Container wars
The conflict between Sea Commercial Port of Illichivsk (Ukraine) and Ukrtranscontainer (subsidiary of National Container Company) is far from conclusion despite the decision of the High Court of Ukraine in favor of NCC. The sides are preparing for new legal proceedings and are ready to go as far as an international arbitrage.
No backward steps
In August 2005, NCC, incorporator of Ukrtranscontainer (UTC) entered Ukrainian market and signed a Joint Operation Agreement with Sea Commercial Port of Illichivsk (SCPI) under which UTC undertakes to invest $500 mln in modernization of the existing facilities, purchase of up-to-date equipment and development of the terminal infrastructure in the port of Illichivsk. The terminal’s capacity is 850,000 TEUs per year. Maersk Line, APL, MSC, CSAV Norasia, CMA CGM, ZIM, China Shipping are among the terminal’s customers. Upon completion of the investment program the terminal’s capacity is make 4 mln TEUs by 2020.
However, friendly joint operation of UTC and SCPI proved to be not timeproof – SCPI administration lodged an appeal with the court for the invalidation of the Agreement construction considering it to be unprofitable for the port. Ukrainian courts of the first and second instance ruled in favor of SCPI.
Meanwhile, the National Container Company (NCC) and its Ukrainian affiliate Uktranscontainer (UTC) have recently announced that the High Court of Arbitration (HCA) in Kiev in its ruling rejected the claim by the Sea Commercial Port of Illychivsk (SCPI) that sought termination of the Joint Operation Agreement between UTC and SCPI signed in 2005. Previous verdict by the Odessa Regional Court of Appeal of June 26th that ruled to terminate the Agreement was declared null and void. Following this HCA decision, the Agreement between UTC and SCPI regains its legally binding status in full as of 5:00 pm local time August 26, 2009.
Amid the disagreements between NCC own shareholders - First Quantum and Fesco Group – it is principally important for National Container Company to retain control of Illichivsk terminal. NCC says it has already invested $61 mln into the terminal development.
However, SCPI administration is not likely to yield. Immediately after it learnt the ruling of the High Court of Arbitration the port called it “unjust” and announced its intent to appeal to the Supreme Court of Ukraine.
As PortNews IAA learnt from NCC press center, the Russian side plans to appeal to international arbitrage if the Supreme Court of Ukraine rules in favor of SCPI.
Meanwhile, UTC personnel is still not allowed to work at Illichivsk terminal as the port administration set up picket lines involving dock workers to prevent UTC from operation.
Not ready to sacrifice principles
According to SCPI administration, the Joint Operation Agreement between UTC and SCPI is unprofitable for the port. SCPI claims that the port’s contribution to the joint operation was undervalued several times (up to 37 times in certain cases). NCC says the evaluation was carried out by the state enterprise Ukrinvestekpertiza according to the state standards.
“The port’s net profit per 1 TEU of containers handled by jointly operated facilities fell 2.5 times from 2005 till 2008 which contradicts with all economic laws taking into account that container turnover increased almost 3.5 times in the reported period with the blanket rates having grown 1.8 times. The only explanation of it is as follows – the Agreement provisions are aimed at excess profit of UTC at the expense SCPI,” the port says.
At the same time, as PortNews IAA learnt from NCC, he port’s minimal profit guaranteed under the Agreement totaled UAH 46 mln in 2008. The Agreement also envisages indexation for all the coming years depending on actual inflation. In 2008, net profit of SCPI from joint operation with UTC exceeded UAH 52 mln, which makes $ 32.5 per one container.
“Revisions and inspections carried out by the Ministry of Transport and by the Prosecutor’s office in different periods proved the Agreement’s efficiency. The state received $92 for a 3-year period having invested $17 mln. According to the revision, the core of the port’s profit is UTC allocations. The share of the port’s own profit and profit gained from UTC is about 20% against 80%,” NCC told PortNews IAA.
The list of the port’s rebukes against UTC and NCC is a long one but it is necessary to take into consideration that SCPI is a state enterprise and its agreement with UTC was approved by Ukraine’s state authorities. Hence there is a question – why was it approved if the terms were not profitable for a state company?
According to Dmitri Baranov, leading expert of MC Finam Management, "NCC is not to lose the terminal as SCPI only says the Agreement is not profitable for it infringing the interests of the port and the state. So the port wants to review the terms and intends to defend its interests in the Supreme Court of Ukraine while NCC is to defend its own interests. It has a negative impact on the situation at the terminal preventing it from normal operation and it would be reasonable for the sides to mutually yield and to sign a new agreement.”
Meanwhile, there are no signs of constructive negotiations so far. NCC is not ready to come to SCPI terms and to double allocations. “NCC is not a charity organization to provide the port with money, equipment and customers at the company’s own expense without getting reasonable dividends,” NCC told PortNews IAA.
SCPI in its turn is not going to let UTC representatives to the terminal. “The terminal and the property are being managed by the port and its transfer for operation by other legal entities can be undertaken only on legal grounds. The port’s administration is not willing to cease persistent legal actions defending the interests of the state enterprise and its personnel. The line is not drawn under the dispute yet,” SCPI says.
Thus, the situation is not likely to be settled soon – both the sides have prepared to fight till the final victory and are not going to give up.
Vitali Chernov