Phantoms of Russian infrastructure - 2019

The global market situation, sanctions policy, trade wars and technological development make long-term forecasts on cargo flows less accurate while infrastructure projects are time-intensive. That necessitates a more elaborate study on financial feasibility of investments and synchronization with railway infrastructure development plans.

Baltic horizons

A number of ambitious port infrastructure projects have been announced this year in the Baltic Basin. Most of them are primarily focused on bulk cargo, which is not surprisingly as this segment suffers from certain deficit and dependence on the ports of neighboring countries. First of all, it relates to mineral fertilizers, gran and coal.

However, Russia’s current legislation continues hindering implementation of plans on creation of port facilities for handling of mineral fertilizers.

The project of EuroChem on construction of a terminal for mineral fertilizers in the port of Ust-Luga announced long time ago has faced the requirements of Russia’s Water Code according to which chemical facilities should be at least 500 meters from the shore.

Nevertheless, Dmitry Boldyrev, Operational Logistics Manager at EuroChem Group AG, said in October 2019 that the company did not abandon its plan on the terminal construction.

“We plan building 5 to 7 million tonnes (terminal capacity – Ed.) right on the shore in Ust-Luga. We have a plot of land and money”, said Dmitry Boldyrev.

The terminal is intended to support the future exports from Usolskiy potash facility. Those plans were announced as early as in 2015.

In this context, it should be noted that on 20 December 2019 RF Government submitted to the State Duma a draft law to lift the ban on placement of agrochemical storage facilities within seaports, which is a global practice.

If required changes are introduced into the legislation, the project of EuroChem can be successfully implemented without being treated as a ‘phantom’.

Another segment directly relating to the Baltic is liquefied natural gas (LNG). LNG terminal Cryogas-Vysotsk has been put into operation in 2019, as it was expected, while other projects announced in the region have not been launched yet.

First of all, it is Gazprom’s CS Portovaya project. As Kirill Neuymin, Head of Directory, PAO Gazprom, said in October 2019, the terminal is to commence operations in 2020. “CS Portovaya project has a capacity of 1.5 million tonnes. We have high hopes for launching the project in the nearest time, in 2020. It is  unique project, first of all technologically, since it foresees handling of ships from 3,000 to 174,000 cbm in capacity”, said Kirill Neuymin.

Earlier, Gazprom scheduled the launching of this project for the end of 2019.

One more project of Gazprom in the Baltic region is in a more difficult situation. Baltic LNG project has faced two major challenges: sanctions and lack of Russian technologies and equipment for arrangement large-scale liquefaction of natural gas. In April 2019, Shell, partner of Gazprom under the project, announced that it was leaving the project and that should be attributed to the policy of sanctions. In August 2019, Gazprom asked the Government of Russia for support in implementation of the project on creation of a gas chemical facility in Ust-Luga, which will apparently include LNG production. The project estimated at RUB 700 billion is to be completed in 2024.

Northern lights

Although Arctic development is underway at quite a fast pace, not all projects in this region proceed in compliance with their initiators’ expectations.

Coal terminal “Chaika” in Dickson port was to be launched in June 2017 but encountered a number of problems including those related to environment protection regulations because of coal mining within the Big Arctic Reserve area. Moreover, the Federal Security Service of Russia opened a criminal case against the management of Arctic Mining Company, the project investor, over illegal production of coal. The situation was escalated to the level of RF Government since the volumes planned for transportation along the Northern Sea Route via the Chaika terminal were considered essential for pursuance of the presidential instructions on raising annual cargo flow on the Northern Sea Route to 80 million tonnes by 2024. In summer, there were speculations about the decision to adjust the borders of the above-mentioned reserve. The next year will show if that helps the project to proceed.

Another Taimyr project, the “Bukhta Sever” terminal had been planned for construction 40 kilometers from Dickson settlement. It is intended for shipment of oil produced while developing the new oil cluster on the Taimyr peninsula. The port and the Payakhskoye field will be connected by a 400-km long pipeline. The designer expects the approval of Glavgosexpertiza to be obtained by summer 2020.

In June 2019, Dickson was given the status of an international port.

In our opinion, the problem of the Taimyr projects should be particularly attributed to a low icebreaking assistance they can expect.

It should be also added here that according to data shared by Mikhail Belkin, Advisor to Director of Rosatom’s NSR Directorate, at the 2^nd Hydraulic Engineering Structures and Dredging Congress organized by IAA PortNews (March 2019), the scope of capital dredging for the Chaika terminal is to make 150,000 cbm, for the Bukhta Sever terminal – 816,000 cbm.

Yet another project to be mentioned when speaking about the Arctic is a deep-water area of the Arkhangelsk port. The idea to build such an area appeared long time ago with the project having been under discussion several years. As the Arkhangelsk Region Governor Igor Orlov told IAA PortNews, the project will be elaborated.

“We are currently elaborating the conditions of construction. A lot depends on cargo flows towards Arkhangelsk taking into consideration the Northern Latitudinal Railway and other projects focused on transportation via the Northern Sea Route... Cargo throughput of our port is currently on the rise and if we offer competitive transshipment via a deep-water area we see good prospects for it, even without implementation of the Belkomur project. The port be liable to live and we follow this way”, commented Igor Orlov.

There is another long-living idea – the construction of a port in Indiga. Different investors used to announce that plans throughout the years. Now, AEON Corporation has expressed its interest in development of port infrastructure in Indiga. According to the regional authorities, АЕОN has initially invested RUB 60 million in completion of design documentation for Indiga port construction and in first area survey having consolidated additional RUB 200 million for 2020. As it was announced earlier, the port construction is to commence in 2021.

The port is to be built through public private partnership and to have a capacity of up to 80 million tonnes. It is to have oil and coal terminals as well as a facility for shipment of gas condensate.

While on subject of Arctic projects, we can also mention the Pechora LNG left by Rosneft in November 2018. Since that time, there was no news on the project implementation and, obviously, there is no progress on it.

Southern accent

Great hope was put on construction of a dry cargo transshipment area in Taman. Since the project was to a great extent focused on coal, it faced the same problem of coal demand worldwide.

According to data provided by Rosmorrechflot (Federal Marine and River Transport Agency) in September 2019, the “Dry Cargo Area of Taman Port” will most probably require clarification on the project layout and phases. Preparations are underway for signing a memorandum with its private investors while coal companies have taken extra time to look into their possible participation in the project.

Nevertheless, in December 2019, the Ministry of Economic Development of the Russian Federation approved the federal targeted investment programme for 2020 and the planned period of 2021-2022 which includes the Taman dry cargo area project among others.

With an eye toward the future

Projects announced for implementation in the Far East are primarily focused on transshipment of dry bulk cargo (mostly coal), while their success will depend on the capacity of railway approaches and the tariff policy.

In 2019, the project of the United Grain Company (UGC) on construction of a transshipment facility at the port of Zarubino (Primorsky Territory) did not demonstrate any notable development as we expected. According to data available in open sources it is still in the phase of survey and design works. However, in October 2019 it became known that RF Government was preparing subsidizing eastwards grain transportation. That could give an impetus to the project.

TEIC Kyzyl-Kuragino project that foresees construction of Kyzyl-Kuragino railway under a concession agreement signed in spring 2018 is known to continue the call for bids for participation in the competition on conducting survey and design works.

To summarize, the world is changing every month at an increasingly fast pace. Those changes are driven by the development of new technologies in logistics and energy sector with an impact on the market situation and by geopolitical processes (first of all, trade wars and playing the environment card for a competitive struggle). Amid those numerous factors and rapid changes, accurate and fast elaboration of projects together with their fast implementation take on greater and greater significance. Investment plans with dragging decisions run the risk of becoming outdated and be referred to as ‘phantoms’ in our future publications.

Vitaly Chernov