Deputy Minister of Finance Oleksandr Kava – how infrastructure will be financed in 2021

“If there is no normal quality of roads, it is difficult to talk about attracting foreign investment to the country”

Big construction – big expenses. The President has already said that next year the authorities plan to even expand the “Big Construction” program. MINTRANS asked Deputy Finance Minister Oleksandr Kavu how the state plans to finance infrastructure projects. 

According to the draft State Budget for 2021 , the Ministry of Finance proposes to allocate about 155 billion hryvnias to transport infrastructure. This is more than 15% of the revenue side. For comparison: the Ministry of Regional Development asks to increase the State Fund for Regional Development, which finances mainly social infrastructure projects, from 1 to 3% of the revenue side. Why is the transport infrastructure given priority? 

UAH 150 billion is financing of the road industry, another UAH 5 billion will be directed to infrastructure projects in other transport sectors. Why roads? Large-scale reconstruction of road infrastructure is a priority for the government, we must focus as much as possible on the reconstruction of the road network, because its proper condition is the basis for economic growth and improving living standards. If there is no normal quality of roads, it is difficult to talk about attracting foreign investment to the country. 

The same is said about airports. Foreign investors still do not enter the country by car. 

Prior to the crisis period and the introduction of restrictions on passenger traffic at Ukrainian airports reached almost 24.5 million passengers in 2019, but in fact only about 3 million Ukrainian citizens used the services of airports. The growth of passenger traffic was mainly due to an increase in the number of flights among those citizens of Ukraine who already use air transport, and an increase in the share of foreigners in the total passenger traffic. Investors really use air transport more. But if we talk about the launch of production in Ukraine, it depends on the quality of roads logistics: how fast you can deliver raw materials and transport finished products. Bad roads are an additional waste of time, and time is the only non-renewable resource. 

For example, after the repair of the M-09 highway on the Lviv-Ternopil section, the intensity of traffic on it doubled, previously it took 3.5 hours to drive these 120 km in one direction, now – less than 2. 

Still, we have the Road Fund, a guaranteed budget item, which finances the renewal of the road network, next year it is about 80 billion. The Ministry of Finance proposes to increase funding almost twice. What tasks do we have to solve next year at the expense of this stimulus? 

First of all, we will achieve the main goal – a quality transport connection by road of all regional centers with each other, as well as ensure the normal connection of regional centers with most districts. 

Will these 150 billion be enough to fully solve the problem? 

By the end of this year, most regional centers will receive quality roads to neighboring regional centers. There are a few “dropouts”, such as Sumy. 

This amount of funding will expand the network of expressways in Ukraine, namely the roads of the 1st technical category with 2 lanes in each direction with a dividing lane. On such roads it will be possible to move safely at a speed of 130 km / h for the highway and 110 km / h for the highway. 

This year, within the framework of the World Bank project, the reconstruction of the last sections of the M-03 road in front of Poltava is being completed, as a result, from Boryspil to Poltava we will already have a highway with 4 lanes along the entire route. Active road works are underway on the Poltava-Valky section, which is 30 km from Kharkiv, and these works are also financed by a World Bank loan. The plan for next year is to start work on expanding the M-03 road from Valok to Kharkiv to 4 lanes. So by the end of 2021, we will also have a two-lane highway from Kyiv to Kharkiv in each direction. In addition, the construction of the Reshetylivka-Dnipro highway is planned to be completed next year. Thus, the Dnieper, which has long been cut off from the capital, will finally get a good highway, 

Also, a large-scale repair of the M-05 Kyiv-Odessa road in Cherkasy, Mykolaiv and Odesa oblasts will begin at the expense of a loan from the European Bank for Reconstruction and Development and the European Investment Bank with a total amount of 900 million euros. According to the results of the project, it is expected that 314 km of the Odessa highway will be brought to the category of highways with a maximum speed of 130 km / h. Within this amount, it is planned to build a northern bypass of Lviv. It will also be a 23 km long highway, which will allow transit traffic from Lviv to Ukraine from the regions of Ukraine to the border with Poland. 

Another large-scale project is to be a highway with an extension to 4 lanes of the M-06 Kyiv-Chop road from Rivne to Lviv with a bypass of settlements. This will provide high-speed connections between Lviv and the capital and reduce travel time by more than 1 hour. In the future, the highway from Lviv will be extended to the border with Poland and will connect with the Polish A4 motorway. In addition, it is planned to launch a project to build a new highway highway Lviv – Mukachevo across the Carpathian ridge and connect it with the Hungarian highway M3 and the Slovak D1. In this way, the Ukrainian road network is integrated with the network of highways of the European Union, which will allow our citizens to travel quickly and conveniently, and businesses – to develop logistics chains with EU countries. 

Reconstruction of up to 4 lanes of 70 km of the M-07 road from Kovel to the Yahodyn checkpoint on the border with Poland also needs to be completed. This section is already significantly congested and has a high traffic intensity. In the future, the H-22 highway on the Lutsk-Rivne section still needs to be brought to the first category, and then we will get a 4-lane highway from Kyiv to Warsaw. 

We continue to work on the GO Highway corridor, over the past years the sections have been repaired in the old geometry, now it is planned to gradually expand the existing road to 4 lanes on the route Lviv – Ternopil – Khmelnytsky – Vinnytsia – Uman, and from there – the road M-05 to seaports Black Sea. 

Thus, we are approaching the solution of the strategic task – the creation of a network of highways with a permitted speed of 110-130 km / h along the entire length of the existing major international transit corridors. 

What else will be funded in 2021? 

The final list of facilities will be approved by the Cabinet of Ministers of Ukraine in early 2021. But we can already say that the budget funds will be used to build a highway across the Dnieper River in Zaporozhye with a total length of 9.1 km with 2 extra-class bridges. Also next year works on construction of the new bridge across the Southern Bug river in Nikolaev can begin. 

As for the bridge across the Dnieper in Kremenchuk, project documentation is still being prepared. A feasibility study has already been prepared by a Chinese company for a bridge between Kremenchuk and Horishni Plavny. The peculiarity of this project is the construction of a bypass road together with the bridge, because now international and national routes pass through the center of Kremenchuk. This project is likely to be implemented with loans from China. But another bridge, in Kremenchug itself, will be sold for budget funds. 

With which countries are negotiations on attracting loans for road projects? 

Poland, Hungary – on road infrastructure development projects in border areas. Turkey is also interested in providing loans for road projects, particularly in southern Ukraine. For example, modernization of the M-14 road on the route Odessa – Mykolayiv – Kherson to category 1b with two lanes in each direction. 

Does the increase in funding lead to increased requirements for contractors, building materials and technologies? 

Our problem is not so much in the quality of work, but in the fact that a significant part of the roads were operated longer than the standard term. In the United States and the EU, roads have been in operation for 12-15 years between major repairs, and in our country, chronic underfunding has caused thousands of kilometers of roads to fail to be repaired for 40 years. 

As for materials for road construction, our standards are modern, they are often updated, and the growth of the market of road construction works has provided high quality work from contractors using the latest road machinery and technology. 

Will innovation be stimulated in terms of tenders? For example, last year the priority of using metallurgical waste in road construction was discussed. 

Next year there will be an experimental site near Kryvyi Rih, where slag will be used. Next we will look at efficiency and quality. The issue of dumps is chronic, especially for Donbass. If the roads help to solve it at least partially, it will be a good story. 

As for technology, it is nice to say that we do not lag behind the latest trends. For example, loaders have been used in domestic projects since last year, which solves the problem of asphalt segregation, maintains a constant temperature when laying asphalt, which increases the service life of roads by 5 years. This technology has been introduced in the United States for only a few years, and has been on MtaN-class roads since last season. 

For the needs of the development of other transport segments, the Ministry of Finance prescribes thirty times less, UAH 5 billion. 

What will these funds be used for? 

More than UAH 4 billion is planned to be spent on the development of passenger rail transport. I would like to emphasize that for the first time in the history of Ukraine, new passenger cars will be purchased with budget funds and the railway infrastructure for the development of passenger transportation will be modernized. 

Previously, these areas were not actually funded, and if something was done, only at the expense of Ukrzaliznytsia, despite the fact that Article 10 of the Law on Railway Transport, which has been in force since 1996, provides funding for these works from the State Budget of Ukraine. 

At the same time, the state regulates tariffs for passenger transportation, setting them at a level twice lower than the cost of such transportation. 

Most of the “railway” funds will go to purchase 100 cars? 

It is planned to allocate UAH 3.3 billion for the purchase of cars, which is approximately 100 cars. If the factories offer cheaper, then due to savings we can buy more than a hundred. But, according to the preliminary plan, even these one hundred cars will allow to completely update 2 night trains, namely No. 45/46 Lysychansk – Uzhhorod and No. 69/70 Mariupol – Lviv. In total, these two trains carry almost 2 million passengers a year and provide transport connections between East and West of Ukraine. 

It is definitely better that the cars are made in Ukraine, with maximum localization of production. 

Today the passenger service is in an extremely neglected condition. First of all, because of the outdated fleet of passenger cars, which is constantly shrinking. If 20 years ago the fleet of Ukrzaliznytsia cars reached almost 10,000, now there are only 2,818 left, and by 2030 we have to write off another 1,700 cars. Almost all second-class cars that are most accessible to citizens and have important social significance will be written off. If the park is not renewed, we will have only 20 reserved cars for the whole country. In general, with such a rate of reduction of the passenger car fleet, Ukrzaliznytsia will be forced to reduce passenger traffic by three times in the coming years. 

Did Intercity become an alternative to the seat card? 

Day and night trains do not mutually exclude each other, on the contrary – they complement each other. Day service is convenient when the travel time is 4-5, well, a maximum of 6 hours. Longer – already uncomfortable. There can only be routes with a large change of passengers. In order to increase the speed of trains, the investment must be much higher and greater than just buying new passenger cars. 

What investments does the railway infrastructure need? 

The infrastructure, which is mainly used for freight transport, is maintained in a relatively normal condition due to the high traffic intensity. Unfortunately, Ukrzaliznytsia has not financed the infrastructure for passenger transportation for the last 30 years. The reason is that it will never be possible to recoup such investments only at the expense of tariffs. In European countries, this is done at the expense of the state budget. For example, Germany is currently implementing a large-scale program with a total budget investment of 62 billion euros from the federal budget. The goal is to double the rail passenger traffic by 2030. This is a priority for the development of the country / territories, not a separate industry: it is rail transport that is safer, more environmentally friendly, and if properly organized, then faster than other types. In Germany, it is planned to launch clockwork on some routes. For example, the Cologne-Berlin train will run every 30 minutes, with a distance of almost 600 km between cities. One train can carry up to 1000 passengers, no plane will take that many. This number of passengers traveling on the highway creates serious congestion. 

What is the amount for the modernization of our railway provided by the draft budget of 2021? 

It is planned to direct UAH 1.1 billion next year. These funds will be used for electrification and modernization of the line from Art. Taras Shevchenko in Smila to Cherkasy, which will launch the Intercity Kyiv-Cherkasy high-speed train. Now it is the only regional center close to the capital, to which there is neither a high-speed highway nor a high-speed railway connection. Electrification of these 30 km will allow in 2021 to launch high-speed trains Kyiv – Cherkasy with departure three times a day with a travel time of 2 hours 45 minutes. 

Is the economy enough to run these three pairs of trains? 

Now minibuses run every 15-20 minutes, and, according to the service for joint trips, this is the busiest destination in Ukraine, with a passenger flow of at least 2 thousand people daily. 

And the electrification of the Zhytomyr-Novohrad-Volynskyi section will solve the problem of 300,000-strong Zhytomyr, through which only two passenger trains now pass. The Fastiv-Zhytomyr section was electrified about 10 years ago, and the continuation of electrification to Novohrad-Volynskyi will provide an opportunity to connect the city with daily connections with 19 regional centers of Ukraine. 

Electrification and modernization of the section Vasylkiv-1 (Kalynivka) – Vasylkiv-2 will allow to launch suburban trains Vasylkiv – Kyiv. According to mobile operators, every day about 10 thousand people go from here to the capital to work or by minibuses or cars, which affects the level of congestion during rush hours at the entrance to Kiev on the road M-05 Kiev – Odessa, as well as in the southern districts of Kyiv. 

Thus, the budget provides for investments in the car fleet and electrification of individual sections. And the rails? 

Of course, it’s time to get involved in infrastructure modernization. Now we have a top speed of 160 km / h, I would like to see 200-220 km / h. But the situation, unfortunately, on the contrary, is deteriorating. Intercity and Intercity + trains, which were launched before Euro 2012, have already increased travel time in all directions with a starting schedule of 15-20 minutes. This is a direct result of underfunding of railway infrastructure. This is a feature of the railway infrastructure – it does not stop immediately, but simply reduces the maximum possible speed: it was 160, becomes 140, 120 km / h … In general, we already have a third of the speed does not exceed 30-35 km / h – language about all passenger trains, not just high-speed ones. 

Let’s fantasize that an additional UAH 70 billion would be spent next year not on co-financing the Road Fund, but on the needs of the railway. What could be done? 

Work could be carried out on the main corridors, returning the speed on the Intercity to the level of 2012, modernizing several additional corridors at a speed of 160 km / h and partially upgrading the fleet of cars – both passenger and freight. 

Which river and air infrastructure projects will be modernized in 2021 at the expense of the budget? 

The main problems of the river are locks and dredging. In 2021, UAH 40 million will be spent on ensuring the proper operational condition of the navigable locks of the Dnieper Cascade. 

We are also working to secure the necessary funding for the construction of a new runway at Dnipro Airport. 

If we talk about the development of airports, we are also negotiating with international creditors to finance the reconstruction of airfields in Poltava and Sumy. The construction of a new airport in Mukachevo is planned to be financed from the loan funds. 

In Mukachevo, the local council allocated land just on the runway for construction. How will this be addressed? 

The redemption procedure is imperfect. This is often the reason for delays in the implementation of infrastructure projects. We have seen delays in the reconstruction of the Lubny-Poltava section precisely because of problems with land acquisition. In the European Union, there is a rule of domination of public interests over personal ones, and if a decision is made to implement an infrastructure project, then there is a forced purchase of land. The state or local authority that made the decision hires an appraiser, then transfers the amount to the owner for the seized property. If he does not agree, he can challenge the amount of compensation, but not the fact of withdrawal of land. And our legislation provides not only redemption, but also the provision of an equivalent plot of land. 

Why were Mukachevo, Poltava and Sumy chosen from regional airports to receive credit assistance? 

Mukachevo – as an option to solve the problem of Transcarpathia, which is still cut off from air travel. Uzhhorod Airport – due to the peculiarities of its location close to the border with Slovakia, on the one hand, and the peculiarities of the terrain – on the other – is not able to function fully with the prospect of development. 

Initiatives for the airport in Poltava came from local authorities, which have already invested part of the funds in infrastructure. The situation is similar with the airport in Sumy. 

Why don’t we get EU infrastructure money for development? 

Under the terms of the grant from the EU, we are implementing only one project with the European Investment Bank, namely “Transport in Ukraine – Phase I”, which is funded in the amount of 100 million euros, of which 50 million euros – a grant and 50 million euros – credit funds. With these funds it is planned to build the north-eastern section of the Ternopil bypass road, the first and second stages of the Dubno bypass, to reconstruct part of the southern bypass of Lviv and the first stage of the Stryy bypass. This is not bad, but compared to the funds that the EU invests in infrastructure, such as Poland, these are very small amounts. I think this should be one of the priorities of the Foreign Ministry – to start more active cooperation with the EU. 

Is it possible to create protected articles by analogy with the Road Fund for other sectors? 

If we talk about chronic problems, the only industry where no recipe has been found for them is the railway. Seaports are developing more or less in a balanced way, and airports are also able to attract investment for modernization. 

I very much hope that 2021 will be a turning point for the relationship between Ukrzaliznytsia and the government. For years, the railway subsidized the domestic economy, sorry, it was a cow that was milked but forgot to feed. So, her condition is now such that it is time to save and feed her. 

If you create a fund for the development of railways, so far from the obvious sources there is only the excise tax on diesel. Now these funds for the purchased diesel for locomotives are transferred to the Road Fund. But even if these earmarked funds are accumulated separately, the amount will be UAH 2 billion, which is a very small amount compared to the scale of the problems in the railway industry. 

We are now analyzing how this is done in Europe. The total amount of subsidies for the development of railways in the EU – 75 billion euros per year! For example, in Germany in 2020, 12.8 billion euros were allocated from the federal budget for the needs of the railways, and another 6 billion euros from local budgets, ie a total of 18.8 billion euros. For comparison: 11.4 billion euros have been earmarked for the development of the federal highway network. As you can see, the support of the railway is even a little more than the roads, the corresponding result can be seen by getting to any railway station in Germany. I hope we will also come to this proportion of budgeting. 

(c)MINTRANS UKRAINE 2020

3 comments

  • “Will these 150 billion be enough to fully solve the problem?”
    Keep the parasites (oligarchs) from stealing a good portion of it and it could suffice.

    “What will these funds be used for?”
    Hopefully, not to enrich the parasites (oligarchs).

    “Why don’t we get EU infrastructure money for development?”
    Maybe because the current presidential administration is failing miserably fighting the parasites (oligarchs).

    Liked by 3 people

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