The Kherson Commercial Seaport is the first concession facility in the Ukrainian port industry. The concession tender was won by Risoil-Kherson LLC, which is a consortium of Petro Oil and Chemicals (Georgian Industrial Group) and Risoil S.A. (Switzerland). Risoil-Kherson LLC was granted a 30-year concession almost three years after the signing of the agreement under which the European Bank for Reconstruction and Development (EBRD) provided funds for financing the feasibility study for the project.
The concession agreement was signed by the state secretary for the Ministry of Infrastructure, the head of the Ukrainian Seaports Authority, Risoil-Kherson Project Company LLC’s representative Vladislav Talakh, and Risoil-Kherson LLC’s representative Shota Khadzhishvili.
According to the European Bank for Reconstruction and Development’s Deputy Director for Ukraine, Mark Magaletsky, this is the first concession project to be implemented in Ukraine in accordance with international best practices and awarded as a result of an open tender. It served as an example for development of a model for investment in not only the port industry, but also in infrastructure and other sectors where the concession model is applicable.
“A good precedent that will allow this model to be applied to other facilities and other industries in the future has now been created. For a long time, lack of real tools was one of the main problems in terms of attracting private investment in infrastructure in Ukraine. This opportunity has now been created for private businesses and the state," Magaletsky said in comments to the CFTS portal.
Infrastructure Minister Vladyslav Kryklyi stressed that his ministry would continue the practice of public-private partnerships. “This is the first concession project in the port industry and, of course, not the last. The next are the Olvia seaport with a Qatari investor, the Chornomorsk seaport, the Black Sea ferry, and the Berdiansk seaport. We will try to implement more public-private partnership projects. It is simple: if you take the 100 largest ports in the world, 94 of them either are concessions or privatized. The state should create conditions for businesses to operate efficiently," he said.
The signing history
It was determined in 2016 that the first pilot concession projects in the port industry would be implemented at the state-owned Kherson and Olvia seaports. The Ministry of Infrastructure (headed at that time by Volodymyr Omelian), the EBRD, the IFC, and the Spilno Project Office have been working on these projects since then. The Ukrainian Seaports Authority and the EBRD signed an agreement on financing the feasibility study for the Kherson seaport concession project in in London in November 2017. The Ministry of Infrastructure announced the concession tender in September 2019 after completion of all the relevant phases. Risoil-Kherson LLC was declared as the winner of the concession tender in January 2020.
However, the Sixth Administrative Appeal Court of Kyiv decided in February 2020 to suspend the Ukrainian Ministry of Infrastructure’s order that approved the results of the concession tender for the Kherson seaport because of a lawsuit filed by Kherson Seaport Special Company LLC, which argued that the decision to disqualify it from the concession tender was unlawful. The Supreme Court overturned the Sixth Administrative Appeal Court of Kyiv’s decision in May. The minister of infrastructure announced in mid-June that the text of the concession agreement had been approved and that it would be signed soon.
The main terms of the concession agreement
Under the terms of the concession agreement, the concessionaire, Risoil-Kherson LLC, is granted the exclusive right to create, build, and operate the Kherson seaport with a view to its modernization and further development. The concession is for 30 years. The concessionaire is obliged to make an annual concession payment of at least UAH 12 million (taking account of indexation) and 7% of its net income. It is also obliged to ensure that the seaport’s transshipment volumes reach at least 1.36 million tons in 2030. In addition, Risoil-Kherson LLC is required to compensate the cost of preparation of the concession project, including the cost of preparation of the feasibility study for the concession project and the tender documentation that was drafted by the EBRD (EUR 670,000).
Under the terms of the agreement, Risoil-Kherson LLC must invest at least UAH 216 million in the seaport within 3.5 years after the end of the transition period and at least UAH 62 million more within 10 years. In addition, the concessionaire is required to invest at least UAH 18 million in development of local infrastructure, including co-financing overhaul of the surface of the road on which trucks travel to the seaport and construction of a new truck park capable of accommodating at least 20 trucks on the outskirts of the city.
Employees of the state-owned Kherson commercial seaport and some employees of the state-owned Ukrainian Seaports Authority are to be transferred to Risoil-Kherson LLC. Within three years of transfer of these employees, the concessionaire cannot reduce their wages below the level established as of 01.03.2019 and it must increase their wages in accordance with Ukrainian legislation and the relevant industry agreement. In addition, these employees cannot be dismissed at the initiative of the concessionaire or a body authorized by the concessionaire within 10 years of their transfer from the state-owned Kherson commercial seaport and the state-owned Ukrainian Seaports Authority.
Risoil-Kherson LLC plans to transform the Kherson seaport into a river logistics hub. "We want to regulate and transform Kherson into a hub for the entire river. We want to … build a fleet that will cover the entire river and keep the river open in the winter," Khadzhishvili said.
“We have spoken to our investors. They are ready to significantly increase the indicators stipulated in the concession agreement and create a hub on River Dnipro to facilitate transshipment of not only maritime cargo, but also cargoes being transported on the river to areas that are in need. For example, our fruits and vegetables," the Kherson region’s Governor Yurii Husev said, confirming the concessionaire’s plans. Incidentally, Husev was Minister of Infrastructure Omelian’s adviser on public-private partnership. Before then, he was the head of the Spilno Project Office.
Risoil-Kherson LLC launched a project for expansion of trading activity at the seaport with the help of warehouses, loading facilities, and laboratories during the signing of the contract. In addition, two pilot projects for transshipment of bulk feed and food cargoes were launched at the Kherson seaport.
The company plans to invest in modernization of the existing warehousing facilities and purchase of new mechanization equipment, and automation of processes in the coming years. "Simultaneously, we plan to develop the processing capacity in close cooperation with the local authorities, which will allow us to operate the port at full capacity. This will involve production of soy, bran, etc.," said Khadzhishvili.
According to the Risoil-Kherson Project Company’s parent company, Talakh now has the task of not only taking over the assets of the Kherson commercial seaport and building new facilities in the port, but also the task of “creating a regional logistics hub in the Kherson seaport for exporting products manufactured in the Kherson region and the nearby regions to international markets."