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