Ukraine Plans 30% Rail Freight Tariff Hike, Sparking Industry Concerns
Proposed Tariff Increase and Industry Response
By Pavel Polityuk
Background and Rationale for the Tariff Hike
KYIV, June 22 (Reuters) - Ukraine's economy ministry has proposed raising state railway Ukrzaliznytsia's freight tariffs by 30% from August 1 to help stabilise the company's financial position, although steelmakers and agricultural producers warned this could make them less competitive.
With the war with Russia now in its fifth year, rail remains a vital part of Ukraine's logistics network, carrying both freight and passengers. But increased spending on security and infrastructure maintenance is pressuring the government's cash flow at a time when it is trying to restructure its debt.
Financial Goals and Projected Impact
Ukrzaliznytsia CEO Oleksandr Pertsovskyi told Reuters this month that the firm needed to increase its tariffs by at least 45% this year to help restore its finances.
The economy ministry said in a note over the weekend that the proposed 30% increase is expected to generate additional revenue for Ukrzaliznytsia, increasing the company's financial capacity to partly cover its funding shortfall in 2026 by 8.6 billion hryvnias ($191.50 million).
The ministry will consult with industry but has the power to implement the increase itself.
Industry Concerns and Opposition
The company described the 30% tariff increase as a "compromise", but steelmakers and agricultural producers opposed the rise in freight costs, saying it could reduce the competitiveness of their goods on foreign markets.
Pertsovskyi said an increase in tariffs by 45% would cover about half of the company's projected $587 million cash shortfall.
The ministry did not specify in the note whether further tariff increases could follow to reach the 45% level.
Ukrzaliznytsia said a decision on a further tariff increase from January 1 "will be made separately."
Assessment of the Tariff Hike's Sufficiency
Limitations of the Proposed Increase
HIGHER RATE STILL NOT ENOUGH
The rail company said the tariff increase alone would not be sufficient to stabilise its finances, but if approved it would allow it to resume support from international financial institutions, and it would also introduce further optimisation measures.
Impact on Shipping Costs
Ukrzaliznytsia also said the new tariffs would only slightly increase transport costs - by $3.2 per metric ton of ore and by $3.6 per ton of grain - when shipped along the full route length of up to 750 km (466 miles).
Risks to Key Industries
Major shippers have previously opposed the planned tariff increase, saying that in the steel sector alone it could put 300,000 jobs at risk and lead to the closure of key enterprises.
Key Ukrainian sectors, including the agriculture and metallurgical industries, have said the increase in rates would create a significant competitive disadvantage for Ukrainian exporters when the country urgently needs to preserve industrial output, exports, jobs and foreign currency revenues.
(Reporting by Pavel Polityuk; Editing by Thomas Derpinghaus, Alexandra Hudson)
