Chronic nonpayment, broad usage of interenterprise settlements, barter, and promissory note patterns have left Ukraine’s railroads without working capital [current assets, to use the parlance], turning this potentially lucrative industry into one very much indebted to the national budget. This subject was on the agenda of the National Defense and Security Council’s meeting held on April 11, chaired by President Leonid Kuchma. Those present considered the status of Ukraine’s rail transport and measures to keep it on track.
Rail transport is largely what maintains a given state’s territorial integrity. Ukraine is located on the European crossroads and could have long become its interchange, considering West-East and South-North passenger and freight influx. This would have secured Ukraine substantial budget revenues in hard currency. A national rail transport network is supposed to be part and parcel of all those international transport routes, meaning that Ukraine ought to have made sure they cross rather than bypass its territory.
Those at the NDSC meeting noted that, considering the nation’s rail transport system’s status now, even a moderate increment in domestic output would cause delivery malfunctions. Inadequate government subsidies, uncontrollable depletion of rolling stock and infrastructure, multiple cases of abuse of office, and overall mismanagement are a serious threat to safe passenger carriage and the system’s normal functioning.
NDSC experts believe the annual rental charges due the Ukrzaliznytsia [Ukrainian Railways] could be well over $500 million. But this would require significant adjustments of its infrastructure and investment in modernizing its rolling stock, along with other outlays. However, by the end of 1999 such investment barely came to $300,000. Ukraine’s rail transport remains unattractive to foreign investors largely due to the industry’s overall financial status. Some of the NDSC meeting’s records stress that the situation is made so much worse by “flagrant breaches of payment discipline” denying the freedom of large- scale financial maneuver while aggravating the overall economic situation. Executive discipline remains an urgent problem even at the railroad company’s highest managerial level. NDSC findings point to the presence of administrative anarchy, due to which neither the laws or nor government decisions work in the sector.
Law enforcement reports show that one-third of the Ukrzaliznytsia’s actual turnover is handled by so-called pocket firms, using the interenterprise-settlement-barter-discount-rollback tandem. In other words, the shadow economy has firmly entrenched itself in this industry, which is supposedly completely under government control, meaning that the existing functional shortcomings are aggravated by a significant organized crime presence. Among other things, Ukrzaliznytsia sets unjustified and unauthorized discount rates that quite often equal or turn out lower than the prime cost of rail carriages. Often, tariffs effective within Ukraine are applied to transit deliveries.
As a result, Ukraine’s railroads brought a mere 22.5% of the live money due the budget last year as fares for domestic freight carriage, totaling 34.4%, accounting for transit deliveries. In Russia, the corresponding ratio was 76%; Belarus registered 94%, and Latvia 100%.
In 1999 alone, law enforcement authorities detected more than 4,000 legal violations on the railroads, including 1,334 felonies.
Traditional transit carriage is lost because of such irrational fare-setting policy. Ukrzaliznytsia willingly delegates to Hungarian firms work involved in the servicing of transit and export/import freight deliveries.
Much damage is incurred by discount rates the Ukrainian rail carriers have to provide a number of passengers without any compensation from the central or local budgets.
The National Defense and Security Council believes such discounts and other passengers’ privileges must be revised. The passenger and freight cost-setting policy must be made transparent and logically justified. This will help correct the existing abuses. Dispatcher services must be licensed, as this will help liquidate all those shadow, criminal structures waging their rail war against the state. Special emphasis is placed on maintaining and developing international transport corridors and other measures making Ukraine’s transit more attractive [to foreign customers], aimed at better coordination of transport, customs, river- and seaport services, and improving container deliveries. To revive Ukraine’s rail transpiration, it is necessary to seek investors capable of assisting in the re-equipment of the industry. To this end, certain railroad sections — those with the highest wear-and-tear — should be privatized. The respective machine-building enterprises must also receive a fresh impetus. The most important task facing Ukrainian railroads lies in getting rid of surrogate payments for services rendered, having all accounts payable actually paid (now totaling over a billion hryvnias), introducing a transparent procurements system (based on tenders), because procurements is now a scene of most flagrant abuses and transgressions.
The Day was told by a reliable NDSC source that cadre changes are to be expected at the Ukrzaliznytsia executive level, and that the President will soon issue appropriate orders.
INCIDENTALLY
First Deputy Minister of Transport and General Director of the State Railway Transport Administration (Ukrzaliznytsia) Anatoly Slobodian has been dismissed and Minister of Transport Leonid Kostiuchenko officially reprimanded. As the presidential press service reported to the Interfax-Ukraine agency, such measures were mandated by a decree On Calling Managers of Ukraine’s Rail Transport to Disciplinary Responsibility.
This document was adopted in conjunction with the numerous violations of the financial and economic discipline in the railway sector, the lack of proper control of the railroad operation, unsatisfactory labor discipline, as well as following the decision of the Council of National Security and Defense of Ukraine.
According to this decree, the Cabinet should pass a decision on dismissing Oleh Kriuchkov, the current Donetsk Railway director, and Stanislav Sulyma, director of the Prydniprovska Railroad. Leonid Kuchma also ordered the government to take urgent measures to improve the regulation of the Ukrainian rail transport, eliminate the violations detected, and bring the guilty persons to responsibility.
