How Ukraine's river and sea ports need to im­prove

Kyiv Post Legal Quarterly - - Contents - DATSKEVYCH@KYIVPOST.COM BY NATALIA DATSKEVYCH

In ways, terms not many of sea­ports coun­tries and are natural as blessed wa­ter- as Ukraine. The Dnipro River — fourth long­est in Europe — bi­sects the coun­try, me­an­der­ing far into the east be­fore loop­ing back west to spill into the Black Sea. Four out of the Euro­pean Union's 10 in­ter­na­tional trans­port cor­ri­dors, as des­ig­nated by the Euro­pean Com­mis­sion, pass through Ukraine. The coun­try’s sea­ports are fa­vor­ably lo­cated at the cross­roads be­tween Europe and Asia, with ac­cess to both the Black Sea and a 2,100-kilo­me­ter river sys­tem. But de­spite th­ese ad­van­tages, Ukraine’s wa­ter trans­porta­tion — like al­most ev­ery other eco­nomic sec­tor — has been badly ne­glected since Ukraine be­came in­de­pen­dent. With­out in­vest­ment, its sea ex­ports are lag­ging and its rivers carry only a trickle of its grow­ing grain pro­duc­tion. Though Ukraine’s gov­ern­ment has put for­ward an in­vest­ment plan to pump life back into Ukraine’s ports, crit­ics cast doubt on its fea­si­bil­ity. Mean­while, Rus­sian ag­gres­sion and peren­nial cor­rup­tion con­cerns con­tinue to suck prof­its from the na­tion’s grain pro­duc­ers and ship­pers.

In­vest­ment for trade

Al­to­gether, Ukraine has 18 sea­ports, five of which are in Rus­sian-oc­cu­pied Crimea. The re­main­ing 13, lo­cated on Ukraine’s main­land, are oper­a­tional. But to­gether they pro­cessed only 132.5 mil­lion tons of cargo in 2017, just 1.2 mil­lion more than in 2016, ac­cord­ing to the Ukrainian Sea Ports Au­thor­ity. The mar­ginal growth isn’t from ex­ports. Ex­ports through sea­ports have been slowly de­creas­ing in Ukraine, drop­ping by 6 per­cent over the past three years to 98.5 mil­lion tons in 2017, most of which was raw ma­te­ri­als, like grain. But im­ports are grow­ing, reach­ing 20.4 mil­lion tons in 2017 — a 22 per­cent in­crease com­pared to the pre­vi­ous year. To boost trade, Ukraine’s gov­ern­ment plans to in­vest Hr 44 bil­lion, or $1.7 bil­lion, into its sea­port in­fra­struc­ture over the next 12 years, ac­cord­ing to Deputy Prime Min­is­ter Volodymyr Kis­tion, who spoke at a ports fo­rum in Odesa on May 31. The 12-year plan in­cludes 46 projects to up­grade Ukraine’s sea­ports, among them con­struc­tion of new steve­dor­ing ter­mi­nals and berths, and the re­pair of old ones. But 12 years might not be enough, says Raivis Veck­a­gans, the head of the Ukrainian Sea Ports Au­thor­ity. Real­is­ti­cally, the up­grades will take more like 20 years, given Ukraine’s lack of equip­ment and dif­fi­cul­ties with im­ple­ment­ing EU stan­dards. This is bad news, as Ukraine’s grow­ing agri­cul­tural econ­omy de­pends on ef­fi­cient ex­ports. “Ports drive the econ­omy, be­cause they’re the gates for ex­ports,” Veck­a­gans said. “In Ukraine, 66 per­cent of ex­ports go through sea ports.” What might help,

least in terms of ef­fi­ciency, says Veck­a­gans, is the in­creas­ing share of pri­vately owned port op­er­a­tors. Cur­rently, just 13 out of the 103 sea­port op­er­a­tors are state-owned, a 12 per­cent de­crease com­pared to 2013. “Our main tar­get is to main­tain ef­fi­cient use of the sea­ports with the steve­dor­ing busi­ness tran­si­tion­ing from state-owned to pri­vate,” Veck­a­gans said.

Dire straits

The main share of Ukraine’s cargo is pro­cessed by four Ukrainian sea­ports — Odesa Sea Port, Yuzhny, Myko­laiv Sea Port and the Port of Chornomorsk. Last year they han­dled 80 per­cent of to­tal cargo turnover, or 107 mil­lion tons. The leader was Yuzhny, lo­cated 30 kilo­me­ters east of the city of Odesa. Its share was more than 30 per­cent. Odesa Sea Port and Myko­laiv Sea Port ac­counted for about 20 per­cent, or 24 mil­lion tons each. Ihor Tkachuk, head of Odesa Sea Port, de­clined to show profit fig­ures, but said the port is mak­ing money, han­dling about 500 thou­sand con­tain­ers in 2017, which was a ten per­cent in­crease over 2016. "The port has never been un­prof­itable and will never be, al­though vol­umes fell com­pared to 2010 due to the an­nex­a­tion of Crimea and oc­cu­pa­tion of the east­ern Don­bas," he said. But out­side of th­ese top four ports, con­di­tions are worse. Reni Sea Port, for ex­am­ple, last year. close han­dled Twenty-five mil­lion The to gov­ern­ment tons Ukraine’s only per years year. 200,000 ago, is border plan­ning that tons with fig­ure to Ro­ma­nia, come was 10 to Reni nomic Sea zone Port’s with aid, low set­ting taxes up for a special ships, eco- said Maxim Stepanov, the gov­er­nor of Odesa Oblast. Ac­cord­ing to the draft law, Reni Sea Port will have a three-stage tax sys­tem: for the first three years af­ter the law is passed, ships will pay no taxes on profit at all, for the next three years they are to pay half of to­day’s cur­rent 15 per­cent profit tax rate, and only af­ter six years are they to pay full taxes. But Reni Sea Port is not in the worst state of Ukraine’s sea ports. Skadovsk Com­mer­cial Sea Port, lo­cated in Kher­son Oblast, is silt­ing up and is now al­most un­us­able, with no funds al­lo­cated for dredg­ing it. “Skadovsk sea port is a port that is sim­ply stand­ing still,” Alexan­der Var­varenko, CEO of Vara­mar ship­ping com­pany, told the Kyiv Post. “No more money is al­lo­cated for dredg­ing. Pre­vi­ously, there was a ferry line that brought life to the whole city. There was even a grain ter­mi­nal.” The port han­dled only 20,000 tons of cargo last year, 36 per­cent less than in 2016. For such cases, the gov­ern­ment thinks it might have a so­lu­tion: pri­va­tize the whole port or put it un­der con­ces­sion, al­low­ing for­eign com­pa­nies to op­er­ate it, mod­ern­ize it, and col­lect profit, while its un­der­ly­ing as­sets would re­main state-owned. Two fea­si­bil­ity stud­ies for pos­si­ble con­ces­sions have been com­pleted al­ready, at Port Olvia and Port Kher­son. Two more are un­der­way for Chornomorsk and Port Yuzhny, said Veck­a­gans. Mean­while, al­though there is a gov­ern­ment plan in place for re­vi­tal­iz­ing the sea ports, less is be­ing done to up­grade the coun­try’s river in­fra­struc­ture. The ma­jor­ity of Ukraine’s river ports are out of shape, ac­cord­ing to Ukraine’s

In­fra­struc­ture cov­ers Dnipro Cur­rently 18 River, ports Ukrainian six Min­istry. (in­clud­ing of which river are ter­mi­nals) in­fra­struc­ture reload­ing on ter- the mi­nals pri­vately owned by Nibu­lon, one of Ukraine’s largest grain ex­porters, which trans­ports its grain via the Dnipro River. Like Port Kher­son, the main prob­lem that river ports face is a lack of dredg­ing, which would in­crease freight turnover and river traf­fic. Far be­hind Aside from bad in­fra­struc­ture, Ukrainian ports are be­set with a host of petty prob­lems: ex­tremely high port fees and tar­iffs, poor cargo han­dling, and cor­rupt eco­log­i­cal in­spec­tors. Its in­fra­struc­ture is rated 96th on the World Bank’s in­dex of qual­ity sea­ports — right around Le­banon, Bangladesh, and Mozam­bique. How­ever, says Var­varenko, “Ukrainian ports are the most ex­pen­sive in the world. The way they charge is very out­dated, and even though fees were re­duced by 20 per­cent, the fee is still three times more ex­pen­sive than at ports in other coun­tries,” Var­varenko said. busi­ness spec­tors ron­men­tal Smirnov, Met­invest fine ($380–760).” But “Ukraine for per­haps each that peo­ple head steel in­spec­tion has ship un­fairly even and of are ex­ceeds a seaborne non-trans­par­ent min­ing cor­rupt a fine sys­tem,” big­ger Hr com­pa­nies. com­pany. 10,000–20,000 eco­log­i­cal ship­ments prob­lem said An­driy envi- “The in- for at (At­lantic), Japanese the Suguru Mit­subishi ship­ping Uchida, a Group, sub­sidiary di­rec­tor com­pany, agrees. of of which NYK the Bulk­ship is largest part of eco­log­i­cal told Uchida’s why by fines com­pany the au­thor­i­ties. in Ukraine, has been Com­pany but made never to repre- been pay sen­ta­tives their new ships, said they two did years not old un­der­stand at most, can’t why meet Ukrainian stan­dards when they had no prob­lems dock­ing in the Nether­lands, United States and Ja­pan — coun­tries with higher eco­log­i­cal stan­dards. “They are try­ing all kinds of ways to make us pay. It’s not a very big amount for the com­pany, but we still don’t want to pay,” Uchida said. “The au­thor­i­ties are say­ing that ev­ery­thing is fine, but from our point of view it’s not.”

Odesa port is one of the lead­ers in cargo turnover in Ukraine and the largest pas­sen­ger port on the Black Sea. (Kostyan­tyn Ch­er­nichkin)

Even though the port tar­iffs in Ukraine have been re­duced by 20 per­cent since the begin­ning of this year, the cost of en­ter­ing ships is still three times higher than neigh­bor­ing Ro­ma­nia or Turkey.

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