Ukrzaliznytsia freight railway rate hike yet to be approved

Ukraine’s Infrastructure Ministry is delaying in
publishing a widely awaited decree that hikes freight railway rates for the
customers of state railway operator Ukrzaliznytsia, from what we can tell from
the Ministry’s website. A circulated draft decree stipulated a freight rate
hike for all goods by 22.5% as of Oct. 1 and was supposed to have been
published on the same day. A 22.5% growth in freight rates as of October was
assumed in the business plan of Ukrzaliznytsia (RAILUA) and approved by the
Ukrainian government in mid-September.

Recall, the State Regulatory Service refused to approve a
22.5% rate hike two weeks ago, suggesting that Ukrzaliznytsia should find
consensus on the hike with its key consumers. The acting CEO of Ukrzaliznytsia
revealed last week his readiness to discuss that, while no information on the
results of such a discussion has appeared so far.

Alexander Paraschiy: The risk of a delayed freight rate hike has materialized, which
undermines Ukrzaliznytisa’s fulfilment of its business plan for 2017. Another
risk that we highlighted earlier, a smaller adjustment of freight rates, is
becoming increasingly likely to materialize as well. As we commented before,
that won’t harm Ukrzaliznytsia’s liquidity or solvency in the short term, as
the company was planning to direct most of the funds generated from higher
freight rates for capital investments. Our view on RAILUA bonds remains
neutral.