Order No.68 of the Ministry of Transport of Ukraine dated February 5, 2001 raised cargo transportation tariffs, as of February 16.

ALL INDUSTRIES ARE LIKE ONE HAND’S FINGERS

ALL INDUSTRIES ARE LIKE ONE HAND’S FINGERS

Nikolay BUGAYEV, journalist

Order No.68 of the Ministry of Transport of Ukraine
dated February 5, 2001 raised cargo transportation tariffs, as of February 16.

The tariff increments for cargo shipments in the 1-st,
2-nd, and 3-rd tariff classes came to approximately 25%, 15%, and 10% respectively.
Besides, this order has also set higher tariffs for transportation of coal. Tariffs for
domestic and import/export coal shipments now fall in the second tariff class (with the
adjustment coefficient of 1.22 against the 1.2, which used to be) with 100% money
pre-payment required. The tariff coefficient for ferrous scrap, which is exported and,
thus, is first transported to port railway stations, was set at 2.564. At the same time,
Ukrzaliznytsya (Ukrainian Railways, the state-owned monopoly) approved reducing
coefficients for shipments of iron ore and concentrate and fluxing limestone. Discounts
(10% to 49%) were also approved for shipments in private open-top railcars. In response to
this order, during the meeting of the Advisory Council on state pricing policy in primary
industries, which took place on February 14, representatives of Ukrainian metallurgical
companies and the State Committee for Industrial Policy disagreed with the arguments
presented by Ukrzaliznytsya officials in favor of raising the tariffs and suggested that a
moratorium on railway tariff growth should be declared.

Mr. Boris Sukharev, deputy executive director of the
Ukrainian Association of Ferrous Metal Producers commented that the tariffs for waste
transportation have remained unchanged.

Mr. Vladimir Boyko, director general of Mariupol Ilyicha
Integrated Mill, believes that the tariff jump will lead to a UAH 7.5 million growth of
monthly transportation expenses at his enterprise. In the fourth quarter of the last year,
a price downfall on world metal markets, accompanied by a growth of prices for electric
energy, natural gas, coking coal, and raw materials, led to a 2.5-time drop of metal
makers’ rates of return. Profitability of Ilyicha Integrated Mill hardly came to 5% in
January. “If the State does not start to repay the accrued VAT amount to the mill, its
accounts payable will increase significantly and in 2-3 months it will have no means to
pay for energy resources and raw materials and, consequently, will have to switch to
barter again”, Mr. Boyko pointed out. The director general called the decision of
Ukrzaliznytsya directorate “absurdous”. He also reminded that during the meeting on
the mining-and-metallurgical sector in Krivoy Rog, the President of Ukraine demanded that
there must be no raise in railway tariffs. The head of the Mariupol integrated mill also
informed the public that, with support of the Ukrainian Union of Manufaturers and
Entrepreneurs, he was preparing a memorandum addressed to the country’s top officials
about the raised tariffs’ ruinous effect.

During the Council’s meeting, deputy director general of
Mariupol Ilyich Integrated Mill Mr. Igor Baranovskiy, noted that the new railway tariffs
will lead to the situation when the enterprise will be unable to invest in development of
production and the social sphere. He emphasized that the decision on new tariffs should be
revoked as soon as possible. This opinion is also supported by the directorate of
Zaporozhstal Integrated Mill. Deputy chairman of the board of JSC Zaporozhstal Mr.
Aleksandr Rabtsun said that “our opinion was not paid attention” during taking the
final decision on the tariff raise. (Zaporozhstal’s exports account for 75% of its total
output). During the meeting of Exporters’ Council, he remarked that as compared with the
3.5% rate of return in metal-making in the year 2000, Ukrainian metal makers will have to
work unprofitably in February. He believes that higher prices for coke, electric energy,
and railway shipments will only “lessen returns in the metallurgical sector and curtail
deductions to the State budget”.

Mr. Rabtsun also thinks insufficient the governmental
protection of Ukrainian producers’ interests during anti-dumping inquiries on world
markets. “Because our company paid UAH 250 million to the State budget in taxes in 2000,
we demand that state officials work these taxes off”, he said.

… The Ministry of Transport tries to clear itself …

The February railway tariff raise undoubtedly affected
exporters’ interests, because Ukrzaliznytsya accounts for 95% of all outbound shipments.
Moreover, in 2000, the railway company already added 40% to its previous tariffs. However,
deputy minister of transport Mr. Arkadiy Demidenko said that the 15% growth of railway
tariffs was a measure forced by a jump of prices for fuel and metal.

Mr. Demidenko remarked that “it is no good building
prosperity of one industry at the expense of another one”. The deputy minister stressed
that if the railway had to cease its operation tomorrow, it would mean shutdown of all
Ukrainian enterprises. The trustee of the Ukrainian railroaders effusively concluded that
for the State power, all industries are like one hand’s fingers… Mr. Demidenko also
noted that, anyway, railway tariffs in Ukraine are nearly twice as low as they are in
Russia…

Table 1. New adjustment coefficients, as of February
16, 2001 (in USD, VAT not included)

*Table 2. The price for rail transportation of rolled
metal products from Ukrainian metal-producing centers to selected port stations
(USD/tonne, VAT not included)

I – Dnepropetrovsk, II – Zaporozhye 1, III – Krivoy Rog-Glavniy, IV
– Mariupol, V – Donetsk, VI – Dneprodzerzhinsk

* calculated for a 65-tonne load of rolled metal