Makhachkala port: fail logic

Over a year and a half, Makhachkala Commercial Sea Port (MCSP) with its quite moderate performance has seen media exposure and attention from authorities in the amount exceeding that of harbours handling tens of millions of tons. Yet, there is no paradox here: recent activities around MCSP put everything into perspective with quite uninviting prospects for Russia’s only nonfreezing port in the Caspian Sea.  

“Negative growth” 

In mid-January of the current year Makhachkala Branch of FSUE Rosmorport hosted a meeting dedicated to the Makhachkala port development concept. There were two issues on the agenda: “Construction of a habour for cruise ships, yachts and boats” and “Construction of a new harbor at the city of Derbent”. 

It sounds quite futuristic, you know? On the one hand, there is a port of strategic meaning particularly for the country’s defence, on the other hand – cruise ships and yachts. Unfortunately, there is logic in it, yet: it is quite possible that cargo berths in Makhachkala will soon be replaced with eye-pleasing berths for passenger ships if the cargo flow situation continues as it is. 

Last year, Makhachkala Commercial Sea Port handled only 3.3 mln t of cargo including 2.9 mln t of oil and 332,000 t of grain exported to Iran. Why “only”? In fact, the port’s throughput in 2015 was as high as 3.83 mln t, in 2014 – almost 5 mln t, in 2013 - over 5 mln t. In a few words: cargo transshipment has been decreasing for several consecutive years. As of today, it is 40% down against the result achieved just three years ago. 

At first glance, there is no wonder or concern as cargo turnover is decreasing in all Caspian ports excluding Astrakhan and Olya. Economic situation in Russia and in the Caspian region as a whole is not favorable, political relationship is even less favorable – where would growth come from? 

Nevertheless, let’s pay attention to details.

Why does oil go away? 

Scandals permanently arise around oil transshipment via the port of Makhachkala. They are not related directly to the harbor but have a direct impact on transit volumes. 

Companies from Turkmenia, Kazakhstan and Azerbaijan used to or still export oil via the port of Makhachkala. Hydrocarbons delivered by takers are accumulated in the tanks of Dagnefteproduct then come to Transneft system for further pumping to Novorossiysk among other destinations. In 2013, 4.7 mln t of oil passed the port. 

In 2016, this amount fell to 2.9 mln t. Dragon Oil and Mitro International (UAE and Austria accordingly), which produce oil in Turkmenia, have refused to work with the port. Russian company LUKOIL also left the port and Kazakhstan companies have considerably reduced their volumes this year. So, the year of 2017 will most probably see even more dismal result. 

The fall of cargo flow has nothing to do with the fall of prices in the global market or with geopolitical instability. According to the press release of the company, “the fall of transshipment volumes was also caused by unmotivated decision of some oil companies of Russia to shift cargo transit to foreign ports”.

It is a surprising position. As a rule, there are no “unmotivated” moves in business, especially in large business. Logistics specialists know perfectly well that the routes for regular supplies are selected thoroughly, the technologies are elaborated with consideration of numerous factors and changes are undertaken either because of apparent attractiveness of alternative routes or due to some extraordinary circumstances. 

Besides, it should be taken into account that routes selected in the oil sector depend not only on terms and costs. Specific technical aspects are under consideration here – sulphur content, watercut, etc. Nobody will, for no special reason, change a route the development of which cost much time and resources. 
 
The reason of decrease of oil flow via the port of Makhachkala is well known. It was covered by the official statement of Transneft published in June 2016. The monopolist of Russia then paid attention to the fact that despite the standard losses of oil pumped from tankers to tanks that should not exceed 0.2%, the losses registered when pumping oil to Dagnefteproduct tanks were as high as 0.69% in 2013, 0.84% in 2014, 0.44% in 2015 and 1.43% in the first half of 2016! 

We think this reflects the business practice of the company. In May 2016, Dagnefteproduct JSC refused to feed 5,000 t of Turkmen oil into the Transneft system and is currently trying to force the owner of this volume sign a ‘bottom heel’ act, says the statement.

Besides, content of chlorides and water in oil leaving the tanks of Dagnefteproduct used to exceed the norm. From 2013, Lukoil cut oil shipments via Makhachkala by almost a half, Turkmen producers also left Dagestan and Transneft has reduced pumping of Kazakh oil by almost 30% to 1.5 mln t this year. 

The situation did not change even after Russian Security Council Secretary Nikolai Patrushev tied to influence it. 

In early 2017, Dagnefteproduct told Transneft about three-day long suspension of oil pumping process due to some repair works.  In the opinion of Transneft specialists this sort of repair works does not interfere with the pumping process. Anyway, this suspension has undoubtedly affected the image of Russian pipeline transport and, of course has not contributed to the reputation of Makhachkala port as a reliable transport hub. 

Clouded prospects

In his comments on the results of 2016, Port Director General Murad Khadirov expressed his hope for recovery of oil transshipment volumes, which is hard to believe, especially in view of specific factors influencing the development of oil routes.  

Even if it happens, the port of Makhachkala will have to meet a number of strategic challenges, first of all, to restore confidence of business partners. 

Besides, the future of the port itself is not clear. A significant part of it is claimed by the Ministry of Defence of the Russian Federation. It is going to station the Caspian Flotilla there. The Ministry of Defence has already obtained a Decree of RF Government in this respect. Production facilities located at the territory required for the military are supposed to be moved northwards. 

No wonder, that the Ministry of Defence is interested in the port of Makhachkala. The port that has been showing the decrease of throughput for many years cannot be considered as an asset executing its key function – transshipment of commercial cargo, hence the information about its possible use for alternative purposes. 

In this situation, the only reason to be excited is the 70-pct increase of grain transshipment – to 332,000 t. However, this type of cargo is quite volatile. In this context, the idea of building a marina for yachts and cruise liners or some development project sounds much more up-to-date.

Ivan Semyonov