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New Ukrzaliznytsia head plans freight rate hike within month

Ukraine’s Cabinet of Ministers ruled on Aug. 9 to accept the resignation request of Ukrzaliznytsia (RAILUA, UZ) CEO Wojciech Balczun and appoint Yevhen Kravstov, the deputy infrastructure minister, as temporary acting CEO. Following his appointment, Kravstov promised to agree to “some” hike in UZ freight rates within a month, Interfax-Ukraine reported. He also said that as of 2018, the company will offer a clear and transparent system of revising freight rates.

 

As CEO, Balczun had insisted on the introduction of a new system of freight rate adjustments starting this year, which would have been linked to the producer price index. Based on its preliminary business plan, UZ was expecting that freight rates would increase 22.5% since June, which would enable it to generate additional revenue of UAH 6.7 bln this year.

 

Ukraine’s Infrastructure Ministry has the power to approve freight transit rates for Ukrzaliznytsia. The last time the ministry adjusted rates was in May 2016. Freight transit is the only profit-generating segment for Ukrzaliznytsia.

 

Alexander Paraschiy: It looks like the conflict between Balczun and the Infrastructure Minister was the key reason why the ministry didn't raise freight rates for Ukrzaliznytsia this year. Now that someone close to the minister is running the company, the chances for a rate hike have improved significantly, which is a positive development for UZ.

 

What is negative in the current situation is that the company has no CEO with full authority and won’t have a clear methodology for revising freight rates in the long term. The latter means that, as usual, the prospects of Ukraine’s rail monopoly will continue to depend on the will of the infrastructure minister. We retain our cautiously neutral position on RAILUA bonds.

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