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Law on Privatization: what about sea ports?

13 февраля 2018 г.: ru 3 en 26 февраля 2018 г.: ru 2 en 220 февраля 2018 г.: ru 1 en 1 всего: 14602.02.18

On January 18, 2018, the Supreme Council of Ukraine adopted the Law of Ukraine “On state and public property privatization”. Which changes will sea ports and port terminals face?
 
What has changed?
We should highlight the four essential novelties for port industry prescribed by the new Law:
1. The new Law stipulates a large number of terms previously unused in the law system. 
They include: online trade system administrator, online auction, online platform. Obviously, such terms show that the state tends towards the online trade of privatization objects – quite optimistic news!
2. The new Law detaches two groups: small and large privatization objects. Previous wording prescribed six groups which complicated relationship.
3. The new law grants more powers to privatization bodies, in particular, approval of the list of state-owned small privatization objects. Previously such list was drafted by the Cabinet of Ministers of Ukraine.
4. The most unexpected novelty is such party as consultant (as set forth in Clause 23 Article 1). 
 
Consultant
The new Law stipulates the term of “Consultant” as a person which undertakes, under the agreement with privatization body, to render services in the process of state and public property privatization, including searching potential purchasers of privatization objects and fixing large privatization object zero price.
 
The above Law describes such consultant’s legal status in details:
- Consultants shall act on the grounds of agreement with privatization body and shall not act as privatization object buyers, if previously engaged in preparing privatization objects for sale.
- Consultants shall be engaged solely in preparing large privatization objects for sale on a competitive basis.
- Consultants shall draft and perform:
- methodology of preparing privatization objects for sale, sale strategy, logistical support and privatization process organization;
-  terms for preparing privatization objects for sale and sale terms;
- data collection and analysis of economic, technical and financial values of privatization object activity;
- bringing enterprise’s accounting principal values in accordance with accounting standards;
- audit;
- drafting financial model and fixing the enterprise’s investment attractiveness, its possible ways of promotion, accounts payable restructuring methods, recommendations upon fixing basic prices and tariffs for products and services, marketing policy and other measures;
- fixing zero price and drafting the set of information about privatization object;
- searching potential investor.
 
Consultant’s competence
No doubt, consultant’s competence will face strict requirements in respect of work experience, knowledge, skills and qualification. Since Ukraine, as World Trade Organization member, conducts the national market openness policy, such consultants may be even foreigners, provided that they are not covered by exclusions set forth in Part 2 Article 8.
For instance, consultants shall be neither legal entities with aggressor nations engaged (as recognized by the Supreme Council of Ukraine) nor legal entities controlled thereby.
 
No doubt, engagement of consultants in privatization process is a positive phenomenon. The only issue of concern is consulting level in such sensitive industry as port economy.
Engagement of foreign consultants is usually associated with so-called Big Four companies (PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, KPMG).
But there are also other consultants with such benefit as narrow-focused specialization in port business. Such companies as MTBS, Royal HaskoningDHV, WSP, Atkins, Tebodin, Mott MacDonald, Drewry have been expanding their activity in Ukraine, being engaged in terminal and handling complex construction worldwide. Cooperation with such highly specialized companies has some advantages against general consultants, such as keen perception of stevedoring business, complex view of certain terminal complex infrastructural specifications and, first and foremost, focusing in a certain niche – port business, which facilitates their ability to provide more precious approach to their role in the project. Any error in each certain case may impact on the consultant’s reputation and its potential work in any other country.
 
If you have a toothache, you will probably choose a special dental clinic than a doctor engaged in dentistry on Mondays, in ophthalmology on Tuesdays and in X-ray on Fridays.
 
It is quite logical that key aspect in selecting potential consultants touched their experience in similar project performance both in Ukraine and in other countries.
 
Other novelties
The new law provides also several insufficient novelties which do not change radically the rules for privatization process but should be listed in a nutshell:
1. Stateless person cannot be property buyers any more.
2. Detailed list of prohibitions for privatization member after making a decision on privatization.
3. Detailed list of documents to be submitted jointly with the application on privatization.
4. Modified procedure of the leased property privatization. 
5. Other approach to fixing zero price of privatization objects.
6. Obligation to disclose data about the creditor in case of property purchase by loans.
 
In general, the new Law “On privatization” does not cancel provisions of the Law of Ukraine “On the list of state entities not subject to privatization”. Therefore, state-owned sea ports shall not be privatized, unless the Supreme Council of Ukraine excludes them from such list.
 
The new Law also provides that industrial peculiarities of state-owned object privatization may be stipulated solely by laws. Since privatization procedure prescribed by the frequently discussed Law of Ukraine “On the Ukrainian sea ports” will still apply, specifications of sea port privatization will remain unchanged.
 
Ukraine has not revealed the sea port prospects yet: either privatization or concession or something else? Maybe rain maybe snow, maybe yes, maybe no…
 
 
Published in Center for Transport Strategies

Author: Arthur Nitsevych