A new Ukrainian law "On the sea ports of Ukraine" will facilitate the transfer of state-owned sea ports into private hands, sector lawyers in Ukraine said.

Investors who already have a foothold in Ukraine's state ports will be well placed to take part in the privatizations, concessions (for up to 50 years) or long term leases (up to 49 years), Anna Melnyk, an attorney at Baker & Mckenzie Ukraine, said.

Regarding the timing of the transfer of Ukrainian sea ports into private hands, Melnyk said, "it's likely to happen relatively soon."

"If direct privatization of a sea port is politically risky, the authorities will probably turn to concessions or longterm lease," Melnyk told PaRR.

Because Ukrainian authorities lack experience in such concessions, they can be expected to draw up the terms of a given concession on the basis of feasibility proposals that they receive from prospective concession seekers, she said.

The new law formally came into effect on 14 June. It is intended to change the current system of sea ports ownership/management in Ukraine, with the larger strategic intention that previously state-owned and managed sea port assets can be legally put under private investors' control.

The law foresees the spin-off of existing state enterprises in sea ports, with the transfer of their administrative functions, such as port navigation safety and levying of port charges, to a newly formed State Sea Port Administration. Commercial functions, such as cargo processing, will be transferred to state owned joint stock companies.

Until 14 June, Ukrainian concessions were regulated by a long-standing general concession law and individual concession laws for sectors such as roads, utilities and coal mines.

It is believed that with the push towards privatization of sea ports having much wider support in the parliament, it is unlikely that the draft law proposed by Communist lawmakers that seeks to maintain state and municipal ownership of industries and assets eligible for concession, which includes sea ports, will be made into law. This is even as the draft is now being considered at the committee level.

New law provides legal basis for relations in port industry

The most important aspect of the new law is that it effectively created a legal basis for relations between parties in the country's ports industry, according to Oleg Milchenko, an associate at the Ukrainian Arzinger law firm. "In the past, such relations often were outside of the scope of legal regulation and there was always a hazard that a private investor will be prevented from the operation of objects of its investments. Now, the new law provides different legal schemes for investors' incentives," Milchenko said.

Notwithstanding such incentives, it is still likely that most investment interest in the ports would come from investors who already had money in the country's ports sector.

Milchenko said that such investors are "interested in the 'legalisation' of their relations with the port authorities. New investors, in my opinion, may be interested only if the state creates additional rules in the form of by-laws to facilitate directions set by the new law. Unfortunately, there are still some ambiguities [in the law]."

He added that "practice shows that usually investors working in the Ukrainian port industry are interested in long-term projects."

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