Ukraine - Country Commercial Guide
Infrastructure

This is a best prospect industry sector for the country. Includes a market overview and trade data.

Last published date: 2020-11-06

Overview

Ukraine’s strategic location can be a powerful catalyst for the development of the country as well as for the West.  Historically, Ukraine has been at the crossroads of world trade routes and a major stronghold on the way from Europe to Asia.  Ukraine’s transit potential is 200 million metric tons per year, while its utilization is only 25-30 percent.  In 2019, the Ukrainian Government prepared a package of planned reforms to bring to changes to Ukraine’s infrastructure.  The scale of the package is comparable only with the integration of Eastern European countries into the European Union’s infrastructure in the 1990’s and 2000’s.

Ukraine is essential for the European Union as one of the key countries for the transportation of goods to and from the EU, especially since the European Parliament approved the new concept of transportation infrastructure development and turning the national transportation systems of European countries into a unified trans-European network (the TEN-T program).  The cost of the first phase of the project is expected to reach 12.8 billion euros by the end of 2020.  Within the framework of the work completed on integrating Ukrainian and European transport networks and following the results of the Brussels Eastern Partnership Summit, Ukraine was included in the maps of the European transport network TEN-T.  The plan for the construction of the Trans-European Transport Network TEN-T includes 39 Ukrainian infrastructure projects totaling approximately $5.3 billion under the national strategy Drive Ukraine 2030.

For the successful implementation of reforms, Ukrainian infrastructure requires an additional $20-25 billion of investment by 2030, with $8-10 billion of private investment annually over the next 10 years.  On its own Ukraine is only able to finance about $1.5 billion of infrastructure projects annually.

In 2019 Ukraine announced a number of new developments under the country’s ‘Great Construction’ project.  Information on this initiative can be found here:  https://www.president.gov.ua/en/news/sim-novih-shkil-bude-zdano-u-volinskij-oblasti-cogo-roku-vol-62169,  The government also plans to spend 100 billion UAH ($3.7 billion USD) on road construction alone, which it hoped would create 170,000 jobs.  Ukrainian Prime Minister Denys Shmyhal announced in April 2020 that funds would begin disbursement in May 2020.

Ukraine’s economy is now expected to contract by 3.3% in 2020, as the country contends with the spread of Covid-19.  This casts some doubt on the government’s ability to push forward with its ambitious infrastructure development plans.  Construction industry value is expected to contract by 1.5%.

The primary segments of Ukraine’s infrastructure industry are:

  • Transport infrastructure: Ports, harbors and waterways infrastructure, airports, roads, railway, postal and shipping services.
  • Construction: residential and non-residential building

Ukraine Infrastructure Market Size, million USD

 

2017

2018

2019

2020 estimated

Total Local Production

 3,973.0

 5,191.7

 7,042.6

 5,402.4

 including:

 

 

 

 

construction of residential and non-residential buildings

 1,985.3

 2,455.6

 3,239.9

 2,560.2

transport infrastructure:

 714.3

 1,008.4

 1,299.7

 1,007.4

 including:

 

 

 

 

-highways, streets, and roads

 616.4

 865.5

 1,049.4

 843.7

- railways

 41.0

 64.9

 77.5

 61.1

- runways

 1.7

 1.1

 20.0

 7.6

- bridges, elevated highways, tunnels, and subways

 31.3

 43.8

 94.6

 56.6

- harbors, waterways, dams, and other waterworks

 23.8

 33.1

 58.2

 38.3

pipelines, communication, and electricity lines

 481.4

 586.4

 797.8

 621.8

complex constructions on industrial sites

 608.5

 893.1

 1,420.1

 973.8

other civil engineering structures

 183.5

 248.2

 285.0

 238.9

Total Exports

692.8

643.4

950.1

 762.1

 including:

 

 

 

 

- construction

106.7

58.2

39.2

 68.0

- transportation

586.1

585.1

911.0

 694.0

Total Imports

1315.3

1615.1

1684.9

 1,538.4

 including:

 

 

 

 

- construction

102.3

150.3

125.7

 126.1

- transportation

1213.1

1464.8

1559.1

 1,412.3

Imports from the US

124.7

130.9

145.0

 133.5

 including:

 

 

 

 

- construction

21.2

18.5

19.7

 19.8

- transportation

103.5

112.4

125.3

 113.7

Total Market Size

 3,322.1

 4,435.7

 5,274.3

 4,344.0

 including:

 

 

 

 

- construction

1,980.9

 2,547.6

 3,326.4

 2,618.3

- transportation

 1,341.2

 1,888.0

 1,947.8

 1,725.7

Exchange Rates, UAH/USD

26.6

27.2

25.8

28.8

total market size = (total local production + imports) – exports

Sources:

Transport infrastructure

Transport infrastructure industry value declined by over 20% in 2015, following the outbreak of conflict.  The market began to recover in 2016 growing more than 22% in 2017, 10% in 2018, and over 13% in 2019.  This recovery could halt in 2020 due to the Covid-19 pandemic.  The sector is expected to rebound in 2021, with an annual average growth rate of 2.4% through the end of the decade.  International support remains critical for large-scale transport projects. 

 

Ukraine Transport Infrastructure Industry Forecast (Ukraine 2019-2029)

Indicator

2019e

 

2020f

2021f

2022f

2023f

2024f

2025f

2026f

2027f

2028f

2029f

Transport infrastructure industry value real growth,

% y-o-y

13.2

 

-1.2

3.8

2.4

0.9

2.1

2.6

3

2.7

2.4

2.2

Roads and bridges infrastructure industry value real growth,

% y-o-y

15.4

 

-1

4.1

2.8

1.1

2.3

2.8

3.1

2.9

2.8

2.8

Railways infrastructure industry value real growth,

% y-o-y

10.1

 

-1.7

3.6

1.4

0.2

1.4

2.2

2.4

2.4

2.4

2.4

Airports infrastructure industry value real growth,

% y-o-y

9.4

 

-2

4.6

3.1

1.7

3.3

4

4

4

4

4

Ports, harbors, waterways infrastructure industry value, real growth,

% y-o-y

6.1

 

-0.7

1.6

1.2

0.6

1.4

1.8

4.1

1

-2.1

-5.2

Fitch Solutions estimate/forecast.  Source: National sources, Fitch Solutions https://bmo.bmiresearch.com/reports/trackrecords#1

Financing of transport projects has traditionally been led by the European Bank for Reconstruction and Development (EBRD), the World Bank, and the European Investment Bank (EIB).  For example, EIB is providing a financing worth EUR 200 million ($215 million) to upgrade public transport in several cities including Kyiv and Odesa.  The funding will be used to upgrade and construct new tram lines, bus lanes, stations, depots, and other public transport infrastructure.  The European Commission also announced in January 2019 plans to invest in the EU’s strategic transport corridors, with Ukraine’s allocation at EUR 850 million ($1 billion).

Ports, Harbors and Waterways Infrastructure

Thirteen ports operate in the Azov and the Black Sea basins and the Danube River Delta, with a total cargo capacity exceeding 230 million tons per year.  Reform of the maritime transport industry has been launched, with the establishment of the State Service for Marine and River Transport.  In addition, the special Maritime Doctrine has been developed to ensure the entire fulfillment of Ukraine’s maritime potential.  Port fees and charges have been reduced by 20 percent, and a new method of calculating port fees has been developed.  Port fees will be based on two components: a prime rate and investment component.  Work with the leading port investors including BUNGE, DP World and Hutchison Ports towards port development in Ukraine has begun.   BUNGE and Louis Dreyfus plan to launch logistic facilities and a new car park this year.  The inland water transport system, typically the most cost-effective way to ship cargo, runs at only eight percent of capacity due to neglected locks, drawbridges, and navigation channels.  The potential inland waterways transport capacity is estimated at up to 35 million tons per year. 

The government still aims to enhance the competitiveness of Ukrainian ports and upgrade infrastructure based on international best practices and has launched tenders for the development of the Olvia and Kherson ports following successful feasibility studies of the public-private partnership projects backed by the World Bank, the International Finance Corporation, the EBRD and other international partners. The concessionaire is expected to invest UAH 17.3 billion ($654 million) for the 35-year concession of Olvia port and UAH 1.4 billion ($53 million) for the 30-year concession of Kherson port development.

Airports

Ukraine has a differentiated network of direct and transit air traffic.  In 2019, Ukrainian airports handled 24 million 336.6 thousand passengers, which was 18.5% higher than the result of 2018, the State Aviation Administration of Ukraine reported with reference to operational data.  Nearly 22 million travelers (+ 19.8%) took advantage of international flights, 2 million 341 thousand passengers (+ 7.5%) flew domestic flights.

In 2019, Ukrainian airlines transported nearly 14 million passengers, which is 9.5% more than in 2018.  12.5 million people were transported on international flights (+ 9.7%), 1.2 passengers – on domestic flights (+ 7.4%).

Top-7 Ukrainian airports in 2019 by passenger flow:

  • Boryspil Airport: 15.2 million (+ 21.1%)
  • Zhuliany Airport: 2.6 million (-6.9%)
  • Lviv Airport: 2.2 million (+ 38.8%)
  • Odesa Airport: 1.7 million (+ 17.1%)
  • Kharkiv Airport: 1.3 million (+ 40%)
  • Zaporozhye Airport: 434,000 thousand (+ 8.4%)
  • Dnepropetrovsk Airport: 339 thousand (+ 13.3%)

Data from Simferopol Airport, which is located in uncontrolled territory, is unavailable.

The Ministry of Infrastructure of Ukraine will focus on the development of regional air traffic and expansion of budget airlines in Ukraine in coming years.  This initiative will include deregulation of procedures to open ground handling services to private operators, withdrawal of restrictions based on parity regarding the number of airlines and their flights between Ukraine and EU states, and approval by the Cabinet of Ministers of Ukraine of the Aviation Transport Strategy of Ukraine for the period through 2030.  Almost all of Ukraine’s 22 airports need modernization or reconstruction. 

Ukraine’s Ministry of Infrastructure is preparing concession deals for the Boryspil and Lviv Danylo Halytskyi international airports as well as for several municipal airports across the country.  The concession deals include a significant investment in infrastructure, such as USD 100 million to expand a terminal at Boryspil International Airport and modernization works at Lviv Danylo Halytskyi International Airport.  It is hoped this will help to attract private investment to the airport subsector, though with air travel globally now operating at minimal levels and recovery expected to take several years, the outlook for the airport infrastructure sector has become much more subdued.

Roads

The national network of public automobile roads is 169,652 km long, including 47,000 km of state roads and 122,000 km of local roads.  In 2019 major road restoration projects took place in Ukraine with 2,177 km of public roads repaired.  The State Road Fund was established and began operations on January 1, 2018.  For the first time in the country’s history, Ukraine has a dedicated source of revenues for road repair and construction.  Approximately 120,459 km of local public roads were transferred to local governments with appropriate funding.  An open infrastructure data portal has been developed, which contained about 400 road repair projects in 2019, monitored according to CoST standards.  The work on the introduction of weight control on roads was intensified.  The development strategy for the electric transport market in Ukraine has been implemented.  The objectives of the strategy include a full cycle production of electric vehicles in the country and provision of opportunities to Ukrainians to purchase affordable cars in the future. 

Road and bridges infrastructure industry value grew by 15.4% in 2019 and was forecast to expand by 6.3% in 2020 before Covid-19 struck the market.  It is now expected the road and bridges infrastructure sector will contract by 1% in 2020 but will slightly outperform over the remainder of the forecast period, growing by an annual average of 2.7% to 2029.  Some upside for roads construction stems from foreign funding given the loan pledged by the EBRD for the Pan-European Corridor 1X and the World Bank USD 560 million loan for works on the Poltava to Kharkiv Road corridor and other similar projects, which will be backed by regional development funding.

The road network has also been noted by the government as the likely focus of investment.  The government committed extra funding to road improvement works in 2019.  Some USD 1.6 billion has been allocated to the State Agency of Automobile Roads of Ukraine in 2019 with USD 150 million set aside to commence work on the 1,746 km Go Highway Corridor.  Ukraine’s state-run road agency Ukravtodor also plans to build nine new road bypasses totaling 101.5 km in 2020.  The schemes include construction of the Northern orbital road of Zhytomyr, the North orbital road of Rivne and the Southwest orbital road of Poltava.  Planning is also under way to prepare feasibility studies and documentation for additional bypass roads. Although such developments would be highly positive, we recommend a wait-and-see approach until concrete plans are laid out for growth in the road and bridges subsector.

Another upside is the progress made in the development of the first concession road in the Ukraine.  The project to build and operate the 84.4 km Lviv-Krakovets road will connect the country with Poland’s existing highway and will run in parallel with the existing M10 highway.

Railway

Ukraine’s operational railway network is one of the largest in Europe, stretching over 20,952 km, of which 9,926 km (47 percent) were electrified.  The rail system, which moves 60 percent of the country’s total exports, is nearly completely outdated.  The Ministry of Infrastructure estimates that 97 percent of the rolling stock required modernization or replacement.  In 2018, GE Transportation, Ukrainian Railways, and UkrExIm Bank signed the final contract for the purchase of 30 new U.S.-made locomotives and officially announce the agreement to the public.  Under this ten-year agreement modernization and service of additional 150 locomotives and supply of another 195 locomotives are planned.  Also, certain work will be localized in Ukraine to further bolster job creation and economic development in the country.  The deregulation of the freight wagon tariff component for the transport of goods by Ukrainian Railways’ owned rail cars has been carried out, creating a more equitable playing field for all enterprises.  The draft law “On Railway Transport of Ukraine” introduces a new regulatory framework for the functioning of the industry (tariffs, rules for access to infrastructure, new market access procedures – licensing, security certification, locomotive driver access, etc.).

Railways will account for 22.8% of transport infrastructure value in Ukraine in 2020, versus the road subsector, which will account for a much larger share of 66.7%.  The share of railways in transport infrastructure industry value will decline marginally in coming years, to 22% in 2029 as the road subsector attracts more significant investment and records stronger growth.  Any potential expansion in the railway sub-sector will be heavily dependent on regional funding.

One potential source of upside risk is the growing involvement of China in the Ukrainian transport sector.  The country is already a major source of investment into the Ukrainian infrastructure sector and continues to commit to new projects.  For example, China Railway International Group (CRIG) and China Pacific Construction Group announced in May 2017 the companies have signed an agreement with Kyiv City State Administration to build the 16 km-long fourth subway line in the city in a USD 2 billion project. This was followed by news in late 2018 that CRIG has reportedly concluded a preliminary feasibility study for the project.  Chinese lenders will fund 85% of the project’s cost, which will reportedly begin after the completion of the Podilsko-Voskresensky Bridge and will last for 60 months.

Postal Services

The corporatization of the Ukrainian state postal company “Ukrposhta” was completed on March 1, 2017, along with the state registration of the public joint stock company “Ukrposhta.” The tariffs for general services have been revised and the range of services has been expanded.  The service of express delivery has been restarted, and new services “Ukrposhta Standard” and “Ukrposhta SmartBox” were launched.  The work with corporate clients in the e-commerce segment has been intensified, and the efficiency of the post office has increased.  “Ukrposhta” is actively implementing an investment program, for which in 2017 $26.7 million was allocated. 

On May 30, 2018, the Cabinet of Ministers of Ukraine approved the National Transport Strategy “Drive Ukraine 2030.”  The goal is to create a safe and efficient transport complex in Ukraine, which would be integrated into the world transport network, meeting people’s needs in transportation services, and improving conditions of doing business to ensure competitiveness and efficiency of the national economy.

Construction and Infrastructure Market

Ukraine’s construction market achieved robust double-digit growth in 2019, spurred on primarily by the non-residential building sector.  The short-term outlook has weakened, however, due to the impact of the Covid-19 pandemic and it is now expected an overall contraction of 1.5% in 2020, compared to a previous forecast of 6.3% growth.

National restrictions on travel, including the closure of borders, will impact upon the available labor pool.  Many construction sites have also suspended operations during the lockdown, currently in effect until July 31, 2020.

Ukraine’s economy is expected to fall into a recession in 2020 with GDP declining by 3.3%.  This will weaken public and private investment capacity.

The construction sector is tentatively expected to return to growth from 2021 onwards, rising by 3.5% according to the industry experts’ forecasts and then averaging annual growth of 1.6% through the remainder of the forecast to 2029.

Construction and Infrastructure Industry Forecast (Ukraine 2019-2029)

Indicator

2019e

2020f

2021

f

2022f

2023f

2024f

2025f

2026f

2027f

2028f

2029f

Construction industry value, USD billion

3.24

2.56

2.98

3.68

3.91

4.14

4.39

4.68

4.98

5.30

5.67

Construction industry value, real growth, % y-o-y

0.82

-0.1

0.12

0.06

0.05

0.04

0.04

0.06

0.05

0.06

0.07

Construction industry value, % of GDP

0.10

0.10

0.08

0.08

0.08

0.07

0.07

0.07

0.07

0.07

0.06

Infrastructure industry value, USD billion

1.30

1.00

1.54

1.64

1.73

1.84

1.98

2.13

2.29

2.45

2.62

Infrastructure industry value real growth, % y-o-y

0.56

-0.1

0.12

0.07

0.01

0.06

0.08

0.10

0.08

0.08

0.07

Fitch Solutions estimate/forecast.  Source: National sources, Fitch Solutions

Residential and Non-Residential Building

The residential building sector continues to face challenges.  Mortgage lending is almost non-existent in Ukraine, and rates are unaffordable for most potential buyers.  House prices have fallen sharply since the outbreak of conflict in the East, which has further undermined demand for new residential construction projects.  There is very little public investment in housing.  However, President Zelenskiy has called for land reforms and privatization of state-owned assets, which should help support future growth in the sector.  It should be noted that conflict in the East of the country has damaged or destroyed an estimated 17,000 properties, which will require substantial investment to address.

Leading Infrastructure Sub-Sectors with the best prospects:

  • Transport infrastructure: ports, harbors and waterways infrastructure, airports, roads, railway, postal and shipping services.
  • Construction machinery

Opportunities

  • Sea and river: concession of three seaports and state-owned stevedoring company “Olvia”, and privatization of Ukrainian Danube shipping company; reconstruction of Dnipro locks ($57 million)
  • Airports: renovation of five regional airports (up to $500 million) and modernization of the air navigation system ($136 million)
  • Roads: upgrade of five regional roads ($2.5 billion)
  • Railway: construction of European 1435 mm gauge rail track high speed connection with EU and Odessa-Kyiv-Lviv route ($8.5 billion), Electrification of the railway line Dolinska - Nikolaev – Kolosovka ($416 million), electrification of the railway section Berdychiv-Korosten-Berezhest ($162  million), and construction of Kyiv Boryspil train connection
  • Postal Services: construction of new mail sorting centers ($150 million), track fleet renovation ($100 million), and computerization of the network ($15 million)

Ukraine: Major Transport Infrastructure Projects by Value, USD million

 

Project Name

Value, USD million

Size

Companies

Time-frame End

Status

Velyka Kiltseva Ring Road

2000

200 km

- Sponsor: Ukravtodor, Ukraine
- Construction: China Road and Bridge Corporation, China
- Construction: Poly Changda Engineering Co. Ltd, China
- Feasibility: Bouygues S.A., France

N/A

At planning
stage

Kyiv Subway Line 4, Troyeshchyna - Zhulyany, Kyiv

2000

18 km

- Sponsor: Kyiv Regional State
Administration, Ukraine

- Construction: Kyivmetrobud, Ukraine

- Construction: China Pacific Construction Group (CPCG), China

- Construction: Railway International Group, China

2025

At planning
stage

Kiev Belt Road Project, Stolychne Motorway - Highway M-03 Kiev-Kharkiv-Dovzhansky

554

18 km

- Sponsor: Government of Ukraine

- Sponsor: International
Finance Corporation (IFC), U.S.

- Consultant/Project Management: Spea Engineering SpA, Italy

N/A

At planning
stage

New Zaporizhia Dnepr Bridge

471

0.66 km

- Sponsor: Ukravtodor, Ukraine

- Construction: Doka, Austria
- Construction: Mostobud, Ukraine

- Construction: Onur Construction LLC, Ukraine

2020

Contract
Awarded

M-03 Kiev-Kharkiv-Dovzhansky Highway
Reconstruction Project, Lubny - Poltava
Section

450

108 km

- Sponsor: Ukravtodor, Ukraine

- Financer: World Bank, United States

- Construction: Xinjiang Communications Construction
Group, China

- Construction: Todini Construction, Italy

- Consultant/Project Management: Egis International, France

- Consultant/Project Management: IRD Engineering S.r.l., Italy

2020

Under Construc-tion

 

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