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02.12.2019

Brief report on the regular meeting of the Supervisory Board of JSC “Ukrainian Railways”, which took place on 13-15 November 2019

Supervisory Board discusses acceleration of Ukrainian Railway’s transformation and progresses corporate governance and key anti-corruption initiatives

The Supervisory Board had an extensive discussion regarding expediting the liberalization of the rail transportation services and introduction of increased private sector competition in light of the President’s recent decree and action plan on the transformation of UZ. The Board discussed key changes that needed to be made to the structure and various operations of the enterprise in accordance with strategy approved by the Cabinet of Ministers of Ukraine, to achieve the unbundling of the Company’s services into distinct operating units involving cargo, passenger transportation, heavy maintenance and the creation of an infrastructure operator.

The Supervisory Board reviewed the practices in other European countries and Ukraine’s obligations under its international agreements regarding access to infrastructure. The Supervisory Board  came to the  preliminary view that the at least during the envisioned initial stages of this transformation of UZ to achieve the targeted liberalization and competition as well as equal and fair access by all to Infrastructure assets necessitate an unbundling of UZ services into the above mentioned distinct operating units under a “Holding Company” structure. The Supervisory Board is confident that such approach is appropriate to ensure the proper and orderly redistribution and effective management of assets, human resources and allocation of financial and other assets and liabilities among the new entities, as well as to facilitate the implementation of a public service obligation to fund passenger transportation, the creation of an infrastructure operator, and to safely deal with obligations that cannot be easily divided, such as recent placement of Eurobonds by Ukrainian Railways.

The Board will shortly present its proposal for discussion with its Shareholder, represented by the Ministry of Infrastructure, which will then be shared for discussion with other stakeholders, including the labor union, parliamentarians, customers, suppliers, bondholders, and international financial institutions.

Moreover, the Supervisory Board discussed how to balance being an attractive employer and preparing for an open and competitive rail market, which will require a substantial increase in the Company’s productivity, efficiency and performance. In this context, the Supervisory Board reviewed and approved an updated Human Resources Strategy, which is designed to ensure consistency in the development and evaluation of competencies and merit-based advancement as well as, provide new training programs as well as technology enhances.

In addition, the Supervisory Board was very pleased to hear from the new Chief Procurement Officer that the new system of category management had produced efficiencies in fuel procurement of $5 million in the first three months of operations. The Board noted that while much remained to be done, this was both a vital additional step forward in anti-corruption and transparency initiatives of JSC “Ukrainian railways” and a substantial cost saving. Based on the first results, the Supervisory Board asked the Management Board to step up its efforts to roll-out this approach and centralize all procurement as expeditiously as possible.

The Supervisory Board also progressed with selection of Chief Compliance Officer and a Chief Risk Officer during this meeting. These senior officers will allow a much more intensified effort for corruption fighting and reducing vulnerabilities of the company.