• 2022 October 21

    Arctic happiness – not in money but in its amount

    In view of the eastward pivot of logistics, Arctic shipping is to play its role by unloading overburdened railway infrastructure. However, that requires subsidies and essential capital investments. Can Russia cope with such expenses in the current situation?

    As it is known, there is a subsidized line on the Northern Sea Route with nuclear-powered container carrier Sevmorput operating on it. According to Rosatom, the ship’s loading for its second voyage has reached 90% versus just 10% of the first one. That is the evidence of the shippers’ growing interest to transportation by the NSR which we attribute to the eastward pivot of logistics and to acute shortage of railway infrastructure capacity.

    Aleksandr Tsybulsky, Governor of the Arkhangelsk Region, confirmed that when speaking at the 10th International Forum “Arctic Projects - Today and Tomorrow”.

    “Taking into account the dynamics and the volumes of cargo transportation by the Northern Sea Route, it is quite difficult to implement (the projects – Ed.) today without clear subsidies, I think. We see serious problems, particularly in the segment of export-oriented cargo. Let’s take the products of wood processing industry, fishery and some others. We see that today, with the eastward pivot ... even contracted cargo cannot be delivered by railway today because its capacity is limited. In this context, up to 50% of cargo is not delivered on time and our manufacturers are fined ... by today it stands at billions of rubbles – those are losses incurred by our producers due to the problems with logistics. So, we understand the need to turn to the sea, to transportation by water. To coordinate it with economic viability and volatility in the international market, a clear system of subsidies is needed for almost all types of cargo,” said the speaker.

    Aleksandr Tsybulsky called on subsidizing voyages of different ships, not only container carrier Sevmorput.

    In fact, quite a number of raw materials-based projects focused on exports are being prepared in the Arctic. However, infrastructure is not developed and it needs to be created from scratch, hence essential capital expenses. When speaking at the Forum, Nenets Autonomous District Governor Yury Bezrudny told about some of those projects. The most promising one is the project on construction of a gas chemical complex in Pechora (earlier known as Pechora LNG). The project foresees the construction of a sea terminal and dredging of an access canal. Investments are estimated at RUB 200-220 billion. Investor - RusChem.

    One more project is the construction of port Indiga. According to the NAD Governor, this project is interesting for Rutitan which is planning annual shipment of up to 5 million tonnes of titanium ore by the Northern Sea Route. However, the project implementation foresees the construction of a railway line between Sosnovo and Indiga which is estimated at RUB 350-400 billion.

    “Just one minor task – to find investors”

    "Just one minor task is to find investors ready to finance that ambitious project,” the Governor said quite ironically that seems to be a nod to the state as the only investor able to bear such expenses.

    “We are currently shifting the state system to the mobilization tracks but the projects I have mentioned do not pose an obstacle. On the contrary, they contribute to shifting the system of economic management onto the military-mobilization track. So, there is confidence in implementation of those projects”, said Yury Bezrudny.

    The projects will probably be implemented but their implementation by the initially declared deadline is under a question.

    When speaking about new ambitious projects we should understand that they need a fleet including both transport and service ships. And they should be of ice class if we speak about the Arctic. That is great challenge in the current situation. For example, a tanker and a tug of ice class are to be designed and built for the Pechora project; three bulkers – the Baimsky GOK; two ships will be purchased for the Severnaya Zvezda project but more ships are needed; and so on.

    Energy supply also entails expenditures. New Arctic projects are normally being developed far from the energy infrastructure. Baimsky project is a bright example. It needs four floating nuclear-powered units. Similar facilities will be needed for other projects and, consequently, the construction programme is to be expanded to 8-10 units. According to preliminary estimtes, that needs RUB 140-200 billion.

    Some “minor” expenses should be taken into account: construction of workersэ settlements and development of social infrastructure, purchase of equipment, transportation costs, icebreaking assistance etc. Finally, that will be included into the prices of end products which have already been discounted due to sanctions-related risks.

    Obviously, it is the federal and the regional budgets which will have to bear the bulk of expenses. It is a big question if the state opts for doing that when the budget is already in deficit. Completion of the Eastern Operating Domain is the main thing. Actually, payback period of such projects is measured in years or even decades. Hardly anyone will undertake forecasting for those remote horizons.

    Amid sanctions, raising funds in the market is not easy either. Perhaps, certain export projects will intensify involvement of investors from countries interested in imports the products – we’ll see. However, no fast implementation of new projects in the Arctic is expected in the current situation.

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Vitaliy Chernov