Ukrzaliznytsia reform: why tariffs and ticket shortages are part of the same reality

The summer of 2025 has put an end to the discussions around Ukrzaliznytsia: demand for transportation in some directions exceeds supply by seven to eight times, tens of thousands of passengers are left without tickets, businesses are sounding the alarm about potential increases in freight tariffs, and UZ is still operating without an approved financial plan for the year.

To understand what is happening, we need to go beyond emotions and look at the situation systematically: through the prism of reform and economic policy.

Three problems, one root:

- Shortage of passenger tickets due to lack of railcars, loss of infrastructure and limited investment.

- Controversy over freight tariffs is due to an attempt to close the gap in the passenger transportation budget.

- Reforms are slowing down due to fear of losing control and political sensitivity of the tariffs issue.

All this is a consequence of the lack of a transparent model of railroad financing that would separate the business logic of the freight segment from the social function of passenger transportation.

Ticket shortage: the result of the state policy of "frozen prices"

Demand for transportation has increased: between Kyiv and Lviv alone, there were 142,000 ticket searches per week during the peak summer season, while there were only 18,000 available seats. But developing passenger transportation is expensive.

UZ claims UAH 22 billion in losses in the passenger sector in 2025 alone. And the main reason is strict state regulation of tariffs: ticket prices have not been revised since 2021, while inflation, fuel costs, and repair costs have increased many times over.

Example:

On the domestic route Kyiv – Lviv, a compartment ticket often costs 400-600 UAH, despite the fact that the distance is about 540 km. For UZ, such a trip is unprofitable because the actual cost is much higher. But on the international route Kyiv – Chełm (approximately 630 km), the price of a compartment is up to UAH 2,800. That is, for a similar distance, the cost for a passenger is five to six times higher.

Why is this so? Because international transportation is subject to market-based tariffs, while domestic transportation is strictly regulated by the state, has not been updated since 2021, and does not cover real costs.

This is the main problem: the domestic passenger segment operates at a loss, and these losses are hidden at the expense of other company revenues, primarily freight transportation.

Cargo pays for everything?

Since the state does not raise passenger tariffs, UZ is forced to cover the deficit with profits from freight transportation. In 2023-2024, this profit amounted to more than UAH 20 billion a year, but a significant part of it is spent on subsidizing "social" passengers.

Result:

- business sees this as cross-subsidization that undermines export competitiveness

- Plans to index freight tariffs by 37% cause a conflict with major exporters – metallurgists, farmers, ports.

Companies in the frontline regions are particularly vulnerable, for whom +$2.5-3 per tonne for logistics is already a critical burden that calls into question the feasibility of exports.

What hinders development?

Despite years of discussion, key elements of the reform have not yet been implemented:

- PSO (Public Service Obligations) is a mechanism where the state openly compensates losses for socially important passenger transportation. Not implemented in Ukraine.

- The financial separation of the freight and passenger sectors – a requirement of the EU and international partners – has not yet been implemented.

- Private carriers are not allowed to enter the market because there are no clear rules, tariffs are unpredictable, and competition in this area remains a politically sensitive topic.

What needs to be done

1. Introduce PSO, possibly as part of the Ukraine Facility program. This will help relieve pressure on the freight segment, reduce the need for "manual" tariff increases, and ensure stability and predictability of passenger transportation.

2. Switch to market-based tariff setting through dynamic models (as in the EU): cheaper in advance, more expensive at peak and reasonable subsidies for certain categories.

3. Approve the financial plan of UZ and start an open audit of expenditures. Without this, the reform will not move forward. Businesses need to see where their money is spent.

4. Gradually open up the transportation market. In the current environment, when aviation is not working and demand is consistently high, the admission of private operators will not hit UZ, but will only expand supply and stimulate quality improvement.

The problem is not that tariffs are low or high. The problem is that the tariff-setting system is manual and non-transparent, and the functions of the state and business are mixed in one enterprise.

Important: this does not mean that social or evacuation transportation should be canceled in times of war. On the contrary, they should remain free or discounted, as they are now. But for society to understand the cost of such transportation, and for the company not to hide losses in cargo tariffs, it is necessary to make this process transparent and accountable.

The reform of Ukrzaliznytsia is about the transition to a new model where the state guarantees basic mobility, business pays for quality service, and UZ ceases to be a universal donor that pulls the entire system on its back.

This is the basis of economic policy for sustainable growth – when the transport system does not hinder development, but becomes its driver.