Editor’s Note: This article has been updated to include the response of Yaroslav Dubnevych.
Business interests came out in favor of new draft legislation that could help open up the nation’s railroads to private locomotive operators. But some watchdogs have doubts about the true beneficiaries.
The legislation aims to replace the monopoly of state giant Ukrzaliznytsia with competing locomotive operators that would pay tariffs to use the state railways. The bill would also create two new regulators with the power to set tariffs and issue licenses.
“This can lead to improvements in the economic environment and Ukraine’s development,” Lidiia Levitska, American Chamber of Commerce in Ukraine policy officer, told the Kyiv Post.
The Kyiv Post spoke to more than a dozen companies, business associations and analysts, many of whom said that such a change is long overdue on Ukraine’s aging railways. Competition, they say, will revitalize the railroads.
However, the bill’s main author, Yaroslav Dubnevych, a lawmaker and business tycoon under criminal investigation for allegedly stealing from the Ukrzaliznytsia — charges he denies — may benefit from the new law, critics say.
“There are always special interests in everything that concerns the railroads,” said Olena Scherban, a lawyer with the watchdog Anticorruption Action Center in Kyiv.
Dubnevych denies the allegations against him.
Infrastructure Minister Volodymyr Omelyan expects the legislation to pass the Verkhovna Rada this year. He also envisions the creation of one or several pilot projects to test private locomotive operations.
Failing rail
Since Ukraine’s independence in 1991, the country has been burning through its rolling stock of wagons and locomotives, multiple experts told the Kyiv Post. Ukrzaliznytsia lacks the revenue to maintain its aging fleet, whose capacity is stagnant even as Ukraine tries to grow its trade. Over 90 percent of the railway’s assets are obsolete, according to Omelyan.
While the company ordered 30 diesel locomotives from U.S. conglomerate General Electric, experts say that Ukraine needs at least 10 times that amount. Without enough locomotives, the network keeps slowing down.
“It’s important to understand that in this situation, everyone loses,” said Svetlana Kuftova, communications director for Ukraine’s largest railcar operator, Lemtrans, a subsidiary of billionaire oligarch Rinat Akhmetov’s System Capital Management. “Operators lose because of the decline in movement. Shippers lose because they can’t fully load their cargo or increase production. Ukrzaliznytsia loses because the volume of transportation declines. And, in general, the economy of Ukraine loses as well.”
Grain and oilseed producers are among the hardest hit. Ukrainian Grain Association president Nikolay Gorbachov called the situation “scary.” Goods are often stuck in motionless cars for weeks and arrive to Black Sea ports delayed or damaged. Reliability is declining, as is access to the country’s grain elevators.
“We are using the same railroads but they are in a terrible state,” said Gorbachev. “There is a deficit of locomotives. There are simply not enough of them.”
Serhiy Vovk, director of the Centre for Transport Strategies, confirmed that Ukraine’s rail freight system is inefficient and that trains are depreciating at a growing rate.
Privatization attempt
In Ukraine, rail privatization plans follow the vertical separation model: Ukrzaliznytsia would own the rails, while other companies would own the locomotives. Most train cars in Ukraine are already privately owned, according to experts. But right now, only the state railway is allowed to drive locomotives.
Besides laying groundwork for private locomotives, the current legislation creates rules for train fueling and servicing and forbids blocking any part of the network.
It would also create one executive body to set tariffs and issue licenses and safety certificates to private operators. Another regulator, a national commission, would be created to review tariffs and regulate access to the network.
Andrii Gluschenko, an analyst with metallurgy journal GMK Centre, said that these kinds of executive bodies may increase the president’s power over the railways. He also said that the proposed national commission’s mandate may overlap with the authority of the Ministry of Infrastructure.
Lemtrans, which hopes to acquire and operate locomotives, says that public-private partnerships are the likeliest solution because each locomotive costs millions of dollars, a daunting amount for most companies.
Concerns
Ukrzalyznytsia’s acting CEO Yevhen Kravtsov said that before the government allows private locomotives, it must take into account the revenue loss to the state railway. Kravtsov feared losing the most profitable lines to private operators, while getting stuck with huge costs, including the unprofitable passenger trains.
Analysts discussing this concern told the Kyiv Post that the state rail monopoly would be able to recoup its losses by charging appropriate tariffs to locomotive operators.
Dubnevych brothers
A bigger concern swirls around the bill’s principal author. Dubnevych and his brother Bohdan, also a lawmaker, are under investigation for allegedly running a scheme to rake in possibly hundreds of millions of hryvnia from the state railways in rigged procurements.
The Kyiv Post has reached out to get a comment from Dubnevych and to try and arrange an interview. He hasn’t responded to requests.
Attempts to strip the lawmaker of his parliamentary immunity failed in January. The General Prosecutor’s office refused to accept the Specialized Anti-Corruption Prosecutor’ evidence, claiming the documents had errors. The anti-corruption prosecutor said it would try again.
The National Anticorruption Bureau of Ukraine, or NABU, declined to comment on the ongoing case, saying only that a lawmaker and some assistants are under investigation for a corruption scheme. In a separate statement, NABU head Artem Sytnyk said there are “many” corruption cases involving Ukrzaliznytsia’s procurement, with losses amounting to half-a-billion hryvnias.
The Anticorruption Action Center in Kyiv said that there are many open corruption cases against the Dubnevych brothers, most of which will never advance because of the lawmaker’s influence. The Dubnevych brothers are some of the wealthiest legislators in Ukraine, owning multiple companies, some of which provide railroad parts to the state railway.
“The Dubnevych brothers… have their own people in the tendering committee” of the state railways, said Scherban. “That’s how they make their money.”
Dubnevych said that as a lawmaker of Ukraine, he has no such business interests.
