Does the winner take it all?

Summa Group is giving ground in its rivalry with Transneft and RZD (Russian Railways). First company has succeeded in replacing Chairman of Novorossiysk Commercial Sea Port Board, and the second – has won in the Arbitration Court of Appeal a dispute with the regional antitrust regulators on the construction of the railway link to Ermilovo in the Leningrad region. Meanwhile, NCSP has announced new stevedoring projects, some of them with weak outlook.

Handling autos in Novorossiysk? No dice

The officials of Novorossiysk Commercial Sea Port Group announced ambitious plans for stevedoring operations expansion amid a public debate of Summa with Transneft, the second shareholder of NCSP, insisting on replacement of top management of the Group.

For an example, NCSP press service reported quoting the statement of NCSP’s CCO Ruslan Nikitin that the Group plans to commence handling of imported vehicles in 2013 with projected volume of up to 250,000 cars a year.

Konstantin Skovoroda, general director of RTL, a Russian leading logistics company in shipments of imported autos, said "the idea is quite interesting, but the port of Novorossiysk is inconvenient for this type of cargo." The detailed story is available here >>>>

As Natalia Khan, head of BM Logistics’ multimodal transportation, shipments of Peugeot and Citroen minivans from Turkey through Novorossiysk port have already started. The existing yard receives monthly about 400 autos. This will make up about 5000 units. But to make the project feasible, a lot of work is to be done, Natalia Khan said. The first thing the port will have to do is the excise customs, as now Novorossiysk customs does not issue vehicle registration documents to legal entities. "If this is future, it is not in the near future," the expert believes.

Moreover, the NCSP has announced plans of United Grain Company (UGC, owned 50% (-1 share) by Summa, another stake – in public ownership) to build a terminal for import / export of up to 2 million tonnes of vegetable oils. Total investment in the project is valued at RUB 1.5 billion. UGC is set to commence the facility construction in 2014, commissioning is scheduled for the 2015-2016. This project looks more workable than that of imported car transshipments as it is related to production (UGC), co-owned by Summa. We note that there are other operating vegetable oil terminals in the Black Sea region. In particular, the port of Taman (existing cargo area) had launched a terminal for handling grain and edible oils purchased in October 2012, a joint venture between Kernel and Glencore.

At all events, the further expansion of the port of Novorossiysk is limited by its boundaries, interests of the city and the capacity of access roads. Some media reports said that beside NCSP Group Neftegazindustriya LLC has also plans to build in Novorossiysk a new terminal for handling oil products of capacity to 11 million tonnes a year. This further complicates the situation, since the port doesn’t have enough room.

Given the limited capabilities for expansion of the port of Novorossiysk, Russia's government and the authorities of the southern Krasnodar Territory rely more on the port of Taman in development of stevedoring facilities, where they plan to build a new dry cargo area of capacity of nearly 94 million tonnes a year.

Arguments of RZD

In the Baltic Sea the NCSP owns Primorsky Trade Port. Earlier, some investors had announced plans projects to create in Primorsk dry bulk cargo terminals that would be able to transship annually 30 million tonnes.

However, these plans implementation depend largely on the railway infrastructure (construction of branch lines Losevo-Kamenogorsk and Primorsk-Ermilovo). On the other hand, the future terminal in Primorsk would have to compete with the already established supply routes through the facilities in Big Port St. Petersburg, as well as in the neighboring Vysotsk and Ust-Luga.

As for attempts of NCSP to persuade RZD to build the Ermilovo-Primorsk branch line on favorable for the group terms, last autumn the 13th Arbitration Court of St. Petersburg and the Leningrad region did not uphold the decision of the Federal Antimonopoly Service in the Leningrad region and the relevant order issued by the agency on alleged violation of the antimonopoly legislation by RZD. The case is currently being reviewed by the appellate court.

RZD has already undertaken commitment to build the Losevo-Kamenogorsk rail branch, Andrey Pankov, deputy head of Octobskaya Railway (RZD’s unit) told PortNews. The line will significantly boost the capacity of the railway infrastructure for the ports of Primorsk, Vyborg and Vysotsk. Building of the new rail access road (Primorsk-Ermilovo) can be implemented only under the equity participation with an interested investor.

We believe that to implement the Primorsk dry bulk cargo terminal project NCSP will have to splash huge money, which makes these projects too risky in terms of payback.

Bidding for coal projects

Russia's Far East has seen recently a real "battle of the Titans" for the yards, suitable for the construction of coal terminals. Coal is one of the major export commodities of Russia, primarily to the coal-hungry Asia-Pacific region. Therefore, almost all the major shippers are seeking to build their own handling facilities and expand the existing ones. However, the relatively small shippers are also interested in the existence in the Far East of ports independent from coal companies. The Russian government has repeatedly announced the necessity of building an independent terminal there (with an equal access for small cargo owners). Summa makes bids for this project but here it will compete for free yards with coal companies, and other investors.

In Primorye, Summa is again forced to hold talks with the same RZD for the right to have additional rail links to the ports the Group is interested in.

Besides, Summa does not have much experience with building and operating coal terminals, it doesn't have its own cargo base either. But Summa probably counts on the administrative resources of its founders (yet it did not help in the case with Transneft and RZD), on its PR and learning capabilities of its middle management.

Vitaly Chernov.