UKRAINE: Port Sector Reform for Attracting Private Sector Investment

Ukraine is a large country and road transport plays a critical role supporting domestic and international trade. Between 2012 and 2016, the share of international trade by value dependent on road transport increased from 30% to 37%. This increase coincided with a shift in international trading patterns, away from the Russian Federation and towards the European Union. A World Bank study showed that roads in poor condition increased from 5% to 17% between 2011 and 2016, contributing to the country’s traffic fatality rate being more than double that of the EU. The Bank assessment estimated that $500 million per year—as opposed to about $200 million spent by the country in 2017—would be needed to maintain and repair regional and national roads to avoid further deterioration. In Ukraine, roads are not tolled and no direct user charges are in place. Some of the reasons behind this are that many of Ukraine’s main routes are not heavily trafficked compared to busy tolled motorways internationally and growth projections are modest, average income levels limit the affordability of tolls and the value their time savings brings to users, and there is a legal requirement that tolls can only be levied where there is an alternative ‘free’ route available. 

The government requested World Bank support to explore options to develop a program to upgrade and then maintain the country’s 8,500+ km of strategic and international road network and conduct the selection and prefeasibility level analysis of pilot transactions to be structured under the program’s framework. In collaboration with the GIF, the scope of PPIAF’s activity will be looking at elements of the wider enabling environment necessary to successfully implement a sustainable road fund program and develop a road asset management model that potentially charges users. The best practices to be implemented for the governance, regulatory, and legislative framework for the roads fund is an exercise that can be replicated in other sectors that are looking to these types of reform.  

The GIF-PPIAF co-funded activity has also strategically identified initial first mover projects that will help develop and increase trade with EU countries. The roads and pipeline chosen will greatly leverage economic activity to ease the economic recovery the country will need post-pandemic and help create a more sustainable economic partner that will be good for the stability of the country and the region. 

The activity supports the ongoing World Bank transport and IFC C3P agendas to carry forward reforms that incentivize much-needed private sector investment in the country’s infrastructure. Projects to be structured under the roads fund led by the GIF and IFC will help bring in private sector participation in the roads sector. One of Ukraine’s ongoing initiatives to increase private participation in the transport sector is the “Drive Ukraine 2030” strategy that envisions investments of $60 billion in the next decade.