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Back to the drawing board for Ukraine’s draft Sea Ports Law

Back to the drawing board for Ukraine’s draft Sea Ports Law

The law was subject to being signed by the Ukraine President Viktor Yanukovych and it was widely believed that he would sign it in the next few weeks and that once signed the law would, for the first time, open the way to the privatisation of the State’s ports.

Unfortunately, much to the surprise of many, the President did not sign the draft and instead imposed a veto on December 7, 2011 as outlined on the Verkhovna Rada website.

According to Olena V. Losevska, partner and attorney at law at Interlegal in Odessa, the President is concerned about most aspects of the law, particularly those affecting water basins and water usage, border crossing points, privatisation and the reorganisation of the ports. Furthermore, his comments about privatisation are unclear and ambiguous and it is difficult to see how the present law can be amended, taking into account the presidential concerns.

What is the draft law that upset the president?

According to the draft law, the definition of a sea port had been amended and recognised that such facilities comprise “a defined land and water area equipped to service passenger and cargo vessels and to carry out transport and forwarding operations as well as other commercial activities.” Prior to the draft law, a seaport had no clearly defined role but was merely viewed as a state enterprise, administered from the centre.

In recognising the role of seaports, the law set out a number of explanatory functions including:

(i) All commercial activities (stevedoring, warehousing, towage, bunkering etc) would be transferred to the private sector

(ii) Maritime matters would be the responsibility of two separate authorities. On the national level, safety and navigation regulations would be provided by the State, while operational and safety matters would be the responsibility of the relevant Harbour Master operating independently of port administrations.

In addition, the draft law established legal parameters regarding the ownership of the land and water ‘territories’ with delineation of those area not subject to privatisation. Interestingly, it also stated that ‘artificial’ land plots (reclaimed land or land not currently occupied by the port) could, in future, be subject to long-term leases and concessions – a substantial change to the existing situation.

In more detail, the draft law outlines what part of port areas (land and water) would remain under state control. These include: strategic property which cannot be privatised, leased or concessionalised, water channels, berths and quays, protection facilities and alarm systems, engineering infrastructure, drainage, roads and railways. These – and the land under them – cannot be privatised. All other port assets and land plots (except the water areas and reclaimed land) can be privatised.

Moreover, the state would guarantee the right of private ownership of berths constructed by the private sector prior to the law coming into force.

The importance of privatisation

With privatisation being the main instrument of the reform, there then follows a long list of legal interpretations of ownership and, state responsibilities. The most interesting of these being the proviso that if previous concession approval had been granted to a company prior to the law coming into force, that company would be entitled to purchase the property (provided it has carried out improvements for an amount not less than 25% of its depreciated value) at the time of privatisation. In other words, it would be possible to buy (without tender) the assets (buildings etc) from the port – subject to the lease contract being in place before the law came into being.

The intention was for the law to come into force 12 months after the date it was published but now it is anyone’s guess as to what will happen.