Ukraine beefs up in­fra­struc­ture to boost trade with EU

Kyiv Post Legal Quarterly - - Contents - BY BER­MET TALANT BER­MET@KYIVPOST.COM

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)

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