The roadshow for investors on the concessions of two ports – Olvia and Kherson – was held on Oct. 1, 2019 in Odesa.
On Sept. 12, 2019, the Ministry of Infrastructure announced tenders for the concession of two pilot ports. The draft law on Concessions #1046 was adopted in the first reading on Sept. 13, 2019. The government and the parliamentary committee developed the draft law together with the European Bank of Reconstruction and Development and International Finance Corporation consultants, therefore it complies with the best practice.
The Cabinet of Ministers officially approved the conditions for the concession of the Kherson and Olvia seaports on Aug. 14, 2019. Applications to participate in tenders will be accepted within 60 days. Pilot competitions will be held under the current concession legislation.
The current legislation allows three months for the organization of the tender and determination of the winner. Contracts will be signed with the winners of the tenders and that the parties to the contracts will be the Ministry of Infrastructure, the Ukrainian Seaports Authority, the winning company, and an enterprise (a special purpose vehicle or SPV) that the winning company will create and register in Ukraine for implementation of the project.
To increase the number of potential bidders, the requirement to have experience in working with cargoes in the port industry has been expanded to include the entire range of cargoes. Provision is also made for a transition period of up to two years, during which the concessionaire will be able to prepare and secure approval of its investment project, obtain licenses and other necessary permits, and take an inventory of the concession assets. In addition, the winning company will have to compensate the EBRD 1.3 million euros for the development of a feasibility study.
Terms of the concession tender for Olvia port
The concession period is 35 years (2019-2053). The concession payment consists of two parts: a fixed payment (the average amount of dividends for 2015-2017 paid by Olvia port to the state budget (Hr 78.8 million or $3 million), as well as a variable (not less than 0.73% of the income of the concessionaire). It is on the second payment that the contest participants will fight among themselves for the asset.
The feasibility study stipulates that a new grain terminal with a capacity of 2 million tons will be built on the territory of the port. Investments should be $49 million (excluding value-added tax) while 5 percent of capital investments payable as a contribution to the development of local infrastructure. From social obligations – the investor is obliged to accept a collective agreement and not force people to be fired for 5 years.
The developers of the feasibility study made the calculation of the expected cargo flow in the port until 2030. Based on their data, under a pessimistic scenario, the cargo flow will amount to a little more than 2 million tons of cargo, and neutral – 6 million tons of cargo. In the case of an optimistic scenario, the cargo base of the port will grow to 30 million tons by 2030.
Terms of the concession tender for Kherson port
The concession period is 30 years (2019-2049). The concession payment consists of two parts: fixed (the average amount of dividends for 2015-2017, paid by Kherson port to the state budget (Hr 8.4 million or $300,000), and also variable (not less than 0.73% the concessionaire’s income). It is on the second payment that the bidders will fight among themselves for the asset.
The concessionaire must invest in road infrastructure, existing port infrastructure, upgrade storage capacities, etc. The amount of investment should be $ 8 million (excl. VAT). 5% of capital investments are payable as a contribution to the development of local infrastructure. From social obligations, it is to accept a collective agreement and not forcibly dismiss people for 5 years.
The advantages of the projects – the transfer of berths and in-port facilities, protection against changes in legislation, protection against changes in the government and other political risks, the ability to resolve disputes through international arbitration, and the fact that the Port Administration will be part of concession agreement and will have contractual obligations.
Concession of ports is the best solution for transferring the strategic assets from state to busyness, because it allows to maintain tariffs and critical infrastructure with the port administration and put commercial stevedoring activity for private investors.
Viktor Dovhan is an adviser to the minister of infrastructure of Ukraine.
