All things are in flux

The year of 2018 was crucial for water transport, shipbuilding and port industries with its key personnel changes, unexpected events and important legislative amendments. A lot is to be done in 2019.

Personnel reshuffle

The outgoing year has been marked by significant management changes which have a significant impact on water transport, port activities, logistics and shipbuilding: both at the level of RF Government and at the level of departments.

Maxim Akimov, Deputy Prime Minister of the Russian Federation is, apart from other responsibilities, in charge of transport communications and innovations.

Deputy Prime Minister Yury Borisov is authorized to supervise shipbuilding and border infrastructure issues. He has also been appointed as the head of RF Government’s Marine Board previously headed by Dmitry Rogozin.

Deputy Prime Minister Yury Trutnev has taken over the reigns in the State Commission for Arctic Development Issues also previously headed by Dmitry Rogozin.  Yury Trutnev has considerably cut its membership.

Yevgeny Ditrikh who replaced Maksim Sokolov as RF Transport Minister has introduced a lot of changes in the Ministry’s policy.

Victor Olersky’s resignation from the office of Deputy Minister of Transport, head of Rosmorrechflot was among the key events in the industry as we wrote earlier >>>>. This position is now held by Yury Tsvetkov who used to work for Sovcomflot for a long time and to head Novoship from 2012.

Yury Kostin was appointed the Director of RF Transport Ministry’s Department of State Policy for Maritime and River Transport to replace Vitaly Klyuev. Andrey Tarasenko has been appointed Deputy Head of Federal Marine and River Transport Agency (Rosmorrechflot).

Yet, those changes can be followed by further reshuffle.

Nuclear power for Northern Sea Route

In 2018, Russian President has signed the law “On introduction of amendments into certain legislative acts of the Russian Federation (on participation of Rosatom Corporation in functioning of the Northern Sea Route)”.  According to the law, the bulk of authority is handed over to Rosatom Corporation which is to have its plans approved by the Ministry of Transport under the “two-key” principle.

One “key” is held by Vyacheslav Ruksha, head of Rosatom’s Northern Sea Route Directorate.

In fact, transitions of the “two-key” principle from legislation to the practice is not easy. As Yury Tsvetkov told journalists in December 2018, there are at least two issues to be settled by the Transport Ministry and Rosatom – administration of the Hydrographic Company and vessel traffic management system in the Arctic. Rosatom has drafted the Rules for providing navigational and hydrographic support in the water area of the Northern Sea Route >>>> hoping for taking over the Hydrographic Company.

Actually, this year has not brought final clearance to the issues of Arctic development. The Ministry of Defence and the Ministry of Nature still have their interests in the Arctic. Denis Khramov has been appointed as Deputy Minister of Natural Resources and Environment of the Russian Federation in charge of geological and economical issues, use of subsurface resources, development of projects in the Arctic zone. The Security Council of the Russian Federation, in its turn, continues promoting an idea of establishing a separate state body on the Arctic issues. Sergey Vakhrukov, Deputy Secretary of the Security Council has recently said: “We want such a body to appear and we expect the Government to make such a decision in the nearest future”.

At least three different approaches to legislation and state planning related to the Arctic will meet next year. In 2019, Rosatom is going to start working on a plan for comprehensive development of NSR infrastructure; the Ministry of Nature will develop its own project “Implementation of the Arctic’s logistics and raw materials potential” while the Ministry of Transport undertakes to implement activities under a comprehensive plan for upgrading and expanding core infrastructure through 2024 including the federal projects “Seaports of Russia” and “Northern Sea Route”.  When participating in meetings on Arctic issues the officials persistently repeat, like a mantra, that the target of 80 mln t cargo traffic on the NSR set up by RF President should be reached by 2024.

Novatek and all, all, all

Meanwhile, Novatek is striving to occupy a share in the fast growing global market of liquefied natural gas (LNG). The company has commissioned the second and the third phases of its facilities on the Yamal peninsula (Yamal LNG project) six months and over a year ahead of schedule. Total capacity of the Yamal LNG plant is 16.5 million tonnes of LNG per year with each phase having a capacity of 5.5 million tonnes. Implementation of the Arctic LNG 2 project (Utrenneye field on the Gydan peninsula).

In fact, the capacity of cargo fleet able to export LNG is lagging behind the Novatek’s achievements.

According to the Federal Law On Amending the Merchant Shipping Code effective from 1 February 2018, foreign-flagged ships are not allowed to transport hydrocarbons on the Northern Sea Route and participate in short-sea transportation. As of today, vessels involved in three Arctic projects may fall under this law: gas carriers flying foreign flags under Novatek’s project, tankers for oil exports under Gazprom Neft’s project in the Gulf of Ob (currently operating under the flag of the Russian Federation) and bulk carriers intended for coal port “Chaika” (has not been put into operation yet). In practice, this regulation has not been put into effect in 2018.   

As it is known, Novatek is going to deploy 15 ice-class Arc7 icebreaking LNGCs for transportation of liquefied natural gas on the Northern Sea Route. As of today, 8 LNG carriers make calls to Sabetta with the rest LNGCs to be put into operation throughout the year of 2019. All of them are foreign-flagged ships built by foreign shipyards but contracted before the amendments came into effect. Therefore, the law does not apply to them.

Amid the surge of cargo volumes Novatek needs more ships. It proved to be a challenge to find Arc7 ships in the global market. Such vessels are usually ordered for specific projects. Moreover, chartering of vessels with lower ice class, Arc4, for operation on the Northern Sea Route during summer navigation season is not possible because of the amendments introduced into the Merchant Shipping Code.  An attempt of the law exemption has not succeeded so far. According to some media reports, the Government has submitted the law for having it amended to allow Novatek use Arctic vessels under flags other than Russian.

Nevertheless, the company has managed to increase LNG shipments with its new logistics. In late November 2018, A new offshore facility for ship-to-ship LNG transshipment was launched near the port of Honningsvag (North-East of Norway) in late November. In the future, NOVATEK is going to have two transshipment facilities built in the Murmansk Region and Kamchatka as we wrote earlier >>>>

As Yury Tsvetkov told journalists in December 2018, the issue of a three-year long transition period in respect of using Russian-flagged ships in the Arctic is under consideration. Of course, it is Novatek that is interested in such a decision most of all. In the future, the company is going to have ships for its projects (like Arctic LNG 2) built at Zvezda shipyard. In three years, Rosneft is expected to complete construction of a shipbuilding complex in the Primorsky Territory intended for building ships of such class and size.

Bunkering breakthrough

The year of 2018 has seen the beginning of cargo fleet’s actual transition to new environmentally friendly bunker fuel. A joint project of Sovcomflot and Shell is currently represented by two ice-class Arc4 tankers with LNG used as their key fuel: the Gagarin Prospect and the Lomonosov Prospect tankers. The vessels operate in the Baltic Sea with the series being continued.

Gazpromneft Shipping, a subsidiary of Gazpromneft Marine Bunker (leader of Russia’s bunkering market) has recently placed an order for construction of Russia’s first LNG bunkering tanker.

More discussions on LNG fleet and LNG bunkering in Russia will be held at the conference in Moscow in autumn 2019 >>>>

From Summa to prison

In late March, Ziyavudin and Magomed Magomedov, the co-owners of the Summa group, were detained over a case on embezzlement of public funds on a grand scale and are still in custody. That event is important for the industry since Summa’s assets included Novorossiysk Commercial Sea Port, TransContainer and FESCO.

That also affected the project of United Grain Company (part of Summa Group) on construction of a transshipment facility in Zarubino port (Primorsky Territory). There is a plan to build a terminal for transshipment of grain (wheat, corn and soya) with a design capacity of 33.5 million tonnes per year.

In the result, from autumn 2018, Novorossiysk Commercial Sea Port is controlled by Transneft, Federal Property Management Agency (20%) and minor shareholders. The company’s general meeting of shareholders decided to pay over RUB 5 billion as dividends for 9 months of 2018.

Delo Group buys Global ports

In spring 2018, Sergey Shishkarev’s Delo Group purchased more than 30% stake in Global Ports from N-Trans. Global Ports’ terminals are located in the Baltic and Far East Basins. Global Ports operates five container terminals in Russia (Petrolesport, First Container Terminal, Ust-Luga Container Terminal  and Moby Dik  in the Russian Baltics, and Vostochnaya Stevedoring Company in the Russian Far East) and two container terminals in Finland  (Multi-Link Terminals in Helsinki and Kotka).

The same stake in Global Ports is held by A.P. Moeller-Maersk A/S through APM Terminals B.V. The market experts do not rule out a possibility of Delo Group’s NUTEP, a container terminal in Novorossiysk, to join Global Ports via a sale and purchase transaction.

A port welcomes concession

A concession agreement for implementation of the project on construction of coal terminal “Lavna” on the left shore of the Kola Bay (Murmansk Region) was signed in November.

The concession mechanism provides for a concession operator to build coal terminal “Lavna” of 18 million tonnes in capacity with a concession grantor to ensure accessibility by transport and to complete Phase I of railway infrastructure construction.

Investors to inject RUB 24 billion in the coal terminal construction. As of today, preconstruction works, grading and levelling are underway at the site. A contract has been signed for equipment supply. The terminal’s Phase I with 9 million tonnes in capacity is to be put into operation in December 2019, Phase II – in December 2021.

Main lines future

The future of Russian ports will be determined by the plan for core transport infrastructure development till 2024, corporatization of Rosmorport and legislative improvements. All of this is to raise overall annual capacity of Russian ports by 350 million tonnes minimum with their throughput to grow by one third.

According to the basic scenario, annual capacity of ports in the Arctic Basin is to grow by 65 million tonnes, in the Far East Basin – by 130 million tonnes, in the North-West Basin – by almost 55 million tonnes, in the Azov-Black Sea Basin and the Caspian Basin by 105 million tonnes.

This result is to be achieved through implementation of several ambitious projects covered by the mentioned plan. Among the projects selection criteria was their attractiveness for private investments as we wrote earlier >>>>

Technological issues of building seaports in Russia will be discussed at the 2nd Dredging and Hydraulic Engineering Structures Congress which will be held in Moscow on 20 - 21 February 2019 >>>> 

The coming year is expected to be crucial for inland water ways in terms of a balance between different types of transport, mostly railways and inland water ways. Discounts for railway transportation during the navigation period are among the key barriers hindering the development of cargo transportation by rivers. As Yury Tsvetkov told journalists in December 2018, the criteria of transport balance are to be defined by spring 2019.

The key event for shipbuilding will be the approval of “Specifications of industrial products to be rated as goods manufactured in the Russian Federation”, a supplement to RF Government’s Order No 719 “On confirming Russian origin of industrial goods”. That should ensure a sound support of imports substitution and localization in the segment of shipboard equipment as we wrote earlier >>>> .

Nadezhda Malysheva, Vitaly Chernov.