PSO-2027 for UZ below UAH 20 bln or unresolved eurobonds would trigger tough action package – supervisory board member
Ukrzaliznytsia could avoid a tough package of measures if the 2027 state budget provides the company with at least UAH 20 billion in PSO funding, plus additional payments for 2026 PSO obligations, if the eurobond default is resolved through restructuring, and if the cash gap stays within UAH 26 billion, company supervisory board member Anatoliy Amelin said.
"Breaching any of these conditions triggers the tough package: cutting core staff by 15-20%, closing loss-making routes outside the state order, freezing CAPEX except for safety, and accelerated asset sales," according to an analytical report titled "What Is Happening to Ukrzaliznytsia?" from the Ukrainian Institute for the Future (UIF), presented Thursday by Amelin together with former Deputy Infrastructure Minister Volodymyr Shulmeister.
If budget support for Ukrzaliznytsia remains at UAH 16 billion this year, applying the tough package would reduce the annual loss to UAH 6.1 billion, while raising PSO funding to UAH 24 billion would keep the loss within UAH 5.1 billion, the report said.
"Translation for the budget negotiating table: the UAH 8 billion withheld by the government converts into thousands of jobs and dozens of canceled trains. This isn't a threat — it's arithmetic," the plan's authors said.
They added that while operating loss compensation this year accounts for only UAH 5.55 billion of the UAH 16 billion in budget support, with the rest being an investment component, the entire 2027 PSO amount should be calculated using the formula "cost of the state order minus tariff revenue."
The document states that the additional payment for 2026 should be made in the fourth quarter, noting that parliament's relevant committee had earlier requested this amount be set at up to UAH 26 billion. For 2027, in addition to UAH 24 billion in the state budget, the authors propose providing for prepaid regional contracts for suburban rail services.
The report's authors note that international service is the only profitable segment of Ukrzaliznytsia's passenger operations, expected to bring in about UAH 2.4 billion in 2026, while suburban rail is the most loss-making: an average 46-km trip costs 15-20 UAH per ticket against a cost of more than UAH 300, generating more than UAH 10 billion in annual losses. Local budgets are supposed to compensate for discounted fares, but the actual compensation rate is chronically only 15-20%.
The report's authors note that the potential for staff cuts at UZ is limited by a workforce shortage already estimated at 15-20%, as well as by the need for emergency infrastructure restoration and wartime security. Since the start of the war, UZ's workforce has shrunk by 62,800, to about 170,000, though the company remains Ukraine's largest employer.
At the same time, the authors propose obtaining about UAH 4-5 billion by completing a 25% cut to administrative staff and further reducing central office service functions by up to 50%, retraining some staff for in-demand blue-collar roles.
The authors estimate a further UAH 1.5-2.5 billion in savings from optimizing the passenger network outside the state order, including by reducing the frequency of chronically underused night trains and duplicate routes.
The anti-crisis model proposes obtaining an additional UAH 2-3 billion through optimizing repairs and the network. Major repairs, in particular, should be concentrated on corridors with proven traffic, while up to 1,200 km of infrastructure should be mothballed in "hot reserve" status in coordination with Ukraine's General Staff.
The commercial segment could provide an additional UAH 4.5-6 billion, according to the authors' estimates, through continued use of dynamic pricing, the sale of about 370,000 tonnes of scrap metal, and the development of related freight services.
The report's authors said the previously announced UAH 6.9 billion effect from dynamic pricing is overstated, since the annual ticket revenue base is UAH 7.4 billion; by their conservative estimate, this tool can provide only UAH 0.3-0.5 billion in additional annual revenue within the total cited above.
The report also proposes reviewing the portfolio of unfinished construction projects, which grew 98.5% in 2025 to UAH 24.08 billion: facilities more than 90% complete and capable of generating cash flow should be finished, while the rest should be mothballed.
On developing competition and private traction, the authors say this is a necessary condition for attracting roughly $3 billion a year in rail investment, but that it must wait until the war ends.
"We wrote this in 2018-2019, and we don't retract a word of it. This plan deliberately excludes that lever within its wartime horizon: the defense filter and network manageability matter more right now. Competition is a deferred horizon after stabilization, not a canceled idea," the document states.
Regarding the 30% freight tariff hike that took effect Aug 1, the authors estimate its stated gross effect at UAH 20-26 billion a year, but say the net effect could be UAH 17-19 billion once accounting for a possible shift of 7-11 million tonnes of cargo (out of 161 million tonnes in 2025) to road transport.
As previously reported, Ukrzaliznytsia announced in January that it would not make $45 million in coupon payments on its 2026 eurobonds (8.25% rate, $703.2 million total) and its 2028 eurobonds (7.875% rate, $351.9 million total), and said it intended to launch a comprehensive restructuring of its bond obligations with the help of financial and legal advisers. Eurobond holders have so far rejected the company's proposals, which included, among other things, a 20% writedown of face value, a deferral to June 2033, amortization starting in 2030, and a coupon reduction to 1.5% with a gradual increase to 7.75% tied to freight volumes.
The company cited the continued decline in freight revenue amid falling cargo volumes, as well as intensifying attacks on the railway — which totaled 1,195 in 2025, exceeding the combined total for 2023-2024 — as the main reasons for suspending debt service on its eurobonds.
In 2025, Ukrzaliznytsia's revenue fell 15.6% to $2.189 billion, and EBITDA fell 30.2% to $293 million, of which $270 million came from budget support. Its net debt-to-EBITDA ratio rose to 5.2.