Foreign surveyors in Russian seaports

Surveying business in Russian seaports is actually under control of foreign organizations which are only answerable for their actions to their headquarters outside the country, hence less export dues are received by the Russian budget.

Who will inspect the inspectors?

According to established international practice, the quantity of liquid bulk cargo (crude oil and oil products) is checked by independent survey companies. In most cases, the quantity stated in the BL comes from the independent surveyor’s report based on measurements and calculations performed by the surveyor.

There are several independent surveyors operating in the North-West Region of Russia today. They deal mostly with oil product exports by tankers. The market of survey services in Saint-Petersburg and the Leningrad Region is divided between several large companies. All of them can be referred to as companies with foreign capital but they are actually foreign companies with headquarters and basic financial structures located outside Russia or Customs Union. It is easy to suppose whose interests are represented by Russian offices of such companies.

As for the economic issues of this business process it is quite simple and obvious.

All invoices for petrochemical inspections of tankers have the details of the headquarters’ bank and the currency received for the works go directly to headquarters and only then are partially distributed among representative offices in Russia.

Standard service on petrochemical inspection of a tanker costs up to RUB 1 mln depending on vessel capacity and laboratory analysis. Only small portion of this amount comes to a representative office in Russia which pays taxes to our government. It is just a minimum needed for survival of an office. The bulk of the actual profit remains on the foreign banks’ accounts.   It is only one of specific features showing the difference between foreign companies and 100-pct Russian companies registered in the Russian Federation and founded by Russian citizens who are responsible for their activities under the Russian legislation. All this happens amid the import substitution efforts of our government while a concept of ‘import substitution’ refers not only to goods but also to services.

Large oil companies of Russia involved in exports of liquid bulk cargo select survey companies through tenders.  A survey company should be registered in Russia, it is one of the conditions for participation. Of course, all representative offices of international surveying organizations are registered in Russia as LLC or CJSC. It is a formal compliance with legislation. However, in case of disputes related to, for example, arbitration samples, such companies’ officials would say that their work is regulated by internal regulations and guidelines of the head company located outside the Russian Federation. Can it be referred to as import substitution indeed?

Moreover, end-buyers of tanker loads are mostly foreign companies and banks located primarily in the USA, Great Britain and Switzerland.

It should be emphasized once more that data provided by a surveyor are actually indisputable and are put into the onboard Bill of Lading.  Yet, anyone who has a sufficient experience of working for a survey company and familiar with basic methods of oil product quantity determination can definitely say that measurements and final calculations are made within error margin of 0.3-0.5% which can both decrease and increase actual quantity of cargo. If this is applied to only one tanker, let’s say, at port Primorsk we get a margin of +/- 500 t. It is just a permissible error while miscalculation are also possible in the work of such companies.

Before the final figure from the survey report is put into the Bill of Lading it is divided by vessel experience factor (VEF) based on the latest 10-20 voyages.  In 99% of cases VEF ranges from 1.0009 to 1.0080.  The rules for calculation of VEF, which is also done by a surveyor, are quite vague. So the calculation results can be different even with equal initial data.

There is no doubt about the validity of VEF if the calculations are correct, which is not always the case.

As an example let’s take a tanker of 12,000 t in capacity, loaded at one of the terminals of Big Port St. Petersburg.

According to the inspector representing one of the well known international surveying companies, the vessel’s cargo after loading totaled 11,850 t of heavy fuel oil. Divided by VEF of 1.0180 (calculated by the same inspector) this figure decreased by 210 t which is more than 1.5% for such a small vessel!

What should be said about 100,000-tonne tankers if at least 0.5% of cargo can be calculated at surveyor’s will?

That story had a continuation. The survey report of that independent foreign company was checked by an authorized independent surveying organisation of Russia. A rough error was found in calculations of VEF which resulted in considerable reduction of the BL figure (by some 150 t).

The shipping terminal complained over the “mistake” to Saint-Petersburg office of that company. The complaint was forwarded to the head office of the company outside Russia which ignored the problem stating that the company is not responsible for the provided information. According to the company, all data in the survey report is just a reference information. They refused to admit an evident mistake of their employee and did not correct the report. Finally, the shipper lost about 200 t of that batch alone and the state received less customs duty.

Can it be that foreign survey companies determining actual amount of exported cargo are not responsible for the data used as a basis for foreign customers’ payments to Russian refineries and as a basis for payment of export duty?    

It should be mentioned that foreign companies offering survey services in the Russian Federation are not always properly accredited according to GOST-R standards. They follow their company’s internal policy and use the methods not complying with Russia’s GOST standards. This can interfere with the Federal Law on Ensuring the Uniformity of Measurements (No 102-FL, dated 26 June 2008). This is also among the causes of disputes between Russian suppliers and foreign buyers when it comes to determination of quality and quantity of supplied oil products.

Sophia Vinarova