Port-Landlord Pattern for Ukraine: to Become Real Lord of Land

• Ports and Terminals

Ukraine as a littoral state commanding most of the Black Sea north coast along with the Azov Sea north occupies a strategic position between Europe and Asia, while also boasting a much more extended shoreline than the neighboring EU’s Romania, thus being a vital transit area for both continents.

Moreover, the country has boosted for the recent decades as a major food commodities exporter finishing in 2019 the world’s fifth wheat seller, the champion in sunflower oil trade, and the second one in what USDA calls ‘coarse grains’ i.e. other than wheat and rice — those like corn, rye, etc. Grains and edible oils are accompanied with bran, cake, bean meal and other by-products used for foraging.

The arrows of Ukraine-originated food caravans land in the EU, North Africa, and, increasingly, East Asia. The main Ukrainian agriproduct importers are from top-down China, Egypt, India, Turkey, the Netherlands, Spain, Germany, Poland, Italy, and Belarus.

With merchant navigation being the principal transport mode for commodities, ports play a crucial part for an export-oriented littoral state. This fact attracted the deliberate attention of the World Bank experts and resulted in a thorough and dedicated study called Strengthening Ukraine’s Port Sector Governance, the report having been issued lately.

Ports

The post-Soviet economy still blossoming (or rather decaying) in the ports is a vulnerable point as it is, with the land matters being the Achilles’ heel of the whole industry. That was pinpointed by the mentioned report including comprehensive views, numbers, and diagrams where needed.

The WB’s ‘white paper’ unambiguously maintains that the existing port management model is outdated and aggravating while “larger cargo ports in the world are governed and operated on the basis of the landlord model”, and the government’s efforts should therefore be focused on transferring to this pattern either as concessions or as a lease. The state would still own lands and waters together with the piers and dams and channels etc., while investors could return well their invested funds for decent time periods of this infrastructure’s utilization and earn enough on it. The new Law on Concessions adopted by the parliament in autumn provides favoring conditions based on the world’s best practices.
Yet there are still some issues to solve.

Lands

The report enlightens the problem with the Ukrainian port as a landlord itself. In the course of the study the WB experts detected the land plots within and adjacent to the ports as a cobweb of various ownerships. The summary reads as follows: “Port land in Ukraine is owned and controlled by several parties, including state-owned companies, regions, municipalities, and private companies. The national port authority, the USPA, has little means to coordinate planning. This makes the system prone to deploy overcapacity and produce an overly fragmented terminal basis.”

EBA initiative

Simultaneously, the European Business Association of Ukraine (EBA) — a forum uniting over 900 members — has developed a draft law introducing necessary amendments to the legislation in force concerning the land matters in ports, namely Merchant Shipping Code, Water Code, and Land Code, as well as the Law on Regulating City-Planning Activities.

The bill submitted lately suggests five major points of change:

1. The complicated procedures of land allotment approval for navigational and hydrographic support should be eliminated in MSC, while the Ministry of Infrastructure should adopt Procedures for navigational and hydrographic works and control.
2. WC should be supplemented with new paragraphs concerning the works on seaport harbors’ lands which would be provided only in accordance with the corresponding port’s Development Plan subject to approval by Ukrainian Sea Ports Authority (USPA) and the National Marine Administration (MA); also the operational dredging would be provided without any bureaucracy strictly according to the technical specifications of hydraulic structures and relevant operating plans.
3. A new clause is suggested for LC: land plots cannot be formed on the Water Fund areas occupied by the sea, including port harbors, which means common sense restored: the sea bed is not land from the law’s point of view, it can’t be measured and marked as land plots.
4. In the city-planning activities any development of port’s territories or water areas should be performed only in compliance with the corresponding development plans approved by USPA; no city-planning conditions would be required nor restrictions applied; also, one clause in this law must be removed — on the necessity of possessing a right of use or ownership on land in port’s harbors and areas for construction and/or refurbishment — in order to facilitate modernization processes in Ukrainian ports.
5. And last but not least about the list, i.e. the inventory of state permits would lose the item regarding land and water area allotment for the purposes of merchant shipping, construction and other works in the zone of navigational and hydrographic support.

The last three issues are very important for the business as the live practices show. For instance, there were several attempts by the state prosecutors to block the operations of Nika-Tera terminal in Mykolaiv, one of the mightiest private port operators in the region and country on the whole, on the grounds that the procedure of land allotment within the port limits had been initially provided by a wrong authority. This might sound ridiculous unless it is sad in fact. Another private port operator in Mykolaiv — UPSS — has faced problems with its investment plans since 2010 on the same grounds.

Resume

Taking into consideration very vivid activities of the presidential majority in the parliament stirred up by President Volodymyr Zelensky’s commitments towards rooting out corruption and bureaucracy hampering the economy, as well as his modern view of the free land market, and moreover having in mind as an example the Law on Concessions passed in autumn, we look optimistically at this bill’s future so that the demands of our business community should be heeded in full.

Arthur Nitsevych

nitsevych@interlegal.com.ua

Andrii Netrebenko

netrebenko@interlegal.com.ua