Ust-Luga comes to finish

Ust-Luga Company OJSC, a contractor building the port of Ust-Luga, has announces gradual closing up of its activities due to the completion of the state contract on the port construction. Meanwhile, earlier announced throughput of 170-180 mln t per year is still a distant prospect – in 2014, the port handled 75.6 mln t of cargo. However, we think the project has achieved its major strategic objectives and its independent development is quite possible.

Undershoot 

Valery Izraylit, Chairman of Ust-Luga Company BoD, has recently told Leningrad Region   Governor Aleksandr Drozdenko about the completion of the state contract with the Ministry of Transport on construction of Ust-Luga port. According to him, the decision was approved by the Board of Directors on February 3, 2015. Valery Izraylit, the port now has the entire engineering and transport infrastructure. “Investment in the port facilities totaled some RUB 200 bln with federal resources accounting for only 16% of it. In our case, private-public partnership proved its efficiency”, head of Ust-Luga Company said.

According to Valery Izraylit, 12 terminals and oil tank farm Ust-Luga (end point of BPS-2) operate in the port not. Three terminals are under construction in the Northern part of it. 

In 2014, port Ust-Luga handled 75.6 mln t of cargo. As of today, it is the highest result in the Baltic Basin, more than that of Big Port St. Petersburg and Primorsk. Nevertheless, it is less than earlier announced 180 mln t per year.

Transshipment of containers and oil products saw the highest growth rates. In 2014, the port boosted container throughput by 67% to 106,750 TEUs. However, it much less than the result of port Saint-Petersburg which handled 2.37 mln TEUs. Moreover, container throughput of port Saint-Petersburg will later include the volumes handled by port Bronka. So, in the nearest future, container facilities of Ust-Luga will be considered as a sort of ‘reserve aerodrome’ for Saint-Petersburg. The more so as Ust-Luga Container Terminal entered Global Ports Group which also controls the largest container terminals in Saint-Petersburg: FCT and Petrolesport. Its development will certainly be considered as a part of the Group’s strategy in the Baltic Basin. According to the official information, ULCT provides regular services for the following container lines: Maersk Line, CMA CGM, Unifeeder, Hapag Lloyd, Team Lines. 

Oil products also show fast growth. In 2014, transshipment of oil products surged by 57% to 25.6 mln t, mostly via Ust-Luga Oil terminal. In 2014, it handled 23.6 mln t of cargo including 14.7 mln t (over 60%) of dark oil products and 8.9 mln t of light oil products including 4.7 mln t of stable gas condensate.

Stable growth was also registered in the sector of coal transshipment, represented mostly by Rosterminalugol. In, this terminal handled 15.45 mln t of cargo (+5%, year-on-year).

Things are worse with mineral fertilizers (+2%) and ferrous metal (a decline).

The Company failed to attract all the investors announced initially. 

In summer 2008 Ust-Luga Company and Rusal signed a memorandum on implementation of a project on construction and launch of a transshipment complex. The complex was to consist of two terminals dedicated for transshipment of aluminium and alumina. Expected investments of Rusal exceeded $300 mln. The aggregate capacity of the terminals was to make 4.5 mln t per year with further increase to 7 mln t per year. The project was considered as Rusal’s first step in implementation of the programme on creation of its own dedicated port facilities for efficient transshipment of raw materials and goods according to the Company’s plans to boost its output.

As Rusal earlier commented to PortNews IAA, initial project works and engineering survey was carried out during the cooperation with Ust-Luga Company on construction of the terminal for transshipment of Rusal cargoes. Initial expected value of the project has increased due to additional investments required for infrastructure development. “In this context our construction customer Еn+ decided to suspend further cooperation with the port. We are currently considering our further steps,” Rusal commented. According to later media reports, the company opted for the projects in the Far East.

The project on construction of grain terminal has not been implemented either. The idea was forwarded as early as in 2010 when the interest to Ust-Luga was expressed by United Grain Company. In 2013, Valery Izraylit said Ust-Luga Company was negotiating the construction of a grain terminal with one of large companies having not revealed its name.

United Metallurgical Company (OMK) also dropped its plans on construction of terminal in Ust-Luga. The construction of a dedicated terminal was frozen in 2013. As OMK told IAA PortNews, the decision comes from the concentration of the company’s efforts on investments into metallurgical production and consumption of the company’s products mainly in Russia. According to Ust-Luga Company, the capacity of the 1st phase of the terminal was to make 2 mln t, the 2ndphase – up to 4 mln t. Design capacity of the terminal was to total 6 mln t per year.
 

New beginning

Approaches to Ust-Luga is the ‘bottleneck’ of the port. Limited capacity of the railways hinders the port’s development while highway approaches require repair and reconstruction.

According to Vladimir Orlov, head of technical policy service at Oktyabrskaya Railway (Russian Railways branch), annual capacity of the railway towards the port of Ust-Luga will reach 64 mln t in 2015. He said, the railway capacity was 38.3 mln t in 2013 and it will be increased to 80.3 mln t by 2020. 

Development of highways is also underway. A two-lane road linking the port with Tallinn highway is to be completed by the end of 2015.

So the port sees prospects for further development.

Anyway, Valery Izraylit says the main target today is to develop an industrial cluster near the port. 

“Having completed the developer’s project on creation of Ust-Luga seaport, we continue with the project on comprehensive development of the territories adjacent to the port, — Valery Izraylit said. — The port was conceived many years ago as a new Amsterdam, new Antwerp.” Thanks to the decision of Gazprom to build a LNG plant the industrial zone sees starts a new phase of development, Mr. Izraylit noted. He said, an oil and chemical cluster is to appear here. 

“Upon the order of Ust-Luga Company, Roland Berger Strategy Consultants (Germany), leading management and industrial consulting company, has proposed a well elaborated concept – front-end engineering design of a port industrial zone, plots of land have already been reserved, — Valery Izraylit explained. 

The project on comprehensive development of the territories adjacent to the port (industrial zone, new city of Ust-Luga) will be implemented by Ust-Luga Company subsidiaries. The head company will gradually complete its activities and sell its assets to investors. Its task is to fulfill all loan obligations. Valery Izraylit says each infrastructure facility will undergo audit. 

Leningrad region Governor Aleksandr Drozdenko said the Company has enough assets to fulfill its loan obligations. According to him, the regional government is still a shareholder of two companies established for the project implementation – Ust-Luga Company and TLC, owner of multi-purpose transshipment complex Yug-2. The Governor says the Government is not going to withdraw from any of the two companies in the nearest future.

“We are interested in further development of Ust-Luga port’s industrial zone. The first phase of the project – construction of berth walls and terminals – has been almost completed by today. I think, the decision to build an LNG plant in Ust-Luga and to boost gas supplies will contribute to the development of projects on production of ammonia and mineral fertilizers”, the Governor said.

Read more about the Baltic LNG project >>>>

Baltic Gas Chemical Company is set to built a methanol plant in Ust-Luga with a capacity of 1.7 mln t per year. Similar plans have been announced by NGSK, which is going to build a plant capable of producing 1.65 mln t of methanol. The start of design work is scheduled for the first quarter of 2015, the construction is to commence in the first half of 2016. The launch of production is to begin in the second half of 2018.

It should be noted that the construction of a refinery was earlier announced but seems to fall into oblivion.

Besides, a project on construction of a multimodal complex was officially announced in 2011. It supposed to include an international class cargo airport, industrial area, logistic zone, warehouses, business-park and residential area. No construction has begun under the project.

Meanwhile, certain processing activities are vivid in the port. Stable gas condensate comes to Ust-Luga from Novatek’s Purovsky refinery (Yamal-Nenets autonomous region) and then processed into heavy and light naphta, jet fuel, marine fuel and LPG.

In general, not many of the announced projects were implemented but the port has fulfilled its major strategic objectives. First of all, it succeeded in taking over part of Russia’s foreign trade cargoes (oil products, coal) and to become a sort of a ‘reserve aerodrome’ for overloaded Big Port St. Petersburg. Moreover, as the economic situation is changing it is quite possible that the stevedoring and the industrial parts of the project will see new investors. However, their involvement into the port will be arranged differently considering the closing of Ust-Luga Company’s activities.

One of Ust-Luga achievements is the successful application of private-public partnership in implementation of large infrastructure projects. If the industry zone project succeeds, Ust-Luga will be the first port in Russia to be built through European principles integrating the industry and marine infrastructure within a single territorial cluster.

Vitaly Chernov