The speakers at the event, which was organized by the Center for Transport Strategies, were Ukraine’s Deputy Minister of Infrastructure Dmytro Demydovych, the Roland Berger company’s board member Maria Mikhailenko, the Administration of Ukrainian Seaports’ head Yurii Vaskov, and PwC’s Business Development Director Andrew Kuzich. The participants also included the Brooklyn-Kyiv company’s General Director Yurii Hubankov, the Portinvest Holding’s General Director Oleksandr Smyrnov, the Illichivsk merchant seaport’s head Oleksandr Hryhorashenko, the Ukrainian Federation of Transportation Employers’ head and Ukraine’s first minister of transport Orest Klimpush, and Ukrmorrichflot’s head Volodymyr Sevrukov. In total, about 100 people attended the conference.
Demydovych said that the Law on Seaports would not work without private investment. "The reform is being implemented in the spirit of public-private partnership. Therefore, the law itself does nothing if there is no investment,” he said.
He also touched on the topic of transit. "The transit cargo traffic that we currently have is residual. We do not have significant logistical advantages in the battle for cargo traffic. There are no obvious advantages, but we have to create them. Those investments that we plan to implement at ports will tie real businesses to terminals, and we will gain an additional competitive advantage,” said Demydovych.
The deputy minister of infrastructure also said that discussions were still continuing on the issue of concession fees. "We have taken out a certain period of time to develop the concession system," he explained.
Below, we provide extracts from the addresses of some of the participants in the roundtable.
Yuri Vaskov, director of the Administration of Seaports
"The Administration of Seaports should guarantee that all the actors operating on the territory of a port have equal access to strategic facilities"
One of the innovations is the change of the management system. In principle, it would be impossible to create normal conditions for investment without changing the management of each port. What are the main functions of the Administration of Seaports? I will highlight the top five:
Ensuring equal access to port infrastructure, which will be the main assets of the administration and its affiliates. In other words, the Administration of Seaports should guarantee that all the entities operating on the territory of a port have equal access to strategic facilities and public facilities.
Maintenance of strategic facilities sites in accordance with their ratings. If we look at the maintenance of the water body and the hydraulic engineering facilities, it is clear that we have been forced to spend more than 50% of the targeted investments aimed at increasing depth, reconstruction, and modernization on other types of activities. The operating system was such that sometimes the port, the stevedore, and the owner of berths had operations unrelated to transshipment of cargoes simultaneously imposed on them. Therefore, ports were forced to spend their fees on other types of operations. The result was depreciation of fixed assets and discrepancies between ratings and actual performance.
The third is most important: ensuring and coordinating the development of seaports. We get a uniform approach to a modern and efficient development process. By law, the basis for this is the 25-year development strategy that was adopted by the Cabinet of Ministers. It differs from the strategies that were adopted previously because those documents were unrelated to the real situation at ports and were merely declarative in nature. Now, the strategy is the basis for development of every port and sea terminal. It was developed with the participation of the world’s leading companies with experience of operations in other countries and at other ports and experience in the area of concessions. The development strategy for each requires short periods, but it follows the overall strategy. There is a uniform approach, a document written in the modern way and which determines the development of individual ports and the industry as a whole.
Ensuring implementation of investment programs. At present, the working processes here are quite complex and bureaucratized. About half of the existing ports will be able to go all the way from design to construction. How they will do this is a separate issue. Attempts by ports to move forward independently led to, among other things, depreciation of infrastructure. In connection with this, the Administration of Seaports should also act as a lobbyist – in a good sense – for all procedures - from agreements on paper to implementation of projects.
The fifth function is to ensure safety: the use of port and shipping infrastructure, coordination of issues related to the regime, and the handling of emergencies. The law identifies this as an area that needs to be coordinated and effectively developed. We will focus, and if it works out, the Administration of Seaports will be able to live up to the hopes placed on it by the authors of the law, the leadership of the country, and the ministry.
Andrei Tsokol, a representative of the European Bank for Reconstruction and Development
"The EBRD should be involved in the project at an early stage, during the organization of the concession competition"
The EBRD has been operating in Ukraine for 20 years, and it actively finances the transport industry. Its port segment is one of their most fundamental and promising. We are already working with Ukrainian businesses on several projects in which investments are measured in tens of millions of dollars. We definitely want to step up investments in the port sector. We are ready to consider new projects.
It was nice to hear that the interests of investors need to come first. This is right because any project is initiated by an investor while the bank - when it is involved in financing it - is the follower in this chain. When the focus is on the concession mechanism, it is important to involve banks.
The EBRD has its policy on financing concession projects. These projects are an example of public-private partnerships. When the state invites an investor to implement a certain project on conditions of open competition, this allows selection of the best proposal. This suggests that the EBRD should be involved in a project at an early stage - during the organization of a concession tender and preparation of tender documentation. If the concession tender is not transparent, the EBRD may simply refuse to finance the project.
We fully support the proposal to include the EBRD in the working groups for preparing concession tenders. We are ready to participate in their work. Moreover, we are ready to communicate with investors in the port industry.
The direction of the reform of the port industry was chosen correctly. The main task now is to begin implementing the strategy.
Julian Smith, Partner at PwC Ukraine
"High demand for investment aimed at improving the efficiency of ports is expected"
We believe that concession contracts for Ukrainian ports will be attractive to investors. Why? Ukraine is one of the emerging economies in the region with a high port turnover. High demand is expected for investment aimed at improving the efficiency of ports, and concession contracts will allow port operators to generate new sources of revenue. At the same time, there are certain risks that need to be taken into account when structuring concession contracts. The first is the political risk, the risk of losing the object of the concession. The next are the port administration’s lack of experience in managing a concession mechanism, the dependence of investment on land-based infrastructure, competition from Russian ports and other ports, the operator’s obligation to pay a fixed concession fee while changing course and, finally, the potential complication involved in raising the efficiency of ports.
If our goal is to attract private capital to finance development of the port industry, there should be guarantees from the government so that foreign investors can be confident that all the work that they do will conform to international standards in the end. For example, literally not long ago, I looked at a project involving a concession contract for transport infrastructure in a country neighboring Ukraine. It turned out that the government did not guarantee the feasibility of the project because international experts were not involved in its development, and the EBRD refused to finance the project. Often, the government does not have a clear idea about the interests of private capital. Government agencies often do not know how to structure a concession agreement to ensure that it is beneficial to both the state and the private investor. Therefore, the involvement of experts is very important.
Victoria Papenkova, head of the working group on development of seaports at the American Chamber of Commerce in Ukraine
"We have sent proposals on improvement of the concession legislation to the Ministry of Infrastructure and the relevant parliamentary committee"
The American Chamber of Commerce in Ukraine unites representatives of foreign investor-companies that operate in different sectors of the country’s economy and create jobs. We not only represent the interests of these companies, but we also create a favorable climate for realization of these interests. Operating within the American Chamber of Commerce in Ukraine is a working group on development of Ukrainian seaports, which communicates the consolidated opinion of representatives of foreign investor-companies and prepares proposals for the government of Ukraine. In particular, we sent proposals on improvement of the concession legislation to the Ministry of Infrastructure and the relevant parliamentary committee last week, and we hoping that the proposals will be taken into account and that they will facilitate acceleration of the pace of development of the port industry.
To an investor that is implementing a project on a concession basis, three serious issues are important. The first is a detailed concession agreement. The second is the ability to overcome the permit system within a short time and guarantee of obtaining land rights and all the subsequent permits. The third is realization of the guarantees that the government provides to the investor, primarily the guarantee of return on investment.
Concession operations all over the world are based on these "pillars." For example, the Russian port of Taman is developing based on a public-private partnership. This is our dream, and we are also aspiring to this. We believe that concession is an effective and efficient mechanism that can and should be implemented at all Ukrainian ports.
Yurii Hubankov, general director of Brooklyn-Kyiv
"A sufficiently normal and bright future is beginning today"
We have gone through difficult times. A man who has never felt dirt and dust on his face and who has never tasted blood can never value the results of victory. I have been involved the operations of a stevedoring company since 1991. Our first company was registered as number three in the then-Ministry of Finance. We began stevedoring operations that year. Brooklyn-Kyiv was registered in 1993, and we easily transshipped 1.7-18 million tons through berths. During this period – almost 20 years – investments have totaled about USD 100 million. At present, Brooklyn-Kyiv transships 6.7 million tons, and it has created more than 300 additional jobs. However, this was done not only thanks to the operations of Brooklyn-Kyiv, but also in spite of the dirt and rocks that we have received from the state.
A sufficiently normal and bright future is beginning today. A reasonable combination of a state-owned port and a private investor is a very good example. We have good prospects, we are already implementing a number of projects, and we expect to increase the cargo turnover by 1.5-2 million tons in in 6-7 months. In another year, we will increase it by a further 700,000 tons. I am officially announcing that we will participate in the concession tenders. We fully support this method. Banks and all other entities understand it, and we will support it in all possible ways. These projects will allow increase of the cargo turnover at our complex and creation of around 500 additional jobs with an average salary that is 10-13 times more than the official subsistence minimum. I understand that each of you has made an elementary calculation regarding how this will benefit the government, the ministry, and the port. It is a tool that allows creation of additional infrastructure and opens new opportunities for investors and ports. Today, it is necessary to invest and achieve results.
However, I have a suggestion. We have obtained a territory on which the complex is being built. We spent two years processing all the permits and then started working with the EBRD, which completely restructured all our documents. This will require an additional six months. In addition, this amounts to additional money, additional time, refunds, and more. Representatives of the EBRD should be included in the tender committee for concessions. Consulting companies often increase the volumes of their work and it later turns out that the document does not meet the requirements of the bank. To avoid repetitive filing of documents, it is necessary to include representatives of financial institutions immediately.
