PORT DEVELOPMENT IN NORTHWEST RUSSIA

PORT DEVELOPMENT IN NORTHWEST RUSSIA - UPDATE

JANUARY 1999
POST OF ORIGIN: ST. PETERSBURG
AUTHOR: MARIA CHERNOBROVKINA

1. The Russian Government has developed a sea port development program which is to be implemented by the year 2000. The program is based on President Yeltsin's 1992 Decree #1513 "On Measures to Revitalize the Russian Merchant Fleet" and on government order #996 of October 8, 1993, approving the program to develop Russia's sea ports. This program includes a number of priority investment projects for modernizing existing Russian ports and for constructing new sea ports. This report describes opportunities in port development in the Baltic area, including information on specific projects, tendering, and financing.

2. After the dissolution of the Soviet Union, Russia lost seven out of eleven Baltic ports, and accordingly a substantial share of its cargo, which now transits through the Baltic states. The transit of cargo to/from Russia now constitutes up to 80% of the cargo turnover of these foreign ports. The four Russian ports left on the Baltic Sea are: St.Petersburg, Kaliningrad, Vyborg and Vysotsk seaports. Since St.Petersburg, Kaliningrad, and Vyborg seaports were built in the 19th century and the surrounding city infrastructure has since enveloped the ports, they are not likely to be expanded. However, there are plans to modernize them within their limits.

3. St.Petersburg Seaport

The St.Petersburg Seaport is Russia's main outlet to Europe and one of the oldest and largest ports in Russia. The port currently handles trucks, sea, river and railway traffic and a wide variety of cargo in sizes ranging from boxes to large containers and locomotives. The port covers a vast territory and is the largest port on the Baltic Sea.

Currently the economic situation at the Seaport of St.Petersburg is relatively stable: the enterprise does not have debts to any government entities and it pays wages to its employees. However, competition from foreign Baltic ports requires modernization of the port's facilities, expansion of its transport infrastructure, investment in the construction of new terminals and replacement of out of date equipment. The Seaport of St.Petersburg has prepared investment projects for the port's development which emphasize increasing the port's output by 60-80% by the year 2005. These projects include:

-Construction of a container terminal, which is currently 70% completed. The projected capacity of the terminal is 210 thousand containers per year. The port has already invested $36 mln of its own internal funds in the construction of the terminal Currently, approximately $5 mln. is required in order to complete the construction work and purchase handling equipment.

-Construction of a handling complex for universal and food cargoes at berths # 28-30. Project capacity is 1.25 million tons a year.

-At the moment, reefer cargoes are handled in the port by temporary refrigeration units, therefore construction of a permanent reefer terminal is planned. Project capacity is 1 million tons per year.

-Creation of a handling complex for mineral fertilizers with a projected capacity of 1.5 million thousand tons of mineral fertilizers a year.

-Modernization of the existing container terminal, increasing its capacity to 150 thousand containers a year.

-Reconstruction of existing and construction of new access roads to the port.

In order to fulfill this project the port needs to attract foreign investments and credits.

4. Vyborg Seaport

The Vyborg port occupies a narrow territory along the Gulf of Finland, northwest of St.Petersburg. This location is its shortcoming, as it has a limited ability to expand and is located near the Port of Vysotsk, one of its competitors. Considering all this, the port administration has developed a program to increase the competitiveness of the port and modernize its facilities. Currently, the seaport has 13 berths with a total pier length of 1588 m. and depth ranging from 4.6 to 8.8m. The total area of the port is 160 thousand square meters.

The main idea of the new program is to focus on processing general cargo, since tariffs are higher for them, and to refuse bulk cargo, which is expected to go to the Ust-Luga Port now under construction. In order to achieve this they plan to build warehouses and a refrigerator warehouse. The port also plans to start container activity, which will require large investments for constructing warehouses and for purchasing equipment. The port is also preparing its facilities for Ro-Ro vessels. Another project is to deepen the port's bottom, which will require about $10 mln. due to its rocky bottom. It is important to note that the port anticipates that the recovery period for several of these projects will be lengthy, as the port is not supported by federal or regional budgets and relies solely on its own limited resources.

5. Vysotsk

The Port of Vysotsk is located in the northwest part of the Gulf of Finland, 150 km northwest of St.Petersburg and 30 km southwest of Vyborg. The total length of the Ports berths is about 600 m. The land area of the port is 34 hectares, with a covered storage area of 6000 square meters. It is closely located to the Port of Vyborg, but has a much better location, since it is closer to the Gulf of Finland and has available space to expand.

The Port has a development plan for the construction of new berths. The plan envisions the construction of four berths, with an estimated construction cost of $16mln for the first two berths. Currently, there is an agreement with Norwegian companies to construct the first two berths, while the remaining two construction projects still require investors before tenders take place.

6. Kaliningrad

The Kaliningrad Port is the only ice-free Russian port on the Baltic Sea. It includes three ports: commercial, fishing and river. The total length of the port's berths is 3 kilometers. It possesses 22 piers for Ro-Ro vessels, ferries, and liquid cargoes, and three piers with elevator capabilities. The total area of warehouses and open storage is 300 thousand sq.m. All of them are equipped with floodlights and railways.

Even though the port is surrounded by the city infrastructure, the port has large reserved territories available for further development. The port also has a program to develop within the limits of its existing facilities, which will put the terminal into operation within a short time frame and with minimal investments. This program includes:

-completing the construction of a container terminal;
-completing technical preparations of available land for collecting roll trailers and trucks in order to reduce the processing time for ferry cargoes;
-making a separate terminal and pier for ferry freight;
According to the development plan, 22 thousand square meters will be developed for this project.

7. Leningrad Oblast Ports

The total turnover capacity of the existing Russian Baltic ports is 25 mln. tons. This capacity will not support future demand, which is expected to increase to 150 mln. tons annually by the year 2010, including cargo via the ports of Leningrad Oblast (up to 90 mln.tons). As of now, three ports are under construction or consideration in the region. These are the ports at Primorsk, at Ust'-Luga and at Batarejnaya Bay. President Yeltsin's Decree "On the Insurance of Cargo Transit via the Shore Territories of the Bay of Finland" emphasized the importance of these projects in order to meet the needs of the growing cargo flow. The development of ports in the Leningrad Oblast has also received support from the Oblast's ex-governor Vadim Gustov, who is the First Vice Prime-Minister in the present federal government.

8. Primorsk

The new port at Primorsk in the Vyborg District is supposed to transfer up to 45 million metric tons of crude oil, petroleum products, liquid chemicals and liquefied natural gas per year. The total cost of the construction is approximately $3.7 billion. The Government of the Leningrad Oblast has become the official state customer for the construction of the port in Primorsk. The feasibility study for the port has already been completed and submitted to the Russian Ministry of Transportation for approval at the beginning of 1999. The Oblast hopes to start construction of the port at the beginning of 1999, starting with the oil terminal. The port in Primorsk will require the construction of six wharfs with a total length of 1595 meters and the capacity to handle 12.7 million metric tons of cargo not including petroleum products). The berths will be able to accommodate tankers of up to 150,000 tons. The port will include facilities to handle:

- oil and light petroleum products (four wharves at 1260 meters able to handle 29 million tons of crude oil; 10 million tons of oil products and 5 million tons of light petroleum products per year); and

- general cargo: 700,000 metric tons.

The oil terminal remains the priority for the port in Primorsk, as it is an integral part of a planned Baltic pipeline system. According to the Russian information agency ITAR-TASS, Transneft JSC has already started work on the design of the pipeline system, which will include links with the oil pipelines from the Timan-Pechora field and the oil terminal in Primorsk.

According to experts, the construction of the port in Primorsk may dramatically change the Russian oil export situation. Now Russian oil is mainly being shipped via ports in Finland and the Baltic states. The planned capacity of the Primorsk facilities would exceed that of the port in Ventspils, Latvia, which is currently the major processor of Russian oil exports.

9. Ust'-Luga

The seaport in Ust'-Luga, at the Luga Bay in the Kingissepp District, some 110 kilometers from St. Petersburg, will handle up to 35 million tons of general and bulk cargo, containers and coal. The port will be able to accomodate 3,500 vessels of up to 70,000 tons deadweight per year. To carry out this project, the Ust'-Luga Company was established in 1992. The Government of the Leningrad Oblast, Octyabrskaya Railway and several private firms and individuals are shareholders in the firm. Ust'-Luga is currently seeking partners for the coal and fertilizer terminals at the port. The coal project is being financed from the federal budget and, according to company officials, has received a credit from the German Government. The construction of the terminal started in 1998, and upon its completion will handle over 8 million tons of coal a year.

Ust'-Luga also plans to be an export point for domestic producers of fertilizers. Russia annually exports over 14 million tons of fertilizers. After the disintegration of the former USSR, there were no specialized port facilities in Russia to transport fertilizers. 80% of Russian produced fertilizers are exported through the ports of Ventspils and Riga (Latvia); Klaipeda (Lithuania); Tallinn (Estonia); and Kotka (Finland.) The planned capacity for the terminal is 5 million tons of fertilizers per year. The overall needed investment is estimated at $60 million.

10. Batarejnaya Bay

On February 12, 1997, following a Federal program to revitalize the Russian merchant fleet, the Government of the Leningrad Oblast signed an agreement with the Khanty-Mansiisk Government and the Russian oil giant Surgutneftegas to commence construction of an oil port in the Batarejanaya Bay. While the federal government is the major owner of the construction site, a part of the rights in the project were transferred to Surgutneftegas, the principal investor in the project. Reportedly, Surgutneftegas plans to attract the largest Russian banks to finance the construction, which will be hard to do under the current economic crises.

The port will be located in the Lomonosovsky District, some 60 kilometers from St. Petersburg. It is designated to handle up to 15 million tons of crude oil per year, and will process Surgutneftegas' oil processed at its subsidiary, Kirishi Oil Refinery.

Phase one (through 1999) includes construction of four wharves with a length of 1,260 meters and a capacity of 7.5 million tons of petroleum products. The phase will include construction of twenty tanks with a capacity of 400,000 cubic meters, one cargo handling wharf, and several auxiliary berths to process vessels of 16,000-40,000 tons deadweight. The project is estimated at approximately $200-250 million.

Surgutnneftegas reportedly plans to invest $100 million in the Batarejnaya project. However, by 1997, the oil company had only invested $8 million in the port. Currently, infrastructure projects and the deepening of the bay are under construction. Since a navy base located on its territory is to be moved to a different site, it is unlikely that the port will receive financing from institutions like the World Bank and EBRD, because funds would be directed toward military purposes. Thus the port must rely on its own sources or private investments.

Preparatory work has been carried out by local institutions and the British firm Motherwell Bridge Projects Ltd., and it is likely that construction will be handled by domestic firms. Some 150 firms have shown interest in forthcoming tenders. Western investors, though invited to participate in the construction, are requested to meet the requirement that not less than 60% of equipment and works must be produced by Russian sources. It is very likely, however, that the new port will be interested in purchasing computer management systems from Western suppliers.

11. Tendering and Partnerships

The entity in charge of port construction is a so called state customer represented by the Ministry of Transport of the Russian Federation. The Ministry is responsible for negotiations on project financing and sits on the tender committee, which oversees open tenders for construction orders. There were only two port project tenders held in Northwest Russia, both at Ust-Luga; one tender was for construction of a railroad to the Ust-Luga port and the second was for construction of a terminal for chemical fertilizers. However, the results of the second tender were terminated since it turned that the winner did not have any experience in fulfilling this specific work.

The tender system is not very well developed, and it's hard to learn about upcoming tenders in a timely fashion. Thus, it makes sense to keep in touch with the institutions developing port projects, since they are involved in the process from the very beginning. Additionally, these institutions may be able to advise the tender committee to include the company onto its list of potential tender participants. The largest port design bureau is called Lenmorniiproject and is located in St.Petersburg (see their contact information below).

While contacting different ports in Northwest Russia, post found out that, since ports are usually very limited in terms of financing, they are all seeking some type of partnership. The most preferrable forms of partnership for the ports are:

-establishing a joint venture for each project with the ownership/leasing right given to the foreign investor;
-direct investments;
-loans.

Contact information:

The Leningrad Oblast Government
67 Suvorovsky Prospect
St Petersburg 193311, Russia
Tel: (812) 274-4742
Fax: (812) 274-5986
Sergei Evgenyevich Naryshkin, Chair, Committee on Foreign
Economic Relations and Foreign Investment, or

The Principal Directorate of the State Customer for the
Realization of the Merchant Marine Fleet Revival Program
1/4 Rozhdestvenka
Moscow 103759, Russia
Tel: (095) 926-1259
Fax: (095) 926-9038; 926-9128
Contact: Victor V. Kuzovkin, Deputy General Director

Lenmorniiproject, the largest Russian center for complex
designing of the seaports.
3, korp 2 Mezhevoy kanal
St.Petersburg, 198035
Tel: (812) 251-5110
Fax: (812) 251-0151
Contact: Alexander Parfyonov, General Director

Sea port of St.Petersburg
5 Mezhevoy kanal
St.Petersburg 198035, Russia
Tel: (812)251-9151
Fax: (812)251-9151
Alexey Miller, Director on Development and Investments

Vyborg Seaport
1 Yuzhny Val
Vyborg 188900, Russia
Tel: (81278) 24750
Fax: (81278) 24789
Alexandr Andreev, General Director

Vysotsk Seaport
3 Kirovskaya st.
Vysotsk, 188909, Russia
Tel: (81278) 20189
Fax: (81278) 20189
Anatoly Shingarev, Operating Director

Primorsk
Tel: (812) 274-4569
Fax: (812) 271-5627
Contact: Vladimir Ivanovich Smirnov, Deputy Chair, Committee on
Construciton, the Oblast Administration

Ust'-Luga Company
6, 1st Berezovaya Alleya
St Petersburg 197022, Russia
Tel: (812) 234-1151; 234-0531
Fax: (812) 234-1014; 232-3880
Contact: Ilya M. Baskin, President
Dmitry Strokin, Director, Fertilizer Complex

Batarejnaya
Tel: (812) 316-2906
Contact: Victor Ivanovich Manoilin, Director, St Petersburg
Branch, SurgutNetfteGas