Law on Sea Ports – Opportunities for Ukrainian Ports

The long-awaited Law on Sea Ports, which will enter into force in June 2013, has largely satisfied the expectations of industry players.

The law’s reforms to the port industry are now ready to be launched, and these reforms will greatly influence all market participants, including cargo terminals, stevedore companies and shipowners.

The key goals and provisions of the law include:

-distribution of administrative functions in sea ports;

-promotion of investment in port infrastructure;

-settlement of land disputes at sea ports;

-adjustment of port economy management and planning; and

-liberalisation of rates on port services.

Most Ukrainian ports have followed policies that require little adaptation to the terms of the new legislation. The law proves that reform has finally been achieved and corresponds to existing economic and political realities.

Port administrations will be entitled to perform administrative functions only, while commercial services will be delegated to private companies. Cargo terminals – already relatively independent from the ports where they are located – will thus become more independent from the state and will have to change their present relationships with ports.

The law provides opportunities and mechanisms for investment in port infrastructure, including strategic opportunities (eg, dredging, berths and railways) and guarantees for investors. However, not every port is amenable to construction of large cargo terminals, for various reasons. The list of possible investment mechanisms is not exhaustive; private investors and port administrations may establish relationships based on both traditional lease and joint venture agreements in addition to other legal mechanisms, such as concession and superficies.

The incorporation of new joint stock companies based on integral economic complexes (usually on separate terminals) is also provided for in the law. The concession agreement is given priority for new investment based on large port infrastructure and separate ports. Privatisation of infrastructure (except strategic infrastructure) is allowed and infrastructure created with private investments will remain private property.

Land in ports may be held in any form of ownership permitted by the laws of Ukraine. The new law provides that land in ports may be state owned or privately owned, or even municipal property. This creates opportunities for financing the construction of new cargo terminals and ensuring a return on investments.

Key changes which may be relevant for exporters and importers with investments in port economy include significant developments in the planning and management of Ukrainian ports. For the first time, the law defines the term ‘port development strategy’; after the law fully enters into force, construction at all ports will be carried out in accordance with this strategy.

The management structure of ports is also facing revolutionary changes. Currently, each port is an independent legal entity and its general manager has significant – nearly unchecked – powers; after reorganisation, the ports will become branches of a single Administration of Sea Ports of Ukraine, which will manage the ports from its headquarters in Kiev and will acquire the rights of a single legal entity. This reorganisation will formally end the Soviet system of port economy management and bring the Ukrainian regime into line with long-established international standards.

The most distinctive and liberal provision of the Law on Sea Ports is on the direct determination of free port service rates, including those for loading and unloading operations and other commercial services. The provision applies to all services, except those deemed to be natural monopoly services and several specific services that are unrelated to the oil handling or transportation business. However, not all stevedore business participants are ready to de-regulate port rates.

The law is aimed to foster development of private investment, so those interested in the development, business organisation or infrastructure of ports may now actively lobby their interests both at port level and in the corresponding centralised institutions of authority.

[mappress]

Press Release, March 6, 2013