While most state-owned firms stagnate, canny management and a healthy dose of government support has transformed the Ilychevsk port from a neglected backwater into Ukraine's key grain outlet. And not a few people have gotten rich in the process.
Endowed with a decent growing season and around a third of the world's deep black earth loam, Ukraine has grain to export even when its yields are in the tank.
But in recent years, government economic mismanagement has left the country's Black Sea ports unequipped to exploit the lucrative grain transport business.
During Soviet days, poor crop yields and Moscow's prioritization of industrial development aligned Ukraine's ports towards importing Canadian and American grain.
Odessa, the region's largest and oldest port, received four new terminals and a rail net in the 1970s to handle that trade. For the next two decades, the port's conveyors transferred millions of tons of wheat from U.S.-chartered ships into Soviet boxcars.
Built at the foot of a bluff on land won back from the Black Sea, Odessa port had one major restriction: insufficient space. So when container and chemical shipments to and from brotherly Socialist countries picked up in that same decade, Soviet planners designed the port of Ilychevsk across Odessa bay to take up the slack.
'At the time, no one was thinking about putting grain through Ilychevsk,' recalled veteran port design specialist Viktor Yatsenko. 'Always, the central priority was in Odessa. Ilychevsk came second.'
Port managers, with a big hand from the free market, began making decisions about what freight should go through which Ukrainian port shortly after independence.
Anxious to grab their fair share of business, Odessa port managers were quick to lease out wharves and stevedoring licenses to private companies. Their efforts were rewarded with a slew of contracts with foreign container lines looking to capitalize on the newly opened consumer goods markets in the former Soviet Union. Led by the Israeli company Zim, containers of washing machines, Stopka vodka, and Marlboro cigarettes poured into Odessa.
That import stream, combined with burgeoning exports of commodities which could rapidly find foreign markets – metals milled in Ukraine's eastern industrial belt and crude oil drilled in Siberia – made 1994 and 1995 boom years for the port.
Under the circumstances, Odessa port management could afford to ignore grain handling as an income source. Especially since the state grain company in those days exported almost no grain. 'Wheat is one of our lowest priorities,' Odessa Port Director Nikolai Pavliuk told the Post in a recent interview. 'Our terminals are built for the import of American grain, and obviously that isn't happening any more.'
Alas, the management of kid sister Ilychevsk could hardly afford such an attitude.
At the time, Ilychevsk's core business – container and chemical handling for export – was drying up along with Ukraine's industrial output. National agriculture, with yields on the decline and the infrastructure decaying, was just as poorly off.
With Odessa having already grabbed the fast-turnover consumer goods import and commodity export freight currents, Ilychevsk had to think strategically.
'Our approach was to attract investment from foreign companies for the construction of modern freight transfer equipment,' Ilychevsk mayor Valery Khmelniuk told a reporter.
It just so happens that at the time Ukraine's newly-born private wheat traders, hatched when the state grain monopoly Khlib Ukrainy was formed and adopted a grain policy geared more towards export, were looking for alternatives to Odessa. Odessa was not only limited by size, but also by one of the most rapacious teams of customs officers in Europe. It was not hard to sell these traders on Ilychevsk.
By December 1997, two of Ilychevsk's twenty or so wharves had gone into the grain export business as well. A key player in that business has been Ilychevsk-based Morskoi Transportny Bank (MTB), which was non-existent in 1995 but is now among the country's top banks. Reportedly capitalized from incomes amassed by a host of Odessan transportation industry firms, MTB's investment focus has been on shipbuilding and developing port infrastructure.
The Post was unable to obtain details on the stake of MTB financing into the infrastructure of Ilychevsk port. But industry analysts estimate the bank's commitment to Ilychevsk is in the tens if not the hundreds of millions of dollars.
Other investors have sprinted in for a piece of Ilychevsk and the enormously profitable grain shipping business, as well.
The private company Interkommers invested in equipping the port's No. 10 wharf to handle 6,500 tons of wheat daily. The grain trading firm TransUniversalBalt lent a hand in contributing conveyer lines to Wharf No. 17, boosting its capacity to 12,000 tons daily. Other investors have given Ilychevsk port 12 grain silos with a storage capacity of 60,000 tons, according to Khmelniuk. And the list goes on.
At the same time, service has only gotten worse and customs agents more zealous at Odessa port. The boon to Ilychevsk has been striking. From zero grain transfers in 1997, Ilychevsk had by the end of last month grabbed the overwhelming lion's share of Ukrainian grain exports, slightly over a million tons, mostly consigned to South Korea and North African countries.
With its new capacity, Iychevsk alone can transfer 2.5 million tons of grain yearly. Next on the planning slate are a grain processing factory – in other words a flour plant – and a line to convert sunflower seeds to vegetable oil.
'We expect to finance the projects out of port income,' Khmelniuk said.
During the first half of 1998, Ukraine exported 1.2 million tons of grain worth $95 million. In 1997 Ukraine exported 1.6 million tons worth $127 million.
Together Ilychevsk and Odessa ports handle some 80 percent of all of Ukraine's grain export. Mikolayiv and Kherson handle the remainder.
