The golden age of Kyivan Rus saw a bustling trade route running along the Dnipro River, carrying honey, grain and furs to Greek colonial trade outposts along the Black Sea coast. In exchange, traders in Kyiv and elsewhere received silks, naval equipment, wine, jewelry, and, after the introduction of Orthodox Christianity in 988, icons.
But today only 3 percent at most of all freight in Ukraine is transported via rivers. Mainly because of bureaucratic barriers and inefficient regulation, the nation’s 2,100-kilometer river transportation system remains undervalued, neglected and underutilized.
To reverse this trend, the Infrastructure Ministry wants to simplify the river transportation system to bolster competition, and take some weight off Ukraine’s crumbling roads. Some 22 percent of freight gets shipped on roads, according to the State Statistics Service.
Infrastructure Minister Andriy Pyvovarsky is seeking, via legislation, to slash “many taxes that are collected right now” while introducing an additional tax that will “go toward deepening the [Dnipro] River bed to make the river more competitive, according to a July 10 briefing he gave in Kyiv.
The ministry’s vision is to create a single tax that will go to “one pocket” which can be easily monitored on how it collects and spends money. Collected taxes currently go to the general state budget.
“This is an ideal solution for solving the problem of deepening the river bed,” Pyvovarsky said.
Meanwhile, private shipping companies are asking the government not to go ahead with an additional excise tax that it is proposing.
But the new measure is necessary, according to the Infrastructure Ministry, because there are no public funds available to support the industry.
“Over the last 20 years the river [transportation] market has not been given the needed attention of government officials… we are all unified around the idea of getting rid of artificial barriers for its development,” said Yuriy Vaskov, Ukraine’s deputy minister of infrastructure, at an American Chamber of Commerce in Ukraine roundtable discussion about the proposed measure on June 8.
Last year the volume of river freight transportation grew by 25 percent, totaling 5.1 million tonnes compared to 2013, EY, a leading audit and research company, reported. In terms of waterways, some 97 percent of freight is carried by sea, totaling 148 million tonnes.
Supporting open ports for foreign flags and getting rid of port entrance fees are some of the changes companies and today’s government agree on.
Businesses see flaws in the proposed law, however.
Based on various measurements, such as distance travelled and freight load, the tax will bypass state coffers and go directly to the newly formed state Administration of Internal Water Channels.
Upgrades to river routes could also stumble if the excise tax gets levied, according to the Ukrainian Grain Association.
The non-profit industry group, which conducts river shipping, said in a June 10 news release that the decision is not economically sound and differs from global practice.
“The tax proposed by the ministry, will lead toward transportation cost increases and will kill river transportation,” said Yuriy Skichko, the director of Hermes-Trading, a grain production company.
In general, the state should create incentives for companies to invest and then step aside unless it’s a national security issue, Yuriy Vakhel, a lawyer specializing in the agricultural sector, said.
Freeing up the system will create fewer opportunities for official bribe taking, he said.
“An excise tax on fuel is a more efficient taxation model. This can be implemented for ships as well as for railways and trucks.”
Fuel spent on water transportation is substantially cheaper than its substitutes. River transportation is twice as cheap compared to railway transportation and four times cheaper than road haulage, Pavlenko said.
Artem Skorobogatov of Interlegal, a law firm that specializes in shipping services, said the excise tax should be reviewed very carefully.
“When the river [starts to be] heavily used, such a payment would certainly have its place,” he said. “But during the development stage, when there are no favorable shipping conditions or an appropriate fleet, any additional load on companies has to be analyzed.”
Today, the Infrastructure Ministry manually processes many orders,” Hermes-Trading’s Skichko said. This creates opportunity for corruption and makes it impossible to do long-term planning, which ultimately creates an unattractive investment environment, he added.
Last year, Skichko’s company transported about 14,000 tonnes via five barges, whereas the rest of their freight had to be transported via rail because of high water transportation taxes. This is strongly hitting his business, he said.
But Skichko said one quick way to deregulate is to allow ships with foreign flags to come into Ukraine’s river ports without paying the requisite fees, such as for canal locks and bridge opening fees.
This is the only remaining question regarding the river transportation reforms, said minister Pivovarskiy. A final decision of the proposed tax should be made on July 20. The ministry is still deciding the amount of the tax, how to implement and administer it. Once consensus is reached, a final decision will be taken.
But it will still be up to the Parliament to approve the decision and bring it into practice, Pivovarskiy said.
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].
