Orest Klimpush: A Roadmap for Seaports

Orest Klimpush Ukraine’s first minister of transport 12 May 2014 15:14

Orest Klimpush, Ukraine’s first minister of transport and currently the head of the Federation of Transport Employers of Ukraine, discusses the roadmap that his organization prepared with the aim of optimizing the operations of seaports.

Almost one year has passed since the introduction of the law "On Seaports," which introduced the provisions on port reform. However, no law can solve all problems at once, and normal functioning of the industry requires adoption of at least two dozen additional regulations. The Federation of Transport Employers of Ukraine has prepared a roadmap that combines all the proposals that were previously announced for regulating operations in the maritime industry. The roadmap consists of 23 documents aimed at solving various problems, including the following: raising the competitiveness of Ukrainian ports; bringing customs, environmental, sanitary, and quarantine procedures in line with European standards; creating a favorable investment climate and resolving land and construction issues. We attempt to understand the intricacies and nuances of this document with the help of Orest Klimpush.

Why was the roadmap drafted?

The Law on Seaports, which came into force on June 13, 2013, provided an impetus for commencing reform of the port industry. However, there are no ideal laws - no law solves all problems at once. There is such a principle: one solved problem "reveals" 10 unsolved problems. A number of additional issues requiring urgent solution and systemic support were uncovered when implementation of reforms began in the country.

We held deep consultations with businesses, industry experts, and lawyers during the process of development of this document. Through the roadmap, we wanted not so much to draw the attentions of the ministry, the parliament, and the Cabinet of Ministers to the problems of the port industry - they are well aware of these problems - as to propose specific and the most effective mechanisms for solving these problems to the authorities. We have no time to "delay" the elimination of the existing barriers, which have hindered the progress of the industry for years and continue to hinder it.

I seriously worked on a similar law about 10 years ago, when I was a parliamentary deputy. However, such a large number of private operators did not exist at that time. Several years ago, it became clear that private entities were processing larger volumes than entire state ports and doing so more efficiently by investing significant funds in their own facilities. The TIS and Brooklyn-Kiev companies, for example.

What is your attitude to significant reformatting of the Association of Seaports of Ukraine? There were recently calls for its liquidation...

The draft law No. 4431 on amendments to the law of Ukraine "On Seaports" (which is aimed at ensuring unobstructed development of seaports), which was registered in March this year, could become one of the barriers to port reform. Supposedly, this draft law is aimed at improving the operations of seaports. However, in reality, it essentially abolished the positive changes that the Law on Seaports introduced, namely separation of the administrative and economic functions of seaports. Most likely, it was drafted with the aim of returning to misuse of funds generated from port charges and preserving "vestiges" of Soviet port management that have long outlived their usefulness and the corrupt schemes of the past.

We have consulted with businesses and held meetings with more than 40 stevedoring companies. Every single one of them agreed that the direction of development of the industry, which is based on the current law of Ukraine "On Seaports," is right and necessary. These are the same decisions that practically the whole world implemented as far back as 20 years ago. There is no reason to say that the reforms lack results because some eight months have passed since its beginning. Besides, let us not forget about the economic crisis and the objective reasons for the change and reduction in cargo traffic.

What are the key initiatives in the roadmap?

All our initiatives are aimed at improving the competitiveness of seaports and encouraging the inflow of investments into the sector. Therefore, it is necessary to eliminate the conditions that prevent this. For example, we want to eliminate the barriers that discourage ship owners – the flimsy and corrupt monitoring and inspection conditions of various agencies and departments at seaports. Regulatory procedures - customs, environmental, and sanitary control - must comply with European and international standards.

There are problems associated with the use of reclaimed land at ports. Typically, ports develop precisely through the use of reclaimed territories. An illustrative example is the experience of the Netherlands. In Ukraine, however, this issue is not regulated at the legislative level.

To sum it up, I will say that the roadmap is a series of legislative steps that need to be taken if the government wants real changes and strong investors. Simply put, we have prepared a list of documents (with clear arguments, of course) that need to be modified, canceled, or adopted in order to attract investment into the industry.

Talks about concessions began following the adoption of the law "On Seaports." Minister of Infrastructure Maksym Burbak recently said that the first competitions would be held at the Yuzhny port soon. The roadmap also has a section on concessions. In your opinion, what needs to be improved in this issue?

Companies that have been operating at a port for 10-15 years under conditions of lease or joint venture, made considerable investments, built modern facilities, and introduced new capacities should be given certain preferences during concession tenders. If an operator has proven its efficiency during its years of operation and has made significant investments, this should not be ignored under any circumstances. It is unacceptable to ignore what has already been done and done decently. However, the efficiency of a company’s operations should be confirmed in writing and financially and it should be evaluated objectively.

In the roadmap, you propose amending the law of Ukraine "On the List of State-Owned Assets that are not Subject to Privatization." Which assets do you have in mind?

Primarily, we have in mind loss-making non-core assets of commercial seaports. If an asset is loss-making but needed, it is necessary to find a way out of such a situation. However, let us be honest. There are assets without which a port can operate normally. In most cases, these are non-core assets: sports facilities, recreation centers, etc. Their maintenance in proper condition under the current conditions is a heavy load on a port. Non-core assets are important to a company if the company can maintain them. However, they should be privatized if this leads to an imbalance in the operations of a port and if the port is barely making make ends meet.

In addition, we are proposing privatization of ports’ core assets, but this should be done only when there is justification for their privatization. A simple example: a workshop processed metal, but this type of cargo was later switched to another port and that workshop is now idling. We believe that such assets can also be given up for efficient management. However, I repeat, we are speaking exclusively about loss-making assets that are not of strategic importance to the state. As before, strategic port infrastructure - for example, hydraulic engineering structures - should not be subject to privatization.

The roadmap proposes amending the legislation to regulate not only the port industry, but also related industries. In particular, you are proposing amendments to the law "On Rail Transport." For what?

To ensure that a port has prospects for development, it is necessary to develop its entire infrastructure, including railway and automobile infrastructure. The TIS company had experience in construction of a railway station and railroad siding facilities. The issue of compensating for private investment in construction of railway infrastructure - which we propose regulating - remains open. In addition, we propose implementing the "Strategy for Development of Seaports until 2038," using a comprehensive approach in which the need for simultaneous development of road and railroad siding facilities is “linked” to the prospect for development of ports and transit opportunities.

The Association of Seaports of Ukraine earlier said that the government should invest in construction of strategic facilities and private investors in construction of terminals. You propose introducing compensation for private investment in such facilities. Is any investor interested in performing such work?

Such an approach would be fair and be the generally accepted international practice, but it does not exist in in reality. The state cannot simultaneously build all the facilities needed by investors with its own money. At the same time, more and more investors want to build modern cargo handling terminals, and they need to consider this issue as a single package. Currently, it is possible to consider two compensation methods: the first is a draft resolution that is currently being prepared in the ministry. Alternatively, one could take the second, simpler approach - an investment contract should include a section that will regulate the compensation procedure and the amount of compensation.

The roadmap consists of 23 documents. Within what period do you expect them to be adopted? Which of them can be adopted in the near future?

Of course, we understand that implementation of the roadmap will take some time. However, it is necessary to begin acting now. A number of decisions can be implemented within a fairly short period by making single lines of changes to the existing resolutions of the Cabinet of Ministers or the Ministry of Infrastructure.

I have met with the Minister of Infrastructure and industry leaders several times. We have already presented the document to the relevant ministry and parliamentary committee. I see that they have an absolute understanding of the fact that the time for general rhetoric has passed and that it is necessary to move from "declarations of intent" to substantive actions because the slightest delay in implementing reforms minimizes the chances of restoring traffic and the port industry and only increases the quality gap with the world.

The Federation of Transport Employers of Ukraine is focused on the end result – elimination of barriers and creation of conditions for development of Ukrainian ports. However, if the authorities propose alternative mechanisms for resolving the problematic issues that will yield the effect that businesses and potential investors expect, we can only be happy. We are also ready to get involved in their discussion and implementation.

Have you achieved some results already?

Yes, the process has begun. We know that the State Entrepreneurship Service, the State Maritime and River Transport Inspectorate (Ukrmorrichinspektsia), and the Ministry of Infrastructure support our position on amendments to the Environment Ministry’s directive No. 204 "On Approval of the Provisions on the Environmental Inspectorate" regarding removal of the provision on mandatory submission of ship environmental declarations. Mandatory certification of grain has been abolished. The parliamentary committee on transport and communications supported the position of the Federation of Transport Employers of Ukraine and experts that it is necessary to reject the draft law No. 4431.

This list could be extended. It is noteworthy that the position of the employers in the industry is not only heard and listened to, but it is also taken into account when decisions are being made. We hope that the authorities will continue to use the existing intellectual and human resources of the Federation of Transport Employers of Ukraine. After all, we have one goal - to provide a comfortable business climate for employers in order to make the industry successful and Ukraine prosperous.

Tags: seaport