River trans­port re­vival will be key to Ukraine’s lo­gis­ti­cal fu­ture

Kyiv Post Legal Quarterly - - Contents - BY ISO­BEL KOSHIW IVKOSHIW@GMAIL.COM

River trans­port could soon be the cheap­est way to move cargo around Ukraine.

A new law, which its au­thors hope will be passed in June, pro­poses to cut by 70 per­cent the cur­rent $2 per ton fee that com­pa­nies pay to the state bud­get for use of wa­ter­ways. In­stead, busi­nesses will pay a sin­gle fee for an en­tire jour­ney, rather than mul­ti­ple and dis­parate fees along the way.

The new fee, which will be cal­cu­lated ac­cord­ing to dis­tance and cargo weight or pas­sen­ger num­bers, will go straight to the Ad­min­is­tra­tion of In­ter­nal Wa­ter­ways, a state body to be cre­ated. In the past, the money went into the state bud­get, from where it rarely trick­leed back into river in­fra­struc­ture.

Ex­pen­sive river fees

Com­pared to road and rail, the coun­try's rivers are un­der­uti­lized. Re­search by Baker Til­ley in 2013 found rivers held just 2.8 per­cent of the lo­gis­tics mar­ket – a huge drop from 2005. when rivers took 12.9 per­cent. Ac­cord­ing to Deputy Min­is­ter of In­fra­struc­ture Yuriy Vaskov, high fees are the main rea­son.

“Due to prob­lems with tar­iffs, we have fewer than five ac­tive com­pa­nies us­ing the rivers,” said Vaskov, who told the Kyiv Post that the new leg­is­la­tion is in line with Euro­pean Union reg­u­la­tions.

The lion’s share of the lo­gis­tics mar­ket is held by roads, which ac­counted for 73.8 per­cent in 2013. Rail freight trails, but still holds around 26 per­cent of the mar­ket.

But if cur­rent state fees are de­ducted, trans­porta­tion by river is far cheaper ($4.50 per ton per 100 kilo­me­ters, com­pared to $11.20 for trucks and $7.80 for rail) and more ef­fi­cient – the av­er­age cargo ship burns one liter of fuel to carry 127 tons one kilo­me­ter, while trucks and trains can carry only 50 and 97 tons, re­spec­tively. for the same dis­tance and amount of fuel, Baker Til­ley re­search claims.

“To­day, in­land water­way trans­port pro­vides the low­est cost of freight per ton of cargo, while hav­ing the least im­pact on the en­vi­ron­ment,” reads the Baker Til­ley re­port.

Vaskov adds: “Trucks at the mo­ment are over­loaded, and if they were forced to keep to their real lim­its, then river trans­port, even given its cur­rent costs, would still be more ad­van­ta­geous for busi­nesses.” Gerashchenko, deputy di­rec­tor for the river depart­ment at the min­istry, told the Kyiv Post that money from an ex­cise tax on fuel would sim­ply be al­lo­cated to ar­eas other than river trans­port.

An­other im­por­tant as­pect of the law is the in­tro­duc­tion of equal ac­cess for ships with for­eign own­ers. Un­der cur­rent leg­is­la­tion, if a for­eign ship wants to travel in­side Ukraine it has to re­ceive per­mis­sion from the Min­istry of In­fra­struc­ture and tax au­thor­i­ties. The process costs “a lot of money,” ac­cord­ing to Vaskov.

Equal ac­cess will be es­pe­cially im­por­tant given plans to de­velop a trade route be­tween the Baltic and Black seas. It is hoped that the wa­ter cor­ri­dor, run­ning from Gdansk in Poland, through Brest in Be­larus and down the Dnipro River in Ukraine to the Black Sea, will also im­prove in­vest­ment in Ukrainian wa­ter­ways. Known as the E40, the wa­ter cor­ri­dor is still at the ini­tial stage of plan­ning.

With the re­moval of ar­bi­trary fees and the grant­ing of equal ac­cess to for­eign ves­sels, Gerashchenko says the num­ber of ter­mi­nals and amount of river in­fra­struc­ture will also grow.

Vaskov told the Kyiv Post that the coun­try’s main wa­ter­ways are op­er­a­tional, although their in­fra­struc­ture has de­te­ri­o­rated sig­nif­i­cantly since in­de­pen­dence.

Ac­cord­ing to in­for­ma­tion pro­vided by the In­fra­struc­ture Min­istry, there is a lack of mod­ern river ter­mi­nals, a short­age of cargo car­ri­ers and river chan­nels need to dredged in some ar­eas. Traf­fic has plunged – there were 29,210 river ves­sels in 1990, but only 635 by 2013.

On top of the ex­tra money ex­pected from the new fi­nanc­ing struc­ture, the law prom­ises pos­si­ble re­im­burse­ments to pri­vate investors in strate­gic in­fra­struc­ture.

“The law will set the rules of the game. At the mo­ment we don't have a law gov­ern­ing the in­ter­nal wa­ter­ways,” Gerashchenko said. “No in­vestor will come while this is un­clear. The law will change that.”

Ac­cord­ing to Gerashchenko, pri­vate investors show in­ter­est in the wa­ter­ways, and some, like Ukraine’s top pipe man­u­fac­turer In­ter­pipe, are al­ready build­ing their own fleets.

“Our logic is that apart from (main­tain­ing) locks and deep­en­ing rivers, ev­ery­thing else will be done by pri­vate com­pa­nies,” said Vaskov.

The law is even more rel­e­vant, given the gov­ern­ment’s de­ci­sion to in­crease rail cargo tar­iffs by 15 per­cent on May 4. Ac­cord­ing to Con­corde Cap­i­tal an­a­lyst Ro­man Topolyuk, this is aimed at off­set­ting the fall in rev­enues to Ukrza­l­iznyt­sia, the state rail­ways ad­min­is­tra­tion and rail freight mo­nop­oly, due to the de­val­u­a­tion of the hryv­nia.

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