Yurii Vaskov: First Results Of One Hundred Days of Port Reform

Yurii Vaskov Chairman of the Administration of Seaports of Ukraine 30 October 2013 11:32

I would like to focus on the practical aspects of what has been done by the Administration of Seaports over the short period of its existence. I would also like to draw attention to the things that prevent us and the entire port industry from implementing investment projects fully.

Let me remind you that the Administration of Seaports of Ukraine was registered in accordance with the Law on Seaports of Ukraine dated May 27, 2013, with the strategic and other assets of 18 state-owned seaports, the Delta Lotsman state pilotage enterprise, and the Kerch Ferry state enterprise transferred to it.

The ASU consists of a central administrative office in Kiev, an operational office in Odessa, 18 affiliated administrations of seaports of Ukraine, and the Delta Lotsman subsidiary. In in the near future, we will be joined by another affiliate – the Maritime Search and Rescue Service. The ASU currently employs about 10,500 workers, with the number of employees at the central administrative office accounting for about 1% of the total number of employees.

To give an assessment of how the ASU is coping with the functions assigned to it, I will remind you of its main functions.

The first function is maintenance of strategic port infrastructure in accordance with their ratings. Currently, we are engaging in maintenance of water depths and repair of the hydraulic structures at a number of ports - in Berdyansk, Odessa, Mariupol, and on the Danube – and we are getting ready to start work at the Belgorod-Dniester port, at BDLC, at KEK, Ilyichevsky, and Kherson ports in the near future.

The next function, which is key terms of the goals of the creation of the administration, is reconstruction and construction of hydraulic structures and other port infrastructure. Today, the administration continues to implement those projects that were started before the law came into effect and which we are implementing as a successor. These are:

- the project at the Yuzhny port - the reconstruction of the approach canal and water body to a depth of 21 meters. Note that a ship with a draft of 16 meters recently left port for the first time in history;

- construction of a container terminal at the Odessa port together with the HPC Ukraine company. its commissioning is planned for 2014;

- implementation of a project for construction of a grain transshipment complex at a former shipyard jointly with the Brooklyn-Kiev company;

- construction of a universal berth at the Feodosiya port;

We are already taking steps to start the following in 2014:

- reconstruction of the eighth reach of the BDLC

- reconstruction of the infrastructure of the Yalta port for high-quality reception of modern cruise ships. Here, I would like to note that in recent years there has been a steady increase in the number of cruise ships calling at the port, an average of 10% annually.

- reconstruction and construction of a number of others, mostly hydraulic structures.

In addition,  we plan to start work on designing, at least, and later construction of an additional icebreaker for the Sea of Azov. Let me remind you that only one icebreaker from Ukraine currently participates in ice-breaking work in the winter. The problem is very serious.

We plan to start work on designing, at least, and later construction of an additional icebreaker for the Sea of Azov

Another important function of the ASU is ensuring all stakeholders have equal access to strategic port infrastructure and creating a competitive business environment. With regard to access to port infrastructure, I believe that we are performing this function in full. All heads of seaports - the heads of administrations at every seaport - were instructed to ensure conclusion of agreements with contractors within three days and establish a clear and understandable mechanism for using the strategic port infrastructures that are on the balance sheet of ASU and are used by two or more business entities.

In addition, the Administration of Seaports of Ukraine introduced a telephone hotline for collecting information from customers and accepting requests from all companies operating in ports on August 1, with the aim of ensuring equal access to port infrastructure, as well as for interaction with the ASU.

From the point of view of creation of competitive conditions, unfortunately, we must recognize that our ports and the entities operating there are currently not competitive enough. To solve this problem, it is necessary to optimize the legislation in the area of processing of goods and vehicles at ports and eliminate the influence of the human factor in the process. For this purpose, a single Port Community Information System (PCIS) has been developed. It has already been launched in Odessa. Its test operation is continuing at Ilyichevsky. I hope that all the other ports will switch to it over time.

The Register of Seaports, for which we are also responsible, is now over 50% ready. When we first started this work, the Ministry of Infrastructure and ASU faced the difficult task of identifying all the stevedoring companies and sea terminals in Ukraine. It took a lot of time and, in the end, we received information that there were about 180 companies engaging in activities close to stevedoring activities in Ukraine. A more detailed analysis showed that there were about 100 stevedoring companies among them. Many of them are well-known companies that are major taxpayers, employers, and investors. However, a number of smaller stevedoring companies were also uncovered. Ideally, over time, they should all be entered in the register of ports because information will be added to it on a regular basis as entities are added to seaports.

The Register of Seaports is now over 50% ready

One of the mechanisms that, from my point of view, is extremely important and without which we are unlikely to achieve sustainable development for many years is the creation of special or free economic (investment) zones at seaports. Having studied the experiences of ports in neighboring countries, including the Black Sea port, we have seen that there is a special mode of operation and investment for subjects of seaports at practically all these ports. With respect to this issue, a draft law on amendments to the Law of Ukraine has been prepared. The draft law has been submitted to the parliament of Ukraine, and we are awaiting its consideration. By the way, the law on seaports also provides for operation and development of free zones.

I would also like to talk about the major difficulties that do not allow our partners and us to develop at a high level of intensity.

The difficulty number one is funding.

I want to remind you that maintenance and construction of strategic and other port infrastructure are financed solely with port charges and other funds generated by the enterprises themselves. Moreover, a serious shortage of such funds exists and has always existed. There is even a shortage of funds for those projects that I listed, and it is only 30% of the total required amount. And it is now necessary to perform such work everywhere because the average wear and tear of port infrastructure is well over 50%. There is a need to dredge to at least the standard depths everywhere, not to mention the fact that it is necessary to reconstruct and build. The shortage of funding for next year is already about UAH 1 billion.

It is clear that port charges can only be used for its intended purpose because this is what the law stipulates. When speaking about the level of charges, it is necessary to understand what we want to achieve. If we want to create competitive conditions at all Ukrainian ports to enable them to compete on equal terms with ports in Romania, Turkey, Russia, and Bulgaria, then it is necessary to realize that simply talking about the need to reduce port charges is not enough. At least until we begin to subsidize the construction of approach and access routes to ports with funds from the state budget or any other sources.

Ukraine is now the only country in the Black Sea region that does not subsidize construction of access roads to seaports with funds from the state budget. Such subsidies amount to hundreds of millions of dollars at all the ports competing with Ukrainian ports. Here, however, I stress again that throughout the recent history of the port industry construction of port railways, flyovers, automobile roads, approach roads, access channels, and water bodies has been financed solely with port charges and other funds earned by ports themselves.

Definitely, it is necessary to optimize port charges, primarily when we are talking about transit. However, the approach to this work should be flexible and should have an economic effect. If it is becomes clear that reduction of port charges will result in additional volumes of cargo traffic, it is necessary to go to the ministry immediately and request changes to the Order No. 316 (the order No. 316 of May 27, 2013 entitled "On Port Charges"). It is not enough just to say that it is necessary to reduce charges for the export/import because they are higher. I remind you that the size of port charges in absolute terms is now an average of USD 1.5-1.9 per ton of cargo.

By the way, there is another difficulty in the context of port charges: fishing seaports, which in accordance with the Law on Seaports have dropped out of the law’s sphere of influence, are only nominally called fishing ports. Largely, they engage in transshipment of goods, i.e. they are actually stevedoring companies that do not fall under the scope of the Law on Seaports. In connection with this and from the viewpoint of collection of port charges, there is a legal conflict. The Ministry of Infrastructure is preparing changes to the order on port charges to avoid the problems that our customers are now experiencing because of this situation.

An unfavorable aspect is an issue related to registration of immovable property and property rights

The next issue that is also holding back the active development of ports is the issue of land relations. The unregulated procedures for allocation of land often do not allow our partners and us to start construction work. In particular, there are difficulties associated with the procedure for assigning cadastral numbers. To solve this problem, parliamentary deputies, with the participation of the Ministry of Infrastructure, have prepared a draft law on comprehensive resolution of this issue. The draft law has already been submitted to the parliament of Ukraine.

Finally, the third unfavorable aspect is an issue related to registration of immovable property and property rights.

Speaking of concession, which is the priority form of cooperation with investors, or other forms of cooperation with investors, we understand that there is a need for high-quality preparation of documentation for facilities, including entitlement documentation. Unfortunately, a significant part of port infrastructure was built decades ago and today, in accordance with the legislation, it is often impossible to register them. This requires special conditions. Therefore, we are studying the issue of how to adjust the regulatory framework in this area jointly with the Ministry of Infrastructure, and our proposals will soon be sent to the Ministry of Justice in the form of draft regulations.

Summarizing the interim results, I will say that a port council made up largely of representatives of private businesses has been created at every seaport. The councils consider plans for development of seaports and, in their final form, the plans will soon be sent to the Ministry of Infrastructure for approval.

In addition, in the four months of existence of the ASU, the Ministry of Infrastructure has drafted and adopted about 20 standard acts in the form of governmental and ministerial decisions with our participation and introduced a register of hydraulic structures.

In summary, I would like to say that we are only at the very beginning of the path, the path towards reforming the port industry and creating competitive conditions there. There are still many steps ahead that we need to take together. In the end, we intend to create an effective, working system that will suit everyone – the government, consumers of services, and all representatives of the maritime business.

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Tags: seaport, Ukraine