Transport as means to conquer

Transport and transit opportunities in a globalizing world are increasingly becoming kind of powerful geopolitical weapon. It is used through lobbying certain norms of international law, as well as through infrastructure projects that are putting pressure on neighboring countries. Russia is also trying to use its transport and transit capabilities in national interests.

Russia’s challenge

Peter the Great embarked on building the city of St. Petersburg, with an intention, as Russian poet Alexander Pushkin put it, “to challenge its haughty neighbor." Today, Ust-Luga adjacent to the St. Petersburg port is increasingly becoming such a “threat” to its neighbors. With the launch of major new terminals there, freight traffic, which used to go through the ports of neighboring countries, has redirected to Russia. For an example, local market participants blame a decrease in cargo volumes of Estonia’s port of Tallinn, on the Ust-Luga port.

"They ceased shipments of Russian coal through Estonia in response to the "bronze night" of 2007. Now liquid bulk will also go away, which means that we’ll have to get used to living in new environment, and to seek a way out of the situation," Chairman of the Board of the Estonian Development Found Raivo Vare was quoted by local media as saying.

Indeed, now one of Russia's largest coal terminals Rosterminalugol operates at Ust-Luga, which coal exports have totaled 12.4 million tons as of November 21, 2012.

Moreover, Ust-Luga commissioned oil product terminal Rosneftbunker and the oil terminal of the Baltic Pipeline System-2 (BPS-2).
The BPS-2 terminal plans to have 15 million tons of crude oil exported by the year-end, of which about 20% account for oil from Kazakhstan. In 2013, nearly 30 million tons of crude oil will be exported through Ust-Luga. The operation of this terminal will affect, above all, the volume of transit cargo, previously shipped through Belarus and Poland.

Noteworthy, the EU officials have responded quite anxiously to the construction of the terminal and even appealed to the Russian authorities to close the project, as it, the Europeans said, poses a threat to the environment.

"Of course, the emergence of BPS-2 and the port of Ust-Luga have seriously hit some transit countries, and I am convinced that such sensation in the foreign media regarding our terminal is not accidental," commented the situation Neva Pipeline Company (the terminal owner) CEO Konstantin Hamlay.

Regarding oil products terminal "Rosneftbunker", in 2012 it is planned to ship through the facility more than 12.5 million tons of fuel oil supplied largely from Kirishi refinery. The terminal was launched on January 31, 2011 in test mode. The terminal projected capacity is 30 million tons a year. The main rivals of Rosneftbunker are Estonia’s Port of Tallinn and Latvia based Port of Ventspils. Earlier, in an interview with PortNews Director of the Transit Policy Department of the Latvian Ministry of Transport Andris Maldups confirmed that Latvia has already been experiencing strong competition from the Ust-Luga in the segment of raw materials handling and as an alternative is working to entice Chinese shippers, and intends to shift to working with high-yield cargoes.

In 2012 Ust-Luga saw the inauguration of two major projects, a container terminal of National Container Company (NCC) and Ro-Ro terminal for handling imported vehicles owned by Russian Transport Lines (RTL). Beside of Ust-Luga port of St. Petersburg also remains a threat to its rivals. Although the port expansion in the main part of the city, has reached its limits, Big Port St. Petersburg still has the potential for development outside the city boundaries. At some distance from St. Petersburg the outer harbor Bronka has been under construction. Bronka will specialize in handling containerized and Ro-Ro cargoes. The Bronka project was included in the federal target program, which means the government and investors intention to bring the project to completion. The MMPK Bronka Phase 1 projected capacity will be 1.45 million TEUs of containers and 260,000 units of Ro-Ro cargo. It is planned to increase the port complex annual capacity up to 1.9 million TEUs of containers. After its completion the Bronka will be able accommodate Panamax containerships and Finnstar class ferries. The outer harbor Bronka completion will allow not only fill the gap in handling facilities of Big Port St. Petersburg, but also attract some traffic from Finland and the Baltic states.

The new cargo area construction at the port of Taman is another project in the country’s southern basin that is set to begin in 2013. According to plans, in the future it will be the largest dry bulk cargo port in Russia and will likely redirect part of cargo flows from Ukraine to Russia. Currently, the designer - JSC Lenmorniiproekt provides for creation in Taman of the port infrastructure capable of handling 93.8 million tons of cargo a year.

The port will be integrated into the system of the international North-South transport corridor.

To manage the project a Rosmorport’s company has been established. Subsequently, the Krasnodar Territory Administration will join the participants of the project.

The project envisages the creation of marine container terminals, terminals for handling coal, grain, iron ore and fertilizer. The Taman port capacity by 2020 will reach 93.8 million tons.

The Strategy for the Development of Russia’s Port Infrastructure by 2030 developed by Rosmorport provides that the share of Russian foreign trade cargoes transshipped through foreign ports by 2030, should be reduced to from current 17% to 4%. The strategy developers believe that to reduce this share to zero does not make any sense to save money for the construction of transshipment facilities in domestic ports.

Response

Since Peter the Great Russia has been constantly struggling with the maritime powers for the parity on the sea. Now rivals of Russia still resort to attempts to reduce the possibility of domestic shipping on international sea routes. Thus, the above-mentioned strategy of port infrastructure development includes the risks associated with unfriendly policies of neighboring countries such as Turkey and the Baltic countries alliance to further tighten the shipping regime for transportation of Russian cargoes.

Moreover, some experts see an attempt to strike at the Russian transport system through environmental standards lobbied by Europeans. For example, reducing the maximum level of sulfur to 0.1% in marine fuel in the Baltic Sea region effective as of 2015. This measure is most sensitive for Russia, as the depth of the domestic refining still leaves much to be desired and significantly lags behind European standard. In this regard, the Baltic Sea based Russian ports might face the fuel deficit caused by the new fuel requirements implementation.

Russia is taking serious steps to revive the domestic shipping and the transfer of Russian shipowners under the flag of the Russian Federation. However, the very Russian shipping industry may be seriously threatened by the imposition of unilateral sanctions of the United States. As SCF Group’s Vice-President Vladimir Mednikov said at the Second International Conference of the Union of Marine Insurers (UMI) "Marine Insurance in Russia 2012", almost all international trade is carried out in USD, so any unilateral sanctions by the country, which prohibits a particular company to use the U.S. financial system, may lead to serious consequences. "This is the death of a club of mutual insurance, where the vast majority of transactions are conducted in USD,” Mednikov said. "Not giving some entities a possibility to be insured and to operate in a particular currency, such sanctions have risen sharply in its effectiveness. This may affect a lot of people who have not violated any law."

The situation with the development of the port complex of Kaliningrad region, the European part of Russia is also quite difficult. Discriminatory tariff policy of neighboring states hampers the development of the regional transport and transit capabilities. Thus, in 2011 the rates in Lithuania on Kaliningrad route were on average twice the rate of shipping to Klaipeda.

There are other infrastructure projects, directly or indirectly, against the economic interests of Russia. Among them - the projects of creation of LNG terminals in the Baltic states and Ukraine, an international corridor bypassing Russia – the Europe-Caucasus-Asia (entry into force of the Memorandum of Azerbaijan, Kazakhstan, Georgia and Turkey on the agreed rates, which are lower than the transit prices in Russia for at least 10-13%), the operation of FSO vessel in the Norwegian town of Kirkenes, etc.

To sum up, we’ll have to admit that as the integration of the world economy goes ahead, the contradiction between the economic interests of different countries will be increasing. In a globalizing world everyone will be trying to find one’s place in the sun, to stake out a claim to the most lucrative transit routes, to grab supply chains.  Therefore, Russia will have to increase its competitiveness in the transport sector, to reduce further the bureaucratic and other non-production costs, to apply modern technologies in the sector and satisfy stringent environmental standards. And of course, to carry out a competent foreign policy without antagonizing neighboring countries.

Vitaly Chernov.