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19.11.2019

UZ governance and management progress report

When the independent Supervisory Board of UZ was appointed in June 2018, unfortunately the Company was not in a good shape and required major reforms. The Supervisory Board has since met on a monthly basis, engaging fully with the Management Board, and adopted key governance documents to set up the right institutional framework for the development of the Company, such as the Corporate Charter, internal policies and procedures, code of ethics and anticorruption policy as well as helped draft the state ownership policy and long term strategy for UZ for the Government’s approval. Subsequently, this summer, the Supervisory Board has terminated four out of seven members of the Management Board and selected new members for their appointment by the Government. The new Management Board is now aiming to centralize all key decisions from various regional divisions to the headquarters level along the Company’s major business verticals for a more efficient and coordinated decision-making and control going forward.

 

FIGHTING CORRUPTION AND UNETHICAL BEHAVIOR

The UZ management is committed to further sharpening its focus on rooting out corruption. Towards this objective, the Company has selected through a competitive process three new officers, a Chief Procurement Officer, a Chief Compliance Officer, and a Chief Risk Officer. They will respectively and in close coordination work on further improvements to the transparency and centralization of our procurement system, ensuring strict compliance of all processes and actions with our rules, and identify for  mitigation all risks, including corruption risks and vulnerabilities, of the Company. We have established an internal confidential Whistle-Blowing Hotline, through which employees can report corrupt practices. We are about to set up an external and anonymous Hotline for the public.

We are working closely and further strengthen our collaboration with law enforcement, particularly to be able to deal with Organized Crime that has penetrated UZ over the years. The Company interacts with detectives from the National Anticorruption Bureau (NABU) and facilitates their investigations. In last couple of years, the Company’s Internal Security Department carried out more than 1600 investigations, as a result, 147 criminal proceedings were registered, and so far, 15 people have been convicted. 

In total, 1552 disciplinary actions were taken including dismissals and suspensions from work.

While much has been done, we recognize that there remains much more to be done, and in this context, we welcome all constructive criticism and pointing out of our shortcomings as valuable input for us to improve the Company's performance. 

 

ACHIEVEMENTS AND NEXT STEPS TOWARDS IMPROVING OPERATIONS AND IMPLEMENTING STRATEGY

At the same time, a number of current and future initiatives are firmly taking hold and leading to important improvements and accomplishments in terms of increased service quality and customer orientation, transparency, open competitive procurement and sales, improved financial management, and cooperation with law enforcement authorities. For example, the adjustment of the wagon tariffs to the market prices has eliminated illicit arbitrage by a few and generated more revenues for UZ. The same is true of the Prozorro online auctions, so far more 1200, for wagon allocation and rentals, for sales of scrap metal which generated UAH 550 million of revenues, and for purchases of diesel which led to savings of UAH 130 million in the last 3 months only.

UZ has also significantly improved its transparency, publishing all transactional, as well as operational, data for wagon and locomotive fleet on public portals. All financial, investment and audit reports are now being published online. The Company has returned to profitability in each of the two last years, while it receives no state subsidies for the loss making passenger service, and is a major tax payer. We have successfully issued a Eurobond of $500 million, which has reduced our financing costs substantially.

In cooperation with our shareholder, the Ukrainian government, we are focusing on implementing our approved strategic plan, which is an important part of the reforms envisioned by the government. It aims at unbundling of the presently consolidated Cargo, Passenger and Infrastructure components of rail transportation system to enhance efficiency, effectiveness, quality and competitive pricing of our service for our freight customers and passengers and create better working conditions for our employees.

SUPERVISORY BOARD OF THE JSC «UKRAINIAN RAILWAYS»