Ukrzaliznytsia wants to link freight rates to inflation for mid-term
12 June 2017
Ukrainian railway monopoly Ukrzaliznytsia (RAILUA) is proposing new principles for adjusting freight transit rates for the next 3-5 years that will be based on “a standard inflation index, or a basket of indices,” according to its press release on June 10. The proposal was discussed at a June 9 meeting at American Chamber of Commerce in Ukraine, where a representative of Ukraine’s Economy Ministry was present. Participants agreed that automatic indexation for 3-5 years will improve the ability to plan and attract investment, UZ reported.
UZ’s last rate hike was in late April 2016, when freight railway rates rose 15%. During the next 12 months, the producer price index (which UZ seems interested in using as its benchmark for its rate adjustment) jumped 27.1% in Ukraine. Earlier this year, UZ revealed its expectation that freight rates would rise by 22.5% this summer.
Alexander Paraschiy: The regular revision of rates using a clear inflation benchmark is certain to improve UZ’s stability, as well as boost the attractiveness of its Eurobonds. But it is hard to believe that the key consumers of freight railway services, Ukrainian steel and iron ore companies, will agree to such automatic adjustments. We expect industrial companies will use all their lobbying ability to prevent such rule. So far, we are keeping our neutral view on RAILUA bonds.
