DEPUTY TRANSPORT
MINISTER, HEAD OF
RUSSIAN MERCHANT
MARINE ALEKSANDER LUGOVETS
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REPORT BY FIRST DEPUTY TRANSPORT MINISTER, HEAD OF RUSSIAN MERCHANT MARINE ALEKSANDER LUGOVETS |
Ladies and Gentlemen!
The following address was published in issue No.1-2, 2000 of the trade journal “Morskie Vesti ??????” (Maritime News of Russia). It offers an overview of the Russian transport sector’s performance in 1999 and discusses efforts to improve the sector’s competitive position through:
The address is divided into five sections:
I believe that you will find these materials interesting and timely, and I will be very pleased to answer your questions about the information they contain.
Russian Federal Transport
Ministry
Promotes Higher Cargo Turnover
By Aleksander Lugovets
First Deputy Transport Minister
Head of Russian Merchant Marine
General Remarks
The Russian maritime sector’s legal foundations are undergoing intensive review in an effort to improve market relations in the industry. In 1999, a new Federal Maritime Shipping Code went into effect. A federal draft law "On Marine Ports" is going through the approval process at various ministries and departments, and a draft law "On Mixed (Combined) Shipments" is being modified as recommended by relevant federal bureaus.
Close cooperation among the Transport Ministry, the Railroads Ministry, the State Customs Committee, Russia’s republics, regions and cities, and domestic cargo owners and forwarders is helping to:
An international coordinating council for trans-Siberian shipments has been organized to help improve the competitive position of the Trans-Siberian Railroad (TSRR). Many Russian shipping, stevedore and freight forwarding companies are among the council’s active participants. Restrictions on domestic shipping company participation in the transport of containers between ports in Korea, Japan and the Russian Far East have been lifted, and freight and stevedoring charges for transit cargoes have been reduced.
Development of facilities at the nation’s seaports is proceeding apace within the framework of the Russian Commercial Fleet Modernization Program. In 1999, the mineral fertilizer complex at the Port of Murmansk reached full capacity. At the Port of St. Petersburg a facility for unloading mineral fertilizers from specialized vessels has gone on line, and construction of the container complex is nearing completion. Construction is in its final stages at Vostochny Port’s mineral fertilizer facility, and new capacities are being added at Novorossiisk, Tuapse, Temryuk and other Russian ports.
At its June 29 and November 3 sessions, a special Russian Federal Government commission considered ways of providing the nation’s transport system with the capacities it needs to operate at optimal levels and looked at proposals for increasing imports and exports at Russian ports. Cooperation between Rosmorflot and subdivisions of the Russian Trade Ministry has been very fruitful in recent years. Key areas include the Tumen River Project, an agreement between Russia and China on transit of Chinese goods through Primorye ports and use of the Port of Posiet for Primorye exports. In 1999, total foreign trade volume of the nation’s ports and commercial structures reached 168 million tons (92 million dry, 76 million liquid), a 23% increase over 1998.
The inter-departmental working commission established in August 1998 by the Transport and Railroads ministries to review transport complex operations is seeking ways of improving transport sector efficiency. Led by senior officials from the ministries and the State Customs Committee, the working commission is coordinating efforts to increase import and export volumes and reduce turnover times.
The Working Commission and Russia’s Ports
In the second half of 1998, the commission played an active part in drafting and coordinating with other government bodies a plan for increasing competitiveness at Kaliningrad Commercial Port. The Russian government approved the plan, and most of its measures were implemented in early 1999. The commission is working with the Kaliningrad Regional Administration to increase cargo volumes at the port by modifying tariff policies, simplifying customs procedures and introducing tax relief measures. The commission held a number of sessions in Kaliningrad, and port operations were reviewed on December 16 at a Russian Transport Ministry meeting. The decrease in cargo volumes has been reversed this year, and the working commission will continue its efforts to promote the fullest possible use of Kaliningrad port capacities.
On December 16, 1998 the Russian government approved a similar plan to improve competitiveness at Arkhangelsk Commercial Port, with the working commission responsible for monitoring plan fulfillment. Joint efforts at increasing the use of Arkhangelsk transport complex capacities have helped reduce transit good tariffs and increased port capacity use by 42% in 1999. The Railroads Ministry has agreed to reduce rail tariffs on ferrous metals shipped from Magnitogorsk Metallurgical Plant to Arkhangelsk. Talks are under way to establish more favorable tariffs for output from Cherepovetsky Metallurgical Plant. The problem of high rail tariffs has yet to be resolved fully, and efforts along these lines will continue.
Mention should be made of the success achieved by Murmansk Commercial Port and the Railroads Ministry in conjunction with the working commission to re-route through the Port of Murmansk coal bound for Europe. More than two million additional tons have been shipped using 40,000-60,000-ton vessels. A project to be managed jointly with the Maritime Administration in the second quarter of 2000 will increase berth-side depths, enabling the port to process 100,000-ton vessels. Coal transport by means of these larger vessels is advantageous for cargo owners, and we can expect them to be more widely used in the future. Total cargo turnover at the Port of Murmansk increased 23% year-on-year in 1999.
Humanitarian goods shipments to Russia from the European Community and the US have increased since January 1999, and the working commission has devoted considerable attention to accelerating movement of these goods through Russian transport complexes, primarily St. Petersburg. Representatives of the Transport and Railroads ministries, the Oktyabr Railroad, the Port of St. Petersburg and cargo owners and forwarders met in St. Petersburg on August 3 and November 20 to discuss ways of monitoring vessels and other means of transport handling humanitarian goods to ensure that they reach consumers without delays. Daily monitoring of unloading operations and various other measures have been instituted to ensure that problems are solved in a timely manner. A December 2 session was devoted to development of container shipments through the Port of St. Petersburg. It was resolved that container handling capacity would be increased to enable the complex to process up to 350,000 TEUs per year.
In 1998-99, the working commission visited ports in the Russian south to consider ways of increasing throughput capacity at Novorossiisk, Tuapse and Temryuk and upgrading the Temryuk transport complex’s technical condition. As a result of decisions made by the commission, construction of railroad yards at Temryuk and ports in the Caucasus region is entering its final stages. The first shipment of large-diameter pipe arrived in the Port of Temryuk from Italy on December 11 for further transport along the Russian rail system.
Experts from the Transport and Railroads ministries together with counterparts from the Krasnodar Krai Administration have visited transport complexes in the Russian south (Krasnodar, Novorossiisk, and Tuapse) on several occasions to study implementation of earlier decisions aimed at increasing the use of port capacities. An order has been drafted jointly with the Railroads Ministry establishing a new cargo region at Novorossiisk. The actions taken led to a 14% increase in 1999 in cargo turnover at ports in the Russian south.
Meetings were held jointly with the Railroads Ministry in the fall of 1998 to determine the optimal route for shipment of crude oil and refined petroleum products from the Caspian region to Western Europe using Russia’s transport infrastructure.
On September 23 the working commission met at the Transport Ministry to consider the issue of shipping Caspian oil (Turkmenistan and Kazakhstan) through the Commercial Port of Makhachkalin. Measures designed to improve the port facilities and tariff policy were outlined, and in 1999 Makhachkalin handled more than one million tons of crude and refined petroleum products after just 30,000 tons in 1998.
Among the high-priority tasks is improvement of the competitive position of TSRR and the ports of the Russian Far East (RFE), in part by attracting transit goods from China and the US. Meetings were held in 1998-99 with senior managers of various Primorye transport sector companies. On June 16, 1999 delegates from Russia, China and the US came together in Vladivostok for a tri-lateral conference on ways of increasing the volume of Chinese and American transit goods handled by the ports of Primorye. At working sessions on September 14 and 27 there was discussion of ways of making more intensive use of the TSRR.
In March 1999, consultations were held with foreign experts involved in the Tumen River transport complex project. A number of tariff policy issues were resolved, and a decision was made to establish special, lower rail tariffs for ferrous metals bound for export through RFE ports from producers in the Urals and Western Siberia. Vladivostok’s Far Eastern Marine Research Institute is studying questions related to the shipment of LNG through Vostochny Port and the use of the Port of Posiet for Chinese cargoes. Total cargo volumes at Primorye ports rose 60% in 1999 as compared to 1998.
Market research conducted on foreign trade and transit cargoes at foreign ports indicates that an additional 16 million tons of freight could be routed through Russian ports, and attempts to translate this research into reality are on going. In October, lower rail-tariff coefficients for goods going to and from ports in Finland, Estonia and Latvia were cancelled, and the Transport Ministry has asked the Railroads Ministry to keep these decisions in force throughout 2000.
For the purpose of re-routing mineral fertilizers through Russian ports, a meeting was held with representatives of the Railroads Ministry and cargo owners and forwarders to give them information about Russian port capacities and to identify maximum tariff rates for shipment of fertilizers to ports and in-port handling. A working group including representatives of the ministries of Transport and Railroads, Agrokhimexport and other fertilizer owners was set up to consider and resolve all issues related mineral fertilizer transport.
In 1998-99, joint actions were taken to improve transport complex management. In the most intense area of activity, the Russian south, interdepartmental (coordination) councils have been set up at all marine ports to take specific measures aimed at accelerating the movement of foreign trade goods through transport complexes. Maritime councils have been organized by the regional administrations in Primorye and Krasnodarsky Krai.
Intensification of joint efforts with the Railroads Ministry, the State Customs Committee and other federal departments together with regional administrations made it possible to increase the total volume of goods handled at Russia’s ports last year by 31 million tons, an improvement of 23.4% over 1998.
Russian Shipping Companies in 1999
Russia’s economic crisis took its toll on Russia’s shipping companies in 1999. Net hard-currency turnover for the year was US$214 million, down $82.2 million from 1998. The volume of goods handled by Russia shipping companies fell by 5.1 million tons as compared to 1998. The 5.3 million-ton decrease in international shipments was offset slightly by a 200,000-ton increase in domestic shipments. Russian shipping companies transported two million tons of cargo to Russia’s Far North.
Low cargo volumes caused unstable shipment patterns on the RFE’s Vanino-Kholmsk ferry line. In order to keep all four ferries on the line operational, the vessels were used in limited-service mode, which doubles vessel turnover time along the route. Transport to Magadan was hampered by the constant failure of Magadan Power Company to meet its financial obligations with respect to coal shipments in a timely manner. The Far Eastern Shipping Company (FESCO) had to divert vessels from coal to alternative cargoes and take various other measures to ensure payment.
The problems that have plagued Arctic shipping in previous years took their toll again in 1999. Far North regions are still unable to pay for essential goods and cover the cost of shipment to local destinations. Again last year, government support for shipment of petroleum products, fuel and foodstuffs to the Far North failed to come through in full and in a timely manner.
At the beginning of the 1999 season, Russian ports had very few goods earmarked for regions of the Far North. Because of the delays, delivery to ports in the Arctic was carried out in extreme winter weather conditions that damaged ice breakers as well as transport vessels. Extension of transport operations beyond the standard time frame leads to significant delivery cost overruns.
Severe ice conditions forced the transport ship "Rundale" to re-route to the Port of Dudinka 13,200 tons of petroleum products normally delivered to local aviation through the Port of Khatanga. A similar situation developed with respect to petroleum products bound for Chukotka. Heavy ice prevented the vessels "Usinsk" and "Roshchino" from entering the Port of Egvekinot, forcing them to deliver their cargoes at Providenie. Coal is normally shipped to Arctic ports from the east (Port of Beringovsky). This year it was brought in from the west by the "Captain Vakula" along the Dudinka-Pevek route.
In 1999, 27 million tons of domestic cargo were shipped for export, one million of which were handled by Russian shipping companies. In 1998, the totals were 32.2 million and 1.1 million. Because most export contracts for oil products and other goods provide for delivery by vessels of the receiving nation, a number of domestic shipping companies are facing serious deficits of foreign trade cargoes. Shipping companies must charter transport vessels to third-party countries, earning revenues lower than those for transporting domestic exports. The main reason for the drop in export shipments is the decommissioning of vessels whose age exceeds service-life norms. Deadweight tonnage involved in export shipments fell 132.9 million tons compared to 1998. It should be noted that some of the vessels used for export shipment are leased on bare-boat charter terms, a fact that is not taken into consideration by current statistical practices.
Following the collapse of the Baltic Shipping Company (BSC), Russian shipping companies were not involved in transport of passengers, trailers and automobiles on Baltic lines. FESCO eventually transferred two vessels, the "Rus" and the "Mikhail Sholokhov," to the region and in September 1999 service resumed on the St. Petersburg-Stokholm line. The "Mikhail Sholokhov," which replaced BSC’s "Ilich" on the route, can transport 16 trailers along with 300 passengers and automobiles. The "Rus" has recently undergone repairs and may soon be used on the St. Petersburg-Kiel line previously served by BSC’s "Anna Karenina."
The Port of Posiet in the RFE now handles Chinese transit goods.
Plans for Sector Development
In conjunction with research institutes, Rosmorflot has studied ways of managing the cargo base for development of domestic transport through 2010. The studies enable us to forecast a 10% rise in domestic cargo volumes through ports of Russia, the CIS and the Baltic in 2002 and a 45% rise of 37 million tons in 2007.
A draft Russian Federal Government Resolution "On Measures to Ensure Effective Use of the Russian Commercial Fleet for Shipment of Foreign Trade Cargoes" has been compiled, in cooperation with the Russian Shipowners Union, and distributed to relevant Russian ministries and departments.
The Russian Trade Ministry is studying foreign trade-related issues in the following areas:
Because foreign-trade turnover, including export cargo volumes, is rising, ways must be sought to make Russian handlers of foreign trade and transit goods more competitive and to upgrade the country’s transport infrastructure. These are high-priority issues that relevant government agencies must address in a coordinated manner, designing measures that will ensure optimal use of the country’s transport system.
In order to increase the effectiveness of the Russian commercial fleet through increased transport of foreign-trade cargoes, measures must be developed that will improve state regulation of the cargo base. Higher earnings for domestic cargo handlers will lead to higher tax revenues for government at all levels.
The first step is to accelerate implementation of provisions giving domestic cargo handlers preferential rights with respect to domestic exports. Proposed amendments to Russian Federal Law No.157-F3 of October 13, 1995 "On State Regulation of Foreign Trade Activity" should be submitted to the Russian Federal Duma for review. The amendments expand state regulation of export activity with respect to transport. They also institute quotas for shipment of goods on means of transport owned by Russian companies and require that domestic carriers handle at least 50% of all commercial cargoes and 100% of all military and other government cargoes and goods provided by other countries as humanitarian aid.
The Duma should also review amendments to Russian Federal Law No.225-F3 of December 30, 1995 "On Product Sharing Agreements" as found in Russian Federal Law No.19-F3 of January 7, 1999. The amendments give Russian shipping companies the right to transport 100% of the liquid hydrocarbons given to Russian project participants under the Product Sharing Agreement Law and the right to transport up to 70% of those given to foreign participants. A formal appeal for review has been submitted to the Council of the Federation.
The Duma will also be asked to review amendments to customs and tax legislation calling for:
An effort should be made to encourage Russian shipowners to use domestic shipyards for vessel repair and technical servicing by eliminating or reducing customs duties on imported spare parts and equipment. Russian intergovernmental commissions involved in negotiations with foreign states should be directed to take the interests of Russian transporters into account when signing agreements on cooperation.
Another normative act that should be modified is USSR Order No. 117-pr, 255 of July 12, 1973 on relations between the ministries of maritime transport and foreign trade. The order should be modified to establish quotas for the domestic fleet for specific types of exports and imports, thereby ensuring better use of transport capacities and lower hard-currency expenditures on the chartering of foreign vessels.
In order to protect domestic providers of transport services it would be prudent to amend the Russian Federal Government Order "On Licensing Various Types of Activities" by adding restrictions on foreign access to the Russian transport services market.
To help improve the competitive position of Russia’s maritime sector, construction should be accelerated at new Baltic ports (Ust-Luga, Batareinaya and Primorsk). Efforts to modernize ports in the Russian south (Novorossiisk, Tuapse and Temryuk) should be intensified so that these ports can handle goods not currently processed by Russian ports. The list of high-priority cargoes includes crude oil, petroleum products, coal, mineral fertilizers, LNG, containers and others.
Another important goal is better coordination of the activities of various types of transport service providers for multi-modal shipments. Multi-modal transport accounts for the majority of foreign trade activity and provides a third of all federal budget revenue. Effective integration of the activities of the various means of transport will do much to provide Russian transport companies with additional Eurasian transit volumes. As noted by the Transport Ministry at the 3rd Tariff Congress, development of an optimal through-tariff mechanism for multi-modal transport is one of the vital elements in the effort to improve the competitive position of Russian exporters and must be supported by further research and practical measures.
Better coordination between transport service providers and producers of goods is also a key factor in the effort to improve the competitive position of Russian exports and Russian transport service providers on the world market. This coordination will be enhanced by regular cooperation between transport sector organizations, the Coordinating Council of Domestic Goods Producers and, through the latter, exporter associations and unions. Recommendations accepted by the Round Table of December 16, 1999 can serve as a plan action for near term.
This page was last updated on 17 May 2000
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