PORT DUES AND TARRIFFS IN RUSSIA AND UKRAINE
13 November, 2013
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Recently in Ukraine the possible consequences of implementing the provisions of the Law ‘On Sea Ports of Ukraine “dated 17 May 2012, that come in force on 13 June 2013 (hereinafter – the “Law on Ports of Ukraine”) is actively discussed. In this regard, a comparison of certain provisions of this Act of Ukraine and the Federal Law of the Russian Federation “On the seaports in the Russian Federation” dated November 8, 2007 (hereinafter – the “Russian Federal Law on Ports”) and the analysis of some practical issues of their use may be of interest.
The new Law on Ports of Ukraine changes the system of seaports management and these changes will have important meaning for Ukraine.
The subject of this brief review is the provisions of the laws referring port dues and the regulation of tariffs for port services.
PORT DUES
The general list of port dues as set out in paragraph 3 of Art. 19 of the Russian Federal Law on Ports is slightly different from the similar list in Art. 22 of Law on Ports of Ukraine. The latter provides for the collection of the following dues and charges: tonnage, wharfage, canal, lighthouse, sanitary, anchorage and administrative fee. In the Russian Federal Law on Ports there is no administrative fee and anchorage, whereas there is an environmental fee as an analogue of sanitary one; and in addition to all the above charges there are yet icebreaker fee, pilotage and navigation fee.
The purpose of collecting anchorage dues raises some questions. A Decree of the Ministry of Infrastructure of Ukraine to approve the rules of accounting and use of funds from the port charges exists as a draft so far. Thus, anchorage is to be used for servicing and maintenance, repair, reconstruction and development of existing places of anchorage on inner roads of a port and the creation of new places of anchorage; the maintenance of the personnel involved in the production of relevant works and supervision over such production, as well as for compensation of businesses investments in the strategic objects of port infrastructure.
As for the administrative fee, it is likely, according to the Ukrainian legislators, to be used for financing the work of ports authorities. Such decision seems quite reasonable, because it reduces the direct financial dependence of port authorities from the state budget. Although in Russia the tonnage tax is used for the same purposes.
It is noteworthy that paragraph 4 of Art. 19 of the Russian Federal Law on ports provides that the Ministry of Transport of the Russian Federation establishes the specific list of charges levied at each port of the Russian Federation. This list is currently approved by the order of the Ministry of Transport of the Russian Federation of October 31, 2012 N 387 (hereinafter – the “List”).
Similar provisions are not stipulated in the Law on Ports of Ukraine. This situation is welcomed, because in this case a simple rule should apply: since the port due is a payment for the relevant services, the fee is payable only if the services are actually provided. However this rule finds its concretization in the Procedure on collecting and size of port charges, which will also be approved by the said Order of the Ministry of Infrastructure of Ukraine, through setting the rates of port charges, in particular, depending on the port in which the related services are rendered.
A list of port charges, set in Russia, in effect, limits the ability to provide certain services in certain ports, because once the port does not provide for charging, say, pilotage, then pilots will not be able to provide services to the ship owner in the appropriate port (even if the ship owner is interested in it), and even if they could, they will face difficulties to get a fee for their services. On the other hand, in the Russian ports in connection with the List, situations are possible when ship owners are required to pay certain fees, although in fact the appropriate services were not provided.
Now let’s look at what fees may be charged by private players, not the state.
It is important to note that the Russian Federal Law on ports contains only a general rule to the effect that the port charges are payable to Seaport Authority, the economic entity that conducted the provision of appropriate services in the seaport (paragraph 2 of Art. 19). However, the List sets the competing provision specifying who is authorized to levy port charges. Thus, the right to receive the lion’s share of fees delegated to state enterprise “Rosmorport” (Channel, navigation, lighthouse, ice-breaking), the Port Authority may charge only the tonnage dues; and finally “business entities” (again, along with “Rosmorport”) may charge pilot and environmental fees.
Private pilots in the Russian Federation have repeatedly lamented against Rosmoport’s lobbying the Federal Tariff Service for dumping rates of pilotage dues, which does not allow private pilots to compete with Rosmorport even with a minimum rate of profitability. Perhaps if Rosmorport would not be a state-owned company, it could hardly be allowed to work at a loss. It is hoped that the Ukrainian ports will be able to avoid this situation, and the state will not create an affiliated or controlled structure to unfair compete with the private sector in this field.
The Law on ports of Ukraine directly indicates that the owners of the relevant infrastructure (i.e., including private entities) may charge a mooring, canal and even tonnage dues. It looks strange that this list does not contain sanitary fee and pilotage dues (it is not even mentioned in the Law). Pilotage in Ukraine is provided for in Art. 106 of the Merchant Shipping Code of Ukraine (MSC) and this fee is not included in the mentioned draft Order on accounting and use of funds from port charges. In the existing legal framework of Ukraine few researchers attribute this fee to the category of port charges, and that is with many ifs.
If the possibility of assigning cannels, as infrastructure objects, and, consequently, the right of collecting canal dues, to private entities looks progressive, the situation with wharfage remains ambiguous. It is logical that the Law should encourage private investors to build and reconstruct berths and generate revenue, including from the mooring fee. But, on the other hand, as the Law on Ports of Ukraine provides that rates of port dues are regulated by the state, it remains an open question if there is any need for government regulation of fees for the use of wharves, and private ones in particular. If, in respect of canal dues one can justify the need for government regulation to protect the interests of owners and other users of the services, in respect of the mooring fee is more important to protect the interests of the owner of the berth, who must be able to independently determine rates based on costs and other specific features of the pier. Perhaps it is more correct to take full advantage of market regulation mechanisms and give up the regulation of not only the rates of berth dues, but exclude same from the list of charges collected in the ports. These considerations perhaps have been guided by the Ministry of Transport of the Russian Federation, when preparing the List: it does not provide for levying berth dues in any port on the Russian Federation. In Ukraine, the operators of many terminals, on the contrary, have expressed their concerns about such liberalization, seeing in preservation of berth dues at least some guarantee of profitability.
FEES FOR SERVICES IN SEA PORTS
One of the main goals to be achieved by changing the system of governance in seaports of Ukraine is tariff reform policy. Fees for services in the ports were previously regulated by the State and a list of tariffs on a set of works related to cargo operations in the ports of Ukraine was fixed by Order of the Ministry of Transport in 1995 (№ 392 dd. 31.10.1995).
Russian Federal Law on Ports (Art. 18) stipulates that all tariffs on services which are given by the subjects of natural monopoly and rules that regulate enforcement of these tariffs are established in accordance with the Russian legislation on natural monopolies.
In accordance with paragraph 1 of Art. 21 of the Law on Ports of Ukraine ports tariffs on specialized services which are given by the subjects of natural monopoly at the seaport and the services that are paid in the port charges are subject to the state regulation. The provision of Article 21 of the Act separates the specialized services provided in seaports by
natural monopolies, and establishes that such services are subject to state regulation. List of specialized services are defined by the Cabinet of Ministers № 405 dd. 03.06.2013 and include
pilotage services, cargo handling services and vessels and the provision of icebreaking operations.
Thus, in Russia only tariffs which are given by the subjects of natural monopoly are regulated by the state.
On the one hand, in Ukraine only specialized services of natural monopolies are subject to regulation that leaves open the question which exactly services it will be and whether they will include loading and unloading services at the seaports. On the other hand, in Ukraine due to unexplained reasons, the State pretends to establish the rates of all port charges, including those which are entitled to charge private companies.
As mentioned above, the efficiency of this mechanism for all fees is disputed.
Also we should mention the problem of natural monopolies.The Russian experience shows that often the individual ports (meaning entities that provide port services) without objective cost-based criteria are included in the register of natural monopolies in relation to services in port. As a direct consequence, this implies regulation of tariffs by the Federal Tariff Service which not always based on sufficient economic calculations.
And this situation directly leads to losing the position of a port in the competition for freight traffic with the operators of other means of transport and foreign ports. In most cases, it seems more appropriate to give the tariffs regulation of most ports at the mercy of the market and to prevent unfair competition and abuse of dominant position to use the existing mechanisms that are available for anti-monopoly authority.
As for Ukraine, the ports lack of experience of open competition makes it difficult to decide which degree of liberalization in respect of tariffs for the services are efficient in this economic situation and favorable for future economic development. However, we believe that progress towards a moderate recovery of competition will be beneficial for both countries.
© Olexandr Chebotarenko , 2013
chebotarenko@interlegal.com.ua
Senior Lawyer, Attorney-at-law
Interlegal
