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2014 February 12

Silk Way via Crimea

We have recently written about Russia’s decision to speed up the construction of a bridge over the Kerch Strait amid the unrest in Ukraine. However, the Crimea is also a sphere of interest for China having ambitious plans to develop a raw-material, a logistic and, probably, a naval base there.

Latest suggestion of China

If China succeeds with all its plans related to the Crimea, the peninsula will become its raw-material and logistic base in the Black Sea region.

On January 20, 2014, the Crimea and China have signed a memorandum on implementation of a pilot integration project in the agro-industrial complex during a visit to Beijing by Crimea’s Deputy Prime Minister Rustam Temirgaliev. Chinese companies plan to invest in development and modernization of irrigation systems, including drip irrigation, introduce modern agricultural technologies in Ukraine, and develop agricultural storage and logistics complexes. The project also involves construction of a grain terminal at a Crimean port.

The project will be implemented by the Krymzernoprom company on the Crimean side and the State Corporation for International Economic Cooperation on the Chinese side.

One of the largest banks in China will finance the project. The Chinese side accepted the Crimean government’s demand that that only Crimean labor should be used and that the land used should retain the status of Ukrainian state-owned land. Besides, the Chinese side is going to consider the possibility of creating and industrial part in the Crimea.

China is really interested in establishment of its own facilities for grain production. According to the forecast, this agricultural year will see a record high import of grain to China – some 5 mln t, 1.7 times up against 2012. 

However, the plans on creation of transshipment facilities go beyond the issue of grain export. 

The first phase implies the investment of $3 into the construction of a new deepwater port, development of the economic zone and reconstruction of port Sevastopol. The second phase, valued at $7 bln, implies the construction of an airport, a shipyard and a terminal fro LNG transshipment. Reportedly, the resources needed for the first phase have been found already. With bank loans and investor’s own funds, the construction is to commence in late 2014. 
The investor, Beijing Interoceanic Canal Investment Management, is also known for the project on construction of a navigable canal (valued at $40 bln) in Nicaragua as an alternative to the Panama Canal. 

According to Aleksei Mazyuk, head of Kievhydroinvest (the contractor), quoted by the Ukrainian media, dredging works are needed to make the water area of the new port up to 25 meters deep. The project implies the construction of several terminals and grain storage facilities with total capacity of 20 mln t. The port’s design capacity is 140 mln t. The location is still a matter of discussion with the following grounds being considered today: Donuzlav lake, Kerch district and Frunze area. The plans have already raised protests of environmentalists and local residents.

Silk plans

Apparently, the port with such parameters will focus not only on grain exports but on transshipment of other cargoes as well. However, it is not clear, what cargoes and where. We used to write that the Crimea is not likely to become a competitive container hub in the Black Sea >>>>. The Bosphorus Strait imposes limits for vessels (length is not to exceed 300 meters), Istanbul is an excellent port for container transshipment and Ukraine itself has sufficient number of well developed seaports while Russia is building a dry cargo district at port Taman which is to become one of the largest ports in the country. 

The Chinese side is focused on the revival of the Great Silk Way (historically coming up to the district of contemporary Kerch). In this case, cargoes can be further transported to Russia and Europe. However, it would be more logical to come to Europe directly via the Suez Canal (not existent in the time of the Great Silk Way) or to use the existing ports of the Black Sea.

As for the LNG terminal, it is supposed to be built at port Yuzhny (Odessa Region of Ukraine). Gas is to be transported from Azerbaijan (due to the limits of the Bosphorus Strait again). State company National Project LNG-Terminal has already obtained a permit for the development of land allotment project. Does Ukraine need the second LNG terminal in the Crimea is highly questionable. Moreover, if political perturbation in Ukraine leads to a close “friendship” of the Crimea and Russia, the need for imported LNG in the Crimea will decrease even more.

So, the project does not seem to be economically efficient. It is a different story if China pursues not only economical but also political purposes. For example, it is not quite clear what means the reconstruction of port Sevastopol, which is a base of RF Black Sea Fleet today. Besides, the re is a plan to build a shipyard. It should be noted that by 2020 the Black Sea Fleet will be based in Novorossiysk which is being prepared for the purpose. Will that vacant place remain unoccupied if Chinese investors adapt the economy of the autonomous republic to their own needs?