Old Father Dnieper Waiting for His Ships

• Shipping
• Ports and Terminals

Speaking about the rivers, we can’t but remember that they cradled the first human civilisations long, long ago, that they served the main and sometimes the only transport arteria for people – especially in southern jungles and northern taiga – and keep on serving that way or another, feeding us with fish and giving us potable water. When the industrial era started, first businesses tried to erect their factories and warehouses near rivers, lakes, and canals, called commonly the inland waterways (IWW), because it was and it is much more economical to transfer large numbers of goods and commodities by water, as the most advanced economies strive to do now.

The draft Law on Inland Water Transport (IWT) of Ukraine was decided to be developed as early as in 2014 pursuant to a corresponding clause in Agreement on Coalition of parliamentary fractions ‘European Ukraine’ – and it was only logical if looking at the volumes of cargo carried by that IWT. Say, in 2017 the EU countries transported above 558M t of cargoes by IWW, over 6M t more than previous year. Only in Germany such a throughput reaches average 240M t annually, while in the Netherlands it comprises 35% of all the country’s cargo traffic and 80% of bulk cargo traffic.

So, the first bill was registered back in 2015, but its fate was not that lucky as of other EU-oriented initiatives.  As the new President Zelensky’s team came, one of their slogans was ‘stopping the bureaucracy’ which also implied the parliamentary red tape with bills, amendments and so on. Upon the new pre-scheduled elections the team obtained absolute majority in Verkhovna Rada (i.e. Supreme Council, the Parliament of Ukraine) and indeed started issuing some long-expected laws like a copy-machine. The Law on Concessions that had waited its second reading since April 2018, was easily passed on 03 October 2019, and the bill on IWT naturally seemed to be the next…

Unfortunately, there are some issues in the current situation that divide the votes, sometimes one-to-one. Of course, they reflect the views of different stakeholders. For instance, most of Ukrainian land-locked shippers yearn for the cheap and abundant fleet taking their cargoes all along the Dnipro (Ukrainian for the Dnieper), and not only – there are some parts of Pivdenny Bug and Dniester navigable in the past, bringing them to other points, and ultimately, as most of them wish, to the sea- and ocean-going vessels. By all means, they support free access to their cargoes by any flag ships, provided they are technically fit, which is understandable if considering the today’s situation with Ukrainian flag tonnage, both river- and sea-going. They could probably even live with some freight surcharge arising from the river dues, as one of the first versions envisaged – a single and proportional payment for the use of fairways.

On the other hand, some shipowners who have already heavily invested in their own river fleet and river terminals, are at least afraid of indecent competition, and at most of losing their to some extent exclusive position in the slowly emerging market. They frantically fight against the idea of open Ukrainian IWW, as well as for exempting shipowners of any expenses arising from the use of IWW at all – on top of the operational costs and terminals charges. So, when the question arose about funding the maintenance of river fairways, they promulgated the concept of making the sea ports share their enormous, as they saw, incomes. 

You could not step twice into the same river (Heraclitus of Ephesus)

Finally, the bill has been updated and refined, and passed by the profile Committee to the plenary for the second, hopefully final reading. What we can see in its final i.e. Committee’s wording may be divided to ‘The Good, the Bad, and the Money’.

So, let’s start with the money, which is last but not least, and only logical. For the normal IWT functioning the inevitable and obligatory costs of consist of the following:
* fairway dredging and navigational aids maintenance: this item is to be organised and controlled by the corresponding executive authority – now it’s State Service of Maritime and Inland Water Transport (Marine Administration or MarAd) – and financed by the new Fund of WWT Development, the ways of filling it in being omitted, the procedures to be adopted by Government, although the bill envisages granting concessions to both processes;

* locks passing: this item is charged on hydroelectric power plants which in fact operate them, and the cost should resolve in the common electric power tariff which would be next to nihil for a single customer; 

* bridges raising: this item is also charged on the operating entities i.e. regional and local motorways authorities, and potentially private road owners and concessionaires – subject to a strict and commonly agreed schedule;

* RIS (river information system): the system had already been established back in 2011 in the very slow course of European integration within the public monopoly marine pilotage service – the state enterprise (SE) Delta

Lotsman (Delta-Pilot), which was later in 2014 integrated as a branch in SE Ukrainian Sea Ports Authority (USPA), where it still exists, fully equipped and normally funded on account of the Delta-Pilot earnings (pilotage on all approach canals excluding port harbourages plus the dues for all the ex-port sea canals – Dnipro-Kherson, Dnipro-Bug-Mykolaiv, and the Danube navigable outlet) – it is to transfer from the SE Delta-Lotsman to MarAd, which is only logical, but to change its stable funding which even used to envisage the executives participation in the UNECE Inland Transport Sub-Committee sessions, to unknown sources as mentioned above;

* licensing: Article 54 clearly stipulates that the IWT cargo and passenger carriage activities are subject to licensing, in accordance with the corresponding Law, the procedures to be provided and approved by Government;

* public monopoly: the pilotage services on IWW shall be provided only by a specialised public entity – which is rather illogical in the view of European integration and free market approach, particularly if remember that the service is based on a single physical entity’s personal expertise and requiring no support from the public infrastructure, nor being a socially significant activity. 

Also, the river-going ships of the 4.5 m and less draught are to be exempted from certain dues in the sea ports: when exercising a cabotage voyage – from administrative, canal, tonnage and sanitary dues; when exercising an international voyage – from the canal one only.

Let’s count the pros or The good things here to stay

Firstly, the Law would fasten a lot of belts loosened in the past and incorporate the EC directives – there are references to those in the draft itself and in the cover papers. Acquis Communautaire seem to be highly respected in the draft, as well as the EU-issued licenses and IDs for vessels and crews.

Secondly, a certain consensus is provided between the most distant points of the former versions, I think, the only possible one: there are no river dues nor special river authorities nor payments whatsoever for the ships except normal cargo/terminal ones – against the open access for any foreign flag vessels except the aggressor state as defined by Law (now it’s the Russian Federation). By the way, the same concerns the business – no companies registered in or having any beneficiaries from the aggressor state are entitled to operate in Ukrainian IWT.

Then, river terminals of Ukraine should comply with some maritime rules, in particular as concerns the ISPS Code, part of the SOLAS Convention, and some more international maritime regulations with regard to the environment protection are applied too – those concerning the reception facilities at terminals.

Any operational dredging, i.e. the fairway maintenance works in accordance with its certificate, are to be exempted of all the existing ecology red tape as agreeing, permits etc.

Any go-as-you-please lightings as well as floating structures near the banks should be expressly regarded out of law with the corresponding administrative penalty.

All the tariffs imposed in the IWT activities except the terminal charges and freight rates are subject to the special National Commission on Transport Tariffs which should have been established due to the Law on Natural Monopoly of 2000, then recalled in Law on Ports in 2013.

The main activities, funds for which are not yet identified, namely dredging and navaids, might be concessioned thanks to the new Law adopted last Autumn.

Let’s count the contras or The bad things gone away

What can’t but worry is the situation with funding the Fund, charging the charges, and paying the payments. On one hand, the fact that it is not clearly prescribed by the Law, would gain more flexibility to Government who in fact is going to take care of the matter. Like the Cabinet of Ministers of Ukraine Act No.211 about the Coronavirus quarantine which is changed weekly as per the pandemic development, the envisaged governmental procedures may also change according to the economic situation locally and worldwide, which is probably the best decision for the crisis times.

But not for the stable and sustainable development. Ukrainian practice shows well that governments may change due to parliamentary metamorphoses, and some market players may become more preferable than others, which is far from what most of the business and EU expect of our economy in particular and state in general. 

The drafters tried hard to bridge the gap between the required fairways maintenance cost which is assessed as above 200M UAH or 7.8M USD, and the business’s craving for free in all senses passage from Kherson to Kyiv. The cover paper to the bill explains well that their hopes are pinned on certain but undisclosed percentage from the total excise duty levied in Ukraine from fuels. It is quite unclear why this clause is not stipulated by the draft Law while it was present in some previous wordings. Yet there is the worst condition the business raves against.

The clause stating that in case of the Fund’s insufficiency the shortfalls may be covered on account of the port dues (meaning only the sea port dues) is truly hard to capture. It is hided in the very ending of the ending clauses and transitional provisions amongst the usual and formal and casual legal formulae which sound for most readers as some common bla-bla-bla. Yet the business has reacted ferociously. The loudest came European Business Association of Ukraine (EBA) – a forum uniting over 900 members, then Maritime Chamber of Ukraine – an alliance of marine sector professional associations – also took floor to criticise this very clause enabling in fact Ukrainian MarAd to manage funds manually, which is highly non-productive, unfavourable for Ukrainian sea ports, and stinking corruption opportunities very strong.

Only the leap into the river tells us what is called swimming. Martin Heidegger

Nevertheless, with all the plus and minuses as set above, this Law must be passed as soon as possible, because it is a must, too little is missed, and most of the market players are going to win. Scarcely has there ever been a law in the economic field that pleased each and every stakeholder well. And as well as the melting snow indicates where dogs walked, the newly passed Law on WWT with retreating Covid-19 is going to show what was right and what was wrong with it, but we are sure that the business will triumph on the whole, and we would be able to watch the Dnipro father as busy as the old man Thames, Danube, Rhine and so on and so forth.

Special for Miller Magazine

Arthur Nitsevych

nitsevych@interlegal.com.ua

Andrii Netrebenko

netrebenko@interlegal.com.ua