BMI's Executive Summary

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Ukraine's political divisions were again impacting on the gas pipeline business in August 2007, with a clash of views between President Viktor Yushchenko on the one hand, and the government and the stateowned energy company Naftogaz Ukrainy on the other. According to local media reports the President told Naftogaz to ‘leave politics alone' and take care of gas. He was reacting to remarks by Naftogaz CEO Evhen Bakulin supporting a previously rejected proposal to cede a form of control over Ukraine's gas pipeline transit system to Russia's Gazprom in exchange for access to Russian upstream gas reserves. Gazprom already owns a 50% stake in the less important transit network through ex-Soviet Belarus. Yushchenko said ‘I did not give the company a mandate for these kinds of talks'. The Ukrainian parliament had earlier in the year banned the sale or transfer of the pipeline distribution network - which many lawmakers claimed was a strategic national asset, since the pipeline system carries 85% of Russian gas exports to Europe. The deal had however been supported by Ukrainian Prime Minister Viktor Yanukovych, known to be pro-Moscow in contrast to the President's pro-Western position. Yushchenko and Yanukovych, who appointed Bakulin earlier in the year as head of Naftogaz, had repeatedly clashed over gas policy. With new elections due in September, there appeared to be little prospect of an end to the politicisation of the pipeline business in Ukraine. In our latest Ukraine Freight Transport Report however, BMI concludes that, despite the uncertainties, oil and gas pipeline throughput will grow at an annual average rate of 5.0% over the next five years.

Various factors support this prediction. The opposing political forces know the pipeline transit business remains crucial to the national economy. Additionally, the country's economic outlook is less gloomy than it was a year ago. BMI now predicts average annual GDP expansion of 5.3% in 2007-2011. Ukraine's transport sector has been lagging rather than leading economic growth. Between 2002 and 2006, freight transport, measured in total tonnage transported, grew by an annual average of 4.5%, compared to a GDP growth rate of 7.3%. Despite the advent of a new government, we do not now expect a radical transformation of the situation. Under our current forecasts for 2007-2011, GDP growth will average 5.3% and freight transport growth will push only a fraction out in front with average growth of 5.5%.

Ukraine retains great potential as an important transport link between East and West. Against the backdrop of the economic growth expected in the next few years, we believe air cargo will lead the way, boosted by the establishment of closer links with Europe and the expansion of low-cost airlines (LCCs). We are now forecasting average annual growth in airfreight tonnage of 12.5% in 2007-2011. Road haulage will grow at an annual rate of 6.1% during the forecast period. We believe there is strong potential for road haulage growth, but it will take some time to gather pace, as it is dependent on greater investment in the country's highway network and modernisation of the vehicle fleet. Cargo carried by water (both maritime and inland waterways freight) will grow by 5.9% per annum. Rail freight growth will be 5.5% per annum, with the poor financial state of the railway system acting as a constraining factor. Ukraine has a composite freight transport business environment ranking of 35 (out of a theoretical maximum of 70.0, and in the context of a regional European average of just over 41). Its relative strength lies in its transport intensity index (a measure of the dynamism of foreign trade); it also has potential in terms of relatively low long-term political and economic risk and the regulatory environment. Areas of current weakness include freight growth rates, infrastructure and the competitive environment.

The total value of transport and communications GDP will rise to US$27.8bn in nominal terms by 2011, representing 14.5% of Ukraine's GDP. The transport and communications sector employed 1.17mn people (6.8% of the labour force) in 2005. We see that figure falling marginally to 1.14mn by 2011, although it will remain unchanged in relative terms, at 6.8% of the total labour force.

Competitive Landscape for Europe Freight Transport Reports: Sample of Companies Ranked

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Analysis of latest projects across the freight transport sector – road, rail, air, sea, logistics – including market overview which provides an outline of the key elements driving development. SWOT analysis of the state’s business environment, transport sector, politics and economics, which carefully evaluates the short- and medium-term issues facing the industry.

Network of European Freight Sources

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BMI's European Freight Transport Reports are based on an extensive network of multilateral organisations, government departments, freight transport industry associations, chambers of commerce and company reports. Information sources include: