The third episode of Season III of “Budget Talks” focuses on transport. The war has transformed Ukrainian logistics: closed airspace, Russian attacks on infrastructure, new export routes, and critical pressure on roads and railways. Which Ukrainian cities will receive European-gauge railways? Where will reconstruction funding come from? Why should the Road Fund be restored? Will Ukraine ever have high-speed highways?
In this new episode of the “Budget Talks” podcast, we address these and other pressing issues. Viktor Maziarchuk, Head of the Fiscal Policy Research Center, and Oleksandr Kava, Deputy Minister of Finance of Ukraine, discuss how transport infrastructure shapes the country’s economy and which reforms should come first.
VIKTOR
Good afternoon. I’m pleased to welcome Oleksandr Kava, Deputy Minister of Finance, to the “Budget Talks” podcast today. He is someone exceptionally professional in matters of public finance and infrastructure – someone I genuinely admire whenever we speak, especially when he talks about transport. Oleksandr, this has been your field for more than ten years now, right?
OLEKSANDR
Since 2011, I would say.
“Simply rebuilding what existed before is no longer enough”
VIKTOR
So, fifteen years already. Thank you for joining me and giving me the opportunity to talk about transport, financing, and money.
Our podcast is called “Budget Talks,” so let’s begin with the money. A year ago, when discussing Ukraine’s reconstruction needs, the figure of USD 520 billion was mentioned. You then said: “The amount is indeed enormous, but it includes not only rebuilding what has been destroyed, but also financing projects necessary to modernize Ukraine’s economy.” What has changed over the past year? And what funding sources are realistically available under current conditions?
OLEKSANDR
A great deal has changed because another year of war has passed. Unfortunately, Ukraine has suffered many additional losses. Accordingly, a new RDNA assessment (Rapid Damage and Needs Assessment prepared with international partners) was conducted. I think many people have heard about it. The estimated scale of losses increased. Of course, like any assessment, it is somewhat subjective. There is a methodology behind it, and it can certainly be debated. But over the past year, the estimated losses increased to USD 588 billion. That is an enormous figure – almost three times Ukraine’s GDP. People can argue over whether the methodology is right or wrong.
VIKTOR
Let’s not get into that, because I have another question.
OLEKSANDR
There is still a methodology behind it. As one acquaintance of mine used to say: all statistics lie, but if you compare them over time, they reveal trends. And the trend is clear – the fighting continues, and the losses keep growing.
VIKTOR
I like another phrase: if you don’t like it, do better.
OLEKSANDR
Exactly. There is a classic university statistics example: if your neighbor ate a chicken and you ate nothing, statistically you each ate half a chicken. So yes, every statistical indicator has a degree of convention.
VIKTOR
What could realistically become the source of financing for reconstruction on such an enormous scale? We are talking about hundreds of billions.
OLEKSANDR
Right now, during active hostilities, only the most critical elements of civilian infrastructure are being financed. That includes protective facilities and infrastructure necessary to maintain domestic connectivity and ensure exports and imports. Financing everything at once is simply impossible. Looking ahead, the sources will include assistance from our international partners, reparations that we hope to receive from the Russian Federation for the damage inflicted on Ukraine, and private investment.
Some state-owned assets that were destroyed do not necessarily need to be rebuilt using public funds – private capital may be more appropriate. That is why we are actively working with the European Commission and international financial institutions to identify optimal solutions, both for urgent current needs and for long-term reconstruction after the war ends. Because simply rebuilding what existed before – even if slightly improved – is not enough anymore. Unfortunately, the war has fundamentally changed the country. Many cities in western Ukraine have seen substantial population growth, which has dramatically increased pressure on civilian infrastructure. Today, western and central Ukraine effectively carry the country’s economic burden. We hear a lot about the military front line – and rightly so, because extraordinary work is being done there. But there is also an economic front. It is important to remember that all security and defense expenditures from the state budget are financed through taxes and fees collected inside Ukraine. That is why the economic front matters just as much.
VIKTOR
You have served as Deputy Finance Minister for more than five years and oversee transport-related issues. Since the start of the war, Ukraine’s airspace has been closed. Roads and railways have come under enormous strain. We had severe disruptions at sea, though maritime exports now seem to function again. What is happening with transport financing, especially considering that the Road Fund no longer operates in its previous form?
OLEKSANDR
You forgot river transport.
VIKTOR
River transport too, yes.
OLEKSANDR
Unfortunately, after the destruction of the Kakhovka Hydroelectric Power Plant, navigation along the Dnipro River became impossible.
VIKTOR
Why exactly?
OLEKSANDR
Because water levels downstream from Zaporizhzhia dropped dramatically. Since the left bank of the Dnipro in that area remains occupied, even conducting depth and riverbed studies is currently impossible. Navigation may eventually return after the war, but that would take years and would depend on the future of the Kakhovka hydro complex – whether it will be rebuilt or not. That is ultimately a political decision. Even if reconstruction were approved today, preparing technical documentation would still be impossible because the area remains extremely dangerous. As I mentioned, the left bank and the locks that would need to be examined are occupied territory.
Why finance roads during wartime?
VIKTOR
So, what about financing roads and transport infrastructure? People constantly ask: “Why are we funding roads during a war? Aren’t there more important priorities?” Where is the truth?
OLEKSANDR
The truth is that there is an economic front. Millions of people continue living and working in the non-occupied parts of Ukraine. They pay taxes every day. In order for them to move normally within the country and for the economy to function, roads must remain operational. We also need to improve connectivity with European countries. Without decent roads, working with Europe becomes extremely difficult, and efficient cross-border movement of goods is practically impossible. Let me give a very clear example. As you know, I once worked in the Reform Office at the State Agency of Automobile Roads of Ukraine (hereinafter Ukravtodor). One of the major problems at the time was Highway H-02 between Ternopil and Lviv – that is, our native Ternopil, your almost native Lviv.
The road was in such terrible condition that traveling the 110 kilometers by car or minibus took three and a half to four hours. We initiated its reconstruction. After the repairs, travel time dropped to about one and a half hours while observing speed limits. If Ukraine had a European-style motorway like those in Poland, the trip would take just 45–50 minutes. And this is not only about citizens’ time – which, as we know, is the only non-renewable resource. It is also about business efficiency. If you transport goods or passengers, faster travel dramatically increases productivity.
VIKTOR
Before recording, we discussed how Poland developed its high-speed road network after joining the European Union. I was genuinely surprised by how radically intercity connectivity changed there – improving trade, mobility, and economic activity. Could Ukraine eventually access EU structural funds or financing from international financial institutions to build similar projects that would improve logistics and business efficiency?
OLEKSANDR
I am doing everything I can to make that possible. But first, we must do our homework properly. Poland is indeed a fantastic example. Over twenty years, it built more than 5 500 kilometers of expressways. And I want to address a common myth – the idea that private investors will come and build everything. In reality, only around 400 kilometers of Poland’s 5 500-kilometer expressway network were built under concession agreements using private financing.
VIKTOR
Less than 10%.
OLEKSANDR
Exactly. And half of those concession roads were eventually bought back by the state because the concessionaires could not recover their investments. Only a few projects became genuinely successful – specifically those with exceptionally high traffic volumes. One example is the A4 motorway, familiar to many Ukrainians because it starts at the Ukrainian-Polish border and crosses Southern Poland, Subcarpathian Voivodeship, Lesser Poland Voivodeship, Silesia to the Polish-German border. 3 670 km concession section – 80 km between Katowice agglomeration and Krakow agglomeration. One agglomeration has more than 1 million inhabitants, another – has about 1 million inhabitants. Accordingly, the intensity of traffic there is such that it allows you to pay off this investment. Most other projects were not commercially viable because traffic levels never reached the minimum threshold required for profitability. And given that Ukraine’s population density is significantly lower than Poland’s, large-scale concession highways are not a realistic solution for us. Similar projects have been discussed for decades, but investors never saw a viable path to recovering their investments.
VIKTOR
I remember discussions about concession highways back in 2010–2011, though I assume the idea existed even earlier.
OLEKSANDR
The first such discussions started in the second half of the 1990s. At the same time Poland – still outside the EU then – was preparing to build the A4 motorway from the Ukrainian border at Krakivets-Korczowa to Germany. Ukraine also began discussing a first-category concession motorway from Lviv to Krakivets: four lanes, 130 km/h speed limits, controlled access. I’m sure you’ve heard about that project many times. Technical documentation was prepared. The project is now nearly thirty years old – and construction has still not started. When I worked at the Road Agency, we separated out the northern bypass of Lviv as an independent project. Financing was secured from the European Investment Bank and the European Bank for Reconstruction and Development. Construction was supposed to begin in 2022, but because of the war, the funds were redirected elsewhere.
Now the Agency for Restoration is again working to attract external financing for the bypass. This project matters not only for Lviv but for many Ukrainian citizens and businesses traveling toward Poland because it would save roughly an hour on every trip. If you are currently driving from Rivne, Ternopil, or Ivano-Frankivsk toward border crossings like Krakovets, Rava-Ruska, or Shehyni, you inevitably lose additional time navigating through or around Lviv. The northern bypass would solve that. At the same time, the Agency for Restoration is revising the design documentation for the Lviv–Krakivets highway itself and seeking financing through external loans. International partners are very interested in this project. I hope construction on at least some sections could begin next year.
From 9 hours to 3,5 hours: why high-speed roads matter to Ukraine
VIKTOR
So, there is hope that Ukraine could eventually have proper European-quality highways connecting cities quickly and efficiently?
OLEKSANDR
I certainly hope so. Of course, we would like to achieve this on a timeline similar to Poland’s. But if we look at other Central and Eastern European countries – Slovakia, the Czech Republic, Hungary, the Baltic states, Romania, Bulgaria – none matched Poland’s pace. Most built expressways, though Latvia and Estonia still lack full motorway networks. But nowhere else did development occur at the same scale and speed. Poland initially prioritized links with Germany and then moved on to connecting all major domestic cities. Today, nearly every city with more than 50,000 residents is connected by a bypass expressway rather than traffic running through the city itself. The resulting mobility is extraordinary.
Take Rzeszów and Lublin – cities familiar to many Ukrainians. They are 160 kilometers apart. When I was younger, that drive took about 4 hours because of villages and speed restrictions along the route. After the S19 expressway, part of the Via Carpatia corridor, was built, the same trip now takes about 70 minutes while fully respecting speed limits. The Polish government is currently extending Via Carpatia toward Košice in Slovakia. I recently traveled that route to an intergovernmental meeting. Right now, the trip from Rzeszów to Košice takes around 4 hours. Once construction is completed on both the Polish and Slovak sides, it will take only one hour. That is a fourfold acceleration. And these are safe roads – no left turns across traffic, no at-grade intersections, no pedestrian crossings. Travel becomes both faster and safer.
VIKTOR
I really hope that everyone has such deep knowledge and understanding of what needs to be done in the field of highways and transport in general.
OLEKSANDR
Let me give another example. Ukraine has a regional capital that is effectively disconnected from Kyiv in terms of both road and rail infrastructure: Chernivtsi.
VIKTOR
Nine hours by car.
OLEKSANDR
Exactly. With a proper expressway via Vinnytsia and Khmelnytskyi, the trip could take three and a half hours instead. Just imagine how much time Ukrainians collectively waste on inefficient travel.
How Ukraine launched its first high-speed train
VIKTOR
Nine hours on the road is exhausting – especially with small children. The difference is enormous. And what about the railway road? I constantly use Intercity (Ukraine’s flagship high-speed train service) Ternopil-Kyiv, Kyiv-Ternopil, thanks to you in particular. It’s a very cool thing that functions. And I understand, for some reason they decided to make a separate Intercity Kyiv-Ternopil, to pick up passengers who were going to Kyiv-Lviv. How did the idea come about to launch such an Intercity, how difficult was it to implement it, and what should we expect in the railway field?
OLEKSANDR
There are many questions. Let’s step by step. As for Intercity, next year Ukraine will have the 25th anniversary of the launch of the first high-speed train. It was the “Capital Express”, launched on the initiative of Heorhii Kirpa in 2002 on Independence Day on the Kyiv-Poltava-Kharkiv route. The maximum speed of the train was then 140 km/h. For the sake of this project, the electrification of the section from Hrebinka to Poltava was completed and work on the electrification of the Poltava-Kharkiv section began. This train covered 491 km between Kyiv and Kharkiv in 5 hours and 55 minutes. I remember very clearly, because the railway workers then fought for every minute. Even when the traffic schedule was initially placed at the Kyiv-Pasazhyrskyi railway station, 5 hours and 50 minutes were indicated there, but the day before the launch it was 5 hours and 55 minutes. Nevertheless, the railway workers laid an additional 5 minutes of reserve. Then there was the Kyiv-Dnipro train under the brand “Capital Express”.
I will add about “Kyiv-Kharkiv”, if before that the trip between Kyiv and Kharkiv took 10-11 hours, then the capital express was allowed to pass between the two largest cities of Ukraine in 5 hours and 55 minutes. And it was, in fact, a sensation in the transportation market, because passengers got the opportunity to use a comfortable daytime train, leaving Kharkiv in the morning, come to Kyiv, do their business in 4-5 hours and return to Kharkiv at 11:30 p.m. A few months later, a mirror train was launched, which left Kyiv in the morning and returned from Kharkiv in the evening, giving people the opportunity to make day trips in this direction as well. Therefore, this process began in Ukraine in 2002.
The second major stage was the preparation for Euro-2012, when Ukrzaliznytsia (Ukrainian Railways) was tasked with increasing the maximum speed from 140 km/h to 160 km/h per hour. For this, the famous Korean Hyundai Rotem HRCS2 trains and two Ukrainian high-speed Tarpan trains were purchased, which competed with each other and still carry passengers in comfort. Directions were chosen for this purpose. One of them was Kyiv-Kharkiv, where the travel time has already been reduced from 5 hours 55 minutes to 4 hours 20 minutes.
VIKTOR
An hour and a half faster.
OLEKSANDR
Exactly. Average speed matters more to passengers than maximum speed. If you briefly travel at 200 km/h but spend the rest of the trip moving at 60–80 km/h, the overall experience is less effective than maintaining a consistently high average speed. At the same time, work began on improving the Kyiv–Lviv corridor. Two options were considered. One option was the so-called northern route: Kyiv-Korosten-Shepetivka-Zdolbuniv-Krasne-Lviv. This route is 572 km long. And there was an alternative southern route: Kyiv-Vinnytsia-Zhmerinka-Khmelnytskyi-Ternopil-Krasne-Lviv. The northern route via Korosten and Shepetivka was shorter, had a better track profile, and fewer curves, because in reality the main issue affecting speed is curves – that is, turns. The turning radius is critically important for speed. On high-speed railways, for example, the minimum permitted turning radius is 5 000 m or 7 000 m. Meanwhile, on our route to Ternopil, there are sections where the curves are 500 m or 700 m. That is significantly smaller.
The route via Vinnytsia, Khmelnytskyi, and Ternopil was more attractive from a commercial standpoint because, essentially, these are three regional centers with a combined population of one million people including their suburbs. Meanwhile, the northern route passes through small stations; the train does not even enter the regional center of Rivne. However, since this route was shorter, the decision was made to reconstruct it specifically. Let me remind you: it is 572 km, while the southern route via Ternopil is 628 km. So those less than 60 km were decisive because the northern route was simply cheaper. It was then that the Kyiv–Lviv express was launched with a travel time of 4 hours and 40 minutes, while the southern route remained unused. Later, however, this initiative emerged to finally provide high-speed connections to Vinnytsia, Khmelnytskyi, and Ternopil. The railway officials were very skeptical. Unfortunately, that sometimes happens. They said there would not be enough passenger traffic there, but in the very first days of the express service operating…
VIKTOR
…the trains were packed.
OLEKSANDR
Exactly.
VIKTOR
I don’t know about the first days. But the last time I traveled to see my mother for Easter this year, it was completely packed. You can’t buy tickets – there simply aren’t any. You have to purchase them very far in advance.
OLEKSANDR
Once this express service became successful, on certain days it was extended to Lviv, despite the fact that it took longer than the route via Shepetivka and Zdolbuniv. Nevertheless, it both gained and continues to enjoy strong passenger demand. There is now also an Intercity service to Przemyśl, so there are Kyiv–Lviv–Przemyśl routes operating both via the northern corridor, which is slightly faster, and via the southern corridor through Ternopil.
VIKTOR
So both options exist?
OLEKSANDR
Yes.
VIKTOR
Wow!
OLEKSANDR
When you buy a ticket – if you enter Kyiv–Lviv – you need to pay attention to the travel time. If you are searching for a Kyiv–Ternopil or Kyiv–Khmelnytskyi ticket, then you will only get the southern route.
VIKTOR
Interesting. I would never have thought of that.
Why Passenger Rail Transport in Ukraine Remains Unprofitable
OLEKSANDR
We have mentioned our native Ternopil so many times already. For example, the Intercity train covers the 151 km from Ternopil to Lviv in one and a half hours, while all the other regular trains take more than two hours. Still, passenger transportation is a loss-making activity for the railway system. That is because ticket tariffs in Ukraine are set by the government, and they are significantly lower than the actual cost of transportation. Traditionally, this difference was never compensated. Unlike European railways, Ukrzaliznytsia was forced to use so-called cross-subsidization – meaning that profits earned from freight transportation were used to cover losses from passenger transportation. That is not how it works in European countries. In Europe, such transportation is compensated through central and local budgets. This is the so-called Public Service Obligation, meaning the state fulfills its obligations regarding passenger transportation. In Ukraine, in 2026, we conducted our first experiment with compensating long-distance passenger transportation losses and allocated UAH 16 billion for this purpose from the reserve fund.
VIKTOR
Am I correct in understanding that this is European practice?
OLEKSANDR
Yes, this is European practice, though not in its entirety, because in addition to compensating passenger transportation, European practice also includes financing railway infrastructure from the budget. In Ukraine, essentially until 2020, Ukrzaliznytsia received absolutely no support from the government. Moreover, it financed many facilities unrelated to its core activity, implemented social projects, and also paid dividends and taxes. In Europe, railway transport develops exclusively thanks to the state. There has been a lot of speculation on this topic, with people saying: “Look how great Deutsche Bahn is – let’s invite Deutsche Bahn to Ukraine and we will have the same trains as Germany.” No, that will not happen. Because great trains in Germany are, to some extent, the achievement of Deutsche Bahn, but primarily they are the achievement of the German government and the governments of Germany’s federal states, which allocate funding for them. Because infrastructure in Europe is entirely the responsibility of public authorities, not the responsibility of the railway company.
For example, in Poland, around EUR 1.5 billion is allocated annually for the maintenance of the railway network – meaning the primary types of repairs on existing railway lines. If we convert that into hryvnias, it amounts to UAH 75 billion. And for the development of the railway network – meaning reconstruction, capital repairs, and electrification of railway sections – an additional PLN 8 to 20 billion is allocated, which is essentially up to EUR 4 billion.
So, if we add this together, we get more than UAH 300 billion dedicated exclusively to railway infrastructure. In addition, around EUR 2 billion is allocated in Poland for PSO – compensation for passenger transportation losses. In Germany, the figures are even higher. That is precisely why they have such excellent trains. And in Ukraine, let me remind you, until 2020 Ukrzaliznytsia received no support from the state whatsoever. In 2020, for the first time, the budget included funding for the purchase of 100 new passenger railcars and for infrastructure projects related to passenger transportation. In particular, funding was allocated for the reconstruction and electrification of the railway line to Vasylkiv, a satellite city of Kyiv with a population of around 50,000 people. This made it possible to launch suburban electric trains from Kyiv Central Station to Vasylkiv with a travel time of 55 minutes to one hour.
The second project that was implemented was the electrification of the railway line from the Taras Shevchenko station in the city of Smila to Cherkasy, which made it possible to launch Intercity service between Kyiv and Cherkasy with a travel time of around three hours. Previously, residents of Cherkasy – and before the war the city had a population of around 300,000 people – could travel to the capital only by private car or bus.
Will Ukraine Have European-Gauge Railways?
VIKTOR
So, the state has to finance infrastructure projects like these, including, presumably, projects such as European-gauge railways. People have been talking about building them for the past five to seven years, but the issue became especially urgent after the start of the full-scale invasion because it is important for us to have direct connections between Ukraine and European countries. Last autumn, you said that, under an optimistic scenario, construction of the Chernivtsi–Suceava European-gauge line would begin in 2026, and not long ago you opened another European-gauge route. Tell us in more detail what is happening in this area. Will Ukraine have European-gauge railways?
OLEKSANDR
Indeed, we have different track gauges, but this is not only Ukraine’s problem. Even within the European Union there is no single standard. Yes, in the overwhelming majority of EU countries the standard gauge is 1 435 mm, but besides Ukraine, the Baltic states also use the same gauge as we do. A similar situation exists in Finland, where the gauge standard from the Russian Empire period has also remained. In Spain and Portugal there is the so-called Iberian gauge, 1 668 mm. That is even wider than the track gauge used in Ukraine. So, they also face issues regarding how to properly connect rail systems between countries. But this is a very broad and extensive topic.
What is being done in Ukraine? There is indeed a problem with international connectivity for both passenger and freight transportation because it creates additional time losses. In order to speed up connections, at least with regional centers located near the border, a project was implemented to extend European-gauge tracks to Uzhhorod. Uzhhorod became the first regional capital connected by European-gauge railway. At the border, trains spend only around half an hour because there is no need for bogie replacement. And now trains run daily from Uzhhorod to Vienna, Budapest, and Bratislava. Work on electrifying this section is currently nearing completion, and I hope that in the near future the number of European-gauge trains from Uzhhorod will increase. Moreover, this project was partially financed through a European Union grant. It was funded under the Connecting Europe Facility program aimed at infrastructure development. We gained the opportunity to participate in this program and finance projects through it. Unfortunately, there are no projects as large as those in EU countries yet, but these are still the first tangible results, and citizens can already benefit from them. In addition to Uzhhorod, I believe European-gauge railways will appear in Lviv within the next few years. The same should happen in Chernivtsi. In a more distant future, possibly in Lutsk as well. Essentially, all regional capitals near the border could eventually receive them.
And the long-term perspective is extending European-gauge railways to the majority of Ukrainian cities, including Kyiv. But that is a very distant prospect. If we look, for example, at the Rail Baltica project currently under construction – for those unfamiliar, this is a European-gauge railway running from the Polish-Lithuanian border through Kaunas and Riga to Tallinn, with a total length of 870 km – originally it was planned to launch in 2015, then in 2025, and now they are saying sometime around 2032.
VIKTOR
A never-ending construction project. A European never-ending construction project.
OLEKSANDR
Yes, and the cost of the project has already risen from the original EUR 6 billion to more than EUR 24 billion. So, problems with projects of this scale definitely exist. And when people talk about extending these projects to Kyiv or Kharkiv, I have a certain degree of skepticism. I believe we will be able to implement this much sooner for regional capitals located closest to the border. And considering the importance of travel time for daytime rail connections, this will be most critical for those cities. For example, if you travel from Chernivtsi to Suceava by European-gauge train and customs and border control can be carried out while the train is moving, the travel time between these cities would be around one hour. If the train has to undergo bogie replacement and border procedures, the journey would take six to seven hours. A similar situation exists between Lviv and Rzeszów.
In principle, broad-gauge railways have both disadvantages and advantages. Therefore, there is no sense in abandoning our gauge, nor in re-gauging everything. Moreover, the difference is not only in the track gauge itself – there is also a difference in rolling stock dimensions. Our passenger and freight railcars are wider and larger, and we have higher axle loads. For example, a freight train in Ukraine can weigh 6,000 to 7,000 tons, while in all European countries the maximum freight train weight is just over 2,000 tons. That is a threefold difference. And solving this problem is practically impossible because even the coupling device used in the European Union – the so-called screw coupling dating back to the nineteenth century – simply cannot withstand heavier weights. Meanwhile, our system, which began to be used after the Second World War, allows freight trains weighing 10,000 or even 12,000 tons. In principle, there are no technological issues with this. So, there is definitely no sense in re-gauging all railway tracks because our freight transportation system is more efficient. But integration into the European system is absolutely necessary, and it should be done through border cities.
VIKTOR
And logistics hubs should then be built there.
OLEKSANDR
Exactly. A great deal of freight can be transshipped quite quickly. In addition, there is now a global trend toward containerization of cargo. This actually makes the process very simple. At a large logistics terminal, transferring a freight shipment from broad gauge to European-gauge platforms takes only a few hours.
How the Beskyd Tunnel Unlocked the Route to Europe
VIKTOR
When we talk about transportation, including its financing, we should not forget about the launch of the Beskyd Tunnel. Let me remind viewers and listeners that this project started in 2007 and was completed 11 years later, in 2018. What made it special? Why was there a need to build another tunnel? There already was a tunnel, it functioned, trains ran through it, freight moved through it – and then loans were taken out and another tunnel was built over the course of 11 years. Why?
OLEKSANDR
Essentially, it was the only bottleneck on the major corridor between Kyiv and the countries of Southern Europe. The railway from Kyiv to Budapest, Vienna, and onward to other European countries was entirely double-tracked, except for one single-track section – the old Beskyd Tunnel, built in the 1880s. Since the 1980s, it had been in an emergency condition because during the electrification of the railway line between Mukachevo and Lavochne stations – this was the first electrified section on the Lviv Railway, implemented in the 1950s – the structural integrity of the tunnel had been compromised in order to install the overhead contact system. The surrounding rock began compressing the tunnel. Closing the tunnel for major repairs was impossible because the main Lviv–Stryi–Mukachevo corridor would then have been unusable for three to four years. Ukrzaliznytsia could not allow that because, essentially, the only remaining railway connection would have been via the so-called Siankivskyi Pass route between Lviv and Uzhhorod. So, in order to preserve this connection – which remains the main corridor linking Zakarpattia with the rest of Ukraine to this day – and to resolve the issue of limited capacity, a decision was made to build a new Beskyd Tunnel, while the old tunnel was converted into an evacuation tunnel. After a well-known tunnel accident in Europe, tunnel construction standards were changed, making evacuation tunnels mandatory. If an incident occurs in one tunnel, people must be able to move through connecting corridors into a neighboring tunnel and safely evacuate to the surface. So, the new tunnel was built using financing from the European Bank for Reconstruction and Development and the European Investment Bank. The total amounted to more than EUR 120 million. VAT was traditionally paid from the state budget. The tunnel is operational. There were difficulties because, unfortunately, Ukrzaliznytsia took a very long time to select a contractor for the project, which delayed construction by six to seven years. A new contractor was selected in 2013. Construction began at the end of 2013, and excavation was carried out using the so-called New Austrian Tunneling Method – meaning explosives were drilled into the rock and the excavation proceeded gradually section by section.
During certain political developments in Ukraine, some officials wanted to freeze construction of the tunnel, but they failed because the tunnel’s structure made it easier to complete than to conserve, despite some politicians insisting otherwise. Over the years, millions of citizens and hundreds of millions of tons of cargo have passed through the new Beskyd Tunnel. It provided us with a stable connection to the Zakarpattia region and reliable freight transportation for Ukrainian producers exporting goods to foreign markets. Before the start of hostilities, the overwhelming majority of railway export and transit transportation moved toward Southern Europe. Even cargo transiting Ukraine from the East was mainly heading toward Southwestern Europe, while transit to Western Europe moved further north.
VIKTOR
Did anything change after the start of the full-scale invasion?
OLEKSANDR
Freight transportation volumes declined significantly, and transit traffic fell almost to zero.
VIKTOR
Transit is clear, but I mean the direction of freight flows.
OLEKSANDR
Ukrzaliznytsia is currently operating under extremely difficult conditions. Unfortunately, several months ago the enemy began actively striking railway infrastructure – junction stations and traction substations that provide electricity to the railway network. As a result, railway workers are effectively forced to respond in real time to maintain stable railway operations and reroute train traffic. If a traction substation is damaged and there is no possibility to supply electricity for electric trains and locomotives, electric locomotives are quickly replaced with backup diesel locomotives. Yes, it is inefficient. Yes, it creates additional costs. But it ensures both passenger transportation and the logistics of Ukrainian freight.
VIKTOR
So, if we stop somewhere in the middle of a field or near some town, it is not because railway workers want that, but because we have a terrorist neighbor destroying not only railway infrastructure, but our lives as well.
OLEKSANDR
Yes. This is done in order to ensure passenger safety.
VIKTOR
Let’s move on to the Road Fund.
OLEKSANDR
Let’s do that.
Why Ukraine Temporarily Suspended the Road Fundч
VIKTOR
Where did it go? Let me remind viewers that the Road Fund consisted of revenues accumulated from fuel excise taxes, and those funds were spent on road construction according to a specific allocation formula. It was a solid European mechanism that functioned in Ukraine for quite a long time. After the start of the full-scale war, the Road Fund effectively disappeared, and road financing has been coming from the reserve fund.
OLEKSANDR
…and from the general fund.
VIKTOR
And from the general fund, yes. Please tell us what we should expect this year regarding possible road financing. And considering that active work on the budget declaration is already underway, what should we expect for the coming years – 2027, 2028, 2029 – regarding the Road Fund? How will roads and infrastructure be financed? We understand that this is an important element of economic development, maintaining the stability of the state, and consequently ensuring financial resources for the army.
OLEKSANDR
The Road Fund in Ukraine started operating in 2018. This was based on European experience and the experience of other developed countries, where motorists, when purchasing fuel, vehicles, or spare parts, pay an excise tax that is earmarked specifically for the maintenance and development of roads. This is what consultants like to call “best practice.” In Ukraine, this system started functioning in 2017. First at 50%, then 75%, and later 100%. At that time, the Ministry of Finance and the government were not ready to immediately allocate such a large share of funds into the special fund.
VIKTOR
Let’s put it differently. Members of parliament were not ready because in that case they would lose manual control over the allocation of road financing.
OLEKSANDR
Yes, I agree, but the prerequisite for this was the terrible condition of the roads. I know there was a lot of speculation about corruption in road construction, that a lot of money was being stolen. I do not want to justify anyone – that is a matter for law enforcement agencies. But if we compare the amount of funding allocated to the road sector in Ukraine with neighboring countries, we were spending pennies on roads. And this led to many roads being in unacceptable condition. Travel times were several times longer than they should have been in normal developed countries. This became a major factor because more funding had to be allocated, and accordingly the Road Fund was created. In 2024 – by then the third year of the war – a political decision was made to direct all revenues flowing into the Road Fund toward the security and defense sector. This practice continued in 2025 and also in the current year, 2026. So, the Road Fund was not abolished – it was suspended.
Now, after the winter of 2025–2026, it became obvious that the funds allocated for road maintenance are insufficient. Last year there was additional financing from the reserve fund, and the same happened this year. Therefore, restoring the Road Fund is a simpler and more stable instrument. I think it still will not return to 100%, because that is a very large amount and we cannot divert it entirely from other expenditures. But 25–30% is a realistic figure that would allow road agencies to plan their activities and maintain both frontline roads and roads in other regions. Frontline logistics suffer heavily from constant strikes. We have repeatedly allocated reserve fund money for road repairs specifically in frontline regions.
I hope that starting next year, a decision to restore the Road Fund will be adopted. This issue is currently being actively discussed. Because without quality roads, we will not be able to ensure the normal functioning of the country. People can speculate endlessly about the efficiency of spending, but when the Road Fund was operating, every citizen of Ukraine personally felt that roads in the country became significantly better. Of course, bad roads can be found even in Switzerland, the United States, and Poland. But the fact that it became possible to travel normally by car between the overwhelming majority of Ukrainian cities is indisputable. As for the allocation formula, previously 60% of Road Fund revenues were directed toward national roads. This covers around 50,000 km – the main international, national, regional, and territorial highways. Funds were allocated based on the priority of each transport corridor.
Another 35% was directed toward local roads – regional and rural roads connecting villages with each other and with district centers. These funds were distributed as subventions to regional budgets proportionally to the length of local roads in each region. And 5% went to the Road Safety Fund, which financed the construction of roundabouts that significantly improve safety at intersections. Because if accidents occur there, they usually result in only minor injuries, since vehicles pass through roundabouts at speeds of 30-40 km/h, whereas at conventional X-shaped or T-shaped intersections collision speeds can exceed 200 km/h. The fund also financed safe pedestrian crossings – lighting for crossings, road markings, safety islands, and other traffic safety measures.
What is annoying about the Ukrainian infrastructure
VIKTOR
I remember a story from 2015 or 2016, when we met at the railway station in Kyiv. At the time, you were serving as Deputy Head of the City of Kyiv, responsible for transport…
OLEKSANDR
I was an adviser.
VIKTOR
Ah, sorry, an adviser.
OLEKSANDR
I never actually became a deputy. I was one of those four candidates whose appointments were “sitting in the Cabinet of Ministers” under Vitalii Volodymyrovych…
VIKTOR
At the time, there was discussion about launching long bus routes in Kyiv. And you said: “Let’s walk the route. I need to understand where the stop should be located so it is more convenient for people.” That stayed with me because such small details affect people’s comfort. And people who truly understand the system deeply think about those details. So, this brings me to my question. As a citizen of Ukraine who knows a great deal about transport, what frustrates you most about Ukrainian infrastructure?
OLEKSANDR
What frustrates me is that our citizens do not have the opportunity to use high-quality transport and enjoy the level of mobility we see in European countries. In principle, the situation can be changed. And it must be changed.
VIKTOR
Five recommendations for how to change the situation.
OLEKSANDR
There will be no quick solutions because everything related to infrastructure generally requires funding. But it is important that these funds are used as efficiently as possible and that the projects being implemented meet the highest international standards. Because I remember my experience at Ukravtodor, when many managers operated from a very simple position: there is a project – let’s build it. But little attention was paid to what kind of project it actually was, or whether it met modern standards. Unfortunately, many Ukrainian politicians and high-level officials wanted to be strategists while failing to understand that every strategy is built on tactics. Any leader must understand their field quite deeply in order to demand proper implementation of projects from their subordinates. So, there must be maximum commitment from those on the state side who commission transport-related projects. And these projects must be implemented according to the most modern standards.
VIKTOR
Oleksandr, I want to thank you. I personally learned a lot of interesting things. I hope the colleagues who listen to or watch us will as well. Thanks to Ukraine’s defenders for giving us the opportunity to breathe in a free country. And of course, thanks to our partner, the International Renaissance Foundation, which makes it possible to record this podcast and implement our projects.
OLEKSANDR
Thank you very much, Viktor.
And thanks to all our viewers.