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Head of Odesa Office, Attorney-at-Law, Ilyashev & Partners
Attorney-at-Law, Ilyashev & Partners
The Revival of Inland Water Transport in Ukraine
On 3 December 2020, the Ukrainian Parliament passed the Law of Ukraine On Inland Water Transport No. 1054-IX, which is one of the most expected transport regulations since the independence of Ukraine. As of now, river transportation is basically regulated by the Inland Water Transport Charter of the USSR of 1955, which is not consistent with the modern world and national trends of the industry.
Adoption of this Law is also provided by the EU-Ukraine Association Agreement, establishing Ukraine’s commitment to implement 6 acts of EU legislation (Annex XXXII to Chapter 7 Transport, Section V Economic and Sectoral Cooperation of the EU-Ukraine Association Agreement). These acts should bring Ukrainian inland water transport legislation into line with EU legislation with regard to operation and market access, shipping safety, provision of river information services, etc.
Government officials expect the Law will revive the cheapest and most eco-friendly way of transporting cargo and create effective river logistic chains. According to the Minister of Infrastructure, the Law will increase river freight traffic to 30 million tons a year, which will bring UAH 13-16 billion to the state treasury annually. The logistic capabilities of Ukraine’s major river, the Dnipro, are used by no more than 10%. The Law should help increase to this rate, the Minister of Infrastructure said. It is expected that the river will take some freight traffic from the country’s highways, which should be helpful in easing the burden on the roads and significantly reduce repair costs.
Let’s review the key issues of the Law.
Opening up the River Transport Market
As of now any vessels flying a flag of states, which have not concluded an international agreement on navigation on inland waterways with Ukraine, will obtain a one-time permit for calling at a Ukrainian river port. In order to obtain such a permit, the shipowner should apply in advance to the State Service of Maritime and River Transport of Ukraine (Maritime Administration) with the relevant submission. In practice the procedure may be delayed, thereby leading to significant damages and losses incurred by shipowners and cargo owners.
Moreover, foreign flagged ships are entitled to carry cabotage voyage only subject to obtaining the special permit from the Ministry of Infrastructure, which creates bureaucratic obstacles and corruption risks.
The Law closes these gaps and opens up inland waters for foreign shipowners. It provides that the carriage of passengers and cargo both on international and cabotage voyages may be carried out by Ukrainian and foreign vessels (except vessels of Russia, the aggressor state) without obtaining any permits. In the meantime, the Law clarifies that transportation by foreign vessels in cabotage may be carried out only if the vessel is operated by Ukrainian companies (shipowners). This requirement is intended to create a more effective mechanism for bringing to account those shipowners that committed any violations in Ukraine.
It should be noted that the European market of inland navigation (cabotage) is arranged in a similar manner, as long as access is provided to river carriers registered in a EU Member State and granted the appropriate permit (Council Regulation (EU) No. 3921/91 of 16 December 1991).
The carriage of passengers, dangerous goods and waste by inland waterways is subject to licensing. The relevant terms and conditions shall be developed and adopted by the Ukrainian government during the transition period before the Law comes into force.
Charges for Navigation and Funding of River Infrastructure
According to the Law, vessel navigation on inland waterways shall be exempt from charges.
Passage through the navigation locks and lifting of drawbridges are also free of charge for all vessels and will be covered by the owners of such objects, which corresponds to European practice generally. Given that most bridges are operated by state-run Ukrainian Railways, it is conceivable that the costs involved in lifting bridges may be subsequently included in railroad freight rates.
The Law provides that the financing of maintenance and operation of the strategic inland water transport infrastructure will be exercised from the State Inland Waterways Fund (the Fund) as part of the special fund of the State Budget of Ukraine. The Fund will be held by the Ministry of Infrastructure and formed from, inter alia, the special water use rent, settled by hydroelectric power plants. The relevant provisions will be introduced to the Budget Code of Ukraine via the special law.
Port Dues and Charges
The Law does not provide for any river dues payable by shipowners, though there are some important aspects in relation to the settlement of port dues.
The administrative, canal, tonnage and sanitary port dues in a cabotage voyage, as well as the canal port due in an international voyage will not be collected from the vessels with a draft up to 4.5 meters. If the vessel’s draft exceeds 4.5 meters, the river port (terminal) shall provide cargo operations and storage, passengers handling, bunkering, garbage acceptance from ships and other services only subject to the settlement of tonnage, canal and administrative dues in the nearest sea port.
Therefore, it would be reasonable to develop and establish an appropriate procedure for information exchange between river and sea ports in order to clarify the payment status of port dues.
The Antimonopoly Committee of Ukraine has repeatedly stressed the need to demonopolize the pilotage services market, both in sea and river ports. The Committee maintains the position that the state function of pilotage arrangement must be separated from the provision of pilotage services, which should be opened up for private pilots. The revocation of the monopoly should contribute to the reduction in port call expenses, making Ukrainian goods and port terminals more competitive on the international market.
However, the Law provides for a state monopoly over the pilotage services on inland waterways, just as in sea ports. The business sector expects that the government must follow the Committee’s findings and the monopoly will be revoked in the near future.
Development of Inland Water Transport and Investment
According to the Law, the basis for the development planning of inland water transport will be the Strategy for the Development of Inland Water Transport of Ukraine (the Strategy), which includes short-term, medium-term and long-term development plans.
The Strategy should be developed taking into account forecasts for cargo traffic, investment, main financing areas and sources, development plans of the national transport system, river ports (terminals), other inland water transport infrastructure facilities, strategy for the development of sea ports of Ukraine, as well as shipping safety and environmental protection.
The Law provides for the option to invest in the strategic facilities of inland water transport infrastructure by means of public-private partnership mechanisms such as concession, rent, joint venture and other types of investment agreements. The priority areas of investment will be determined by the Strategy and should include the adoption of innovative, energy efficient and eco-friendly technologies, development and modernization of inland waterways, construction of strategic inland waterway infrastructure, tourism and sports infrastructure, etc.
The effective implementation of these provisions also depends on the timely development and adoption of the Strategy, as well as the procedure for compensation of investments in strategic infrastructure, which must be done before the Law comes into force.
It is expected that the investments will be compensated from the state budget, rent and other sources subject to the provisions of the relevant agreement.
The compensation for investments in strategic facilities is still an extremely important issue in the sea ports industry and has been widely discussed since the adoption of the Law of Ukraine On Sea Ports of Ukraine No. 4709-VI of 17 May 2012. However, the relevant procedure is still in the course of being developed.
Register of Inland Water Transport Infrastructure Facilities
In order to ensure the safety of navigation, nature protection and exchange of information on river ports (terminals), the Law provides for the establishment of an electronic database of inland waterway facilities, which is called the Register of Inland Water Transport Infrastructure Facilities (the Register).
The Maritime Administration is authorized to administer the Register, which will be available on its official web-site. The river port (terminal) will provide the Maritime Administration with exhaustive details about river port facilities upon the relevant declaration and obtain the extract free of charge.
The Law prescribes that river ports (terminals) are entitled to provide services and carry out commercial activities on inland waterways only subject to information being entered into the Register resulting in the relevant extract being obtained by the port. However, this requirement will come into force on 9 January 2024, so the stakeholders will have enough time to make all the necessary arrangements.
Therefore, the Law introduces a new authorization document for river ports (terminals), which is the extract from the Register. The failure to comply with the procedure will result in a fine of about USD 1,850.
The Law provides that the vessel may be arrested or released by a court or tribunal, if provided for by the contract. The subject matter of such contract is not determined by the Law, but we assume it means any contracts concluded by the shipowners in the course of a vessel’s operation and exploitation.
The Law does not provide an exhaustive list of claims that can be secured by the arrest of a vessel. However, it states that such claims should arise from ownership and other property rights to the vessel, construction, management, vessel’s operation or commercial use, mortgage or salvage of the vessel. Thus, in this regard the Law draws a certain analogy with the concept of maritime claim used in maritime law and determined in the International Convention Relating to the Arrest of Sea-Going Ships of 10 May 1952, the Merchant Shipping Code of Ukraine and mentioned in the procedural law of Ukraine.
The Law introduces no amendments to the procedural law, which means the vessels may be arrested in the river port under the standard procedure without specific requirements based on the special legal status of the vessel. Therefore, the claimant may face obstacles when proving the proportionality of the claim amount to the ship’s price, which is not applicable when securing maritime claims.
The arrested vessel may be released on bail or other type of sufficient security at the discretion of the parties or as decided by the court or tribunal as per procedural rules.
All stakeholders expect the Law to serve as a way of reviving river transport, stimulating the transportation, shipbuilding, agriculture, international trade and other related industries. The Law will enter into force on 1 January 2022. During the transition period, the government will develop and adopt regulations to implement the Law’s provisions, and the business sector will be able to adapt its commercial processes to the legislative changes made.