Rethinking transport privileges in Ukraine in light of international experience

This brief analyzes transport privilege reforms in several CEE and CIS countries with the purpose of developing recommendations for Ukraine. Several factors justify the choice of transportation services for our research. First, privileges in the transportation sphere are among the most cost-absorbing and cover about one third of the population. According to the Ministry of Finance 2008 estimates, funds needed for transportation privileges constituted approx. UAH 1,069.5 million. Second, like low user fees, numerous privileges discourage sector development (for they create no incentives for productivity improvements and losses are covered by the state budget). rnAs a starting point, we examined the current system of transport privileges in Ukraine using legislative and analytical documents as well as various statistical sources. This allowed us to see the main characteristics (eligible categories, types of privileges, financing, and distribution) and to identify the major drawbacks of the current system (such as the large scope, high total cost, problems of exact usage assessment, financing, etc). rnNext, we examined international experiences of reform. We looked at four countries in the CEE and CIS (Lithuania, Moldova, Russia, and Kyrgyzstan) region. Our investigation showed that in all four countries, transport privileges were replaced with travel compensation and/or their scope was significantly reduced. The decentralization of privileges took place in all countries but Kyrgyzstan. rnThe analysis of international experiences with reform showed that the Ukrainian system of privileges needs modifications such as decreasing the number of privileged categories (especially occupational), as well as replacing free travel (mainly in intra-city transport) with discounted travel with differentiated system of discounts (depending on the privileged category). Besides, international experiences should be taken into account when developing a system of proper accounting for privileges consumed (to make the system of financing more transparent). The examples of decentralizing privileges in the countries studied should also be considered for the corresponding system reforming in Ukraine. rnAs a result of our analysis, we developed potential reform alternatives for Ukraine. We elaborated two scenarios; one focuses on tightening and modifying the current system and the other suggests a gradual transformation to targeted travel compensations.