• 2017 April 6

    From where Magadan is seen

    The only “window to the world” for Magadan is the seaport, the functioning of which is crucial for the entire area. Transport isolation of the region plays into the hands of large companies seeking to monopolize the market while smaller transport and logistics businesses complain over being squeezed out of the market under far-fetched pretexts. The situation with transshipment of petroleum products in the local port is a textbook example of the competition environment in remote ports.

    A blow from OSR Plan

    According to Rosmorrechflot, there are 7 berths in the port of Magadan including 6 dry cargo berths (Commercial Sea Port of Magadan, MMTP) and 1 oil berth (Kolymatransneft).

    Since Magadan has no railway link to the rest of Russia and the highway is just nominal, round-the-year supply of oil products is only possible via the seaport. In 2016, transshipment of liquid bulk oil products via the port grew by 7% to some 335,000 t.

    Several years ago, the region saw the appearance of companies that arranged transshipment of petroleum products in specialized tank containers through MMTP dry-cargo berths, thus creating a competition in the segment of oil product logistics (Trade and Fuel Company, Aerofuels Magadan, etc.). All in all, more than 10 companies used to supply petroleum products for the mining industry, air transport industry, construction of the Ust-Srednekanskaya HPP. Tank containers were delivered to the port by the Sakhalin Shipping Company and FESCO (about 20,000 t each every year). In addition to the tank-container logistics contributing to keeping down of prices for oil products in the region, this method of transportation ensured the guarantee of oil products quality, since the containers were sealed at the enterprise.

    However, the transportation of tank containers was unexpectedly suspended following the statement of a person, on the basis of which a check was carried out by the regional department of the State Marine and River Supervisory Authority (Gosmorrechnadzor) in December 2016 revealing the absence of a plan for recovery of oil spills. The deadline for the elimination of the violation was set at July 1, 2017, while the license for transshipment of cargoes with the 3rd hazard class (petroleum products) was not suspended. As Trade and Fuel Company told IAA PortNews, on January 24, 2017 MMTP announced the suspension of processing tank containers with oil products. Thus, the activity of small fuel companies has been paralyzed for half a year, which means the failure of contracts, the need to pay contractual penalties and, consequently, possible bankruptcy.

    In response to the inquiry of the Public Chamber of the Russian Federation, Gosmorrechnadzor head Konstantin Stolpovitsky, said that the department's instruction does oblige MMTP to stop handling tank containers with petroleum products, so this decision is the port's own initiative.

    In response to the inquiry of carriers dated February 22, 2017, LLC DV-ExpertSpecProject replied that the OSR plan for MMTP had been developed in 2012 under the agreement with the stevedore. Where it has gone – it’s a puzzle.

    In connection with the current situation, on February 20, 2017, a meeting was held in the office of the plenipotentiary representative of the Russian president in the Far Eastern Federal District, participants of which stated that the current situation could lead to a critical fuel shortage among the relevant consumers and suppliers. It was also noted that the deadline for correcting the breach for MMTP is very tight, and the stevedoring company does not take any active measures for this and stores the relevant documents improperly. MMTP was instructed to take measures to comply with the order of the Gosmorrechadnadzor in the shortest possible time and to report on them until February 27, 2017, as well as to ensure the transshipment of tank containers for the period of remedial actions.

    As Trade and Fuel Company told IAA PortNews, the matter did not go off the ground despite the decisions taken at the office of the presidential representative. The appeals to the Federal Antimonopoly Service of Russia (FAS), which has not yet taken effective measures though it is quite active in the stevedoring segment, did not help either. By the time of publication of the article, FAS Russia has not respond to IAA PortNews inquiry either. The address of the market participants to the regional authority had no actual effect.

    Meanwhile, the Federation Council paid attention to the situation. Andrei Kutepov, Deputy Chairman of the Federation Council Committee for Economic Policy, asked RF Transport Ministry to facilitate the settlement of the situation.

    Thus, it was not possible to solve the problem at the local level. As a result of inaction, not only the said supplier companies will suffer, but also their consumers who will be forced to postpone the implementation of the relevant investment projects, or suspend their activities due to a shortage of fuel, and eventually - to apply for fuel to monopolists who will dictate their conditions .

    It seems that direct involvement of the federal authorities is required to ensure competition in the market of Magadan, but it can be too late as this story is an example of systemic problems with the competition and the development of transport and logistics business in remote regions?

    Sofia Vinarova