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Shipping in Ukraine: looking at changing regulations and trends
На главную / Законодательство / Shipping in Ukraine: looking at changing regulations and trends

The Government of Ukraine is still viewed as considering shipping to be just to top up the budget. But last year everyone had hoped that it would finally give some support to national carriers. There were many signs of this but no concrete steps were taken. This article looks at the changes that have been made.

New Codes

On January 1, 2004, new Civil and Business Codes came into force in Ukraine. This was a real step forward in the Ukraine as these Codes are now the cornerstones of Ukraine's civil and commercial law. The previous Civil Code was adopted in 1963, while Ukraine was within the former Soviet Union, and did not provide a comprehensive regulatory framework for a market economy. The Business Code is a new type of legal Act in Ukraine as there was not an earlier codified legal Act regulating economic issues.

The Civil Code regulates private non-property and property relations. This is the very foundation of society and is based on a new concept of regulation offering legal equality, free will and property independence of parties.

Before the adoption of the Business Code the Ukrainian legislation did not meet the practical requirements. The market demanded that the business legislation should be brought in accordance with the reality and needs of business development. The Business Code determines basic principles of economic management in Ukraine and regulates business relations between business subjects, and also between them and other involved parties.

No doubt, the enforcement of the Land Code in 2002 provided an opportunity for foreign investment into Ukraine. For instance, on May 17, 2004 Bunge Ltd, an integrated, global agribusiness and food company, founded in 1818 and headquartered in New York, announced that its European operating arm, Bunge Europe, had entered into a 50-50 joint venture with Estron Corporation to build an oilseed crushing plant in the port of Ilyichevsk, Ukraine.

The new plant is adjacent to the grain export terminal owned by Estron Corporation and is expected to be operational in 2005. The plant, as a client of the terminal, will have access to the terminal's expanded capacity of 240,000 tons of storage space with two panamax vessel loaders. This would been impossible it is the land matter had not been solved.

Port development

Ukraine envisages that in near future the growth tempo of containerization will be not less than 15%. So, to meet the contemporary needs it is necessary to solve the issue of combination of work of several huge container terminals in sea ports with high-capacity terminals inside Ukraine. To get this purpose it's possible, for example, to use opportunities of special economic (duty free) zones in the ports of Odessa and Reni.

Four main ports in Ukraine (Odessa, Ilyichevsk, Yuzhny, Mariupol) provide about 70% of all sea port cargo operations in Ukraine. Looking at the map and analyzing the prospects of the cargo base, there are two main development trends. The first is the reconstruction of available port berths together with the increase of depths and loading capacities. The second is to create new handling terminals. Reorganization of the Ukrainian transport branch of economy is an absolute necessity but there are not enough effective legal means for privatizing large-scale enterprises of the transport industry.

The marketing situation seems to be paradoxical. Ports compete for freight flows with each other. The redistribution of freight flows means that some ports could consolidate their positions, but only at the expense of worsening situation of other ports. So, it's necessary to seek a new market niche outside Ukraine. The most likely could be business alliance with successful companies which control freight flows and intend to use port cargo terminals.

Investors set various targets, from building up private handling complexes in public ports to the foundation of private ports with all necessary infrastructures. There are some privately owned handling terminals in Ukraine, for example, Illychevsk fuel terminal in the port of Ilyichevsk, Avlita in the port of Nikolaev, etc.

To create a new non-governmental property seaport or terminal is possible right now and there is a sufficient legal framework to complete these deals.

According to IMO rules the supervisory body of shipping safety and environmental protection cannot be the part of a commercial structure. So, state-owned ports, anyway, keep general control of the port and the state supervision of safety conditions and commercial operations regarding stevedoring and storage are separate. The advantages of state control in safety questions are thus combined with those of private initiative and competition in cargo operations. Port management is now becoming not a commercial but an administrative structure, operating the public (state) property of the port and implementing the supervision on the safety of the shipping industry in port waters.

Ship arrest

The development of shipping has always been an external policy priority in Ukraine. So, there is an extreme necessity as to settlement of the existing disputes in that area to allow the foreign and domestic ships feel safe and secured once entering Ukrainian ports. There are two basic legal acts which regulate the arrest of a ship in rem - the Merchant Shipping Code of Ukraine and the Civil Procedural Code of Ukraine.

Since there is no strict procedure of ship arrest the above Acts create prospects for different tricks and traps. For instance, a claim can be brought against a resident of Ukraine who is the agent of a shipowner, and that will be considered as a ground for the ship arrest although the action will be defeated.

There are also a number of provisions in the Civil Procedural Code in which a claim may be brought in the place the damage occurred or in the place the damage occurred or in the location, if the location of the shipowner is unknown.

Last year a provision of the Business Procedural was cancelled which had let lawyers of Ukraine in the business courts of Ukraine. Such a strange norm became effective as of 1 January 2004 and lost its effect on June 24, 2004.

Danube channel

Ukraine was building a navigable ship channel to the Black Sea across the most environmentally sensitive part of the Danube Delta. The project was going ahead despite pending legal challenges and warnings from Ukrainian and intergovernmental organistions that the project violated several international agreements and would destroy the fragile area.

Everyone recognized the socio-economic importance of these facilities in terms of local development. However, it was essential that any industrial infrastructure did not have negative environmental impacts on the biosphere reserve. Earlier investigations showed that there was no ideal solution.

On August 26, 2004 Ukraine's deep-water shipping canal between the Danube's estuary and the Black Sea was inaugurated to resume regular merchant shipping through the Danube's Kilia branch. Since then the canal has been demonstrating its growing competitiveness and steeply increasing cargo haul. About 100 vessels have passed through the canal since it resumed operations, in particular, through the Danube's Bystroye branch.

The canal's performance is adversely affected by several factors:

  • Its depth allows passage of boats with draught limited to 5.85 meters.


  • Traditionally, contracts for carrying cargos are concluded in December to cover the canal because the following year.


  • There is a negative perception in Ukraine and abroad over using the canal because of the environmental impact.

Nonetheless, the number of ships passing through the Danube - Black Sea canal keeps growing every week, proving its advantages over Romania's Suliuski Canal. According to the initial forecast, the canal was supposed to be used by about 600 vessels every year.

The first two months of the canal's operation witnessed as many as 107 vessels passing through the canal, which was 7% through in the excess figure. Its basic advantages are its passage capacity and advanced shipping safety systems, which allow ships to safely navigate round the clock either way.

The canal is serviced by skilled personnel of the Delta-Pilot State company, relying on DGPS, AIS and other advanced marine traffic control equipment. All these sophisticated systems comprise the Integral Regional System for regulating marine shipping, which secures both safety of navigation and the efficacy of marine cargo carriage. Specialists predict that the channel will make about million annually and cover the projects costs within five years.

Work is currently under way to build a protective dike in the Kilia branch while Government approval for the second stage of the canal's almost creation. This job is expected to be completed by the end of 2005. By that time the Regulations on the canal's use will be adjusted and officially published, along with the rules of ships' passage through the Danube Biosphere Sanctuary's territory. The canal's tariffs will be agreed.

Freight forwarding Law

The Law of Ukraine "On Transport-Forwarding Activity" became effective on July 30, 2004. According to the law transport-forwarding is an entrepreneurial activity in rendering complex services in organizing and ensuring transportation of export, import, transit or other loads. The law contains the list of rights and duties of both forwarder and client.

Forwarding services are services associated with organization and ensuring transportation of cargoes, packaging, sorting, consolidation, storage of cargoes, conduct of customs procedures during international transportation, organization and provision of works in loading/unloading at cargo terminals, elevators, sea and river ports, licensed and customs warehouses, organization of freight flow and its support with shipping documentation, as well as additional consultative, advice and other services rendered to the client under the forwarding agreement.


Set on the northern shores of the Black Sea, between the Azov Sea and the Danube Delta, Ukraine has been endowed by nature with many more natural harbours than any of its neighbours. Some of these are on the Azov Sea, an enclosed body of water that until recently was barred to foreign vessels. Facilities for yachts in Ukraine are limited but are constantly improving, and the opening of a new marina in Odessa has made a great difference. Another is being built in Ilyichevsk.

Several rallies held in the Black Sea in recent years have persuaded the authorities to bring about some considerable improvements to the yachting infrastructure. The present legislation provides good opportunities both to build marinas with modern infrastructure and to build new boats. It's important that clients can obtain a ready-made product financing its construction stage-by-stage at a very competitive price.

Ship building and repair

The share of the Ukrainian vessels in cargo transportation in Ukraine is about 7%, the average vessel age is 22 years old. The existing programmes to build new vessels belonging to different state- owned ship owners are not being implemented because of a lack in financing. Nevertheless, Ukraine continues to be a well-known shipbuilding country as it has 8 shipbuilding companies. In 2003 volumes of shipbuilding production was million, with about 50 units completed. Since its independence Ukraine has built about 240 vessels.

Today there are many changes. For example, there is an agreement under which Ukrriverfleet ordered 6 ships from Nikolaev shipbuilders. The realization of such a project to allow dry cargo shipbuilding for national customer is possible thanks to the participation of the European bank of Reconstruction and Development (EBRD). Ukrriverfleet obtained loans for about m. The bank also gave guarantees for Damen Shipyards Ocean for the first time in Ukrainian history.

Ukraine needs some hundreds of vessels. In 2004 shipbuilders were very successful in building tugs. Foreign orders include building ship hulls. Although the heart of shipbuilding is Nikolaev Sevastopol is also trying to develop its business. For instance, in March 2004 shipbuilding plant Severnaya Verf collected certificates of accordance, which proves that the plant's management quality system corresponds to all international standards of ISO 9000 and ISO 9001.

The main trends of shipbuilding development are: the creation of normal conditions to finance the shipbuilding; and creation in the local basin of Black Sea and Azov Sea of main-line feeder systems to transport containers and oil products.

Ukraine exports more than 22m tons of metals which can be provided by national carriers if changing the contract terms from FOB to CIF. As a good prospect, Ukraine is considers the transport system to link the Volga-Don river basin and the Danube.

In the meantime, the ship repair industry is also being developed. To begin with it has been connected with the lease of former state-owned ship repair yards in Ilyichevsk and Mariupol. Investors began to implement their investment programs which immediate effect. The yard in Kiliya which is also known in shipbuilding, was merged with the Danube Shipping Company (UDASCO).

Pilotage and vessel traffic control

The Ukraine Ministry of Transport of issued the Order N 312 of April 15, 2004 according to which functions to provide pilotage and vessel traffic control across the whole territory of Ukraine were entrusted to the State company Delta-Pilot. Delta Pilot, which is managed by pilots under the supervision of Ukrainian Government, almost worked a miracle in Nikolaev.

Within several years of being founded, Delta Pilot has traffic control and management systems at the world standards, providing high-quality pilotage services with most-modern pilotage stations and equipment. So, the process of creating a state pilotage service for Ukraine is finished. The idea of its creation is to divide the functions of navigation safety and commercial operations of seaports.

What are the general chances of shipping development in Ukraine? On the one hand, there is no real reason to revive the national fleet that exceeded 500 units in the 1990 s. On the other, there is reserve for development in other sectors of shipping.

First, Ukrainian shipbuilding offers cheap labour but enough qualified resources with old but solid shipbuilding facilities. Ukraine produces much steel. This provides a unique chance for this sector if local shipbuilders unite with foreign investors who have a combination of finances and modern technology.

Second, Ukraine still keeps qualified crew members with the well-developed education that improves their chances of working overseas.

These two possibilities - shipbuilding export and export of crew members - can be effectively used today because they reflect global trends in shipping.

Our experience in legal assistance for many projects both above and others, makes us believe so.

© 2005
Ницевич А. А.

«Международная Юридическая Служба»; +38-0482-337529; www.interlegal.com.ua

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