State, car­ri­ers seek pact on river trans­porta­tion sys­tem

Kyiv Post - - Business - BY I LYA TIMTCHENKO [email protected] Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected] com.

The golden age of Kyi­van Rus saw a bustling trade route run­ning along the Dnipro River, car­ry­ing honey, grain and furs to Greek colo­nial trade out­posts along the Black Sea coast. In ex­change, traders in Kyiv and else­where re­ceived silks, naval equip­ment, wine, jew­elry, and, af­ter the in­tro­duc­tion of Ortho­dox Chris­tian­ity in 988, icons.

But to­day only 3 per­cent at most of all freight in Ukraine is trans­ported via rivers. Mainly be­cause of bu­reau­cratic bar­ri­ers and in­ef­fi­cient reg­u­la­tion, the na­tion’s 2,100-kilo­me­ter river trans­porta­tion sys­tem re­mains un­der­val­ued, ne­glected and un­der­uti­lized.

To re­verse this trend, the In­fra­struc­ture Min­istry wants to sim­plify the river trans­porta­tion sys­tem to bol­ster com­pe­ti­tion, and take some weight off Ukraine’s crum­bling roads. Some 22 per­cent of freight gets shipped on roads, ac­cord­ing to the State Sta­tis­tics Ser­vice.

In­fra­struc­ture Min­is­ter An­driy Pyvo­varsky is seek­ing, via leg­is­la­tion, to slash “many taxes that are col­lected right now” while in­tro­duc­ing an ad­di­tional tax that will “go to­ward deep­en­ing the [Dnipro] River bed to make the river more com­pet­i­tive, ac­cord­ing to a July 10 brief­ing he gave in Kyiv.

The min­istry’s vi­sion is to cre­ate a sin­gle tax that will go to “one pocket” which can be easily mon­i­tored on how it col­lects and spends money. Col­lected taxes cur­rently go to the gen­eral state bud­get.

“This is an ideal so­lu­tion for solv­ing the prob­lem of deep­en­ing the river bed,” Pyvo­varsky said.

Mean­while, pri­vate ship­ping com­pa­nies are ask­ing the gov­ern­ment not to go ahead with an ad­di­tional ex­cise tax that it is propos­ing.

But the new mea­sure is nec­es­sary, ac­cord­ing to the In­fra­struc­ture Min­istry, be­cause there are no public funds avail­able to sup­port the in­dus­try.

“Over the last 20 years the river [trans­porta­tion] mar­ket has not been given the needed at­ten­tion of gov­ern­ment of­fi­cials… we are all uni­fied around the idea of get­ting rid of ar­ti­fi­cial bar­ri­ers for its de­vel­op­ment,” said Yuriy Vaskov, Ukraine’s deputy min­is­ter of in­fra­struc­ture, at an Amer­i­can Cham­ber of Com­merce in Ukraine round­table dis­cus­sion about the pro­posed mea­sure on June 8.

Last year the vol­ume of river freight trans­porta­tion grew by 25 per­cent, to­tal­ing 5.1 mil­lion tonnes com­pared to 2013, EY, a lead­ing au­dit and re­search com­pany, re­ported. In terms of wa­ter­ways, some 97 per­cent of freight is car­ried by sea, to­tal­ing 148 mil­lion tonnes.

Sup­port­ing open ports for for­eign flags and get­ting rid of port en­trance fees are some of the changes com­pa­nies and to­day’s gov­ern­ment agree on.

Busi­nesses see flaws in the pro­posed law, how­ever.

Based on var­i­ous mea­sure­ments, such as dis­tance trav­elled and freight load, the tax will by­pass state cof­fers and go di­rectly to the newly formed state Ad­min­is­tra­tion of In­ter­nal Wa­ter Chan­nels.

Up­grades to river routes could also stum­ble if the ex­cise tax gets lev- ied, ac­cord­ing to the Ukrainian Grain As­so­ci­a­tion.

The non-profit in­dus­try group, which con­ducts river ship­ping, said in a June 10 news re­lease that the de­ci­sion is not eco­nom­i­cally sound and dif­fers from global prac­tice.

“The tax pro­posed by the min­istry, will lead to­ward trans­porta­tion cost in­creases and will kill river trans­porta­tion,” said Yuriy Skichko, the di­rec­tor of Her­mes-Trad­ing, a grain pro­duc­tion com­pany.

In gen­eral, the state should cre­ate in­cen­tives for com­pa­nies to in­vest and then step aside un­less it’s a na­tional se­cu­rity is­sue, Yuriy Vakhel, a lawyer spe­cial­iz­ing in the agri­cul­tural sec­tor, said.

Free­ing up the sys­tem will cre­ate fewer op­por­tu­ni­ties for of­fi­cial bribe tak­ing, he said.

“An ex­cise tax on fuel is a more ef­fi­cient tax­a­tion model. This can be im­ple­mented for ships as well as for rail­ways and trucks.”

Fuel spent on wa­ter trans­porta­tion is sub­stan­tially cheaper than its sub­sti­tutes. River trans­porta­tion is twice as cheap com­pared to rail­way trans­porta­tion and four times cheaper than road haulage, Pavlenko said.

Artem Sko­roboga­tov of In­ter­le­gal, a law firm that spe­cial­izes in ship­ping ser­vices, said the ex­cise tax should be re­viewed very care­fully.

“When the river [starts to be] heav­ily used, such a pay­ment would cer­tainly have its place,” he said. “But dur­ing the de­vel­op­ment stage, when there are no fa­vor­able ship­ping con­di­tions or an ap­pro­pri­ate fleet, any ad­di­tional load on com­pa­nies has to be an­a­lyzed.”

To­day, the In­fra­struc­ture Min­istry man­u­ally pro­cesses many or­ders,” Her­mes-Trad­ing’s Skichko said. This cre­ates op­por­tu­nity for cor­rup­tion and makes it im­pos­si­ble to do long-term plan­ning, which ul­ti­mately cre­ates an unattrac­tive in­vest­ment en­vi­ron­ment, he added.

Last year, Skichko’s com­pany trans­ported about 14,000 tonnes via five barges, whereas the rest of their freight had to be trans­ported via rail be­cause of high wa­ter trans­porta­tion taxes. This is strongly hit­ting his busi­ness, he said.

But Skichko said one quick way to dereg­u­late is to al­low ships with for­eign flags to come into Ukraine’s river ports with­out pay­ing the req­ui­site fees, such as for canal locks and bridge open­ing fees.

This is the only re­main­ing ques­tion re­gard­ing the river trans­porta­tion re­forms, said min­is­ter Pivo­varskiy. A fi­nal de­ci­sion of the pro­posed tax should be made on July 20. The min­istry is still de­cid­ing the amount of the tax, how to im­ple­ment and ad­min­is­ter it. Once con­sen­sus is reached, a fi­nal de­ci­sion will be taken.

But it will still be up to the Par­lia­ment to ap­prove the de­ci­sion and bring it into prac­tice, Pivo­varskiy said.

Kyiv’s river port lo­cated in the cap­i­tal’s Podil district on July 15. Many of Ukraine’s river ports are in poor con­di­tion be­cause in­vestors are scared off by highly bu­reau­cratic pro­ce­dures. (Anas­ta­sia Vlasova)

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