Luhanskteplovoz has no plans to scale down the output of locomotives in 2015

Luhanskteplovoz plans to work for Russia, though at the same time hopes for orders from Ukraine

Photo: PHL

Ukraine’s largest manufacturer of diesel locomotives Luhanskteplovoz is located on the territory controlled by insurgents, but the company is still optimistic about its plans. According to the program for 2015, Luhanskteplovoz not only wants to maintain its output of locomotives compared with 2013–2014, but also expects to increase production. The company owned by Russian Transmashholding will deliver its products to one government customer – the Russian Railways (RZhD). Production plans could be disrupted by the military operations and interruptions in supply of electricity.

War is not a holdback

This year Luhanskteplovoz planned to produce 332 sections of locomotives, but its plans were interrupted by the military operations in the east of the country: in August the power supply of the enterprise was shut off forcing the company to a production standstill for two months. Due to this it had to scale down its production plans in 2014 to 282 sections of locomotives.

Nevertheless, the company plans an increase in production to 300 locomotive sections for delivery to the RZhD. The value of the order for the Russian railways could reach US $350–400 mn, according to estimates of the investment group Art Capital. The press service of Luhanskteplovoz reported on its official website that it is still counting on Ukrainian orders. The company’s management is hoping on the implementation of the Cabinet’s project to raise UAH 12 bn on government guarantees for the purchase of locomotives.

Industry experts say Luhanskteplovoz is a rare exception among a number of enterprises in the ATO zone, most of which were shut down or are running at minimum capacities due to the military operations. Senior analyst at the Art Capital Investment Group Oleksiy Andriychenko does not rule out that the loyalty of the authorities of the unrecognized LPR to Luhanskteplovoz is somehow connected to Russian registration of the customer and the principal owner of the enterprise. Luganskteplovoz said that it was able to fully retain its staff and continue fulfillment of orders for the RZhD.

No obstacles

On September 1, Senior Vice President of the RZhD Valentin Gapanovich said the company had refocused its orders from Luhanskteplovoz to Russian enterprises due to the disruptions in energy supply. But last week, Chairman of the Supervisory Board of Luhanskteplovoz Viktor Bykadorov said the Ukrainian manufacturer of locomotives renewed normal operation.

Responding to questions about interruptions of connections with suppliers of spare parts and other partners, Bykadorov said the plant did not face such difficulties, because it paid for deliveries in full.

At the same time, the enterprise provided itself with the necessary components for a few months in advance. “We preserved cooperation with the key partners from Ukraine and Russia, as well as with suppliers from the U.S., Germany, Poland and the Czech Republic,” said Bykadorov.

He further assured that the plant has not had any problems with logistics because militants did not create any obstacles to the import of components and the export of finished products. He argues that the Russian shareholders are planning to develop Luhanskteplovoz and load the enterprise with orders. “The only thing that may prevent the company from fulfillment of its orders in full is the weak supply of power, which is not sufficient to switch to the desired two-shift operating mode,” says Bykadorov.

Plans for loading Luhanskteplovoz were confirmed by its main shareholder – the Russian company Transmashholding. Currently, the company is drafting its business plan for 2015, which includes the review of the volumes of purchase of locomotives from Luhanskteplovoz, said Head of the External Relations Department at Transmashholding Artem Ledenev. He added that the company was also considering using Luhanskteplovoz for production of locomotives for other customers in CIS countries.

Preliminary data shows that in 2015 the RZhD plans to buy 300–350 locomotives, said Vice President of the RZhD Anatoly Meshcheryakov. He explained that the RZhD’s investment program provides for the purchase of rolling stock, including locomotives, from Transmashholding. Meshcheryakov added that the company pledged to ensure the delivery of the required number of locomotives and that the RZhD would buy as many as the Luhansk company is capable of producing.

Window of opportunity

Representatives of Luhanskteplovoz believe that their products will remain in demand in Russia, because it offers the optimum price/quality ratio and the Russian Railways has set a course for the revamping of its locomotive yard. Experts say the average age of locomotives of the RZhD is more than 27 years, while the standard service life is 35 years. Given this, the company will not likely abandon its plans for the procurement of new rolling stock, moreover that by 2030 the RZhD intends to increase the average operating life of locomotives from 27 to 20 years.

Nevertheless, industry experts warn that the Luhansk enterprise may not get orders from the RZhD. Andriychenko believes the plant remains in a danger zone and at any time the resumption of hostilities may disrupt the plans of the company. “Active hostilities may interrupt the supply of components, prevent shipment of finished goods and in general halt the operation of the enterprise because of the risk to the lives of its employees and problems with power supply, as it was in August. Therefore, we should not rule out that the RZhD will cut the number of orders for Ukrainian locomotives in favor of electric locomotives produced in Novocherkassk (Russia). In the fourth quarter of this year, the RZhD sharply increased its orders from the Novocherkassk Electric Locomotive Plant by 30% to 180 sections due to the disruption of supplies from Luhanskteplovoz,” says the analyst.

As to the prospects for financing of procurement of the rolling stock from Luhanskteplovoz for Ukrzaliznytsya against state guarantees, they seem to be very illusive, says Andriychenko. He explained that the government debt has exceeded the limits previously agreed to with the IMF.