Ukraine approves draft 23% freight rate hike for Ukrzaliznytsia

The tariffs
committee of Ukraine’s Infrastructure Ministry has approved a draft resolution
to hike by 22.5% domestic goods transit rates by railway, Interfax-Ukraine
reported on Sept. 1, citing the ministry’s press service. The increase is
planned as of October 1, and the draft resolution is being placed on
the ministry’s website “for
public discussion” by end-September. The rate hike will lead to a 0.2% increase
in producers’ inflation in Ukraine, according to the explanatory letter to the
draft. The assumed revision has been included in 2017
business planof railway monopoly Ukrzaliznytsia (RAILUA), which forecasts that the rate hike
will bring UAH 2.8 bln in additional revenue to the company this year.

A hike in freight
rates in 4Q17 was promised
by new acting CEOYevhen Kravtsov last month. Initially, Ukrzaliznytsia was counting on a 22.5%
increase in freight rates as of mid-June 2017, expecting to generate additional
UAH 5.8 bln in revenuein 2017 from the increased rates.

Alexander
Paraschiy: Better
late than never, so we treat this news as positive for Ukrzaliznytsia. While weare anticipating
a massive media campaign against the planned freight rate hike, to be supported
by the key customers of Ukrzaliznytsia (coal, iron ore and steel producers), it is
highly likely that the ministry’s plan will be implemented in October.

It still remains critical for Ukrzaliznytsia to secure some automatic
adjustment of railway rates, which won’t be dependent on the will of any
ministry and would allow the company to perform any long-term planning, as had
been insisted upon by its previous management. So far, we maintain our neutral view
on RAILUA bonds.