2017 December 29
Russia has generally fulfilled its strategic task on shifting cargo flows to domestic harbours, though there is still a deficit of dedicated terminals in some freight segments. Resolving of systemic problems of inland water ways has begun but the problem of competition with railways has blown up. Shipbuilding has focused on import substitution, introduction of new technologies and alternative fuels with shipping industry to enjoy reasonable protectionism.
Dry bulk cargo
The share of Russian foreign trade cargo handled by the ports of Baltic states and Ukraine has continued decreasing. In 2017, it is expected to be below 7%, which is practically the level set forth by the strategy on the development of port infrastructure drafted several years ago. Yet, the details are important in this context since transshipment of some cargoes still depends on neighboring countries.
First of all, they are mineral fertilizers and partially coal. Nadezhda Zhikhareva, Deputy head of Rosmorrechflot, who was speaking at a meeting of the Coordination Council for Development of the Transport System in St. Petersburg and Leningrad Region in July 2017 said that reight traffic at the ports located in the North-West of Russia may increase by 60 mln t a year by 2020. About 40 mln t is expected to be generated in the segment of dry bulk cargo. Additional volumes of freight will be received thanks to shifting of imports flows to Russian ports from the neighboring countries’ sea ports (more than 25 million tonnes per year).
However, Russia lacks dedicated deepwater terminals for mineral fertilizers to compete with the ports of the Baltic states. Building of such a terminal from scratch is too expensive, especially today. Containerization is considered as a solution.
Yug-2 terminal at the port of Ust-Luga started handling containers with mineral fertilizers of Phosagro back in 2015. In 2017, Port Bronka (Saint-Petersburg) presented a project of a southern railway-yard for redirection of dry bulk cargo to Russia The construction of the railway-yard is to begin in 2019. That will let take over 5-8 mln t of cargo from the ports of the Baltic countries, which is about 410,000-660,000 TEUs per year. MSCC Bronka (Multipurpose Sea Cargo Complex Bronka) applies the technology of bottom discharge (KOTTA containers), which is considered to be the most promising technology today It provides for transshipment of containers with mineral fertilizers, cast iron and grain onto Panamax ships of 50,000-70,000 t in capacity. With its depth of 14.4 m Port Bronka is able to handle dry bulk carriers of that size.
Deficit of dry bulk handling facilities is also critical in the Azov-Black Sea Basin. According to Victor Olersky, Deputy Transport Minister of Russia – head of Federal Marine and River Transport Agency (Rosmorrechflot), this region needs additional facilities for 53 mln t of cargo per year. This problem will be solved with implementation of the project on construction of Taman port’s dry cargo area designed for transshipment of more than 90 mln t.
As for the Arctic Basin, it needs facilities for coal handling. The project on comprehensive development of Murmansk Transport Hub is under implementation in the Kola Bay, where private investors will build a new coal transshipment facility (Lavna) as we wrote earlier >>>>
Nevertheless, the demand for Russian coal will grow in the Asian market. Therefore, most of coal projects are concentrated in the Far East. Besides, the Far East region is promising for grain exports.
The development of Far East ports is limited by insufficient capacity of railway approaches (BAM and Transsib). Taking into account the demand of shippers, total deficit of Far East ports’ capacity will make 70 mln t per year by 2020 including 66.5 mln t of dry bulk cargo and 3.5 mln t of grain. However, maximum capacity of additional port facilities that can be deployed by 2020 is 41.3 mln t per year including 38.3 mln t that depend on BAM and Transsib development and 3 mln t not depending on them.
So, the deficit of railway approaches to the ports of the Far East can be as high as 28.7 mln t by 2020.
“The large-scale investment programme of the Far East should be associated with the development of the transportation cluster of the region, primarily the Baikal-Amur Mainline and Trans-Siberian Mainline. According to the project approved three years ago, the carrying capacity of these lines should grow by 66 million tonnes by 2020, over 30 million tonnes of which should fall to Far Eastern shippers. And I want to emphasise that Far Eastern companies should get priority access to transportation services and have all the opportunities for full-fledged supply and export of products”, RF President Vladimir Putin said at the Meeting on implementation of major investment projects in Far Eastern Federal District.
The following projects should be distinguished among those not depending on the development of BAM and Transsib.
First of all, Russia’s largest coal terminal, Vostochny Port, is located in the region. In 2016, the terminal handled 23.5 mln t of coal which makes one fifth of total coal exports from Russia and accounts for some 30% of coal transshipment at the ports of the Far East Basin.
Vostochny Port is implementing an ambitious investment project on construction of the coal terminal’s Phase 3 which has entered the final stage. At the initial stage an artificial plot of land was created and a deepwater berth was built. The year of 2017 has seen the construction and assembling works. Assembling of the terminal equipment, wagon dumpers and conveyor sections that will link the storage areas of Phase 3 with the rest of Vostochny Port facilities, electrical installation and pre-commissioning of wagon dumpers will be performed in 2018. When Phase 3 is put into operation, the port’s throughput will increase to 39-40 mln t in 2019. The project is being implemented without involving any state financing. The coal will be delivered from Kuzbass and other coal fields of Russia.
Another project underway is the construction and reconstruction of infrastructure at Vanino seaport in the Muchke Bay (Khabarovsk Territory). When completed it will increase the port’s capacity by 24 mln t per year. The project was initiated by Sakhatrans LLC. Total financing – RUB 25.5 bln including RUB 24.4 bln for private property facilities and RUB 1.1 bln for federal property facilities (under Federal Targeted Programme “Development of Russia’s Transport System in 2010-2020).
Besides, there is a project on reconstruction of Berths No34-35 at port Vostochny, access canal to Berths No31-35 and water area of Berths No34-35 to be completed in 2019. Construction of the federal property facilities is financed by SK Maly Port, LLC partially covered by port dues additionally collected by FSUE Rosmorport (RUB 668 mln). With the project implementation the port’s annual capacity will increase by 500,000 t.
Also, Daltransugol JSC, owner of a coal terminal at port Vanino in the Khabarovsk Territory (part of SUEK JSC), is going to perform reconstruction of its facilities to increase the port’s capacity to 40 mln t per year.
Further implementation of infrastructure projects at Russian ports will be performed through concessions and port investment dues as we wrote earlier >>>>
Slow start, fast gas
There is a global trend towards the growth in consumption of liquefied natural gas (LNG), which, unlike pipeline gas, can be carried by seaborne transport without construction of pipeline infrastructure and, therefore used by consuming countries for diversification of supplies. No wonder that LNG production is boosted by suppliers located far from sales markets – Qatar, Australia, etc. Russia, with its huge resources of gas, cannot miss its share in this market. One of the largest events in the economy of Russia this year has been the start of LNG shipments from port Sabetta. This port is also supposed to be used for exports of other cargo in the future. However, additional railway approaches are to built for that purpose.
There are several projects on construction of terminals for LNG bunkering and exports to be implemented in the Baltic Sea. The largest of them is Baltic LNG at the port of Ust-Luga as we wrote earlier >>>>
Construction of such terminals in the Baltic Sea is also interesting from the point of view of using alternative fuels with LNG being the most promising one. Conventional market of marine fuels is to be updated amid the toughening international regulations in emission control areas (ECAs) which include the Baltic and the North Sea. To take its share in this market Russia needs an LNG bunkering infrastructure as we wrote earlier >>>>
In this context we would emphasize the Russia’s Ministry of Industry and Trade has started drafting the rules for providing subsidies to manufacturers of gas powered equipment.
Sovcomflot is a pioneer among Russian ship owners using LNG as fuel. The company is going to start using a ‘green’ Aframax tanker driven by LNG from the middle of 2018. This large capacity tanker will be deployed for commercial shipping in the Baltic and North Seas.
The construction of a series of LNG-powered Aframax tankers is to begin in 2020 at the Zvezda Shipbuilding Complex (Primorsky Territory). Sovcomflot had made a principal decision on using LNG as a marine fuel.
Sovcomflot has been cooperating with Shell to develop the solutions for transition to LNG.
Tricoloured flag fights back
The sphere of maritime transport, just like the sphere of port infrastructure, features a trend towards protectionism and attraction of cargo to RF-flagged ships and Russian ship owners.
In December 2017, Russia’s State Duma approved in the third reading the draft law “On introduction of amendments into Article 4 of the Merchant Shipping Code of the Russian Federation in the part related to short-sea shipping”.
The draft law is intended to ensure the priority of ships sailing under the flag of the Russian Federation and involved in shipping and towing not only between the seaports of Russia but also between the seaports and other places of loading/unloading, artificial islands and structures on the continental shelf of Russia.
According to Victor Olersky, Deputy Minister of Transport – Head of the Federal Marine and River Transport Agency, the law sets forth a norm securing transportation of cargo loaded on the Northern Sea Route by RF-flagged ship, regardless of cargo origination. The document’s final version concedes exceptional cases by special decisions of the Government.
“This law is a good signal for the related businesses and shipbuilding industry. The task is not only to raise the flag of Russia but also ensure it teams up with the programme on localization of shipbuilding,” emphasized Victor Olersky.
By inland water ways
The segment of river transportation is welcoming a breakthrough associated with debottlenecking through construction of Bagayevsky and Gorodetsky hydrosystems. Besides, a decision has been taken to raise financing of the IWW infrastructure to the specified level. According to Federal Marine and River Transport Agency (Rosmorrechflot), the scope of financing has increased this year by one third to more than RUB 17.9 bln. In 2017, cargo flow at inland water ways of Russia is expected to grow by 0.5% to 118.45 mln t.
Meanwhile, a different problem has blown up. It is related to the competition with railways. Taking advantage of the tariff corridor limits set by the Federal Antimonopoly Service, Russian Railways announce a discount for cargo transportation during the navigation period to take over some freight from the water transport. Rosmorrechflot forecasts shipping companies to lose 1 mln t of cargo next year if this practice continues. Some companies can be made bankrupt. For example, transportation of oil products from Saratov is forecasted to decrease from 1.8 mln t in 2017 to 0.8 mln t in 2018 with transportation of oil products from Samara to decrease from 3.2 mln t in 2017 to 3.1 mln t in 2018 if the discount is offered again.
As Victor Olersky said at the joint meeting of the Board and the Public Council of Rosmorrechflot, the issue of discounts announced for the period of river navigation by be considered by the Government meeting chaired by Arkady Dvorkovich, Deputy Prime Minister of the Russian Federation.
Roman Trotsenko, member of RSPP administrative office and chairman of AEON Corporation BoD, earlier provided the results of calculations according to which the mentioned discount of Russian Railways will ensure only 0.8% of the liquid bulk cargo growth and only RUB 1.5 bln of additional profit, which is quite a slight gain.
As for shipbuilding, Russia is facing an immense challenge of large scale renovation of fleet which has been rapidly deteriorating from the USSR collapse. The main problem on this way is an access to long-term and cheap financing. To preserve current volumes of cargo flow Russia needs to have 130-140 new dry cargo carriers of Volga-Don Max class, 60-70 dry cargo barges and 20-30 pusher tugs built by 2020-2022. The demand for tankers is 100 Volga-Don Max units minimum.
United Shipbuilding Corporation (USC) and State Transport Leasing Company (STLC) have developed the programmes to finance the fleet construction through leasing mechanism. We wrote about it earlier >>>>
In the segment of fishing fleet, renovation will be performed with the support of so called ‘keel quotas’. Up to 20 large-size and over 80 mid- and small-size vessels can be built with investment quotas by 2025. Read more in over previous materials >>>>
When speaking about shipbuilding facilities, a milestone event will be the launch of Zvezda Shipbuilding Complex in the Primorsky Territory which will let build large capacity ships.
In particular, it can build a Leader-type icebreaker (Baltiysky Zavod in cooperation with Severnaya Verf is also under consideration as well as Zaliv shipyard). The Government believes that Russia will need at least three icebreakers of this type with the construction to be financed by non-budget sources. The work on designing the icebreaker is underway at Krylov State Research Center in cooperation with domestic design organizations.
In shipbuilding, Russia should also focus on innovative projects of tomorrow related to automation and robotic technologies. This work is in the competence of MariNet, working group of National Technological Initiative (NTI).
For example, design of Russia’s first unmanned cargo ship is expected in 2019. The first and the second phases which are to be completed this year foresee the development of an information model and a concept of an autonomous bridge. The year of 2018 is to see the development of a vessel design and an onshore control center as well as the proposals on supplements to the regulatory framework for operation of unmanned ships. Specifications for vessel and control center construction are to be ready in 2019.
First unmanned ships are to be used for short-sea traffic, transportation of radioactive wastes and shipping via the Northern Sea Route.
Among key advantages of unmanned ships is no need for a superstructure, optimization of seakeeping, safety for people.
Operation of unmanned ships will require coordination with the international legislation. In this sphere Russia is also among the process drivers. For example, Russia is going to support Finland set to submit a proposal to the International Maritime Organization (IMO) on evaluation of the regulatory framework for unmanned ships.
When speaking at the 38th meeting of Russian-Finnish Mixed Commission on Maritime Shipping held in Saint-Petersburg, Vitaly Klyuyev, Director of RF Transport Ministry's Department of State Policy for Maritime and River Transport, said: “In the Gulf of Finland, we have created an experimental water area with monitoring and testing facilities for unmanned navigation. In 2018, we are going to create similar water area in the Southern Basin, in the Sea of Azov and in the Black Sea. We are also studying international legislation on unmanned navigation and support joint efforts in this respect”.
Nevertheless, cargo transportation by unmanned ships en masse is quite a long-term future. It is necessary to train seafarers complying with all international standards. Russia has made great progress in this direction as we wrote earlier >>>>
In general, the development of Russian water transport features the following trends: focus on import substitution and protectionism both in stevedoring, shipbuilding and shipping segments. One more trend is the priority of innovative projects and alternative fuels. Besides, the issue of balance between different types of transport is to be solved next year so that all of them could take their specific niche. Amid the budget deficit, the projects will be mostly financed by non-budget sources.