Nature gave Ukraine’s economy the Dnipro River — the fourth-longest river in Europe that big businesses can use to transport cargo to the ports of the Black Sea.
The problem: only two industries are using the river for this purpose, agriculture, and metallurgy. The share of rivers in the country’s cargo transportation last year reached a modest 1%. Vessels with barges — mainly driven by the needs of grain exporters and metallurgists — carried 15.8 million tons of cargo.
Although the figure was one of the highest since 2016, when ships with barges transported a record low 3.6 million tons, it’s still far from 60 million tons that Ukraine shipped in the early 1990s.
To make the use of the river great again, the government has passed a law on inland waterways that will enter into force in 2022. Industry experts, however, are sure the law can harm the economy, destroy shipbuilding and cause a national environmental disaster unless it’s amended.
“The Dnipro River will turn into a swamp,” Nikolai Gorbachev, head of the Ukrainian Grain Association, told the Kyiv Post. The possibility scares Gorbachev because two-thirds of the nation’s population drinks water pumped from it. “It will create an ecological catastrophe which will affect everybody,” said Gorbachev.
These are the largest Ukrainian agricultural firms and the amount of land under production. One hectare equals 2.47 acres.
Transport for agriculture
Using rivers instead of roads and railways may kill two birds with one stone — decrease carbon emissions and cut logistics costs for agricultural businesses. Just one 4,000-ton barge sailing quietly down the river can carry a load equal to 57 train cars or 200 trucks. Every 1 million tons of cargo transported by river saves around $36 million for the state budget on road repairs, according to former infrastructure Minister Vladyslav Kryklii.
“The barge solves several issues at once,” saidGo rbachev. And European countries like Germany, France and the Netherlands recognize that: they are actively building additional water channels on their territory.
Grain is the main export of Ukraine. Last year, nearly 7% of all of Ukraine’s grain (55 million tons) was transported via inland waterways to seaports, from where 98% of all grain exports leave the country.
The biggest proponent of the river use, agricultural firm Nibulon, carried 2.5 million tons of agriculture products by rivers, or over 60% of the total. “It is the best indicator in the entire history of
the company’s water transportation,” the company reported.
In the past decade, Nibulon carried 21 million tons of various goods by rivers, which saved the roads from 880,000 loaded trucks.
Rivers are still the cheapest option for transportation. Grain traders pay half that they would for using railways — $15–18 versus $20–25 per ton. However, it’s forecast that the price for river
transportation will rise in three-five years as Ukraine will get bigger harvests, spinning the demand. And it’s not clear if the Ukrainian infrastructure can satisfy a bigger demand, anyway.
“To create a river infrastructure the state will have to invest much more in it than in railways,” said Gorbachev. Danger ahead The bill on inland waterways has been discussed in the government for years. The parliament passed it in the second reading in December 2020.
A cargo ship moves downriver in Kyiv. Using rivers instead of roads and railways may kill two birds with one stone — decrease carbon emissions and cut logistics costs for agricultural businesses. (Volodymyr Petrov)
Former Infrastructure Minister Kryklii said the lawmakers “took into account the suggestions by the business community and they jointly finalized this bill,” aiming to revive river logistics. But when the law passed, business was shocked. Many perceived it as a betrayal of national interests.
“I regret the energy spent on defending the interests of the industries. I regret the time spent talking with officials,” said Oleksiy Vadatursky, CEO of Nibulon, in his interview to Ports.ua. His company employs 7,000 people, pays $54 million in salaries and $36 million in taxes every year.
Among the most controversial issues — free access to Ukraine’s rivers for all foreign vessels (except Russian); they will be exempt from most of the taxes, paying only port dues. To compete with them in prices, Ukrainian producers will have to save on something else. Experts forecast that the Ukrainian fleet will “go into shadows,” evading fuel excise tax ($3 per ton) and paying salaries under the table.
According to Nibulon’s calculation, because of the law, for every 10 million tons of cargo transported by river, the Ukrainian budget will be losing $22 million a year.
“This is like a tree that has begun to grow. No one notices it at first. But once it’s grown, everybody realizes that someone has already cut its branches,” said Andriy Muravskiy, an expert at analytical agency Food and Agri. Shipowners will simply re-registered ships in Moldova, Romania, Malta or other countries, experts believe. Once registered, for example, under the “more convenient” Moldovan flag, they will have fewer requirements for ships’ inspection, their technical conditions, and exemption from taxes, Muravskiy said.
According to Oleksander Grygorenko, co-owner of the river shipment company Grain-Transhipment, the new law makes it unprofitable to work under the Ukrainian flag.
The expenditure records on wages and fuel — all of it will take place outside of the Ukrainian legislation, Grygorenko told analytical center GMK.
His company already paused the construction of two massive 5,000-ton barges on Ukraine’s shipyards. He is not ready to risk, making an investment with an eight-year payback period until it will be clear how the law works, said Grygorenko.
Although not in force yet, the new law has already affected the slowdown of Ukraine’s banking activity in this area, which only recently became lending to firms to build, barges. One 6,000-ton barge costs $3 million.
If Ukrainian ship owners re-register their fleet abroad, they will try to access money in European banks where there are “better leasing conditions,” said Muravskiy. Ukrainian banks will lose clients, he’s sure.
Moreover, with the new law, ships under foreign flags will be allowed to pump out ballast water into Ukrainian rivers, introducing microorganisms or other invasive species that can harm the ecosystem and the health of Ukraine’s population.
“It’s against our country’s move towards European environmental and safety standards,” said Gorbachev. “Imagine there are several barges standing near the river locks for several days
and dumping everything into the river, including the waste products of the crew.”
