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Port-landlord model: What the World Bank has offered to Ukraine

23 December 2019   Andriy Muravskyi

Recently, the World Bank analysts team presented to officials and representatives of the port industry an outcome of their research ‘On Improvement of Management of the Port Industry of Ukraine’.

Port-landlord model: What the World Bank has offered to Ukraine

The main message that the analysts conveyed at the presentation was that it is necessary to introduce a port-landlord management model in Ukraine, which has shown its effectiveness in Antwerp, Rotterdam and Singapore. According to their opinion, the Administration of Sea Ports of Ukraine shall ensure it.

‘It is necessary to bring Ukrainian ports closer to the port-landlord model entrusting necessary authority to the Administration of Sea Ports to provide system-wide coordination in planning the use of port lands and integrated development of port territories’ noted Luis Blancas, Leading Economist on Transport Issues at the World Bank during the presentation.

Analysts of the World Bank emphasize that introduction of the port-landlord model will improve conditions for attracting private investment. That, in its turn, will strengthen position of Ukraine as an exporting country of food products and mining and metals products in the world market. Since at present, management of the port does not ‘fit into any of the four classical models of the port industry’.

Pivdenny port is given as an example where promising sites for construction belong to various local authorities, regional administration and private business

 ‘The port territories utilized by a large number of economic agents are used inefficiently. The former government basically granted the land to speculators. In the same Pivdenny port we are not able to use its potential to the fullest extent. There are empty land plots that are not used’, Raivis Veckagans Head of USPA confirmed.

The issue of prospective development of land in ports and within the adjacent territory may become a significant obstacle in further implementation of public-private partnership projects as well as investment attraction for infrastructure modernization, the World Bank’s consultants noted.

Prospects for introduction of the model were discussed with industry representatives present in the hall. ‘If 27 years ago, when the government controlled these lands, the World Bank came and proposed this model, the latter could be implemented. At present there are dozens of owners in the ports of Ukraine. Which of them are willing to lose control now? Establishment of additional body or owner will only reduce attractiveness for the investors. The USPA does not possess proper land management experience’, said Andrii Kuzmenko, ZIM Director in Ukraine. ‘Has the lack of this mechanism prevented Ukraine from becoming the largest exporter of grain? The ports has been upgraded and we have achieved results without it. I'm afraid this model looks attractive in textbooks but it is highly doubtful that it will be suitable for Ukraine’, he added.

‘About 90% of container terminals in the world as well as the most successful and largest world terminals operate according to this model. I do not think that it will scare away investors. On the contrary, it will attract the most successful world traders. It will be an understandable model for them; and they will be able to plan capacity expansion together with the port administration. How can it be implemented without control of land? Port authority can provide a plan enabling to perform long-term planning for each investor. The state will assume risks previously shifted to the investors including the risks for concessionaires so that they subsequently will not have any problems with joining the infrastructure, etc.’, Luis Blancas objected to this

Patrick Verhoeven, Deputy Chairman of the USPA Supervisory Board, noted that the port-landlord model should be adapted taking into consideration Ukrainian specifics. 'What it involves is not a changing of existing land relations in the port. Introduction of a new model requires only consolidation of the port administration's capability to manage, plan and develop port territories,’ he said.

 ‘Ukraine needs its own set of instruments that will attract investment. The key step is to show what investors will gain by providing control of the land illustrating an advantage under this model. For example, decrease in the cost of capital. It does not lose control capability. It will not be a model from a textbook - it will be an experimental way’, Luis Blancas emphasized.

 ‘Investors want to see a master plan for development of the specific port. We are talking not so much about land ownership, but about consolidated control of it. It is necessary to consider how to avoid the outflow of concessionaires, which, on the contrary, might be scared off by lack of comprehensible model’, added Godze Isik, Senior Transport Economist of the World Bank.

‘Representatives of the World Bank presented us many various models we had to choose from. The landlord model is a challenge for us. We are not talking about seizing of land plots from the private investors. In the future, it is very important that cargo owners will gain advantage of the model. Otherwise, there will be no strategy and development of ports’, noted Raivis. He predicted that upon introduction of this model, existing relations with land owners should improve as well. ‘There will be a port council. The new bill stipulates that their powers shall be broadened and representatives of local authorities shall be included in this council. It is essential for us to have different representatives in such councils. Port territories will be used more efficiently’, Veckagans said.

According to him, today Ukraine has probably the only chance to adopt this model. ‘If this parliament fails to approve this model, it will never be adopted again. Hence, we have four years’, said the Head of the USPA. ‘Yet three years ago, when we were just beginning our operation, we didn’t have such involvement of the local authorities and the state bodies as we do now’, he added. Veckagans believes that a positive decision will be made. ‘We can have a look at the concessions issue. There were many versions, but eventually we have the law ‘On Concession’ passed’, he marked.

Minister of Infrastructure of Ukraine Vladyslav Kryklii noted that in order to increase efficiency of managing of the state assets in November 2019 the Ministry of Infrastructure published the draft law ‘On Corporatization of the Ukrainian Sea Ports Administration’. ‘This decision will allow the state-owned enterprise to reorganize into the joint-stock company in the future. The USPA’s draft Corporate Strategy until 2025 stipulates approximations to the world-recognized model of port management - port-landlord. It entails withdrawal of the state from stevedoring activities and implementation of an integrated approach to land tenure and land use in ports’, he said.

Raivis Veckagans informed that at first in 2013 in Ukraine there was a separation of administrative functions from stevedoring activities and the USPA was established, now it is necessary to ‘move from a balance holder to a company that develops ports and improves quality of the services’.

‘The challenges we face are limited port territories, outdated equipment, low level of authority to manage port territories, high level of port charges as well as poor capability to organize public-private partnership. Therefore, we have to undergo corporatization so that our services will be of higher quality. We take into consideration market recommendations regarding this issue. We are moving to the corporate state-owned enterprise, the joint-stock state company. If we adopt this model, it will be easier to make decisions. You are aware how difficult it is to obtain approval of the annual financial plan in the Cabinet of Ministers. Thereafter we proceed to the land-lord model’, noted the Head of the USPA.

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