Ukraine to purchase Kryukiv trains after losing its Russian market

Ukrainian President Viktor Yanukovych ordered the government to purchase two electric trains produced by Kryikiv Railcar (KVBZ UK), the Interfax-Ukraine news agency reported on September 27, citing a Poltava region official. Kryukiv Railcar produced three electric intercity trains in the last two years, with only one having been acquired by the state.

Earlier this year, the government approved a program to order four trains from Kryukiv, with sources of their financing being unclear (see our news from March 26). Earlier last week, the Russian state certification agency canceled the certificates of Kryukiv’s freight railcars, effectively banning them from delivery to the Russian Federation.

Alexander Paraschiy: With the president’s new initiative to support Kryukiv, the company will be able to more than double its revenue from the sale of passenger railcars and trains this year. Still, a decline in sales in the freight railcar segment this year will most likely cause a drop in total revenue by more than 22% yoy than we initially forecasted.

Freight railcars accounted for 90% of Kryukiv’s revenue in 2012 and the Russian freight railcar market remains dominant for CIS producers since it accounts for about 80% of total purchases.

Given that the demand on Russian railcar market dropped by a third yoy and it can be now easily covered by domestic production, we do not expect Kryukiv will be able to regain access to the Russian market soon. Firstly, the ban was actively lobbied by key Russian producers, which have stressed the importance of preferences for “those paying taxes in Russia,” and their lobbying power remains strong. Secondly, the ban perfectly fits Russia’s tactics to escalate trade conflicts on the eve of Ukraine’s scheduled signing of the Association Agreement with the EU.