Higher fares for train travel an unavoidable reality

As of 1 June 2006, UkrZaliznytsia, the state railway company, is raising rates for passenger fares 50%, with the exception of suburban trains. This move is part of a widespread review of regulated fares for community services of various kinds. Any assessment of this decision and its impact needs to focus on two criteria: economic efficiency and social permissibility, says economist Borys Bordiuh of the International Centre for Policy Studies.

Passenger carriage on UkrZaliznytsia has been completely unprofitable for years and the announced increases will only reduce annual losses from this kind of service by UAH 0.5bn to UAH 1.9bn. Given that any service should at least cover its basic delivery costs and gradually move away from the practice of cross-subsidization, the current rise in rates for railway passenger is both necessary and far from final. According to statements by Transport and Communications Minister Viktor Bondar, the Government plans to continue to gradually raise passenger fares to get the system running in the black over the next three years.

Increasing fares for passenger services will have a negative impact on their accessibility to poorer groups of the population. Still, social assistance to the underprivileged should be on the basis of targeted assistance. According to the ICPS analyst, uncontrolled subsidization through low fares for both poor and well-off citizens, who also use the services of UkrZaliznytsia, is a faulty approach that leads to ineffective use of public funds.