"Ukraine Would Be The Perfect Transit Country" - Interview With MTBS Director Steven Bouckaert

In an exclusive interview with CFTS, the director of the Dutch financial and advisory firm MTBS, Steven Bouckaert, talks about the prospects of the Ukrainian port industry, improvement of its investment climate, and investments at a time of financial instability.

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MTBS is an international finance and strategy advisory firm, offering entrepreneurial business solutions to clients in the maritime and transport sector, most specifically in ports. MTBS provides leading expertise in the areas of strategy, concession implementation, Public Private Partnership structuring, valuation, institutional analysis, financing and economic analyses. We distinguish ourselves with our trademark implementation driven approach. We are specialized and experienced in realizing port transactions and unlocking value for both public and private parties.

MTBS has a renowned international experience in port transactions, including in Ukraine, Croatia, Bulgaria, Liberia, Nigeria, South Africa, Canada and Rotterdam. MTBS has carried out more than 150 projects for Clients in the maritime industry, including many port authorities, terminal operators and shipping lines, but also municipal, regional and central governments, as well as commercial banks and international institutions such as the EBRD, World Bank, The European Investment Bank and the IFC.
www.mtbs.nl

MTBS (Maritime & Transport Business Solutions) is a well-known international company that provides financial and strategic business solutions to clients in the maritime and transport industry. The CFTS Portal had a conversation with the director of the company Steven Bouckaert about the prospects of the Ukrainian port industry, investors, privatization, and the prospects of transit of European goods. "According to logic logistics if there were no political corps, custom regulations, and facilitated trades, Ukraine would be the perfect transit country for Russia, Belarus, and even Slovakia,” the expert said.

 

How do you see the situation in Ukraine from the outside? How do your partners, investors react to the situation in the country?

I think there are several aspects. The first one is instability. Many people believe that you never know whether you will have a contract and whether this contract will still be valid after a year. I mean the basic contract with a concession agreement. The case of Ukrtranscontainer had a great impact on the whole industry and cannot be underestimated. Everybody in the industry knows this. As we say in Dutch “A good reputation comes to you by walking, but a good reputation goes away from you on a horse.” I think that the first thing is legislative stability.

The second issue is, like in many countries, the absence of a national port master plan. So, you can basically start any terminal at any Ukrainian port. For instance, I start my beautiful grain terminal, I spend USD 200 M, and tomorrow another one starts next door. I can give you many examples in which you have to strive against monopoly in the port industry. You need competition. That is the key for a successful port.

If you look at my hometown Antwerp, you see the same stick. When I started, there were, about 15 different stevedoring companies engaged in handling of general cargo, heavily competing with each other.  I am very proud that Antwerp is the leader in terms of general cargo in Europe, for example in steel, etc. But currently port operators do not have sufficient cash, so they are not able to make real investments. Port operators (e.g. in Antwerp) are not investing in new technology anymore, and they are starting to lose their positions slowly. Therefore, I think, the second thing is the lack of clarity and a strategy.

The third thing is, of course, the market. But in the market, you see two movements. There were the high days of containers when everybody was investing in containers and other raw commodities. But the market is, of course, something different. As of now, everybody is looking at the grain market, everybody is very eager. If you look at the container market you cannot find any investment for the next 10 -15 years, but it is also not required because of sufficient capacity currently available.

Those are the three main things. However, I have to emphasize the first two points – a stable legislative environment and a clear national port strategy. They are crucial for accommodating investors.

Do you believe that there will be investors coming to invest in the port business in Ukraine?

Yes, if we are talking about commodities. You arrived at a business forum where investors came for strong and long agreements secured by mining, agricultural companies. However, you need more competitive activities to attract investors.

What is the role of seaports' terminals in the development of the economy of the country? How important are they?

Ports are strategic assets in the economic structure of the country, very strategic assets. But you have to break it down into several sectors. If you look at export of raw materials, they are extremely important for these economies. This export is for foreign-exchange balance, for income, for development. Ports are important because the economy can play on the global market if you have a trustworthy chain for export of raw commodities. That is number one.

Number two. If you look at the export of finished goods, if you look at the export of fabricated goods, it is extremely important for export to be done in an efficient way, also in a cost effective way. It depends on what manufacturer you are. You are playing on the global market; you are competing with China, with Morocco, with Turkey, wherever you are in the globe. The cost of export becomes an important part of the whole value chain of the cost of the goods in order to be competitive. Also this part of the chain has to be competitive money wise but once again also transit time-wise because time to market is also extremely important if you want to be competitive.

The third main sector is, of course, import. They are calling it the cost of landed goods – how much it costs for import goods to reach the end consumer. And if people have to spend quite a lot of money on the consumer goods just because of the logistics it is money which cannot be spent elsewhere in the economy, it’s money which flowing only into this one inefficient sector. Maybe I downgrade the ports, but the port should work and this should not take away all the value of the goods because the value then cannot be dispersed in the rest of the economy. That is what you see in Africa, where it is really an issue if the cost of landed goods. For example the cost of cement is triple than in the other areas because of inefficient load system.

A lot of discussions are about transit ports. Why should a country invest in transit ports or transshipment ports?

It does not bring any reduction of cost of landed goods. It does not bring any value in terms of easier export of raw materials or produced goods. So why should we do it? That issue can still be very crucial. It is because if you have transit goods, then your mass is basically increasing, just a larger scale of port handling. You have a larger scale, you have two advantages, you can invest more and more in advanced technology. Number two is higher frequency efficiency of connectivity on the sea.

The better way to explain is to draw a parallel with an airport. For example, the Schiphol Airport in Holland. 80% of its passengers are transit. And what is the effect? If you are a businessman and you want to do business in Holland, you can do it all over the world because planes go every day and everywhere.

What about the world experience in attracting cargo owners to invest in port facilities? Is the idea of cargo owners as investors well-developed?

No. If you want cargo owners to invest in port facilities, they must be large to justify their investments. For example, it can happen if you are a big mining company or car manufacturing plant that produces thousands cars a year. Therefore, you really need size. However, it does not work in the container sector, where there are many users.

You have models where cargo owners participate in terminals; they are a subpart of a bigger turn. They create a joint venture with a terminal operator to invest in a certain warehouse or a specific installation. Examples of this are typically agricultural products, animal feed importers, or even shipping companies when they participate in container terminals. When that is done, it is important to maintain the multi-user status of the terminal, otherwise you will face insufficient cargo volumes.

Ukraine exports mainly grains, corn, iron ore, and metals. Do you know the positive experiences of Rio Tinto, Vale in port facility operation?

Yes, sure. But even then, one has to think where you come at the state interest. I will give you a totally different example. West Africa, Guinea. They have the largest reserves of bauxites. Indonesia has stopped production, Australia is depleting, so the largest will be Guinea. They will start exporting 50-60 M tons of bauxites in a couple of years. They gave concession to a mining company that will also build a port. But they will use the port built with the money of mining companies for handling of other cargo, developing of passenger traffic. They call this "Mutualization of ports." You also have the example of the major trader – Trafigura. They even established a logistics company – Impala – investing in ports and even in railway infrastructure. But they do it because they have no alternative.

Do you see any opportunities for Ukrainian ports to participate in transit of European cargoes?

I have always seen that. Let us do it in an understandable way, a blank experiment. Let us assume that there are no political borders. If you think about logical logistics, then it would be perfectly normal for Ukrainian ports to be transit ports for goods for Russia and Belarus. I mean that it perfectly logical. And what is happening now? All mother vessels are sailing to Hamburg, and then feeder vessels are going to Saint Petersburg, to Russia. Or vessels are going to Hamburg and feeder vessels to Klaipeda and then goods are imported into Kazakhstan. A very strange effect, I think. According to logic logistics if there would be no political corps, custom regulations and facilitated trades, Ukraine would be the perfect transit country for Russia, Belarus, and even Slovakia. Just look at the map and think about saving your costs. Instead of 50 days, it will be 30 days, for example. And if you look at the export of commodity goods from Russia, Ukrainian ports are also used, not only Russian ones. It is logic. Never forget that in the Soviet era 70% of Soviet cargoes went through Ukrainian ports. Now it is totally reversed. Therefore, there are many impediments nowadays.

What is the role of institutional banks, for example the EBRD, in attracting investments into port industry?

This one is a solid sponsor. Many projects simply could not happen without involvement of institutional banks. They also provide so-called technical assistance. It concerns not engineers but mostly legislative framework. Therefore, the power positions of these banks are very important.

What about international infrastructure investment funds? Are they active, are they looking for places in which to invest?

Yes, sure. They're always looking for places in which to invest but they also have very strict mandates because they play with the money of Canadian, Australian, or German pensioners. Therefore, they look at the credit rate of a country. Therefore, to attract them we also have to return to my first point - a stable environment for doing business. How can it be created? Legislative framework, certain guarantees, especially security guarantees, from the government that your possessions will not be broken.

What is the logic of invest funds? How long do they invest?

Private equities have a short investment horizon, pension funds have much longer investment horizon, 10-20 years.

Do they invest at the start point of a project?

They usually do not like green fields. They want a stable cash flow with growth prospects.

So, they usually invest some years after a project has started?

Yeah. They need a lead investor; therefore, they can join in investing in the project.

You work in Ukraine on different investment projects. Can you share your general opinion about our port industry? How do we look from the outside?

It is a personal opinion. I think the key thing in my experience is about the owners of ports. You could not own port assets. There was no possession. It was impossible. That was a key impediment – the absence of clear possession.

The second thing is that you are never sure whether the state part of investments will be fulfilled.

What is the best mechanism for attracting investments into the Ukrainian port industry? Is it concession or privatization? Maybe some other approaches?

There is a thin line between concession and privatization. Definitely you should not do full privatization of a port. Never. It is a strategic asset. A port should be owned by the state but certain assets could be privatized. I mean, if you privatize a sea commercial port, you privatize some port assets or terminal. For me the best way is when you privatize the stevedoring companies but you do not privatize port infrastructure. It remains state-owned.

What do you think about Georgia? They dramatically privatized their ports. What was their main mistake?

If you look at them now, they are doing well. I mean increasing transshipment etc.

Do we have some lessons?

No. It is a completely different environment. Georgia is much smaller than Ukraine. You can take good lessons from some ports in the former Yugoslavia. What happened in Rijeka, in Koper will be interesting to you. There is also the interesting case of the Netherland with a strong maritime tradition.

And the last question. What do you advise the Ukrainian government in realizing PPT projects in port industry?

I repeat once again. It is the legislative environment. Privatize your operations. And base it on clear national port strategy.