Transportation in Ukraine

By Dmitriy Nikulnikov and Vladimir Efimenko
Golovan & Partners

The transport industry in Ukraine is regulated by the Acts of Ukraine On Transport, On Motor Transport, On Railway Transport, On Pipeline Transport, On City Electrical Transport, On Roads, On Traffic, On Forwarding Activities, On Licensing Certain Types of Economic Activities, and the Civil, Economic, Air and Maritime Codes, as well as regulations adopted in accordance with them.

The main parts of the transport system of Ukraine are:

i) railway transport;

ii) motor transport;

iii) sea and river transport;

iv) air transport;

v) pipeline transport;

vi) city electric transport; and

vii) roads.

The transport system in Ukraine also includes infrastructure facilities on use, repair and maintenance.

Transport legislation envisages rendering services on the transportation of goods, passengers and luggage, postal and forwarding services, but legislation also allows the provision of other transportation services unless their provision clashes with the requirements of Ukrainian legislation.

In order to document these relations, the legislation directly provides for several types of transportation contracts and a forwarding contract.

Under a contract on the carriage of goods, a carrier is obliged to deliver the goods of the sender and the sender is obliged to pay for the shipment of goods at the set rates.

Under a contract on transportation of passengers and luggage, a carrier is obliged to take a passenger and his/her luggage to the destination point, and the passenger is obliged to pay for the trip and luggage at the set rates.

Under a charter (freight) contract, a carrier is obliged to provide a charterer with a place or a part of a place in one or several vehicles for one or several trips to carry goods, passengers, luggage or post or for other purposes.

Under a contract on carrying goods in direct combined traffic, transportation is carried out by the sender of the cargo to its recipient by two or more carriers of various types of vehicles under one transportation document.

Under a long-term contract on transportation a carrier shall accept, within a defined term, and an owner of goods shall provide the goods for transportation in accordance with the defined amount, term and other conditions of vehicle provision, provision of goods for transportation and the procedure for settlement.

Under a forwarding contract, a forwarder shall perform or arrange for the performance of services stipulated by a service agreement related to transportation of goods. For example, arrange for transportation of goods under a certain route, fulfillment of customs formalities, etc. for payment, or at the expense of the client. As to contracts on transportation the law envisages a certain limitation of the carrier’s liability.

As to the forwarding contract the law envisages general liability. As to contracts on transportation the law envisages a reduced limitation period of one year.

As to the forwarding contract the law provides for a general limitation period of three years.

As agreed by the parties, the limitation period can be extended, but it cannot be reduced.

Transport charters and rules of transportation, such as railway charters and railway transportation rules, provide for special conditions for transportation by certain types of transport.

Public roads in Ukraine belong solely to the state. However, legislation envisages a concession to build and use roads under which, on the basis of a concession agreement, a legal entity is granted a paid and fixed-term right to build and use a public road, provided that it assumes obligations to build and use the latter and property liability and business risks.

The legislation provides for an opportunity to conclude agreements that are not stipulated by law unless they are in conflict with it, as well as a possibility to derogate from the provisions of the legislation and regulate relations at one’s own discretion. Current international treaties approved by the Parliament of Ukraine are a part of the legislation. If an international treaty contains rules other than those of the legislation of Ukraine, the rules of the international treaty shall apply.

The legislation does not provide for an obligation to check the ability of a future counterparty to enter into an agreement, namely the existence of an appropriate licence. However, due to the possibility to acknowledge the contract as null and void if the counterparty has no such ability, which results in extremely negative consequences, it is advisable to check for the existence of licences on the part of the carrier before entering into agreements, as is required by legislation.

The legislation sets a general rule under which, in the course of doing business in Ukraine, non-resident individuals and legal entities have the same rights and duties as residents of Ukraine. It envisages equal rights and duties as to going to courts to protect one’s rights.

Ukrainian legislation establishes sufficient conditions for provision of organizational and warehousing activities in the field of transport.

In particular, it provides for the possibility to own or use land plots, both on the part of Ukrainian and foreign citizens and legal entities, in order to ensure the functioning of transport objects. In accordance with the requirements stipulated by legislation, the following activities are subject to licensing in Ukraine:

i) carrying by motor transport;

ii) carrying by railway transport;

iii) carrying by air transport;

iv) carrying by sea and river transport; and

v) transportation of natural and oil gas via pipelines, and oil and oil products – via long-distance pipelines;

Transportation of narcotic drugs, psychotropic substances and precursors is additional subject to licensing.

The legislation provides for an opportunity to carry out the above licensed activities and for legal entities and individuals who are entrepreneurs to acquire licences. Foreign legal entities and citizens may also carry out these types of activities. However, they are required to observe certain formalities (registration of a representative office for legal entities, registration as a private entrepreneur for individuals, registration with the tax authorities, receipt of certain permits, etc.). From the practical point of view and organizational and tax aspects, it is still more advisable to establish a subsidiary in Ukraine which would directly carry out licensed business.

Detailed organizational, technical and qualification requirements of the licensing of railway, motor, air, sea and river transportation, as well as transportation via gas and oil product pipelines, are specified in relevant licensing conditions adopted by the state authorities (requirements of the organizational structure, vehicles and personnel; normative documents in respect of observation of rendered services). Some transportation activities are additionally regulated by special regulations.

The Charter of Railway Roads of Ukraine defines the duties, rights and responsibilities of railway companies, as well as companies and citizens using railway transport.

International railway transportation of goods is carried out in accordance with the agreements on international railway transport. Ukraine signed the Protocol of 3 June 1999 regarding changes to the Convention on International Cargo Transportation (KOTIF) of 9 May 1980 (coming into force on 1 November 2007 for Ukraine), Ukraine is a party to the Agreement on International Cargo Transport (SMGS) and Agreement on International Passenger Service (SMPS).

The management of the domestic and international railway transportation process is carried out on a centralized basis and referred to the exclusive authority of the State Administration of Railway Transport of Ukraine.

The rates of international and domestic railway transportation of goods, passengers, luggage and the rates for related services are set by the Ministry of Transport of Ukraine.

As noted above, the law envisages limited liability of the railway road as a carrier.

Air transportation is additionally regulated by the Rules of air passenger and luggage operations, the Procedure for issuing permits regulating the access of operators to the market of air service and works and the 1944 Convention on International Civil Aviation on agreements of an international level.

Regular international air services are provided over or to Ukraine only after conclusion of a bilateral agreement between two states, in the territory of which the traffic points are located. Transportation of passengers and goods by air in the domestic market of Ukraine can, in effect, be carried out only by registering a business entity in accordance with Ukrainian legislation and after receiving the appropriate licence.

An agreement between Ukraine and European Community on certain aspects of the air service unifies the rules of international air service with EU member states and eliminates contradictions between EU rules of law and provisions of bilateral agreements with all EU member states concluded by Ukraine earlier.

Ukraine is holding consultations with a EU Delegation on a future agreement between Ukraine and EU on common air space. Ukraine is thereby seeking to attain the mutual opening of air service markets and transition to EU standards and aviation legislation. Thus, licensing is a sufficient condition for carrying out the above activities, but there are some special regulations on transportation by certain types of transport.