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Ukrzaliznytsia generates $16 million profit in 2021 after pandemic losses

January 12, 2022 6:28 pmby Alexander Query
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State railway operator Ukrzaliznytsia generated $16 million profit in 2021, a $450 million improvement in results from 2020. (dp.uz.gov.ua)

State railway operator Ukrzaliznytsia generated $16 million of profit in 2021, according to the company’s Jan. 12 press release.

The company bounced back to profitability after posting a $436 million loss in 2020, but failed to match its 2019 results, when it made a profit of $108 million.

Ukrzaliznytsia generates most of its revenue from freight transportation deals with major Ukrainian industrial companies. In the first half of 2021, the company's revenue from cargo transportation was over $1 billion, compared to $91 million from passenger transport.

According to Ukrzaliznytsia acting head Oleksandr Kamyshin, the company managed to turn profitable this year thanks to an increase in freight traffic, higher tariffs for freight transportation, the distribution of wagons through transparent auctions, and savings on all purchases.

"Efficient daily work with cargo owners, which resulted in an increase in freight traffic, as well as a higher tariff for freight and the effective, transparent distribution of (freight) cars at auctions (...) made the company profitable this year,” Kamyshin said.

In August 2021, the government approved a two-stage increase of the company's freight tariffs for coal and iron ore by 30%, and for agricultural products by 15%, which is projected to lead to a $378 million revenue increase in 2022.

Ukraine’s richest man Rinat Akhmetov’s metallurgical company Metinvest and energy company DTEK are the largest users of the country’s railways. Transportation is a big part of Akhmetov’s cost structure, and in previous years he allegedly lobbied hard to keep tariffs as low as possible.

According to GrainTrade, a website specialized in freight transportation, the tariff raises will take $120 million of extra revenue from Metinvest and $37 million more from DTEK over the course of 2022.

Ukrzaliznytsia expects to generate $60 million in profit for 2022, six times more than in 2021. 

However, the company’s financial results were hampered by a global rise in the price of diesel, petrol, and gas, as well as the 10% increase in Ukrzaliznytsia’s employees' salaries that came into effect in December 2021.

Ukrzaliznytsia is a major employer in Ukraine, with a workforce of around 250,000 people. According to former board member Adomas Audickas, personnel costs accounted for 56% of the company’s total operating expenses in 2020. 

Ukrzaliznytsia attributed some of its previous losses to the impact of the COVID-19 pandemic and the ensuing economic downturn. But its problems began much earlier.

The company lost some of its cargo traffic over the last decade. According to Audickas, since Russia first launched its war against Ukraine in 2014, the company has lost around 75% of transit shipments through Ukraine from Russia.  

The national rail monopoly's poor finances and dwindling revenues have led it to run up large debts over the past few years. Ukrzaliznytsia spent $124 million on loan repayments in 2020. The company also had to pay over $15 million in response to legal cases, many of which relate to disputed debts overseas. 

Ukrzaliznytsia is still seen as an unreliable transporter due to the dilapidated state of its rolling stock: coal doesn’t get delivered to power stations on time as there aren’t enough cars. 

A parliamentary report published in September 2021 found that over the last five years, Ukrzaliznytsia lost a third of its assets due to mismanagement.

Kamyshin himself conceded in August 2021, at the height of harvest season, that only a quarter of the company's grain cars were operational due to neglected repairs.

The company’s ageing tracks are also in dire need of modernization. Of nearly 19,800 kilometers of railways, only 9,300 are electrified. 

Alexander Query
Author: Alexander Query

Alexander Query is a business reporter at the Kyiv Independent. He is the former business editor at the Kyiv Post. He worked as a TV correspondent and an anchorman at UATV in Ukraine, and received a BA in modern literature from La Sorbonne, in Paris.

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