Russia is attending to the issue of development of its southern ports: according to President Vladimir Putin, the harbors in the Black Sea region are already operating at the limit of their capacity. Therefore, it is necessary to urgently create conditions for investors to invest in new terminals. Perhaps it was not by chance that the issue was raised in the middle of a trade war with Ukraine. Russia’s strategy of reducing the volume of transshipment of Russian cargo at ports in neighboring countries, the cornerstone of which is currently the construction of the Taman port on the Black Sea, poses to Ukraine the threat losing millions of tons of cherished cargo traffic at its own ports. However, experts believe that there are presently no reasons, other than political, to bring the issue of capacity shortages at Russia’s southern ports into focus. Moreover, all the conductions necessary for investment have been created. However, the issue of appropriateness and necessity of certain projects remains.
Benefits foregone Senior Russian government officials recently discussed a topic that should also be very interesting to Ukraine. Russian President Vladimir Putin held a meeting with Russia’s Minister of Transport of Maksim Sokolov and the Russian Railways’ head Vladimir Yakunin to discuss the problems of the ports in the Azov-Black Sea basin. The reason for raising this issue was concern about exhaustion of the capacity of the country’s southern ports. "The terminals are already operating at their limits. Such infrastructural limitations constrain the increase of the volume of international trade and transit cargo traffic in the southern direction,” Putin is quoted as saying in the transcript of the meeting published on the website of the Russian head of state. The Russian president also stressed that in the current situation "companies will have to use foreign ports and this means bearing additional costs." According to him, these are foregone benefits for Russia.
The following figures were provided to confirm the difficulty of the situation: the demand for transshipment of dry cargoes at the Russian ports in the Azov-Black Sea basin will reach 150 million tons by the year 2030, which is more than double the current capability (68 million tons). According to Minister of Transport Maksim Sokolov, dry cargoes are specifically the source of the greatest concern. "We see that all of this total capacity has practically been exhausted completely as of today. Moreover, according to last year’s data, the turnover was even slightly higher at 70 million tons, which is already beyond the capacity," said the minister.
All indications are that the participants in the meeting are still placing their best hopes of addressing the situation at the Taman port, which is presently under construction. This is specifically why a significant part of Sokolov’s report focused on this project. Sokolov recalled that agreements with potential investors on construction of terminal facilities at the dry-cargo area of Taman were signed at a Sochi forum back in 2011. He also noted that international and Russian experts prepared the project documentation last year at the request of the Ministry of Transport. "As of now, all the necessary approvals have been obtained, an environmental impact assessment has been performed, and the project is awaiting confirmation at the Main Department of State Expert Assessment,” Sokolov said in his report on the current state of the project.
Putin also hinted that he might take personal control of the Taman project. He said that several objective factors hinder further increase of the capacity of the largest ports in the Azov-Black Sea basin – the Novorossiysk and Tuapse ports. "Let us analyze how the projects for development of the port infrastructure on the Taman peninsula are progressing. It is clear – for me, at least – that we will also have to support private investors and implement our government plans to build a large, modern port there,” the president said.
The actual situation It is worth noting that no facts were provided at the meeting to confirm that there are currently economic reasons to focus on the issue of shortage of capacity at the southern ports. All the figures quoted at the meeting have long been known, and they are incorporated into the Strategy for Development of Russian Ports until 2030 that was approved in September 2012. This strategy confronts Ukraine with the sad fact that Russia will do everything possible to take its cargoes away from foreign ports, especially Ukrainian ports. "One of the main challenges facing the seaports in the Azov-Black Sea basin will be the shift of cargoes oriented toward Russia from Ukrainian ports,” the strategy states.
According to the data provided in the document, the proportion of Russian cargo handled at ports located in neighboring countries was 17.1% at the beginning of 2012, and this figure should be reduced to 8.2% by 2015 and 4.1% by 2030. In absolute figures, this totals 104 million tons (the actual figure for 2011) and 40 million tons (the projected figure for 2030, taking account of the projected increase of cargo traffic at the ports to 1.025 billion tons). Little has changed in the past year and a half. According to Sokolov, the total volume of transshipment of Russian foreign-trade cargo by sea is about 660 million tons while the turnover of Russian ports is 565 million tons. That is, about 100 million tons go through foreign ports. One-third of all cargoes transshipped through Russian ports (about 170 million tons) go through the Azov-Black Sea basin. This volume means that the southern ports are second in Russia after the Baltic.
That notwithstanding, it is premature to talk about operation at full capacity. The capacity utilization of the ports in the region was 74.8% at the beginning of 2012. The growth rate of transshipment at the ports is still below the growth rate stipulated in the strategy. According to its basic (most pessimistic) version, the volume of cargo transshipment through Russian ports should reach 725 million tons by 2015 compared with 535.6 million tons in 2011. This means that the cargo turnover should increase by about 50 million tons per year. However, as seen from the results for 2012, the ports added only 30 million tons. The Azov-Black Sea basin also failed to justify the growth forecasts during this period: the strategy states that the volume of transshipment there should increase to 221 million tons by 2015 from 172 million tons in 2011 or by an average of 7% per year. However, the rate of growth there was only 1.5% in 2012.
Demand for new capacity Russian experts also agree that it is somewhat premature to talk about capacity shortage. According to the Infranews research agency, the fall in cargo turnover at Russian ports was 3% in in the first seven months of this year. "I would say that the situation in the Azov-Black Sea basin is now stagnating. The Azov basin is falling faster, and the Black Sea is stagnating," the agency’s Director Oleksii Bezborodov said in an interview with the Russian television channel RBC. At the same time, according to him, the southern ports currently have a sufficient margin of safety. "As of today, the region's largest port, Novorossiysk, has a surplus capacity of about 3-40% for container and oil and oil cargoes, and this is an obvious fact. The surplus in terms of grain cargoes is about 20%," said the expert.
Infranews forecasts that the proportion of Russian cargo handled at ports located in neighboring countries will remain unchanged for a long time for certain types of cargoes, particularly coal, petroleum products, and containers
Because of this, he does not share the concerns of government officials over the conditions for attracting investment. "Our Russian ports are currently some of the most developed in terms of infrastructure, even compared with European ports. From the point of view of sufficiency of their capacity for the Russian economy, they are quite obviously sufficient. It seems to me that we currently do not require any conditions. We have quite adequate legislation and a quite adequate situation at the ports from the point of view of investment in fixed assets,” said Bezborodov. Thus, in the view of the analyst, the investments necessary to support the existing capacities are already being made and the issue of creating new ones must be approached very carefully.
"If we are talking about private investment, the most important thing for the country is to simply not get in the way. If we are talking about state investments, then fine. However, money should not be taken away from the current development of the neighboring ports of Novorossiysk, Tuapse, and other facilities. Take Taman for example, we will simply achieve redistribution by building a new port. Meanwhile, the port will certainly idle for some time. An example of this is the Ust-Luga, which idled for quite a long time and zero turnover 10-15 years ago. As a result, we will have money tied up while other ports will be idling,” Bezborodov said.
Infranews forecasts that the proportions of certain types of Russian cargo handled at ports located in neighboring countries will remain unchanged for a long time, particularly coal, petroleum products, and containers. "For the first two types of cargo, the situation is obvious - the shipper is simply diversifying these cargo traffics and it is almost impossible to bring them back to our ports,” said the head of the agency agency. On the issue of containers, he believes that more attention should be paid to improvement of the customs agency, which allows creation of channels for black- and gray-market deliveries through the country’s land borders with the Baltic States, Finland, and others.
According to data in the Russian port strategy, 32.3% of Russian coal and 50.5% of the Russian petroleum products gravitating toward the Baltic Basin were handled by Baltic ports in 2009 while 21% of the coal and 38.8% of the petroleum products gravitating toward the Azov-Black Sea basin were handled by Ukrainian ports. However, the situation has changed somewhat since then: for example, Ukraine has already lost considerable volumes of Russian crude-oil cargoes because of the launch of the Tamanneftegaz company’s oil terminal at the Taman port in July last year. That notwithstanding, according to estimates by Infranews, the proportion of Russian cargo transshipped through foreign ports will not change significantly in the next 10-15 years, varying between 10% and 20%.