Regional markets

managing partner at Legrant law firm

Port forecast

Ukraine occupied 66th position out of 160 in the Logistics Performance Index 2018 compiled by the World Bank, which provides an evaluation of the logistics efficiency level of countries. Our country has risen 14 places compared to the previous rating. However, despite our unique logistics potential, including the sea, our country still falls short in transit cargo, with cargo turnover our ports only decreasing. This may be partially explained by the situation on the world market and the fall in Ukrainian agricultural exports. However, there are no conditions in Ukrainian ports with which to attract large private investors, and private stevedores are often exposed to systemic discrimination from the state, which has an impact on the attractiveness of our harbors.

The Ukrainian port industry operates in an overregulated legal field, and this discourages the inflow of private investment into the industry. Based on the practice of work with stevedoring companies, container line carriers, ship owners, forwarders, ship agents and consignors, we can confirm that the state was the most repetitive and systematic violator of the rights of private port operators in 2018.

It is worth noting that all participants of the sea shipping market in the ports of Ukraine questioned by us noted violation of their rights and abuse of monopoly position from government agencies. It is referred to as abuse of monopoly position from the State Enterprise "Administration of Sea Ports of Ukraine" (AMPU) which, according to the Law of Ukraine "On Sea Ports of Ukraine", shall guarantee compliance with antimonopoly legislation and creation of equal competition for enterprises of all forms of ownership.


For those at sea

Generally, the business sector accuses AMPU of solicitation of services on free tariffs included in port charges paid for by businesses. Let's consider this situation in detail.

Since May 2017, business entities engaged in ship agency services in Odessa port are exposed to impairment of rights and interests from the business entity with a monopoly position on the market of services paid within port charges as well as special services, i.e. by AMPU. As we know, there is the practice of handling operations by ship-ship (board-board) option in Odessa port. It should be noted that handling by board-board option is stipulated by legislation. Furthermore, legislation distinguishes between berth charge rates depending on the handling option. According to Order No. 316 of the Ministry of Infrastructure of Ukraine "On Port Charges" dated May 27, 2013, during handling operations by the board-board option the berth charge rate is applied with a discount of 50%.

However, back in May 2017 the Odessa unit of SE AMPU sent by email a draft agreement on the provision of a package of services on organization of grain cargo handling in the harbor and/or board-board to most agents. The agents were notified by phone of the following: henceforth payment will be charged for provision of the above-mentioned package of services for handling by the board-board option in the harbor or on the berth in Odessa port, which previously were performed without any additional payment. In the event of non-signing of the agreement on non-provision of a letter of guaranty by the agent on payment for the "package of services" for the period before the agreement’s signing, AMPU will not provide permission for cargo handling operations by the board-board option, and ships will remain in inshore mooring until full payment is made.


Why does A business pay TWICE?

As a matter of fact, there are several legal prerequisites for such solicitation of services by AMPU, and all of which are stipulated by current legislation.

Firstly, it is the specific status and broad powers of SE AMPU according to Article 15 of the Law of Ukraine "On Sea Ports of Ukraine". On the one hand, AMPU provides, as a business entity, services to approaching ships and ships directly in sea port waters for their safe traffic, maneuvering and riding. Generally, SE AMPU provides these services exclusively (as a natural monopoly holder or as an entity with actual monopoly position on the market of existing services). On the other hand, SE AMPU was established for organization and ensuring the safety of navigation, charging and intended use of port charges, coordination of its activities and activities of sea port captain, pilot service, owners of marine terminals, port operators, other business entities carrying out activities in the sea port. So, in a number of cases AMPU acts as an authority in legal relations (as confirmed by judicial practice, e.g. the decision of the Supreme Administrative Court of Ukraine dated June 22, 2017 in the case No. 815/6477/16).

Secondly, the issue is in the very specifics of services in the sea ports (in particular, the services paid for within port charges). According to legislation, the port charges are payment for certain services provided at the port of a ship’s entry. The legislation also regulates the port charge rates, procedure for their charging and use, but it does not directly regulate the very services for which the ship owner should pay the port charges.

Although one can determine the nature of services paid within the port charges by logical interpretation of legislative provisions, including order No. 316, in practice we can see the attempts of double tariffication, i.e. in addition as the services provided by SE AMPU as per free tariffs.

Hence, it appears that for a year and a half now, due to the actions of AMPU, which has an actual monopoly position, sea shipping market participants are forced to provide letters of guaranty on payment of non-existing services not stipulated by current legislation and, most crucially, pay for these services.

Unfortunately, the above example of the violation of the rights of private port operators is not the only one. We can also recall introduction of mooring and infrastructure fees, the service initiated by AMPU as an additional payment for registration of a ship’s entry into the sea port and its departing from the port, notification of a unilateral increase in tariffs by port administrations from January 1, 2019.


How to protect your interests

A business can and should protect its rights and legal interests via direct involvement in the development of new practice in the application of maritime law in the ports. For example, in order to protect the business from "double tariff" application one may address a complaint to the Antimonopoly Committee of Ukraine on admission of fact of the AMPU's dominant position and violation of antimonopoly legislation by this authority. Systemic work is important in order to solve the problem of representatives in the whole industry. Active and public business participation in discussing the reasons and consequences of violation of legislation may eventually be useful in the consideration of court cases and may lead to precedent-setting decisions for the industry and development of new practice in the application of maritime law for the country in general.

Meaningful dialog between business, specialized lawyers in maritime law and the regulator may not only improve cargo turnover in the ports of Ukraine, but also increase Ukraine’s rating in the Logistics Performance Index 2019.