On the investor radar

Between 2001 and 2004 the volume of container traffic handled in Ukrainian ports more than doubled to 410,439TEU. A major catalyst was the fact that the Ukraine’s economy shook off the sluggishness caused by the USSR’s collapse, and began to lift. In 2003 and 2004 GDP growth was 9.3% and 12% respectively. This, together with the boom in China exports, favoured the growth of box traffic.

Although in 2005 GDP growth was only some 3% (the fall was a consequence of the ‘Orange Revolution’ at the end of 2004), container handling rose by 43.7% to reach 589,842TEUs. A major increase in a difficult set of circumstances.

98% of Ukraine’s box traffic is shared by the two neighbouring ports – Odessa and Illichevsk. In 2005 box turnover in Odessa grew by 43 % to 288,348TEUs whilst Illichevsk’s rose by 48% to 291,127TEUs.

Imports considerably outstrip exports and the imbalance forces lines to reposition 70% of boxes empty. Meanwhile the rise in transhipment traffic has forced the development of new container handling capacity but this has not been without its problems.

GROWING PAINS Ports in Ukraine are still state-owned enterprises which have been paying huge taxes ever since independence. Moreover, since 2004 all public ports are obliged to release 50% of their profits to the State Treasury. As a result, they have had little retained capital for development. The State has therefore pushed forward a project involving private sector investors in port development.

Illichevsk has initiated its ‘4M’ programme to expand its container terminal capacity. This provides for investments reaching US$495m within 10 years and a capacity rising to 3.5-4m TEU per annum.

This programme was approved by the Ministry of Transport and Communications, as per its author Andrey Kuzmenko, now a vice director of the company Ukrtranscontainer. But the state itself being the owner of the port, could not assign funds for the development.

However, national and foreign enterprises soon appeared with offers of finance.

As an outcome, in summer 2005 the port signed an agreement on joint activities for the operation of the container terminal with the company Ukrtranscontainer, this being a subsidiary of the National Container Company (NCC) which is a major operator of Russia’s container terminals. Ukrtranscontainer agreed to fully fund the 4M programme and in the first phase development to invest US$51m in 2005-2006.

The company’s plans under phase one included the purchase of 18 port tractors with trailers; 6 pneumatic wheel frame loaders; 3 quay cranes; as well as the deepening of Berths 3-4 from 11.5 to 14m; plus a full reconstruction of the background yard areas.

LEGALITY DISPUTED In late 2005, however, the legality of the agreement between Illichevsk Port and Ukrtranscontainer was disputed in the courts by the local port workers’ trade union. The conflict was picked up by the media and in December President Viktor Yushchenko proposed cancelling the existing agreement and calling for a new tender that ‘should be made public and transparent’.

This duly took place and the present tender conditions are under consideration. Further, this is a development that is wholeheartedly welcomed by international terminal operators and shipping lines alike both of whom recognize the huge container potential that the Ukraine offers and are keen to invest in the country but only under the right conditions including a bidding process that offers a true level playing field.

Meanwhile, HPC Ukraina, a daughter company of Hamburg Port Consulting, has been operating a container terminal in Odessa for several years. In 2004, HPC contracted with the port for a 10-year concession to operate the container terminal. The agreement included the company upgrading handling systems to the tune of US$40m. In particular, it is planned to purchase a third gantry crane by 2007 allowing the handling of 4,000TEU vessels.

In recent years according to Dirk Battermann, director, HPC UKrania, efficiency of the container terminal has improved considerably. “While in 2001 the gantry crane handled 16 moves per hour, by August 2005 we had reached an average of 26 moves per hour. And at peaks we have exceeded 40 moves per hour more than once, ” he claims.

“But since 2004 when the direct line from China opened, ” he elaborates, “large container vessels such as CMA VITALITY of 2,900 TEUs, have started calling here. Hence this reinforces the need for a new gantry crane.”

Development of the existing container terminal in Odessa is limited by lack of berths and land area. “In view of this, ” says the port’s director general Nikolay Pavlyuk, “we have worked out the general plan of port development which in particular envisages realisation of investment projects that would allow us to expand the port’s box handling capacity up to 1.5m TEU annually.”

One project US$350m project is the expansion of the working box terminal area by reclaiming 80ha of land. This will then be furnished with 1,200m of new quay. When realised, this will increase the terminal’s capacity to 1m TEU a year.

Another project is to build a dry terminal on a 54ha area on the outskirts of Odessa with road connections to the port including a 1.9km overpass system. In this case, an investor requirement of US$80m for the terminal erection and US$30m for access roads is envisaged. This project is aimed at expansion of the container terminal’s throughput capacity by 0.5m TEUs per annum.

The port is also striving to gain control of the Prakticheskaya Naval Harbour which is not presently operated. If it manages this a multi million dollar project will be implemented here to provide three deepwater berths to handle general cargoes, as well as a container terminal of 200,000TEU capacity.

Apart from the two major Ukrainian ports’ container capacity development, the Ministry of Transport and Communications is considering new container terminals in other districts. In particular, a new universal port in the West Crimea near Lake Donuzlav. The total cost for this project is estimated at US$2.4bn.

In September 2005 the President passed a decree on this project’s preparation. The administration of the state port Donuzlav is being established already. However, the funds assigned for this purpose in 2006 are insufficient.

Other new projects are also likely to surface as the conditions for investment improve and demand for container capacity escalates.

Table 1: Handling of containers in the ports of Ukraine in 2001-2005, TEUs Port<$>2001 2002 2003 2004 2005<$>Odessa 75,606 111,172 158,870 201,428 288,348<$>Illichevsk 78,000 103,200 151,738 196,652 291,127<$>Others 11,394 11,000 10,900 12,359 10,367<$>Total 165,000 225,372 321,508 410,439 589,842<$>Ports of Ukraine Journal