Representatives of private stevedoring companies, freight forwarders, law firms, and even trade unions agree that the amendments to the Law on Seaports that are currently being considered within parliamentary committees represent “a step backward" for the industry. The main provision that has prompted active antagonism is the one that calls for abolition of the Administration Seaports of Ukraine and a return to the old model in which a single state enterprise combined administrative and management functions at a port. Newly appointed Infrastructure Minister Maksym Burbak has supported the position of the port community, stating the need to continue the reforms that were launched in 2013. What are the arguments for and against?
The position of the authors of the draft law The draft law No. 4431 on amendments to the law "On Seaports of Ukraine" was registered in mid-March. The authors of the draft law (parliamentary deputies Anatolii Kinakh, Mykola Kruhlov, Yurii Kruk, Ruslan Solvar, Vasyl Derevlianyi, and Vitalii Barvinenko) propose abolishing the ASU and creating so-called state port operators, onto the books of which all strategic port infrastructures should be transferred.
In the explanatory note to the draft law, its authors said that the aim of their proposals is to restore seaports to loss-free operations and complained about imperfect distribution of property, powers, and functions between the ASU and state enterprises (they are obviously referring to state-owned stevedoring companies). According to the deputies, debts and liabilities are being concentrated in the hands of state enterprises while the majority of assets are being concentrated in the hands of the ASU. According to them, another drawback of the reform and the creation of the ASU is an excessive increase in the number of employees and duplication of the functions of marine exchanges, technical services, legal departments, accountants, etc.
The Ukrainian parliament’s Main Research and Evaluation Office generally supported the draft law. According to conclusions by the office’s head Vasyl Bordeniuk, it is inexpedient to create a state port operator for every port: in some cases, one such operator may coordinate the operations of several small ports.
Moreover, Yurii Kruk emphasizes that "his version” of the Law on Seaports (the version in which the law existed in the period of 2002-2007) proposed creating at every port a state administration that would own and manage all port property. According to him, more than 900 amendments were later made to this draft law, with the Cabinet of Ministers writing the model for the creation of the ASU into the law.
The sharp reaction from the industry Influential industry associations representing the interests of more than 1,000 companies in the industry have prepared seven official appeals to government agencies, arguing that it is necessary to continue the reform of the industry and that ill-considered legislative changes are unacceptable. In particular, a letter signed by the heads of sea terminals, port operators, and government marine companies (20 signatures in total) was sent to the chairman of the parliamentary committee on transport and communications, Borys Kolesnikov. The authors of the letter stressed that the Ukrainian port industry needs investment and that the current Law on Seaports has created real conditions and incentives for development of ports and protection of investors. According to the letter, separation of administrative and economic functions is a concept used in the leading ports around the world. The letter states that the initiatives proposed to the parliament will return the country to monopolization of the industry and that combination of the abovementioned functions in the hands of a state operator will create serious difficulties for development of ports and simultaneously create preconditions for increased corruption, which will significantly reduce the prospects for attracting investment.
The heads of the businesses that account for 85% of the total turnover of the seaports in Ukraine noted separately that industry and international experts debated the Law on Seaports for a long time before it came into effect. However, in the current situation, practically nobody has asked operators in the port industry about the need for new amendments to the law. Therefore, the authors of the letter proposed organizing a roundtable with the participation of real industry experts and investors (existing and potential).
The Ukrainian Federation of Transport Employers supported the position of stevedoring companies. The federation’s head Orest Klympush has sent letters to acting President Oleksandr Turchynov, acting Prime Minister Arsenii Yatseniuk, acting Minister of Infrastructure Maksym Burbak, and members of the Parliamentary Committee on Transport and Communications, asking them to take measures to ensure that this draft law is rejected. The Association of Container Lines of Ukraine, the Association of Freight Forwarding and Logistics Organization of Ukraine (Ukrvneshtrans), and the Association of International Freight Forwarders of Ukraine have also written letters expressing support for this position. These are basically the representatives of all the businesses operating in Ukrainian ports.
The priority is comfort and safety of investments Representatives of trade unions, agency companies, and law firms recently attended a meeting of the heads of stevedoring companies in Odessa. Oleg Kutateladze, the head of Transinvestservis LLC and chairman of the Association of Port Operators, stressed at the meeting that "the initiative of the six deputies" would result in directors of private companies, which are responsible for attracting investment and account for most of the cargo traffic in ports, being forced again to "go and bow down" to a port director appointed by the government. "The basic principles of the Law on Seaports are the principles of separation of administrative and commercial functions. The port authority is a separate entity at all ports in the world. Stevedoring companies operate independently, and they can be public or private. This is the core element of the entire reform of the maritime industry. Now, we are being asked to reverse all these, destroy the ASU, and unite everything under a single state maritime operator. This is not development, it is a return to the past,” he said. Kutateladze noted that the 2012 law granted official status to private stevedoring companies, adding that private stevedoring companies can operate normally and attract investment to ports only under such circumstances.
Kutateladze noted that the 2012 law granted official status to private stevedoring companies, adding that private stevedoring companies can operate normally and attract investment to ports only under such circumstances
The participants in the meeting also said that the concentration of port charges in the hands of the ASU simplifies administration and control over the use of funds at a time of acute shortage of funds for modernizing the industry because the minister has all the powers to tightly control and coordinate all payments through the ASU. However, such a practice is prompting active opposition from a number of port directors who want to use port charges not for the intended purpose but at their own discretion.
Artiom Skorobohatov, an associate partner at the Interlegal International Law Offices, stressed that the proposed changes would not only return the situation in ports to the previous relationships, but they would also significantly worsen the operating conditions of private terminals. "The parliamentary initiative will grant state operators much greater rights than ports previously had. A state-owned port monopoly with free tariffs and similar advantages will simply suffocate everything private that operates around it,” said the lawyer.
Oleksandr Kifak, the board chairman of the ANK law firm, drew attention to the positive and negative consequences of the current situation involving division of powers and finances in the industry. “On the one hand, the emergence of the law in its current version is of colossal positive importance because the rights of a private investor or a private operator to operate in ports are being declared. Previously, we acted based on the principle of ‘we operate because there are no outright bans.’ Today, we understand that we are located at ports on an absolutely legal basis. This offers an opportunity to look to the future with hope and to invest and thus develop,” Kifak said." On the other hand, Kifak emphasized that it is necessary to make other changes to the existing port legislation, namely to improve it, in order for it to be efficient. In particular, according to him, this concerns the issues of regulation of public-private partnership in ports, development of mechanisms for compensating for private investments in development of strategic port infrastructure, land issues, simplification of environmental control, and other issues.
Stevedoring companies and companies creating new investment projects in ports agree that it is necessary to amend the Law on Seaports. The Portinvest holding company’s General Director Oleksandr Smirnov said that the law needed to be supplemented with several provisions that were lost in the process of its harmonization in 2012. He proposed reintroducing the provision on granting investors preferential concession on operation of leased property. "We have discussed this with colleagues from the Odessa, Ilyichevsk, and Nikolayev ports. I am talking about property used in joint operations or property leased by companies that have long been operating in ports, made considerable investment, and created jobs," he said. In addition, he listed a number of necessary provisions, including provisions on granting a motivational status (tax preferences, privileges, or other mechanisms) to investments during implementation of projects, as well as provisions on introduction of simplified procedures for obtaining permits for construction of hydraulic structures on water resource lands. Smirnov also proposed payment of part of the proceeds from port charges into municipal budgets. "For example, such payments constitute 10% under the existing practice in Baltic ports. On the one hand, this will motivate city authorities to participate in development of ports. On the other hand, it will strengthen public control over the operations of the Administration of Seaports and the use of port charges for the intended purpose of developing municipal social infrastructure," said Smirnov.
New Infrastructure Minister Maksym Burbak expressed his position during a working visit to Odessa on March 27. "The authors of the latest changes include the deputies that initiated the reform of the industry. I want to ask: when were they being sincere - previously, when they started it or now that they are trying to abolish it?" he said. While stressing that the ministry intends to continue the current reform in every possible way, Burbak said that some necessary novelties were possible: "We understand that it is necessary to correct something after a year. For example, the issue of distribution of funds with the aim of leaving part of the funds for ports, as well as the issue of working with investors - in the sense of existence of other legal forms of cooperation in addition to concession in relation to harbor walls and other port infrastructure. We are ready to discuss investors’ proposals at a council of experts and make adjustments."