Ukrainian producers' associations and unions are advocating for an international audit of Ukrzaliznytsia, Ukraine's state-owned railway company, which would reveal the current state of the transport monopoly. They are warning of potential plant shutdowns if rail tariffs are increased and are urging the government to act in the best interests of businesses.

The stance of the association leaders was presented during a press conference at Interfax-Ukraine, titled "Lowering Ukrzaliznytsia freight tariffs as an incentive for improving Ukraine's economic security" on Thursday.

According to Oleksandr Kalenkov, President of the Ukrmetalurgprom association of metallurgical enterprises, logistics plays a critical role, especially in the mining and metallurgical complex (MMC), which accounts for 40% of total rail freight in Ukraine.

"Working with Ukrzaliznytsia is unpredictable, but we have no alternative due to the company's monopoly. We depend on them, just as Ukrzaliznytsia depends on us," Kalenkov said.

He pointed out that rail tariffs have seen a significant rise since 2021, increasing from two to two and a half times for some goods. While Ukrzaliznytsia remains profitable, many Ukrainian businesses, particularly in the MMC, are operating at a loss.

Kalenkov emphasized that Ukrzaliznytsia has been making inefficient decisions. Instead of raising tariffs, the company should focus on improving operational efficiency. Given its profitability, there is room to consider reducing tariffs by 15-20%. If tariffs are raised, it would affect the cost of goods produced by these companies. Since 2022, logistics costs for businesses have increased four to five times. Furthermore, Ukrzaliznytsia does not consult producers on its financial plans or investments, though greater transparency would lead to more effective decision-making, he said.

"In August 2024, Ukrzaliznytsia announced plans to raise tariffs again. Given their profitable operations, this was shocking for us. We should be discussing a 15-20% tariff reduction, considering their profit margins and the need for efficiency improvements. If tariffs rise, our businesses may start to close," Kalenkov concluded.

Kseniya Orynchak, Executive Director of the National Association of the Extractive Industry of Ukraine, noted that while Ukraine is trying to attract foreign investment, international investors will be hesitant to invest due to the situation with Ukrzaliznytsia, which serves as a marker of the country's economic climate.

"We are calling for an international audit of Ukrzaliznytsia from our industry. The audit would determine whether tariff hikes are necessary. We are not ready to pay high salaries to inefficient managers," Orynchak said.

She explained that mining companies currently allocate 30% of their expenses to logistics, 30% to electricity, and another 30% to excise duties. A further increase in logistics costs could halt production, she warned, once again calling on the government to audit Ukrzaliznytsia before considering any tariff hikes.

Serhiy Kudriavtsev, Executive Director of the Ukrainian Association of Ferroalloy Producers (UkrFA), noted that the Marhanets and Pokrovsky mining and processing plants are currently idle, in part due to high logistics costs.

He explained that in the past, Marhanets Mining and Processing Plant delivered ore directly to the Nikopol Ferroalloy Plant (NFP) via a rail line spanning 7-8 km. However, due to attacks, the line is now closed, and the ore must be routed through the cities of Kryvy Rih and Dnipro, significantly increasing transportation costs. As a result, the plant is currently shut down.

Kudriavtsev added that NFP's annual rail logistics expenses amount to UAH 120 million, and any tariff increases would raise costs by an additional UAH 25 million. Meanwhile, the Zaporizhia Ferroalloy Plant (ZFP) is operating at only 20-22% capacity and is seeking ways to ramp up production, though tariff hikes could impede this effort.

Other heads of producer associations also voiced their opposition to tariff increases.

As reported, the Employers' Federation of Transport of Ukraine has previously advocated for a 20% reduction in Ukrzaliznytsia freight tariffs by optimizing Ukrzaliznytsia's expenses and implementing measures to restore and expand its freight base. These proposals were submitted in a letter to the Prime Minister, members of the Cabinet, the Verkhovna Rada, Ukrzaliznytsia management, and the head of the State Regulatory Service.

In the letter, the Employers' Federation of Transport pointed out that Ukrzaliznytsia had submitted a draft order to the Ministry for Communities, Territories, and Infrastructure Development, proposing a tariff increase for freight rail transportation. The document suggests raising tariffs by 19% for coal and ore, 12% for coke, and 11% for grain.

"The Employers' Federation of Transport categorically opposes this tariff hike, which would have catastrophic consequences for entire sectors of the Ukrainian economy, budget revenues, and thousands of jobs, ultimately weakening the country’s defense capabilities," the letter stated.

The Employers' Federation of Transport also provided an analysis of the situation in the rail sector and the overall economy, urging a "careful and thoughtful evaluation of all the risks mentioned before making a final decision." It warned that a tariff increase would exacerbate an already critical situation for Ukrzaliznytsia's customers.

When the war started, Ukrainian producers' associations urged the Ministry of Infrastructure to impose a moratorium on rail freight tariff hikes during martial law and for six months following its conclusion.