Phantoms of Russian infrastructure-2016
The outgoing year has seen certain economic stabilization in terms of oil prices and exchange rates of rouble. Nevertheless, there is a severe budget deficit and the state is striving to minimize its expenses including those for infrastructure projects. In general, the list of ‘phantom’ projects has not changed significantly while the progress is seen mostly in transition from talks to paperwork and agreements. In fact, some projects are showing a real progress.
Last year the Arkhangelsk Region authorities were speaking about finding an investor for Belkomur and a deepwater district at the port of Arkhangelsk, two interlinked projects that are traditionally on the list of ‘phantom projects’. Arctic Transport and Industry Hub “Arkhangelsk” (ATIH “Arkhangelsk”) was set up in May as a managing company to prepare and administer the project on creation of a deepwater district at the port of Arkhangelsk. The company is currently working a declaration of intent on investments.
In 2016 it was announced that the investor for these projects were found in China but it is a just a ‘paper investor’ so far. An agreement of intent signed with Poly International Holding in October 2016 does not bind to anything.
According to Federal Marine and River Transport Agency (Rosmorrechflot), the project provides for creation of a new cargo district consisting of four dedicated transshipment facilities with total capacity of 28 mln t. Dmitry Rogozin says this project and the related project known as Belkomur are among the priorities in the Arctic.
Vladimir Shchelokov, Vice-Governor of the Arkhangelsk Region, says Poly Group is going to invest up to $5.5 bln in the Belkomur. Total investments into the project are estimated at RUB 225 bln. The Arkhangelsk Region hopes to reach an agreement with Poly Group on Belkomur project in February-March 2017.
Arkhangelsk Region Governor Igor Orlov said: “We consider the deepwater port as a necessary component of the infrastructure, a logical end to Belkomur. If the Belkomur project, which is being negotiated today, is realized, it will require port facilities to handle cargoes transported by railways. There is a port in Arkhangelsk with only half of its capacity employed – so our port will be enough for the first phase of Belkomur. But our Chinese partners have brought up an issue of building a deepwater port and they are willing to invest in construction. We have signed an agreement and allotted a plot of land. We understand what sort of transport and logistics solutions is required. Of course, we are interested in construction of a deepwater port. A company has been set up to run the project. The work is going on steadily and consistently but I would not say that all the decisions have been made. The key focus is on the Belkomur project today”.
However, the Belkomur and deepwater port of Arkhangelsk cannot be excluded from the list of ‘phantom projects’ so far as they have not advanced beyond the declaration of intent.
Pionersky is responsible for everything
The talks about a deepwater container hub in Kaliningrad have been pushed into the background with a more realistic project coming out – a project on construction of a freight and passenger terminal in Pionersky. In December the port of Kaliningrad boundaries were extended by RF Government Decree for construction of this terminal. The project audit has found it appropriate but a possibility of a 5-pct savings during its implementation was also revealed. The project is expected to ensure up to 110 calls of cruise ships with at least 225,000 cruise passengers and 312 calls of ferries with 80,000 passengers and 80,000 Ro-Ro units.
RF Transport Ministry says the construction phase will begin in 2017 while earlier plans were to commence it before the end of 2016. Experts are still in doubt if the terminal will be completed by the World Cup 2018 and if it will be in demand after the event.
MTH is halfway to its active phase
The Ministry of Transport of the Murmansk Region says the project on comprehensive development of Murmansk Transport Hub is halfway towards its active phase and in our opinion this project deserves exclusion from the list of ‘phantoms’. Over a thousand of workers and 450 units of equipment are involved under the project today with the number of personnel to reach 2,000 by the end of 2016. According to the state contract, the works are to be completed in March 2018. The regional Ministry says the works comply with the schedule approved by RF Transport Ministry. However, there is no final decision on federal financing of the project. It is possible that the resources will not come as scheduled. Meanwhile, Russian Railways is ready to bear part of the expenses, says the company’s management.
As for coal terminal Lavna, negotiations between Kuzbassrazrezugol and State Transport Leasing Company (GTLK) held in December 2016 related to joint construction of coal terminal facilities on the western shore of the Kola Bay. The Murmansk Region says all the pre-design and design works have been completed.
LNG projects in Russian ports are still among the most ‘phantom’ projects, excluding the Yamal-LNG. The second largest project is Baltic LNG which is not developing due to absence of specific agreements with Shell, a would-be co-investor of the project.
In December 2015, Rosneft and Alltech Group completed establishing a joint venture for implementation of Pechora LNG project on development of the Kumzhinsky and Korovinsky fields. No progress has been seen since that time.
One more project, construction of an LNG terminal at port Vysotsk (Leningrad Region), has not entered the phase of practical implementation either. By the order of RF Government dated September 21, 2016, construction of a marine terminal for shipment of liquefied natural gas (LNG) at port Vysotsk is included into the area planning scheme of the Russian Federation. The project passport was signed on 17 June 2016 at the SPIEF (Saint-Petersburg Inter Economic Forum) by Leningrad Region Governor Aleksandr Drozdenko and Cryogas Director General Ryszard Rudnicki.
When it comes to LNG terminal at Gorskaya (Saint-Petersburg), the investor – LNG-Gorskaya LLC – is quite active in the media though it is difficult to estimate the progress. In July the company’s press center said that Federal Marine and River Transport Agency (Rosmorrechflot) had OKed the request of LNG-Gorskaya LLC on investments into construction of Russia’s first LNG port in Saint-Petersburg.
The list of ‘phantom’ projects still includes that of “Summa” Group which has ambitious, old but vague plans on construction of a multi-purpose port in Zarubino able to handle up to 37.5 mln t of different cargoes per year.
There is also a plan of United Grain Company to build a grain terminal. Investment programme is divided into the following phases: Phase I: 2016-2018 – pre-design, design and survey works; 2018-2020 – construction of the first start-up facilities –3 mln t of grin per year. Phase II: 2021-2023 – expansion of grain storage facilities and expansion of the terminal’s annual capacity to 10 mln t with construction of additional berths and other facilities. Phase III: further development of the terminal and expansion of the terminal throughput. We are just to wait till 2018 to see if the project implementation starts or remains ink on paper.
As a summary it can be emphasized that the list of absolutely ‘phantom’ projects is gradually melting which is good. A number of projects have lost their viability in view of changing macroeconomic and geopolitical situation. For some projects there are no resources, even on paper. Yet, there are projects that are advancing steadily, like that of MTH. The most challenging projects are those on construction of LNG terminals due to high risks of investments in hard to forecast and highly competitive segment and those of the Far East region due to their dependence on railway infrastructure capacity, environmental and social restrictions, financial abilities of investors and prospects of China’s New Silk Road initiative.