The version for the print

  • 2007 February 15

    Serik Zhusupov: the law on ports to be considered by Duma soon

    Association of Russian Commercial Seaports (ARCS) attributes slowdown registered in 2006 in growth of cargo turnover to certain gaps in Russian legislation. Serik Zhusupov, ARCS Executive Director, tells PortNews IAA about how absence of law on ports and lack of proper regulation in lease of state property influence investment appeal of Russian port business.

    - What are the results of Russian port complex in 2006? Do they correspond to the forecasts?

    - Strategically, we consider last year to be a success. First of all, in 2006 we managed to recover the deficit of port facilities, which resulted from the Soviet Union collapse. We ensured transport independence of Russia. Starting from 2005 over 80% of Russian cargo is handled in Russian ports. Many new ports appeared in Russia recently – Vysotsk, Primorsk, Ust-Luga. The port of Taman is under construction. Several ports are being actively developed in Vladivostok. Much work has been carried out on reconstruction of the port complex, especially in the North-West region of Russia. Murmansk has developed its coal transshipment facilities; Saint Petersburg has finalized construction of a Bulk Cargo Terminal; First Container Terminal of Petrolesport has been reconstructed; Petersburg Oil Terminal is under development.

    In general, the highest growth was demonstrated by Russian ports in the sector of oil products, containerized cargo and coal. Transshipment of liquid bulk cargo grew by over 5%, year-on-year, containerized cargo – by 17.7%, coal – by 10.3%. In 2006, the port of Primorsk alone increased cargo turnover by 15%. It exported 66 million tons of Russian oil. As for the general result of the North-West Basin, transshipment of oil cargo grew by 10%, year-on-year. The ports of the Far-East Basin increased transshipment of oil and oil products by almost 15%, while the South Basin has preserved the level of liquid bulk cargo transshipment – 112 million tons. As for container turnover, the leading ports are those of the North-West and South Basins – Saint Petersburg and Novorossijsk, though situation was not favorable for them. I am sure we cannot expect considerable growth until legal issues of investment into Russian ports are regulated by our legislation.

    - How far has the draft law on ports moved? What hinders its promotion?

    - The law on ports is at the Government today. As early as in summer 2006, Vice-Premier Sergei Ivanov ordered all related Ministries to speed up promotion of the document. However, even today there are issues to be solved. Some remarks appeared at the level of the Government apparatus and control authority of the President. As soon as the issues are solved, the draft law is to be considered by the final instance at the governmental level and, consequently in the State Duma (the lower house of the Russian Parliament). It is the task being performed by Transport Ministry. We hope the law on ports will reach the State Duma in the second quarter of 2007.

    - What are those remarks about?

    - First of all it is about the purview of law, actually the part determining the issues related to providing services in the seaports. There is an opinion this part should not be included in the law. However, port specialists say its is one of the most significant parts of the draft. Our position is supported by the Transport Ministry, as there are still no documents regulating services in the seaports. That is why regulatory framework is so significant and Transport Ministry should explain the reasons so that Government and President’s apparatus accepted this position. It is the main task for the Transport Ministry today.

    - Has the problem of property relations in the ports been solved? Have new long-term agreements for the lease of berths been signed? What are these agreements?

    - As far as I know, in January 2007, new agreements were not signed yet. The most critical situation is in the port of Saint Petersburg. Current agreements are the subject of court trial while no new agreements have been signed yet.

    Meetings and discussions with Rosmorport FSUE resulted at last in approval of reasonability to extend lease agreement for a longer period – at least 15 years instead of 5 years provided that stevedoring companies undertake overhaul repair. Besides, stevedoring companies should provide a plan for investments into sea terminal development for this period. In this case Rosmorport FSUE is ready to consider longer lease periods. I’d like to underline – just “ready to consider”.

    Now we face another issue: who is to receive lease payment: Rosmorport FSUE or the owner of the property - Federal Property Management Agency (Rosimushchestvo, RF), or State Property Management Committee (KUGI, Saint Petersburg)? Rosmorport FSUE notes that any lease agreement implies tax payments. If Rosmorport FSUE does not receive lease payment it will have to pay taxes arising within the framework of the agreement (VAT and other taxes) out of its own resources. Rosimushchestvo insists on transfer of all lease payments to the state budget.

    So we have come to a deadlock, as both positions seem to be evident.

    The last meeting of the committee dedicated to the possibility of property transfer to First Container Terminal CJSC (FCT, Saint Petersburg) under lease terms resulted in the following conclusion: since Rosmorport expects to receiving lease payments, KUGI is not able to approve transfer of this property. KUGI of Saint Petersburg applied to Rosimushchestvo for explanations and now we are waiting for Rosimushchestvo’s comments on the issue. Thus, all the agreements signed in 2005 were concluded for uncertain term.

    - Is there a risk of current agreement termination before signing of new agreements, which could entail halting of port activities?

    - There is such a risk. It is evident since the court does not see any progress in relations between the parties. Unfortunately, despite all the efforts of Rosmorport we haven’t come to any result as the first decision of the Committee on property transfer was negative. So neither agreements on stevedoring companies of Saint Petersburg, nor claims under these agreements, were regulated in January 2007. The longer this uncertain situation lasts the higher the threat of halting port activities. The court may not suspend its judgment again and again.

    - What is the situation in other ports?

    - No similar problems rise in other regions yet, probably because there were no similar actions initiated. Actually the situation is typical for many ports where the rights of leaseholders were not confirmed by the owner’s decision. Exception is Novorossijsk and Tuapse. They managed to solve the problem several years ago having coordinated it with the Ministry of Property Relations. Each stevedoring company in these ports has a lease agreement for over 20 years. The payments go to Rosimushchestvo. However these were individual not systematic decisions, thus they may not be used for other ports.

    I don’t exclude that decline of cargo turnover in some of the ports is partly caused by lack of proper regulation in lease relations. It threatens national stevedoring business. Operation of a stevedoring company without long-term agreement on legal lease of service berths excludes the possibility of long-term agreements with cargo owners and the possibility of credit attraction as well as implementation of a corresponding investment program, etc.

    - Do you know current position of Rosimushchestvo? Is the Agency ready to consider separate payment for the lease of the port property – both to state budget and to the accounts of Rosmorport?

    - Their position is quite clear. According to our current legislation lease payment should go to the federal budget in full.

    Besides, both Rosimushchestvo and Transport Ministry understand that lease payment should go the accounts of Rosmorport since the property is at its balance. Rosmorport should have resources enabling it to fulfill its obligations undertaken according to the governmental decree that is to keep and to develop port property. Thus, it is necessary to introduce changes into legislation, which is not possible within one-two months. So we actually come to necessity to conclude two agreements between lessee and lessor of the port property. The first agreement regulates lease payment while the second is to regulate compensation of costs for maintenance of property.

    - Who opposes such a solution?

    - Rosmorport FSUE is against it and its position is clear: if Rosmorport signs lease agreement it acts as a tax agent and it should pay taxes. Anyway, the problem is to be solved within the first quarter of the year.

    As soon as Rosimushchestvo responds (probably with a statement that lease payment should be transferred to the federal budget), it may become a ground for execution of two agreements. It is a minimal compromise since Rosmorport is a federal state unitary enterprise (FSUE) established by Rosimushchestvo among others.

    - In this case, could you forecast improvement of cargo turnover situation in most Russian ports?

    - Perhaps. I think cargo turnover growth dynamics will be at least 5% in 2007. On the other hand, it is important to note that earlier the dynamics was quite high, which may be attributed to construction of new terminals and reconstruction of existing port facilities. In 2007 we cannot predict considerable development of Russian port complex. So the growth may be ensured mainly through optimization of available facilities.

    - What does ARCS think about RZD policy aimed at gradual alignment of tariffs for cargo transportation to Russian ports and border crossings? Will railway tariffs of 2007 influence competitiveness of Russian ports?

    - The Association has already expressed its attitude to alignment of railway tariffs. Speaking about competitiveness of Russian ports we understand importance of railway tariffs as one of the main factor. Of course, we should consider other factors influencing the ports’ activities. These are taxes, investment appeal of our stevedoring companies within the framework of current legislation. Unification of railway tariffs places national seaports on a par with foreign ones. However, if we take into consideration taxes and investment climate, Russian ports turn out to be at a competitive disadvantage.

    Let’s take VAT, for example. VAT refund is possible for shippers transporting cargo by railway to foreign ports immediately after the wagon crosses the border. Besides, there are certain VAT concessions, zero-rated VAT. As for Russian ports, zero-rated VAT is possible after cargo crosses the border while in many ports it happens in 40 days after stevedoring company receives the cargo. Of course, it decreases our economic attractiveness for cargo owners.

    As for investment appeal, it is necessary to note that in Russia there almost no privileges related investments into production development. There are certain privileges at a regional level. It restricts the possibilities of both stevedores and cargo owners in terms of sea terminals development.

    The Association has already called attention to the necessity of abolishment of customs duty for import of equipment being not produced in Russia. However, the issue has not been solved, which hampers renovation of production capacities of stevedoring companies.

    All these issues are regulated by Russian legislation. However amendments are to be introduced though this process is very complicated and time-consuming. Thus, considering general competitiveness of Russian ports we see some problems that can be compensated by railway tariffs.

    - There are some amendments being introduced into the tax code. Probably, ARCS was not active enough in insisting on promotion of changes necessary for the ports?

    - Perhaps, the issue of VAT could be solved through more active measures. However it may be a stage of our activities this year. But at the same time ARCS has worked hard to preserve current terms of zero rate.

    - What if the situation with competitiveness of Russian ports develops under negative scenario? Which types of cargo will be the first to leave Russia for foreign ports?

    - A number of stevedoring companies are a part of general transport chain of Russian shippers. Such ports as Primorsk and Vysotsk will continue development being loaded in any case. The possibility of cargo leaving them for the ports of other countries is minimal since the ports are a part of shipowners’ assets. As for bulk cargo it may be re-directed in the sector of mineral fertilizers. It has started already. As for general cargo, the possibility is very low. I think the changes are to be insignificant in general volumes of cargo handled by the seaports. Transshipment of containers is growing permanently in Russia, while import may leave partly for foreign ports. We may lose coal. However, our problems with coal transportation by water are caused by lack of corresponding facilities in our ports. We hope that the port of Murmansk may increase its possibilities through reconstruction of the facilities. Besides, as of today, we are not ready to ensure corresponding treatment of coal.

    Anyway, positive dynamics of Russian ports depends directly on production capacity of stevedoring companies.

    - Is there a possibility to exclude stevedoring companies from the list of natural monopolies and to entitle them to set up tariffs independently?

    - The services of stevedoring companies are regulated at governmental level. Today, Association considers the issue of how to restrict the list of stevedoring companies subject to state registration. This year our Association jointly with FTS will test the possibility of independent updating of tariffs by stevedoring companies under simplified procedure approved by FTS.

    In 2007, we probably will be able to introduce a simplified system enabling stevedoring companies to pursue their own flexible policy.

    - What are the principles of such a system?

    - Once, there was a certain system specifying limits and a procedure for calculation of the part based on direct indexes and a system limiting overhead costs of the company as well as planned accumulations. I think, such a system could be used for our experiment in order to avoid rigid tariffs set up at the level of FTS. We are going to propose this system though we are not sure if FTS approves it.

    - Is it possible that business profitability will be influenced by the decrease of port competitiveness caused by alignment of railway tariffs if the legislation does not changes? How is it to influence stevedoring activities?

    - Actually, I am optimistic about that. I am sure we’ll manage to change the situation at least at the level of legislation.

    The complete text of the interview read in PortNews IAA magazine Bunker Market 2006

    PortNews IAA note:

    In 2006, the results of the national port complex activities were much lower compared to any forecasts. Volume of cargo handled by stevedoring companies grew by just 3.3% and totaled 421 million tons, while it grew by 30% in 2004 and by 12% in 2005.

    Malysheva Nadezhda

 All relevant topics...