The Russia Journal

Russia's port administrators recently reached an agreement with the federal Transport Ministry to set up a new system for allocating federal funds to upgrade port infrastructure, especially on Russia's southern coasts. The idea, say its proponents, is to end cutthroat competition for cargo between the small ports.

It is one of several measures the Transport Ministry, Rail Ministry, State Customs Committee and other government agencies have taken this year to facilitate Russian export flows and channel transport revenues into Russian pockets, instead of those of competing ports and shippers in neighboring states.

The port initiative was discussed with Minister of Transport Sergei Frank, along with regional administrators, last month at Taganrog, at the mouth of the Azov Sea.

An official who attended said it was decided to establish a new agency within the Transport Ministry to be called Rosmorport ("Russian Sea Port"). This represents a move to upgrade the bureaucratic status of the seaports within the ministry to a level equal to those of the Marine Fleet Service and River Fleet Service.

The management of Russia's ports is currently divided between the commercial executives who run privatized port companies, federally appointed port administrators and regional government control bodies. This cumbersome bureaucracy is also riven with conflicts over such issues as who should run and who should pay for ship pilot service.

According to Transport Ministry spokesman Alexander Filimonov, the new agency Rosmorport "will consolidate state management functions over seaports in Russia. Four regional divisions, or basin departments, will be established – North-Western, Eastern, Southern and Northern. They will coordinate the activities of the state maritime administrations in each of the ports, and oversee their development."

Filimonov told The Russia Journal "the new basin departments will be able to make federal spending on ports more effective by reducing competition for funds between individual ports and ensuring that development spending is more effective for port development across regions."

Port executives told The Russia Journal that right now there is vigorous lobbying by each of the Azov, Caspian and Black Sea ports to attract federal development money. The ports are also seeking backing from regional governors to offer rail and other tariff discounts to attract export shippers to use their outlets.

The Taganrog, Eisk and Temryuk ports on the Azov Sea report that volume of dry-cargo, especially metals, was up between 20 percent and 90 percent last year, although they remain small by comparison with the top 10 seaports. Taganrog recorded total dry-cargo movement in 2000 of just over 1 million tons.

On Russia's Caspian coast, Astrakhan, Olya and Makhachkala recorded even more rapid growth last year. But they also remain in the second tier of Russian ports. Astrakhan's and Olya's combined volume in 2000 was 240,000 tons.

Along the shore of the Gulf of Finland and the Baltic seacoast, other initiatives are under way to redirect Russian metal and oil flows from rival Lithuanian, Latvian, Estonian and Finnish ports.

Vyacheslav Ruksha, who heads the Marine Fleet Service at the Transport Ministry, has confirmed that the new oil port of Primorsk, in the Leningrad region, will start loading tankers this year. For the first twelve months, Primorsk will have the capacity to discharge 12 million tons of liquid cargoes, mostly crude oil piped from Russia's new Arctic oilfields.

Next year, Ruksha added, a terminal for loading petroleum products will be brought on stream at Primorsk.

Even with these additions at Primorsk, the official told The Russia Journal, only 58 percent of Russia's oil and petroleum exports will be shipped through Russian ports and about 10 percent of all exports on Russian-flag vessels.

"I think we should aim at carrying 40-50 percent of cargoes from Russia under the Russian flag at some time," Ruksha said, "with further effort to return to the 60 percent level of the Soviet era. I do not think that we should aim to carry more than that, at least in the foreseeable future."

Completion of the five-year construction of the new dry-cargo port south of Primorsk at Ust-Luga should increase domestic port handling of dry-cargo exports from 78 percent at present to about 96 percent, Ruksha said. Coal shipments are expected to start from Ust-Luga this summer.

According to the Transport Ministry which took over the port project from a private developer, Ust-Luga will have a cargo capacity of 35 million tons per year and facilities to service ships with a cargo load of up to 70,000 tons.

To encourage local shippers to build new Russian-flag vessels for exports, Ruksha said the government has already introduced a scheme for budget subsidies for interest on bank loans for vessel construction. According to Ruksha, construction of oil tankers operating from Primorsk through the Baltic and from Murmansk through the Northern Sea Route will have priority for funding.

In addition, he said he will shortly ask the government to approve a scheme of tax relief for vessel owners registering their ships on a second Russian register. According to Ruksha, the register – which has been under consideration by government and industry experts for several years already – is to be opened in the free economic zone at Kaliningrad on the Baltic.

The Russian government also says it is working with Sovfracht, the liner and logistics group, to invest in new port facilities at the former naval base of Baltysk, which is within the Kaliningrad enclave. The deeper water at Baltysk, Sovfracht officials told The Russia Journal, will make it possible to process larger freighters than the civil port of Kaliningrad can accommodate, adding another 1 million tons of cargo in a year's time.

Investing in transportation infrastructure and shipping is one thing. Rewriting the rulebook can also be effective in changing the way Russian exports move, and for whose benefit.

Last December, for example, the State Customs Committee in Moscow issued an instruction banning truck and rail shipments of Russian scrap for export. Implementation was then delayed until February. The objective was to force export flows of ferrous scrap to move through Russian ports, instead of through Ukrainian Black Sea ports or Riga, Tallinn, Klaipeda or Ventspils.

Since February, scrap-metal processors exporting to the Baltic region have felt the pinch. For example, Pskovvtorchermet, a processor in the northwest of Russia, has said it is facing a serious problem with exports to standing customers in Finland and Lithuania.

Russian government officials claim the customs rules have hurt only the black-market dealers. According to Chingiz Izmailov, a port administrator at the Transport Ministry in Moscow, the order of the State Customs Committee has halted export of scrap by railway and opened up export flows through the ports to more effective inspection.

"This has played a great role in legalizing ferrous-scrap flows," Izmailov said. "Exports of scrap by rail were used for customs fraud when loads of regular scrap were covered with lower quality scrap, such as borings and drillings, in order to be exported with lower export taxes."

Exports through the ports, Izmailov said, "are more transparent because the scrap is reloaded in port and it is impossible to cheat on the type of scrap exported, and thus pay lower tariffs."

Izmailov is also sure that processing of metals and scrap exports through Russian ports is the only way to obtain precise checks on the volume of shipments of scrap. Until the new rules took effect, he said, metal and scrap traders were able to ship loads across the Russian border that were larger than were declared in the customs documents. That was the real reason, Izmailov added, and not differences in rail freight tariffs, that shippers of steel scrap exported by Russian rail or truck to the Baltic and Ukrainian ports.