EU-UNDP Report Recommends that the Harmonisation of Ukraine’s Transport System with the EU Requirements will Facilitate Economic Development

Presently the transport sector of Ukraine meets only basic transportation needs of the country’s economy and its citizens. The safety, quality and efficiency of passenger and cargo carriage, energy efficiency, environmental impact do not meet the majority of international standards, says the Report.

The development of the transport network, transport technologies and, especially, road infrastructure lags behind. Ukraine has already joined the WTO and is going to sign an Association Agreement with the European Union, including a Free Trade Agreement. While the Free Trade Agreement would provide for better trade opportunities, the underdeveloped transport infrastructure may become a costly and devastating barrier to Ukraine’s trade and economic development.

Ms. Laura Garagnani, Head of Operations of the Delegation to the European Union said, "Transport is a key policy area for EU co-operation with Ukraine. There is a pledge in the EU-Ukraine Association Agenda to elaborate a concept for a national sustainable transport policy for the development of all transport modes, coherent with the EU’s White Paper on transport."

“The priority for the reforms transport sector should be primarily to modernize the infrastructure and improve access of the citizens and businesses to quality transportation services. The best way to achieve these goals is to attract private capital to transport sector offering fair competition in line with the EU approaches”, underlined Mr.Olivier Adam, UNDP Resident Representative during the Report’s presentation.

“The proposed reforms are bound to create more economic opportunities and facilitate economic growth which is inherent to human development. Safer and better transport will not only reduce the production cost for businesses, but also create a more enabling environment for the citizens,” he added.

The Report argues that the benefits of Ukraine’s transport reform and integration with the EU system would provide better access to foreign markets, growth of carriage and export of transportation services, inflow of capital, and overall modernisation of infrastructure.

Drawing on comprehensive analysis performed by both local and international experts, the EU/UNDP Blue Ribbon Analytical and Advisory Centre provides a transport system reform agenda to accelerate and sustain the national transport system. Specifically, these recommendations to the national Government and stakeholders include:

• To enhance the efficiency and effectiveness of the transport system in Ukraine it is necessary to open the sector to private investments, allow access of new companies, though leaving under the government’s regulation only the assets inherent to safety and security of the transport networks;
• The state should closely monitor the transport sector and prevent from asymmetries in the competition;
• The fees on road maintenance, environmental protection etc. should be included into the consumer price;
• To analyse the legal framework to identify the level of harmonization with EU legislation in order to develop necessary amendments;
• The transport policy should become a basis for the local governments to develop integrated systems of public transport as a priority;
• The general plan for transport in Ukraine should be developed and adopted, based on forecasts of traffic, best practices of other countries and research delivered by national think tanks and academic community.

The new Report “Ukraine’s Transport Policy and its Harmonization with EU Norms”focuses on three key areas – railroad transport, roads and automobile transport, and air transport. The results of the study show that Ukraine’s transport sector is quite diverse in terms of competition: while automobile and river transport is fully privatized, the railroad, road infrastructure and maritime ports are state-owned. It makes difficult to attract investments for modernisation.

Railroad transport is Ukraine’s competitive advantage

Railroad transport will remain the main means of passenger and cargo transportation in Ukraine in the long run, as the new Report says. Unlike the EU, where the share of cargo carriage by railroad amounts to 8%, Ukrainian railroads carry around 60% of cargo. However, the existing railroad system in Ukraine is fragmented, and unable to attract investments into modernization of assets without government guarantees.

The substance of the reform in the railroad transport should be to stimulate competition in the sector through transformation of the state-owned national railroad company (Ukrzaliznytsia) into the joint-stock company with a view to ensure transparency and accountability; to separate the infrastructure from the operators; to provide conditions for transparent competition between several railroad operators; to ensure equal access to railroad infrastructure.

The EU and most of the CIS countries have already reformed the railroad transport by separating operational functions from regulatory. According to EU legislation, each Member State should establish a regulatory body for railroad transport. The main task of the body is to ensure fair and non-discriminatory access to railroad network and services for all the operators (carriers). The regulatory body is independent and separated from any authorized manager of infrastructure, distribution, or applicant. This body should be an appeal body in regulating disputes concerning the non-discriminatory access to the market.

According to EU directives, the access to infrastructure should be granted to any operator that fulfils safety conditions. Open access to the railroad infrastructure will provide opportunities for the new companies to offer a broader spectrum of more quality services. Hence, the Ukraine’s priorities in railroad transport sector should include not only modernization of network, but also opening access to transportation market for the private companies.

Moreover, EU experience shows that the combination of government and private investments into railroad infrastructure is a much better model than only government support, as it occurs in Ukraine.

Roads and automobile transport

The development of road infrastructure in Ukraine able to absorb the ever growing traffic lags behind. The safety level is not satisfactory. Only limited budget is allocated for the maintenance of the roads.

As examined by the Report, the technical standards for the roads in Ukraine do not meet the EU benchmarks in terms of quality and weight limits. In order to bring the roads to EU standards it is necessary to introduce amendments to the Rules on carriage of dangerous cargos and Rules on carriage of heavy cargos in line with UNECE Conventions and EU directives.

The investments into the development of road infrastructure are insufficient. To boost the investments it is necessary to adopt a law on public-private partnerships, which will facilitate the inflow of investments. Such a law could provide for the establishment of public-private partnerships in the sectors of road infrastructure, railroad, water and airways.

Air transport

The experience of the countries like Poland, Czech Republic, and Hungary has shown that opening air to foreign companies, including the low-cost companies, has made air transport affordable for wide spectrum of consumers. The market shares of the traditional national companies were cut but they were usually able to increase an absolute number of their passengers. The new low-cost carriers focused on new destinations and new groups of consumers. As a result the citizens have only benefited from the open air policy, since they received a better access to air transport.

However, prior to the full opening of air it is necessary to strengthen the competitiveness of the national air companies. Ukrainian air companies are too small to be able to compete within the open air policy, hence they will have to merge or tightly cooperate with other companies in the market.

The airports should also be open to the investments, though the assets related to safety and national security should be managed by the government. The investors could provide inputs to the development of the airport sites: hotels, conference facilities, shops etc. This could help diversify the incomes of the airports.

The Report urges to finalize negotiations on joining the Single European Sky which would enable the use of air route networks in the selected sectors regardless to the national borders and depending on the operational needs. It will also help to improve the quality of services, functionality and safety of air routes.  

Finally, it is vitally important to implement the requirements of ICAO, the European Union, the European Civil Aviation Conference, EUROCONTROL through the adoption of a new Air Code of Ukraine.

For media inquiries, please contact Andriy Zayika, Communication Officer, BRAAC, tel.: +380 44 253 58 66, e-mail: andriy.zayika@undp.org.ua