News - AMPU team told the President Zelensky a number of proposals

News
10.10.2019

The list of legislative initiatives, which are necessary to stabilize the situation and the systematic development of the industry, has been announced by the state enterprise AMPU. These include changes in the dividend distribution policy, the adoption of the concession law, the development of the dredging fleet. These and other proposals were sent to the office of the President of Ukraine.

What does the Administration of the Seaports of Ukraine offer to the President

In the summer, a press conference was held at the Administration of the Seaports of Ukraine at which key words were addressed in the words of the chairman of the state-owned enterprise Raivis Veckagans and other leaders, the solution of which at the legislative level will ensure the successful development of the industry. AMPU addressed these initiatives to the office of the current President of Ukraine Volodymyr Zelensky. Staff of the state-owned enterprise believe that the adoption by the President, the Cabinet of Ministers and the newly elected Verkhovna Rada of these decisions will positively affect the state of affairs of both the AMPU and the port industry as a whole. Raivis Veckagans also spoke about certain successes achieved during his management of the enterprise, summed up some of the results of work for the first seven months of this year. The following ones are summarized the main points voiced by the head of the AMPU during the conference.

Dividend policy

For AMPU dividend policy, more precisely, its revision, is one of the main issues. Currently of the profit received by the state company is transferred to the budget. The other state stevedoring companies are in the same position.

This situation and excessive bureaucratization of all processes negatively affects not only the development, but even the common competitiveness of state stevedores. Прежде всего, сокращаются объемы перевалки. So, only over the past five years, this figure has decreased by almost 2 times – from 37 to 20 percent. Without taking appropriate actions, the trend will continue. State-owned enterprises will give up their market share to business entities operating in much better conditions.

It is difficult to call the state dividend policy balanced in relation to AMPU. So, in 2015, AMPU, the company allocated 30% of the profit to the state budget, in 2017, dividend payments increased to 75%. According to the results of the discussion in the Government, where the Minister of Infrastructure also spoke on the side of the state-owned enterprise, for 2018 the percentage reduced to 50%. In 2019, the situation changed dramatically again – normative deductions of profits to the budget rose to 90%. Such situation is  fraught with a complete halt of strategic infrastructure projects for the industry (all of them are long-term and planned for at least 3-5years). As a result, we cannot talk about any systematic development.

Important! A preliminary financial forecast for 2020 shows that the enterprise will be able to use no more than 500 million UAH for capital investments.

Naturally, the state-owned company will search for additional sources of financing for projects. But frankly speaking, these funds (500 million UAH) will be enough for construction of the half of the berth. And on the balance of AMPU there are more than 250 such objects (the exact number is 264). Many of them have been in operation for decades, and it’s urgent to repair, reconstruct or re-equip them. This is a vital issue for the enterprise. Compared to 2018, when the enterprise managed to allocate 1.3 billion hryvnias for these needs, the prospects for 2020 look depressing.

First of all, the shortage of capital investments means that it is impossible to implement some important projects that were planned together with the company’s customers. So, in Mariupol, the reconstruction of the third pier was planned. This would allow the development of a regional cluster of transshipment of agricultural goods, which would be a worthy alternative to the cargo of companies in the mining and metallurgical complex. Another massive project was planned in Nikolaev. Within its framework, the zero berth for the client, one of the largest world grain traders (COFCO companies) should be restored. Due to lack of funds, these plans are in jeopardy and for sure need to be reviewed. AMPU will have to turn to alternative financing options, but this does not give guarantees for the implementation of projects in full. Moreover, a threatening situation develops with the fulfillment by Ukraine of a number of international obligations. For example, the design and analysis of the environmental impact of the Danube – Black Sea deep sea shipping may also remain unrealized. And thanks to this project, the competitiveness of the Danube ports of Ukraine should seriously increase in the future.

If the dividend rate remains at the level of 90%, a significant, if not catastrophic, reduction in investment in port infrastructure is possible. The decrease in investment compared with 2018 may decrease 2.6 times. The elimination, at least partially, of the problem would be facilitated by a reduction of contributions to 30%— this option at the moment can be considered optimal for AMPU. Foreign experience can be considered as an example. For instance, in Rotterdam at the moment the level of deductions does not exceed 40%, and earlier for ten years it was zero. In Europe, taxes are not charged on port administrations. What is more, support is provided by both the state and international institutions, in particular, in the form of cheap long-term loans.

AMPU is working on the creation and development of a strategic port infrastructure – water areas, fairways, channels, moorings, access roads. According to the calculations, for each hryvnia invested by AMPU in dredging, construction and reconstruction of berths, there are at least five hryvnias of attracted private investment in transshipment facilities. I. e. after the state-owned company has created strategic infrastructure, private business is ready to invest in construction of terminals. If AMPU does not fulfill its tasks, then entrepreneurs simply will not be able to build transshipment facilities or use the full potential of new terminals.

Concession and Development Strategy Law

AMPU management considers the issue of approval of the State-owned Development Strategy of the Ukrainian seaports for the period up to 2038 developed by the state-owned company very important. Its presence interests international investors in the first place. The previously adopted Development Strategy until 2013 became obsolete and an updated document is necessary. It should outline new benchmarks and eliminate already identified disadvantages and errors of strategic planning. For example, situations in Odessa and Nikolaev, where the capacity of port infrastructure facilities is twice as high as the capacity of rail and road access roads.

The priority areas for the development of the port industry announced in the Strategy will set clear guidelines for owners of private capital. I. е. , for example, indication of depths of 21 meters in the water area of the Pivdenny port and 16 meters in the port in Chornomorsk becomes the basis for further planning of actions of investors, carriers, and other interested participants in the processes. The project of renewed Strategy developed by AMPU was created taking into account current political realities, external influences, long-term plans and has already passed the examination. It is only to be approved.

The key information! The adoption of the new law on concession will spur up the development of the ports.

It is unlikely to expect the profound changes in the development of maritime ports without the updated legislation of concessions. As it is getting harder for the state stevedoring companies to compete with entrepreneurs working in better conditions. The lack of investing capital also affects it. One of the priorities of the national strategy of the transport development is creating of state entrepreneur partnership on the basis of state stevedoring companies And this is not a whim but a demand of the modern market as consigners and forwarders are not entitled to long-term cooperation, if they are offered an outdated transshipment infrastructure.

Environmental Issue

A very important document has been approved by the government which differentiate the duties and defines the mechanisms of cooperation of  AMPU and the State Environmental Inspection including the issues of detecting pollutions. Its contributions for AMPU remain control of the water area, and the mechanisms and timing of inspections in the presence of pollution are defined for the State Environmental Inspectorate. On the part of the state-owned company, such work (pollution measurements, monitoring of port water areas, search for pollution sources) is carried out regularly. It is worth noting, that ships are not the main source of pollution of port waters and territoriesAccordingly, the adoption of two more regulatory documents is required in order to use the practice and environmental protection common in European countries in Ukrainian ports.

Development of domestic waterways

Inland navigation, river ports and their development is no less important issue. To solve the problems of the development of this industry, including financing, it will be necessary to develop a new law. Currently, at the order of the Ministry of Infrastructure, it is under the jurisdiction of AMPU. For a state-owned enterprise, it is important to simplify the mechanisms for attracting funds of private investors not only in the short, but also in the longer term, to solve the problem from the direction of development of inland river shipping.

«Port landlord»

One of the vital issues remains the AMPU corporatization. Its solution will allow to regulate property issues, simplify the use of the progressive and widespread abroad “port-landlord” concept.  This will engage the harmonization of land use planning, give governing bodies additional powers in the use of financial assets, simplify the conclusion of lease agreements.

The key information! AMPU Corporation – an issue, solution of which is urgent.

State and prospects of the dredging fleet

Today, the fleet is developing in accordance with the program adopted in 2017. The main objective of this fleet is to control and maintain at the passport level the depths of approaches in port waters. The mentioned program assumes for AMPU, as one of the largest Ukrainian shipowners, a number of measures to expand the range and improve the quality of services, purchase new ships, repair and modernize the fleet and other assets on the balance sheet. According to the decision of the Ministry of Infrastructure the state enterprise was entrusted with maintaining passport depths and waterways within the country. In 2019 the volume of AMPU investments in the repair of watercraft (own and received on the balance sheet of the company from “Ukrvodput”) and dredging exceeded UAH 0.5 billion, which exceeded the same indicator in 2018 by 1.6 time.

According to the experts, due to natural bottom sediments in channels, on river channels, approaches and in water areas of ports, including sea ones, to deepen the bottom, it will be necessary to carry out work annually in the amount of about 7 million cubic meters. One of the main tasks of the enterprise is to provide passport depths on waterways, which will allow to fully load ports. In the course of its solution, by mid-2019, the volume of work performed by the fleet of the state company and the equipment of contractors exceeded 3.5 million cubic meters.

Previously, the majority of the state-owned enterprise’s work was in the deepening of the Pivdenny port. Today, dredging to passport marks in other Ukrainian ports has become a priority. Such works have been finished in Odessa and Izmail and begun in theSea of Azov port. Currently, problems related to the search for a contractor in Mariupol have been resolved due to the tense external situation. The completion of dredging, the achievement of passport characteristics of the depth in the port of Mariupol is scheduled for next year. The task of the same period in Berdyansk is to prevent deviations from passport depths.

As was already mentioned, according to the order of the Ministry of Infrastructure, the AMPU is entrusted with similar tasks (the preservation and restoration of passport characteristics of waterways within the country, including the Dnieper). The total length at the moment is 2714 km. The company, with its own efforts and with the involvement of contracting organizations, began work on the Kremenchug (planned volume – 770 thousand cubic meters) and Kanev (volume of work – about 30 thousand cubic meters) reservoirs. Upon their completion, safe passage of vessels of any tonnage will be guaranteed on these routes.

This year it is planned to complete such works as:

  • Scheduled dredging lines at the Chernomorsk and Pivdenny ports.
  • Reconstruction of berth 1-z as part of a joint project with Brooklyn-Kiev in the port of Odessa. Currently a project started back in 2012 actually became a long-term construction, but will be completed in 2019.
  • Reconstruction of the 4th berth in the port of Mariupol for the construction of a grain transshipment complex. Completion is planned for November.

Cargo transshipment volumes in Ukrainian ports

According to the last days of July 2019 statistics, there was an increase in cargo transshipment in Ukrainian seaports by 11 million tons, or 15%, compared to 2018. Such offspring was brought by the coordinated work of AMPU, stevedoring companies and cargo owners. The main increase comes from agricultural products (34.4%). MMC also support the trend – transshipment of ore cargo increased by 29.8%. The main reason is attractive appealing for manufacturers. Positive shifts are observed in container traffic – an increase of 19% noted last year.

The statistics indicate a desire for cargo consolidation. Only 4 ports in Ukraine (Pivdenny, Odessa, Chernomorsk and Nikolaev) process more than 80% of the total transshipment volume, with an increase of 23.8%. 12%, 18% and 22% thus. The trend will continue in the future, as consignors in the US and China work with large-capacity vehicles that need “big water”.

A deplorable situation develops in small ports – they become unprofitable and forced to make efforts not for development, but for survival. For example, transshipment volumes for the current year are 2 thousand tons in the ports of Skadovsk, 29 thousand tons in Ust-Dunaysk, 84 thousand tons in the Belgorod-Dniester port. Accordingly, if the management system for these facilities requires reform, it is planned to use the nearby branches of the company for these purposes.

A strategic goal has been uniquely formulated in this direction – to increase the transshipment volumes in Ukrainian ports by at least 25 million tons in the next five and reach the level of 200 million tons by 2038. Scenario is quite optimistic. But such results can be achieved by increasing the efficiency of port infrastructure and establishing mutually beneficial partnerships between state and business structures.

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