Thursday, September 22, 2011

Russian Seaports Aim for Global Domination

By Eugene Gerden

Russia plans to become one of the most important players in the world market of cargo transshipment by 2030, thanks to ambitious state plans for further development of the national seaports.

Last year Russia’s total seaport capacity increased by 6 percent and reached record highs of more than 526 million metric tons of cargo moved. This is just the beginning, according to state plans existing country’s transport strategy, and during the next 15 to 17 years the cargo throughput of Russian ports is expected to continue to grow to more than 1.6 billion tons per year.

In 2010, the total capacity of Russian ports exceeded 500 million tons, with dry cargo accounting for 211.6 million tons and bulk liquids for 314.4 million tons. The majority of cargo handled by Russian ports was made up of oil, coal, metals and fertilizers.

At present the Russian seaport complex is divided into three big groups, depending on the sea basins – the Northwest, Southern and the Far East.

There are more than 260 stevedoring companies currently operating in Russian ports and the majority of cargo, amounting to 43 percent of the total turnover, is handled in the ports of the Northwest Basin. The Southern basin’s share is about 34 percent and the Far East moves the remaining 23 percent.

According to Viktor Vovk, Deputy Head of Federal Agency of Maritime and River Transport, in the short term the volume of transshipment of the Russian seaports is expected to increase to 840 million metric tons, which will create about 18,000 new jobs.

Currently Russia has 64 seaports, but particular attention is expected to be given to the development of the country’s major ports, including Novorossiysk port, Murmansk port, Kaliningrad sea port and Tuapse. There are also plans for the expansion of ports that are located on the traditional freight routes, including those situated on the north-south and east-west routes of the international transport corridors. Development of the Northern Sea Route will also continue.

Particular attention will be paid to the development of deepwater ports, which will serve as hubs, with the aim of serving of international transport corridors.

Lack of depth in the harbor areas and the approach channels of the majority of Russian ports substantially reduces their competitiveness in the international scene, since it does not allow the opportunity to work with modern heavy-tonnage vessels. There is also a need to establish new port capacities at large and open territories, with good original depth, due to the fact that the development of port infrastructure in the deep-sea ports, which are located in urban areas, is not associated with substantial economic benefits.

Interest From US Investors
According to state plans, the implementation of most of the projects will occur on the basis of public-private partnership. In this regard, there are plans for the attraction of a large volumes of non-budgetary funds for the program, including private investments, but the latter will be associated with the need for improvement of the mechanisms of concessions and leases.

In addition to local investments, the Russian government believes that the development of domestic sea ports could also be of interest to foreign investors and in particular to those from the US.

A few months ago, Igor Levitin, Russia’s Transport Minister, met with a group of the American businessmen who had expressed an interest in the acquisition of certain Russian seaports. The names of potential investors, as well as the Russian ports, which might become an object of investments were not disclosed.

“The US investors have expressed a big interest in acquiring Russian sea ports and airports,” says Levitin, “mainly due to recent changes in the list of Russian strategic enterprises which were recently nonmerchantable to foreign capital,” and many of which were recently excluded from the list. However, Levitin adds, “the American business does not yet have enough information about the investment opportunities in the Russian sea ports and their infrastructure.”

Despite the fact that the capacity of the Russian seaports in recent years has significantly grown, at present most of them (and in particular those, which are located in the Northwest and South basins) still experience a shortage of specialized cargo terminals.

This has resulted in a substantial percentage of cargo which would be suited to the Russian ports still being handled in the ports of the Baltic countries and Ukraine. Last year nearly 26 percent of Russian coal, 44 percent of mineral fertilizers and 44 percent of ore were handled in the Baltic and Ukrainian ports. In addition, a significant volume of Russian oil and package cargo is at present still handled in the ports of neighboring countries.

However, according to Alexander Volodin, deputy head of investments and development programs of the Federal Marine and River Transport Agency (Rosmorrechflot), by 2030 all cargo, which would fit the ports of the Northwest and South Basin but are currently handled at the ports of the Baltic countries, Nordic states and Ukraine, will be re-oriented to the Russian ports. There are also plans to provide a reserve of port facilities in the amount of 20 percent with the aim of the development of transit cargo traffic. All of these measures will allow Russia to draw closer to its strategic goal of a 1.6-billion-metric-ton per year increase in seaport capacity.

Problems and Possible Solutions
Today, the development of the Russian ports is continuing, but their technical condition remains poor. This is reflected by the fact that only 30 percent of general cargo is transported and handled in containers, while 70 percent is still package cargo. Further port development is hampered by a lack of reserve lands for their expansion. There is also a shortage of territory for the construction of new marine terminals, rail container yards, and other logistics facilities. In addition, there is an eternal problem of the Russian bureaucracy and corruption.

According to Vitaly Yuzhilin, Chairman of the Association of the Russian Sea Commercial Ports, one of the major challenges in the development of the port complex in Russia is the need for an improvement of investment attractiveness of the local port business and creation of favorable conditions for private business. This is expected to be achieved through the reform of existing legislation in this field.

In addition, Russian analysts called on the government to increase the number of special port economic zones, which will provide tax and other benefits to its residents. To date, Russia has only two ports with free economic zones: the port of Sovetskaya Gavan (Khabarovsk Krai) and the port of Murmansk.

The expansion of port infrastructure is expected to occur in all of the country’s basins. In the case of the Southern (Azov-Black Sea) basin, which is comprised of 14 seaports and where 180.3 million tons of cargo were handled in 2010, further expansion of local ports capacity would allow Russia to strengthen its position in Europe and North Africa, both in terms of energy supplies and transit cargo.

Special attention will be paid to the development of a new deep sea port of Taman, whose capacity by 2025 is expected to reach 66 million tons. After the expansion, the port will be able to service ships with a draft of 14 meters (46 feet) and with a displacement of 100,000 tons. The intake capacity of the port will reach 307 ship entries per year.

The development of Taman port will allow Russia to create major trans-shipment point between the countries of the Black Sea and Caspian Sea basins. As part of these plans, there are also plans for the development of Novorossiysk Sea Port, Russia’s largest commercial sea port and one of the five largest ports in Europe, whose capacity in 2010 reached more than 117 million tons.

In the case of the Northwest, there are plans to increase freight traffic of the Ust-Luga port (St. Petersburg region), which is expected to compete with the ever expanding Baltic ports such as Riga, Klaipeda and Tallinn.

Near-term state plans have the Ust-Luga port becoming a key Russian port on the Baltic Sea. In 2010 its capacity reached 15 million tons, whereas by 2018, it is expected to grow more than 10 times and reach 180 million tons of cargo per year. The port will be able to serve vessels with the displacement tonnage of up to 150,000 tons.

Finally, there are plans to build a new deep sea port on the Balge peninsula (Kaliningrad region), which will have an annual capacity more than 130 million tons of cargo. The new port is expected to serve as hub-port, which will be able to admit ocean container vessels and to compete with the largest hub-ports in the Northern Europe, such as Hamburg, Rotterdam, Bremerhaven, Antwerp, and some others.

The construction of the hub-port in the Kaliningrad region will allow ocean container to pass directly into the Baltic Sea with further rehandling. Total cost of the project will amount to 263 billion rubles (USD$8.7 billion).

Eugene Gerden is a free-lance writer based in Moscow, Russia who has covered the European maritime industry for 10 years. He can be reached at