Phantoms of Russian infrastructure - 2020
The departing year has been marked by freezing or suspension of some ambitious projects on port infrastructure development. Meanwhile, the Government is set to toughen regulations covering the activities of those investing in port projects that has already been criticized by the industry community.
The project on comprehensive development of Murmansk Transport Hub has been under persistent implementation for a long time. It foresees the construction of coal terminal “Lavna” on the left shore of the Kola Bay. However, the project was conceived in the period with a different situation in the coal market. The recent year and a half has seen a stable trend towards a long-term reduction of coal demand in the west, which should be attributed to the energy strategy of the European Union. Therefore, westward coal exports already show a steep decline while the ports of the North-West Region see the growing excess of coal facilities.
When speaking at the round-table meeting “Systemic issues of sea and river transport through the prism of COVID-19” organized by IAA PortNews, Deputy Minister of Transport Yury Tsvetkov said that the Lavna project would be revised towards diversification of its cargo base amid the changing market situation.
As Aleksandr Poshivai, head of the Federal Marine and River Transport Agency, told journalists, the terminal is to be launched in 2023. Its capacity will be 18 million tonnes per year.
“Lavna terminal to be launched in 2023”
It should be noted that investments into comprehensive development of Murmansk Transport Hub exceed RUB 130 billion, investments into Lavna terminal – RUB 34 billion. The project foresees the construction of a deep-water berth of 660 meters in length able to accommodate two large bulk carriers with deadweight of 20 to 150,000 tonnes.
The westernmost long-delayed construction project is the terminal in Pionersky of the Kaliningrad Region. Initially, the project was intended for servicing passengers who will visit the World Cup 2018 but it is stuck in first gear. The construction has been suspended this year. Disruption of the construction deadlines should be attributed to two factors: damage of the construction structures by a storm in January 2019 and nonfulfillment of obligations by a contractor with a failure to meet the construction schedule.
Later, a competition was announced to continue the works. Inter RAO - Engineering LLC (member of Inter RAO Group, Moscow) won FSUE Rosmorport’s tender. It will execute the works for RUB 5.98 billion. The works are to be completed by 20 December 2022.
“The works in Pionersky are to be completed by 20 December 2022”
The project on construction of an international sea terminal for cruise and passenger vessels at Pionersky of the Kaliningrad Region is being implemented in pursuance of the presidential order by the Ministry of Transport in cooperation with Federal Marine and River Transport Agency (Rosmorrechflot), FSUE Rosmorport and Kaliningrad Region Government in the framework of the Federal Targeted Programme “Development of Russia’s Transport System in 2010-2021”.
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.
Dry cargo area of Taman port
In the Southern region, among the projects being in a hang state is the dry cargo area project of Taman port. The project is also partly affected by the changing situation in the global coal market. Most of investors have lost interest to it. As Andrey Lavrishchev, General Director of FSUE Rosmorport, told journalists in September 2020, the project is to be excluded from the Comprehensive Plan for Modernization and Expansion of Core Infrastructure (CPMI) >>>> .
The head of FSUE Rosmorport says the Taman project currently numbers only one investor Matallinvest, which is not enough to implement the project.
“If more investors appear we will support them”, emphasized Andrey Lavrishchev.
In the Baltic region, the project known for its neverending construction process is the Baltic LNG project in Ust-Luga initially announced to produce 10 million tonnes of LNG per year.
According to Gazprom’s statement as of November 2020, the complex’ Phase 1 is to be put into operation in 2024 with Phase 2 to be launched in 2025.
In March 29, 2019, Gazprom and RusGazDobycha made a decision on the final configuration of the project for a large-scale complex that will process ethane-containing gas and produce liquefied natural gas near Ust-Luga, Leningrad Region. The complex is supposed to process 45 billion cubic meters of gas and produce around 13 million tons of liquefied natural gas (LNG), 3.6 million tons of ethane fraction, up to 1.8 million tons of liquefied petroleum gases (LPG) The gas remaining after the processing (about 18 billion cubic meters) will go into Gazprom's gas transmission system.
“Baltic LNG project is at the phase of designing”
As of today, Baltic LNG project is at the phase of designing.
The plans on construction of the terminal in Indiga have been repeatedly announced by a variety of investors for many years. At first, there was a plan to build an LNG terminal there. The current investor, AEON Corporation, is set to build a new out-shipment hub with a capacity to of 80 million tonnes a year. Japan will account for a certain part of the cargo, since the new port will be built to handle first of all coking coal, wood, fertilizers, chemical products, and paper.
Under consideration is the plan to build a railway to the port with the construction site being selected.
According to the statements, over $5 million has been already invested into the project with total investments estimated at over RUB 300 billion.
To reduce the number of poorly developed ‘phantom’ projects that take over public resources and capabilities, the Government suggests toughening of investors’ responsibility.
Andrey Belousov, Deputy Prime Minister of the Russian Federation, said at the final meeting of RF Transport Ministry’s Board, agreements with investors into projects on development of port infrastructure in Russia are to be signed before the end of 2020. The agreements should foresee the parties’ obligations.
“In the part of port infrastructure development, I would like to put a focus on implicit pursuance of presidential instructions: I mean assignment of private investors’ obligations under implementation of projects on port infrastructure development. According to the instructions, a relevant law should be signed by 1 December 2020 and agreements should be signed with investors”, said Andrey Belousov adding that it should be the Ministry’s priority for the remaining part of the year.
Nevertheless, the bill drafting has faced a negative position of the profile business. When speaking at the 18th International Conference “Transport Service Market: Cooperation and Partnership” held online in December 2020, Serik Zhusupov, Executive Director, Association of Commercial Sea Ports, said the draft law introduces excessive regulations while basing on bylaws yet to be approved. That makes the new legislation unclear.
“It is practically proved that there are no systemic problems with implementation of information projects in ports. Yet, there are project-specific problems related to certain projects with an attempt to transfer those specific issues to the legal framework in order to conceal some individual problems ... We tell with all responsibility that the current legislation … offers a sufficient number of state regulatory instruments allowing for an efficient development of investment projects under public private partnership ... One rouble of state investmentsin ports corresponds to at least three-four private roubles”, explained Serik Zhusupov.
According to the speaker, signing of this bill into a law would hinder the inflow of investments into the industry as it will put off potential investors.
“We will call for revision of the bill”, said Serik Zhusupov.
The bill sets forth investors’ obligations to put the facilities into operation if federally-owned facilities are created for that purpose as well as private investors’ responsibility for non-fulfilment of investment obligations.
Generally speaking, the current status of the global economy and policy hardly contributes to long-term investment into large-scale infrastructure projects. That should be attributed to the COVID-19 pandemic, US elections, structural changes in the global energy market. Hopefully, the year of 2021 will see stabilization in all senses with the massive vaccination to begin, president of the country with the world’s largest economy to commence his duties and global markets to adapt to new reality. That will let investors develop their projects in a more predictable environment.
By Vitaly Chernov
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