Phantoms of Russian infrastructure - 2015

Though the year of 2015 featured a difficult economic situation and the reduction of budgetary financing in Russia, the list of ‘phantom projects’ has not changed significantly while some of those projects are slow but steady.

Kaliningrad: lobbyism out of shallow waters

The list of ‘phantom’ port projects has traditionally been headed by the project on construction of a deepwater port in the Kaliningrad region. The funds earmarked for this project have been repeatedly redirected, first in favour of port Bronka in Saint-Petersburg, then for Yamal-LNG project. Finally, everything has been reduced to the construction of a passenger cruise terminal at Pionersky by the World Football Cup-2018. 

Nevertheless, local authorities and businesses continue lobbying the deepwater cargo port project. Passenger and LNG terminals are considered as its integral parts. Three variants have been elaborated for a port valued at RUB 207 bln and requiring dredging of 103,000 cbm of material >>>> 

In October 2015, RF Government issued a Decree providing for introduction of amendments into the territorial planning scheme of the Russian Federation for the development of federal transport and federal highways.  According to the document, a container terminal capable of handling 2.2 mln t of cargo per year is to be built in Baltijsk (Kaliningrad Region), an international passenger terminal is to be built at Pionersky (capacity: up to 250,000 cruise passengers and up to 1 mln ferry passengers per year), as well as a yacht marina at Pionersky. The second phase of port infrastructure development implies the construction of a deepwater port at Yantarny with total capacity of 50 mln t per year. The port’s container terminal will be able to handle 25 mln t per year, a liquid bulk cargo terminal (4.9 mln t per year), RO-RO terminal (2 mln t), general cargo terminal (6.1 mln t) and an LNG terminal at Zelenogradsk (2.3 mln t).

Yet, we think that allocations for this project can hardly be expected amid the budget deficit. Therefore, cargo port project will most certainly retain its ‘phantom’ status though some facilities like an LNG terminal can appear here in several years. Most doubts are associated with the plans to build a container hub port able to compete with European ones.

Murmansk Hub

Implementation of the project on comprehensive development of Murmansk Transport Hub (MTH) is chugging along. As Aleksei Tyukavin, First Vice Governor of the Murmansk Region, said following the extended BoD meeting of Managing Company “Murmansk Transport Hub” OJSC in November 2015, the execution schedule of MTH project does not “fully satisfy” the regional authorities due to postponement of major financing to 2017-2020.

Victor Stepov, Chairman of Managing Company “MTH” BoD, said in his turn that the project implementation is within the “schedule corridor”. According to him, the meeting also discussed possible participation of China in the project.

As of mid December 2015, 110 units of equipment and 200 workers were involved in construction of the federal infrastructure facilities under MTH project, the regional government says. Drilling-and-blasting operations are underway for construction of a railway to the left shore of the Kola Bay, ground is being prepared for superstructure of a bridge across the Kola Bay, a junction is under construction at the place of future railway/highway crossing.

Amid international sanctions and deterioration of Russia-Turkey relations, the port of Murmansk obtains a special significance. It is an ice-free port with a direct access t the global ocean without the need to pass the straits under foreign jurisdiction. Neither Baltic nor Southern Basin of Russia enjoys such opportunities.

Liquid investments

Most of projects on construction of new LNG terminals in Russian seaports can be easily listed as ‘phantoms’. 

The largest among them is the Baltic-LNG project planned by Gazprom in Ust-Luga (Leningrad Region). The plant is to produce 10 mln t of LNG per year with a possibility to be expanded to 15 mln t. The project is about to enter the investment phase. As Gazprom head Alexey Miller said in October 2015, Gazprom and shell are in negotiations under the project. 

There are other LNG projects in the Baltic Basin with LNG Gorskaya being the only one under implementation. A project of Cryogas-Vysotsk provides for construction of a 660,000 tonne LNG terminal near port Vysotsk while Nordic Yards earlier announced its plans to build a terminal for LNG bunkering in Saint-Petersburg.

China’s affaire de Belkomur

Belkomur railway is a classical example of a ‘phantom project’. According to Arkhangelsk Region Governor Igor Orlov, the project has entered the phase of negotiations with investors.

“A deadline has been set forth for Belkomur to bring dividends to its stakeholders – the year of 2021. As a state structure we are ready to respond to this interest,” the Governor said in October 2015. 

He reminded that the railway construction has been preliminary estimated by experts at some RUB 250 bln.

Belkomur is likely to get a second wind in view of China’s new Silk Road. During the official visit of RF President Vladimir Putin to the People’s Republic of China in September 2015, an agreement was signed on project implementation together with the Chinese company Poly Technologies.

Belkomur project is linked with the plans on creation of a deepwater district at Arkhangelsk seaport, which also presents an interest for Poly Technologies. According to Igor Orlov, the project is to be implemented through a concession.

“Construction of a railway and a deepwater port in Arkhangelsk are of a great interest for both Chinese investors and for Russia as a whole. The interest of the Russian and Chinese sides in the projects relates to the prospects of an additional transport route for cargo transit by the Northern Sea Route via the ports of Arkhangelsk and Murmansk,” media cited Igor Orlov as saying in December 2015.

Going northwards

Northern Latitudinal Railway is yet another ‘phantom’ project. During his annual news conference this December, Vladimir Putin said the finances should be found for its implementation. The President said the resources can be provided, in particular, by the National Welfare Fund. 

“This is an extremely important project, as with a huge terminal, extraction and shipment operations, it would be desirable to have a universal port there. This way, not just LNG products can transit through this port, but all kinds of goods that can be rerouted from the Trans-Siberian Railway or Baikal-Amur Mainline. This is a very convenient location with great logistics. This could be all sorts of goods — bulk shipments, or anything else,” said Vladimir Putin.

Dmitry Kobylkin, Governor of the Yamal-Nenets autonomous region, earlier said that dry cargoes can be transshipped via Sabetta, up to 70 mln t per year. In December 2015 he announced the completion of design works under the Northern Latitudinal Railway project. Major investor into the project - Rise Capital (Sweden). The project is preliminary estimated at RUB 190 bln.

If this project is considered in view of rerouting goods from the Trans-Siberian Railway or Baikal-Amur Mainline, it can partially unload the railways that feature a deficit in capacity. Amid the extensive plans for loading the Far East ports, the deficit of TSR and BAM capacity   is not likely to disappear even with complete reconstruction of the mentioned railways.

Zarubino prospects

An ambitious project of Summa Group, Big Port Zarubino, can also be qualified as a ‘phantom’. It has been under discussions for more than a year but the construction has not begun yet. The project implies the construction of multi-purpose transshipment facilities at the Troitsa Bay seaport (Primorsky Territory). The project with annual capacity of 60 mln t is a part of transport corridor Primorye-2.

International transport corridor Primorye-2 is, in its turn, a part of Tumagansky corridor towards Mongolia: Changchun-Jilin-Hunchun-Kraskino-Zarubino port-sea lines. This corridor is considered to be the most promising route in the North-East Asia able to ensure of foreign trade between Jilin province and APR countries as well as shipments to the south of China.

Preliminary forecasts say the volume of foreign trade cargo to/from Jilin province and domestic cargo transportation via port Zarubino by Primorye-2 will reach some 90 mln t per year.

Perhaps, The Law on Free Port of Vladivostok will facilitate the project implementation. Yet, everything will depend on the demand for transportation by the above corridors.

To summarize, the ‘phantoms’ of Russian infrastructure generally tend to materialize, quite good as it is. Reduced budget income makes the authorities and investors thoroughly elaborate the projects and be careful with their implementation. The priority is also important here. Therefore, taking into account budget constraints and sanctions, we can expect the number of projects with unclear prospects to run down.

Vitaly Chernov