The government verbally intends to reorganize the strategic enterprise in 2015, but the current management of the railway has its own “view on reform.”
The need to reform Ukraine's rail transportation sector has been discussed for years. The current government has also voiced its intention to reorganize Ukrzaliznytsia, transforming it into a joint-stock company. According to Infrastructure Minister Andriy Pyvovarsky, the new legal and organizational structure will allegedly be presented as early as September of this year. However, the minister's words, known for his unfulfilled promises, are meaningless in themselves, as the success of the reform will directly depend on those directly implementing it, particularly Ukrzaliznytsia's management. And Pyvovarsky's subordinates, as experience shows, have their own vision of the reorganization, one diametrically opposed to the state's interests in this matter.
The only real reform
The government's achievements in reforming the railway monopoly over the past few years can be counted on the fingers of one hand. If we exclude the tariff hikes and Pivovarsky's failed attempt to hold a "competition" for the position of general director, the only real and effective reform of Ukrzaliznytsia has been the introduction of the "Electronic Ticket" system.
The project was launched in 2012, and online sales have been steadily growing since then. While approximately 3,5% of tickets were sold online in 2012, and approximately 9% in 2013, this figure reached 13% in 2014. Since the beginning of this year, every fifth ticket has already been purchased online. The Electronic Ticket system was developed by a Ukrainian IT company and was tens of times cheaper than foreign equivalents. The costs of implementing the system were recouped within the first few months of operation. On August 21, 2014, the Ukrzaliznytsia Acceptance Committee, established by order of then First Deputy General Director of Ukrzaliznytsia Maksym Blank (No. 449-CZ/Od dated August 19, 2014), commissioned the system into commercial operation.
The system allowed Ukrainians to book and purchase tickets online without waiting in line, using computers, mobile devices, payment terminals, and through agent networks. Residents of small and remote towns were able to purchase travel documents even without internet access – at any Ukrposhta branch. Integration with the Ministry of Education's Unified State Electronic Database made it possible to sell tickets online at a discount for students. The refund process for purchased travel documents has also changed. Previously, refunds were processed at the ticket office, with money being returned by postal order, and the process could take several months. With the electronic ticket, the refund time has been reduced to just a few hours.
The system brought transparency and eliminated the notorious corruption in the ticket sales system and within Ukrzaliznytsia itself. Money from ticket agents goes directly to the monopoly's accounts, without intermediaries. Ukrzaliznytsia's costs for servicing online payments have been minimized. All agents and acquiring banks now have equal access to the system. However, this equality did not satisfy everyone, and the "Electronic Ticket," which generates millions in profits, became a target for corrupt interests of those accustomed to profiting from reselling tickets through affiliated companies.
Private state-owned enterprise
Contrary to the declared policy of streamlining the organizational and financial structure, openness, transparency, and publicity, on February 23, 2015, the same Maksym Blank (now acting CEO of Ukrzaliznytsia) issued Order No. 055-Ts/Od "On Certain Issues of Organizing the Centralized Sale of Travel/Transportation Documents Through Electronic Service Channels." In fact, six months after the introduction of the "Electronic Ticket," Ukrzaliznytsia's management is once again embarking on a "reform" of online sales, allocating millions of hryvnias to developing something that already exists, is successfully operating, and is profitable. This very fact, which clearly contains a corruption component, already raises questions about the success of the declared reform agenda.
But another detail related to Order No. 055-Ts/Od is far more concerning. Since 2012, online ticket sales have been handled by the Main Information and Computing Center of Ukrzaliznytsia (GIVC), a strategic enterprise with a staff of 350 specialists, which, with the implementation of the system, began generating a stable profit. The February management order effectively transfers the Electronic Ticket system from the GIVC to a state-owned enterprise, the Settlement Center of the Ministry of Infrastructure of Ukraine, established in July 2008 and staffed by about a dozen incompetent employees. In its six years of existence, the Settlement Center has failed to fulfill any of its assigned tasks and has been implicated in a number of corruption scandals. In June 2014, by Cabinet of Ministers Resolution No. 200 of June 25, 2014, for unknown reasons, the Settlement Center was included in the List of Enterprises and Institutions on the basis of which PJSC Ukrainian Railways was planned to be established. Operating as an online train ticket distribution agent, the Settlement Center sells approximately 9,000 tickets per month (0,1% of the total), which also speaks against it.
In fact, we are talking about Maksym Blank’s attempt to remove Ukrzaliznytsia from his control, as it has large financial flows – at least 7-8 billion UAH annually.
According to several media reports, Ukrzaliznytsia's audits uncovered evidence of loans from the Settlement Center to the private company Argest Group, which sells online tickets and is owned by Alexander Kashpersky. He is also the first deputy director of the Settlement Center.
Along with Kashpersky, the newly appointed head of the Main Data Processing Center, Igor Pavlenko, is also directly involved in this scam. Why isn't he questioning the legality of his actions and the fate of the strategic enterprise he leads? As a result of Ukrzaliznytsia's management's machinations, the Main Data Processing Center will become unprofitable. And he, not his puppeteers, will be held accountable.
Back to the past
The scheme to transfer the "Electronic Ticket" system to the "Settlement Center," which is only formally a state-owned enterprise, essentially implies a return to the old corrupt system, whereby one or more affiliated companies act as agents, selling tickets to other parties and the public. Private firms skim the profits, while Ukrzaliznytsia loses control over ticket sales—both technologically and financially—and suffers millions in losses. The State Information and Communication Center will then once again become a loss-making enterprise, the financing of which will place an additional burden on Ukrzaliznytsia's budget. A return to the previous online ticket sales system also bodes ill for ordinary Ukrainians: they will no longer be able to use many of the existing additional services, the quality of customer service will deteriorate, and, due to the lack of qualified personnel at the "Settlement Center," significant disruptions to the system as a whole are to be expected. Ultimately, all losses will fall on the shoulders of passengers, which will inevitably lead to an increase in ticket prices.
Incidentally, Ukrzaliznytsia has already announced a 25% increase in transportation fares, but hasn't yet given a precise date. Can Maksym Blank's February order be linked to his announcement a month later about the need to increase transportation costs? The answer is obvious. And despite all the loud declarations about fighting corruption, nothing has happened. Not only are they not fighting corruption at Ukrzaliznytsia, they've apparently taken the helm and are encouraging it!
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