Tuesday, 22 September

On the eve of spring 233 people’s deputies supported by their votes the bill 6766 on amendments to some legislative acts of Ukraine in the field of construction and operation of the roads. In this way, the people’s deputies allowed the construction of toll roads, which are being discussed in Ukraine not for the first year. Opinion  found out what exactly the purpose of the bill promoted by the parliament, under which conditions will it be implemented, which is the experience of European countries, what are the chances to implement a public-private partnerships this time and which may be the negative effects of the construction of new roads.

What is the issue in the adopted bill?

On the official website of the State Agency of Motor Roads of Ukraine it is reported, that public-private  roads in no case should be considered as  the repair or reconstruction of roads, and the investor will be able to return the invested funds just at the expense of the fare. It is also important that the fare will depend on the investor’s decision.

“Public-private roads do not provide for the repair or reconstruction of existing roads, namely the construction of new roads. At the same time, the current roads in these areas will play the role of free alternatives.

The Investor will be able to repay the expenditures at the expense of introducing a fare, the fare will be determined by the investor of the project.

On the official website of the State Agency of Motor Roads of Ukraine it is reported, that public-private  roads in no case should be considered as  the repair or reconstruction of roads, and the investor will be able to return the invested funds just at the expense of the fare. It is also important that the fare will depend on the investor’s decision.

“Public-private roads do not provide for the repair or reconstruction of existing roads, namely the construction of new roads. At the same time, the current roads in these areas will play the role of free alternatives.

The Investor will be able to repay the expenditures at the expense of introducing a fare, the fare will be determined by the investor of the project.

What is the benefit of the adopted bill?

Yaroslav Dubnevych, MP and Chairman of the Verkhovna Rada Committee on Transport, explained that the new law introduces a number of changes to other legislative documents and will help Ukraine to become a full-fledged transit country with a European-level infrastructure.

“The months-long work of the entire Committee on Transport, experts, and industry representatives ended successfully. Now you can count on the emergence of high-quality new highways in Ukraine. So, the law in the thesis:

– “activates” the mechanism of concession in the field of construction and operation of roads;
– formulates the conditions for such a construction;
– improves the investment climate: provides investors with guarantees of investment protection;
– opens the possibility of building new autobahns in Ukraine at the expense of concessionaires;
– makes Ukraine an attractive transit country for international carriers.

The new law introduces amendments to the Laws of Ukraine “On sources of financing of roads of Ukraine”, “On concessions”, “On concessions for construction and operation of highways”, “On highways”, etc. Clarifies the notion of concession and specifies the conditions of the concession contest and the requirements to its participants: technical data of the road, basic financial characteristics, the maximum period for which the concession is granted, the maximum amount of compensation to the concessionaire, etc.

Thanks to this law, the country will receive not only image dividends, but also become a full-fledged transit country with an infrastructure of European level.

The adoption of such a law will attract a significant number of international carriers and international logistics business to Ukraine, which is held back by the unsatisfactory condition of Ukrainian roads”, –the People’s Deputy stated.

When is the building of the new road is planned and how much will it be?

It is reported, that for the first time the practice of toll roads can be applied on the transport link of Krakovets-Lviv. However, in order to realize the planned, the contract with the private investor must first be signed. The head of the State agency of highways Slavomir Novak said, that before that, appropriate changes should be broght to the legislation. In particular, the bill approved by the Verkhovna Rada provides for a mechanism of state compensation to the future investor in the event, if the minimum of the automobile traffic will not be ensured.

“First, you need to change the basics of developing such projects. Amendments to concession legislation need to be brought. We have proposed changes. The Verkhovna Rada Committee on Transport adopted a draft from us with necessary changes. As you know, on February 27 this law was passed by the Verkhovna Rada by 233 votes. For example, we have amended the necessary mechanism of state compensation to a private investor in the event that the minimum necessary traffic of vehicles will not be provided, which would allow the investor to pay back his expenses. Without a guarantee of such compensation, no private investor will enter a concession project. After the adoption of this bill, we are ready to announce a concessionaire call for proposals. We will hold negotiations. The concession is always a negotiation, not a tender “, –  Novak said in a comment to the media of RBC-Ukraine.

The head of “Ukravtodor” also added, that there are already several subsequent projects, that have potential for future realization. However, the overriding factor in choosing may be the rate of traffic tempo.

“There are several other concessional projects that we have to evaluate. For example, construction of a parallel road of the Kyiv-Chop highway near Lviv. As for the Bila Tserkva-Kyiv route, its advantage is the high intensity of the movement. Therefore, this project may be interesting for the concessionaire”, –says Slavomir Novak.

Regarding the cost of use, the speaker assured: prices will be significantly lower compared to the practice of the European Union.

“Of course, in Ukraine,using the roads will be cheaper than in the EU. In the European Union, the fare varies from 10 to 30 eurocents. I believe, that in Ukraine the cost of a ride along the concession road should not be higher than 10 eurocents “, – summed up the head of the State agency of highways.

Public-private partnership will it be possible this time?

Roman Stepanenko, a partner, head of Banking and Finance Law, capital markets of the EPAP Ukraine, told  Opinion, that it is really difficult to exaggerate the importance and significance of public-private partnership projects (PPP). At the same time, the expert is convinced, that there are a number of reasons why Ukraine has not yet seen successful concession projects in the field of highways.

“The use of mechanisms of public-private partnership for the implementation of infrastructure projects is a very common practice in the leading countries of the world. The main reason for the popularity of such mechanisms in the social sphere and infrastructure initiatives is common to all states: the lack of public finances to pay for such projects and bring them to the required qualitative and quantitative level. In our country, the problem of budget deficits affects almost all areas, and infrastructure is not an exception. With regard to the situation with the financing of road infrastructure, obviously, funds are enough only for seasonal repairs of roads of limited length, which are most important for the state. The investment of budget funds on the significant increase of the quality of road infrastructure is not even discussed.

Therefore, it is difficult to overestimate the importance of taking measures that would facilitate the creation of effective mechanisms for implementing PPP projects in the construction and operation of roads. However, the key point is the effectiveness, justification and with due time of such measures. Ukraine has for some time been “enjoying” legislative regulation of PPP issues, both in the general law, as well as in special acts on concessions and more thematically focused law on concessions of highways. However, as you know, Ukrainian practice has not yet seen successful concession projects in the field of highways. The reasons, as is often happens, are complex: (1) the imperfection of specific legislation in the field of PPPs, (2) the economic and political situation, (3) the level of judicial system reliability, (4) the adequacy and compliance with international practice of guarantees provided to private partner, etc. “, – the specialist says.

What exactly can the adopted bill add to the big picture of concessions of highways?

Roman Stepanenko is convinced: the document approved by the people’s constituents is important in the context of an attempt to optimize alternative ways of financing road maintenance. In addition, the question of compensation of losses to the investor should be considered in more details, since the state guarantee is not limitless and is the maximum limit of 30% of the planned annual income. Stepanenko also added that the whole idea of the bill seems to be torn out of context.

“Are there any amendments provided for the Bill № 6766 that can significantly affect the development of PPP projects in the field of construction and operation of highways? As always, the most accurate answer to this question can be provided as time goes by, but  let’s deep in these proposed (and, in fact, voted by parliamentary) amendments and determine what they add to the general picture of concessions on highways.

Firstly, the bill in general is important as another attempt to optimize alternative ways (apart from spending of state budget funds) on financing construction and operation of highways. The possibility of charging a fare is a significant commercial argument for a potential investor in the construction of a highway in favor of joining the project. That such a possibility is provided by the bill. Moreover, the bill gives the Cabinet of Ministers the power  to set the maximum level of fares, which will adjust to the level of inflation. This approach also adds to the attractiveness of the project from the investor’s point of view.

Secondly, at the legislative level, a guarantee is provided for compensation to the concessionaire in case of failure to receive the planned revenue from the operation of the highway. State guarantee is not limitless, the compensation limit is at the level of 30% of the planned annual income. Such support by the state of the concession project is a widespread practice in the world and should be a positive note of the interest of investors in Ukrainian concession projects in the field of highways.

Thirdly, certain requirements for alternative ride by free-of-charge highways are set. In particular, the bill provides limiting the length of a free road 200% of the toll road. Such an approach seems justified and appropriate to practice in many other countries that are more successful in implementing such concession projects.

In addition to all of the above, the bill also regulates the issues of compulsory landtake necessary for the construction of highways, the decision to hold a concession tender, decisions on the construction of roads, that may be given to concession.

These changes are important. No doubt. However, the whole idea of ​​draft law №6766 seems somewhat torn out of context. What kind of context? It’s no secret to anyone in the professional environment, that there has been a long process of developing a new version of the concession legislation in the last 2-2.5 years. This process was funded by the EBRD, was held with the involvement of an expert and business environment, and ended with consideration of the relevant draft Law on Concessions at a government meeting, followed by submission to Parliament for approval. That is, if everything goes according to expectations, soon the new Law on Concessions, which in most cases meets the international principles for the implementation of such projects, should be adopted by the Parliament. Draft Law №6766 introduces amendments to the legislation, that will be reformed as a result of the adoption of the new Law on Concessions. Thus, the logical consequence of this whole question is whether the authors of the Bill №6766 laid the idea of ​​a temporary or intermediate nature? The question is probably rhetorical. But supposing, that the draft should not be just a temporary solution, it is unlikely that there will be enough changes for it to launch the concession process in the field of highways”, – in the comments on Opinion.

What shows the practice of other countries?

Yehor Brailian, a historian and columnist in “Criticism”, spoke on the experience of other countries, in particular, noting that in Germany, today, riding for all passenger cars is free of charge, but the payment is realized through a corresponding tax on the purchase of a vehicle.

“Road construction and their operation were one of the main tasks of any state machine throughout all periods of history. Already in recent times, the leading countries of the West, such as the USA, Germany and France, have differently solved their infrastructure problems. In the 1930s, Nazi Germany, having introduced public works, built a series of autobahns that, by this time, are in excellent condition and constitute the main artery of the German transport routes. For now, all passenger cars, ride for  free, but this service is paid (in the form of a corresponding tax) when a person purchases a car, and it all depends on the size of the engine. In Germany, from the middle of the XIXth century, the state of the development of the transport sector was at an adequate level, since it was on the German lands where railways were the most branched out, which in the XXth century were replaced by concrete or asphalt roads “, –  the historian told.

How should the implementation process take place?

Architect Taras Hodovnets shared with Opinion his thoughts on the peculiarities of implementing the bill supported by the People’s Deputies. In particular, the expert is sure, that the guarantee on the roads should not be 5, but 25 years, which will correspond to the practice of European neighbors.

“First of all, we have our own good developments in the field of production of asphalt-concrete chemise, but for some reason they do not use them, and even, on the contrary, we sabotage the construction of quality materials. Secondly, before building, it is necessary to have competently thought-out projects with technical and economic indicators and analysis of overpasses, and then, having chosen the best, start to implement through an open tender. Thirdly, the guarantee on the road should be well not 5 years! At least 25 years! Like the European neighbors have. In addition, road construction is a national-state interest, and control must be appropriate. That is why it is necessary to invite a foreign company to technical supervision, preferably German or the Netherlands (they have the best roads and technologies). And the last one: control, control and once again control! “, – Taras Hodovanets stressed.

Do we need toll roads in Ukraine?

Viktor Tkachenko, the head of the press service of UEA “Green World”, took the initiative to concession roads rather skeptical, asserting Opinion that to construct toll roads we will have to destroy huge arrays of forests and tree belt areas or give up thousands of hectares of plough-land. According to Tkachenko, it is possible to bring Ukrainian roads to the perfect condition, but if drivers and law enforcement officers really control the condition of the road surface, and the use of money will be open and transparent.

“As Urbanskyi, a deputy, explained, presenting a document in parliament, construction of a new highway requires significant expenditures from the state budget, therefore this law supposedly will promote the development of the road sector and improve the investment climate in the country. Urbankyi noted, that this bill provides for the transfer of concessions only those sections of roads, that will be built, but are not already built. Only a new road may be concessional, which runs parallel to the one available free, so drivers have the right to choose: whether to go on a paid or free, MP appealed.

Analyzing the “pearls” of a deputy in defense of this bill, you unintentionally ask yourself: why to build one more way in parallel, if the road already exists? A good landlord does not build two toilets or two parallel paths to the garden, to the dressing room or to the barn. This is an absurd. Firstly, it is too expensive, and secondly – it occupies an additional territory.

For the construction of a parallel road, it will be necessary to cut down huge forests or tree belt areas, which usually grow on either side of the roads, or give up thousands of hectares of plough-land, which, by the way, are mostly privately owned or are on the balance of territorial communities. This is a huge damage to the country! Ecological damage and no profit  from these sites.

Why is this policy so helpless? After all, hundreds of billions of Ukrainian hryvnia of car owner flow in the budget gap of “Ukravtodor” annually. It would  be advisable to carefully monitor the use of these funds by the state company and to ensure the transparency of the use of these funds, and to control the quality of construction, repair and maintenance of roads for consumers of these services, – Ukrainian car owners, isn’t it? And the traffic police should be responsible for the state of the road in cooperation with “Ukravtodor”. If drivers suffered due to poor road coverage, policemen who take a bribe on this roads, should pay with the appropriate “Avtodor” to the owner of the damaged by the holes car. Such innovations will make the state of the roads perfect.

Otherwise, they (Ukravtodor with the police and authorities) first of all will push the state of the roads over the edge, and drivers will not have the other choice but to pay private road owners, in order not to destroy their cars. There is no benefit for the authorities to punish the leadership of Ukravtodor for failing to fulfill their responsibilities and to control the state of roads for drivers and their unions and organizations. It is more profitable to bury money in low quality asphalt and offer private services for a normal road. Guess who will be the owner of new high-quality private roads? ” – summed up the expert.

Text: Dmytro Zhuravel

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