In terms of seaports and natural waterways, not many countries are as blessed as Ukraine. The Dnipro River — fourth longest in Europe — bisects the country, meandering far into the east before looping back west to spill into the Black Sea.
Four out of the European Union’s 10 international transport corridors, as designated by the European Commission, pass through Ukraine.
The country’s seaports are favorably located at the crossroads between Europe and Asia, with access to both the Black Sea and a 2,100-kilometer river system.
But despite these advantages, Ukraine’s water transportation — like almost every other economic sector — has been badly neglected since Ukraine became independent.
Without investment, its sea exports are lagging and its rivers carry only a trickle of its growing grain production. Though Ukraine’s government has put forward an investment plan to pump life back into Ukraine’s ports, critics cast doubt on its feasibility.
Meanwhile, Russian aggression and perennial corruption concerns continue to suck profits from the nation’s grain producers and shippers.
Investment for trade
Altogether, Ukraine has 18 seaports, five of which are in Russian-occupied Crimea.
The remaining 13, located on Ukraine’s mainland, are operational.
But together they processed only 132.5 million tons of cargo in 2017, just 1.2 million more than in 2016, according to the Ukrainian Sea Ports Authority.
The marginal growth isn’t from exports. Exports through seaports have been slowly decreasing in Ukraine, dropping by 6 percent over the past three years to 98.5 million tons in 2017, most of which was raw materials, like grain.
But imports are growing, reaching 20.4 million tons in 2017 — a 22 percent increase compared to the previous year.
To boost trade, Ukraine’s government plans to invest Hr 44 billion, or $1.7 billion, into its seaport infrastructure over the next 12 years, according to Deputy Prime Minister Volodymyr Kistion, who spoke at a ports forum in Odesa on May 31.
The 12-year plan includes 46 projects to upgrade Ukraine’s seaports, among them construction of new stevedoring terminals and berths, and the repair of old ones.
But 12 years might not be enough, says Raivis Veckagans, the head of the Ukrainian Sea Ports Authority.
Realistically, the upgrades will take more like 20 years, given Ukraine’s lack of equipment and difficulties with implementing EU standards. This is bad news, as Ukraine’s growing agricultural economy depends on efficient exports.
“Ports drive the economy, because they’re the gates for exports,” Veckagans said.
“In Ukraine, 66 percent of exports go through seaports.” What might help, least in terms of efficiency, says Veckagans, is the increasing share of privately owned port operators. Currently, just 13 out of the 103 seaport operators are state-owned, a 12 percent decrease compared to 2013.
“Our main target is to maintain efficient use of the seaports with the stevedoring business transitioning from state-owned to private,” Veckagans said.
Dire straits
The main share of Ukraine’s seaport cargo is processed by four Ukrainian seaports — Odesa Sea Port, Yuzhny, Mykolaiv Sea Port and the Port of Chornomorsk. Last year they handled 80 percent of total seaport cargo turnover, or 107 million tons.
The leader was Yuzhny, located 30 kilometers east of the city of Odesa. Its share was more than 30 percent. Odesa Sea Port and Mykolaiv Sea Port accounted for about 20 percent, or 24 million tons each.
Ihor Tkachuk, head of Odesa Sea Port, declined to show profit figures, but said the port is making money, handling about 500 thousand containers in 2017, which was a ten percent increase over 2016.
“The port has never been unprofitable and will never be, although volumes fell compared to 2010 due to the annexation of Crimea and occupation of the eastern Donbas,” he said.
But outside of these top four ports, conditions are worse.
Reni Sea Port, for example, close to Ukraine’s border with Romania, handled only 200,000 tons last year.
Twenty-five years ago, that figure was 10 million tons per year.
The government is planning to come to Reni Sea Port’s aid, setting up a special economic zone with low taxes for ships, said Maxim Stepanov, the governor of Odesa Oblast.
According to the draft law, Reni Sea Port will have a three-stage tax system: for the first three years after the law is passed, ships will pay no taxes on profit at all, for the next three years they are to pay half of today’s current 15 percent profit tax rate, and only after six years are they to pay full taxes. But Reni Sea Port is not in the worst state of Ukraine’s seaports.
Skadovsk Commercial Sea Port, located in Kherson Oblast, is silting up and is now almost unusable, with no funds allocated for dredging it.
“Skadovsk sea port is a port that is simply standing still,” Alexander Varvarenko, CEO of Varamar shipping company, told the Kyiv Post. “No more money is allocated for dredging. Previously, there was a ferry line that brought life to the whole city. There was even a grain terminal.”
The port handled only 20,000 tons of cargo last year, 36 percent less than in 2016.
For such cases, the government thinks it might have a solution: privatize the whole port or put it under concession, allowing foreign companies to operate it, modernize it, and collect profit, while its underlying assets would remain state-owned.
Two feasibility studies for possible concessions have been completed already, at Port Olvia and Port Kherson.
Two more are underway for Chornomorsk and Port Yuzhny, said Veckagans.
River neglect
Meanwhile, although there is a government plan in place for revitalizing the seaports, less is being done to upgrade the country’s river infrastructure.
The majority of Ukraine’s river ports are out of shape, according to Ukraine’s Infrastructure Ministry. Currently Ukrainian river infrastructure covers 18 ports (including terminals) on the Dnipro River, six of which are reloading terminals privately owned by Nibulon, one of Ukraine’s largest grain exporters, which transports its grain via the Dnipro River.
Like Port Kherson, the main problem that river ports face is a lack of dredging, which would increase freight turnover and river traffic.
Far behind
Aside from bad infrastructure, Ukrainian ports are beset with a host of petty problems: extremely high port fees and tariffs, poor cargo handling, and corrupt ecological inspectors.
Its infrastructure is rated 96th on the World Bank’s index of quality seaports — right around Lebanon, Bangladesh, and Mozambique. However, says Varvarenko, “Ukrainian ports are the most expensive in the world. The way they charge is very outdated, and even though fees were reduced by 20 percent, the fee is still three times more expensive than at ports in other countries,” Varvarenko said.
But perhaps even a bigger problem for business people are corrupt ecological inspectors that unfairly fine companies.
“Ukraine has a non-transparent environmental inspection system,” said Andriy Smirnov, head of seaborne shipments at Metinvest steel and mining company. “The fine for each ship exceeds Hr 10,000–20,000 ($380–760).”
Suguru Uchida, director of NYK Bulkship (Atlantic), a subsidiary of the largest Japanese shipping company, which is part of the Mitsubishi Group, agrees.
Uchida’s company has been made to pay ecological fines in Ukraine, but never been told why by the authorities.
Company representatives said they did not understand why their new ships, two years old at most, can’t meet Ukrainian standards when they had no problems docking in the Netherlands, United States and Japan — countries with higher ecological standards.
“They are trying all kinds of ways to make us pay. It’s not a very big amount for the company, but we still don’t want to pay,” Uchida said. “The authorities are saying that everything is fine, but from our point of view it’s not.”
Even though the port tariffs in Ukraine have been reduced by 20 percent since the beginning of this year, the cost of entering ships is still three times higher than neighboring Romania or Turkey.
