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Ukrainian Railway to determine railcar rent with e-tenders

Ukrainian Railway to determine railcar rent with e-tenders

9 October 2018

Ukrainian Railway (RAILUA) is going to start selling freight
railcar leasing rights using an electronic tender system as of November, the
company’s press service reported on Oct. 8. This is the second stage of the
railway monopoly’s transition to market pricing of railcar rents after rates were deregulated in January 2018.
About 5% of each type of railcar will be rented via electronic auctions, which
will define the price for all the railcars. “In this way, we will secure a
transparent and viable mechanism of market pricing of railcar use,” the
company’s CEO Yevhen Kravtsov commented. 

 

Following the January deregulation, Ukrainian Railway
introduced new railcar rental rates that exceeded the regulated prices by
2.5-3.5x, depending on railcar type. Ukrainian Railway’s total revenue from
freight transportation comes from three components: infrastructure (regulated),
locomotives (regulated) and railcars (deregulated).  

 

Alexander Paraschiy: Market
pricing of its railcar component will enable the company to increase
flexibility in its pricing. In turn, this will allow the company to be more
competitive in the niches where private railcar providers are active, as well
as earn additional seasonal profits in the niches where demand for railcars is
excessive. The should translate into better P&L from cargo services.

 

At the same time, success will depend on whether the
auction-based prices will indeed reflect the market. In particular, it’s hard to
say whether the auction pricing of only 5% of total railcars will be indicative
of the entire market. In any case, such an initiative is a good step towards
improving the company’s transparency. We confirm our neutral view on RAILUA
debt instruments.

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