billion UAH gap must be covered somehow. It can be done, as in many European countries, through the state budget. This is normal because it is an investment in population mobility. In our case, Ukrzaliznytsia covers all losses at the expense of freight transportation.
In this situation, the state must decide. If the political decision is not to raise passenger ticket prices to the break-even level for UZ, then it is obliged to compensate Ukrzaliznytsia’s losses from the budget. Otherwise, we simply shift the financial burden onto enterprises that already operate at the edge of profitability. They cannot survive another tariff increase just to channel money into a loss-making passenger segment.
The same applies to excessive railway infrastructure. Here the state must also give an answer: if it wants to maintain infrastructure that is not used for freight transportation, then this must also be attributed to the cost of passenger transportation, as its maintenance costs billions annually.
This year, the state has taken on certain obligations: in May, the Verkhovna Rada allocated 4 billion UAH to Ukrzaliznytsia, and in autumn it decided to allocate another 8 billion from the reserve fund. This is movement in the right direction. But more must be done: we are now talking about at least 25 billion UAH that the state owes Ukrzaliznytsia and which is being extracted from freight transportation. Covering losses in the passenger segment using freight profits is wrong, economically unjustified, and inconsistent with European practice. Therefore, not only is it difficult — it will be impossible to move toward European economic standards, infrastructure, and integration without solving this issue.
Soviet legacy in the details
The current tariff model of Ukrzaliznytsia does not take into account the cost structure of logistics technology and the real cost of transportation. A single average tariff is set for everyone, not one proportional to the actual cost of providing the service — as it was once done in the Soviet Union.
Meanwhile, the cost of transporting different cargoes varies. And it depends not on the name of the cargo, but on the transportation technology. This is how tariffs are set in Europe, and this is how it must be done in Ukraine. Today UZ is forced to use profitable block train routes to subsidize inefficient single-wagon (1–2 wagons) shipments. This worsens not only UZ’s financial situation but also conditions for national exports.
For example, the cost of transporting bulk cargoes commonly handled by our industry — coal, coking coal, iron ore — is predictable. These costs remain almost unchanged month to month. Cargo moves in trains of maximum possible length (sometimes over 50 wagons), departing from one station to the final station without reloading or stops. This is block-train transportation, and UZ’s costs in this case are minimal: minimal infrastructure involvement, only mainline locomotives (usually electric), and maximum efficiency.
Let’s compare. Ore transportation uses only 18 stations, while grain transportation uses more than 400, many of which are low-activity — meaning loss-making. Ore cargo does not use any low-activity stations or the tracks leading to them, nor any marshaling yards or shunting locomotives.
The scale of the issue is enormous: 63% of Ukrzaliznytsia’s tracks are unprofitable, generating more than 16 billion UAH in losses. But UZ still pretends that the cost of block train transportation and single-wagon shipments is the same, even though the latter require extensive use of low-activity, loss-making infrastructure.
But the same tariff applies to both models. As a result, the company is forced to maintain excessive infrastructure and incur additional losses to support single-wagon shipments from underutilized stations. Therefore, Ukrzaliznytsia itself must calculate what its basic cost structure truly is — and from this calculate a base tariff. Then adjustments can be made by adding coefficients: whether it is a single-wagon shipment, a partial shipment, a full-train shipment, whether intermediate stations are involved, etc. Under this approach it will become clear that UZ’s transportation cost varies significantly depending on the model — and that it does not depend on the cargo’s name.
This is the first step UZ can take. It requires no extra budget funding. It only requires the management’s understanding that it must be done.
As a result, everyone will benefit. The market will receive a much smaller document than the current tariff manual, which is several centimeters thick. It will be a real working document, like in the EU. Every shipper will understand the cost of transporting cargo, where block-train service becomes the base, and the relevant coefficients are applied.
As for passenger transportation, there are two components. First, the state must fulfill its social function by financing passenger transportation and reimbursing the company the difference between actual cost and ticket revenue. Perhaps then the state will pay more attention to efficiency — because I am certain that both passenger and freight segments have significant efficiency reserves. Improving production processes, reducing non-core expenditures and corruption — this is a substantial resource for optimization.
But the loss will still exist — and it is tens of billions of hryvnias. I understand the fiscal situation, but logistics is among the first things potential investors consider. They will ask whether tariffs are economically justified. Therefore our state can now use the opportunity provided by partner support: separate the passenger segment into a distinct unit and allocate funds to cover its losses. In doing so, it can launch long-overdue reform of Ukrzaliznytsia.
A reform long overdue
The next step, which should have been taken “yesterday,” is opening the railway market to private capital. This applies not only to the wagon fleet, which is already deregulated and operating privately, but also to private access to locomotive traction — as implemented in most EU countries. There, freight transportation services can also be provided by private operators on equal terms with the state railway’s locomotives. This means new players will appear alongside Ukrzaliznytsia, which will inevitably increase efficiency and service quality. European practice demonstrates precisely this approach: the state retains ownership only of infrastructure and ensures fair access rules for all market participants.
This is a difficult moment. Ukraine is at war. But the state of our economy and industry leaves us no choice but to address this now. Transportation in Ukraine today is more expensive than in neighboring EU countries (Poland, Slovakia). Ukrzaliznytsia is already running out of funds. So we must make decisions: restructuring, calculating true costs of the passenger and freight segments; and within freight — introducing an economically justified cost-calculation system. We must move toward creating a National Commission for Transport Regulation (NCRT), which would approve tariffs for infrastructure access and ensure fair profitability levels for operators. And it is crucial to ensure fair tariff setting, so that monopoly tariffs reflect real costs.
And the state must play its role: with support from our partners, it can find financing to cover Ukrzaliznytsia’s passenger-transportation losses now.