CHALLENGE

The growth of Ukraine's economy is heavily dependent on commodity exports, most of which are shipped from the country’s ports such as Port Olvia and Port Kherson. In terms of volume, from March to June 2020 alone, Ukraine’s port operators transported 55 million tons of cargo, with about 42 million tons of this as exports, demonstrating the crucial economic role of the port sector. However, due to many years of underinvestment and significant degradation of the country's infrastructure, Ukraine's seaports operate at only half of their potential capacity. Smaller Ukrainian companies rely on outdated ports, a majority of which require significant modernization. As a result, Ukrainian exports have become less competitive and have lost market share to large multinationals and top-tier local producers that use bigger and more modern ports, and where smaller companies lack access. 

Under the Seaport 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 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. Port Kherson is a main sea terminal on the Dnieper River, flowing 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

In collaboration with the World Bank and the European Bank for Reconstruction and Development (EBRD), the GIF was brought in at an early stage to evaluate potential PPP options for the upgrading, operations, and maintenance of ports Olvia and Kherson. The objective was to enhance and consolidate their capacities to become important links in an efficient national transport and logistics system. Following the positive conclusions of the feasibility studies, the GIF partnered with EBRD and IFC to support the Ministry of Infrastructure (MoI) in preparing and structuring two pilot concessions by 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 addition was its ability to provide a continuum of project support going from the pre-feasibility stage to its convening role among the multilateral development banks to help bring it to a successful commercial close. Despite delays caused by the COVID-19 pandemic, the MoI and the Ukrainian Sea Port Authority signed the concession of Port Kherson with Risoil S.A. and Georgian Industrial Group on June 26, 2020, and subsequently the concession of 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 are expected to 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, able 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 to the broader infrastructure sector. The GIF is continuing to engage with the MoI 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 concession project in port of Olvia