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New inland water transport law adopted in Ukraine

In the last days of 2020, Ukrainian President Volodymyr Zelenskyy signed off on a new Inland Water Transport law. This was finally passed by parliament after many long years of disputes.

April 26, 2021 - Andrey Netrebenko - Articles and Commentary

River transport via the Dnieper river in Ukraine Photo: Nick S. flickr.com

A draft of Ukraine’s new Inland Water Transport (IWT) law had been planned as early as 2014. Following elections that year, the issue was discussed within the agreement that formed the governing ‘European Ukraine’ coalition. This move seemed only logical given the volume of cargo carried by IWT. For example, in 2017 the EU countries transported over 558 million tonnes of cargo using this method. This was over six million tonnes more than the previous year. In Germany, this form of transport moves around 240 million tonnes every year. Whilst in the Netherlands, IWT is responsible for 35 per cent of all of the country’s cargo traffic and 80 per cent of its bulk cargo traffic.

So, the first bill was registered back in 2015. However, it was not as successful as other EU-oriented initiatives. One of President Zelenskyy’s first slogans was “stopping the bureaucracy”, which also implied removing parliamentary red tape around bills and amendments. In 2019, the president’s team obtained an absolute majority in Verkhovna Rada (Supreme Council, the parliament of Ukraine) and started pushing through some long-awaited laws. The ‘Law on Concessions’, which had been waiting for its second reading since April 2018, was easily passed on October 3rd 2019. Naturally, the bill on IWT seemed like it would be next. Despite this, some issues regarding the law caused divisions in the country.

For instance, most of Ukraine’s landlocked shippers yearn for a cheap and abundant fleet to transport their cargo along the Dnipro river. They also hope for transport along various parts of the Pivdenny Bug and Dniester rivers that were navigable in the past. Ultimately, most of these shippers want easy access to sea and ocean-going vessels for their cargo. By all means, they support free access to their cargo for flag ships, provided that they are technically fit. This is understandable considering the current situation with Ukrainian flag tonnage both on rivers and at sea. They could probably even live with some freight surcharges arising from the river dues, as envisaged by one of the first versions of the draft. This would consist of a single and proportional payment for the use of fairways.

On the other hand, the shipowners who have already heavily invested in their own river fleet and river terminals are afraid of competition. Their fears are largely focused on national legislation regarding fuel. Petroleum products are subject to an excise tax that only drives up prices. These prices are only budgeted for the country’s roads. Secondly, due to some peculiarities within Ukraine’s customs regulations, foreign flag vessels can easily take on fuel beyond the 12 nautical mile zone without any duties and taxes. These rules do not apply to Ukrainian flagged vessels. This particular issue has affected many stakeholders who have inadvertently been disadvantaged by their investments. Concerns over fair market competition have been raised as a result of this issue.

Despite this, shippers, consignees and foreign flag operators are happy. Before some provisions of the law come into force next year, the country’s Ministry of Infrastructure has launched an initiative connected with this particular clause of the law. For example, it has cancelled decades-old procedures related to entering Ukrainian river ports. Previously, this procedure was hampered by red tape and rooted in the realities of the early 1990s. During this period, a huge fleet from neighbouring Russia would leave the country’s icy fairways every winter and sail to ports on the Dnipro river. These ships provided an enormous amount of competition for the new Ukrainian joint-stock shipping company Ukrrichflot, which possessed links with the highest ranks of the government. The very idea was concerned with announcing a possible freight and waiting for ten days (latest years shrunk to three) that a national company would claim for it. Last but not least, each permit given out would only be valid in one river port.

That competition concerned only river ports like Kherson and Mykolaiv, which are situated a mile or even half a mile upstream from corresponding sea ports. Even today, these are quite capable of servicing small shipments to and from Russia, Turkey and other Black Sea states. If the ship’s size (draught and tonnage) allows, these ports can even handle shipments to and from the Eastern Mediterranean. Ports situated further upstream past a number of locks subsequently lost out in this competition. Nowadays, however, the Ukrainian agricultural industry is experiencing steady growth and the country’s cargo base has moved hundreds of miles upstream. The payments to use locks in Ukraine are far less than those on the Suez or Panama Canals, or even the Bosporus.

Of course, those vessels that carry cargo deep into Ukraine or export from these regions sent their applications well beforehand. As a result, they received the necessary permissions in time. However, should an outgoing vessel take some cargo in a nearby river port after delivering imported goods, the time that it takes to wait for permission could ruin the feasibility of such an operation. As the permit procedure has now been cancelled, foreign flag ships (except for those linked to the Russian “aggressor state”) can freely deliver goods within Ukraine’s internal waters and maritime territory. Of course, cargo owners are happy with such a development. With a clear possibility of taking some opportune freight and/or cargo, ship operators are very likely to lower their freight rates.

Here are some statistics worth remembering. According to the Ministry of Infrastructure, 348 foreign flag voyages occurred in 2019, while 391 occurred in 2020. This represents an increase of 12 per cent over the two years. However, this change accounts for as little as 3.4 per cent of the total number of ship movements on the Dnipro river. Talking about last year, foreign vessels made 457 applications to access the Dnipro and even the lowest part of the Pivdenny Bug river that is navigable near Mykolaiv (Of course, this involves a river port situated at the next river bend from the sea port). In comparison, 384 applications were made in 2019. Despite this rise, most of these ships were involved in simply loading or unloading cargo in neighbouring ports. A more accurate picture of these changes is given by the cargo ‘throughput’ statistics. Some 1.1 million tonnes were carried by foreign flag ships in 2019, while about 1.5 million tonnes were carried in 2020. This represents a growth of 36 per cent.

It also has to be remembered that the fairway depths in Ukrainian inland waterways are far less than those in the Mississippi or Amazon rivers. As a result, lots of cargo shipments must be split due to the ships’ size. Lots of vessels loaded upstream arrive in sea waters with a lot of free cargo space. This makes any further voyage unfeasible. Due to this, additional loading in downstream river or sea ports is essential for economic success. The government’s new legal provision could subsequently prove very favourable for Ukraine’s overseas trade. Here is just one example: the ship ‘m/v Aspro’ managed by Concord Shipping Corp. delivered 1,600 tonnes of fertiliser to a small river berth, a branch of Kyiv Port. Initially, the shipment from Bulgaria had been larger as some 800 tonnes had to be discharged downstream in Kamenske in order to successfully navigate the shallower waters. Without this space to pick up cargo on the return trip, that voyage would not have been financially feasible. A shipment of grain was found immediately due to the time of year and geographic position. In autumn, there are enormous amounts of grain waiting to be shipped to the sea terminals of Great Mykolaiv and Great Odesa.

The new law also has many other positives:

  • When ships use locks, the hydroelectric power plants that operate these structures are responsible for calculating the cost. This should take the form of a common electric power tariff that would be next to nothing for a single customer.
  • Regional and local motorway authorities now finance the raising of bridges. Subject to a strict and commonly agreed schedule, private road owners will also be involved in this.
  • The entire river navigation sector has obtained its legal background as well as the small fleet, leisure and pleasure craft, sport vessels and so on and so forth. Issues related to safety and environment protection are covered by the provisions that correspond with those of the SOLAS and MARPOL marine conventions. All commercial and other issues, especially the River Information System (RIS), have been brought into compliance with the corresponding EU laws, norms and standards.
  • River-going ships with a draught of 4.5 metres or less are now exempt from certain dues in sea ports. For example, foreign operators performing internal deliveries now pay considerably fewer charges. This also sometimes applies to international voyages.
  • A lot of red-tape has been removed. This is particularly true with regards to dredging operations.

Nevertheless, there are some provisions in the law that have angered the maritime industry:

  • Article 54 of the draft stated that IWT cargo and activities involving passengers are subject to licensing. However, the law now limits licensing to the carriage of passengers and dangerous cargo.
  • Locks, fairways and the RIS are to be maintained by a special ‘River Fund’. Despite this, there are no clear and stable sources for this fund indicated by the law, except for some vague investments and voluntary donations. Originally, it was hoped that a percentage of the aforementioned fuel excise tax would be used for this fund. Marine business is subsequently afraid that sea ports will end up paying for maintenance. This issue is a topic of great debate at the moment.
  • Against all of the arguments made by the EU-oriented business community regarding navigation, Article 47 only discusses the public entity that is meant to provide this information.
  • It is still possible that the draft’s discussions of how to finance various IWT issues could be removed from the final version of the law. This is because the sources of the River Fund remain unclear and probably lay within the governmental day-to-day power. Business and many pro-EU citizens have been disappointed by these developments.

Despite these issues, the very adoption of the law outweighs the negatives in our opinion. There are many positive trends, particularly the law’s reference to and correspondence with EU directives, as well as the growing success of cargo owners. There are still a lot of questions but more precise answers will come as river shipping further develops in Ukraine.

“Only the leap into the river tells us what is called swimming”
– Martin Heidegger

Andrey Netrebenko is maritime & transport project manager at Interlegal (Ukraine)

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