Russia refuses to purchase Ukrainian locomotives

War takes the lives of both people and businesses

Photo: Ukrinform

Ukraine’s largest manufacturer of diesel locomotives LuhanskTeplovoz ran into difficult times a few months ago and today it appears that even harder times are on the horizon. Russian Railways (RZhD, the main customer for Ukrainian locomotives) transferred orders from the Ukrainian plant to Russian enterprises, according to Senior Vice President of Russian Railways Valentin Hapanovych. He said other types and series of locomotives would be delivered for the RZhD, whereas the kind of products manufactured in Luhansk «has not yet been replaced». Back in August, General Director of Russian Transmashholding (TMH, owner of LTZ) Andrei Andreyev said production in Luhansk was suspended for a month due to the destruction of the power plant supplying electricity to the manufacturer. He stressed that as long as the power plant is out of operation the company’s employees would be on vacation.

Profile

Luhanskteplovoz specializes in the production of mainline and shunting locomotives, electric locomotives, AC and DC electric trains, as well as diesel trains. Up until recently the LTZ was the most successful transport engineering enterprise in Ukraine and the only one that turned a profit in this industry.

In 2013, compared to 2012, the plant increased production volumes in monetary terms by 75% (to more than UAH 3 bn) and net profit — by 4.1 times to UAH 158.28 mn. Its customers were supplied 259 locomotive sections and 4 sections of electric locomotives.

For comparison, in 2012 the plant delivered 162 sections. All this was on the background of the decrease in the index of output of engineering products in Ukraine by 13% based on the results of 2013, says Senior Analyst at the Art Capital Investment Group Oleksiy Andriychenko. This year LuhanskTeplovoz planned to increase output in monetary terms by 1.5 times compared to 2013 (to UAH 4.55 bn) and produce 332 sections of locomotives and 28 electric locomotives. Recent reports show that this year the plant has delivered to customers only 118 locomotives.

Prospects

Nobody can predict the future of the LTZ. Some industry experts, who requested anonymity, say the TMH is going to move the equipment and technical documentation of the enterprise from Luhansk to Russia. This should allow for keeping proceeds on Russian territory and help Russian plants manufacturing similar products to get rid of unneeded competition. However, the TMH denies such information.

Director of the Department of External Relations of the Russian holding company Artyom Ledenev said the company never had such goals. «Under current conditions, it would be incorrect to make until the situation in the region comes back to normal. This year the TMH will work with our customers based on products from its plants in Russia and there are no plans to replace LTZ locomotives at this point,» said Ledenev.

Capital has been unable to learn about the company’s future plans even at Luhanskteplovoz itself. Yesterday, top managers of the LTZ did not take any phone calls and did not reply to Capital’s written requests. The plant’s press secretary Volodymyr Spector said the company was closed and that its prospects are unclear. Pavlo Tsesnek, who has served as General Director of the LTZ until July, said that in the time of his leadership the TMH set objectives to increase production and when the military conflict began everyone hoped that the situation was short-term and the company would quickly return to its standard modus operandi.

There were plans to place orders at the Ukrainian company for enterprises of Ukrzaliznytsya, said Infrastructure Minister Maksym Burbak. «We held more than one roundtable to give orders to our businesses, including Luhanskteplovoz. We agreed on the possibility of attracting funds under state guarantees, but there was a force majeure, the war,» said the minister. He says it is no longer possible to make plans today, since the condition of the infrastructure in the region is unknown. Noteworthy is that a few months ago the Ministry of Infrastructure was planning to attract UAH 12 bn under state guarantees for the production of railway cars and diesel and electric locomotives. In 2013 Ukrzaliznitsya agreed with the LTP on the production of 230 electric locomotives (series 2EL4) for approximately UAH 14 bn.

Potential

Based on the information that Vice President of the RZhD Anatoliy Meshcheryakov provided for Capital, today the LTZ is ready for full operation. «The plant is ready to resume production at any time, as soon as the power supply is renewed. A part of the plant’s employees are currently involved in maintenance of the plant’s equipment. We regret that Luhanskteplovoz is in such a position. By July the company was fulfilling its yearly program on schedule, we also had plans to load it with additional orders,» says manager of the RzhD.

Meshcheryakov also claims that nobody will move the plant to Russia, particularly since it is much easier to build a new plant from scratch than to transport old equipment. «This, however, is not an objective today. The RZhD is ready to use locomotives of similar models produced in Russia for some time. If the Ukrainian company remains idle for a long period, I believe it would not be a difficult task for Russian engineers to start producing locomotives similar to those manufactured in Ukraine or significantly increase production of those types of locomotives that are already produced in Russia to cover the demands of Russian Railways,» he said. Most likely, the TMH will try to renew the operation of the plant in Luhansk, as Ukrainian locomotives are 25% cheaper than their Russian counterparts, said Andriychenko.