Mark Magaletsky: Demand for Terminals for Transshipment of Agricultural Products is High

Mark Magaletsky Senior banker with EBRD 06 August 2014 11:44

How has the current situation in the country been reflected in the EBRD’s policy? Will the bank cut back its operations?

We are adjusting our work in accordance with the realities of today. From a policy perspective, there is unequivocal support for our work in Ukraine from both the management and the shareholders of the bank. The task is to do the maximum possible. We plan to sign agreements on implementation of new projects worth about EUR 1 billion this year. It is important to understand that our desire and work alone are not enough because projects are implemented by our customers. Therefore, a desire by our partners to invest in these economic conditions is necessary. Of course, each of them reacts differently to the circumstances, depending on industry and personalia. Some are forced to curtail their programs, some are reviewing the periods of their programs, and others continue to operate as before. Therefore, we are adjusting to the needs of those implementing the projects. In this case, the Brooklyn-Kiev grain-terminal project is very revealing: the stevedore has not changed its plans, it continues to operate, and we are hoping that it will be successfully brought to life with our help.

In that case, what should a client that finds itself in a difficult situation do? Like the Donetsk Railway, for example?

It should be noted here that we are working not only with the railway, but also with the State Railway Administration (Ukrzaliznytsia) itself. That is, Ukrzaliznytsia is responsible for the loan. The executor is the Donetsk Railway, and it is fulfilling its obligations. However, I emphasize again the fact that the Donetsk Railway functions as an integral part of Ukrzaliznytsia. Therefore, we continue to work, even though the situation remains very difficult from the security viewpoint. At the same time, we see that the railways are the only stable mode of transportation between Donetsk, Lugansk, and the rest of Ukraine.

How is the work with Ukravtodor going?

We are accelerating and expanding our cooperation with Ukravtodor (the State Automobile Road Service). In April, we signed the second tranche of the project for rehabilitation of the approach roads to Kiev in the amount of EUR 200 million. Active work on reconstruction of the Kiev-Belaya Tserkov section of the road is currently underway, and tenders for the Kiev-Chernigov and Kiev-Cherkassy roads will be invited in the near future.

Tenders for the Kiev-Chernigov and Kiev-Cherkassy roads will be invited in the near future

Which of the projects that were prepared before the start of the events on the Maidan have been frozen and which of them are being implemented?

I would not say that we have frozen anything. However, as I have noted, our partners are adjusting their plans. Some with whom we have worked actively in the past year have postponed their investment plans while others continue to operate. The situation clearly affects us, but we will not stop our operations in Ukraine. As examples, I can cite Ukrzaliznytsia, when there was a period of uncertainty and some inaction by the authorities regarding corporatization of the state administration and transformation of the sector. Now, the new government has adopted the key decision on establishment of joint-stock company, and this has provided a new impetus and raised the reform to a new level. This is consistent with the agreements and commitments that the Cabinet of Ministers assumed. Therefore, there have been changes for the better, and we hope that this will stimulate preparation and implementation of new projects with the railways.

Which port projects are being readied for signing in the near future?

We cannot advertise the names of clients. The current market conditions are sufficiently good, and there is demand for terminals for transshipment of agricultural products. A number of projects for construction of such complexes are being developed at various ports. We are hoping to be able to finalize their preparation in the near future and begin implementing projects similar to Brooklyn-Kiev. We will be able to name names as preparation reaches a certain stage.

The situation is more complicated in other industries. The metallurgical industry is in a state of stagnation, as a result of which excess capacity has appeared. Container transshipment is also not showing positive dynamics. However, the market for products of the agro-industrial complex is growing, and it is considered one of the most promising in Ukraine. There are investors that are willing to develop capacities for grain transshipment.

What should a private stevedore do to obtain a loan from the EBRD?

I will state a few criteria. First, the stevedore must demonstrate its viability and ability to operate on the market of cargo transshipment, as well as its ability to implement new investment projects. That is, we are talking about the professional level of the company and its track record. Secondly, it needs to have a confirmed cargo traffic for its new capacity. Therefore, the most successful projects will be the ones that involve a close relationship between cargo shippers and stevedores.

Do you see any prospects for development of river transport in Ukraine?

Businesses are now rediscovering the capabilities of river transport. The Nibulon company has become a pioneer in this regard. However, we are seeing that other companies are starting to look closely at river logistics and we will possibly see new projects in this area in the future.

Tell us more about the cooperation between the EBRD and Brooklyn-Kiev

Unfortunately, I cannot divulge all the details. I will only say that a loan was provided for a period of seven years with a grace period of 1.5 years.

See also, "Interview with Brooklyn-Kiev: Nothing is Actually Being Done despite Impressive Statements from the Government"

How does the implementation of port reform influence the EBRD's decision to work with ports?

The adoption of the Law on Seaports gave an impetus to reform of the industry. However, I would not say that this road has already been traveled. We are hoping that the government and businesses will take several more steps towards liberalization of the sector - the maximum removal of restrictions on private investment in infrastructure. This particularly applies to acquisition of port assets and land. There are still certain obstacles there, but it is one of the key factors in adoption of a decision. An investor that is investing money should be confident that he has a strong legal basis for it and scope for maneuver. Work in this direction is underway.

That is, such a method of attracting investment as privatization should be practiced

Privatization is the preferred option. In the end, the port industry in Ukraine is highly competitive. I would think once again about privatizing monopolies. Players vie for goods here, and transfer of certain categories of port assets into private hands would benefit the sector. However, there are various opinions, and various mechanisms could be considered for various Ukrainian ports and various assets.

Can you give examples of cases in which it is worth resorting to privatization and when it is not?

This should probably not be done in relation to infrastructure that works for various terminals and infrastructure that is controlled by various owners. For example, approach roads and other support systems. On the other hand, if these companies want to unite to create a common infrastructure, they should be provided such an opportunity legally.

Which other areas of lending in the transport industry do you consider the most promising today?

We have projects involving urban transport in Kiev, Lvov, and Dnepropetrovsk. We are also looking forward to cooperating with other cities. Each of them has the requirement and the need to upgrade its transport system. Therefore, different projects are being considered, although I cannot yet name one that could be close to completing the preparatory stage. These are subways, trams, and trolley buses, as well as traffic management systems and electronic tickets. It all depends on the willingness and ability of city authorities.

Interviewed by Maxim Arslanov