In 2018, the Ukrainian road sector experienced a transition, because it was the first year of the sector decentralization and of the Road Fund activities. In addition, with the support of European banks, structural repairs of highways from Kyiv to Odesa, Kharkiv, Chop, Chernihiv and other cities will be made.
But even under these circumstances, the industry has shown fairly good results. In turn, the plans for 2019 are even more ambitious – compared to those, even good current results may turn out to be just a warm-up.
Victories and failures of 2018
In 2018, the Ukrainian road sector has gone through several innovations at a time. Decentralization of the road sector has been implemented – 117 thousands kilometres of local roads have been passed over to be controlled by the oblasts state administrations (OSA’s). At that, about 52 thousand kilometres of national and international roads remained on Ukravtodor balance.
The sector’s financing mechanism has also experienced serious changes. A Ukrainian Road Fund started operating officially; the main goal of this agency is to accumulate proceeds received from the fuel excise tax paid by each driver, as well as some other duties. In theory, for many years these proceeds had to be spent exceptionally to cover the road sector demands. However, until 2018 in Ukraine they have been directed to the general state budget, and roads have been financed from the state budget according to a leftover principle.
The Road Fund became a tool allowing turning the money supposed for the road-building to a target resource. In 2018, the fund’s total level was UAH 32.6 Bio., or 50% of all corresponding proceeds. By 2020, the share of excise duties and other fees paid to the fund will increase to 100%.
Talking about distribution of money from the fund, 35% are spent for local roads, 65% – for national the national and international highways, and 5% — to finance the road traffic safety efforts determined by the governmental programs.
Question as to why all 100% of excise duties could not have been directed to the Road Fund at once can be the best replied through the statistics of utilizing by oblasts financial resources available for the local roads. Throughout the construction season, the leaders appeared — Khmelnytskyi, Vinnytsia, Chernihiv, Zaporizhzhia, Lviv, Kharkiv and Dnipropetrovsk oblasts. For example, all the 100% of available funds have been used by Khmelnytskyi oblast, 98% – by Vinnytsia oblast, 97% – by Chernihiv oblast, 94% – by Zaporizhzhia oblast, and 92% – by Lviv and Kharkiv oblasts. As to outsiders – these are Luhansk, Odesa, Ternopil and Mykolaiv oblasts. So, for example, only 46% of accessible funds have been used by Luhansk oblast, 57% – by Odesa oblast, 64% – by Ternopil oblast and 69% by Mykolaiv oblast.
At a first glance, such situation might seem quite strange. Why the country, which according to different assessments required hundreds of billiards or even trillions of hryvnias to fully restore the public road system, certain oblasts have been unable to use 700–900 Mio. each over the entire year?
The matter is that for many OSA’s the requirement of dealing with the repair of roads became “a surprise”. Even despite for the fact that Ukravtodor provided corresponding consultations since 2017, OSA’s have spent too long determining the highest-priority sections, announcing tenders, selecting winners. As a consequence, it became practically impossible to draw down the potentially available amounts over the period remaining for the construction.
Generally over Ukraine, all scheduled works have been performed on the national and international roads Ukravtodor is responsible for. At the same time, on the local level this number does not exceed 63%. Nevertheless, it is highly possible that during the next year we will be able to considerably improve this result, as officials in each oblast have already not only theoretical, but also practical knowledge related to the required procedures and preparatory activities. And even if they have made some mistakes in 2018, in 2019 they will be able preventing such scenario.
Money provided by our international partners is one of major funding sources for the road construction in Ukraine. These international partners are the International Bank for Reconstruction and Development (IBRD), the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
Together with the IBRD, we implement two projects simultaneously. There is the “Second Project for the Improvement of Highways and Traffic Safety”, within the framework of which a major overhaul of the section Kharkiv-Dolzhanskyi and Stryi-Znamenka is carried out. In general, in 2018 within the framework of this project, the drawdown amounted to almost UAH 1.8 billion. IBRD also finances the “Road Sector Development Project”, in the framework of which the sections of Kyiv-Kharkiv highway are being repaired, and the total drawdown by the end of the year will be almost UAH 860 million.
In turn, the EBRD and the EIB are financing the “Project to improve the transport and operational condition of roads at the access roads to the city of Kyiv”. In particular, the drawdown of available EBRD credit resources should amount to UAH 1.25 billion by the end of the year, and almost UAH 1.35 billion of EIB resources provided the next tranche is received. This project includes, for example, the construction of by-roads around the city of Zhytomyr, which we are implementing together with a Chinese contractor. Also, these are the crossroads on the highways Kyiv — Odesa and Kyiv — Chop. The project even includes the maintenance of sections of the Kyiv – Chop road by a private contractor based on the final results, the so-called OPRC contracts. Over several years, they have proven to be the perfect pilot initiatives, and it is planned to expand the use of this approach to road maintenance in the future.
As for international loans, the drawdown is in general almost 100% of the planned indicators. This is very good, because earlier Ukraine could not make boast of such results. Therefore we had to pay for funds that were not actually spent, both by directly losing money on interest payments and because of not receiving a positive economic effect due to the slower speed of road construction. Of course, such situation was disadvantageous for the state; therefore, improvement of drawdown rates is a really good achievement, being the result of the well-coordinated work of a team of specialists.
International credits for 2019
As for projects funded by foreign lenders, there should be no surprises in 2019. However, in the case with roads, the absence of unforeseen events is a positive and desirable condition. The fact is that earlier Ukraine was unable to complete financing of certain projects. For example, a road was planned to be built during a certain year. It was budgeted for the following year, and the construction was started. But a year later, some other priority projects appeared. The work stopped, and the construction remained unfinished for a year in the best case. In the worst case, works on the highway have been resumed only when the project was no longer relevant, and the work done before was completely lost.
On the contrary, projects financed by international donors have no such obstacles. Therefore we plan to finalize work on the Kyiv-Odesa highway in 2019 as part of a project with EBRD and EIB. Also, a contract was signed in 2018 for the repair of a section of the Kyiv – Chernihiv road, the commencement of which is planned exactly for 2019.
Another foreign contractor will start the overhaul works of the Kyiv – Kharkiv road. In turn, the first category road Kyiv – Dolzhanskyi will be fully reconstructed. Finally, it is planned to finalize the work not performed by the Italian contractor Todini.
The reconstruction of the Northern bypass road around Zhytomyr will also be continued, by expanding the carriageway from two to four lanes, and financing will be carried out from EBRD and EIB loan funds.
In general, about UAH 5 billion of credit resources are planned to be spend in 2019, which approximately equals to the 2018 level. Such dynamics is an indicator of stable pace taken by the Ukrainian road sector.
Projects ”at the start”
In 2019, the five-year “Road Development Program 2018–2022” will be continued. During this period, the country plans to reconstruct a large number of highways and main roads.
As described above, now each region in Ukraine has its own road budget. That is why the regions have developed their own work plans for 2019, taking into account local needs and development priorities.
So, repair of the road Lviv – Medenychi is scheduled in the Lviv oblast for the next year. This route shall provide the shortest route between Lviv and Truskavets. Additional ramps on the Lviv belt route will also be built, as well as there are plans to extend it. In addition, several bridges are planned to be reconstructed and built in the oblast.
As for Dnipropetrovsk oblast, a separate budget-financed program is envisaged in the 2019 state budget of Ukraine, in particular to continue construction of the Dnipro — Reshetilivka highway. Works will be continued on the Dnipro — Kryvyi Rih — Mykolaiv road section, including the construction of the southern bypass around Dnipro, the purpose of which is to create a half-ring around the regional centre and to increase the traffic capacity of roads.
As part of the separate UAH 500 million budget-financed program, the road in Kirovohrad oblast between Kropyvnytskyi and the Mykolaiv oblast’s border will also be repaired. It is worth mentioning that the separate budget-financed program allocates UAH 500 million for capital repairs of this road in Mykolaiv oblast, where the road is designed to be concrete-covered. Thus, 2/3 of the total road length should be repaired in two regions by the end of 2019.
In Ivano-Frankivsk oblast, repair of roads Stryi – Ivano-Frankivsk, Tatarov – Kamianets-Podilskyi and Kryvorivnia – Chernivtsi are planned. The oblast is also planning to repair bridges, in particular those destroyed by floods back in 2008. Here we see a vivid example of how decentralization affects the sector. Locally, the needs and problems of the region are seen much better, which before was practically impossible to consider and take into account from Kyiv.
Repair of the N-08 road section from Zaporizhzhia to the border with Donetska oblast is expected to be financed in 2019 through a separate budget program and the Road Fund assets. 170 km section of this road is on the oblast’s territory. According to expectations, over the half of its total length will be repaired and restored to standard in 2019. Repair of Vasyliivka – Berdyansk road is also planned; funds for this road are planned to be received on the account of the customs experiment.
Coming back to the road N-08, its repair will become a priority in the Donetska oblast. As part of a separate budget program, UAH 600 million will be used for the overhaul of 31 km section of this road. The region has also promised to pay attention to the third and fourth categories roads. From the moment the ATO (anti-terrorist operation) has started, those roads have been trafficked the most, which led to their premature destruction. According to oblast’s representatives, most of roads need major repairs, that is, the work must be performed virtually from scratch.
In Zhytomyr oblast, the mid-scale and major repair works are planned to be performed on the Zhytomyr – Vystupovychi KPP (checkpoint) and Zhytomyr – Vinnytsia road sections. Repair of the road N-03 (Zhytomyr — Chernivtsi) will also be continued; major works will be performed there on the Zhytomyr — Chudniv section.
The international road M-19, being the route Kovel – Lutsk with the traffic intensity from 8 000 to 10 000 cars per day shall become the priority project in 2019 in Volyn oblast. Works are also planned to be continued on the R-15 road between Lutsk and Novovolynsk and further to the border with Lviv oblast. In addition, works are planned on the M-07 highway along the route Kovel — Yahodyn KPP. This checkpoint is the largest in Ukraine on the Ukrainian-Polish border.
Finally, implementation of the Go Highway project will be continued next year in Vinnytsia oblast on the route from Vinnytsia to Uman.
In general, the 2019th has every chance of becoming a truly successful year for the Ukrainian road sector. The total amount of financing the mentioned UAH 56 billion is the record-setting one. And given that OSA’s have gained experience, there is hope that if not all 100% of the Road Fund would be used, then at least 85–90%.
And in 2019 we will finally be able to finally agree on all issues concerning the concession legislation, and Ukraine will be able to begin real negotiations on toll roads projects, which will be built entirely or partially at the expense of private investors. And drivers will finally receive alternative rotes between cities – i.e. toll roads, however fast, with high-quality road surface.
In general, the year 2019 may become the first non-transitional year with stable and predictable financing, when the results of the road companies’ work will already be really visible not only within separate projects, but throughout the whole territory of Ukraine.
By Elena Krivoruchko, Director of the SE Ukrdorinvest
Source – ZN.UA