Nikolai Smirnov: ASC is extremely anxious about Kronshtadt situation

PortNews IAA quotes the report made by Nikolai Smirnov, president of the Association of Shipping Companies, at the meeting of the Marine Board held March 28, 2007.

- Many businesses and experts of inland waterways whose activities are related to river fleet hope for efficiency of the Board’s decisions. So I would like to draw attention to the most urgent issues of inland waterway shipping within the framework of three related aspects.

Development of inland waterways

As we know, among the objective factors influencing activities of the river transport are seasonality, high capital intensity and low profitability. These factors are responsible for a long investment payback period.

Thus, shipping companies should consider the forecast of the inland waterways development forecast when working on their long-term programs. First of all, it is related to the Program of guaranteed dimensions of navigable channels and ranking of navigation situation signs. Ship owners should know what depth is admissible for their vessels and whether day-and-night traffic is to be arranged. These factors are to determine dimensions and tonnage of new river vessels as well as their payback period.   

New Federal program oriented at the development of transport by 2020 is being prepared today. This document is very important for us. It is also a significant step for the forthcoming opening of inland waterways for foreign flag vessels. At the final meeting of Transport Ministry Board ASC put on a record that Russian ship owners support opening of inland waterways.

We hope as well that the issue of narrow sectors of a Unified deepwater system will be solved within the coming decade and that navigable waters from the Black Sea to the Baltic and Caspian Seas will be 4 meters deep.  The Government has to finalize the most long-lasting national project and to decide on the level of Cheboksary water storage basin. We are anxious about the 25-year long discussion on the issue. We think there is no alternative to construction of a low-head water development to be integrated with a motor-road bridge at Volga upstream Nizhnij Novgorod.  Once again the shipping community confirms its willingness to be a co-investor of this project. And we hope this year the Government is to draw a line under this project at last. Ship owners will eventually be satisfied with a 69-meter deep water storage basin.

Today shipping community considers an investment project for Volga-Balt modernization in order to participate in its implementation. Ship owners are interested in participation within the framework of a public-private partnership as well as in other investment projects.

Administration of Rostov region has prepared a proposal on development of a multi-modal transport-and-logistics center the main component of which could be the port of Rostov.  Many representatives of transport business have expressed their interest in this project.

Fleet construction  

The document available provision that the main goal of the state having started the reform of a shipbuilding industry is to create a large corporation for construction of military ships, high-capacity sea-going tankers, platforms and special equipment for production and transportation of hydrocarbons from the continental shelf. Sea location of the three branches of such a corporation confirms that river vessels are hardly to be included into the program.

As of today, such Volga-based yards as Krasnoye Sormovo, Volgograd and Rybinsk yards as well as Navashinsk yard at Oka build only river-and-sea going vessels for Russian companies.

In soviet period major fleet of river barges, tug-boats and cargo motorships with a capacity of up to 3,000 tons was built at 96 shipbuilding-and-shiprepair yards of the former RSFSR Ministry of River Fleet. Of 1400 different river vessels built in 1989 about 80%, or over 1100 vessels, were built at river-based shipbuilding-and-shiprepair yards. However, lack of orders within last 15 years resulted in personnel drain at these plants and to winding up of research-and-development work on construction of new fleet. In 2006 these yards built only 25 river vessels. However, the majority of the companies have preserved their shipbuilding facilities. 50 yards may resume construction of river vessels provided that they have corresponding orders and certain state support.

For that purpose the law should provision preferences equal for both large plants of the corporation and for minor and average-size yards of river shipbuilding. ASC has provided Russia’s Transport Ministry with a proposal to supplement the draft law with a list of yard structures and equipment specific to river shipyards. The listed companies could be subject to tax exemptions including taxes for property and land as well as VAT for design works and a tax for the yard’s harbor waters. ASC's proposal is the following: 0% instead of 10% VAT for newbuildings.

The interests of river shipbuilding should be taken into consideration when developing Federal targeted program “Development of civil marine equipment in 2008-2015”. We mean budget-supported production of efficient marine units and devices for low-power and low-tonnage vessels as well as designing and production of new generation type vessels.

Setting up of a state leasing company could give an impulse to construction of river fleet. Considering specific features of river business state leasing company should ensure the conditions under which the cost of a river vessel doesn’t grow more than 6-7%, while the lease period is over 10-12 years. Probably, for transition period it is necessary to preserve the procedure of interest rate subsidies as regards credits granted to customers for construction of river vessels.

Economic conditions necessary for business

First of all it relates to tax and tariff regulation.  Last changes of the Tax Code aimed at simplified administration of a zero-rated VAT for transportation of export goods outside the state’s customs territory were to decrease transport component in the price for Russian goods and to raise their competitiveness at the world market.

It is well known that large volumes of export goods (oil products, mineral fertilizers, metal, timber and other cargo) are transported by rivers from production centers to the seaports for further transshipment onto large-capacity vessels. Hundreds of river vessels and tens of port terminals ensure these export cargo flow. Late in 2006, Russia’s Ministry of Finance unexpectedly issued letters with new interpretation of Article 164 of the Tax Code specifying that water transportation of exported goods across Russia are subject to 18% VAT, while railway transportation of similar goods as well as their handling in the ports are subject to a zero-rated VAT.

ASC counts for a fair decision in this situation. River companies shave operation conditions equal to those of other types of transport so that it could stay at this important segment of export transportation.

Another example is related to customs regulation. For last ten years we have mastered a technology of cargo transshipment from river vessels to large-capacity storage vessels at off-harbor facilities of the seaports of Kronshtadt at the Baltic Sea and the seaport of Caucasus at the Black Sea. Foreign vessels are attracted there since there are no Russian flag large-capacity vessels. Port terminals lack capacity, so off-harbor facilities transship over ten million tons of heavy fuel oil, mineral fertilizers and sulfur.

According to customs authorities of Russia’s South foreign storage vessels are liable to entrance customs duty, which will certainly entail increase of transshipment costs and, consequently, the price of goods. Neither sellers or buyers of Russian goods liked the situation and moved their storage vessels several miles to the west – to the off-harbor facilities of Ukraine’s port of Kerch.

Loss of taxes and port duties totaled about $4 per ton, or $12 million.  Now there is nobody to take tax payments from.

ASC thinks the most serious situation is that of Kronshtadt. If the procedure is adopted there for 2007 the cargo would leave for the ports of Baltic states. Actually, it is 2.5 million tons. About 50 Russian tankers would have nothing to do.

The Association has developed and sent a corresponding proposal to the Ministry of Transport. According to the proposal, foreign storage vessels should be exempted from payment for outer anchorage at Russian ports. It does not contradict our legislation.

Cooperation of river transport with adjacent types of transport

In summer volume of passenger railway transportation is higher at southern direction and it is difficult to allocate “windows” for modernization of lines. At the same time different methods including special profitable tariffs for navigation period contribute to attraction of cargo to waterways running parallel to those railways.

Another example is related to transportation of timber by motor transport in the northern regions of the country. Today federal highway Kotlas-Arkhangelsk running parallel to North Dvina is being unmercifully destroyed by heavy trucks carrying timber while road development is 21 times as expensive as that of a waterway.

Our state should consider the situation and follow the example of EU countries which ensure national support of transport network, tariff and other regulation when switching transport load from surface transportation to inland waterways.