Joints of seamless logistics

Coal remains a major export cargo in Russia. In accordance with the Program of development of coal industry, its production in 2030 is expected to surge by nearly a third to 430 million tons a year. The coal production will shift towards the east. Meanwhile, it is urgent for coal export through the Far Eastern ports to eliminate now the transportation infrastructure "junctions" and in the first place the railway ‘bottlenecks’.

Vostochny course

In the run-up to the Asia-Pacific Economic Cooperation (APEC) summit 2012, Russia announces its plans to build "seamless logistics system" to ensure a stable smooth traffic with the Asia-Pacific region. For starters, the country should expand the capacity of the Trans-Siberian Railway, the Baikal-Amur Mainline (BAM) and the Far Eastern Railway.

Although, there are few prospects for the organization of transit through the Trans-Siberian Railway, as we have covered the issue earlier >>>> , yet, the country urgently needs the development of roads to ensure shipments of export coal, which is the main cargo for the ports in the Far East.

According to the last year’s statistics, Russian coal exports through all domestic ports totaled 99.7 million tons, and nearly 40 million tons of the volume were shipped through the Far East terminals. Given that, in accordance with the Program of development of coal industry, Russia has to shift the coal production to the east of the country. Then the share of coal transported via the Far East ports will only increase. Meanwhile, the demand for the commodity is growing in the Asia-Pacific region.

The coal production will likely grow thanks to the development of new deposits in Yakutia (Elginskoye, developed by Mechel Company, Denisovskoye, of Kolmar Company), in Chukotka (Beringovskoye deposit), in Eastern Siberia (Apsatskoye, of SUEK Comp.) and in Tuva Republic (Ulug-Khemsky basin, developed by EPC, Evraz and Severstal, as well as projects of En+ controlled by Oleg Deripaska. As experts told PortNews, if the development of these fields goes according to schedule and will be coordinated with the proper development of transport infrastructure, as well as the coal production in the Far East, in this case shipping costs may be cut by decreasing the distance of the route for coal exports and supply on the domestic market.

Coal companies have already been investing in the expansion of existing coal handling facilities of stevedores operating at the Far Eastern ports and plan to build new ones.

Thus, Mechel has such development plans. Currently, the company is investing in expansion of the Port Posiet, which would double its capacity, up to 9 million tons of coal per year. The modernization completion is slated for the fall of this year. Another priority project of Mechel is the construction of a terminal at the port of Vanino. As of now, the company has the terminal project prepared. The facility will be located opposite the terminal of SUEK, in the Muchka Bay. It is assumed that by 2020 the facility’s throughput will reach 25 million tons of coal a year. The terminal will be transshipping coal delivered from the Elginskoye deposit via the Trans-Siberian Railway.

Another major project is being implemented in the Vostochny port. The project includes the construction of the coal terminal Phase 3 by JSC Vostochny Port, which will boost its capacity nearly twofold.

Other investors also announced their expansion plans for coal handling facilities in the Far East. Evraz is set to boost annual coal throughput of its own stevedoring company Evraz NCSP through the reconstruction of Berth Number 8 in the port of Nakhodka from 2 million to 5 million tons. In addition, the state eyes the creation of a "public" coal port for the coal companies that do not have their own stevedoring assets in the region, of capacity of 20 million tons of coal a year. As the Russian Minister of Transport Maxim Sokolov told PortNews, the port project will be worthwhile only after the capacity expansion of BAM and the Trans-Siberian Railway. The official noted that the capacity of the Baikal-Amur Mainline (BAM) currently stands at 15 million tons a year. "Everything rests on the rail infrastructure", said the Minister.

Rates adjustment factor and other tools

In accordance with the Program of development of coal industry by 2030 the Far Eastern ports will be able handle up to 65-70 million tons of coal per year. According to outlook for 2012, around 45 million tons is expected to be exported through the ports’ terminals and this is nearly the railway capacity limit. According to market participants, for the first half of 2012 the volume of backlog of orders for coal transportation to the ports of the Far East totaled 2,843,000 tons.

“The ‘bottlenecks’ and limiting areas of the Russian Railways seriously hamper the development of the coal industry. This is true about the Trans-Siberian, BAM and the Far Eastern Railways, which limit the undeveloped coal supply to the growing market of Asia-Pacific countries ", Alexander Novak, Russian Minister of Energy told a meeting chaired by Prime Minister Dmitry Medvedev. According to Nowak, the transportation leg from the existing coal mining sites to ports is an average of 850 km. The share of the transport component in the final price of coal is growing due to the increase of tariffs for railway transportation. In the domestic market it account for 30-35% of total cost, for exports – exceeds 50%.

Thus, there is a contradiction between the high cost of transportation and the need for huge investments in rail infrastructure upgraded. The Ministry of Transport proposed for 2013 rail rates adjustment at 7%, and to seek additional funding through other financial instruments.

"We understand that the tariff funding is not enough for long-term development and we agree with the position of the Ministry of Economic Development that other instruments, such as loans, including the government guarantees, objectively necessary for development of a network of railways," Sokolov commented the Ministry’s proposal. He also expressed his conviction about the need for some changes in legislation, especially in order to give the Russian Railways the authority to serve as the grantor.

According to authorities, a moderate increase in rail tariffs, coupled with the reduction of route distances, and employment of non-tariff tools for rail infrastructure development, will enhance the competitiveness of Russian coal and to boost its exports to the Asia-Pacific region.

Vitaly Chernov