Eastern wisdom is in forecast

RF Government continues discussing organization of railway transportation in the eastward direction. The Ministry of Economic Development expects the eastward railway traffic to grow by 60 million tonnes by 2030. The market players consider this forecast to be too low. Analysts say incorrect planning of the country’s key economy focused ministry is to reduce the scale of the future infrastructure projects.

At a meeting chaired by Vice Prime Minister Andrey Belousov and held in early December, the Ministry of Economic Development presented its forecast on export/import flows within the Eastern Polygon until 2030. 

The Ministry expects the cargo with high added value (all cargoes except coal) to show an increase at this section of Russian Railways by 30.8 million tonnes over the coming eight-year period. Coal exports across the Eastern Polygon is currently limited by the railway capacity. By 2030, with the implementation of the Eastern Polygon development project’s Phase II (BAM and Transsb development), annual coal transportation will grow by over 28 million tonnes. That coal will be directed to Russia’s Far East ports. Additional 25 million tonnes per year can come from Kuzbass and Elginskoye fields but that forecast has not been confirmed so far. The above data has been obtained by IAA PortNews after the meeting dated December 8 although no comments have been provided by the Ministry.

Thus, the growth forecast of the Ministry of Economic Development concerning export/import flows of cargo in the Eastern Polygon by 2030 ranges between 59 million tonnes to 84 million tonnes per year. 

As Russian Railways told IAA PortNews, annual throughput capacity of BAM and Transsib has been 144 million tonnes from 2021. In 2022, actual throughput is to reach about 150 million tonnes. “The difference is due to some technological measures including transportation of heavy weight and completion of some priority facilities in the framework of Phase II of the Eastern Polygon development project,” said Russian Railways. From 1 January 2023, throughput capacity of the Eastern Polygon will make 158 million tonnes. However, Russian Railways plans to carry about 160 million tonnes in 2023 due to implementation of some technological activities. Taking into account the forecast of the Ministry of Economic Development, annual cargo flow will reach 219 million tonnes in 8 years. Experts say this forecast is below the market demand.

The railway cannot cope with the volume of cargo transported to and from the Far East as compared with the requests of companies engaged in foreign economic activity, especially amid the logistics pivot, Yury Trutnev, Deputy Prime Minister of the Russian Federation - Presidential Plenipotentiary Envoy to the Far Eastern Federal District, said in summer.

“All products that are manufactured in Russia by export-oriented companies turned to the Far East, to countries with which we continue economic cooperation. BAM and Transsib failed to deliver 70 million tonnes of cargo in 2021. In 2022, that volume is forecasted to reach 100 million tonnes as the demand is as high as 258 million tonnes,” Yury Trutnev said in early July 2022 at the meeting in Khabarovsk. 

Modernization of the Eastern Polygon is underway. In pursuance of the presidential order, the capacity of the BAM [Baikal-Amur Mainline] and Transsib [Trans-Siberian Railway] is to be increased 1.5 times to 180 million tonnes by 2024. However, that capacity can prove to be insufficient since the demand for the Far East direction is still growing. For example, with the introduction of embargo on Russian oil in 2023 part of that cargo can be redirected to China by railway tank cars, thus creating an additional demand for the Eastern Polygon infrastructure, according to IAA PortNews sources.  

In the autumn 2022, the market participants estimated the shortage of the Eastern Polygon capacity at 140 million tonnes per year – that was announced by Ruslan Baisarov, Chairman of Bamtonnelstroy-Most BoD, speaking at the Eastern Economic Forum. He believes that annual capacity of 284 million tonnes is needed.

Yury Trutnev believes that the turn of the cargo flows to the Far East has drastically increased the timing requirements on modernization of the Eastern Polygon. “We are to figure out what is needed, - said the Deputy Prime Minister said. - If money, it should be allocated and the labor force and equipment should be attracted. That is a task that should be solved without scheduling.”

The transport infrastructure development, especially large-scale strategic projects, is based on forecasts. However, as the market participants told IAA PortNews, the Ministry of Economic Development does not fully take into account the current shortage of railway capacity and also underestimates the global coal demand. 

Global coal demand

According to IEA, the international coal market remained tight in 2022, with coal demand for power generation set to hit a new record. Coal prices pushed higher by the strains caused by the global energy crisis, especially the spikes in natural gas prices, as well as adverse weather conditions in Australia, a key international supplier.

Coal 2022, the IEA’s latest annual market report based on current market trends, forecasts that coal consumption will remain flat at that level through 2025 as declines in mature markets are offset by continued robust demand in emerging Asian economies.

Apart from the European Union, key consumers of Russian coal are China, India and Turkey.

The global coal trade is undergoing structural changes with a shift from the Atlantic to the Pacific region which currently accounts for 80% of the global coal trade, Irina Olkhovskaya, UMMC Director for Port and Rail Projects, said at the Eastern Economic Forum. In the 7-month period of 2022, APR accounted for 61%, or 78 million tonnes. Thus, Russian coal is mainly carried by railway from the production sites to the Far East ports which feature the excess of coal facilities as high as 50 million tonnes per year. Investors’ intention to increase shipments of coal from Russian ports is confirmed by their money, experts told IAA PortNews. However, it is getting harder to deliver coal and other cargoes by railway there. 

Container trains vs coal trains

The Ministry of Economic Development has assessed the effects of transporting various types of cargo along the BAM and the Transsib. According to the Ministry, the budgetary effect from the export of one container train is 2.8 times higher than from the export of one thermal coal train, on the average (the state budget revenue from the former is RUB 5.6 million, from the latter – RUB 2 million). Moreover, Russian Railways incurs financial losses from the transportation of thermal coal from Kemerovo to Vanino and Sovetskaya Gavan ports. 

A discussion of the access to the limited infrastructure of the Eastern Polygon between the container operators and coal companies has aggravated amid the eastward pivot of Russia’s logistics after February 2022. With the withdrawal of line operators from the North-West ports of Russia and introduction of sanctions against Russia, the Far East terminals turned into the main gate of the country for import of consumer and industrial goods. 

Coal mining companies and Kuzbass, in their turn, remind about the agreement to invest income received from transporting cargo eastwards into non-coal sectors of the economy in accordance with the order of the Ministry of Economic Development dated 4 October 2021. The total investment is estimated at RUB 72 billion and more than 1.8 thousand jobs are to be generated. The agreement with the Kemerovo Region Government’s Administration foresees eastward transportation of additional export energy products, 30 million tonnes, in 2022-2024.

On December 26, Kuzbass Governor Sergey Tsivilyov and Russian Railways management agreed on volumes of coal to be transported eastwards in 2023. The volumes of Kuzbass coal to be transported via the Eastern Polygon under the supplementary agreement is 55.1 million tonnes, according to the regional government.

In a rapidly changing world, Russian companies involved foreign economic activity expect more far-sighted decisions from the Government and more correct market forecasts from the Ministry of Economic Development. Otherwise, infrastructure projects prove to be insufficient in capacity even at the phase of planning and the conflict between owners of different cargoes and Russian Railways remains for a long time.

By Sophia Vinarova

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