In the beginning of the new season, the experts are focused on the volumes of the grain production and the estimations of its quality. Herewith, in terms of the brisk growth of the agriculture in Ukraine we should think not only of the prospects of the production and the increase of the export potential, but also about the problems of the agribusiness. In recent years, the question of the grain logistics is among the most hot issues as it neither catch up with the development of the agricultural industry nor with the increase of the port capacities. Annually there are more and more new and modern terminals enter into service that demonstrate the preparations of the sector to the further growth of the grain and oilseeds production, including the long-expected 100 mln tonnes of their production. But is everything going smoothly in port industry as it seems?
More about the industry challenges APK-Inform Agency asked Raivis Veckagans, Head of the Ukrainian Seaports Authorities.
— Raivis, what are Your expectations concerning the start of the new grain season and the estimations of the latest trends in the port industry?
For today, an agriculture is one of the main spur of the deliveries increase from the seaports. This growth — nearly 8.5 mln tonnes or 13% in the FH of 2019 is by ¾ provided by the deliveries of grains. Despite the significant increase if the grains deliveries, the ports do not have any capacity deficit. The growth of the load is divided among the existing capacities and the new terminals. The products of Ukrainian exporters are competitive on the market and the ports provide their delivery to the end-user.
In general, the statistics data of the port deliveries in Ukraine today are positive and we manage the cargo turnover increase, even despite some obstacles connected with the railroads.
— Such an increase if the grains transshipment is provided by the record crop of corn in Ukraine in 2018 or by more global factors?
If we analyze the dynamics of the transshipment for a longer period, we can see definite trend of increase of the agriproduct cargoes share in a total volume of the shipment from the Ukrainian seaports. For the last 5 years the agricultural cargoes have become number one in terms of the transshipment from the Ukrainian seaports leaving behind the mining and metals products shipments. At that time, the share of agriproducts in a total volume increased from 31% to 42%. For this reason, the ports diversify the loading capacities for the work with different types of produce, also considering the grain sector becoming dominating. By the end of 2018, the Ukrainian seaports handled 52 mln tonnes of agricultural cargoes. Herewith, in the FH of 2019 this number totaled nearly 30 mln tonnes.
If a few years ago 100 mln tonnes of the grains production in Ukraine was thought to be an utopia, today the objective facts and the forecasts demonstrate that this number is possible and we must strive it and respectively develop the ports infrastructure. So, I believe that ports operation diversification is an absolutely correct and constructive decision.
— This has become of the reason of the glut of the new grain terminals and translating capacities increase in Ukraine in recent years, hasn’t it?
In some measure yes, the Ukrainian grain market develops and it needs the relates industries to develop too. Here, several factor influenced the outcome.
Today the TOP-5 seaports of Ukraine handle nearly 85-90% of the export and import volumes of cargoes. The large terminals with high-capacity and modern technologies are the drivers for the industry development.
There is one single thing that disappoints me — it is a fast decision-making, which could stimulate the development of the projects based on state-private partnership in the seaports. The law on concession was not passed in the second reading and for now there is no clear understanding when this will happen. At the same time, we continue working in accordance with the law. In a near-term future, after the approval of the competition conditions by the Cabinet of Ministers there will be an announcement about the competitions of the concession of the state stevedore companies «Olvia» Sea Port and Kherson Sea Port. This will allow the government to attract nearly $65 mln of the private investments for the development of the ports.
For now, Ukraine has 115 ports operators. Among them only 13 are state stevedore companies. For the last years their share in the cargoes transshipment declined significantly – by almost 20%. In terms of the stevedore activity the government loses to private sector. The work of the state stevedores is regulated; the dividends policy of the government limits their investment possibilities but the social pressure is much higher compared to the private sector. Thus, the decision of the government to leave the stevedore activity, which is embodied in the National transport strategy and Strategy of the seaports development until 2038, is fully justified. The transfer of the state stevedores to the private form in terms of the state-public joint projects with the strictly outlined obligations of the business (Ukrainian and the foreign) in terse of the investment into the development will provide the development of the industry.
— In terms of the increasing production of grains and some logistical problems with the export via the deep water ports, in the short-term the share of the small ports will increase. Do You agree with this statement and what is the situation with the Ukrainian Azov sea ports now?
I don’t think that the infrastructure in most of the ports will allow to handle the increasing shipments of products. The thing is that it is preferable to transport the produce from some oblasts by using the small ports, many of which are developing fast and becoming powerful and modern.
In 2017 in Berdyansk the grain terminal “Agria” was put into operation and now the new powerful terminal is being built in the Mariupol Sea Port.
Of course, the situation with the port industry in the Azov Sea region differs from the Black sea region. In the waters of Azov sea the state stevedore companies are leaders in terms of the cargoes handling. Moreover, here many factors must be taken into account: geopolicy, the termination of the transit flows and several other social factors. In the Ukrainian Azov Sea ports have less successful examples of the state-private collaboration. However, during the realization of the investment projects in the Azov seaports we use the same approaches as in industry in general. In particular, in Mariupol Sea Port we are investing into the reconstruction of the dock №4. The works must be finished until the end of 2019. This project is being realized together with the construction of the powerful grain complex, which is handled by the state stevedore of Mariupol Sea Port. There is a memorandum with the embodied obligation for both parties concerning the fulfilling of the work and the guarantees of the transshipment.
We use such an approach during the realization of our investment project in all ports. The Ukrainian Sea Ports Authority as the state body must provide not only the dredging operations but also the construction of the docks. The effectiveness of each project realization must be calculated in advance with the clear guarantees of the additional traffic flow which in a future will provide the investment cost recovery. If nominally today some stevedore will come to us from Mariupol with the information about the presence of the container flow, we will discuss the possibilities of these assets development in the region. Today, all the actions and the plans of the Ukrainian Sea Port Authority on the strategic development of the ports industry in Ukraine are defined by the demand. And everyone must understand this clearly, including the cargo owners.
— What is a current situation with the realization of the investment projects of the Ukrainian Sea Ports Authority in the Azov Sea region? What are the main obstacles with their fulfilling and the planning of the new ones?
Generally, we successfully fulfill our obligations on realization of the strategic investment projects. In particular, in terms of the Azov region, we can mention the dredging in our ports in Azo sea and also the construction of the dock №4 in Mariupol Sea Port, which should be finished by the end of the year. In general, the volume of our investments in Berdyansk and Mariupol Sea Ports in 2018-2019 will total nearly 1 billion hryvnyas, despite the governmental policy on the withdrawal of 90% of the profit from the Ukrainian Sea Port Authority in the form of dividends for the budget.
Among the good part I should mention that the EU have changed fundamentally its vision of the Azov region and is determined to provide various support in the development of the transport infrastructure of the region. Of course, we would want the projects of the USPA to be of top priorities. For example, we submitted a project on the specialized ships that will provide the all-season non-stop operation of the port. Bur for now the preference was given to some other actual problems. For example, this autumn a decision must be taken for the financing of the feasibility study of the reconstruction of the road Mariupol-Berdyansk-Mykolaiv, and also the development and electrification of the railroad Zaporizhya-Mariupol.
The another important issue is the decision of the JSC “Ukrzaliznytsia” on the 20% discounting for the transportation of the goods to ports in Mariupol and Berdyansk. For the moment, the discount has not been applied. It has not been realized technically yet but I am convinced that this initiative will generates into actual outcome which will provide the support to the region. All these are highly important for the further development.
— Can we say that the high rate on dividends impedes the development of the port industry of Ukraine?
Indeed. This year the Cabinet of Minister established the dividends – the percentage from the income to the budget, that must be paid by the USPA and the state stevedore companies, at 90%. At one side, the desire of the government to fill the budget in terms of the difficult economic situation is understandable. But such a policy does not stimulate the ports development. Last year we paid 50% of the dividends. Based on this we were comprising the financial plant of the enterprise for 2019. We planned to place up to 3 billion of hryvnyas for the capital investments. Now, considering the almost double increase of the dividends rate, we had to change our plan. Taking into account all the existing possibilities of the USPA and the resources in such conditions the volume of the investments in 2019 will not exceed 1.5 billion of hryvnyas. Next year, if the dividend policy of the Cabinet of Minister will not change, we would be able to allocate nearly 500 mln hryvnyas for dredging, construction and modernization of the docks in 13 ports.
I really hope that the Cabinet of Ministers of Ukraine will reconsider this decision. In June the Ministry of Infrastructure has applied the relevant offer about the reduction of the dividends rate for the strategic enterprises. In particular, for the USPA — to 50% and for the Azov seaports — to 30%. I’m convinced that in such conditions the state enterprises will be able to invest into the port infrastructure.
— What tasks does the USPA set, considering the active development of the grain market in Ukraine?
Now the increase of the cargoes volumes becomes an important tendency. So, it is necessary to provide the possibility to use the ports with the maximum draft. In particular, in terms of the agricultural cargoes this necessity is provided by the fact that more and more volumes of grains are shipped for long distances. Earlier it was difficult to imagine that the grain traders in Ukraine will seriously discuss the possibility to load the Capesize ships. Today there is such a requirement so in the Pivdennyi seaport we actively work on the ways to realize the load to the ship Panamax or Capesize. So, the correspondence of the depth to the technical parameters is becoming highly important as well as the necessity to provide dredging operations. In this regard, the USPA clearly understands its tasks. For the last 2 years we realized several projects that have not been fulfilled previously for decades. For the first time in two decades we have managed to reconstruct the access channel in the Chornomorsk seaport, for the first time in 11 years we have finished the largest dredging project in Ismail. In 2019, the USPA plans to cary out dredging in 12 entities. These are the works on the maintenance of the technical depth in ports in Mariupol, Berdyansk, Ismail, Mykolaiv, Odessa, and Kherson. The capital dredging in Chornomorsk and Pivdennyi have already been finished. And also, we plan the dredging in 4 channels.
— Raivis, according to You the demand of the market triggers the action of the USPA. The Azov region is considered promising regarding the grain by-product transshipment as some nearby oblasts are the leaders in the production of such goods and Ukraine should give up on being the raw materials supplement. If we put aside the questions connected with the processing industry there is another obstacle — the absence in the region of the container lines. Does the USPA have any plans in this?
I personally believe that in a near-term there will be no container flow. The Ukrainian Azov seaports have no enough depth for most of the container vessels. These are the natural restrictions nothing could be done. Also, there is such factor such as Kerchen bridge and the vessel control by Russia. Finally, there are tendencies of the container market. Today the container lines are globalized. E.g. there are less containers lines. If 10 yers ago there were 20 one around the world, today some of them went bankruptcy, some went though the process of merge or acquisition. As a result, only 4-5 large companies have stayed on the market that determine its development. All of them one way or another work with Ukrainian ports: Odessa, Chornomorsk, Pivdennyi. Thus, this market is more or less formed in Ukraine. In order to develop the new container routes the cargo traffic is needed first of all. But today the volumes generated by the Above regions can possibly be transported in containers by railroad. We have the successful experience in forming of the container trans to Pivdennyi Sea Port.
We considered the inland water-ways as an alternative to railroads for the transportation of the containers. But for now here are no large volumes. Moreover, the speed is very important for the container logistics. I totally support the diversification of the cargo flows in ports. This will allow to load the capacities off-line and will become the basis for the development of the new, as we together with the state port do in Mariupol.
Last year the volume of the trade flow on Dnipro river totaled 12 mlzn tonnes, and in the FH of 2019 we can see the increase by more than 40%. Here we can see that the direct shipments from Dnipropetrovsk oblast are transported not as a cabotage but as the exports.
— Last year, the port charges were reduced by 20% on Your initiative. How do You estimate the effectiveness of this initiative and do You plan to preserve it?
Today the large part of the income of the USPA comes to the budget of the country in a form of the fees and dividends. In 2019, the Cabines Ministers Ukraine sat the dividends rate for the USPA at 90% from the income compared to 50% last year. So, speak of the port charges and compare with the ports in other countries is not wright.
If the reduction of the port charges will continue, it will only intensify the situation for the USPA because we can not educe the changes and increase the expenditures for dividends at the same time. According to our calculations, in 2020 providing the dividends rate will preserve at 90% compared to 2018 the volume of our capital investments in port infrastructure will reduce 2.7 times to 500 man hryvnyas. The country waits from us the development of the strategic assets herewith the attracting of the private investments will become more complicated due to the lowering of the investments into infrastructure. For now, every hryvnya invested into the USPA there is 5 hryvnya of the private sector. However, if we will not invest into the development the water areas and the reconstruction of the docks the business will not invest into the development of the capacities on the home front of the docks.
To date, the USPA has the negotiation with the anti-monopoly committee of Ukraine, EBRD, the ministry of finance concerning the provision of the guarantees from the governments in order to attract the credits from the international financial institutions. The government will not subsidize the USPA. Now I attract the experienced workers with the wide international experience to solve this issue. I hope that this instrument will help us to ensure the government that investments into the port infrastructure are important as they can bring more profit for the government instead of simple withdrawal of the money from the USPA to the budget. I definitely sure that the reduction of the port charges in the future will be connected with the reduction of the dividends and taxes rates. Taking into account the intentions of the government of our country to transfer to the tree-year planning, the unified dividends rate must be applied for this period — 30%.
— Have this reduction influence the increase of the cargo traffic and the volumes of the transshipment?
The statistics data demonstrate the positive result. It is possible that it was not evident last year but the changes of the cargo flows do not come out of nowhere. The contracts are signed for a year in advance and everything is planned beforehand. For example, the container flow are planned for 3-4 year in advance. So, there should not be any brisk and significant changes. The market must adjust to the changes.
Of course this was not a main trigger. There was a good market situation that prompted the increase of the agrarian produce and ores shipment.
We hope that the economy of the funds that was reached by means of the reduction of the port charges influenced the investment course of the stevedores and the reduction of the port charges in the end will stimulate the realization of the investment projects on the modernization of transshipment capacities in the ports. All these will contribute to the increase of the competitiveness of the goods transshipment in the Ukrainian seaports. Herewith, we must understand that there is no proportional dependence between the 20% reduction of the port charges and the 13% increases of the cargo flows. But the tendencies are correct. If we match the prime-cost of the product and the share of the logistics in the export price, for example, for the ore from the Ukrainian minery to the consumer in America, the share of the ports in the transshipment of the products is minimal. The most expensive part is land and sea transportation.
Interviewed by Anna Tasnkaya, APK-Inform Agency
