Editor’s Note: Sergii Leshchenko, a Kyiv Post columnist and former member of Ukraine’s parliament, is a member of the supervisory board of Ukrzaliznytsia, the state railway company. He joined it in December 2019. Representatives of billionaire oligarch Rinat Akhmetov and his companies have consistently denied seeking political favors for their businesses.
Recently, the Security Service of Ukraine, known as the SBU, held a special operation investigating allegations of corruption at the country’s biggest state enterprise, railway company Ukrzaliznytsia.
Within the investigation, the SBU searched the house of one of the suspects and found that he stored huge amounts of cash in his refrigerator, on a shelf next to lemons. In Ukraine, “lemon” is a slang term for “million.” And that’s what corruption costs Ukrzaliznytsia — many, many millions of dollars.
The investigation is only one example of the fight for cleaning up Ukrzaliznytsia. The fight has been taking place in the past several months, after the enterprise got a new chairman.
Billionaire oligarch Rinat Akhmetov attends a training session of his Shakhtar football team in Donetsk on Feb. 12, 2013, a day before its Champions League football match against German champions Borussia Dortmund. (AFP)
Biggest employer
Ukrzaliznytsia is the biggest employer in Ukraine. It gives jobs to 250,000 people. Its chairman manages a number of employees that is roughly the population of the state of Barbados. The company is a monopolist in passenger transportation, a chronically unprofitable business. It manages the third-biggest network of railroads in Europe.
In August, Volodymyr Zhmak became chairman of Ukrzaliznytsia. His background and the action plan he presented to the board lead us to have high expectations of him as someone who can real-ly change the ways of Ukrzaliznytsia.
Previous chairman Yevhen Kravtsov, who was very fond of awarding himself big bonuses, man-aged Ukrzalizntysia for two years and resigned in January, leaving the company unreformed and plagued with corruption.
One recent example of corruption at Ukrzaliznytsia was especially impressive: The money meant for repairing a passenger train’s locomotive was spent to buy two Audi A8 Long cars for management.
Corruption fight
Trying to move on from this heritage, Ukrzaliznytsia proclaimed a policy of zero tolerance to corruption. In the past several years, there have been many abuses of office and suspicious procurement. For example, Ukrzaliznytsia purchased so much rotary bearings that this supply will last for decades. The supplier company belonged to a member of parliament, who in exchange was supporting then-Prime Minister Volodymyr Groysman, whose Cabinet controlled Ukrzaliznytsia.
Another example. In the previous convocation of the Verkhovna Rada, Ukraine’s parliament, head of the Transport Committee was the railroad’s main supplier of braces for rails and ties. It was Yaroslav Dubnevych, and he went on to become the first member of this convocation who faced criminal charges.
Things are looking up now. Since the start of 2020, Ukrzaliznytsia has been purchasing diesel fuel, its main fuel, below the market price. It is setting a good example for other state companies.
But nevertheless, such changes aren’t changing Ukrainians’ opinion of Ukrzaliznytsia’s service: They get on the trains and don’t see any improvement.
The thing is, Ukrzaliznytsia is likely the only railway company in Europe that doesn’t get compensation from the state budget for passenger transportation, which is invariably loss-making for all railway operators in the world.
It means that Ukrzaliznytsia has to balance its books using the profits it gets from cargo transportation.
Akhmetov’s free ride
But here’s what makes this situation absurd: Because of political deal-making, Ukrzaliznytsia is transporting some cargo at below-cost tariffs. This sweet deal mainly concerns the iron ore transported by the enterprises of the Rinat Akhmetov, the richest of Ukraine’s billionaire oligarchs.
While Akhmetov makes enormous profits on selling ore abroad, Ukrzaliznytsia loses hundreds of millions of hryvnia on transporting the ore for him.
The thing is that, ever since Soviet times, Ukrzaliznytsia has different tariffs for the transportation of different goods. For example, when it transports a train loaded with iron ore, its owner pays Ukrzaliznytsia less than if that train was transporting grain.
Speaking in numbers, the profitability of transporting iron ore for Ukrzalianytsia is “minus 19%.” The tariff is so low that the state company is losing money when it’s transporting iron ore. Its tariff for transporting ore is 2.5 times lower than in Poland, and 4.5 times lower than in Slovakia.
More absurdities
But the absurdities don’t stop there.
Ukrzaliznytsia’s tariffs are different even for transporting empty cars to the next client. The price depends on what was transported in these cars before. The transportation of an empty car after it carried iron ore costs the client less than if that car carried grain.
Ukrzaliznytsia has been trying to deprive private companies of this privilege — first of all, the companies of Akhmetov. They sell iron ore on global markets while paying a laughable rent to Ukraine and a laughable price to the state railway operator to have the ore transported to a port.
It’s especially important now since this year has been very challenging for Ukrzaliznytsia.
The company has been planning to start equalizing the cargo tariffs gradually: first, for empty cars, then for iron ore. It would have brought the company some $150 million within the first six months.
Akhmetov’s lobby
But the company’s efforts met with Akhmetov’s lobby. Officials from a low-key state agency, the State Regulatory Service, vetoed Ukrzaliznytsia’s suggested tariffs.
Meanwhile, paid-for articles were published in the Ukrainian media that said that the increase of transportation tariffs by Ukrzaliznytsia would have bad impact on “Big Construction,” a state program of constructing infrastructure objects, curated by the President’s Office. The stories alleged that higher tariffs would make “Big Construction” more expensive. It’s a cynical lie that aims to set an important anti-crisis measure of Ukrzaliznytsia against the state program that is important for President Volodymyr Zelensky.
Currying favor
The end goal of this whole effort is to save money for the oligarch. This money will then be “invested” in politics: to curry favor with lawmakers and officials.
Ukrzaliznytsia also suffers from Akhmetov as a consumer of electricity. The government is currently trying to put together a special fund to pay out what it owes to the producers of green energy. To fill that fund, the state plans to increase the tariffs on the transportation of electricity. This money would go directly to pay the green energy producers. The biggest benefactor of this will be, again, Akhmetov, whose company controls every fourth sun energy panel in Ukraine.
Campaign of harassment
Meanwhile, Akhmetov is running a campaign of harassment and revenge to the few public figures who dare to criticize his schemes. This summer, his TV channel sent a crew to Turkey to spy on Andriy Gerus, a lawmaker and head of the Energy Committee in the parliament, while he was on vacation.
His TV channel dedicated several pseudo-investigative programs to me. I’ve seen five different TV crews rotating on duty next to my apartment. But it’s not going to stop my efforts to find justice — both for Ukrainians and for the state company Ukrzaliznytsia, where I’m a member of the supervisory board.
In case of Ukrzaliznytsya, we are being robbed twice. First, we aren’t getting dividends from the company for the state budget, which would pay for new roads, hospitals, and schools. At the same time, the impoverished Ukrzaliznytsia lacks the money to buy new comfortable trains or maintain the railways in a good condition to guarantee fast transportation.
Where is this money? It’s not hard to find it. Just look at Akhmetov’s latest purchase — a €200-million villa on the south coast of France.
