How war has put Ukraine's railway Euro-integration into question

PKP Cargo, a subsidiary of the Polish State Railways PKP, has announced its intention to enter the Ukrainian market.

This intention wouldn't stand out if it weren't for one "but": it is impossible, according to the current Ukrainian legislation.

Therefore, it could be possible only if Ukraine carries out the Euro-integration reform of the railway transport system, which has been on hold for almost 10 years.

Read more about why Ukraine is hesitant to reform Ukrzaliznytsia and how it harms the economy in the column by Yuriy Shchuklin, a member of the Logistics Committee of the European Business Association – Competition check: is Ukraine ready for railway Euro-integration?

According to the columnist, the reform involves eliminating the monopoly factors of Ukrzaliznytsia and dividing it into separate companies (strategic infrastructure, locomotive traction, passenger, and freight transportation), providing equal and non-discriminatory access to the resources of the railway infrastructure to all users, regardless of ownership.

Instead of one Ukrzaliznytsia, a competitive market of railway hauliers should emerge.

Yuriy Shchuklin reminds us that, according to the EU Association Agreement, Ukraine has to do its "homework," implementing norms into its legislation for an open competitive railway market, which has existed in EU countries since 1991, by November 2022.

"However, no progress was made in this direction until 2022. Even EU candidate status obtained during the full-scale war has not moved the Euro-integration reform of railways from a dead end," the expert notes.

Rather the opposite, says a member of the Logistics Committee of the European Business Association, individual officials began to express such thoughts that Ukrzaliznytsia survived in difficult conditions of war only due to a management system that does not allow competition, and that only the single monopolistic structure allowed it to survive.

But is monopoly really a more efficient form of organization for railway transport?

The answer depends on how to consider efficiency, notes Yuriy Shchuklin.

He believes that Ukrzaliznytsia and the government are focused on record profitability from freight transportation, achieving this through a monopoly, rather than ensuring the development of the country's economy by improving the efficiency of railway objectives, which can be achieved through competition.

"If the board head of Ukrzaliznytsia didn't need to prove his efficiency by the amount of money withdrawn from the market, then he would be engaged in the mission of ensuring the functioning of the state economy through improving the Ukrzaliznytsia efficiency," the columnist writes.

So, what Euro-integration trends can be indicated by the statement of the Polish haulier about intentions to enter the Ukrainian market?

Apparently, the expert assumes, the Poles (and not only them) see a potential client base in those cargo owners who are dissatisfied with the Ukrainian pricing principles of the car component and the rules of organisation of railway freight transportation.

Also, Shchuklin does not rule out that the open statement of intentions is a maneuver similar to a gambit in chess.

"With this move, the Poles want to find out: does Ukraine plan to cancel outdated rules and implement Euro-directives, according to which any EU haulier will have the right to travel on Ukrainian railways?" the expert assumes.

Meanwhile, Ukraine's parliament has returned to the consideration of the Railway Transport bill.

It is not necessary to wait until parliament finally adopts the bill that meets the requirements of Euro-directives. The Cabinet of Ministers has the authority to approve certain normative acts that correspond to Euro-directives.