Economic Integration of Ukraine and the EU, the Role of Transport
The EU is Ukraine’s main trade and economic partner, accounting for two-thirds of Ukrainian goods exports and half of its imports, writes Alona Lebedieva, owner of the Aurum Group, Ukraine.
European integration for Ukraine is not just about receiving benefits from Europe. Europeans expect mutual advantages, and so therefore this integration should also be viewed from the perspective of what Ukraine can offer Europe.
Ukraine can make significant contributions to enhancing the EU’s competitiveness:
- access to Ukrainian deposits of rare earth metals—titanium, lithium, neon, cobalt, tantalum, beryllium, and others—used by the EU in high-tech civilian and military industries. This is especially crucial in light of China’s export restrictions on strategic raw materials;
- increased sales of Ukrainian agricultural raw materials and products in the EU will help reduce prices for households and agro-processors (e.g., animal feed) as well as fuel prices (Ukrainian raw materials for biofuels);
- strengthening the EU’s energy security—Ukrainian uranium can be used to produce nuclear fuel at European plants.
All of this is only possible with reliable freight transport links between Ukraine and the EU. Given the existing and potential military risks (realistically, Russia will likely remain highly aggressive), rail transport is the best solution.
Challenges and Prospects of Integrating Ukrainian and European Railways
Regarding prospects: first, increasing freight transport between Ukraine and the EU will boost mutual trade and production cooperation, contributing to economic growth in both regions.
Second, both railway systems will benefit from improved operational procedures and optimal capacity allocation.
Third, greater access to EU funds and international financial institution loans will facilitate the technical and technological modernization of Ukraine’s railway system—from rolling stock to infrastructure, from traffic management systems to passenger service quality. This will also provide a workload for manufacturing enterprises.
If Ukraine strictly follows localisation laws in public procurement, the economic impact will be significant—Ukraine has many companies capable of producing modern railway components, from wagons to switches, from couplers to braking systems. This will increase GDP, employment in manufacturing, and budget revenues.
Considering the challenges of integrating Ukraine’s railway system into the EU, one recalls the “challenge-response” concept formulated by the renowned British historian Arnold Toynbee in his book A Study of History. The idea is that in international political and economic competition, those who face a challenge and respond adequately emerge victorious.
Toynbee argued that Austria transformed from a minor political entity into a powerful empire by responding effectively to pressure from the Ottoman Empire. Conversely, when responses are weaker than the challenges, states and companies lose their strength and influence—just as Nokia, the former leader of the global communications market, failed to respond to challenges from smartphone manufacturers.
EU legislation and practice promote competition in the railway market
Essentially, the system is divided into two parts: infrastructure management and railway companies that use this infrastructure for freight and passenger transport.
Railway freight transport in the EU was fully liberalised in 2007 for both domestic and international operations. Any licensed railway company from an EU country can operate internal and cross-border (within the EU) freight transport, provided it has a safety certification.
This contrasts with the situation in Ukraine, where the railway transport market is neither structurally divided nor competitive, being monopolised by the state-owned Ukrzaliznytsia.
To provide an adequate response to the challenge of competition and to remain competitive in both the European and domestic markets – upon EU accession, Ukraine will be obliged to open its market to European operators – Ukraine must swiftly and effectively reform its railway sector.
The monopoly of Ukrzaliznytsia must be vertically separated into independent business units following the European model. Private locomotive traction should be permitted, improving efficiency and reducing freight and passenger transport costs.
The State of Railway Reform in Ukraine
At the end of October, the European Commission published its annual report assessing Ukraine’s progress as an EU candidate country. For the third consecutive year, the transport sector was rated poorly—scoring only 2 out of 5—largely due to the lack of railway reform. The report, as in the previous year, emphasised the need to adopt a railway transport law to create a competitive transport market.
It also called for separating railway infrastructure management from railway transport operations and establishing independent regulatory and safety authorities for rail transport.
Without swift and decisive action, there will be no adequate response to the challenge.
Prospects for the Development of Railway Freight Transport Between Ukraine and the EU European Gauge
The standard railway gauge in Ukraine is 1520 mm, while most of Europe uses a 1435 mm gauge. There are plans to build European-gauge tracks in Ukraine. While this is a promising long-term goal, it is an extremely costly and time-consuming endeavour.
The construction of European gauge tracks as part of the TEN-T European transport corridor project in Ukraine would require investments of €4.5 billion, while a broader rollout of the European gauge across the country is estimated to cost €12-15 billion. There would be a massive demand for railway equipment and infrastructure adapted to European gauge standards.
Under the most optimistic estimates, the first European-gauge railways in Ukraine will not be operational before 2030. The realities are as follows – money is scarce and will continue to be scarce, freight transportation must be increased today.
The increase in freight transportation between Ukraine and Europe should be decided taking into account the triad “price-efficiency-time”. There are a number of modern technological options.
Technological Solutions
Organisational Technologies: Border transfer points between Ukraine and its European neighbours need to be modernised with full electrification and necessary equipment, including enough bogies for different track gauges and terminal facilities for transshipment between wagons.
An alternative to wagon-to-wagon transfers is the handling of large freight units—containers and semi-trailers.
Technical Technologies: A promising technological solution is the use of adjustable wheel-sets, which are gaining popularity in Europe, particularly in Spain, where the railway gauge (1668 mm) differs from the European standard.
This technology allows wheel-sets to quickly or even seamlessly adjust to different track widths at specialised track conversion points, making border crossings between different gauge systems more efficient and cost-effective.
Additionally, improving border crossing procedures between Ukraine and the EU—in both directions—is essential.
Decarbonisation and Railway Freight Transport
As part of the EU’s decarbonisation and environmental protection efforts, a tax or special levy on road freight transport could be introduced, given that it generates significantly more emissions than rail transport. This would enhance the competitiveness of rail freight.
Such measures should start with relatively short routes where road transport currently dominates. A pilot project could begin with freight transport between Ukraine and Romania. Ukraine is a major supplier of agricultural products to global markets, and Romania serves as a key hub for receiving Ukrainian grain, with significant railway transport capacity that could be expanded.
From Romanian ports, Ukrainian agricultural products reach other European countries, Africa, and Asia, contributing to global food security.
A Change in Mindset – A Key Aspect of Integration
Successful integration of Ukraine’s railway system into the EU requires a shift in mentality. Ukrainian officials must recognise that freight rail transport is a competitive industry, just like trade, banking, food production, or insurance.
The primary focus should be on consumer interests—specifically, the interests of cargo owners and producers—not the state railway monopoly. This is the approach in the EU, and it must be adopted in Ukraine if its railway system is to compete successfully with European companies.
Competition will not just be against sluggish state giants but also against agile private operators. In 2022-2023, private companies accounted for 51% of the European rail freight market.
Will Ukraine be able to respond adequately to this challenge? That depends on us. Hard work and dedication will be required.
Alona Lebedieva, owner of the Aurum Group, Ukraine
