Memo for sea port investors in Ukraine

Версия для печати

In the article "The Port Task" I described in detail how port officials have turned the state-owned enterprise of the most important sector in Ukraine (USPA) into a feeding pan and a "profitable place" just for themselves, serving as a façade for reform while siphoning off state funds collected from sea vessels around the world entering Ukrainian ports.

Below, I will detail the cargo flows that may enter our ports, and what investors can expect after the conclusion of this devastating war.

In the meantime, as is customary, I provide data on the idle time for trucks at the western border of Ukraine, particularly when Polish farmers aren't blocking traffic:

• Krakowiec - Korczowa - 366 trucks in the queue for an average of 7 days 11 hours 30 minutes
• Yahodyn - Dorohusk - 245 trucks in the queue for an average of 5 days 9 hours 15 minutes
• Djakove - Halmeu - 573 trucks in queue for an average of 5 days 20 hours 45 minutes
• Uzhhorod - Vyšné Nemecke - 910 trucks in the queue on average 7 days 6 hours
• Chop (Tisza) - Záhony - 1224 trucks in line average 7 days 12 hours 27 minutes. 

The same situation will be with any investment projects in the ports of Ukraine. Transport will stand, stand for nothing, stand everywhere.

Geographically, it's convenient to describe the situation with the ports of Ukraine from east to west, dividing the territory into five zones.

Eastern zone: ports of Mariupol and Berdiansk. In the last pre-war years, the main cargoes for Mariupol were ferrous metals (5 million tons out of 6-7 million tons in total annually), and grain for Berdiansk (up to 1.5 million tons annually). 

Mariupol. During World War II, the city was either on the front lines or occupied by the Nazis for almost two years but remained largely intact. The main enterprise, Azovstal, was even partially operational at that time. Today, this city and its two steel giants have practically ceased to exist. The northern neighbors attempted.

What should replace the devastation of "Azov Palmyra"? Should it become a city for tourism, sports, and recreation? Or should we create a fish production center for all of Ukraine in a warm, shallow sea? That should be decided by the residents of the region who will stay and return. It is absolutely clear now that restoring the cargo port to its former functionality, specifically for the export of raw metal benefiting one monopoly oligarch in Ukraine, is no longer viable. Moreover, the world (with China and the East as the main consumers of Ukrainian rolled products) has managed to adapt over the past few years without our metals and will continue to do so.

China, even without Ukraine raw materials, has nearly reached 1 billion tons of annual steel production. However, the metal we can produce at the remaining and de-occupied factories will be critically needed in Ukraine for construction trusses, bridge crossings, and reinforcement. A port for export in Mariupol is not necessary at all. Additionally, without this port, we may finally address the immediate issues of billions in state expenditures and criminal cases related to the dredging of the port, as currently overseen by the Port Administration of Ukraine.

Berdyansk. Even if Ukraine's economy has surplus ferrous metals, scrap metal, pig iron, or pipes for export from eastern Ukraine, this port can easily meet all orders for many years to come. If the next UA oligarch has additional volumes, it would be a minor investment to install a couple of cranes at the Berdyansk berths, deepen the port, etc. The key issue is whether the citizens of Berdyansk want noisy, rusty, dusty railcars or perpetually smelly trucks streaming through their city center.

The ports of Crimea under occupation worked for the occupiers, and it makes no sense to predict their further use now, that is, until complete liberation. Especially after the last destruction of the largest in that region, the Feodosia port oil port.

Does Ukraine lack the resources, strength, or personnel to develop our own livestock and feed industry? Why isn't it progressing? Furthermore, when it comes to processing grain domestically, there is no real need to focus on raw food exports exclusively. Our priority should be to feed our residents and reduce prices for meat, eggs, cheese, milk, and sunflower oil for Ukrainians themselves. Currently, the same products are being imported from Poland and Italy because they are produced from Ukrainian raw materials and are much cheaper than what are available in Ukrainian stores.

Does Ukraine need a port for the import of fertilizers for the entire country? Absolutely. The Dnipro-Bug port, which has just been vacated, offers deep sea access, good road connections, and is not located in the city center. Previously, this port operated for years in service of our northern neighbor to our detriment. Now, the Ministry of Infrastructure and the USPA should focus on preparing this port to handle all imported fertilizers in any packing while ensuring attractive tariffs for rail shipments throughout Ukraine. This way, no one will consider transporting bulk fertilizers by sea to the urban ports of Odessa, Kherson, or along the Danube, as was done prior to the war.

For efficient port operations, it would make more sense to leave two estuary ports operating in this region (Olvia and Dnipro-Bug) rather than burdening residents of major regional centers like Kherson and Mykolaiv with truck noise and damaged city roads due to continuous truck traffic to and from the ports. Moreover, the pre-war promise of "new jobs for port workers" is no longer viable in the modern economy, neither for providing modern salaries, nor for contributing taxes to local budgets. It doesn’t reflect the desires of our soldiers to seek employment as port workers after the war. It is essential to consider that almost all local taxes from these ports often end up being used to clear grain dust and repair the roads leading into city centers.

Ports of "Great Odessa": Pivdennyi, Odesa, and Chornomorsk. Thanks to the "smart state management" of the Port Authority, some terminals in these ports are now empty and neglected, while others compete against each other even within the same harbor. Why was it necessary for the port of Odessa—after making a significant state investment in a container terminal right in the center of Shevchenko City Park—to allow the construction of another private container terminal just 3 km away? Just for the same cargo volume.

This decision has severely diminished the quality of life for residents in the upscale district of Odessa (Navy Boulevard, formerly Zhvanetsky Boulevard). Additionally, this new container berth is located directly next to the grain berth. The reasoning behind this is incomprehensible beyond the influence of bribes to officials. There is no economic rationale benefiting the state or the city. Why was it necessary to construct two container ports in Chornomorsk on opposite shores of the same harbor? One, a private terminal, is operational again, while the state terminal has been rusting and empty for years.

Apart from bribes to officials, this cannot be explained in any way either.

The ports of Pivdennyi and Chornomorsk can fully meet Ukraine's needs for bulk, containers, and general cargo in large volumes. If there is suddenly more cargo than the capacity of these ports, Olvia and Dnipro-Bug may well help. Of course, if these ports are managed honestly and efficiently. To do this, it is necessary to create appropriate attractive railway tariffs to-from these ports, to expand highways for trucks.

Why are state port authority "stuffing Odesa" with cargo and ships now, at the same time involving daily strikes by the ruscists on the port infrastructure in the very center of South Ukraine Palmyra? No one will answer you honestly. And if it's not fair, the distribution of cargo by port terminals often depends on the ability of the owners of these terminals to pay cash. And pay everywhere.

In Odessa, it turns out, it's just more convenient to do it. Maybe that's why grain is handled from bags onto ships at the Odesa container terminal which cost for almost a billion dollars? (Yes, yes, container handlers for high-speed work with 40-ton containers, today handle grain into the holds of ships). And container ships sail by Odesa. Perhaps that is why foreign container carriers open services during the war not at the state berths of the port of Chornomorsk, but at the berths of a private fishing port 500 meters from the first one.

I will give one pre-war example. A client of the port of Kherson complained to me a couple of years before the war: "I came to the port with the usual cargo – ammonium nitrate in large bags. Good job. The port authority agreed, but with the condition of 1.5 dollars in cash undertable money per each ton of cargo. In addition to the usual port expenses. The client went to a private pier nearby (in my opinion, "Pallada") and "I mean them with their cash". This is the system of the Ukrainian Port Authority, and it is for such examples that this Administration is needed.

And another example of "work" - even despite the fact that almost every tender of the USPA is accompanied by criminal cases, a tender worth one billion hryvnias was held in Odessa today. "Repair of a part of the overpass from the berths to the exit from the center of Odessa." For understanding, 1 billion hrvs is just the repair of only part of the overpass, which itself costed 130 million. Same repair 2 years ago was estimated at 675 million hrvs. Now at one billion and with the deadline for the completion of repairs by the beginning of the 4th decade of this century. Fun tender. It is for such tenders that the current Port Authority of Ukraine is needed.

What the center of Odessa turns into is clearly visible from the photo from the Potemkin Stairs. It's also good that thanks to the "efforts" of the Ukrainian Ports Authority, the broken hotel "Odesa" has been empty for many years. No one was killed. 

Why empty? As for bribes, apparently, they did not agree that?

Western zone: Belgorod-Dnestrovsky, Izmail, Ust-Dunaisky, Reni. 

The State Property Fund has already tried to sell the port of Bilhorod-Dnistrovskyi for the fourth time. It is trying to sell as a port almost for nothing now. And the port in this estuary has no prospects at all. Why to sell at all? Even if they manage to sell it for free, then they will sue that the territory of the port was built up with private buildings. Give the territory of the port to the city, local authorities, citizens and let the community decide for itself what to do on its territory. What kind of land tax, for example, to establish, so that the community is beneficial, let the residents of the city also decide. 

After all, it is no secret that for some reason some port areas are not subject to land tax at all (Odesa). Even occupying 10 km of the best Odessa embankment, Odessa port and port Administration pay nothing for land. What would their fair business be like if all Odesa offshore terminals within this city best area were taxed with a fair land tax? No. They would look for other places for their off-shores. But no, everyone should be in "business": some are arranging tenders for the fourth time, engaged in a blatant imitation of state work (SPFU), others are just stupidly get salaries from an empty port (USPA). 

Give the territory of the port (Belgorod-Dnestrovsy) to the city for the development of tourism, sports and recreation, or create a fish and oyster production center there in this almost ice-free and shallow estuary, etc. 

Other ports of Ukraine west have the same prospects, that is, very vague. Especially if the next government has the courage to change Ukraine's grain strategy from raw material exports to domestic consumption and use of grain.

2 more points to be cleared:

- Ukraine Port Authority needs an immediate change in functions. There should be strictly no commercial functions in the administration a priori. Safety of navigation, control of depths, control over compliance with international rules and regulations of maritime and port handling procedures, control over the accrual of port dues to the state from incoming ships, and so on. And no theft at tenders, on the rents of state berths to outright hucksters and off-saddlers, no earnings from deposits from state port dues, etc. The combination of controlling and commercial functions in this one administration is an invention "a la Sasha Yanukovych", which must be stopped immediately.

- In almost all of our seaside cities, the ports in the city center are strictly closed by high dirty fences from the inhabitants of these cities. According to tradition, only in the 18-19th century ports were located in city centers. Today, the best urban areas of our seaside cities need to be opened to citizens, creepy fences removed, territories must be opened up for really new jobs, in order to receive much higher taxes from these territories. For example, the port of Odesa justifies the fact that it does not pay land tax to the city by the fact that the territories it occupies are constructed by USSR and artificial. For the "soviets" it's a good excuse, but for the new post-war Odesa – a worthless and unacceptable one. If you don't want to pay land tax, leave, and we will find other tenants of city land and make this tax for the benefit of the citizens. It is necessary to open territories in Mykolaiv, and in Kherson, and in Mariupol, and in Odesa.

It is even difficult to imagine how much less dust, dirt, noise, vibration, corruption and bribes will be in these territories closed now to the public. 

And it will even be an interesting task for transport workers to set up effective work in the ports remaining in this process of "port decolonization". 

Oleksandr Zakharov UA port expert, exclusively for "Argumentua.com"

The Ukrainian version of this article: "Перспективи портів України після закінчення війни (якщо побороти корупцію)"

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