Yurii Vaskov: Concession Is Understood By All

Yurii Vaskov Head of the Odessa merchant seaport 20 November 2012 13:50

Following the adoption of the Law on Seaports, which has opened up new opportunities for investment in the maritime industry, the Ministry of Infrastructure is drafting proposals to potential investors on concession contracts for operation of several port facilities. What are prospective investors ready to offer to the Odesa seaport?

It cannot be said that something will change dramatically at the Odessa seaport. Performance of independent stevedoring operations by private companies practically started here in 1993. Today, 14 private stevedoring companies are operating here in various legal forms – lease agreements, joint ventures, or management. In connection with the fact that the law on seaports that was adopted this year opens up opportunities for such form of cooperation with private capital as concession, we are currently inventorying the property of the port together with the Ministry of Infrastructure. Its goal is to identify a number of facilities for which concession contracts can be awarded to enable them to operate more efficiently and attract investment.

What types of facilities will these be?

I think that we will be able to present these proposals openly after adoption of a Cabinet of Ministers resolution on inclusion of the Odesa seaport on the list of assets that can be operated on concession. The resolution has already been agreed with the Ministry of Finance, the Ministry of Economic Development and Trade, the State Property Fund, and the other authorized agencies. Adoption of this resolution will launch the process. This will enable us and the Ministry of Infrastructure to hold joint competitions aimed at attracting investors to these facilities and later send them to the Cabinet of Ministers for approval.

Still, what can interest future investors at the Odesa seaport, where there is still no private capital?

Firstly, provision of services in the sphere of cruise shipping (passenger ship terminal); secondly, transshipment of bulk cargoes; thirdly, operations with containers. However, in the second and third cases, there are no ready terminals, and they should appear as a result of investment under a concession agreement.

On what basis does the port make the decision to transfer the management of one object or another?

The criterion for studying these investment proposals is simple – the proposals should focus on the areas of operation in which the port is currently operating on its own but is not satisfied with the results of this operation in productivity and economic terms. As for long-term contracts with the private companies that are already operating at the port, they will continue to operate on the existing terms, as the law stipulates. The form of business operations can be changed - to a concession, for example - if a partner desires. I know that some of the partners of the port are presently making such calculations, but everyone is still waiting for the go-ahead from the Cabinet of Ministers.

How do you assess the Ministry of Infrastructure’s decision to choose concession as the form of public-private partnership at ports? Do you believe that it is the most successful form?

I would not say that the Ministry of Infrastructure chose concession as the main form of public-private partnership at ports. This form was identified around the world. It is the most prevalent type of operation in the transport sector, particularly in the port industry. The type of concession that is the most common – BOT or "build-operate-transfer" – will be in demand here. If concession agreements are reached for the facilities that have already been constructed, the agreements will only involve their management. That is also possible.

In what way is concession better than, say, lease or any other form of public-private partnership that previously existed at the port?

Specifically because similar forms of public-private partnership are widespread around the world, and concession is understandable to everyone. For example, to foreign banks, which will be more willing to provide credits for such an operation, and it will be easier for investors to work with insurance companies and so on.

Do you expect the port to earn more revenue after implementation of concession projects here?

In the case of concession, what should be counted primarily is not the revenue of the port but revenues into the state budget because the concession fee that the concessionaire pays goes directly into the state coffers. These revenues will increase. At present, we are considering awarding concession contracts for only those facilities where we have negative financial results or where we have had a sharply negative dynamic for at least the past three years. That is, in the first phase, the task of the concessionaire will be to reach zero where there was previously a negative and to create a positive dynamic where there was previously zero. All this - just like certain production indicators - will need to be stipulated in concession agreements. Let us say that concrete figures will be stipulated. If we presently have 75 cruise ships calling per year, then the concessionaire will be set the task of increasing the number to 80 in within two years. It will be the same in other areas.

How exactly will the concession fees be calculated?

This issue will soon be regulated legislatively. To my knowledge, the Ministry of Infrastructure is doing this work together with the Ministry of Economy.

Tags: seaport