Ex-head of Rosmorflot Aleksandr Lugovets: “It is the territory, not the port, that needs preferences”

The idea of Far East ‘renaissance’ which has been revived recently is based to a great extent on the transport development. Interviewed by IAA PortNews, Aleksandr Lugovets, former deputy head of RF Transport Minister, head of Rosmorflot and Director General of FESCO; and presently Class 1 Active State Advisor of the Russian Federation; Doctor of Economics, Professor at Admiral Nevelskoy Maritime State University, Expert of Economic Council at Primorsk Territory Duma, talks through ‘extravagant understatement’ of the state plans and drawbacks of the projects. 

— Mr. Lugovets, what is your opinion about the initiative on granting ‘free port’ status to Vladivostok? 

— I would like ‘regulatory impact assessment’ was applied to the projects of this level – it is a procedure approved by the Government for evaluation of social, business and budget implications. So far, the advertising of a ‘free port’ only raises new questions: “What kind of freedom? Free from what and for what?”. What is it about – transit of the sold and declared cargoes and postponement of customs payments? Or recoding of cargo flows at certain territories, granting of a different status to cargoes so that they would have a higher added value? Anyway, reduction of customs payments will require compensation. What will fill the limited budget as it is? There are no answers so far and the project is still unclear. It has not been formalized in legislation. There are some historical examples: porto-franco in Odessa or Vladivostok which show how a territory exempt from duty can develop and what problems it brings. However those examples are poorly correlated with the global logistics and its functional trends – faster procedures instead of delays. It seems that the very idea of porto-franco was driven not by economic reasons but by the decision to show the authorities remember about the Far East. However, it does not diminish the potential and prospects of the Primorsk Territory. And it is a territory of activities for authorities, business and experts at all levels. 

— What preferences are essential for Vladivostok in this context and why?

—Vladivostok is hardly a vital port when it comes to porto-franco. Earlier, this term was applicable to the territory from the Sea of Japan to Chita. Free zone is reasonable if there is space for it. Technically, port capacity of the Primorsk capital is limited by the territory – actually, all transit cargoes run under the Governor’s chair – by the tunnel under building of the Region’s Administration. And this way cannot be expanded. Port Vostochny with its design capacity of 70 mln t and adequate road infrastructure is a more realistic variant. Nevertheless, the preferences are essential not for the port which handles sold goods but for the territory where goods could be manufactured and sold on a preferential basis. A port in a free zone is just a door to the room with economically favorable environment. 

— What do you think about the project of Summa Group and Chinese companies on construction of a 100 mln t complex at port Zarubino? This project implies the construction of a container, grain, alumina and multi-purpose terminals. 

— Seventeen years ago, while working at the Ministry, I proposed that the Troitsa Bay could be developed by a ‘cut cake’ method, that implies selective and not phase-by-phase development. A possibility to build different terminals should be provided to those who a re ready to invest. Essentially, it is not so important for the state where the money company from: from the new-rich or from the foreigners. They cannot take what they build. The task of the state is to develop the territory without harming the interests of its citizens. The state selects mechanisms and executes its watching functions. For example, it should secure that the wind rose is taken into consideration when locating the grain and coal terminals. It would be right to reject the construction of an alumina terminal as it is a threat for environment. However, I’m generally positive about the complex project. More over, I consider it as a chance for the Primorsk Territory to recover missed opportunities associated with Tumangan project which was not implemented as the initiative was captured by port Rason. The weakest point of the project is the railway, I think. Of course, it cannot handle millions of tonnes.           

— What is your opinion about Tranzit-DV project on construction of a bunker hub in Slavyanka?

— As for ‘hubs’, in Russia, this word is applicable to Saint-Petersbur, perhaps, and three or four other transport centers. A hub has spokes around it. There is only one spoke in Slavyanka – the railway (the same railway we are going to use for transportation of 100 mln t from port Zarubino). Bunkering base in Slavyanka consists of facilities once built by FESCO for its particular needs. The issues of bunkering business in Slavyanka are directly associated with the generation of an optimal project for this territory development. There is a number of key aspects here. First, it is not clear which segment of the potential flow will be serviced by Slavyanka taking into consideration that we already have a well developed bunkering system in Nakhodka and Vladivostok. In my opinion, Slavyanka has a larger potential in shipbuilding and development of the existing facilities. Bunkering requires much more investments: into construction of a new road, new tank farms, approach and discharge facilities as the existing ones are limited in capacity. Meanwhile, there is no free space for the expansion in the bay and intense bunkering will result in congestion of the water area and environmental load. As for leaving Slavyanka for offshore bunkering at Vladivostok, it is like scratching your right ear with your left hand. 

— Comment on the construction of a super yard in Bolshoy Kamen, please. Is there sufficient number of skilled workers? Is the yard location convenient?

— Generally speaking, lack of specialists is a common situation. It is not shortage of personnel that is a real problem. There is a historical example: when Prince Nikolai opened a dry dock in Vladivostok, from which Dalzavod originated, there were one hundred times less specialists back then. Nevertheless, the shipyard started repairing state-of-the-art cruisers in several years. It is the conditions of work that matters and how the training is arranged. To ensure favorable conditions they could use recent and quite successful experience of building a residential district in Vladivostok. Vital system of industry-focused education is available for training of different specialists. As the shipyard potential, it is very high. One should remember that it is an operating enterprise engaged in fitting of nuclear submarines which means that the production facilities and qualification of engineers meet the highest standards of shipbuilding. 

— How much should the capacity of BAM and Transsib grow to satisfy the existing and future demands?

— Even ‘severely strained’ BAM will be able to handle only 5-7% of cargo delivered from the East to the West by sea. If we suppose that at least one 8,000-TEU vessel calls at Vladivostok, the railway will be stalled from the sea to Siberia considering the level of operation today. Of course, this problem was handled several times at different levels. For example, not so long ago Far-Eastern Marine Research, Design and Technology Institute participated in discussion of a high-speed railway Moscow-Seoul, parallel to Transsib. By the way, the project was initiated by the Korean side. Another variant is a recently announced Chinese project on construction of a high-speed railway Moscow-Beijing with a minimum attention paid to Russian interests (due to a short leg across Russian territory). The railway is supposed to run primarily across China and Kazakhstan. Finally, modernization of the existing railway corridors and creation of new ones are finally challenged with the design capacity volumes that are nearly pulled out of a hat. Besides, different projects do net correlate with each other.  

— Could the Northern Sea Route serve as alternative for the southern and the overland ways?

— First of all, I’d like to note the state efforts aimed at recovery of its presence in the Arctic and at compensation for the lost. In this context, commercial use of the Northern Sea Route complies with the tasks of our territory development and the tasks of foreign trade. But technically, it is not an alternative but a reasonable supplement to the existing transport ways. In fact this supplement needs quite a specific development.  

Interviewed by IAA PortNews staff reporter Yevgeny Pankratjev