Port of Izmayil: unexpected start of Ukrainian PPP

(from the issue №1, 2017) In late December, the Antimonopoly Committee of Ukraine (AMCU) dulled to the application review of a certain Additional Liability Company (ALC) “Izmayil Sea Commercial Port,” which wished to lease for 49 years an integral property complex (IPC) of the state-owned enterprise (SOE) “Izmayil Sea Commercial port.” During their meeting, the AMCU has not come to a final decision, referring to the lack of information and the inability to make a formal conclusion about the need of the ALC to obtain permission to rent the IPC. Given the relevance of the issue of application of various PPP (public private partnership) forms in the port industry of Ukraine, and to clarify the situation, the international sea magazine “Shipping” interviewed the director of the SOE “Izmayil Sea Commercial Port” Andrey Yerokhin.

According to the AMCU, ALC “Izmayil Sea Commercial Port” intends to hire all the assets of the SOE – negotiable and non-negotiable, including the funds in the bank accounts, all accounts receivable and payable. The ALC was registered at the end of October 2016 for the purpose of renting the IPC SE. The members of the Company are: “Transmar” LLC (Odessa, 48.89375% of the registered capital), as well as the private individuals, members of the staff of the SOE, each of which holds a stake of shares not exceeding 0.10625% of the share capital of the LLC. The participants of “Transmar” are individuals, each of whom owns 50% of the registered capital of the company. At the end of 2015 fiscal year, the value of the LLC assets was 11,700 euros, the volume of sales of goods (services) – 6,200 euro.

How can you comment the recently occurring events related to the SOE “Izmayil Sea Commercial Port”, namely: the creation of the eponymous ALC (with the participation of  “Transmar”, Odessa) and its intention to lease the integral property complex of the SOE?

It was the staff’s decision. 84% of the port workers decided to take an integral property complex of the enterprise in rent, inviting a financial partner in the face of “Transmar” company. This is a specialized company, engaged in freight forwarding. In each division legal consulting was carried out, after which at the founding meeting the Company’s Articles of Association was accepted.

How do you actually feel about the prospects to rent the SOE? Is it appropriate in your opinion and why?

I think if the team made this decision, it has grown ripe and is correct. There is a resolution of the Cabinet of Ministers, according to which, in case of an IPC renting, the rent is reduced by 30%. This decision of the workforce, in the first place, was made due to the fact that the Cabinet did not meet the needs of the maritime enterprises of Ukraine – and did not reduce the amount of deductions from the net profit of public enterprises from 75% to 30-50%. If we add the tax on profit, the dockers have to give 0,93 of each earned hryvnia to the state budget. In this situation, any kind of capitalization is out of the question. The funds are worn by 90%. Yes, we do major repairs, but it is not an option – it is necessary to update the equipment. Under these conditions we cannot collect funds. Today we announced an ice campaign, the port is idle. If not the charges in the amount of 75% of the profits, we would have an “oxygen bag”, which would allow the dockers to work in the normal course and receive decent wages.

How acceptable are the formats of concession or privatization for the Izmayil SOE?

I cannot answer this question. The government politics aimed at privatization or concession exists, but the law of the concession hasn’t been adopted yet. We will wait until the law is adopted – and only then draw our own conclusions and take a decision.

Is the possibility to rent the port’s IPC a specific option to avoid privatization of the enterprise?

SOE “Izmail Sea Commercial Port” was included in the list of companies that can be privatized, but yet the deputies hasn’t voted for the bill on the reduction of the list of enterprises not subjected to privatization. The law says that the priority right to rent the IPC belongs to the staff. Although these moments are not settled in the State Property Fund, the court practice in Ukraine says that a law is a law. The staff is really against the privatization in parts – SOE should remain “one body.”

Does the port consider any options and possibilities of attracting outside investments? And in which projects they can be put?

We ourselves are actively investing in the company. This year we purchased and put into operation new equipment – air stocking conveyor, a ship-loader for grain cargoes, six clamshell grabs, and five automatic loaders with load capacity from 2 to 16 tons. Having free sheltered storage facilities, we can process grain cargo. We consider the investment option in the expansion of grain handling facilities, most likely – with the help of our financial partner. Today in the region there is such a need. However, frankly speaking, even if we handle cheaper, it is necessary to take into account the geographical position – our port is located at the southernmost point of the Odessa region, and the main cargo of grain will still go to the “Big Odessa” sea ports. We can only rely on the grain from Bessarabia and Moldova.

How did the SOE finish in 2016, what are the results – and how do they sort with the previous ones, in 2015?

The staff of the company in 2016 managed to beat the target and handle 17.5% of cargo more than in 2015 – 5 million 418,000 tons, which is 806,800 tons more than in the previous year. Due to the growth in volumes of processing of pellets from the Poltava mining and refining plant there was an increase in transshipment of ore cargoes; it reached 3.57 million tons, which is 985,000 tons more than in 2015. Ferrous metals handling increased by 14.1%.

The growth in cargo handling in 2016 led to an increase in payments to the budgets of all levels. SOE “Izmayil Sea Commercial Port” in 2016 contributed 166.7 million UAH to the state budget, which is 93.4% more than in 2015. 59.7 million UAH came into the local budget, which is 60% more than in the previous year. Labor costs (labor payment fund + UST) in 2016 increased by 23% and amounted 290 million UAH. The company’s profit amounted 105.7 million UAH, which is two times more than in 2015.

What are the main traffic flows, which serve the port today?

For several years we have been returning lost in 2012 cargoes and attracting new ones. To date, we have three main areas – pellets from the Poltava mining and refining plant to “Voest Alpine” (Linz, Austria), “ArcelorMittal Krivyi Rig” – to “ArcelorMittal Galati” (Galati, Romania), as well as the most serious of cargo flows – ore cargo to metallurgical combine “Zelezara Smederevo” (Serbia). Also this year we started to handle a fundamentally new to our port cargo – carbamide-ammonia mixture.

What are the water and alongside depths – and do they meet the needs of the port and its handling capabilities?

The depths do not satisfy us at all. At the majority of the berths we can only transship cargoes over the board, in this regard, we cannot use grain loading technique. Reed appeared on the quays of the second production and transshipment complex (PTC-2) and, if the “Ukrainian Sea Ports Authority” SOE does not carry out dredging, in the near future herons will live there.

We have repeatedly appealed to the Izmayil branch of “USPA”, to the central office of the company to begin dredging. November 23, 2016 between the Authority of the seaport of Izmayil and State Enterprise of waterways “Ukrvodshliakh” was signed a contract for execution of dredging services at the berths in the port of Izmayil. But the work has not started due to lack of environmental permits.

Passport project depths at the berths PTC-2 and PTC-3 are from 5.5 to 7.5 meters. Currently, the actual depths at the edge of the berths are from 0.6 to 2.3 meters from the “0” port.

Due to the lack of the necessary operating depths at the berths, Izmayil Sea Commercial Port, to meet its contractual obligations to the customer is forced to carry out cargo handling using floating warehouses for further loading of the vessels standing at berths with respective depths, or use harbor vessels, as a buffer between the quay and the loading vessel, to carry out multiple permutations of ships for loading.

All this leads to inconveniences in carrying out loading and unloading operations, their production costs increase, rates of the norms of loading / unloading of ships reduce, excesses wear of the gantry cranes, as well as the significant financial costs due to the need for additional use of labor and machinery, increases the cars processing period and also the gross rate of loading and unloading, which leads to an unplanned berths’ employment. I note that nobody offsets the costs associated with the lack of operating depths at the berths, they are vested in our enterprise and in cargo owners, which,  in the face of brutal competition, strip the port of cargo.

What are the prospects for further development of your company?

I would say, that “Izmayil Sea Commercial Port” SOE has impressive prospects for 2017. It was planned that in January, port workers will process at least 450,000 tons of cargo, but nature has made its own adjustments. From January 10, in the waters of Izmayil seaport ice campaign was declared. To prevent the financial crisis from February until the end of the ice campaign, the SOE team goes to a mode of reduced working time. But I think that the navigation stop is not a reason for pessimism – and there are all prerequisites for optimism. From 15 to 18 January in Smederevo (Serbia) the talks with the leadership of the Chinese company “Hestell Serbia” which is the owner of “Zelezara Smederevo” Metallurgical Combine were held. It should be noted that the new owners during a year managed to increase steel production from 500,000 tons to 1 million tons. The plans are to increase production of steel up to 2 million tons, which will increase the consumption of ore cargoes up to 2.5 million tons. We agreed that virtually the entire cargo of raw materials will go through the sea port of Izmayil. It is already decided that “Ukrainian Danube Shipping Company” (UDSC) will be the main carrier; our partners noted the high level of reliability of UDSC.

The contract, signed with Poltava ore processing plant, is valid until the end of 2018. The dockers’ primary goal in 2017 is not only to maintain the previous season’s variables, but also to increase them.

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