Cabinet deregulates railcar rent pricing for Ukrzaliznytsia

Ukraine’s Justice Ministry has approved the
cancellation of a state regulation on the rental price for the railcars of
Ukrainian Railway (RAILUA, Ukrzaliznytsia), Ukraine’s state-controlled railway
operator, Infrastructure Minister Volodymyr Omelyan announced on his Facebook
page on Dec. 26. Ukrzaliznytsia has the authoritiy to set prices for railcar
renton its own as of Dec. 22, Omelyan clarified.

Alexander Paraschiy:
Ukrzaliznytsia suffered for a long time from inefficient pricing of its railcar
rent, with regulated prices being far below the market. In fall 2017 for
example, the daily regulated rental price for its gondola cars was UAH 108/day
and for grain hoppers it was UAH 254/day, according to Ukrzaliznytsia, while
free market prices were UAH 560/day and UAH 600/day, respectively. Such a price
difference created a shadow market for state railcar rentals, which will likely
vanish once railcar rent is liberalized. Earlier, Ukrzaliznytsia estimated the
positive effect from railcar liberalization of at least UAH 1.0 bln p.a.

Ukrzaliznytsia claims the liberalization should lead
to reduced market prices for railcar rent by about 10%, which will benefit
railway customers. So far, it is hard to believe in such a scenario, but
newertheless we see the negative effect from the liberalization won’t be
significant for Ukrzaliznytsia clients.

While the news is positive for Ukrzaliznytsia, we
maintain our neutral view on RAILUA bonds.