The nuts and bolts of what consists of Ukraine’s infrastructure and the potential it has to boost Ukraine’s economy as it struggles to emerge from the COVID-19 pandemic were discussed at an online conference on April 12.
Titled, “Ukrainian Transport Infrastructure Week” and hosted by the British-based Strategy Council, the introductory session covered the country’s network of 20,000 kilometers of railway, 170,000 kilometers of roads, 2,240 kilometers of inland waterways along with nine respective river ports and 13 merchant seaports.
Transportation contributes about 7 percent to the nation’s domestic economic output and lags behind with mostly Soviet-era infrastructure that has lacked inadequate public and private investment.
Under President Petro Poroshenko, who inherited an undeclared war with Russia and his successor, Volodymyr Zelenskiy, massive infrastructure overhauls have been launched.
Concessions at river ports are operating that brought in $131 million of investment and toll roads in partnership with private companies will soon come on board as per the country’s 2030 Transportation National Strategy and Action Plan.
Only about 30 percent of the capital expenditures needed to improve nationwide infrastructure is coming from the state, said Olga Magaletska, head of the government’s National Investment Council. Among one of the panel discussion’s nine speakers, she said that “the pandemic disrupted many investment plans…yet concession agreements reached $170 million” over the past last year.
So, Ukraine’s sparse money needs to be compensated by international finance institutions in order to cover the “lending cap” for the next nine years, said Adman Rahman, who heads a project funded by the European Union to assist the Ukrainian government on its decade-long transportation master plan.
“The rest comes from investors…sovereign and pension funds…much relies on transparency and [government] decision-making and continuity [in policy],” he added.
Overhauling the nation’s infrastructure, which includes a road network that was largely built in the 1960-1970s, requires reform of Ukraine’s state-owned road maintenance and construction company Ukravtodor, said Mark Magaletsky of the European Bank of Reconstruction and Development.
Along with the EU’s European Investment Bank, EBRD co-financed the completion of the Kyiv-Odesa highway last year, which is repairing or laying new pavement over nearly half of the 480 kilometers of the route.
To make Ukravtodor function more efficiently and reduce graft at the Soviet-era company, Magaletsky said that additional legislation needs to be passed “to mitigate risks for [road] concessioners.”
From a “door-to-door” perspective, Baher El-Hifnawi of the World Bank emphasized that Kyiv should use its potential as an international transportation hub as “a competitive advantage.” All of the country’s ports “should become privately owned by 2030,” according to the government plan, said Magaletsky.
Ukraine’s state-owned railway monopoly, Ukrzaliznytsia, known simply as UZ, was also discussed in terms of its role in improving its operations and how its vital network could help move goods and passengers more efficiently.
UZ recorded a $454 million loss last year, according to a yearly financial report audited by EY. Its profitable cargo segment has cross-subsidized its unprofitable passenger wing, which the government for decades has severely underfunded, including delaying long-needed expenditures to upgrade its depreciated fleet.
Infrastructure Minister Vladyslav Kryklii said this year the state budget has allocated $144 million to UZ while acknowledging that the railway “has too many social obligations,” including hidden costs like land taxes.
He, along with Sevki Acuner, chairman of UZ’s supervisory board, also said that restructuring the nation’s largest single employer is paramount.
“It shouldn’t be just a badge of honor” to simply restructure the company “on paper,” Kryklii said, regarding forming four vertically integrated companies divided into cargo, passenger, infrastructure, and production. A thoughtful process is in order, he added, in line with “the company’s core financial assets and revenues.” He said all other “non-core” assets of UZ should “be managed by private companies” as well.
UZ supervisory board chairman Acuner amplified the company’s “unbundling” plan as a “matter that is meticulous” and that should be done coherently. “It’s not a light matter.”
Overall, Kryklii said: “we need to reduce corruption and get infrastructure on track with European Union standards and I hope the day comes when we become a member of the EU.”
UZ is currently searching for a ninth chief executive in five years as it struggles to enter the 21st century with trains that still average 60 kilometers an hour and amid allegations of theft and delays of cargo.
Jason Pellmar of the World Bank’s for-profit International Finance Corporation said that priorities for the next decade should be “climate” and “promoting agricultural logistics.”
He cited river port development as an example that grain exporter Nibulon uses and “green infrastructure” projects that IFC has financed in municipalities as Lviv, Kyiv, and Kryviy Rih in Dnipropetrovsk Oblast.
Like many speakers, Pellmar mentioned “public-private partnerships” as a sound way to compensate for underfunded government infrastructure projects that include concessions at ports, terminals, and roads.
From the European Investment Bank, Jean-Erik Dezgon of the bank’s representative office said, Ukraine received 1 billion euros in financing last year and infrastructure consists of 37 percent of the entire 7 billion-euro loan portfolio, 52 percent of which on roads.
