Why the PSO Model Is Becoming Essential
Ukraine must adopt the Public Service Obligation (PSO) model to fund its railway infrastructure and passenger services through the national budget, mirroring practices across the European Union, according to Deputy Finance Minister Oleksandr Kava. For years, the country’s rail system has relied on cross-subsidization—using freight revenues to cover passenger losses—but this approach is no longer sustainable.
Kava explained,
“Beyond compensating for passenger transport, European practice also includes funding railway infrastructure from the state budget. In Europe, rail transport develops solely thanks to government support.”
How Ukraine Compares with Poland
Ukraine has only partially implemented the European model for rail support. Ukrzaliznytsia has long covered infrastructure costs through freight operations. Passenger fares in Ukraine are set by the government and remain below cost. In March 2026, the Cabinet of Ministers approved 16 billion UAH for state-ordered passenger services that year. Yet losses from passenger transport in 2026 are projected to hit 25 billion UAH.
For context, Poland allocates roughly 1.5 billion EUR annually just to maintain its rail network, with up to 4 billion EUR more for infrastructure development. Poland also spends up to 2 billion EUR on its PSO mechanism. These figures highlight the stark difference in funding approaches between Ukraine and other European nations.
Kava noted,
“This is exactly why Ukrzaliznytsia had to resort to cross-subsidization—using freight profits to cover passenger losses.”
The Ukrainian government has already begun moving toward the PSO model. However, the Federation of Transport Employers of Ukraine has raised concerns that raising freight tariffs could risk production cuts. Ukrzaliznytsia has proposed a 45% increase in freight rates, raising further questions about financial stability and the future of rail transport in the country.
Adopting the PSO model could be a pivotal reform for Ukraine’s railway funding, reducing reliance on cross-subsidization and ensuring stable infrastructure development. At the same time, business fears about potential freight tariff hikes—and their impact on the broader economy—must be addressed. These discussions are crucial for shaping an effective transport policy and achieving balanced growth across all rail sectors in Ukraine.
As Ukraine navigates its shift towards a European-style funding model for railways, the implications for freight and passenger tariffs remain a significant concern. The ongoing discussions around the potential increase in tariffs have sparked reactions from various business groups. For a deeper understanding of these tariff issues and their potential impact on the transport sector, explore how stakeholders are urging the government to reconsider the decision on Ukrzaliznytsia's pricing strategy for 2026.