How an initiative to reduce the service terms of grain wagons will help to enrich individuals at the expense of entire sectors of the economy explained the UAC Deputy Chairman Mykhailo Sokolov in his interview on the pages of Economic Truth.

Railways of Ukraine has many problems. One of them is the poor systems’ performance on the control over the technical condition of wagons that are allowed to operate.

However, instead of solving and "treating" this problem, Railways of Ukraine and the Ministry of Infrastructure propose a solution that threatens to collapse the state railways, spend funds from other industries and could lead to economic collapse.

And all for the sake of enriching a small number of people - current and future owners of wagon factories and their suppliers, because, as follows from the explanatory note to the draft Order, developers consider that the prosperity of these enterprises is the key to the development of the economy.

Here we can this, but can't do that

As a key reason for wagons service terms reduction the authors of the draft Order consider that the control system cannot ensure the admission of technically serviceable wagons to the railway tracks.

However, the question arises: why are we only talking about freight wagons? It turns out that the system works for passenger cars and faulty ones that can disconnect themselves or get off the track are not allowed on the track.

In general, this is not surprising, because the admission of the car requires not only the opinion of an expert organization, but also the decision of the technical inspection point (TIP), which decides on the admission of the wagon. And these points are subordinated to Railways of Ukraine.

There is another remarkable fact: not for all types of wagons it is offered to reduce service terms. For example, if they want to limit services terms of most grain trucks to 30 years, then, for example, the services terms of universal platforms remain unchanged - 48 and 64 years.

The same thing applies to refrigerators - 50 years, timber trucks - 48 years, conveyors - 70 years, wagons for petroleum products - 45 years, cement - 42 years, alcohol - 45 years, wheelsets, pipes, metal billets - 48 years and the list goes on.

It turns out that when Railways of Ukraine needs it, it can perfectly control the technical condition of wagons and they can work for 50-70 years. And when there is a desire to make money on the construction of new ones. Nowadays we cannot build all types of wagons and the possibility of control disappears somewhere.

Whose money are used?

There are 112.6 thousand freight wagons in Ukraine, of which 30.2 thousand are grain ones. According to the draft Order, it is proposed to upgrade 45.8 thousand wagons, including 14.6 thousand grain wagons, with approximately 13.7 thousand of them belonging to the wagon fleet.

That means, we are offered to send for scrap metal quite suitable wagons and spend money on the purchase of new ones.

The developers of this draft Order propose to spend UAH50 billion of Railways of Ukraine and UAH56.5 billion of other investors (owners and carriers).

Almost all sectors of the economy, especially agricultural, metallurgical, fuel and chemical, use the railway to transport goods.

That means, for 7 years companies need to deliver their products to one or another point of the country and have to spend huge amount of money, because of renewal of old wagon fleet.

In the agricultural sector, it will reduce investment by UAH37 billion over 7 years, and in other sectors of the economy by UAH70 billion. What does this mean in practice?

And the fact that funds will not be invested in the development of irrigation systems, the restoration of which for the southern regions today is a matter of survival.

Farmers do not invest them in the construction of grain storage elevators, which are lacked, and if the agricultural sector will continue to grow at the same rate, this deficit will be worsen.

Other areas of agriculture will not be developed, such as horticulture, which requires huge investments.

And the point is not only that those Ukrainians who had to build all this and their allies would not get a job, but, above all, that all the added value and jobs that could be created, would be lost on these facilities: at pumping stations, gardens, processing plants, greenhouses, etc. The same will happen in other sectors of the economy.

Caution: corruption

If you look closely at this draft Order (especially the attached table) the major corruption risks inherent in it will become apparent. Thus, the same type of wagons has several different periods of permitted operation at the same time and it is unknown which of them will be applied to a particular one.

And this problem will be decided by Railways of Ukraine, which is also a de facto monopolist because it controls almost half of the wagons fleet.

In other words, if there is an opportunity for a "maneuver" to postpone writing-off wagons (and it was "successfully" created), there will always be those who will be willing to "help" or "speed up" the process if one of the private operators will interfere.

Are we waiting for a repeat of the logistical collapse?

In 2019, agricultural producers faced the fact that it became impossible to deliver grain to the port for export at some point. The main cause of the crisis was the lack of locomotives, due to which the turnover of cars reached 20 days.

This led to a wave of disruption of export contracts, and then, of course, to fines. This year it’s like we have the same situation. So, during the last few weeks, the rental price of wagons has increased more than five times and reached UAH5,500 per day, and at the end of spring it was UAH500 per day.

We have such a situation due to the fact that farmers nowadays do not have enough wagons to fulfill contracts, so they, competing for them at auctions, make the price to high level.

In total, about 65% of the produced grain is delivered to the seaports of Ukraine. Nowadays it is about 4 million tons per month.

A month ago, the Ukrainian Grain Association warned that this year a shortage of capacity for grain transportation is expected at the level of about 700 thousand tons per month. It seems that their predictions came true.

And all this is happening during the pandemic of the COVID-19 virus, which has sharply reduced the number of passenger traffic, which provides additional resources for freight one.

But the pandemic will end someday. Add to this the artificial deficit of wagons, as well as the already existing deficit: all this looks like a reliable "recipe" for a continuous transport collapse and total disruption of export contracts, which in turn threatens to reduce the inflow of currency.

If we take into account that 40% of foreign exchange earnings come to Ukraine due to the export of grain and industrial crops, it is not difficult to guess that such a situation will lead to the higher price of dollar. And, accordingly, the rise in prices for all goods.

Difficulties with sending goods by railways are already causing an increase in the load on highways, the turnover of which is growing from year to year.

Thus, in 2011 the railway transported 468 million tons, in 2019 - 312.9 million tons, and in 2020 set an anti-record - 305.5 million tons. All this leads to the rapid destruction of roads and nullifies the achievements of the "Great Construction".

That's not where we patch holes

It is clear that the wagons fleet needs to be renewed. However, this is not exactly done by writing-off perfectly suitable wagons and taking money from the economy.

In the USA and the EU countries, a different approach is practiced: they monitor their technical condition, and write-off wagons when their proper repair becomes technically impossible or financially impractical.

Railways of Ukraine has many other more pressing issues that need financial support. First of all, this is the condition of the railways.

Currently, 25% of the main railway tracks need major repairs, and another 10% need reconstruction. For 9 months of 2021, 0.85% and 4.39% were repaired and reconstructed. It means less than 1% of the total length of the main railway tracks. Almost all locomotive fleet (96%) is worn-out and needs immediate renewal.

In addition, the economic situation of Railways of Ukraine is terrible nowadays. In the first half of 2021, its loss amounted to UAH1.4 billion, the accumulated loss reached UAH51 billion, the volume of loans was UAH 34.8 billion.

At the same time, current assets amount to UAH10.6 billion, and short-term liabilities are UAH26.7 billion, which exceeds current assets by UAH16.1 billion. According to private carriers, the repair of one wagon per year costs about UAH60-70 thousand, and the cost of a new one without VAT is UAH1.5 million.

Accordingly, if you buy new wagon at the expense of loans at 12% per annum, as it is proposed by Railways of Ukraine, the loan service will take UAH180 thousand per year, without repaying an amount of the loan.

It turns out that such a deal will bring Railways of Ukraine at least 6% of the damage from the amount of included funds. With a loan of UAH50 billion, this is UAH3 billion per year.

In such circumstances, if the decision about the reduction of the wagons fleet is implemented in a year it will be possible to raise these funds either under state guarantees or in state banks, ie at the expense of the state budget and all citizens.

In addition, the repair of tracks and the purchase of new locomotives will have to be forgotten for a long time - at least until the state repays the debts of Railways of Ukraine at its own expense. And this means another inevitable crisis due to the emergency condition of railway tracks and locomotives.

Away from European integration?

So, instead of finally putting things in order and introducing a normal mechanism for monitoring the technical condition of wagons and start repairing railway tracks, we are offered to destroy those wagons that can work, take money from other industries to buy new ones, drive into debt for years Railways of Ukraine itself and create "excellent" conditions for the destruction of newbuilt roads.

And all this in order to load the wagon-building capacities of Railways of Ukraine and Viktor Pinchuk's factories that produce wheelsets.

However, in accordance with Ukraine's commitments under the Association Agreement with the EU, we must divide Railways of Ukraine into an infrastructure operator (railway tracks) that will remain state-owned, and transportation operators, which must be private and compete with each other.

Therefore, either the Ministry of Infrastructure has decided to abandon our European obligations, as the draft bill, which was introduced by the deputies of the "Servant of the People" has been in the Verkhovna Rada without any results for over two years, or we are offered to create a huge wagons fleet using state funds which almost at once will be immediately privatized, as well as the factories that produce them.

Will the state return the money spent, who will get rich - these questions are still not answered by the Ministry and Railways of Ukraine.