Between massive debts and low fares: how Ukrzaliznytsia is trying to break free from its predicament
22 January 17:30
РОЗБІР ВІД 
Ukrzaliznytsia is gradually “slowing down.” Rising debt, falling revenue from freight transport, unprofitable passenger service, and more are taking their toll. *Komersant* investigated what is happening with the Ukrainian railway
In early January, Ukrzaliznytsia failed to make the required payments to its creditors. What happened is what is known as a technical default. Of course, there is hope that creditors will not go to court to demand their money and will agree to defer payments. But the overall troubled state of the Ukrainian railways will certainly not contribute to such an optimistic turn of events. For creditors to wait, they will need serious arguments, which will not be easy to formulate.
The Problems Facing Ukrzaliznytsia
The critical nature of the debt problem is evidenced by the fact that in 2026, Ukrzaliznytsia must pay $703 million in Eurobonds and $45 million in coupon payments. And this is despite the company’s overall losses. In the first nine months of 2025, its net loss amounted to 7.3 billion UAH, although it had posted a profit a year earlier. The forecast for 2026, without a fare increase, is another 22 billion UAH in losses. These estimates are provided by Iryna Kosse, a leading research fellow at the Institute for Economic Research. In a comment to the publication
“Ukrzaliznytsia shows that the profitability of the freight segment has plummeted: revenue from freight transportation in 2025 amounts to 4–5 billion UAH, compared to 20.4 billion UAH a year earlier. A decline in production across the country will lead to an even smaller freight base. At the same time, freight is the main source of revenue for servicing Ukrzaliznytsia’s loan portfolio and investments. Passenger transportation in 2025 generated over 18.6 billion UAH in losses, and revenue from freight transportation is physically insufficient to cover passenger losses,” the expert notes.
This problematic picture is compounded by a shortage of personnel and the deterioration of assets. Iryna Kosse continues.
“Ukrzaliznytsia says that salaries at the company are already 15% below market rates, and the workforce is shrinking by 1,500 employees per month. Over 96% of locomotives are worn out. In addition, the infrastructure is constantly being damaged by shelling: in 2025, 1,195 attacks on the railway were recorded, 10 stations were destroyed, and over 500 port and depot facilities were damaged,” notes Iryna Kosse.
All of this does little to inspire optimism, not only among Ukrainian users of Ukrzaliznytsia’s services but also among its foreign creditors. For the latter, a revision of freight transport tariffs could serve as a positive and sufficiently compelling argument. But it’s not that simple—Ukrainian businesses are categorically opposed to raising tariffs.
The Ambiguity of Tariffs
The proposal to raise freight rates—or, as is sometimes said, to index them—is not new. The previous attempt dates back to mid-2024. At that time, it was planned to be implemented through the unification of rate classes. And at that time, due to protests from business representatives, the plan had to be abandoned. The most recent increase in freight rates took place in June 2022 and was justified by the need to compensate for losses caused by the war. Now, a 38% rate increase is being proposed, to be implemented in two stages: first by 27%, and then by another 11% six months later.
The business community’s reaction to this rate hike has been sharply critical. It is clear that the increase in rates will worsen the financial situation of companies. This will be felt most acutely by representatives of the agricultural, metallurgical, and mining sectors. And this is not just about rising logistics costs, but also about increased production costs, loss of competitiveness, and, as a result, a reduction in production and export volumes.
The Logistics Committee of the European Business Association, in particular, emphasizes that freight rail tariffs underwent a significant indexation in 2021–2022, which, according to business data, significantly exceeded the price dynamics for key Ukrainian export goods. Business representatives also point to the risks of tariff increases.
“Export-oriented enterprises are already operating at the break-even point or at a loss, cutting back on production and rail freight volumes. Further tariff increases will only exacerbate this negative effect, driving cargo to road transport and rendering rail uncompetitive,” the EBA notes in its commentary.
The weight of the argument regarding the shift of business toward road transport is further supported by research data recently shared by a member of Ukrzaliznytsia’s Supervisory Board. It turns out that a 20% increase in tariffs leads to a 19% drop in freight volumes.
And yet, an indexation of freight transport tariffs is unlikely to be avoided.
Systemic Changes
Debts, unprofitable passenger transport, rising expenses for salaries and electricity, and a decline in freight volumes. All of this, according to Iryna Kosse, a leading research fellow at the Institute for Economic Research, indicates that an increase in freight transport tariffs and state support for passenger transport in 2026 are inevitable.
Incidentally, funds to support the railway are allocated in the state budget. Whether they will be sufficient is another matter. However, the European Business Association called the decision on partial budgetary support for passenger transport an important step and welcomed it. There is also another potential financial resource to support Ukrzaliznytsia. Volodymyr Omelyan, Ukraine’s Minister of Infrastructure from 2016 to 2019, brings this to mind.
“What the Ukrainian government must do is to involve Ukrzaliznytsia as much as possible in negotiations with our European partners and allied countries so that a portion of the financial aid provided to support our state is directed toward Ukrzaliznytsia. There is a perfectly logical explanation for this. Unfortunately, Ukrzaliznytsia has suffered and continues to suffer a devastating blow from the Russian Federation; much has been destroyed, including the power grid, as well as the local rolling stock and depots. In other words, it’s not just that we’re being given money; it’s for the restoration of the rolling stock and the improvement of mobility for both cargo and the population. And it serves not only civilian but also military purposes,” the expert emphasizes.
Convincing international lenders that Ukrzaliznytsia deserves funding hinges on Ukraine’s readiness for systemic changes within the company. The EBA Logistics Committee highlights the importance of precisely this approach.
“The railway’s competitiveness requires systemic transformation, including the financial and organizational separation of the company, opening the market to private operators, and establishing an independent tariff regulator. In addition, it is important to ensure the optimization of underutilized infrastructure, consider tax exemptions for land under railway infrastructure, and address the restructuring of Ukrzaliznytsia’s debt obligations,” the Association emphasizes.
Iryna Kosse, a research fellow at the Institute for Economic Research, also cites comprehensive structural reform of the sector as the only way out of the crisis in her article for Rail.insider.
“In the short term (the next year or two), it is necessary to optimize costs by merging the six regional branches into a single infrastructure operator, implement balanced tariff indexation with differentiation for critical cargo, and liberalize tariffs for the premium segment of passenger transport,” the expert emphasizes.
Ukrainian Railways also has other fully untapped reserves of its own to improve its financial situation. It is worth recalling that Ukrzaliznytsia is one of the most important sources of high-quality scrap metal for the Ukrainian metallurgical industry. In May 2025, the company resumed auctions for the sale of scrap metal. However, according to experts, not everything went as planned. As Stanislav Zinchenko, CEO of the GMK Center analytical center, notes, one still needs to know how to sell scrap metal.
“Ukrzaliznytsia’s inefficiency stems from the fact that it is a state-run entity where all processes move very slowly. Only now are the first steps being taken to change the auction terms, which should increase interest in their product. And if we consider the company’s own statements, there are also staffing issues regarding personnel capable of preparing the scrap for sale. In short, Ukrzaliznytsia hasn’t sold scrap for 1.5 years and has lost its understanding of the market, as well as how to operate within it,” the expert notes.
But Ukrzaliznytsia wants to improve the sales process and recently invited businesses to a meeting as part of preparations for this year’s scrap metal sales campaign. The company calls this “one of the areas that can provide additional revenue, which, given the war and the decline in freight volumes, is particularly important for the railway industry.”
Author: Serhiy Vasylevych
