Ukraine’s railway monopoly Ukrzaliznytsia suffered a net loss of Hr 1.7 billion ($62.4 million) during the first quarter of 2021, according to a financial report published on June 22.
The loss is a continuation of last year’s performance at the end of which Ukrzaliznytsia reported an annual net loss of Hr 11.9 billion (around $435 million) in 2020 despite ending the previous year with Hr 3 billion (around $109 million) in net profit.
The report also shows that as of March, the state-owned company owes a total of hr 41.5 billion ($1.5 billion) to financial institutions such as the European Bank for Reconstruction and Development, Oschadbank, Ukrgasbank, Sberbank and Alfa-Bank.
Oleg Zhuravlev, a member of Ukrzaliznytsia’s supervisory board, said that even though the debt is “quite large,” the borrowed money will certainly be paid back and loans are quite normal for a company like Ukrzaliznytsia.
According to him, Ukrzaliznytsia will always carry some amount of debt as it needs financial support to improve the railway system and invest in infrastructure.
Salary imbalance
In the first quarter of 2021, Ukrzaliznytsia’s expenses exceeded its total revenue, making it a largely unprofitable business.
Besides paying a total of Hr 5.7 billion (around $208 million) to the state budget in the form of taxes and fees, Ukrzaliznytsia spent a large portion of its revenue on employee salaries.
Ukrzaliznytsia paid a total of hr 8.3 billion (around $303 million) to its employees during the January-March period of 2021 compared with hr 9.2 billion (around $336 million) in the same period last year.
This is partly due to the reduced number of employees: the company had 243,387 during the first three months of 2021, which is 8,600 less than the same period last year. The average wage for all the employees at Ukrzaliznytsia was Hr 11,200 (around $409) – below Ukraine’s average wage of Hr 13,612 (around $497) in March.
The salary for higher-ranking employees, however, was higher than what the head of the company got paid in the pre-pandemic days last year.
During the first quarter of 2021, the average monthly salary of administrative personnel was Hr 108,700 (around $3,972) and Hr 589,700 (around $21,548) for a manager, while the company head was paid Hr 442,000 (around $16,151) on average during the same period last year.
Falling for a fraud scheme
On the same day that the financial report was published, the Security Service of Ukraine (SBU) exposed a fraud scheme in which Ukrzaliznytsia purchased passenger seats made of uncertified materials that don’t meet the safety standards to repair the interior of railroad cars.
The SBU investigators claim that the scheme was planned by officials from Ukrzaliznytsia and its contractors back in 2016, evidencing preliminary data acquired from a pre-trial inspection.
Instead of supplying soft, padded passenger seats to the railway company, the contractors brought ones made of low-quality material, some of which were made of flammable materials.
More than Hr 200 million (around $7.3 million) from the state budget was lost in the fraud scheme, according to the SBU. The officers searched the offices and houses of the scheme participants and found evidence confirming illegal activities. A notice of suspicion is being issued for the organizers of the scheme, the Security Service reported.
Ukraine’s railway monopoly Ukrzaliznytsia was involved in a fraud scheme in which the company spent more than Hr 200 million (around $7.3 million) from the state budget to purchase passenger seats made of uncertified materials that don’t meet the safety standards. (ssu.gov.ua)
Signs of recovery
While the pandemic is not the only problem-causing agent for Ukrzaliznytsia, the declining number of passenger traffic due to the outbreak of the virus took a huge toll on the earnings of the railway company.
In 2020, the passenger traffic dropped from 7.1 million in the first quarter to 0.8 million in the second quarter, mostly due to the quarantine restrictions that didn’t allow the railway to operate from mid-March to the end of May.
Once the lockdown was lifted, rail travel began to pick up again and passenger traffic increased to 4.85 million in the July-September period and 3.9 million in the October-December period.
In the first quarter of 2021, Ukrzaliznytsia served a total of 4.5 million passengers, which is 63% of the amount in the same period last year. Zhuravlev said a majority of them travel domestically.
2021 started out as an unprofitable year for Ukrzaliznytsia also because of the increased cost of running the business amid rising prices in energy and increased land tax.
Zhuravlev however, expects full rail traffic recovery to the pre-pandemic level by the end of the year – as long as there are no additional lockdowns introduced.
