Ukraine may be left without a railway

The degradation of the state has put the railway of Ukraine on the verge of stopping: in four days, the country may grind to a halt
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print 22 4 2021

Joint-stock company “Ukrzaliznytsya", representing the railways of Ukraine, published an almost panicking press release about the threat of stopping the movement of trains already in four days due to the exhaustion of the available reserves of diesel fuel.

The problem arose due to the progressive shortage of fuel in the country and the obvious imbalance of its supply by the ill-conceived tax and foreign policy of the government.

Until 2020, the total consumption of all types of motor fuel in the country was about 11.4 million tons, from which diesel accounted for no more than 5 million. 50% of all fuel consumed in the country is imported from Russia and also up to 32-34% - from Belarus.

The Kiev authorities' attempt to replenish the thinning budget by raising excise taxes on gasoline and transferring the fuel industry to the actually manual management, especially in terms of issuing permits for importing fuel shipments from abroad, has led to a distortion of the entire fuel complex of Ukraine. The import of gasoline and diesel from Russia to Ukraine was restricted from June 1, 2020, and some other types of fuel were completely banned from it.

As a result, the price of gasoline went up. In the first quarter of 2021 alone, it jumped 5%. Because of this, consumers began to rapidly switch to diesel fuel. For example, the volume of imports of foreign cars with diesel engines more than doubled in six months. In 2020, about 700,000 diesel cars and trucks were imported to Ukraine in a "temporary import" regime.

In the relative balance, "diesel" has become "cheaper than gasoline", as a result, the consumption of diesel fuel in Ukraine has doubled in less than a year, reaching 7 million tons, and the actual demand for it has almost tripled.

This, of course, could not but affect the behaviour of market participants. A massive disruption of tenders for the purchase of fuel has begun. In every 3 out of 4 trades, contracts were never signed with the winner due to a price increase of almost 15% from 23,700 hryvnias to 27,200 hryvnias per ton.

“Ukrzaliznytsya” is the largest consumer of diesel fuel in Ukraine, contracting an average of 400,000 tons of diesel per year. Due to the total unprofitability, the company cannot form large reserves and critically depends on the stability of the operational procurement system.

At the moment, Ukrainian railwaymen have two active contracts for the supply of 10,000 tons of diesel fuel, but the contractor has stopped supplying them due to "an unplanned increase in prices on the market". Because of this, it turned out that the existing fuel reserves of “Ukrzaliznytsya” will last for a maximum of four days, and the fuel left at the Pridneprovskaya and South-West Railway will in general not last more than two or three days.

The company's management assures that there is a certain anti-crisis plan that provides a request to receive fuel from the state reserve. However, the realism of such expectations raises serious doubts. The exact amount of Ukraine's state reserve for fuel is unknown today.

In 2017, Kiev promised to accumulate reserves of 580,000 tons of oil, 460,000 tons of gasoline and 930,000 tons of diesel fuel by 2022. But later, the plans were repeatedly revised downwards due to the total inability of the country to ensure the implementation of the approved targets. So it may very well turn out that the Cabinet of Ministers of Ukraine will refuse to satisfy the request of “Ukrzaliznytsya”.

It is still difficult to judge how events will develop further. Railway transportations for Ukrainian logistics are of a strategic nature. Their termination can literally kill the entire economy of the country. So the Kiev authorities will be obliged to find some solution.

However, it should be noted that the accelerating stagnation of the Ukrainian economy, and, in particular, its fuel and energy complex, began as soon as post-Maidan Ukraine started actively destroying ties with Russia. Clearly confirming that the cost of Russophobia is very, very expensive.

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