Is there a need for a Belorussian port in the Leningrad Region?

Belarus President Aleksandr Lukashenko suggests building a facility in the Leningrad Region for transit of Belorussian goods.
“We are now speaking and working a lot on changing logistics for the delivery of our goods. The Ust-Luga port is in Leningrad Oblast. We need to do our best to come to an agreement. And the primary issue is railway tariffs and transshipment in ports,” BelTA cites Aleksandr Lukashenko said.

Yet, no parameters of the facility have been specified.

Leningrad Region Governor Aleksandr Drozdenko, in his turn, invited Belarus to invest in one of the announced projects.

As of today, Belarus can redirect about 10 million tonnes of oil products to the Leningrad Region, as well as mineral fertilizers in the future. According to the official statistics of Belarus for 2019, the country exported 10.5 million tonnes of oil products, some 7 million tonnes of mineral fertilizers, 4 million tonnes of timber, 2 million tonnes of ferrous metal and a variety of general cargo.

Thus, the potential transit of Belorussian cargo via Russia is estimated at up to 25 million tonnes per year. Today, there is no sufficient capacity in the Baltic region of Russia. As for oil products, some 8-10 million tonnes can be taken over by the terminals of Ust-Luga and Saint-Petersburg as we told earlier >>>> , while dry bulk handling facilities are scarce. The projects on construction of large dry bulk terminals are mostly in the initial stages of implementation. Besides, Primorsky MRC project which is under construction in the port of Primorsk is too far for the Belorussian transit.  Thus, the logistics is to be based on the port of Ust-Luga.

Dry bulk projects being implemented in Ust-Luga are Lugaport, Ultramar and Eurochem with a site prepared for Lugaport, hydraulic engineering structures under construction for Ultramar and state expertise approval obtained for Eurochem. If all the terminals are put into operation as scheduled, fertilizers handling capacity of Ust-Luga port will grow by about 19 million tonnes per year. However, they are needed for fertilizers currently handled in the ports of neighboring Baltic states (about 10 million tonnes per year) while new production facilities are expected to add about 5 million tonnes more per year. Despite the excessive capacity it will not be sufficient for all transit cargoes of Belarus (taking into consideration that Primorsky MRC is not to be involved for Belarus’ mineral fertilizers).

When it comes to containerized cargo, there are enough facilities both in Ust-Luga and in Big Port St. Petersburg.

So, the matter under discussion is the construction of additional dry bulk cargo facilities of about 10-12 million tonnes per year (if the above-mentioned facilities are not to be deployed). If the new terminal is intended exclusively for Belorussian cargo, investments in the project can be as high as RUB 23 billion. Moreover, a special plot is needed for it within the port, approaches and other infrastructure including federally owned ones. The construction will take several years and is not likely to be put into operation before launching of the earlier announced terminals. Those investments (including the federal ones) run the risk of being unrequired amid the rapidly changing political situation in Belarus and worldwide while there is no pure logic in shifting Belorussian goods to the ports of Russia.

In this context, the Governor’s idea of investing in one (or probably several) projects announced earlier seems to be reasonable. The more so as their design foresees expansion if necessary. Besides, some of Ust-Luga investors have announced ambitious coal handling capacity which can prove to be unnecessary. Potentially, they can be used for transit of other goods from Belarus.

Belorussian investors could ensure a certain share of capacity under those projects without building a terminal from scratch. On the other hand, Russian investors would ensure a more stable load or could promptly offer their facilities to other shippers in case of terminated supply from Belarus.

Actually, the issue of Belorussian transit, as rightly mentioned by Aleksandr Lukashenko, is more about railway tariffs rather than about absence of facilities. As we wrote earlier, to make oil products logistics economically viable, Russian Railways will have to offer Belarus a great discount. We estimate it at 70-80% of the basic rate. Thus, the issue is more about politics than about logistics.

Vitaly Chernov