Fight over Ukrzaliznytsia: Will Kyrylo Tymoshenko kick out Yermak’s and Saakashvili’s allies?

Fight over Ukrzaliznytsia: Will Kyrylo Tymoshenko kick out Yermak’s and Saakashvili’s allies?

Last week several scandals erupted around Ukrzaliznytsia that in one way or another concern Rinat Akhmetov’s interests. However, as interlocutors of #Букв claim, they may be just a smokescreen so that other representatives of the President’s Office get a platform to make money.

In particular, it is reported by the publication "Bukvy" that Kirill Tymoshenko wants to move Yermak’s people out of there.

Thus, last Friday the member of Ukrzaliznytsia’s supervisory board Serhiy Leshchenko dropped his “big bomb” and reported that Rinat Akhmetov’s son Damir bought himself a villa in Switzerland for 60 million Swiss francs. Leshchenko said that this is the money that UZ should have received for transporting iron ore, but, allegedly, Akhmetov constantly blocks a tariff increase.

The topic of freight tariffs is the railway’s eternal Achilles’ heel. Not only do other parts of UZ later live off this tariff, in particular passenger transportation, but there is also a permanent scandal: the tariff for transporting ore is not being raised. Moreover, tariffs for other goods are also significantly lower than in Poland or Russia.

At the same time, on Thursday Ukrzaliznytsia’s commercial director Irakli Ezugbaia resigned. He complained about the delay in reforming the Ukrainian railway. Although recently he had been suspected of representing Metinvest’s interests.

And all this is happening against the backdrop of the formation of a temporary investigative commission on Ukrzaliznytsia’s activities in the Verkhovna Rada and statements from the President’s Office that Ukravtodor signed a memorandum with Ukrzaliznytsia to finish the Darnytskyi Bridge in Kyiv and launch Kyiv City Express this year.

A year ago in an interview with #Буквам former Infrastructure Minister Volodymyr Omelyan said that the biggest fight is always around Ukrzaliznytsia, because it accounts for up to 80% of shadow flows from all the ministry’s remit. He also noted that as soon as any of UZ’s leaders becomes too independent, they are immediately fired.

However, the new head of Ukrzaliznytsia, Volodymyr Zhmak, didn’t even have to show excessive independence to find himself in a difficult position.

Zhmak was chosen to lead Ukrzaliznytsia a year ago. Before that, together with Pavlo Riabikin he worked at Boryspil. That he would become the winner was known several weeks before the end of the competition, and no small role in this was played by his acquaintance since student days with Mikheil Saakashvili and Andriy Yermak.

Photo nv.ua

In fact, Yermak was named as the one who urged them to go for the top positions – Riabikin to customs, Zhmak to the railway.

From the start of his work the new UZ head announced the intention to unbundle into 4 divisions (freight transport, passenger transport, infrastructure, and separately spin off container transport). The process was supposed to start 15 January with the separation of freight transport, which was to be managed by Ezugbaia. But it was blocked by the supervisory board, pointing out that they were not consulted and the plan was not presented.

“Unfortunately, none of the announced reforms succeeded, and the changes made are more decorative than real. They appointed outsiders to the management board,” says Volodymyr Omelyan in a comment to #Буквам.

“Zhmak has clashed with the supervisory board, which does not want to approve Zhmak’s reform plan and his deputies,” explains a representative of the transport committee to #Буквам on condition of anonymity. To date Zhmak doesn’t even have an approved financial plan, so he can only pay salaries and current expenses.

Unhappy with this development Zhmak called UZ’s condition close to catastrophic. He estimated the losses at 12 billion.

From closed information received by #Буквы, the reserves of the railway’s fixed assets and personnel have been exhausted. The railway’s hauling capacity and the infrastructure’s capability are “collapsing” (-21% over the year).

The release of locomotives and key railway sections from the reduction last year of 2/3 passenger trains did not stabilize freight transportation. Their decline accelerated (-8%).

According to experts, last year Ukrzaliznytsia transported 305 500 000 tons of cargo, which is 2,4% less than in 2019 (313 million tons). In February 2020 Ukrzaliznytsia transported 21752000 tons of cargo, which is 7% less (or 1653000 tons) than in February 2020.

At the same time, current tariffs in Ukraine are 8 times lower than in Poland, and freight transportation drags on up to 15 days. Due to discriminatory tariffs UZ loses at least one and a half billion dollars a year.

Meanwhile, at the end of January UZ launched a procedure of “Dutch auctions” on ProZorro.Sale, where it offered freight transportation with agreed deadlines and volumes in its own wagons. UZ is ready to carry cargo for three years at a fixed price – the auction started at 800 hryvnias.

All lots were won by Metinvest Shipping at a price half of the initial offer. Akhmetov’s company rented almost half of Ukrzaliznytsia’s working fleet of open wagons for three years for 480 hryvnias per day.

Volodymyr Zhmak said that he thus hopes to increase the use of UZ wagons to 40%, and private carriers are unhappy about this (the largest private carrier here is also Akhmetov).

However, as the publication “Liga” writes, this was interpreted on Bankova as a certain collusion between UZ management and Akhmetov, and Ezugbaia’s dismissal sources explained as Zhmak’s compromise with Bankova so that he himself would not be fired.

Zhmak and Ezugbaia. Photo from the Center for Transport Strategies website

Who wants Zhmak removed

However, interlocutors of #Букв believe that this story also reflects a power play among various groups within the President’s Office itself.

“I doubt that Metinvest paid money into UZ for this decision. Rather, it looks like some kind of agreements between Bankova and Akhmetov, which now one of the towers there is trying to use to its advantage,” says former minister Omelyan.

As interlocutors #Букв in the transport industry assert, currently the person with the greatest interest in UZ is the president’s advisor Serhiy Shefir, who is friends with the chair of the relevant committee Yurii Kysel (the same one who last year bought Volodymyr Zelensky’s house).

“UZ’s supervisory board is a mix of a bulldog and a rhinoceros. The problem is that apart from Kun, no one there has ever worked in the railway sector,” say industry interlocutors #Букв.

But Zhmak displeases many market players.

“They want to take Zhmak down, that’s true. I think there’s a whole coalition of those who want it; UZ attracts the interests of all the oligarchs + Avakov,” says another interlocutor #Букв.

At the end of January a parliamentary investigative commission was created to study Ukrzaliznytsia’s work. It was headed by Servant of the People MP Yuliia Hryshyna, known so far only for the photo “I have the right to be wrong,” ambitions for the education minister post, and that her husband was suspected of corruption.

What relation Hryshyna has to the railway is unknown. Although, if someone without experience can be on the supervisory board, then heading an investigative commission is entirely possible.

Usually, the findings of parliamentary investigative commissions have no legal effect, but they can be used as a source of certain PR.

On 5 March on Facebook MP Yuliia Hryshyna reported that the temporary investigative commission decided “to appeal to the prime minister, the minister of infrastructure, the supervisory board of UZ regarding their assessment of the competence of the company’s current management.”

“Last May an audit of Ukrzaliznytsia revealed violations totaling almost 12 billion hryvnias. During the short time the commission has worked, I received more than 20 appeals from individual employees and whole collectives of UZ. People complain about gross violations of labor law, embezzlement, appropriation and misuse of the enterprise’s resources,” Hryshyna wrote.

In response Zhmak said he is ready to come to the Temporary Investigative Commission’s meeting and testify about the company’s state on a polygraph.

Why Tymoshenko needs the Darnytskyi Bridge and Kyiv City Express

Meanwhile, one can see how the deputy head of the President’s Office Kyrylo Tymoshenko is trying to move into UZ’s sphere.

Yermak and Tymoshenko. Photo from the Vinnytsia Regional State Administration website

On 3 March during the All-Ukrainian forum “Ukraine 30. Development. Justice” Ukravtodor signed a memorandum with JSC Ukrzaliznytsia according to which the Darnytskyi Bridge in Kyiv will be included in the “Great Construction” program in 2021 and completed by Ukravtodor.

“Work on the Darnytskyi Bridge will already begin this summer – and this is the most important thing for Kyiv residents. And all the work will be finished by the end of 2021. This is what was not done for 10 years,” said Deputy Head of the President’s Office, coordinator of the “Great Construction” program Kyrylo Tymoshenko during the signing ceremony.

Two weeks earlier, on 22 February he announced the start of construction of a suburban express system in the capital – Kyiv City Express.

If anyone thought this was only an attempt to undermine Kyiv Mayor Vitali Klitschko, besides a political blow to a possible presidential candidate there is also an economic interest.

The director of the Ukrzaliznytsia “Passenger Company” branch, Oleksandr Pertsovskyi, estimated that implementing the project in Kyiv with modernization of 9 electric trains would cost 10 billion hryvnias.

In an interview with LIGA.net he said that repairing one electric train would cost approximately 50–60 million hryvnias.

Volodymyr Omelyan in a comment to #Буквам says that the authorities are significantly overpricing the Kyiv City Express project.

“They saw on the ‘Big Construction’ that you can get kickbacks there (up to 40%) and now want to get into Ukrzaliznytsia too, effectively carrying out a raider takeover,” says the former minister.

Tetyana Nikolenko, published in the outlet "#Букви"