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2019 June 25

Ambitious plans of Far East and Arctic Development Ministry

The Ministry for the Development of the Russian Far East and Arctic has announced the project on construction of Sakhalin and Hokkaido bridges and a deep-water port total estimated at almost half a trillion of rubles. Transport industry experts interviewed by IAA PortNews believe it is a senseless project that will not pay off.

Miscalculation instead of estimation

The Ministry for the Development of the Russian Far East and Arctic has recently presented an ambitious project on construction of a bridge to the Sakhalin island with a possibility to extend it to the Japanese island of Hokkaido and a deep-water port ensuring its loading. The project announced at the meeting of the Ministry’s Social Council held in the Civic Chamber of the Russian Federation is estimated at RUB 433 billion to be invested by the federal budget by 2025.
According to the authors of the idea, the bridge to Sakhalin and Hokkaido will let connect the ports of Japan to the network of Russian railways. Two alternatives are under consideration today: a bridge and a tunnel with a priority given to the railway bridge across the Nevelskoy Strait with total leng of the railway line of 580 km.

There is a parallel project of Russian Railways estimated at over RUB 500 billion and suggesting the construction of new port at the Gulf of Delangle (western coast of southern Sakhalin, near Ilyinka settlement).

Yet, it is not clear what is the cargo base able to pay off half a trillion of investments. The position of Japan concerning those plans and its participation in the project is not clear either. As of today, the bulk of cargo flow via the ports of the Far East mainland is made by coal. In 2018, coal and coke transshipment via the ports of the Far East Basin totaled about 91 million tonnes. Notably, the cargo flow is not limited by the ports capacity. The capacity of Transsib and BAM hinders it. As Vladimir Sosipatorov, Managing Director of Vostok 1520 LLC, said at TransRussia (16 April 2019, Moscow), even with the completion of the BAM and Transsib projects, the capacity of railways will not be sufficient to meet the demand of the market while the ports in the region are ready to face the considerable growth of cargo flows. According to the speaker, last year is a telling example of imbalance between the capacity of transport system elements – domestic manufacturers and exporters applied for transportation of volumes exceeding the capacity of railway by 20%.

The Sakhalin bridge will not solve the problem of insufficient capacity of railway approaches.

Besides, coal exported via the Far East ports is sold not only to Japan (it accounts for about 17% of exports). It is also exported to other countries of the Asia-Pacific Region. So it should be transported by sea, anyway. If there are sufficient facilities on the mainland and on the Sakhalin, what is the reason to build a bridge for them?

Apart from coal, exports from Sakhalin include oil (about 5,6 million tonnes in 2018) and liquefied gas (about 11.4 million tonnes in 2018) via the port of Prigorodnoye. About a half of Sakhalin oil is exported to Japan. There is no reason to build a bridge to Hokkaido for that purpose.

Moreover, Hokkaido does not have sufficient port infrastructure for transshipment of raw materials from Russia to other regions of Japan. The island is connected with the rest of Japan by a railway tunnel mainly used by high-speed passenger trains. Is its capacity enough for cargo trains carrying raw materials from Russia is a separate question which be considered and discussed with Japan.

As Alexander Goloviznin, Director Analytics and Logistics, Morstroytechnology, told IAA PortNews, “there is no cargo flow in the region to make that bridge construction reasonable. The existing port facilities and port projects under implementation successfully meet the available volume of cargo”.  

State resources

Not only does the project with questionable economic viability requires almost half a trillion of budget resources, its implementation can make other state investments pointless.

For example, Amursky Shipyard is building two RO-RO ferries of Project CNF11CPD 00300 for Vanino-Kholmsk line ordered by State Transport Leasing Company. The ferries are to be delivered in December 2019. RUB 5.5 billion of budget resources have been allocated under the project.

FSUE Rosmorport, in its turn, is going to perform reconstruction of Phase 1 and 2 of the ferry complex in Kholmsk and Vanino this year. This project has been synchronized with the construction of the two new ferries.
Obviously, the ferry service will lose its significance in case of the bridge construction.

One more trillion

As for the cargo flow, that can be generated apart from the existing one which is more than met by the capacity of ports, capacity of the Transsib and the BAM  are to be boosted. Experts estimate that expansion at additional trillion of roubles. The comprehensive plan for upgrading and expanding core infrastructure foresees the Transsib and BAM capacity expansion to 180 million tonnes by 2024. However, even then, only a small portion of this cargo flow will go to Japan. If the idea is to ensure seamless coal logistics for Japanese consumers it would be reasonable to expect most of expenses from them. The other question is how profitable it is for Japan. If increased capacity of BAM and Transsib means larger volumes cargo bound for Japan (additional 20-30 million tonnes per year) with preservation of current export proportions, transshipment of such volumes can be ensure with construction of a high-tech sea terminal for up to RUB 50 billion, ten times less than the estimated value of the Sakhalin bridge. Meanwhile, the expenses are highly likely to increase during the project implementation. The more so, as additional 20-30 million tonnes per year can be actually handled by the existing port facilities in case of relatively low injections are made in their expansion and modernization. The rest of the additional cargo flow will be anyway transshipped via ports (of course, if there is no task to contribute to the development of port industry in Japan).

So, this mega-project is still disputable from the point of view of economic feasibility.

Vitaly Chernov