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Sunday, October 23, 2016

Poroshenko exaggerates the transit potential of Ukraine

New plans for future transit of goods through Ukraine announced by the authorities of the country. Petro Poroshenko even believe in the success of the long – suffering Odessa-Brody pipeline, and the Ministry of infrastructure relies on the creation of a “transport hub”. Even the most cursory analysis shows that these utopian schemes.

The Ministry of infrastructure of Ukraine said that Ukraine is ready to become a hub for the transit of goods from Persian Gulf countries, Asia and China to the countries of Scandinavia and the Baltic States, thereby compensating for losses from the disruption of trade ties with Russia. And the President of Ukraine Petro Poroshenko announced the resumption of the long-suffering project of the Odessa – Brody pipeline.

“Ukraine needs the money in almost all areas of activity, and it is hard to imagine that the midst of complete instability in the country suddenly stretched modern port.

All of these projects in practice face the same unenviable fate as the recent widely-publicized project to create the so-called New silk road, bypassing Russia via the TRANS-Caspian transport corridor. Trial freight train sent to Ukraine this route showed that the route is economically unjustified. Almost everything that he promised Kiev in the framework of a new route, did not survive the collision with reality.

Tales of transit hub

Ukraine, whose trade ties with Russia were severed due to the armed conflict in the Eastern regions, will try to compensate for this loss, becoming the transit hub for supplies from Gulf countries, Asia, China, Scandinavian countries and the Baltic States”, – stated in the message on the website of the Ministry of infrastructure of Ukraine.

Kiev is in talks with several international companies in order to find investors for modernization of the black sea ports, Railways and river transport, said the Minister of infrastructure Vladimir Omelian in an interview with Bloomberg. “I would like to bring the negotiations with China Shipping and the port of Dubai to a successful conclusion,” said Omeljan, adding that the port authority of Dubai, is considering investment in the port of Odessa. China Shipping is a Chinese shipping company, consisting of five specialized commercial fleets operating in different continents.

“We started to discuss the previous opportunities with Hutchison Port Holdings Ltd. There is a clear understanding of what logistics in the ports of Ukraine does not meet modern requirements. Many of the ports have to be rebuilt,” – said the Minister. Hutchison Port Holdings is the largest port operator in the world, which handles 13% of all container traffic. In particular, the company serves container traffic through the Panama canal represented in the ports of Hong Kong, Jakarta, Sydney, London, Buenos Aires and others.

Omeljan says that investors from Asia, Europe and the United States are in contact with the office and are interested in using Ukrainian port infrastructure, privatization and concessions.

From a geographical point of view, this idea has right to exist. However, access to the black sea does not mean that this route will be economically viable.

Creating a hub would require a lot of time and money. “To create a hub, it is necessary to invest billions of euros in upgrading and development of the black sea ports, to create the necessary for the transportation of cargo fleet, to invest in the development of road and rail infrastructure. It is clear that equity capital in Kiev, now there is, and the attraction of foreign capital is possible only in the conditions of withdrawal of political tension and concrete results in the fight against corruption. Meanwhile, Ukraine with great difficulty attracting even the IMF funds”, – says Dmitry Lukashov from IFC Markets.

It is not just about repairs, it will be necessary to fully reconstruct the existing ports, access roads and build new expensive infrastructure. The Minister of infrastructure of Ukraine himself said recently, the degree of deterioration of sea ports and railway infrastructure of the country is 90-95%. Ukraine, he said, need to do the step and jump to get out of the state in which it froze for over 20 years.

“Ukraine needs the money in almost all areas of activity, and it is hard to imagine that the midst of complete instability in the country suddenly stretched modern port hubs” – said the first Vice-President of the Russian Union of engineers Ivan Andrievsky.

The most important thing to find real investors in these risky projects are now unlikely to succeed. While in the East of Ukraine smouldering armed conflict in the world is unlikely to find investors willing to invest serious money in logistics in the country, said Kirill Yakovenko from IK “ALOR Broker”.

The interest of investors, which says Kiev doesn’t mean real contracts and attachments. Andrievsky recalls how a year ago the then Minister of infrastructure Andriy Pivovarsky also say that it is a whole queue of investors willing to invest in port and terminal infrastructure of Ukraine more than a billion dollars. However, ports still no one invested a dime, and the brewer is a criminal case on the facts of illicit enrichment.

In addition, at the moment in this region are already too many alternative routes that are quite satisfied with carriers.

“For example, from the region of the Persian Gulf cargoes can be delivered to Azerbaijan and then to Georgia by rail, then from the ports of Batumi and Poti to the ports of Bulgaria and Romania and then to Europe. This project is lobbying for Iran, and it will be more investor confidence than in Ukrainian,” – said Yakovenko.

“Established route passes through Russia and Belarus, and it suits many. In 2015, export cargo transportation from Belarus to Latvia and its ports rose by 59.9 per cent,” – said Andrievsky.

The revival of the oil pipeline Odessa Brody

It also announced plans to revive another important for Ukraine’s transport infrastructure project. President Poroshenko during his visit in Baku stated that it agreed with Azerbaijan for the restoration project of the Odessa – Brody pipeline. Earlier Kiev has already said that he wants to get Azerbaijani oil to Ukrainian refineries and to transport it to Europe.

This pipeline with a capacity of 14.5 million tons of oil per year was built in 2001 for Caspian oil supplies to Central Europe, bypassing Russia and the Turkish Straits. However, further into Poland to Plock and Gdansk – pipe and not completed. The oil had to settle down and to Ukrainian refineries. However, oil in the Caspian region transit via Ukraine was not, and the pipe was useless.

To resume this project need not only investors but also the oil itself. The irony is that this pipe is intended to transport oil bypassing Russia, has worked only for some time but thanks all the same Russia. Russian oil it pumped in reverse mode, from the city of Brody in Lviv oblast, where there are docking with the Druzhba pipeline, to Odessa. More willing to pump oil through the Ukrainian pipe and was not found, and most of the time it just idled.

Revealing story of how in 2011, Kiev decided to launch the Odessa – Brody pipeline in normal mode, but due to the lack of stable download it ended up just a loss of UAH 400 million. Ukrtransnafta was to provide a pumping part of the experimental batch of oil purchased from Azerbaijan, to oil refineries in the Czech Republic. However, the delivery failed. The official reason was the position of Slovakia. In the end, the oil was processed on the territory of Ukraine with the loss and partially to the refinery “Mozyr’ in Belarus.

In 2014, abandoning the Russian oil Kyiv with new force began to persuade Poland to finish has pipe on Polish territory. Warsaw, however, said bluntly that it is impossible from-for absence of guarantees for the profitability of the project and the unstable situation in Ukraine. In fact, since then, the situation had not changed much, except that the situation in Ukraine on all fronts has become even worse.

While oil production in Azerbaijan reduced, on the other hand, falling oil refining both in Ukrainian and European refineries. The volume of oil refining in Ukraine in 2015, fell to 82.3 per cent, and the country uses only 14% of the pipelines. Consistently works only the second turn of oil pipeline Mozyr – Brody – state Border, which is part of main oil pipeline “Druzhba”.

“In particular because of political circumstances Ukraine no longer be trusted. From the point of view of the transit contractor is a strange party. Therefore, the negotiations about new projects in the pumping of the Azerbaijani oil to Europe not more than words”, – said Deputy Director of the national energy security Fund Alexander Pasechnik.

According to him, Poroshenko in an attempt to revive the pipeline turns a blind eye to the real economic problems of the country. “We need to change the governance of the country – draws attention to the beekeeper. – Until the government in Kiev, which condone the destruction of the economy and drives her to a standstill, while not resume cooperation with Russia, Ukraine will come out of this deplorable condition.”

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