On 17 May 2012, the Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Sea Ports of Ukraine" (the Law), which introduced revolutionary changes to the laws pertaining to legal status, land and property relations in Ukrainian sea ports.

The Law was officially published on 13 June 2012 and, save for paragraphs 5 and 6 of Chapter VI, shall become effective in 12 months as of such date (the Effective Date). The Law forms a legal framework for strategic sea port reform in Ukraine, including the following:

(1) The Law establishes legal grounds for the formation of the Register of Sea Ports of Ukraine in electronic form with data available for public use;

(2) The Law provides for mandatory inventory of sea port facilities in Ukraine. Subsequently, sea ports as state-enterprises shall be reorganized by means of their spin off into sea port state administration (the Administration) and commercial state enterprises (or public joint stock companies);

(3) The Law divides between administrative functions (e.g. procurement of seafaring safety, control over seafaring safety, levying of port charges, etc.) and business activity in sea ports. Administrative functions will be vested with the Administration and the sea port's captain office while business activity will be carried by commercial state companies and/or private investors;

(4) The Law provides for the exhaustive list of specialized services that will be rendered exclusively by state companies and agencies (e.g. search-and-rescue, maintaining of port water area, navigation and cartographical support, safeguarding of vessels, etc.);

(5) The Law enables private investors to lease port infrastructure facilities, including berths, which has to this point been prohibited;

(6) The Law establishes a legal regime of lands for sea ports comprising of sea transport, industry and water fund lands. Any artificially made grounds on the sea port territories are attributed to the water fund lands and the Law, as a rule, cancels ban for their lease;

(7) The Law guarantees private property rights to berths built by private investors before the Effective Date further enabling private investors to build new private berths onwards;

(8) The Law provides that state-owned berths can be leased or granted as a concession for a term of up to 49 years, and given their status as strategic objects of port's infrastructure, they cannot be privatized;

(9) From the Effective Date, any newly constructed berths where the construction is financed by private sources will be considered to be privately owned;

(10) The Law provides for the possibility to privatize port infrastructure, establishing for specifics of privatization procedure. So-called strategic port infrastructure facilities (i.e. hydraulic structures, common use infrastructure, navigation equipment and data systems) will continue to be banned from privatization;

(11) The Law guarantees compensation to private investors for any investments made in strategic port infrastructure facilities;

(12) The Law provides that berthage shall be payable to the berth's owner or lessee, as applicable;

(13) The Law expressly prohibits termination before the stated maturity date of any agreements with private investors in respect of any port infrastructure made before the Effective Date.

Conclusions and recommendations

Settling of legal status and sea ports reformation in Ukraine has been a long-awaited action. It has yet to be explored how this reform will be implemented in practice and how new property relations, administration as well as privatization of sea ports will be carried out.

We recommend that our clients who are involved in logistical activities in Ukrainian sea ports, or are interested in investing in Ukrainian sea port infrastructure determine with their Ukrainian counsel how the new rules will be applied in their individual cases.

Additional notes