The head of the Administration of Seaports of Ukraine, Yurii Vaskov, held an online video conference on the CFTS portal at 16:00 on Tuesday, June 18.

The online video conference with the readers of the portal was held in connection with the entry into force of the Law on Seaports of Ukraine and the beginning of economic operations by the state enterprise Administration of Seaports of Ukraine.

New law, new rules. What should the port industry expect from reform?

Watch the full video here

Good day Yurii. My first question may seem simple, but it is fundamental. Why was the Administration of Seaports of Ukraine created and the best equipment transferred onto its books? Where did assets and transport means go?

Yurii Vaskov: I would divide this question into two parts - first, why the administration was created; second, regarding the best equipment. It should be said that not all the best assets were transferred to the administration, but only the equipment that should be transferred in accordance with the requirements of the law. Specifically, these are general-use assets, strategic assets such as a water bodies, berths, and hydro-engineering facilities. The condition of the objects is completely different, but that is a separate issue. With regard to the administration, one can return to the Odesa seaport, the economic and administrative parts of which were de-facto divided 20 years ago and where this scheme generally demonstrated its effectiveness. Specifically, the purpose of the state and the administration is to maintain the strategic assets (the water body and berths), maintain their ratings, develop them, and create the conditions necessary to attract investment in stevedoring operations and the back end, as well as for them to operate efficiently, create jobs, increase cargo processing, and increase budget revenue. In other words, division into administrative and economic parts is a step toward strengthening the position of our ports in terms of competition.

Viktoria Podolianets (Kyiv): Yurii Yurievych, what can you tell us about the operations of the Administration of Ukrainian Seaports in terms of preparation of facilities for operation under concession or lease agreements? Are the provisions of the relevant agreements being drafted? Are facilities being selected for tenders? How long, in your estimate, could it take an investor to obtain all the permits necessary to sign a lease or concession contract for a facility? Refund of the investments that companies previously made in ports. How many applications have you received or expect to receive? What factors will affect their approval?

Yurii Vaskov: First of all, it is worth recalling that lease of facilities, award of concession contracts for them, and the preparation for these procedures are performed not by the administration of seaports. If we are talking about concession, the management body is the Ministry of Infrastructure. If we are talking about lease, it is the State Property Fund. That is, the role of the enterprise for the property of which a concession contract is being awarded is to perform preliminary work with potential concessionaires or leaseholders, preparation of certain documents, and their transfer to the ministry or the State Property Fund. Regarding the specific issue of preparation, a working group has been set up in the Ministry of Infrastructure to prepare a mechanism for organizing concession tenders and perform the subsequent processes. The Administration of Seaports of Ukraine is only one of the state enterprises, for the assets of which concession contracts may be awarded in the future. Therefore, we - like all other businesses - are monitoring the market and looking at potential concessionaires. When the necessary procedures are approved, we will participate in them.

Nazar (Mariupol): Stevedoring companies and lawyers believe that the draft procedures for compensating investors for the funds they invested in terminals creates a strong dependence on the Administration of Seaports of Ukraine, since it is specifically the administration that decides with whom compensation agreements should be concluded and with whom they should not be concluded. In addition, according to them, the administration may simply not have the resources when needed because it has no attachment to the finances of any specific port. Will the draft document be redrafted before its approval?

Yurii Vaskov: I consider the fact that such a draft law exists as a positive thing, and I hope that it will soon become law and that it will introduce the first mechanism for compensating investors for the funds they invested because there has been no such mechanism until now. The main question asked by all the investors that have invested heavily in the development of port infrastructure is how they will be compensated for these investments if certain contractual terms change. Until now, there was answer to this question. It is probably true that this document is not perfect. Of course, proposals on improving it are being accepted, and it can be refined. However, I can see the benefit in the fact that we have a place from which to start. Time will tell how complex this mechanism will be and whether it is good or bad that it will be the administration and not the Cabinet of Ministers or some other agency. I can only say that the task of the administration is to make this mechanism as comprehensible, transparent, and compatible with international practice and the understanding of investors as possible.

A significant part of the revenues that ports are presently earning will go to the Administration of Seaports of Ukraine. Will this not lead to bankruptcy of state-owned stevedoring companies, followed by their privatization for a penny and massive loss of jobs, as has been the case with many state-owned companies in other industries?

Yurii Vaskov: First, I will say that during the reorganization, the leadership of the country set the ministry the task of preventing any social problems in the form of reduction of wages and social guarantees for employees of those businesses that are being reorganized. The Ministry of Infrastructure imposed a moratorium on dismissal of workers from early 2012, and this moratorium has been enforced. As a result, the Administration of Seaports of Ukraine received a significant number of fixed assets that it does not need at the end of the reorganization, and the sole purpose of this was to ensure preservation of social stability. In other words, the administration received not only strategic objects, but also a significant part of the social infrastructure and other costly and non-core objects that it will have to finance, thereby relieving state enterprises. Therefore, the task every enterprise was to ensure that the outflow of port charges did not lead to problems. I will tell you more – a significant proportion of the administration’s affiliates are unprofitable. Therefore, there are cases in which the administration not only did not receive part of the profits of state enterprises but instead took over their losses. Therefore, it will not be possible for everyone to abruptly become profitable - unfortunately, there will not be instant profits where there were losses. The administrative reform was implemented in a way that will ensure that the economic and social situation does not worsen. I believe we succeeded in doing that.

Honestly, how many Ukrainian ports will exist in five years because it is already clear that we cannot compete with Russia? Which ports will be the first to be saved by the government and how?

Yurii Vaskov: What is important is not quantity but quality, the number of jobs, and investment. Certainly, the presence of a port in each maritime region also has social significance because most ports are enterprises on which cities are dependent and they carry a serious social burden. My opinion is this: firstly, it is necessary to remember that a port became a geographical rather than a legal concept after June 13. It is a definite territory and water body defined by established boundaries. From the point of view of competition from Russia, what can be done is primarily for the state to create the conditions that will ensure that there is cargo traffic here. Creation of conditions is a broad area of operation that also involves an infrastructural component and a favorable legal and regulatory environment. We can only initiate it, but it has to be approved by the appropriate authorities. Of course, the political aspect is important. If the government creates normal, favorable conditions for owners of transit cargo, it will not be necessary to fear the competition but just to compete efficiently. Unfortunately, a serious risk to the port industry lies in the fact that the trend toward a fall in the volume of transit cargo traffic will continue and even deepen unless the necessary measures are adopted.

We heard that social infrastructure might be transferred to investors. Where is the guarantee that investors will not begin transforming kindergartens into offices or that they will not turn our vacation homes into commercial enterprises that ordinary port workers will not be able to afford?

Yurii Vaskov: When determining the fate of one type of social infrastructure or another, we always do it together with representatives of the trade union of ports. Therefore, when an object is separated from the administration or left as part of it, it is all done by agreement with the trade union. The same applies to leasing. However, there is another situation. Faced with the social infrastructure of ports, we concluded that, unfortunately, about 40% of the infrastructure is no longer in use and that this has been the case for quite a long time. Many kindergartens, summer camps, and recreation centers have been out of operation for a long time because even the enterprises themselves are no longer able to maintain this infrastructure. Therefore, all the workers of the enterprises understand today that instead of keeping loss-making social infrastructure, it is better to give the money to every employee in the form of additional payments or financial assistance for rehabilitation. However, I stress that all the infrastructures that are in use continue to function regardless of whether they will be in the hands of the administration, an investor, or a state enterprise.

Elyna Moskovchuk (Kyiv): Yurii, what changes to port infrastructure are necessary to attract cruise liners? What will this cost in terms of investments? To what extent can the newly introduced Law on Seaports help to attract investment to the cruise-related operations of Ukrainian ports?

Oleksandr Petrov (Yalta): Will the Administration of Seaports of Ukraine attract investment for reconstruction of the port infrastructure in Yalta? If so, when should change be expected?

Yurii Vaskov: The question is very topical, and I can speak at length on this subject. Briefly, it is necessary to create an infrastructure that meets the current requirements of cruise companies at Ukrainian Black Sea cruise ports. Primarily, these requirements are the ability to dock and service cruise ships safely and efficiently. I will provide just a few figures: the Aurora vessel with a length of 272 meters was the first and only one of this size at the Odesa seaport in 2004 but about 50% of the cruise ships calling at the port today are vessels with lengths of 250 meters or more and up to 30% are vessels with a length of 300 meters. At the same time, the Odesa seaport is the only Ukrainian port capable of receiving such vessels. Unfortunately, the port of Yalta, which, by the way, has no less - maybe even greater - tourism potential, has only a 200-meter berth, which does not allow it to service modern cruise ships fully in accordance with international standards. The port of Sevastopol is also limited to a length of about 200 meters. I am not even talking about the other smaller ports that are also of interest, but companies cannot consider them today. One more figure: 400 cruise ships called at Istanbul from the Mediterranean Sea at the end of 2012. Of these, 320 turned around and left and only 80 called at Odesa. That is one-fifth. That means that what needs to be done is to invest some amount - tens and even hundreds of millions of dollars - in infrastructure at the ports that are most attractive to cruise ships - Yalta, Sevastopol, and Odesa - because every port should develop. The market requires this.

We have received a number of new questions regarding tariff policy. The new law of Ukraine on prices and pricing does not grant the Cabinet of Ministers the power to regulate prices. However, there is one caveat: Paragraph 2 of Article 5 states that the Cabinet of Ministers regulates prices of social services. The list of social services has been approved. Does this mean the start of introduction of free tariffs for the operations of stevedoring companies?

Oleh Antonov (Mykolaiv): which official document currently sets the tariffs and rates of port charges following the cancellation of the resolution No. 1544 "On Port Charges?"

Yurii Vaskov: On prices: on the one hand, the law on seaports establishes the list of services for which tariffs are regulated by the government and stipulates that the remaining tariffs are free. On the other hand, there is the law on pricing, which allows the Cabinet of Ministers or other authorized agencies to determine additionally which tariffs need to be regulated. We have studied both these legislative acts and concluded that it is probably too early to allow stevedoring tariffs to float freely because this could have negative consequences. Moreover, the ministry has discussed the issue involving attraction of both public and private stevedoring companies. The issue was discussed at a meeting of the coordinating council of seaports, which was recently created, and the majority supported the decision to continuing regulating tariffs for cargo-handling operations at this stage. The ministry outlined its position and sent it to other ministries and agencies for approval, including the Cabinet of Ministers, as required by the regulation. Our position is for preservation of regulation. At present, it is difficult to say what the answer will be, and it is necessary to wait for the official positions of government agencies.

As for port charges, it is true that the resolution 1544 has been canceled and that a collection of tariffs for port charges approved by an order of the Ministry of Infrastructure came into effect on June 13, as stipulated by the Law on Seaports. It stipulates that tariffs should be established by the National Transport Regulation Commission and by the Ministry of Infrastructure during the period of creation of this commission. The Ministry of Infrastructure has issued the relevant order, the rates for seaports remain the same, but they have already been approved by a decree of the Ministry of Infrastructure. It is on the website of the ministry.

Yevhen (Mykolaiv): Will the discount for container lines be preserved?

Yurii Vaskov: This is probably about discounts for linear calls at ports and, in principle, not only for container cargo. They exist and will continue to exist. Ukrmorrechinspektsia performs registration of the relevant lines. Therefore, the procedure remains the same. The only thing is that instead of the discounts being approved by two entities - at the port and at the Delta Lotsman enterprise - approval now needs to be obtained from only the Administration of Seaports, which is the organization that collects pilotage, radar, and port charges.

When will the lawlessness of environmentalists at ports end? What can the Administration of Seaports do to reduce their influence and eradicate corruption?

Yurii Vaskov: It is not quite right to address questions about lawlessness to us because the appropriate authorities for this exist. As for the Administration of Seaports and what it will do to bring the procedures for cargo owners in line with international practice, our task is to initiate the appropriate changes to the legislation and insist on their implementation.

Out of the legislative acts that are currently being prepared, which do you think should be prioritized?

Yurii Vaskov: There is an entire set of documents, part of which has been adopted and part of which is in the process of approval. They include the strategy for development of ports, the procedures for compensating for investments, the procedures for providing services - many documents. In addition to this, we will draft additional proposals on optimizing the regulatory procedures at ports. These include the law on container transport, which needs to be adopted urgently, laws aimed at optimizing crossing points, and several documents aimed at legalizing the procedure for the single information community, the single electronic document, and the single window. We should integrate into the international best practices for port operations, and the set of documents necessary has no limits.

How will the fleet on the books of seaports be managed? Is modernization of the old and purchase of a new fleet under the administration’s management part of your strategic plans? Thank you.

Yurii Vaskov: This is not only included in our plans, but it is also our responsibility. It is a provision of the law: the administration is obliged to acquire the number of fleet necessary to perform its functions. Which fleet is applicable to the Administration of Seaports? It is everything associated with security: waste, oil, trash disposal vessels, ice-breaking vessels, a dredging fleet. The law spells all this out, so the Administration of Seaports has the right and duty not only to modernize this fleet, but also to upgrade it.

We have many questions relating to the personnel of the administration. Have you already decided on the organizational structure of the Administration of Seaports of Ukraine, the location of its office, and its staff?

Vaskov Yurii: Yes, the Ministry of Infrastructure has approved the organizational structure of the main office. It provides for location of the main office on the premises of the Ministry of Infrastructure in Kyiv; the main executive operational office will be in Odesa. The largest number of personnel will also be from Odesa because the human potential of the region is still concentrated there. Strategic decisions and operational planning will be in Kyiv, where the financial and legal part of the entity will be concentrated.

Regarding the staff, the process of approval will be completed in the near future, and I think that we will be able to name the heads of the main departments. I will only say that the staff consists of the most experienced personnel who have established themselves as the leaders of the industry. They are mostly workers in the maritime complex, although there are also representatives of other industries. There are also representatives of private businesses, stevedoring companies, and freight forwarding companies.

There have also been individual appointments: the first deputy head is Oleksandr Horodnytskyi, who headed the Delta Lotsman state enterprise for many years and worked in central government agencies, in the State Department of Maritime and River Transport as deputy director. The deputy head of operations is Oleksandr Hryhorashenko, who headed the Illichivsk merchant seaport. He was once the first deputy head of the Pivdennyi port after working at the Odesa merchant seaport. He rose from a dock worker to become the head of the port and he once headed Ukrmorport.

The chief accountant is Natalia Kharadzha, a former chief accountant at the Odesa seaport.

However, this is only part of the team. I do not want to forget anyone, thereby offending them. I think this can be discussed separately.

Have you considered the idea of a public advisory council made up of people who have not worked in the public sector - lawyers, consultants, and industry experts- under the administration of ports?

Yurii Vaskov: Not only have we considered it, we have already created it. It is called the coordinating council of seaports of Ukraine, which consists of dozens of companies. They are representatives of ports, stevedores, potential investors, and freight forwarders. In short, all the businesses that are interested in participating in the reform. I was elected as the chairman of the coordinating council and the deputy chairmen are Andy Kuzich, the director of business development at PwC Ukraine, and Yurii Hubankov, the owner of the Brooklyn-Kyiv stevedoring company. If you wish, you can apply for membership of the coordinating council. In turn, I would also like to make the counter request that representatives of businesses participate more actively in the creation of the legal framework. They believe that the work is being done behind closed doors, but in reality, it is open and they have little interest in it in practice. All the draft standard acts are posted on the website of the Ministry of Infrastructure as required, and they remain there for one month. However, there is minimal activity regarding its discussion. Complaints will be heard only when it reaches the Cabinet of Ministers. We are very interested in adopting everything openly and cooperatively, and we are encouraging everyone to be more active in the discussion of these documents.

Many questions about the Odesa port from the Rupor Odesa online publication. The idea of transferring the Odesa port from the state to the municipality was proposed not long ago. Is this topical now following the adoption of the law on seaports? Which promising investment projects will be implemented at the port in 2013-2014? Would a drop in cargo turnover at the port not lead to job losses and affect salaries? Who will be the main concessionaire at the Odesa port? Who are the contenders? The goal of a concessionaire is to create a technologically advanced infrastructure and establish operations aimed at earning maximum profits (the Law on Seaports was adopted for this), i.e. a significant increase in the cost of services should be expected. Will the organization of the concessionaire’s operations restrict the access of forwarders with small volumes of work to operations at the port by creating a few large forwarders? Will the concessionaire create a mega-park for container trucks for handling containers centrally?

Yurii Vaskov: Regarding transfer of ownership to the municipal authorities, this issue is not being considered seriously because it is premature today and municipal authorities have many of their own issues. As for concessionaires and investors, the de-facto model for private partnership in Odesa has been around for several decades. Practically all the companies present there have invested tens of millions in infrastructure and they have all declared a desire to switch to the concession form of operation because it is the more progressive, clearer, and safer form. At present, there is no clear mechanism for transition from one form to another. As soon as we find it, the transition will be quite active.

As for new sites for investment, I see two. The first is a passenger complex. We are inviting leading international cruise companies to become concessionaires of the passenger complex. The second site is the territory of the former Ukraina shipyard. We have optimized its operations, minimized the ship repair area, and the rest of the territory is a potential object of investment.

Regarding consolidation and restriction of the operations of smaller companies, I see no reason to worry. The law prevents interference and consolidations are not particularly visible. There are 14 stevedoring companies in Odesa today, each with its own cargo turnover. The main thing is for the environment to be favorable and for there to be containers, shipping lines, etc. on the market. It is necessary to resolve the situation involving containers urgently because transit cargo is leaving.

The Rupor Odesa online publication (Odesa): Will the drop in the cargo turnover at the port not lead to job losses and affect salaries?

Yurii Vaskov: Any fluctuation of the market affects it in varying degrees. The only issue is the margin of safety. It is worse when the effect is due not to the general trends on the market but subjective factors. Less revenue means less opportunity to increase wages and social welfare. Our task is to ensure that the drop is minimum, that the effect is minimal, and for us to survive it and hold on until implementation of investment projects, after which we expect growth.

Valentyna Urodlivchenko, head of the training center of the Administration of Seaports of Ukraine’s Kherson affiliate: Hi! The state policy on on-the-job personnel training -how do you view the future of on on-the-job professional training in the industry? Are training centers the past or the future of professional development of port workers and their increased competitiveness? Why have they been surviving alone for over 30 years in the industry despite the fact that overseas colleagues are studying their many years of experience? Thank you

Vaskov Yurii: The Administration of Seaports of Ukraine presently does not engage in these activities because the law makes no provision for them. I can only say that it is not important who does it and that what is important is that it is done. Yes, human potential is valued, but that is only for now. During the appointment of the staff of the administration, we encountered a shortage of personnel in all areas of the industry - the finance, economics, security, personnel policy, occupational safety, production workers. Shortages at all levels. We will definitely think about it, but the issue needs to be raised at the government level.

What will be the nature of relations between affiliates of the Administration of Seaports of Ukraine and state-owned enterprises at ports in the future? Will it be as legal entities under the active legislation or will there be legalization of a form of closer partnership on the issues regulated by the Law of Seaports?

Yurii Vaskov: The administration must ensure equal access and a level playing field for all economic entities. Initially we tried to remove from state-owned enterprises the non-core assets that they will not be able to finance and keep on their books and thus give them the opportunity to become as competitive as possible. Relations are regulated by the legislation, but I am sure that the ministry is monitoring the economic and social stability of every state-owned enterprise very closely and that it will intervene promptly in case of negative trends.

Why is the Register of Hydro-Engineering Structures not being created based on the register’s data without additional submission of applications and documents? Why duplicate documents and data?

Yurii Vaskov: I also think that the register of hydro-engineering structures should be integrated into the register as much as possible. I do not rule out the possibility that we will ask the ministry to make the appropriate changes to the procedures for keeping this register.

Artiom (Kyiv): Please, tell me how the terrestrial boundaries of ports were determined. Is it possible for the Cabinet of Ministers to forcibly include land in the territory of a port?

Vaskov Yurii: First, I would like to say that land relations should not be confused with boundaries of ports. The boundary of the territory of a port has nothing to do with change of ownership of land and the property located on it. It is the establishment of the borders of a port from the viewpoint of the ability to perform its operations. A good example was cited at the State Land Committee when we agreed the borders with them: it is like a reserve that has a certain regimen. The law defines the cases in which a subject that is located even outside the boundaries of the main territory of a port could fall within these boundaries. The main thing is the desire of the subject to provide services in the port industry. Then, the subject has a right to be included. According to the law, sea terminals that lead to the waters of a port are subject to inclusion in the boundaries of the port. However, this has nothing to do with ownership. It gives certain advantages. Stevedores were initially very wary of such a rule, but we are now receiving from them requests to be included in the boundaries of port territories.

How do you feel about the idea of clustering ports? What are the key trends influencing the competitiveness of Ukrainian ports? What should be done to improve it now?

Yurii Vaskov: I see simultaneous implementation of three components, without which we cannot resolve the issue of return of transit goods and increase of their volume. The first is infrastructure. The sizes of fleets are increasing - container, dry-bulk, and passenger fleets. No matter how economically beneficial they may be, nothing will happen if we are unable to receive them physically. The second is optimization of the procedures for relations with cargo owners, i.e. customs, environmental, sanitary, and other procedures. It is necessary for clients to be comfortable and for them to be confident in the security of their cargo on the territory of Ukraine. The third is tariffs, both port and terrestrial tariffs. If we are developed and we complete the inspection of a container within one minute but the inspection is costlier than the inspection at an alternative port, a client will choose the alternative. Therefore, we will succeed only if all the three components coincidence.

Oleksandr Ivanchenko (Illichivsk): What is the procedure for leasing berths to a port operator, the possible lease terms, and who can initiate the lease process? Does the Administration of Seaports of Ukraine or its affiliates know the market value of possible objects of lease, and what is the rent rate?

Yurii Vaskov: It is clear that this question is professional and that its author knows the subject thoroughly. The Law on Seaports stipulates that the period of lease of berths should be up to 49 years. The procedure for leasing immovable property is clearly stipulated. Ask the entity that has the asset on its books, i.e. if it is a berth belonging to the Ukrainian Seaport Administration, ask the Ministry of Infrastructure, the ministry’s commission, and then the State Property Fund. The next things are selection of an appraiser on a competitive basis, organization of a competition, and then organization of a competition for the right to lease the asset.

Regarding rent, it is definitely established on a competitive basis through selection of an appraiser. What should it be? Few have performed valuation of a berth for the purpose of possible lease, but almost everyone has done it for the purpose of reflecting it in the accounting records. Therefore, it is possible to look and understand the price. From the viewpoint of the rate of rent, we recently received the response to your question from the State Property Fund - the rate of 15% will apply.