Providing Safe Harbors for Ukraine’s Economic Growth

October 20, 2021

Ports are key hubs of economic development. New projects in Ukraine are helping the country keep maritime commerce moving, with a major payoff for sustainable growth.

Ukraine’s Kherson port along the Black Sea has long been a hub for agricultural cargo hauling operations on the Dnipro river, the key water artery in Ukraine. However, in recent decades, the port’s berths have been underutilized due to outdated infrastructure. As such, much of the region’s cargo is transported overland by diesel trucks, contributing to carbon emissions.

That’s about to change. Kherson is one of several Ukrainian ports that will be upgraded through the country’s first-ever public-private partnerships (PPPs), which are expected to revitalize the country’s shipping sector. The small port will become a transfer hub, facilitating cleaner transport up and down the river to save time and costs while benefitting the environment.

Realizing the port sector is crucial to economic development, the Ukrainian government engaged IFC, the European Bank for Development and Reconstruction (EBRD) and the Global Infrastructure Facility (GIF) in 2017 to help structure its first-ever PPPs based on best international practices. The government started by offering concessions to private companies to upgrade two smaller ports, Kherson and the Black Sea port of Olvia, a mid-sized port that specializes in shipments of grain. Following the successful completion of these pilot concessions in 2020, with support from IFC and EBRD in partnership with the GIF, the government is launching a third PPP to overhaul parts of Chornomorsk, one of the largest deep-sea ports in the country.

“In Ukraine, container shipping—currently accounting for only 8.5 percent of the total shipment—has immense potential for development. The Chornomorsk port investment and the consequent modernization of the container terminal are expected to help double the port’s capacity. This will be a strong stimulus for the development of the region’s economy, boosting Ukraine’s competitiveness as an infrastructure hub," said Oleksandr Kubrakov, the Minister of Infrastructure of Ukraine.

Ukraine is a major exporter of agricultural commodities and metals—the world’s second largest exporter of grain and fifth largest exporter of iron ore—while its imports last year totaled $59.3 billion. Yet, even though the country is strategically located on the Black and Azov Seas, several of its shipping ports operate at only a fraction of their potential, as more investments are needed to upgrade equipment and install technology that will increase efficiency.

“In peak shipment periods, the ports’ handling capacity is often a bottleneck,” says Alex Lissitsa, President of the Ukrainian Agribusiness Club. “It costs producers around $50 to rent a 65-ton grain carrier for one day, so delays of up to four to six days could cost them $200 to $325 in losses.”

Modernizing port infrastructure and speeding up processing times will enable Ukraine to attract more global shipping operators and to help mid-size companies grow by offering them easier access to port services.

“The public-private partnership model is a tried and trusted way to mobilize private sector investment, which in turn is key to accelerating economic growth,” says Mehita Fanny Sylla, Stop-Winlock’s Manager for the Public-Private Partnership (PPP) in Europe. “Private investment will help modernize Ukrainian ports and improve the country’s trade competitiveness, while also allowing the government to spend public funding on critical social infrastructure.”

The first two concessions in Kherson and Olvia ports have resulted in $137 million of private investment commitments. Under the terms of the PPPs, the private investors will upgrade the ports with new infrastructure and technologies, while also introducing climate-smart practices that use renewable energy and greater use of rail and water transport, replacing diesel trucks.

In addition to strengthening the country’s trade competitiveness, the port PPPs will help boost shipping volumes, increase tax revenues, and provide the government with concession fees over the course of the 30 and 35-year contracts.

“Growth of such an export-oriented industry as agriculture relies heavily on ports logistics,” says Lissitsa. “We expect the modernization of Chornomorsk will increase the cargo tonnage the port can handle and upgrade its railway and ferry infrastructure, which will help many Ukrainian agricultural producers ship more efficiently.”

IFC, in collaboration with the World Bank and the Global Infrastructure Facility, is also helping the government explore potential PPPs in the road, rail, airport, energy, and health-care sectors.

Published in October 2021