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Another step forward for Ukraine’s port concession process

Another step forward for Ukraine’s port concession process

The law was subject to being signed by Ukrainian president Viktor Yanukovych and, once signed, would for the first time open the way to the privatisation of state-owned ports. To the amazement of the international maritime community, however, the president refused to sign the draft. Finally, after amendments the Law was signed by the President and published on June 13 2012. The Law on the Sea Ports of Ukraine will enter into legal force and is due to come into effect 12 months later on June14, 2013.

In breaking news it has just been announced that the Cabinet of Ministers has finally included all Ukraine’s ports in the List of Concession Objects under Resolution 1055 dated October 15, 2012. Inclusion within this Resolution is a crucial step towards progress ofthe port reforms from the Law on the Sea Ports of Ukraine.

Prior to the Law on the Sea Ports of Ukraine, the possibility of awarding concessions for ports had already existed under the Law on Concessions but until now neither ports nor terminals had been included in the List of Concession Objects without which, it was impossible to award an actual concession.

Thus Resolution 1055 has been eagerly awaited and from now on each of Ukraine’s 18 ports can be treated as “an integral property complex” providing the necessary services required for the operation of the port and its infrastructure. Effectively this means that for the first time, a port can be transferred by means of concession either as an integrated facility or as a number of separate integrated facilities (e.g. terminals) providing necessary port services.

The division of a port into separate integrated terminals is crucial for many investors who are not ready to take the whole port into concession but are only interested in an individual terminal or complex.

Although small ports can nominally be divided into separate terminals/complexes providing a full complement of services, in practice it is probable that not all ports will be divided. As this resolution and other regulatory documents do not stipulate any principles for such divisions, it seems likely that each division will be dealt with on an individual basis.

At the moment, it appears that the Ministry of Infrastructure jointly with the Ministry of Finance and the Ministry of Economy have been charged with developing a procedure for сoncession tenders and concession agreements with the Ministry of Infrastructure awarding the concessions on behalf of the State of Ukraine.

Following an award the concessionaire will be obliged to assume the debts of the port (including received loans) which directly related to the assets of the concession. These obligations will obviously include not only monetary debts or monies paid in advance for port services but also those regarding the use of port property (leases, joint activities etc.). This approach will not only provided legality and stability to the concession process but it is a necessary ingredient for potential concessionaires in deciding the scope of the offered concession and the determination of concession payments.

In the light of historical delays, prevarications and contradictions there are many who are still not convinced that the privatisation process will be a success although there are currently some positive signs. The Ministry of Infrastructure, for example, now understands the “principles and practices” of privatisation and it, amongst others, recognises that freedom from bureaucracy and unacceptable levels of political interference, the setting of rates independent of state regulation, “liberalised” port activities and the acceptance of leases and concessions are the most efficient ways forward.