18 April 2018
Russia Seeks Investors to Cover Widening Seaport Logistics Shortfall
With expansion planned for the Western Arctic and Far Eastern basin seaports, the government seeks public-private partnership deals in order to develop the multi-modal terminal facilities required to handle the increased throughput.
The logistics and transport sector has long played a pivotal role in the development of the Russian economy, with its seaports seen as particularly crucial. Even today, with the EU / US sanctions still in place, the throughput at these marine facilities has continued to grow. In 2017, according to figures from the Russian Seaport Association, the collective cargo turnover of the nation's ports grew by 9%, reaching a total of 787 million tons.
In terms of the much-needed future expansion of these facilities, the political tension between Russia and three of the former Soviet republics (Estonia, Latvia and Lithuania) has ruled out any greater cooperation with the seaports of the Baltic States. Instead, the development focus has switched to the Western Arctic and Far Eastern basins.
Under an initiative being driven by the Russian Inter-Ministerial Governmental Commission, plans are now in place to increase the capacity of the two basin's seaports by 22%, giving them a combined annual throughput of 251.3 million tons by 2020. By comparison, over the same period, throughput in the Baltic and Western Arctic basins is expected to grow by only 6.5%, reaching a combined total of 149.4 million tons.
In 2016, the Far Eastern basin seaports (Vladivostok, Vostochny, Hakhodka, Zarubino, Posjet and Olga), together with the Eastern Arctic seaports (Providenija, Egvekinot, Anadyr, Beringovsky, Tiksi and Pevek), accounted for 25.8% of Russia's overall seaport throughput, jointly handling some 186 million tons. Overall, bulk cargoes accounted for 45.1% of the throughput, liquid cargoes for 40%, containerised for 6.1% and general for 5.7%.
By comparison, the Baltic basin seaports (St Petersburg City, Primorsk, Ust-Luga, Vysotsk, Vyborg and Kaliningrad), as well as the Western Arctic basin seaports (Murmansk, Kandalaksha, Mezen, Narjan-Mar, Archangel City, Varandey and Onega), accounted for 39% of the overall total, jointly handling 282 million tons. Crude and processed oil accounted for 58.3% of the throughput, coal for 15.8%, containerised cargoes for 8.3%, general cargoes for 5.6% and mineral fertilizers for 4.7%.
While it is expected that the infrastructure upgrades currently underway will suffice to handle the higher levels of cargo passing through the Baltic and Western Arctic basins, the same cannot be said of the logistics resources open to the Russian Far East and Eastern Arctic seaports. In particular, it is believed that a shortfall in rail connectivity will hamper the expansion of the two sites.
The blueprint for the expansion of the Far Eastern and Eastern Arctic seaports takes it as a given that the level of bulk cargoes – particularly grain – will continue to rise, with the presumption being that Russia's raw materials and mineral exports will remain attractively priced on the global markets. In order to service this particular sector, there will be increased demands placed on the region's two primary rail links – the Trans-Siberian network and the Baikal-Amur mainline, which will eventually connect to Sakhalin, Russia's largest island and a territory rich in mineral resources.
Should the anticipated expansion targets be met, this will see a shortfall in the surrounding logistics infrastructure capacity of some 25.8 million tons. More specifically, in terms of inward and outward transportation capabilities, there will be an excess of 12.1 million tons of liquid cargo, 5 million tons of bulk cargo, 4.2 million tons of LNG, 3 million tons of Ro-Ro cargoes and 1.5 million tons of containers.
In particular, the problem is seen as bridging the gap between the seaports' handling facilities and access to the existing rail networks. At present, the solution advocated by the government commission is attracting sufficient external investment to develop multi-modal terminal facilities on a private-public partnership (PPP) basis.
For any Hong Kong investor keen to explore the viability of such a project, it is probably worth first becoming familiar with the Russian Railway Corporation's 2017-2018 Infrastructure Development Program. The rail operator has considerable experience of working on a PPP basis, having previously used such an arrangement to fund the development of carriages, station platforms, passenger trains and airport express services.
Particularly worth considering is the planned modernisation of the Suifenhe-Vladivostok line, a section of the former Trans-Siberian route that runs close to two Chinese cities – Harbin and Mudanjiang. This 180km line, connecting the seaports of Vladivostok, Nakhodka and Vostochny, could easily be extended a further 400km to Dalian, one of China's key marine hubs, which already handles a high volume of cargo from Heilongjiang and Jilin.
Leonid Orlov, Moscow Consultant