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Attorney-at-Law, Managing Partner, ANK Law Office
Head of investment projects support, ANK Law Office
Land Allotment in Port Water Area for Modernization of Berth Facilities
Development of handling facilities in “port rear areas” and in areas adjacent to ports inevitably necessitates modernization of berth infrastructure located in the port water area. It is a well-known fact that a significant part of existing berths in ports do not meet market requirements, which necessitates construction of new ones and rebuilding of existing berths.
Since the state, in the guise of the Ukrainian Sea Ports Authority (hereinafter — “USPA”), is clearly unable to cope with this task, private port operators have begun in recent years to actively carry out such work at their own expense or through attracted funds.
According to legislation, in order to perform construction works, an investor must first register their right to use (lease) the land located within the port water area, on which the specified works will be performed. As the professional experience of these authors shows, land allotment in port areas is still far from perfect, and quite often companies that have decided to invest in port infrastructure cannot complete a project due to legislative gaps and bureaucratic delays in ministries and departments.
Can an Investor Lease Out Land in a Port Water Area?
Unfortunately, the legal status of lands located in port water areas is not properly regulated at legislative level. Therefore, the issue of whether it is legal to transfer such land into lease is still debatable.
According to the provisions of the Law of Ukraine No. 4709-VI On Sea Ports of Ukraine, a port water area is classified as a strategic object of port infrastructure under the state form of ownership and is to be transferred to economic management by USPA as per a decision of the Cabinet of Ministers of Ukraine.
In addition, according to the provisions of the Water Code of Ukraine, disposal of water facilities of national significance (which water areas of all sea ports are) belongs to the exclusive competence of the Cabinet of Ministers.
In pursuance of these laws, Decree of the Cabinet of Ministers of Ukraine No. 406 of 3 June 2013, the water areas of all domestic seaports were provided to USPA, with reference to prevention of the transfer of water areas (or parts of them) to other business entities.
In light of such legal provisions, the answer to the issue of (im)possible transfer of the land of port water areas for leasing investors depends on interpretation of such concepts as “port water area” (as an object of water space) and “land located under the port water area” (as the seabed under water space), and particularly whether or not these concepts can be considered identical.
Thus, if we differentiate these two concepts, it turns out that the land under port water area can be transferred to investors for use according to the general procedure for water fund land allotment, as provided for by the Land Code of Ukraine (hereinafter — “LCU”).
If we take the other option and identify the concepts of “port water area” and “land under water area” as the same, then the conclusion will be exactly opposite — under this option it will be impossible to allot such land to investors, at least unless the Cabinet of Ministers of Ukraine changes their earlier decision on transfer of all port water areas to the exclusive management of USPA.
Ukrainian lawyers and officials have yet to agree on a common position on this issue, as evidenced by contradictory court practice.
Who Can Make a Decision on Land Allotment in a Port Water Area?
If we assume that it’s possible to transfer land located in port water areas into lease to investors, the issue arises as to which body has the authority to make such decisions.
The distribution of land allocation powers is covered by Article 122 of the Land Code of Ukraine, as well as Paragraphs 3 and 4 of the Final and Transitional Provisions of the Law of Ukraine No. 5245-VI On Amendments to Certain Legislative Acts of Ukraine regarding the Delimitation of Lands of State and Communal Property.
These legislative norms imply that the issue of the distribution of powers to make decisions on the allocation of land in port water areas depends entirely on their location, namely:
— if the port water area is located within the boundaries of a settlement (for example, port of Chornomorsk, Odessa Region), land allotment will fall within the competence of the relevant regional state administration, but subject to prior approval of the land acquisition project with the municipal government body — the local council;
— if the port water area is located outside the settlement, but within the borders of a region (until recently, such was the water area of Port Yuzhniy, Odessa Region), the relevant regional state administration has the authority to transfer the land into lease;
— the most controversial and disputable is the situation in which the port water area is located beyond not only the settlement, but the entire region (for example, port of Odessa) — as a matter of fact, national and international law classify such port areas as internal waters of Ukraine. The legislation of Ukraine directly answers the question as to which body is authorized to make decisions on the allotment of land plots of the bottom of the territorial sea of Ukraine (this is the exclusive competence of the Cabinet of Ministers of Ukraine), but does not cover the issue of whose competence is land allotment within the boundaries of internal waters of Ukraine.
What does Court Practice Say?
The above-mentioned legislative gaps and conflicts regarding allotment of land under port water areas lead to contradictory and ambiguous judicial practice on this issue.
In particular, one may face both court decisions, according to which the bottom of the water area (including the port area) is generally not endowed with the characteristics of a fully functional land plot and so could be transferred into use only along with the water facility itself and exclusively by a decision approved by the Cabinet of Ministers of Ukraine, as well as precedents that confirm the possibility of such allotment, under decision of local authorities).
Procedure for Transferring Land Located in Port Water Areas into Lease to Investors
In order to transfer a land plot located in the port water area into lease, for carrying out works on modernization of berth facilities, an investor needs to go through a rather long and complicated procedure, which consists of the following:
1. Obtain consent for the development of a land management project for allotment of this land plot for lease, from the body authorized to transfer such land plot to lease.
2. Develop a land management project by a land management organization chosen by the investor (including carrying out a geodetic topographical survey, entering data into the State Land Cadaster, assigning a cadastral number).
3. Approval of the land management project by the following authorities:
— State Agency of Water Resources of Ukraine;
— State Service for Maritime and River Transport of Ukraine;
— Ministry of Infrastructure of Ukraine;
— the territorial body of the State Service of Ukraine for Geodesy, Cartography and Cadastre (hereinafter — “StateGeoCadaster of Ukraine”);
— structural division of the regional state administration in the field of environmental protection;
— local authority in the field of urban construction and architecture.
4. Conducting of a state land management probe by the State Expert Review Department of the StateGeoCadaster of Ukraine.
5. Approval of the land management project by the body authorized to transfer the land plot for lease.
6. Conclusion of a land lease agreement between the investor and the above authorized body
Lawyers Can Help Avoid Risks
As we can see, an investor who has decided to invest in the construction of a new berth or rebuilding of an existing one, will have to face some difficulties and risks due to imperfection of legislation in this sphere. At the same time, our experience shows that in the presence of serious intentions and a show of determination and courage on the part of the investor, as well as competent legal support of the project, all these problems and risks can be overcome. Dozens of projects implemented by investors in Ukrainian ports over the past 10 years are testimony of that.
In order to improve the investment attractiveness of Ukrainian ports, it is necessary to change legislation, simplifying the procedure for land allotment in port water areas for the introduction of investment projects related to modernization of berth infrastructure, or even provide for possible implementation of such projects without the allocation of land.