CHALLENGE

Growth of the Ukrainian economy is heavily dependent on exports of commodities, most of which are shipped via the country’s ports. In terms of volume, from March to June 2020 alone, Ukraine’s port operators transported 55 million tons of cargo over a four-month period, of which around 42 million tons were exports, demonstrating the importance of the port sector for the economy. 

However, Ukrainian seaports operate at only half of their potential capacity due to many years of underinvestment and significant degradation of the country's infrastructure. Smaller Ukrainian companies continue to rely on outdated ports, a majority of which are in a poor state and require significant modernization. As a result, Ukrainian exports have become less competitive, and ultimately lose market share to large multinationals and top-tier local producers that use bigger and more modern ports, where smaller companies lack access. 
Under the Sea Port Development Strategy, the government seeks to attract private investment to upgrade and transfer the management of the country’s ports to private operators to improve their efficiency and expand capacity, starting with Port Olvia and Port Kherson. Port Olvia is located on the estuary of the Dnieper-Bug River, granting easy access to the open sea as well as to the Ukrainian inland waterway system. Meanwhile, Port Kherson is a main sea terminal on the Dnieper river, which flows through the largest industrial and agrarian regions of Ukraine, handling key exports for the economy—including cereals, oil meal, building materials, fertilizers, metals, timber, and other cargo. Improving these ports is part of the government’s ambitious reform plan to transform the transportation sector and stimulate much-needed private investment and expertise.  
 

SOLUTION

The GIF, in collaboration with the World Bank and the European Bank for Reconstruction and Development (EBRD), was brought in early to evaluate potential PPP options for the upgrading, operations, and maintenance of Ports Olvia and Kherson, with the objective of enhancing their capacities and consolidating them as important links in an efficient national transport and logistics system. Following the positive conclusions of the feasibility studies, GIF partnered with EBRD and IFC to support the Ministry of Infrastructure in preparing and structuring two pilot concessions, providing financial, technical, and advisory resources for the transaction and playing a coordination role between the World Bank, EBRD, and IFC. 

The GIF’s value stemmed from providing a continuum of support from the prefeasibility stage to playing a convening role among the multilateral development banks to help bring it successfully to commercial close. Despite some delays caused by the COVID-19 pandemic, the Ministry and the Ukrainian Sea Port Authority signed the concession of Port Kherson with Risoil S.A. and Georgian Industrial Group on June 26, and subsequently Port Olvia with QTerminals on August 20, 2020. 

This project also benefited from the support of the Public-Private Infrastructure Advisory Facility (PPIAF), which helped the Ministry develop a logistics and seaport strategy. 
 

EXPECTED IMPACT

Together the two ports have mobilized approximately $155 million of private investment, making them the first PPP projects in Ukraine to have been prepared according to international best practice under the new PPP Law. New investment and modernized infrastructure will result in increased trade volumes, better services, and cost reductions.  

The new facilities will have modern, dedicated terminals to process agricultural commodities with special equipment. They will also be climate-resilient to address potential problems of sea level rise, bank protection, breakwaters, and sediment control. 
With the success of Port Kherson and Port Olvia, the government plans to concession several additional ports over the next two years and utilize PPPs to attract private investment in the broader infrastructure sector. The GIF is continuing to engage with the Ministry of Infrastructure to develop programs to attract private investment in regional airports, roads, and railway stations. 
 

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PRESS RELEASE

IFC Supports Government of Ukraine with Developing the Country’s First Public-Private Partnership Based on Best International Standards

EBRD supports first concession project in Ukraine