Ukraine beefs up infrastructure to boost trade with EU
Russia’s war in the Donbas and its annexation of Crimea in 2014 disrupted Ukraine’s traditional trade links with most former Soviet states. But with old ties fizzling, Ukraine has set its sights on more heavyweight partners — the European Union and China. Looking west, Ukraine has invested billions to integrate with EU infrastructure. These billions may serve a double purpose, however: They could also secure Ukraine a place in China’s flagship infrastructure project, the Belt and Road Initiative. As a transit country between the world’s largest market and its wealthiest one, Ukraine could reap substantial profits. But its infrastructure has to catch up first.
Trading with Europe
Ukraine’s reorientation westward was largely catalyzed by Russia’s aggression, which deprived Ukraine control over a section of its eastern border and severed longstanding economic ties, both between companies inside Ukraine and between Ukrainian and Russian companies. Since 2016, the EU has replaced Russia as Ukraine’s largest trading partner and
investor. half its agreement standards 2017 of Ukraine’s political Now, for with goods the and Ukraine international EU and economic accounts services. setting association trade, for common almost with is A the symbol Beskyd of railway Ukraine’s tunnel pivot in westward Ukraine’s Carpathian Mountains, construction of which started in 2014. Opened on May 24 this year, the tunnel is expected to quadruple freight traffic between Ukraine and the EU. Its 1,764-meter long stretch of double track is a part of the pan-european transport network Corridor V, running from Italy to Slovenia, Hungary, Slovakia and now Ukraine. The tunnel, which cost over $100 million, is the first infrastructure project of such a scale built since Ukraine’s independence. President Petro Poroshenko called it a symbol of the country’s renovation, which has moved it closer to the EU. Meanwhile, Ukraine’s Infrastructure Ministry recently presented the country’s national transport strategy, called “Drive Ukraine 2030,” the main focus of which is integrating transportation between Ukraine and the EU to facilitate fast and tax-free trade. The first section includes five bills aimed at regulating the country’s railways, roads, water transportation and freight shipping, whereas the second part concentrates on infrastructure projects in each region. Although the strategy has not yet been formally adopted by the Cabinet of Ministers, some of its projects are already underway, Deputy Infrastructure Minister Viktor Dovhan told journalists in Odesa on May 30.
The tunnel bottlenecks. opening will remove But of the Ukraine’s one new of Ukraine’s Beskyd railways railway major have other issues: a shortage of rolling stock and pervasive inefficiency. The rolling stock shortage is partly due to overregulation. The Ukrainian government, several years ago, banned trucks that transport more than 40 tons of freight from driving on highways, trying to reduce the load on Ukraine’s crumbling roads. Freight carriers were expected to switch to railroads as an alternative. But three years since the weight restrictions were put in place, Ukraine’s state railroad monopoly Ukrzaliznytsia is still unable to meet shipping the comotives, lion Electric, To growing deal partially which needs with Ukrzaliznytsia demand deal will of US exporters, with supply for conglomerate transit the signed 200 shortage let shipping. locomotives alone a General $1 of serve bil- loover center the in next Ukraine. 10 years and set up a service slated The for delivery the end of the of this first year. 30 locomotives They will be is partially assembled at the Kryukiv Railway Car Manufacturing Plant in Poltava Oblast, as envisioned in GE’S localization program. “GE is now continuing to look for a manufacturing base among domestic enterprises,” Ukrzaliznytsia head Yevhen Kravtsov said on May 5. “We also plan to open a center for servicing and upgrading the fleet of locomotives.” The state-owned monopoly has another large-scale project that aims to upgrade the 250-kilometer Dolinska-mykolayivKolosivka railroad section in the south of Ukraine. The route connects agricultural regions in central Ukraine with Black Sea ports. Built using over $300 million in loans, the line will be electrified to lower fuel costs and increase efficiency.
is the country’s However, government roads, the crumbling with the $1.9 this road main billion year network. priority allocated for Ukraine’s to repair Deputy Infrastructure Minister Viktor Dovhan said that weight restrictions on highways could not be in place forever. The solution is to build concrete roads that won’t crumble when used by heavy trucks. The first project on the list is a highway to connect the Black Sea ports of Odesa, Mykolayiv, and Kherson. This year, the government also launched the State Road Fund to guarantee stable and long-term funding of road works, as well as some highway concession projects. Ukraine’s road authority Ukravtodor set a goal of repairing a record high of around 4,000 kilometers of roadways in 2018. Ongoing decentralization reform has
meant Ukravtodor is now only responsible for 47,000 kilometers of major highways. The other 70 percent of the road network is managed at the regional and municipal levels, and they have the autonomy to decide which roads to fix first. As with railroads, European integration is a priority. Ukravtodor is focusing on “Go Highway,” a 1,746-kilometer road project to connect the port cities of Odesa and Mykolayiv with Poland. The government has already allotted Hr 4.8 billion ($183 million) for the project and is seeking an additional 400 million euros in loans.
As part of its economic war against Ukraine, in 2016, the Kremlin imposed a transit ban on Ukrainian goods through its territory. This cut Ukraine’s exports to Central Asia by almost half. Despite this, Ukraine has not given up on plans to become part of The Belt and Road Initiative, China’s flagship infrastructure project, which seeks to link Asia, Europe, and Africa through a network of roads, railways, sea routes, and pipelines. Ukrainian exporters have found other routes, like the sea and land route via Georgia and Azerbaijan to the Kazakh port of Aktau. However, Andrey Isayev, an expert at the Center for Transport Strategies, a Kyivbased consultancy firm, says that currently Ukraine is losing the competition to be a transit route for Chinese goods to other more attractive options. “The overland transit through Russia is faster and cheaper,” Isayev said. “Sea routes to the Mediterranean sea ports or northern European ports are cheaper too. Those are long-established routes, while Ukraine still has to develop one. and attract freight traffic. The Ministry of Infrastructure tried to do so but hasn’t succeeded yet.” Ukraine currently ranks 80th out of 160 countries in the World Bank’s Logistics Performance “Besides other, measures. tariff territory port; “That for simplifying less improving is regardless freight For expensive not Index, example: a transit the good says infrastructure of registration but the Isayev. rank,” through imposing just mode Isayev as Ukrainian of there effective of a trans- single cargo said. are and the side safety infrastructure.” the time of shipping, required to and do building it; improving roadcorridor In a bid from to develop Ukraine the through existing Georgia transport and Azerbaijan way authorities to Kazakhstan, of Ukraine, the Georgia state rail- and Azerbaijan signed a memorandum last year to launch a train-ferry link. Train ferries across the Black and Caspian seas would link the railways of three countries and increase trade volumes. But exactly when the new link will be up and running, however, it is still unknown.
Workers repair the M12 highway in Ternopil Oblast on May 31. (UNIAN)
Cargo trains stand at Darnitsya rail depot in Kyiv on May 30, 2017. The state railway monopoly Ukrzaliznytsia has been struggling to meet shipping needs due to shortage of rolling stock. Kostyantyn Chernichkin. (Kostyantyn Chernichkin)