Ukraine's Railway System Seeks RegulatoryRelief for Massive Scrapping Initiative
Ukrainian Railways (UZ) has unveiled anambitious plan to write off up to 60,000 worn-out freight cars, potentiallyproviding a significant boost to both the country's transportationinfrastructure and its struggling steel industry. The initiative was announcedby Valery Tkachev, Deputy Director of the Commercial Department of UZ, duringthe recent Metal Expert conference "Ferrous Metallurgy of Ukraine2025." The plan faces regulatory hurdles, however, as UZ must first securethe cancellation of government orders No. 62 and No. 267, which currentlyprevent the write-off of aging rolling stock. The railway operator has formallyappealed to the Ministry of Community Development, Territories andInfrastructure to remove these barriers, highlighting the critical need forfleet renewal despite limited funding resources. If approved, this massivescrapping operation could transform a maintenance burden into a valuableresource for multiple sectors of Ukraine's economy.
Dual Benefits: Fleet Modernization andSteel Industry Support
The proposed scrapping initiative offers dualbenefits for Ukraine's economy. Of the 60,000 railcars slated fordecommissioning, approximately 40,000 belong to Ukrainian Railways itself, withthe remaining 20,000 owned by private companies. By removing these outdated"extended" freight cars from service, UZ can begin addressing itspressing need for fleet modernization. Simultaneously, the resulting scrapmetal would provide essential raw materials to Ukraine's steel industry, whichhas faced significant challenges in securing adequate supplies. "We reallyneed new railcars, locomotives, and investments in infrastructure. But,unfortunately, we do not have sufficient funding," Tkachev explainedduring the conference. The proceeds from selling the scrap could then bereinvested in purchasing new railcars, creating a virtuous cycle ofmodernization that benefits multiple sectors of the economy.
Scrap Metal Supply Drought Threatens SteelProduction
The timing of this initiative is particularlycritical given UZ's two-year absence from Ukraine's domestic scrap market. Asthe country's largest state-owned producer of scrap metal, Ukrainian Railwaystypically contributes 10-13% of domestic consumption, making its prolongedwithdrawal from the market a significant threat to the steel industry. Therailway operator has not sold scrap through the Prozorro.Sale auction systemfor approximately two years, with the last auction occurring in September 2023.Even then, sales volumes were dramatically reduced, with only 76.4 thousandmetric tons sold in the first nine months of 2023, compared to 113 thousandmetric tons in 2022—itself well below that year's target of 170 thousand metrictons. This supply drought has created urgent challenges for Ukrainiansteelmakers already contending with wartime disruptions to their operations andsupply chains.
Regulatory Hurdles and ExportControversies
The extended absence of UZ from the domesticscrap market appears to stem from a complex mix of regulatory challenges andpolicy disagreements. Reports suggest that Ukrainian Railways had previouslysought permission to export scrap metal, a request that was ultimately rejectedby the Cabinet of Ministers. The company also cited alleged regulatorydeficiencies as reasons for withholding sales, though these claims weresubsequently refuted by the government. These tensions highlight the strategicimportance of scrap metal as both an industrial resource and a potential exportcommodity, particularly during Ukraine's ongoing economic challenges. Theresolution of these issues through the current regulatory reform effort couldpotentially restore a more predictable and substantial flow of scrap metal todomestic steel producers while providing UZ with needed funds formodernization.
Recent Regulatory Relief Offers PathForward
A recent decision by the Cabinet of Ministershas provided Ukrainian Railways with greater autonomy in managing its assets,potentially paving the way for the proposed scrapping initiative. Thegovernment has simplified the procedure for disposing of UZ property, allowingthe company to independently decide on the alienation of assets with carryingvalues below UAH 500 million (approximately $13.5 million) without requiringspecific government approval for each transaction. This regulatory reliefrepresents a significant step toward enabling the large-scale scrappingoperation, though the specific orders blocking the write-off of old rollingstock still need to be addressed. The simplified procedures could substantiallyaccelerate the timeline for implementing the scrapping initiative once theremaining regulatory barriers are removed.
Substantial Material Recovery Expected
The scale of the potential material recoveryfrom this initiative is substantial. According to government estimates, therecent regulatory changes could enable Ukrainian Railways to recover over 218.6thousand metric tons of ferrous scrap valued at approximately UAH 1.6 billion($43.2 million), along with 3.8 thousand metric tons of non-ferrous scrap worthUAH 233.4 million ($6.3 million). These figures likely include materials beyondthe railcar scrapping initiative, but they indicate the significant value thatcould be unlocked through more efficient asset management. For Ukraine's steelindustry, which has faced severe disruptions due to the ongoing conflict, thisinflux of domestically sourced raw materials could provide crucial support at atime when international supply chains remain challenging and expensive tomaintain.
Strategic Importance for MultipleIndustries
The UZ representative emphasized the strategicimportance of this initiative beyond just the railway sector: "This isextremely important for the Ukrainian economy, as well as for our company,steelmakers, and railcar builders." Indeed, the plan creates potentialsynergies across multiple industries. Steel producers gain access tomuch-needed scrap metal, while railcar manufacturers could see increased ordersas UZ reinvests the proceeds from scrap sales into fleet renewal. The railway systemitself benefits from the removal of outdated equipment and the potentialacquisition of modern replacements. This multi-sector approach toinfrastructure renewal represents an innovative strategy for maximizing limitedresources during a period of significant economic challenges for Ukraine,potentially creating a model for other asset-heavy state enterprises to follow.
Key Takeaways:
• Ukrainian Railways plans to scrap up to60,000 worn-out freight cars, providing essential raw materials to the steelindustry while creating an opportunity to modernize its aging fleet.
• The initiative requires the cancellation ofgovernment orders No. 62 and No. 267, which currently block the write-off ofold rolling stock, with approximately 40,000 cars belonging to UZ and 20,000 toprivate companies.
• Recent regulatory changes allow UZ toindependently dispose of assets valued below UAH 500 million ($13.5 million),potentially enabling the recovery of over 218.6 thousand metric tons of ferrousscrap worth UAH 1.6 billion ($43.2 million).
