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2021 July 14

How Primorsky UPK will reshape Baltic logistics

Russia is still dependent on a number of cargoes from foreign ports of the Baltic States and Finland. At the same time, Primorsk has a convenient harbor featuring original depths that enable the port to receive large-tonnage vessels. In an interview with PortNews, Andrey Sizov, General Director of the company, told about the Primorsky UPK project.

- Mr Sizov, as of today you have successfully passed compliance review of your project by Russia’s Glavgosexpertiza. When do you plan to start the construction?

- Yes, we have. In early July, Glavgosexpertiza of Russia issued a positive opinion on Primorskiy UPK project. Overall, 42 state experts participated in the project compliance review, but commonly the number does not exceed 10-15 experts. For 150 days, the experts carried out a thorough study and comprehensive analysis of the provided project documentation and technical reports on comprehensive engineering surveys and special studies.

The port complex construction is scheduled to start in the third quarter 2021. Today, the developer is preparing to begin predevelopment phase on the construction site.

- How do you assess the permits and approvals phase procedure and the process of obtaining all the necessary approvals for the project?

- Positive opinion of Glavgosexpertiza is the milestone in the procedure of obtaining approvals and permits. This was preceded by six years of hard work of our entire team, aimed at verification of design solutions including technological and environmental ones. Before undergoing the main state expert compliance approval phase, the "Primorsky UPK" project of construction had received all the approvals and permits on the federal and regional levels. But, this is only the beginning and there is a lot of work ahead.

- Mr Sizov, the key advantage of your project is the availability of very deep harbour. What will be the port basin design depths?

- Primorsky UPK will be the deepest Russian port in the Baltic Sea with its original depths of about 18 meters. Such depths was one of the main factors that influenced the choice of the future port construction site. For the same reason the Transneft's Liqud Bulk Terminal was built there.

The second important factor was the ice conditions, the non-freezing harbour, which allows the port to handle even 200 000 dwt vessels all year round.

- So, you are going to compete with foreign ports of Baltic States, Finland. Is the Belarusian cargo traffic still possible? How realistic is it to obtain those freight flows?

- We are not just counting, we are creating a complex so that all Russian enterprises have the opportunity to export their products, using the ports of Russia, which are in our jurisdiction. Today, the available cargo nomenclature in the Baltic countries only is about 60-70 million tonnes per year, and it is shrinking every year because new terminals are being commissioned in our country. With regard to logistics it is gradually becoming economically feasible and convenient for shippers to use the ports of Russia. Therefore, 100% of cargoes that previously were handled at the ports of Ukraine, Finland and Poland will soon be redirected to the territory of the Russian Baltic Sea, to the terminals that have been and are being created, designed and will enter service until 2025. Russia will become exports independent in this area. In addition, we see great interest from Kazakhstan. Ore, coal and agri exports from this country also tend to follow the route.
We have good relations with our colleagues from Belarus. They are well aware of our mineral fertilizers handling capabilities, and this is a large volume of cargo and an important industrial cluster of the neighboring country. We are ready to handle Belarusian mineral fertilizers through our terminals, the question is in the logistically correct connections and utilization of the railway infrastructure.

- When executing such ambitious projects, great attention is paid to the environmental concerns. Please tell us more about the technologies of closed handling that are planned to be implemented at your transshipment complex?

- Today, more and more attention is paid to environmental issues at the federal and regional levels. It is said that any coal handling should be with minimal or even zero emissions. Our complex will be the first such example on the territory of Russia. The cargo is completely isolated, with zero emissions and no negative impact on the environment.

There are certain elements of the closed transshipment technology that have already been executed in Russia. For example, a closed technology for unloading coal laden cars using rotary car dumpers. But, we have moved even further, having developed and patented the technology of completely closed transshipment, transportation, storage and loading onto a ship of dusty bulk cargo: from the moment of unloading from railroad car to the moment of loading cargo onto a ship, including storage in indoor warehouses. The use of closed technology - from a carriage to a sea vessel - eliminates dust and noise impact on the environment and the water area of ​​the Gulf of Finland, this will be one of our main competitive advantages.

In addition, the Primorsky UPK warehouses for the storage of export coal and mineral fertilizers will be located outside the water protection zone of the Gulf of Finland, located off the coastline more than 500 meters.

- Tell us about the main parameters and phases of the project

- The most important, basic figure of the port today: when fully operational the UPK’s projected annual volume is 65 million tonnes. This is more than 20% of the total cargo volume of Russian ports in the Baltic basin. Key facilities of the complex: a container terminal for handling containers, break-bulk and Ro-Ro cargo, a terminal for handling mineral fertilizers and agriproducts, both dry bulk and liquid bulk. There will also be a large terminal for dry bulk cargo, and the facility will also handle both coal and all types of ore. As for coal, more than 70% of the cargo will be coking coal, and the rest – thermal coal. The port dry bulk terminal’s first phase projected volume will be 15-20 million tonnes per year, the second phase – up to 25 million tonnes annually.

The container terminal’s projected exports / imports spread will be 50% to 50%. As to dry bulk traffic: imports will constitute at least 10-15% of total flows, and exports – 85-90%. The project envisages that outgoing goods will be exported through the territory of dedicated terminals, while the terminal for break-bulk cargo and containers will handle imports.

- Are there any provisional arrangements with cargo owners on transshipment of goods through the UPK?

- We do have such agreements. There are about five to seven shippers across the entire range of goods. We have already signed an agreement with each of them, but we cannot disclose this information. I can say that they are all those shippers who are currently importing their goods at the Port of Ust-Luga at the YUG-2 terminal, in particular coal, general cargo, metals, ore, mineral fertilizers. Also those customers who plan to expand their geographical footprint importing goods in large shipments – in this case it will require deep basin. Currently, the largest shipment of cargo loaded in Ust-Luga is 90 000 tonnes, with rare exceptions. For example, Primorsky UPK will be able to load a batch of 150 000 - 200 000 tonnes.

We have long-term firm agreements with shippers until 2030 or until 2035. That is, these are all those who are going to expand the geography of supplies and build long-term strategies for their development.

- Are there any provisional agreements with the container lines?

- As of today, we are in talks with all the lines, but so far we are more focused not on the container line, but on the cargo owners.

- What is the situation with railway and road access to the port?

- We obtained the railway technical specifications in May 2019. The specifications imply a carrying capacity of 34 million tonnes a year, with another 31 million tonnes moved on the new high-speed four-lane highway, which is now being designed and that will connect the port with the federal Scandinavia highway. These volumes will ensure a 100% port capacity utilization.
The railway branch line first phase was completed about five years ago. The next phases will be gradually commissioned to ensure the required annual throughput capacity of 34.0 million tonnes.

- Do you plan to create your own railway operator following the example of PUL Trans in Ust-Luga?

- Today Ust-Luga is a port with many terminals with different owners. They use the general port infrastructure and must pay for the services provided by the shunting operator and the maintenance of the entire general port infrastructure.

We plan to establish such a division within the framework of our project, but, unlike Ust-Luga, it will serve all terminals with a single ownership, as our structural subdivision.

- Please tell us more about the logistics center

- An integrated approach to the creation of a container terminal and a multimodal transport and logistics center makes it possible to organize additional services for handling cargo within the boundaries of Primorsk port. Considering that our port provides a unique opportunity to handle large tonnage container ships, the question automatically arises about the need for reusable empty containers. We are talking about warehousing, consolidation with the possibility of containerization and the creation of infrastructure for their delivery by both railway and road transport, the consolidation of certain shipments and the creation of a business that has historically always existed between sea and overland. The logistics center has just such a task to satisfy all the logistics needs of shippers exporting and importing containerized cargo.

- Previously, Primorsky UPK has already mentioned that the Primorsk SEZ will be the leader in Russia in terms of preferences. What will be your advantages?

The task of our project is to be more efficient and to offer our partners the best possible conditions. All this is created in order to make the movement of freight flows around the world faster, cheaper, more convenient and smooth. By achieving these goals, we are contributing to the efficiency and growth of the country's cargo throughput.

One of the important steps in this direction will be the creation of a special economic zone (SEZ) "Primorsk", allowing favorable tax and customs regimes, including an accelerated VAT recovery, and the possibility of long-term customs duties free storage of goods in the port territory. We will create the necessary conditions for cargo owners to bring their products to the quality they need with high added value on the territory of our port. The necessary infrastructure will be created and the opportunity to place cargo handling facilities will be provided.

The Primorsk SEZ being created will further attract cargo owners interested in long-term storage of goods on the territory of the free customs zone. And it will be possible to create within the free areas reserved for the development of the port of Primorsk, industrial production clusters using imported components delivered in containers, which will increase the container terminal's freight traffic.

Primorskiy UPK will become an example of a highly efficient port in Russia, not only engaged in stevedoring, but also including a part of the production cluster, that is, the port and industrial zone.

- Continuing on the containers topic, we can say that there is already a fairly large container handling capacities in the ports of the Russian Baltic. What is so special about your container terminal?

- The uniqueness of the port is that our 18-meter depths will allow us to receive the largest container ships, which is not possible as yet for other Russian terminals in the Baltic Sea. Besides, the original depths will provide direct containers transport by 20000-teu container ships. Freight carriers will not have to spend additional resources on transshipment of goods onto feeder ships in Europe, which is common now in the shallow port of St. Petersburg that can accommodate ships with a draft of up to 11 meters. In addition, there are some challenges in St. Petersburg with ship calls, ice conditions, with the traffic priorities and insufficient terminal infrastructure for this type of vessels.

Today, the possibility of operating large-tonnage bulkers and container ships from the port Primorsk to the ports of Western Europe has already been proven. Central Marine Research and Design Institute (CNIIMF) presented in its research the data on dimensions of container ships types that can pass through the Danish Straits. Modern shipyards are considering building in the next 5-7 years, ultra large chieftainships up to 23 000 TEU, which will be able to transit the Danish straits sailing to the port of Primorsk.

Therefore, in any case, we plan to attract our client interested in shipping large batches of cargo. There is no competition here. Rather, we are talking about opening a new niche and complementing existing options. Those who are satisfied with small shipments, say, 4000, 5000 or 6000 TEUs will continue to use the existing terminals. We're talking about huge exports / imports shipments. Despite the fact that the prospects for containerization of grab bulk and bulk cargoes also entail an increase in the volume of container traffic, which can be fully implemented on the territory of the Primorsky UPK.

- Are there any plans to arrange the movement of container trains to the terminal?

- Today, the Moscow-St. Petersburg service is the key area and the most ambitious. I think that our proposal for large cargo batches will be interesting for large logistics companies operating with containers, while railway shuttles may be also involved.
And Belarus is a good example here: the country is implementing on its territory a project in partnership with China of a logistics complex. It might be interesting to connect this hub and our port.

- Are you planning to create your own harbour fleet?

- We are considering the possibility of creating a fundamentally new harbour fleet operating on liquefied natural gas (LNG). This confirms the goal of Primorsky UPK - to ensure minimal or zero emissions to the environment. In addition, we are able to use this bunker fuel and believe that it will be efficient.

We have chosen the right port location, since both the Cryogas-Vysotsk LNG terminal and the Portovaya compressor station are located in the vicinity. In addition, our partners in the Baltic Bulk Stream project operate in the Port of Rostock in Germany that will handle large bulk carriers loaded in Primorsk. There is also the possibility of LNG bunkering at the future Novatek terminal. Accordingly, these vessels will be able to use LNG, which will undoubtedly have an effect on the ecosystem of the Baltic Sea.

- What about personnel? How many jobs can you create for local residents of the Leningrad and nearest regions?

- There is a firm trend today in the region of creation of jobs for local residents, we have good personnel training at colleges, secondary and higher educational institutions. Next year, we start retraining of subprofessionals to adapt to work in the port.

We are currently in talks with Admiral Makarov State University of Maritime and Inland Shipping to develop a cooperation agreement. As part of the partnership, it is planned to integrate methodological, human and technological resources, scientific and teaching potential of the university for our project.

We plan to create nearly 6 000 new jobs and the majority of employees will be local residents of Primorsk, Vyborgsky district, St. Petersburg, Leningrad region and the nearest regions of the Russian North-West. Of course, some rare, narrowly focused professionals can be attracted from other regions of Russia.

Considering the nepotism coefficient, we assume that an additional 15000 or 20 000 inhabitants will appear in the city of Primorsk. The city will become a significant point of attraction for social life in the next five to ten years.

Large-scale changes are ahead, including the construction of a new residential area, the necessary social, commercial, public, business, engineering and transport infrastructure. We plan to execute a project for the improvement of the coast of the Gulf of Finland in the area of a new residential area and the central part of Primorsk, to create recreational facilities for local residents. The city of Primorsk, together with Primorsky UPK will built a residential neighborhood for 12 000 people with all the necessary social, public, business, transport and engineering infrastructure.

- What is the project total volume and sources of financing?

- The total amount of required investments in the project will be at least RUB 200 billion. These are borrowed funds without any participation of budgets of all levels. They will be spent in stages, as the cargo volumes of each of the terminals increase. Moreover, each terminal is created solely as independent, so this amount will be invested in the complex within five years, reaching its full capacity.

If we talk about the sources of financing, these are both the investor's own funds and the funds of Russian credit institutions. Today, there are several banks interested in the project, because port facilities are the most reliable, long-term and profitable investment with a good return.

- Will the businesses be able to save money on the delivery of goods through your terminals?

The rates of our terminals are planned at the level of the operating ports. At the same time, cargo owners will be able to ship by large-tonnage fleet and save on freight, as well as due to the expedite handling of railroad cars and high-performance reloading equipment. And, of course, the businesses will enjoy additional preferences in the port special economic zone, mentioned above.

- What can you say about the effect of the project on the economy?

- We need to talk about the multiplier effect: this is huge money that will be received by various sectors of the economy in Russia, and multi-billion investments, which are the driver of the development of different regions of the country. About 16 constituent entities of the Russian Federation will implement their industrial potential, using our port as an exports gate. These are Kemerovo, and Novosibirsk, and the Krasnoyarsk Territory, and the Lipetsk Region, and the Leningrad Region.

Interview by Sophya Vinarova