Konstantin Shvalev: investors get flexible logistics solutions placing their companies at the port
The group of companies Azov-Don Shipping Company (ADSC Group) is currently implementing a project for development of Rostov Universal Port, a multimodal transport and logistics hub at a port of Rostov. The Group is also building a river port of Ust-Donetsk in the Rostov region to become an industrial cluster. Evraz Group, the first major investor, has announced it would be willing to participate in building a mill in close proximity to the river terminal. It might become the first experience of the port-industrial areas in Russia. ADSC Group’s CEO Konstantin Shvalev told about this and a RUP project in an recent interview with PortNews.
- Konstantin why did you decide to start building the industrial and port area. Are there any successful examples of similar projects abroad?
- Let's start with the fact that the Russian southern region is the gateway of import-export flows, therefore, this region has always been attractive for the development of port and logistics projects. But many ports are build here are, are as it, “from scratch”, that will be focused only on cargo-handling rather than on accommodation facilities.
As for Ust-Donetsk, the port’s infrastructure was created in the former Soviet Union with enough capacity to handle 15 million tons. For now, freight flows never reach this volume (in Soviet times it made at the most 10 million tons a year), so encouraging investors to invest in construction of industrial plants in the port may eventually ensure inflow of cargo.
For example, China has a lot of similar projects. Corporations often build their factories near the ports. A South Korean port features a rolling mill constructed at its territory, similar to the mill our Evraz plans to build here. Actually, this is what we decided to adopt.
Initially, when we had studied the experience of EU ports we decided to focus primarily on containers handling, and we still stick to the idea. Among other things RUP is handling containerized cargoes, and Ust-Donetsk might also be handling this cargo. Incidentally, both ports are connected to each other by the railway and river. We are currently developing a logistics hub project (feasibility study) for Rostov Universal Port for containerized cargo. This will be the services associated with the storage, clearance and distribution.
- Konstantin why did you decide to start building the industrial and port area. Are there any successful examples of similar projects abroad?
- Let's start with the fact that the Russian southern region is the gateway of import-export flows, therefore, this region has always been attractive for the development of port and logistics projects. But many ports are build here are, are as it, “from scratch”, that will be focused only on cargo-handling rather than on accommodation facilities.
As for Ust-Donetsk, the port’s infrastructure was created in the former Soviet Union with enough capacity to handle 15 million tons. For now, freight flows never reach this volume (in Soviet times it made at the most 10 million tons a year), so encouraging investors to invest in construction of industrial plants in the port may eventually ensure inflow of cargo.
For example, China has a lot of similar projects. Corporations often build their factories near the ports. A South Korean port features a rolling mill constructed at its territory, similar to the mill our Evraz plans to build here. Actually, this is what we decided to adopt.
Initially, when we had studied the experience of EU ports we decided to focus primarily on containers handling, and we still stick to the idea. Among other things RUP is handling containerized cargoes, and Ust-Donetsk might also be handling this cargo. Incidentally, both ports are connected to each other by the railway and river. We are currently developing a logistics hub project (feasibility study) for Rostov Universal Port for containerized cargo. This will be the services associated with the storage, clearance and distribution.
- You have mentioned Evraz’s project of a rolling mill in Ust-Donetsk port. Could you tell us more about it and other projects for the port-industrial zone?
- Evraz Group announced about its major investment project for the port in late 2010. The Group plans to deploy at the port of Ust-Donetsk a new metallurgical production - ultra-modern "Yuzhny rolling mill” with a projected capacity of at least 450,000 tons of hoop a year by 2013. Ukrainian metallurgical plant of Petrovsky, part of Evraz Group, will supply square billets for “Yuzhny mill”. The plant will be based near a terminal owned by Evraz, a minimum distance for transportation of offloaded cargo to the mill.
However, we are actively searching for other cargo owners to invest in their port projects. We are currently negotiating with several major Russian and international companies who would be willing to invest in grain terminals in Ust-Donetsk, and in Rostov Universal Port. We are also in talks with a company interested in transshipment of cement at the port of Ust-Donetsk.
- Evraz Group announced about its major investment project for the port in late 2010. The Group plans to deploy at the port of Ust-Donetsk a new metallurgical production - ultra-modern "Yuzhny rolling mill” with a projected capacity of at least 450,000 tons of hoop a year by 2013. Ukrainian metallurgical plant of Petrovsky, part of Evraz Group, will supply square billets for “Yuzhny mill”. The plant will be based near a terminal owned by Evraz, a minimum distance for transportation of offloaded cargo to the mill.
However, we are actively searching for other cargo owners to invest in their port projects. We are currently negotiating with several major Russian and international companies who would be willing to invest in grain terminals in Ust-Donetsk, and in Rostov Universal Port. We are also in talks with a company interested in transshipment of cement at the port of Ust-Donetsk.
- How the billets will be delivered to the Evraz’ mill?
- The cargo will be shipped by land transport to Berdyansk, and then by sea-river-going ships or ATBs directly to the port of Ust-Donetsk. We plan about 80% of the cargo to be shipped from the Ukrainian plant by water transport. So, freight volume passing annually through the port will make up something about 400,000 tons. The rest volume is planned to be transported to the new plant by rail, which is due to navigation restrictions during the winter.
- What are the main advantages of the port of Ust-Donetsk to locate industrial plants there?
- The fact is that the port will be an ‘anchor’ for all enterprises in this zone. It is not necessarily that 100 percent of cargo intended for these enterprises will be transported by water. For example, goods for Evraz’ plant, will be carried, partly, by railroad. However, the investors who would opt for the port, locating their enterprises in the immediate vicinity of the port, receive significant competitive advantage, because here they have better logistics solutions, including shipping by all modes of transport.
For example, transportation of cargo by water for the company Evraz will be cheaper than other transport modes. Actually, we can always shift our cargo to rail transport when railroad rates will decrease. Thus, there is a choice that allows you to develop flexible logistics solutions.
- What goods are now being shipped through the port of Ust-Donetsk, and what is the annual volume you project to have in the next five years?
- Currently, it is sulfur for Gazprom, coal and gravel from local quarries and mines, fertilizer from Kuibyshev Azot. These cargoes were always transshipped at the port. We expect more shipment of rubble at the port and new cargoes, as I said, grain and cement, and also, possibly, wood. In the longer term we might handle containers here as well.
We project annual trade flows passing via the port of Ust-Donetsk to reach 5 million tons in five years.
- Who is the owner of land intended for industrial enterprises, and what is the total area of industrial zone?
- The industrial zone is located directly within the boundaries of port of Ust-Donetsk, and currently it encompasses 50 hectares. Owner of the land is our company. We’ve been in talks with the administration of Ust-Donetsk district of Rostov region to expand the port and industrial zone at the expense of municipal land. We plan to develop the project jointly with the district administration and the area. That could provide additional benefits, in terms of getting tax benefits. Now we are preparing the relevant proposals.
As far as I know, the local administration mulls over construction in the port zone a sugar factory and other businesses.
- What scheme do you use to attract investors to the port and its industrial zone?
- We consider almost all options: we can offer our land as authorized capital, lease the land or sell it. It all depends on what kind of strategic importance for the development of the port a cargo may have, what is our role in a particular project.
Regarding the construction of terminals, in each case, we will determine the scheme of financing individually with each investor of the industrial zone. We are interested in long-term investments and therefore are willing to co-finance these projects.
- How are you going to manage the zone’s infrastructure utilities?
- All the infrastructure of Ust-Donetsk port, which is not part of the terminals, is maintained and managed by our company. In general, there are a few options: 50/50 ownership, the creation of a management company, which will include several owners.
If we talk about RUP, the State is the main builder of roads and railways. The government also maintains the facilities through public-private partnership.
- RUP is a new project, unlike Port Ust-Donetsk, built during Soviet era. Is the RUP’s infrastructure ready today?
- As for the project of "Rostov Universal Port" we’ve been finalizing its first phase, including quay walls and the terminals. The State deals with roads and access railroads, but we fear that the railroad capacity may not be adequate to freight flow in 2011.
However, there is the Cossack station, built in the former Soviet Union. We just need to reopen it. Besides, we plan to build a new station near the port. In 2011, we expect the funding of railroad stations project to be launched under the federal target program.
- What is the cargo throughput of Ust-Donetsk and Rostov Universal Port by the end of 2010?
- In the calendar year 2010 Ust-Donetsk port handled 1,5 million tons, in 2011 the volume will not change. Rostov port transshipped 1.3 million tons, in 2011 the volume is expected at 2 million tons.
- The cargo will be shipped by land transport to Berdyansk, and then by sea-river-going ships or ATBs directly to the port of Ust-Donetsk. We plan about 80% of the cargo to be shipped from the Ukrainian plant by water transport. So, freight volume passing annually through the port will make up something about 400,000 tons. The rest volume is planned to be transported to the new plant by rail, which is due to navigation restrictions during the winter.
- What are the main advantages of the port of Ust-Donetsk to locate industrial plants there?
- The fact is that the port will be an ‘anchor’ for all enterprises in this zone. It is not necessarily that 100 percent of cargo intended for these enterprises will be transported by water. For example, goods for Evraz’ plant, will be carried, partly, by railroad. However, the investors who would opt for the port, locating their enterprises in the immediate vicinity of the port, receive significant competitive advantage, because here they have better logistics solutions, including shipping by all modes of transport.
For example, transportation of cargo by water for the company Evraz will be cheaper than other transport modes. Actually, we can always shift our cargo to rail transport when railroad rates will decrease. Thus, there is a choice that allows you to develop flexible logistics solutions.
- What goods are now being shipped through the port of Ust-Donetsk, and what is the annual volume you project to have in the next five years?
- Currently, it is sulfur for Gazprom, coal and gravel from local quarries and mines, fertilizer from Kuibyshev Azot. These cargoes were always transshipped at the port. We expect more shipment of rubble at the port and new cargoes, as I said, grain and cement, and also, possibly, wood. In the longer term we might handle containers here as well.
We project annual trade flows passing via the port of Ust-Donetsk to reach 5 million tons in five years.
- Who is the owner of land intended for industrial enterprises, and what is the total area of industrial zone?
- The industrial zone is located directly within the boundaries of port of Ust-Donetsk, and currently it encompasses 50 hectares. Owner of the land is our company. We’ve been in talks with the administration of Ust-Donetsk district of Rostov region to expand the port and industrial zone at the expense of municipal land. We plan to develop the project jointly with the district administration and the area. That could provide additional benefits, in terms of getting tax benefits. Now we are preparing the relevant proposals.
As far as I know, the local administration mulls over construction in the port zone a sugar factory and other businesses.
- What scheme do you use to attract investors to the port and its industrial zone?
- We consider almost all options: we can offer our land as authorized capital, lease the land or sell it. It all depends on what kind of strategic importance for the development of the port a cargo may have, what is our role in a particular project.
Regarding the construction of terminals, in each case, we will determine the scheme of financing individually with each investor of the industrial zone. We are interested in long-term investments and therefore are willing to co-finance these projects.
- How are you going to manage the zone’s infrastructure utilities?
- All the infrastructure of Ust-Donetsk port, which is not part of the terminals, is maintained and managed by our company. In general, there are a few options: 50/50 ownership, the creation of a management company, which will include several owners.
If we talk about RUP, the State is the main builder of roads and railways. The government also maintains the facilities through public-private partnership.
- RUP is a new project, unlike Port Ust-Donetsk, built during Soviet era. Is the RUP’s infrastructure ready today?
- As for the project of "Rostov Universal Port" we’ve been finalizing its first phase, including quay walls and the terminals. The State deals with roads and access railroads, but we fear that the railroad capacity may not be adequate to freight flow in 2011.
However, there is the Cossack station, built in the former Soviet Union. We just need to reopen it. Besides, we plan to build a new station near the port. In 2011, we expect the funding of railroad stations project to be launched under the federal target program.
- What is the cargo throughput of Ust-Donetsk and Rostov Universal Port by the end of 2010?
- In the calendar year 2010 Ust-Donetsk port handled 1,5 million tons, in 2011 the volume will not change. Rostov port transshipped 1.3 million tons, in 2011 the volume is expected at 2 million tons.
Interview by Vitaly Chernov