Business vs USPA: what to do with canal due?  

 

The opinion of Tatyana Titarenko, LeGran.TT director, to the magazine “Ports of Ukraine”.

On April 5, 2017, the Odessa Administrative Court of Appeal upheld the decision of the district administrative court to recognize the canal due charging for vessels calling in Lanzheron and Quarantine harbors of Odessa Port illegal. It would seem that in the nine-month confrontation with the USPA on this occasion, finally, you can put an end to. However, despite the expert opinions and decisions of the courts of the first and appeal instances, which are sufficient grounds for abolishing the illegal charging, the current management of USPA does not hurry to return the situation to the regulatory and legal channel.

The conflict between business representatives and USPA arose nine months ago. Then, on August 10, 2016, USPA acting head, Yuri Nakonechny, ordered the head of the Odesa branch to charge canal due from vessels calling in Quarantine, Cabotage, New harbor by “separate order” No. 37. Soon the canal due also began to be charged from vessels calling in Lanzheron harbor.

Such a decision could not remain unnoticed. First, during the existence of Odessa port, a canal charge was never collected from such vessels. Secondly, the decision was not supported by elementary economic or legal justifications. Thirdly, it is difficult not to notice the appearance of one more due in the rather large Disbursement Account, which, depending on the volume of the vessel, averages from 3 to 6 thousand US dollars.

Since the start of the dispute, the largest container lines have authorized the law firm LeGran.TT to represent their interests in the conflict that has arisen. LeGran.TT lawyers gathered a unique evidence base, in particular, expert opinions of independent industry and expert departments – ChernomorNIIproekt, UkrNIIMF, Odessa Maritime Academy, Ukrainian Chamber of Commerce and Industry, Business Ombudsman Council. Below are the main conclusions and examinations that confirm the illegality of the canal due charging.

  1. Acting Head of the USPA, issuing the order No. 37 dd. 10.08.2016 on canal due charging, exceeded its official powers. Such is a conclusion of the Business Ombudsman Council. So, according to item 7.6. of Charter of SE “USPA” the chairman of the state enterprise is entitled to issue orders that are binding for all employees of the enterprise. At the same time, Acting Head of the AMPU replaced the existing approach for canal due charging, stipulated by the Order of the Ministry of Infrastructure No. 316, and, in fact, gave an instruction that not only employees of the enterprise headed by him, but all business entities operating in the port of Odessa.
  2. During vessels calling in Lanzheron, Quarantine, Cabotage, New harbor, the approach canal is not used for its intended purpose, as a hydrotechnical facility. This is stated in the conclusions of the project designer of the approach canal, as well as the Research Institute of Marine Design of Ukraine (UkrNIIMF).

Experts of UkrNIIMF explain the following: since the main purpose of the approach canal, according to the Law of Ukraine “On the seaports of Ukraine”, is to ensure the approach and departure of vessels to the berths, the approach canal of Odessa port provides the approach of vessels to the Practical, Factory, Bread and Oil Harbors. If the vessel enters the port through the East Gate of the port, as in this case, it is necessary to carry out additional maneuvers or to cross the approach canal almost perpendicular to its axis. Thus, the vessel, crossing the approach canal, does not use it as a hydraulic engineering structure.

Conclusions of designers of the approach canal are similar. In their opinion, experts of the ChernomorNIIproekt note that for the approach of vessels to berths No. 1-24, the passage of the approach canal is not used to the end, while existing shunting zones and navigational depths provide the conditions for safe wiring.

Conclusions of the complex scientific expertise of UCCI and specialists of the Odessa Maritime Academy are also similar. They stated, when maneuvering during the movement of vessels to the inner water area of ​​Odessa port through the Eastern Gate, the current state of the depths of the natural passageway and the approach canal of the port does not require the use of the latter.

  1. The processes of passage and crossing of the canal by vessels are basically different ways of vessels movement, the peculiarities of which are determined in a number of normative legal acts of Ukraine.

This is the conclusion of the examination of UCCI. Experts draw attention to the fact that from the navigational point of view, passage of the canal is a sea operation to ensure the regime of its movement during a certain time by maneuvering. The period of implementation of such an operation in the approach canal of the port is about 20-30 minutes, depending on the speed and weather conditions. In contrast, the intersection of the approach canal is a short-term maneuver (up to the 1st minute of maneuver to overcome a navigation obstacle with a length of 125 to 145 meters), which does not require additional navigation and technical services.

  1. The order of the Ministry of Infrastructure No. 316 does not provide for the canal due charging for crossing the canal or for its partial use. This conclusion is contained in the conclusion of the developers of the Order of the Ministry of Infrastructure No. 316, UkrNIIMF.

According to item 3.3 of the Procedure for port dues charging, approved by the Order of the Ministry of Infrastructure of Ukraine No. 316, the canal due charging is carried out for each passage of the canal by a vessel at one end and for each canal passage by a vessel in transit to one end.

UkrNIIMF reminds in its conclusion, that at calculation of canal due rates only vessels, which pass on the canal at the one end, were considered only. Vehicles that cross it were not included in the calculations. Conclusion of UkrNIIIMF is unambiguous: the intersection of the approach canal is not a fact of use or passage of the canal in the understanding of the order of the Ministry of Infrastructure No. 316, therefore, there are no grounds for canal due charging when crossing the canal.

  1. The courts of the first and appeal instances confirmed the illegality of canal due charging for vessels calling in Quarantine and Lanzheron harbor of Odessa port.

Judicial decisions on recognition of the illegality of canal due charging are difficult to overestimate. Firstly, only 3 hearings of the district administrative court were devoted to scrupulous study of the technical side of the issue: the technical structure of the approach canal, the assessment of the depths of the water area and the canal passport, and so on. After 6 court hearings, the court recognized the canal due charging illegal. Secondly, the company’s lawyers proved that, despite the fact that USPA is a state enterprise, it is not authorized to substitute the functions of the executive authorities and independently determine the grounds and cases of port dues charging. Thirdly, prior to LeGran.TT suit in administrative court proceedings, there was no positive practice in appealing of port due charging, so we created a judicial precedent.

The main conclusions of Odessa District Administrative Court, which were recognized by the appeal instance, are as follows:

  1. “The approach canal Passport of SE “Odessa Commercial Sea Port”, Passport of seaport water area, “Obligatory resolutions on the seaport of Odessa” define the purpose of the approach canal as use by vessels calling in Practical, Factory, Bread, Oil harbors, and therefore the vessels calling in Quarantine, Lanzheron harbors of Odessa sea port do not use approach canal for its intended purpose.”(para 3 page 4 of the court order)
  2. “The water charts of Odessa sea port show that natural water depth of Odessa sea port on the way to Practical, Factory, Bread, Oil harbors are up to 5-9 meters. The depth of water area at the seaport on the way to Quarantine, New, Cabotage harbors through the East entrance and to the Lanzheron harbor are up to 12-14 meters. The depth of approach canal is 14 meters, which further confirms the approach canal is used to vessels calling in Practical, Factory, Bread, Oil harbors and it proves that vessels may to call in Quarantine, New, Cabotage, Lanzheron harbors using natural depths and without approach canal.”(para 7 page 2 of the court order)
  3. “From the evidence submitted to the court, including tracks of the vessels… it appears that these vessels do not use the approach canal of Odessa sea port because they did not pass it at one end or by transit at one end and crossed it in one or several locations, in some cases, they were near it, or passed a small, insufficient distance when calling in Lanzheron harbor, but in any case they did not use the canal for its intended purpose.” (para 6 page 4 of the court order)

4.“The canal due is actually paid for services provided in accordance with the intended purpose of the canal, that is to say, in case when the approach canal is used by large vessel calling in Practical, Factory, Bread, Oil harbors, since these vessels cannot call in the harbors without passing of the approach canal. At the same time, calling in Quarantine and Lanzheron harbors does not require passing of the approach canal, since the natural depths allow them to call to harbors.” (para 6 page 4 of the court order)

 

  1. “The Court draws attention to the fact that before the issuance of a separate order No. 37 dated on 10.08.2016, canal due from vessels calling in Quarantine, Lanzheron harbors of Odessa sea port was not charged. But the circumstances regarding the calculation of canal dues at the legislative level, changes in the technical documentation of approach canal, port waters, “Obligatory resolutions on Odessa seaport”, or other circumstances have not changed, which eliminate the right to charge canal due only on the ground of the order of Acting Chairman of the State Enterprise “USPA”.” (para 2 page 7 of the court order)

Summary

  1. From the point of view of the legislation, what is currently being done by USPA in terms of canal due charging from vessels calling in 4 harbors of the Odessa port is illegal. There are no legal grounds for canal due charging.
  2. At the moment, the current administration of USPA has all the legal powers and grounds for port due charging cancelation. To bring the situation back to the right, it is enough to listen to the expert community and execute court decisions, canceling illegal order No. 37 dd. August 10, 2016.
  3. Ignoring the judicial decision by officials from USPA will lead to an escalation of the conflict with representatives of business – vessel owners, container lines, agents. What it will lead to? At the very least – mass lawsuits to recognize the charging illegal, followed by charging of illegally overpaid sums of port dues. After all, the positive practice of appealing against port due charging was created by LeGran.TT, so there is no doubt that the lawsuits will be satisfied in favor of the business. As a maximum – a decrease in the competitiveness of Odessa port with a subsequent drop in freight traffic and the final departure of container lines from Odessa port, to the Black Sea fishing port or the port “Yuzhny”. Similar perspectives are being discussed by container lines quite seriously. By the way, the Black Sea seaport have already lost container lines completely. Is Odessa the next one?
  4. USPA requires not a cosmetic, but a cardinal reform. As before, instead of promoting the development of the industry, creating conditions for the modernization of the port infrastructure, attracting investments and increasing the flow of goods, the management of the department by its inaction on the issue of abolishing of illegal canal charging destroys the last vestiges of business confidence to USPA.
  5. The situation has long gone beyond the business conflict between vessels owners and USPA. This is a conflict of worldviews and approaches. As though the newly appointed leadership did not declare its progressiveness and devotion to the leading world practices, such USPA decision and similar conflict situations would be the mark of the true USPA course. What will eventually win: the strategic interests of the port, the intention to develop Odessa harbors and create conditions attractive for cargo owners or the desire to save cash flows for the purpose of increasing the profits of the USPA – will become clear very soon.
  6. Analyzing the situation with port dues in general, I will note the need to revise not only rates of port dues, but also their number. LeGran.TT lawyers, having analyzed the world practice, came to the opinion on the need to abolish the canal dues as a whole. The logic of the leading maritime states, including the main competitors of the Ukrainian harbors – ports of the Black Sea and East-Mediterranean basins – is the following: approach routes (approach canals, reversal circles and others) are the infrastructure component of one large system of hydraulic structures – the port water area. And for the use of the water area of ​​the port, tonnage due is already charged. Only in Ukraine there is, in effect, a double charge for the provision of virtually the same service – the use of the port water area when approaching its berths.

Published on the portal “Ports of Ukraine”.