Russia is preparing to begin construction of a large coal port with a capacity of 18 million tons per year in Murmansk, which is in the north of the country. The new harbor at the estuary of River Lavna on the west bank of the Kola Bay will open a new, cheaper route to Europe and further to the entire world for the UK Kuzbassrazrezugol comoany, which is owned in equal parts by Kuzbassrazrezugol and the Siberian Business Union holding comoany (SDS). Documents related to the project will be sent for expert assessment in September, and the Russians plan to begin construction of the port between late 2012 and early 2013. "Construction of the port will take 2.5 years,” the company said.
According to the president of the Siberian Business Union, Mikhail Fedyaev, his holding company spends USD 300 million per year to use ports in the Baltic and railways in Ukraine and Belarus for export of its coal westward. If the stated amount is correct, the company's investment in the Lavna port, which experts estimate at about USD 600-900 million, definitely has little payback prospects.
More coal SUEK, another major producer of coal from Kuzbass and the largest coal holding comoany in Russia, acquired 24.91 percent of the voting shares in the port of Murmansk in the same year and appointed its top manager as the head of the port. Experts believe that this acquisition increased SUEK’s control of the port to 63.53% (47.65% of the share capital). The simultaneous stepping up of the operations of two large coal exporters in the Kola Peninsula demonstrates that the transit routes for Russian coal exports are shifting to the northern ports. In the near future, the major gateways for export of Russian coal westwards will be the ports of Murmansk and Taman, in addition to Latvian ports. Successful implementation of these projects will further exacerbate the situation involving the transit of Russian goods through Ukrainian ports.
Siberian Business Union spends USD 300 million per year to use ports in the Baltic and railways in Ukraine and Belarus
The volume of transshipment of Russian coal at Ukrainian ports has been falling steadily for several years. It fell from 11.9 million tons of Russian coal in 2007 to only 6 million tons four years later (in 2011). In addition, Ukraine has lost about 1 million tons of coal transit every year. For now, 2012 is promising to be a turning point: the volume of transshipment of transit coal increased by more than 17 percent in the first eight months of 2012 compared with the same period in the previous year. However, even these figures do not look reassuring if one looks at the rate of increase of coal transshipment in the same period at the AO Baltic Coal Terminal at the Ventspils port in Latvia (+28 percent), for example.
This is taking place against the backdrop of an increase in coal mining in Russia. For example, 301 million tons of coal was produced in 2009, 322 million tons in 2010, and 334 million tons in 2011. Production increased by 6.3 percent to reach 226.242 million tons in the period of January-August 2012, compared with the same period of 2011. According to Aleksandr Grigoriev, the head of the department of strategic research at the Institute of Natural Monopolies, Russia increased coal exports to 104.7 million tons in 2011 because conditions on the world market that were favorable to Russia. "The effect of the floods in Australia, the associated coal shortage, and rising prices on the world market of coking coal could be seen throughout the year," said the expert.
A vertical chain Meanwhile, Russian big businesses are spending huge amounts of money to export coal through their own terminals. The amount of investment in the Lavna port project has not been disclosed, but analysts estimate that it could cost the company about USD 600-900 million. The project involves dredging of the bay area and construction of a base for the port’s auxiliary fleet with funding from the federal budget, allocation of land for construction of a railway from the Lavna station to the port (a length of 2 kilometers), and construction of a power substation for supplying electricity to the port with funds from the Siberian Business Union holding company.
However, the project has weaknesses. Its main weakness is its declared capacity of 18 million tons. This is more than the UCLH terminal in the Taman port megaproject. For comparison, the capacity for transshipment of coal at the nearby port of Murmansk is also much smaller at only 12-14 million tons. Given the fact that the terminal will focus on exports to the West, the Siberian Business Union holding company may have difficulty operating it at full capacity with its own coal (the volume of coal production at SDS Coal is 25 million tons per year). The new port will be able to reach its declared capacity only in case of industrial growth in the European Union and development of the northern sea route, which could be an alternative to the congested Trans-Siberian Railway for delivery of coal to Asia.
Most likely, the port will initially transship no more than 10 million tons of coal per year. However, according to Fedyaev, part of this volume is specifically the volume that presently goes through Ukraine on transit.
The plans of the other major coal holding, SUEK, regarding development of the port of Murmansk are also important for the future geography of transit of Russian coal, especially for Ukraine, through which the holding company still transports large volumes of coal on transit. Until the launch of the Lavna port, the Murmansk merchant seaport is virtually the only major coal transshipment port in the North Sea basin (Russia’s Baltic ports specialize in other types of cargo). Last year, the port handled 10.765 million tons of coal, of which 70% was coal belonging to SUEK. In general, one-third of all the coal mined by the company is exported, and the company plans to develop its sales to European destinations specifically through the Murmansk port.
Andrii Isaev, an analyst with the Center for Transport Strategies, believes that the development of ports in Murmansk poses a threat to Ukraine, but the launch of the port of Taman will have a more meaningful impact on the transit of Russian coal through Ukrainian ports. "More than 90% of the total volume of coal from Russia that is transshipped on transit through Ukrainian ports is sent to Black Sea or Mediterranean countries. Obviously, with a proper pricing policy at Ukrainian ports and railway rates, it is less profitable to transport coal to Murmansk than to transship it through Black Sea ports. Therefore, construction of a new terminal in Murmansk is more dangerous to the Baltic ports than Ukrainian ports," said the expert. "At the same time, the construction of a port in Taman will result in reduction of the flow of transit coal through Ukrainian ports. However, given the period of construction of the port, this will not happen before 2017."
However, Ventspils is already actively preparing for increased competition with the ports of Murmansk. In May, the management of the Baltic Coal Terminal, which is a joint venture between the Zarechnaya mine (Kemerovo region, Russia) and Ventspils Commercial Port, announced its intention to complete the construction of the second phase of a coal terminal and commission it. After completion of the project, the volume of coal transshipment at the Baltic Coal Terminal will increase from 4.079 million tons per year in 2011 to more than 10 million tons per year. If this this project is implemented successfully, the Ventspils port alone will transship almost twice more Russian coal than all Ukrainian ports combined.
