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  • 2012 July 16

    Innovations on Northern Sea Route

    The Russian State Duma approved in the third reading a bill that would regulate merchant shipping on the Northern Sea Route. Main innovation is the creation of the single NSR Authority (NSRA). The bill also does not stipulate fees for passage of the Northern Sea Route, but the situation may be changed subordinate legislation.

    The North Boss

    Previously, it was not quite clear who was a single boss of the shipping lane - whether "Atomflot", or the Ministry of Transport. Now it is established as the Authority of the Route, in the form of a federal institution. Rosmorrechflot says the documents specifying the form of the future organization and its headquarters have been submitted to the Ministry of Transport. The documents details are not disclosed pending final approval. As far as we now, there two “rivals” pretending to be named the capital of the Northern Sea Route - Murmansk and Arkhangelsk. However, the two cities are not geographically part of the NSR boundaries designated in the law (from Kara Gate to the Bering Strait).
    The law shall take effect 180 days after its official publication, it has yet to pass the Federation Council approval and to be signed by the President. Thus, it will come into force as early as the next shipping season on the Northern Sea Route.

    In accordance with the published text of the bill in third reading, the future Authority will be granting of permits for vessels sailing in the waters of the Northern Sea Route, as well as other functions inherent in the authorities of marine basins.

    The devil is in the details

    Yet the business is concerned about whether the authorities will charge fees for sailing through the Northern Sea Route. The published text of the bill reads that the passage permits is given provided that the ship is in compliance with international and Russian legislation and the availability of liability insurance for possible damage. The NSR Authority only gives recommendations on the use of icebreakers and marine pilots services. The fee for these services is determined in accordance with the laws of the Russian Federation on natural monopolies, taking into account the vessel’s capacity, ice-class, the distance the vessel is to be escorted, and the period of navigation. The amount of fees for icebreaking assistance, pilotage charge is based on the actually provided services.

    However, it still not clear how the NSR Authority and the infrastructure maintenance will be financed? Through the federal budget only? The question is left open. Because, the icebreaking service fees go to those organizations that provided it, namely to the FSUE Atomflot. It is possible that by subordinate laws the fee for icebreaking service will be charged directly by the authority, but then there will emerge a mediator, besides Atomflot and the NSRA. In this case this will likely lead to an increase in the cost of icebreaking escort. The high cost of the service is currently one of the main factors hampering the success of shipping on the Arctic shipping lanes.

    Moreover, now the companies that intend to regularly use the Northern Sea Route, tend to own and operate its own icebreaker fleet, which means they generally will not pay for the services, or the minimal amount.

    Norilsk Nickel is a good example here: the company has its own arctic fleet, able to do without the Rosatom’s icebreakers assistance. SCF Group has also booked orders for the Arctic going ships, which will provide the services to those companies that plan operations in the northern oil fields (Arctic gas carriers for GazpromGlobal LNG, which are intended, inter alia, to work on the Shtokman field).

    Meanwhile, Russia has allocated huge budget funds for the construction of new powerful Arctic icebreakers, one nuclear-powered of capacity of 60 MW, which will be the largest in the world. Will the newbuildings spending pay these costs, taking into account the abovementioned trends?
    As First Deputy Governor of the Murmansk region Alexei Tyukavin, a former executive of the Norilsk Nickel, said we should wait for subordinate laws on the NSR, but in general the adoption of the law can be assessed positively.

    "Now it is clear, who will be the boss on the Northern Sea Route, so it facilitates the work both the businesses and the government agencies. Of course, the law will promote the development of the Murmansk region, where ports transship large volumes of goods transported by the Northern Sea Route. Our port of Murmansk is a base for main shipowners involved in such shipping: Atomflot, Murmansk Shipping Company, a transport fleet of Norilsk Nickel and others,” said Tyukavin.

    Vitaly Chernov .

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