Ukrainian Railways supervisory board recommends new acting CEO

The Supervisory Board of Ukrainian Railways (RAILUA)
decided to satisfy the resignation request of acting CEO Ivan Yuryk and to
recommend the Cabinet to appoint as the new acting CEO Oleksandr Kamyshin,
advisor to the Infrastructure Minister, the company’s press service reported on
Aug. 9. Yuryk is recommended to remain at the position of executive board
member responsible for finances. Kamyshin is recommended to be appointed till
end-2021, but no later than until a new CEO is elected.

On July 30, Security and Defense Council of Ukraine
(RNBO) decided to “take extraordinary actions to stabilize the activity” of
Ukrainian Railways and appoint a new acting top manager for the company.
According to the RNBO’s conclusions, the “critical situation” in the company
may “de-stabilize the operation of critical infrastructure of the railway
industry and create a real threat to the vital interests of Ukraine.”

Infrastructure Minister Oleksandr Kubrakov wrote on
Aug. 9 that he “supports the initiative” of Ukrainian Railways’ supervisory
board. He also assured that the decision has been supported by representatives
of G7 countries , EBRD, EIB and the World Bank. Kubrakov stated that an
anti-crisis staff would be created at the ministry “to control the decisions
vital for Ukrainian Railways,” while Kamyshin “should become an anti-crisis
manager.” The minister listed four primary tasks for the immediate future: 1) raise
freight transportation rates to “market” levels, 2) secure the purchase of
electricity by the company directly from the nuclear power plants’ operator, 3)
attracting international investors to the Ukrainian market, 4) purchase new
trains and locomotives.

Alexander Paraschiy: Low
transportation rates for certain cargo types is indeed a problem for Ukrainian
Railways, so resolving this issue would be great progress (recall, last month,
the Infrastructure Ministry has already announced a possible increase of the rates).
The key problem is that such rate increases would affect large businessmen
(controlling iron ore, coal and fertilizer producers) who have a lot of
lobbying power in Ukraine. With such “anti-crisis staff” and special attention
from the minister and even RNBO (read, Zelensky), it could be easier to
overcome the lobby. From this standpoint, the development is positive for the
company’s creditors, including Eurobond holders.

Ironically, prior to the RNBO decision, the situation
in the company had significantly improved as it had resolved its liquidity
issue (and got credit rating upgrades) and was demonstrating gradual
improvements in cargo turnover and P&L. Therefore, the worst times for the
company are over, so there is no need for such abrupt “anti-crisis measures”
right now. Therefore, the rapid changes in the company’s top management could
be related to the company’s turning into an entity which will accumulate
massive funds, to be sourced from raised rates and large state support (about
UAH 40 bln in 2021-2023), which will be directed for new infrastructure
projects and the procurement of rolling stock. Increased budgets always come
along with increased corruption risks. Whether the top management changes are
an attempt to fight corruption ahead of an increased budget, or an attempt to
introduce managers of that increased budget who are more loyal to the
government, only time will tell. At least the involvement of Ukraine’s western
partners in the changes allows us to consider the first option.