Ukraine Advances Railway Market Reform with New Draft Law

Article is published in the The Legal Industry Reviews: Ukraine

Author: Bogdan Malniev, Partner, Tax&Law practice, EY Ukraine

Ukraine is progressing toward a comprehensive railway transport reform, a pivotal step for enhancing EU integration and securing international financial assistance. Under the Association Agreement between Ukraine and the EU, Ukraine Facility Plan and World Bank programs, Ukraine has pledged to modernize its railway legal framework to fostering a competitive market aligned with EU standards and securing equitable access to railway infrastructure for carriers.

Ukrainian law harmonisation with EU acquis

To align with EU acquis, which includes, among others, EU Directive 2012/34/EU on establishing a single European railway area and EU Directive 2016/797 on the interoperability of the rail system, the Ukrainian Parliament, on 21 October 2024, registered government-initiated draft Law of Ukraine “On the System and Peculiarities of Functioning of the Railway Transport Market of Ukraine” No. 12142 (the “Draft Law”).

The Draft Law introduces a major reform of Ukrzaliznytsia, the state-controlled unified railway entity currently responsible for railway infrastructure repair and maintenance, tariff establishment and transportation services. Within three (3) years of the martial law expiration or termination, Ukrzaliznytsia will be split into newly established entities, including an infrastructure operator, passenger and cargo carriers.

Infrastructure operators will provide the carriers with the access to the infrastructure based on: (i) notification on the railway network capacity published on the operator’s website, and (ii) public agreements concluded with the carriers specifying the essential conditions such as the services scope, duration and pricing for services.

Within three-year period from the end of martial law, the Ukrainian government is also required to establish a National Transport Regulation Commission to set tariff and pricing policies for the access to public railway infrastructure. Infrastructure operators will be bound to adhere to these policies when setting tariffs for carriers’ access to public railway infrastructure.

Private carriers will become eligible to provide cargo and passenger transportation services, following a seven-year period from the end of martial law, provided they:

• obtain a license for passenger, cargo, or postal transportation;
• own and maintain traction rolling stock; and
• ensure compliance with traffic, fire, and environmental safety.

Additionally, the Draft Law establishes rules for access railway roads, requiring its holders to possess technical documents such as a track passport, and register in a centralized database.

The Draft Law is pending vote by the Ukrainian Parliament and subsequent President’s signature, therefore, its final text has not yet been finalized. Upon enactment, the law will take effect within five (5) years following the expiration or termination of martial law save for some provisions due to be effective earlier.

Strategic Approach to Ukraine’s Railway Infrastructure Development

These reforms are in line with the National Transport Strategy, approved by the government of Ukraine on 27 December 2024. The strategy aims to develop an efficient, competitive transport system integrated into the Trans-European Transport Network.

Key focus areas include harmonising Ukrainian railway legislation with the acquis, overhauling state regulation of monopolies in transport sphere and improving the efficiency of railway infrastructure. The strategy aims to ensure equitable railway market access and advance the development of high-speed rail networks in Ukraine. It also tackles challenges such as railway capacity constraints, limited competition, and deficiencies in tariff policies for transportation services.