III КВАРТАЛ 2022Г. - 55 баллов
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[DETAIL_TEXT] => The new geopolitical challenge makes one to approach the transport infrastructure development of the North-West of Russia differently.
Dmitry Nikitin, General Director of the Eurosib Group of Companies, comments on the prospects of transport communications development in the region.
– Don’t you think the idea of Peter the Great to crack the window to Europe in the North-West of Russia doesn’t work any longer?
– I believe it was the best state project of Peter the Great: Russia has been benefiting from this idea for 300 years already. Peter created not only a city-port, but a powerful export-import channel between Europe and Russia. Unfortunately, this project is quite old as it doesn’t correspond to modern challenges. Saint-Petersburg commercial sea port is incapable to satisfy modern needs and has become a burden for the city. At the same time 70% of European trade routes to Russia still go through the North-West region.
After the USSR collapsed, the geopolitical situation in the North-West region of Russia changed dramatically for the worse. We don’t have non-frozen ports; St.Petersburg transport junction is permanently overloaded; city districts suffocate with trucks; border check-points on the Russian-Finnish boarder are also overloaded. Motor trucks run along the roads that haven’t improved. At the same time, Finland has developed a well-working transport-logistic system and let through over 30% of Russian import worth USD 33 bln. There is no other alternative but to create a competitive transport-logistic system in the North-West region aimed at a further integration into the European transport system. If we don’t manage to do this in time, the foreign market will dictate its rules. We don’t have time to wait until Europe and Asia are ready to consider us as an equal partner: we should start controlling the situation ourselves.
– In mid June the Eurosib Group of Companies obtained some credit from the International Financial Corporation (IFC) to launch the net of logistic terminals in Russia. Could you please comment on this project?
– We received USD 119.5 mln from IFC, which is part of the World Bank structure. However, this is not the most important thing: of greater importance for us is the fact the foreign credit institutions took our strategic project of transport business development in an adequate and serious way. By the way, the investment programme of the group for 2006 is estimated at USD 200 mln.
We are planning to direct our credit funds to construction and maintenance of six container terminals in the biggest centers of cargo handling in Moscow, Saint-Petersburg, in the Urals and Western and Eastern Siberia. This is going to be the first stage of the long-term programme within which we plan to expand our net up to 20 terminals in Russia and CIS.
Each terminal will operate railway and motor accesses, sheltered warehouses, areas for container storage capable to handle about 60 thousand 20ft containers annually.
– As known, other companies also have projects of this sort. Today terminals are constructed in many cities; at the same time, the RF Transport Ministry has its own views on that. Don’t you think the level of transport business activities coordination is poor?
– Let’s agree on the meaning of such a term as «terminal» from the very beginning. Many companies construct terminals only for their own purposes or offer a single function (for example, storage). They can also build it for the only cargo owner, but, nevertheless, call it a terminal: they completely forget that the basis for this business is logistic. Also, the situation can work as follows: the company operated a trucks park, they constructed a warehouse and called it an autoterminal; if they were involved in getting customs clearances, they called themselves a customs terminal.
Speaking of Eurosib I have to emphasize the fact that we deal with a «transport-logistic terminal», that is to say it is a system of providing complex logistic services of 3PL (third party logistics provider) type, and, in the future, of 4PL type. Our project of launching the net of logistic centers in the biggest transport junctions, in zones of economic growth, has been developed considering the federal target programme, and in particular, terminal-logistic complexes development. The problem is our federal programme defines strategies of transport corridors development, but the mechanism of its implementation hasn’t been worked out yet. Unfortunately, at present we only exploit our post-Soviet infrastructure and take steps on its local modernization. In my opinion, it is a half measure.
I believe the state should actively work on the infrastructure improvement, if it is interested in attracting private investment on acceptable terms for participation in this programme.
– What about your terminal «Predportovy» put into operation last December?
– Now we are in the process of double-checking technologies for cargo handling, first of all, it has to do with logistic, i.e. cooperation with the port, the railway, customs and automation of document turnover.
– These are organization issues. What about cargo? The forecasted annual cargo turnover of the terminal was estimated at 55 thousand TEUs and 350 thousand tons of general cargo.
– The terminal activities are growing day-by-day. We manage to handle over 70 trucks daily. While developing new projects for the terminal we consider the fact that the work with potential clients, big manufactures, and global net operators should be started long before the terminal construction, i.e. marketing and logistic.
– Wasn’t the terminal constructed for cargo handling? It couldn’t have been constructed without market situation analysis, without considering present day cargo flows …
– The center was constructed to satisfy the needs of cargo owners and cargo operators, as well as ZAO First Container Terminal. We are compensating the existing shortages of the port and offer multimodal complex cargo handling. It is a new service for the Russian market. It is a complex service, our Unique Trade Offer, which we address to the market participants. Thanks to very fundamental marketing research of trade flows and companies-cargo owners, we have managed to implement this project in «Predportovy» and plan to carry on.
– How did you choose the territory for «Predportovy» terminal location?
– The most important factor was to be close to the Big Port of Saint-Petersburg. There are some basic demands while designing and choosing a place for a terminal. They are first of all, the terminal’s inclusion into the general technology of work, client base parameters, empty territory, developed engineer infrastructure, adjacent motor ways and railways. In fact, there are very few places like that around Saint-Petersburg.
– Do you mean the poor development of transport infrastructure in general?
– Not exactly. The problem lies in the fact that the state corporations ОАО RZD, RАО UES and local authorities follow their own interests first of all, and without their support the implementation of our projects is impossible. Each monopolist dictates its own tariffs not coordinated with other state monopolists and, as a result, the project’s cost increases tremendously. The same things happen with the policy of giving land for logistic objects construction. For example, in Germany construction of the terminal center like ours cost half as much despite the fact that wages and construction materials cost are higher there.
– How would you save then?
– In Germany, in spite of their bureaucracy, officials clearly understand that if businessmen plan to develop something in the public interest, they must get total support. Even in the public-private partnership a balance of interests should be kept, in the way objects are transferred into operative control for certain periods to let private business compensate the investment. Now it works like that and we hear: «Build for us, we’ll make a decision afterwards».
Moreover, the problem of preparing the territories both for house-building and commercial building is the major obstacle for responsible investors. The state can and must solve these problems in a more operative way, work out infrastructure plans with elaboration of all possible details, as well as coordination and investment packs for land development, if it is interested in capital attraction towards a given region. Now the situation works the other way round. It often happens when you are offered a pig in a poke.
I can give an example. In Finland an engineer-prepared hectare of land with electricity, fences, motor and railway accesses costs about USD: 150 thousand. In Shushary (near Saint-Petersburg) we paid about USD 1.6 mln for a hectare getting only the rent right. Additionally we paid for electricity, accesses construction, eliminating a rubbish tip and construction of a road of common use, which cost us more than USD 1.2 mln. At the same time, we are constantly facing new administrative obstacles which make the project more and more expensive. In fact, it was the city’s task to prepare the territory.
– Saint-Petersburg City Committee on transport-transit policy believes the city isn’t interested in infrastructure development, as cargo flows increase doesn’t influence the budget income and the only way to increase budget profits is container handling and launch of value-added logistics…
– Container handling? What does this have to do with the budget? There are three parts of balance: operational, financial and investment. How does the city want to earn – on the operational part of the budget? This is impossible since the city can’t take up commerce, participate in stevedoring companies or introduce dues for Saint-Petersburg for each container. The second financial part doesn’t contain any opportunities either: the city is not involved in IPO that would give transport market participants additional opportunities. Speaking of the investment part we remember pretty well what any textbook on business says: to earn something you should invest something. Does the city invest into the territory development? No, it only makes money on coordination and document turnover. As a result, pseudo-developers or land speculators get their profits.
Moreover, Saint-Petersburg port brings more and more problems.
– I’d like to remind you that Saint-Petersburg gave special discounts for land in industrial zones of special type such as Shushary, Noidorfa, Predportovy…
– If I were the city administration, I would give Shushary for free, as there are plenty of serious problems with creation of engineer infrastructure and with peat removal from the place. It happens so they have given unprepared land and tell victorious stories about logistic centers construction. It is too early to state that Shushary has become a logistic zone. Our administration shouldn’t prepare industrial zones for strategic foreign investors only. Can we compare the present-day approach to national companies with the Finnish state transport policy?
– Anyway Eurosib has bought land in this zone …
– We haven’t built anything there.
– Nevertheless you are going to do this. Just like Siblogistics and National Container Company are. What about the Eurosib project in Shushary?
– The work is going on; we are preparing territories for construction. I think this zone has ten prospective years and after that it will be overloaded with cargo just like St.Petersburg transport junction is now.
We should think in a strategic way, make plans for more than a ten-year perspective. We need a totally new, more efficient level of coordinating activities between the city and the regional authorities. City and region can’t agree, as everybody stands for their own interests. Consequently, they try to put transit policy under either city or regional control, but this problem must be considered as a whole. The whole style of bureaucratic machine functioning not interested in the creation of effective trade-logistic mechanisms should change. Only then empty territories in industrial zones and money for their preparation can be found. And what is more important partnership between power and private business will set.
– That is to say the major problem lies in the lack of unified approach to the North-West transport region development?
– All normal businessmen invest into cargo flow, in operation activity. What is going on in the North-West region? The port is expanding its operation activities but is unable to expand its assets. There are no conditions for the Big Port of Saint-Petersburg to develop. On the other hand, in 150 kilometers distance there is Ust-Luga with its great potential. Saint-Petersburg should focus on container handling and re-direct all general cargo to Ust-Luga. Frankly speaking, containers as well would feel better there. If these steps were taken, the emptied territory could go for house-building or a real sea fa?ade or an educational center construction. Only then, by the way, the industrial and depressing Admiralteisky and Kirovsky districts would revive.
As for me, I would never start the construction of the so-called «Sea facade» on the Basil island as it isn’t worthwhile either from marketing point of view or from the economic one. Experts know cruise tourism isn’t profitable for the city, as tourist do not leave money for the city infrastructure - they spend it offshore.
– What opportunities for further development of St. Petersburg transport junction in respect of container cargo flows handling do you see?
– Speaking of middle-term perspectives, a container handling volumes increase is possible at the expense of discharging bulk and other sort of cargo. I believe it is a 10-15 years prospect.
Interviewed by IVAN DENISENKO
[~DETAIL_TEXT] => The new geopolitical challenge makes one to approach the transport infrastructure development of the North-West of Russia differently.
Dmitry Nikitin, General Director of the Eurosib Group of Companies, comments on the prospects of transport communications development in the region.
– Don’t you think the idea of Peter the Great to crack the window to Europe in the North-West of Russia doesn’t work any longer?
– I believe it was the best state project of Peter the Great: Russia has been benefiting from this idea for 300 years already. Peter created not only a city-port, but a powerful export-import channel between Europe and Russia. Unfortunately, this project is quite old as it doesn’t correspond to modern challenges. Saint-Petersburg commercial sea port is incapable to satisfy modern needs and has become a burden for the city. At the same time 70% of European trade routes to Russia still go through the North-West region.
After the USSR collapsed, the geopolitical situation in the North-West region of Russia changed dramatically for the worse. We don’t have non-frozen ports; St.Petersburg transport junction is permanently overloaded; city districts suffocate with trucks; border check-points on the Russian-Finnish boarder are also overloaded. Motor trucks run along the roads that haven’t improved. At the same time, Finland has developed a well-working transport-logistic system and let through over 30% of Russian import worth USD 33 bln. There is no other alternative but to create a competitive transport-logistic system in the North-West region aimed at a further integration into the European transport system. If we don’t manage to do this in time, the foreign market will dictate its rules. We don’t have time to wait until Europe and Asia are ready to consider us as an equal partner: we should start controlling the situation ourselves.
– In mid June the Eurosib Group of Companies obtained some credit from the International Financial Corporation (IFC) to launch the net of logistic terminals in Russia. Could you please comment on this project?
– We received USD 119.5 mln from IFC, which is part of the World Bank structure. However, this is not the most important thing: of greater importance for us is the fact the foreign credit institutions took our strategic project of transport business development in an adequate and serious way. By the way, the investment programme of the group for 2006 is estimated at USD 200 mln.
We are planning to direct our credit funds to construction and maintenance of six container terminals in the biggest centers of cargo handling in Moscow, Saint-Petersburg, in the Urals and Western and Eastern Siberia. This is going to be the first stage of the long-term programme within which we plan to expand our net up to 20 terminals in Russia and CIS.
Each terminal will operate railway and motor accesses, sheltered warehouses, areas for container storage capable to handle about 60 thousand 20ft containers annually.
– As known, other companies also have projects of this sort. Today terminals are constructed in many cities; at the same time, the RF Transport Ministry has its own views on that. Don’t you think the level of transport business activities coordination is poor?
– Let’s agree on the meaning of such a term as «terminal» from the very beginning. Many companies construct terminals only for their own purposes or offer a single function (for example, storage). They can also build it for the only cargo owner, but, nevertheless, call it a terminal: they completely forget that the basis for this business is logistic. Also, the situation can work as follows: the company operated a trucks park, they constructed a warehouse and called it an autoterminal; if they were involved in getting customs clearances, they called themselves a customs terminal.
Speaking of Eurosib I have to emphasize the fact that we deal with a «transport-logistic terminal», that is to say it is a system of providing complex logistic services of 3PL (third party logistics provider) type, and, in the future, of 4PL type. Our project of launching the net of logistic centers in the biggest transport junctions, in zones of economic growth, has been developed considering the federal target programme, and in particular, terminal-logistic complexes development. The problem is our federal programme defines strategies of transport corridors development, but the mechanism of its implementation hasn’t been worked out yet. Unfortunately, at present we only exploit our post-Soviet infrastructure and take steps on its local modernization. In my opinion, it is a half measure.
I believe the state should actively work on the infrastructure improvement, if it is interested in attracting private investment on acceptable terms for participation in this programme.
– What about your terminal «Predportovy» put into operation last December?
– Now we are in the process of double-checking technologies for cargo handling, first of all, it has to do with logistic, i.e. cooperation with the port, the railway, customs and automation of document turnover.
– These are organization issues. What about cargo? The forecasted annual cargo turnover of the terminal was estimated at 55 thousand TEUs and 350 thousand tons of general cargo.
– The terminal activities are growing day-by-day. We manage to handle over 70 trucks daily. While developing new projects for the terminal we consider the fact that the work with potential clients, big manufactures, and global net operators should be started long before the terminal construction, i.e. marketing and logistic.
– Wasn’t the terminal constructed for cargo handling? It couldn’t have been constructed without market situation analysis, without considering present day cargo flows …
– The center was constructed to satisfy the needs of cargo owners and cargo operators, as well as ZAO First Container Terminal. We are compensating the existing shortages of the port and offer multimodal complex cargo handling. It is a new service for the Russian market. It is a complex service, our Unique Trade Offer, which we address to the market participants. Thanks to very fundamental marketing research of trade flows and companies-cargo owners, we have managed to implement this project in «Predportovy» and plan to carry on.
– How did you choose the territory for «Predportovy» terminal location?
– The most important factor was to be close to the Big Port of Saint-Petersburg. There are some basic demands while designing and choosing a place for a terminal. They are first of all, the terminal’s inclusion into the general technology of work, client base parameters, empty territory, developed engineer infrastructure, adjacent motor ways and railways. In fact, there are very few places like that around Saint-Petersburg.
– Do you mean the poor development of transport infrastructure in general?
– Not exactly. The problem lies in the fact that the state corporations ОАО RZD, RАО UES and local authorities follow their own interests first of all, and without their support the implementation of our projects is impossible. Each monopolist dictates its own tariffs not coordinated with other state monopolists and, as a result, the project’s cost increases tremendously. The same things happen with the policy of giving land for logistic objects construction. For example, in Germany construction of the terminal center like ours cost half as much despite the fact that wages and construction materials cost are higher there.
– How would you save then?
– In Germany, in spite of their bureaucracy, officials clearly understand that if businessmen plan to develop something in the public interest, they must get total support. Even in the public-private partnership a balance of interests should be kept, in the way objects are transferred into operative control for certain periods to let private business compensate the investment. Now it works like that and we hear: «Build for us, we’ll make a decision afterwards».
Moreover, the problem of preparing the territories both for house-building and commercial building is the major obstacle for responsible investors. The state can and must solve these problems in a more operative way, work out infrastructure plans with elaboration of all possible details, as well as coordination and investment packs for land development, if it is interested in capital attraction towards a given region. Now the situation works the other way round. It often happens when you are offered a pig in a poke.
I can give an example. In Finland an engineer-prepared hectare of land with electricity, fences, motor and railway accesses costs about USD: 150 thousand. In Shushary (near Saint-Petersburg) we paid about USD 1.6 mln for a hectare getting only the rent right. Additionally we paid for electricity, accesses construction, eliminating a rubbish tip and construction of a road of common use, which cost us more than USD 1.2 mln. At the same time, we are constantly facing new administrative obstacles which make the project more and more expensive. In fact, it was the city’s task to prepare the territory.
– Saint-Petersburg City Committee on transport-transit policy believes the city isn’t interested in infrastructure development, as cargo flows increase doesn’t influence the budget income and the only way to increase budget profits is container handling and launch of value-added logistics…
– Container handling? What does this have to do with the budget? There are three parts of balance: operational, financial and investment. How does the city want to earn – on the operational part of the budget? This is impossible since the city can’t take up commerce, participate in stevedoring companies or introduce dues for Saint-Petersburg for each container. The second financial part doesn’t contain any opportunities either: the city is not involved in IPO that would give transport market participants additional opportunities. Speaking of the investment part we remember pretty well what any textbook on business says: to earn something you should invest something. Does the city invest into the territory development? No, it only makes money on coordination and document turnover. As a result, pseudo-developers or land speculators get their profits.
Moreover, Saint-Petersburg port brings more and more problems.
– I’d like to remind you that Saint-Petersburg gave special discounts for land in industrial zones of special type such as Shushary, Noidorfa, Predportovy…
– If I were the city administration, I would give Shushary for free, as there are plenty of serious problems with creation of engineer infrastructure and with peat removal from the place. It happens so they have given unprepared land and tell victorious stories about logistic centers construction. It is too early to state that Shushary has become a logistic zone. Our administration shouldn’t prepare industrial zones for strategic foreign investors only. Can we compare the present-day approach to national companies with the Finnish state transport policy?
– Anyway Eurosib has bought land in this zone …
– We haven’t built anything there.
– Nevertheless you are going to do this. Just like Siblogistics and National Container Company are. What about the Eurosib project in Shushary?
– The work is going on; we are preparing territories for construction. I think this zone has ten prospective years and after that it will be overloaded with cargo just like St.Petersburg transport junction is now.
We should think in a strategic way, make plans for more than a ten-year perspective. We need a totally new, more efficient level of coordinating activities between the city and the regional authorities. City and region can’t agree, as everybody stands for their own interests. Consequently, they try to put transit policy under either city or regional control, but this problem must be considered as a whole. The whole style of bureaucratic machine functioning not interested in the creation of effective trade-logistic mechanisms should change. Only then empty territories in industrial zones and money for their preparation can be found. And what is more important partnership between power and private business will set.
– That is to say the major problem lies in the lack of unified approach to the North-West transport region development?
– All normal businessmen invest into cargo flow, in operation activity. What is going on in the North-West region? The port is expanding its operation activities but is unable to expand its assets. There are no conditions for the Big Port of Saint-Petersburg to develop. On the other hand, in 150 kilometers distance there is Ust-Luga with its great potential. Saint-Petersburg should focus on container handling and re-direct all general cargo to Ust-Luga. Frankly speaking, containers as well would feel better there. If these steps were taken, the emptied territory could go for house-building or a real sea fa?ade or an educational center construction. Only then, by the way, the industrial and depressing Admiralteisky and Kirovsky districts would revive.
As for me, I would never start the construction of the so-called «Sea facade» on the Basil island as it isn’t worthwhile either from marketing point of view or from the economic one. Experts know cruise tourism isn’t profitable for the city, as tourist do not leave money for the city infrastructure - they spend it offshore.
– What opportunities for further development of St. Petersburg transport junction in respect of container cargo flows handling do you see?
– Speaking of middle-term perspectives, a container handling volumes increase is possible at the expense of discharging bulk and other sort of cargo. I believe it is a 10-15 years prospect.
Interviewed by IVAN DENISENKO
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[DETAIL_TEXT] => The new geopolitical challenge makes one to approach the transport infrastructure development of the North-West of Russia differently.
Dmitry Nikitin, General Director of the Eurosib Group of Companies, comments on the prospects of transport communications development in the region.
– Don’t you think the idea of Peter the Great to crack the window to Europe in the North-West of Russia doesn’t work any longer?
– I believe it was the best state project of Peter the Great: Russia has been benefiting from this idea for 300 years already. Peter created not only a city-port, but a powerful export-import channel between Europe and Russia. Unfortunately, this project is quite old as it doesn’t correspond to modern challenges. Saint-Petersburg commercial sea port is incapable to satisfy modern needs and has become a burden for the city. At the same time 70% of European trade routes to Russia still go through the North-West region.
After the USSR collapsed, the geopolitical situation in the North-West region of Russia changed dramatically for the worse. We don’t have non-frozen ports; St.Petersburg transport junction is permanently overloaded; city districts suffocate with trucks; border check-points on the Russian-Finnish boarder are also overloaded. Motor trucks run along the roads that haven’t improved. At the same time, Finland has developed a well-working transport-logistic system and let through over 30% of Russian import worth USD 33 bln. There is no other alternative but to create a competitive transport-logistic system in the North-West region aimed at a further integration into the European transport system. If we don’t manage to do this in time, the foreign market will dictate its rules. We don’t have time to wait until Europe and Asia are ready to consider us as an equal partner: we should start controlling the situation ourselves.
– In mid June the Eurosib Group of Companies obtained some credit from the International Financial Corporation (IFC) to launch the net of logistic terminals in Russia. Could you please comment on this project?
– We received USD 119.5 mln from IFC, which is part of the World Bank structure. However, this is not the most important thing: of greater importance for us is the fact the foreign credit institutions took our strategic project of transport business development in an adequate and serious way. By the way, the investment programme of the group for 2006 is estimated at USD 200 mln.
We are planning to direct our credit funds to construction and maintenance of six container terminals in the biggest centers of cargo handling in Moscow, Saint-Petersburg, in the Urals and Western and Eastern Siberia. This is going to be the first stage of the long-term programme within which we plan to expand our net up to 20 terminals in Russia and CIS.
Each terminal will operate railway and motor accesses, sheltered warehouses, areas for container storage capable to handle about 60 thousand 20ft containers annually.
– As known, other companies also have projects of this sort. Today terminals are constructed in many cities; at the same time, the RF Transport Ministry has its own views on that. Don’t you think the level of transport business activities coordination is poor?
– Let’s agree on the meaning of such a term as «terminal» from the very beginning. Many companies construct terminals only for their own purposes or offer a single function (for example, storage). They can also build it for the only cargo owner, but, nevertheless, call it a terminal: they completely forget that the basis for this business is logistic. Also, the situation can work as follows: the company operated a trucks park, they constructed a warehouse and called it an autoterminal; if they were involved in getting customs clearances, they called themselves a customs terminal.
Speaking of Eurosib I have to emphasize the fact that we deal with a «transport-logistic terminal», that is to say it is a system of providing complex logistic services of 3PL (third party logistics provider) type, and, in the future, of 4PL type. Our project of launching the net of logistic centers in the biggest transport junctions, in zones of economic growth, has been developed considering the federal target programme, and in particular, terminal-logistic complexes development. The problem is our federal programme defines strategies of transport corridors development, but the mechanism of its implementation hasn’t been worked out yet. Unfortunately, at present we only exploit our post-Soviet infrastructure and take steps on its local modernization. In my opinion, it is a half measure.
I believe the state should actively work on the infrastructure improvement, if it is interested in attracting private investment on acceptable terms for participation in this programme.
– What about your terminal «Predportovy» put into operation last December?
– Now we are in the process of double-checking technologies for cargo handling, first of all, it has to do with logistic, i.e. cooperation with the port, the railway, customs and automation of document turnover.
– These are organization issues. What about cargo? The forecasted annual cargo turnover of the terminal was estimated at 55 thousand TEUs and 350 thousand tons of general cargo.
– The terminal activities are growing day-by-day. We manage to handle over 70 trucks daily. While developing new projects for the terminal we consider the fact that the work with potential clients, big manufactures, and global net operators should be started long before the terminal construction, i.e. marketing and logistic.
– Wasn’t the terminal constructed for cargo handling? It couldn’t have been constructed without market situation analysis, without considering present day cargo flows …
– The center was constructed to satisfy the needs of cargo owners and cargo operators, as well as ZAO First Container Terminal. We are compensating the existing shortages of the port and offer multimodal complex cargo handling. It is a new service for the Russian market. It is a complex service, our Unique Trade Offer, which we address to the market participants. Thanks to very fundamental marketing research of trade flows and companies-cargo owners, we have managed to implement this project in «Predportovy» and plan to carry on.
– How did you choose the territory for «Predportovy» terminal location?
– The most important factor was to be close to the Big Port of Saint-Petersburg. There are some basic demands while designing and choosing a place for a terminal. They are first of all, the terminal’s inclusion into the general technology of work, client base parameters, empty territory, developed engineer infrastructure, adjacent motor ways and railways. In fact, there are very few places like that around Saint-Petersburg.
– Do you mean the poor development of transport infrastructure in general?
– Not exactly. The problem lies in the fact that the state corporations ОАО RZD, RАО UES and local authorities follow their own interests first of all, and without their support the implementation of our projects is impossible. Each monopolist dictates its own tariffs not coordinated with other state monopolists and, as a result, the project’s cost increases tremendously. The same things happen with the policy of giving land for logistic objects construction. For example, in Germany construction of the terminal center like ours cost half as much despite the fact that wages and construction materials cost are higher there.
– How would you save then?
– In Germany, in spite of their bureaucracy, officials clearly understand that if businessmen plan to develop something in the public interest, they must get total support. Even in the public-private partnership a balance of interests should be kept, in the way objects are transferred into operative control for certain periods to let private business compensate the investment. Now it works like that and we hear: «Build for us, we’ll make a decision afterwards».
Moreover, the problem of preparing the territories both for house-building and commercial building is the major obstacle for responsible investors. The state can and must solve these problems in a more operative way, work out infrastructure plans with elaboration of all possible details, as well as coordination and investment packs for land development, if it is interested in capital attraction towards a given region. Now the situation works the other way round. It often happens when you are offered a pig in a poke.
I can give an example. In Finland an engineer-prepared hectare of land with electricity, fences, motor and railway accesses costs about USD: 150 thousand. In Shushary (near Saint-Petersburg) we paid about USD 1.6 mln for a hectare getting only the rent right. Additionally we paid for electricity, accesses construction, eliminating a rubbish tip and construction of a road of common use, which cost us more than USD 1.2 mln. At the same time, we are constantly facing new administrative obstacles which make the project more and more expensive. In fact, it was the city’s task to prepare the territory.
– Saint-Petersburg City Committee on transport-transit policy believes the city isn’t interested in infrastructure development, as cargo flows increase doesn’t influence the budget income and the only way to increase budget profits is container handling and launch of value-added logistics…
– Container handling? What does this have to do with the budget? There are three parts of balance: operational, financial and investment. How does the city want to earn – on the operational part of the budget? This is impossible since the city can’t take up commerce, participate in stevedoring companies or introduce dues for Saint-Petersburg for each container. The second financial part doesn’t contain any opportunities either: the city is not involved in IPO that would give transport market participants additional opportunities. Speaking of the investment part we remember pretty well what any textbook on business says: to earn something you should invest something. Does the city invest into the territory development? No, it only makes money on coordination and document turnover. As a result, pseudo-developers or land speculators get their profits.
Moreover, Saint-Petersburg port brings more and more problems.
– I’d like to remind you that Saint-Petersburg gave special discounts for land in industrial zones of special type such as Shushary, Noidorfa, Predportovy…
– If I were the city administration, I would give Shushary for free, as there are plenty of serious problems with creation of engineer infrastructure and with peat removal from the place. It happens so they have given unprepared land and tell victorious stories about logistic centers construction. It is too early to state that Shushary has become a logistic zone. Our administration shouldn’t prepare industrial zones for strategic foreign investors only. Can we compare the present-day approach to national companies with the Finnish state transport policy?
– Anyway Eurosib has bought land in this zone …
– We haven’t built anything there.
– Nevertheless you are going to do this. Just like Siblogistics and National Container Company are. What about the Eurosib project in Shushary?
– The work is going on; we are preparing territories for construction. I think this zone has ten prospective years and after that it will be overloaded with cargo just like St.Petersburg transport junction is now.
We should think in a strategic way, make plans for more than a ten-year perspective. We need a totally new, more efficient level of coordinating activities between the city and the regional authorities. City and region can’t agree, as everybody stands for their own interests. Consequently, they try to put transit policy under either city or regional control, but this problem must be considered as a whole. The whole style of bureaucratic machine functioning not interested in the creation of effective trade-logistic mechanisms should change. Only then empty territories in industrial zones and money for their preparation can be found. And what is more important partnership between power and private business will set.
– That is to say the major problem lies in the lack of unified approach to the North-West transport region development?
– All normal businessmen invest into cargo flow, in operation activity. What is going on in the North-West region? The port is expanding its operation activities but is unable to expand its assets. There are no conditions for the Big Port of Saint-Petersburg to develop. On the other hand, in 150 kilometers distance there is Ust-Luga with its great potential. Saint-Petersburg should focus on container handling and re-direct all general cargo to Ust-Luga. Frankly speaking, containers as well would feel better there. If these steps were taken, the emptied territory could go for house-building or a real sea fa?ade or an educational center construction. Only then, by the way, the industrial and depressing Admiralteisky and Kirovsky districts would revive.
As for me, I would never start the construction of the so-called «Sea facade» on the Basil island as it isn’t worthwhile either from marketing point of view or from the economic one. Experts know cruise tourism isn’t profitable for the city, as tourist do not leave money for the city infrastructure - they spend it offshore.
– What opportunities for further development of St. Petersburg transport junction in respect of container cargo flows handling do you see?
– Speaking of middle-term perspectives, a container handling volumes increase is possible at the expense of discharging bulk and other sort of cargo. I believe it is a 10-15 years prospect.
Interviewed by IVAN DENISENKO
[~DETAIL_TEXT] => The new geopolitical challenge makes one to approach the transport infrastructure development of the North-West of Russia differently.
Dmitry Nikitin, General Director of the Eurosib Group of Companies, comments on the prospects of transport communications development in the region.
– Don’t you think the idea of Peter the Great to crack the window to Europe in the North-West of Russia doesn’t work any longer?
– I believe it was the best state project of Peter the Great: Russia has been benefiting from this idea for 300 years already. Peter created not only a city-port, but a powerful export-import channel between Europe and Russia. Unfortunately, this project is quite old as it doesn’t correspond to modern challenges. Saint-Petersburg commercial sea port is incapable to satisfy modern needs and has become a burden for the city. At the same time 70% of European trade routes to Russia still go through the North-West region.
After the USSR collapsed, the geopolitical situation in the North-West region of Russia changed dramatically for the worse. We don’t have non-frozen ports; St.Petersburg transport junction is permanently overloaded; city districts suffocate with trucks; border check-points on the Russian-Finnish boarder are also overloaded. Motor trucks run along the roads that haven’t improved. At the same time, Finland has developed a well-working transport-logistic system and let through over 30% of Russian import worth USD 33 bln. There is no other alternative but to create a competitive transport-logistic system in the North-West region aimed at a further integration into the European transport system. If we don’t manage to do this in time, the foreign market will dictate its rules. We don’t have time to wait until Europe and Asia are ready to consider us as an equal partner: we should start controlling the situation ourselves.
– In mid June the Eurosib Group of Companies obtained some credit from the International Financial Corporation (IFC) to launch the net of logistic terminals in Russia. Could you please comment on this project?
– We received USD 119.5 mln from IFC, which is part of the World Bank structure. However, this is not the most important thing: of greater importance for us is the fact the foreign credit institutions took our strategic project of transport business development in an adequate and serious way. By the way, the investment programme of the group for 2006 is estimated at USD 200 mln.
We are planning to direct our credit funds to construction and maintenance of six container terminals in the biggest centers of cargo handling in Moscow, Saint-Petersburg, in the Urals and Western and Eastern Siberia. This is going to be the first stage of the long-term programme within which we plan to expand our net up to 20 terminals in Russia and CIS.
Each terminal will operate railway and motor accesses, sheltered warehouses, areas for container storage capable to handle about 60 thousand 20ft containers annually.
– As known, other companies also have projects of this sort. Today terminals are constructed in many cities; at the same time, the RF Transport Ministry has its own views on that. Don’t you think the level of transport business activities coordination is poor?
– Let’s agree on the meaning of such a term as «terminal» from the very beginning. Many companies construct terminals only for their own purposes or offer a single function (for example, storage). They can also build it for the only cargo owner, but, nevertheless, call it a terminal: they completely forget that the basis for this business is logistic. Also, the situation can work as follows: the company operated a trucks park, they constructed a warehouse and called it an autoterminal; if they were involved in getting customs clearances, they called themselves a customs terminal.
Speaking of Eurosib I have to emphasize the fact that we deal with a «transport-logistic terminal», that is to say it is a system of providing complex logistic services of 3PL (third party logistics provider) type, and, in the future, of 4PL type. Our project of launching the net of logistic centers in the biggest transport junctions, in zones of economic growth, has been developed considering the federal target programme, and in particular, terminal-logistic complexes development. The problem is our federal programme defines strategies of transport corridors development, but the mechanism of its implementation hasn’t been worked out yet. Unfortunately, at present we only exploit our post-Soviet infrastructure and take steps on its local modernization. In my opinion, it is a half measure.
I believe the state should actively work on the infrastructure improvement, if it is interested in attracting private investment on acceptable terms for participation in this programme.
– What about your terminal «Predportovy» put into operation last December?
– Now we are in the process of double-checking technologies for cargo handling, first of all, it has to do with logistic, i.e. cooperation with the port, the railway, customs and automation of document turnover.
– These are organization issues. What about cargo? The forecasted annual cargo turnover of the terminal was estimated at 55 thousand TEUs and 350 thousand tons of general cargo.
– The terminal activities are growing day-by-day. We manage to handle over 70 trucks daily. While developing new projects for the terminal we consider the fact that the work with potential clients, big manufactures, and global net operators should be started long before the terminal construction, i.e. marketing and logistic.
– Wasn’t the terminal constructed for cargo handling? It couldn’t have been constructed without market situation analysis, without considering present day cargo flows …
– The center was constructed to satisfy the needs of cargo owners and cargo operators, as well as ZAO First Container Terminal. We are compensating the existing shortages of the port and offer multimodal complex cargo handling. It is a new service for the Russian market. It is a complex service, our Unique Trade Offer, which we address to the market participants. Thanks to very fundamental marketing research of trade flows and companies-cargo owners, we have managed to implement this project in «Predportovy» and plan to carry on.
– How did you choose the territory for «Predportovy» terminal location?
– The most important factor was to be close to the Big Port of Saint-Petersburg. There are some basic demands while designing and choosing a place for a terminal. They are first of all, the terminal’s inclusion into the general technology of work, client base parameters, empty territory, developed engineer infrastructure, adjacent motor ways and railways. In fact, there are very few places like that around Saint-Petersburg.
– Do you mean the poor development of transport infrastructure in general?
– Not exactly. The problem lies in the fact that the state corporations ОАО RZD, RАО UES and local authorities follow their own interests first of all, and without their support the implementation of our projects is impossible. Each monopolist dictates its own tariffs not coordinated with other state monopolists and, as a result, the project’s cost increases tremendously. The same things happen with the policy of giving land for logistic objects construction. For example, in Germany construction of the terminal center like ours cost half as much despite the fact that wages and construction materials cost are higher there.
– How would you save then?
– In Germany, in spite of their bureaucracy, officials clearly understand that if businessmen plan to develop something in the public interest, they must get total support. Even in the public-private partnership a balance of interests should be kept, in the way objects are transferred into operative control for certain periods to let private business compensate the investment. Now it works like that and we hear: «Build for us, we’ll make a decision afterwards».
Moreover, the problem of preparing the territories both for house-building and commercial building is the major obstacle for responsible investors. The state can and must solve these problems in a more operative way, work out infrastructure plans with elaboration of all possible details, as well as coordination and investment packs for land development, if it is interested in capital attraction towards a given region. Now the situation works the other way round. It often happens when you are offered a pig in a poke.
I can give an example. In Finland an engineer-prepared hectare of land with electricity, fences, motor and railway accesses costs about USD: 150 thousand. In Shushary (near Saint-Petersburg) we paid about USD 1.6 mln for a hectare getting only the rent right. Additionally we paid for electricity, accesses construction, eliminating a rubbish tip and construction of a road of common use, which cost us more than USD 1.2 mln. At the same time, we are constantly facing new administrative obstacles which make the project more and more expensive. In fact, it was the city’s task to prepare the territory.
– Saint-Petersburg City Committee on transport-transit policy believes the city isn’t interested in infrastructure development, as cargo flows increase doesn’t influence the budget income and the only way to increase budget profits is container handling and launch of value-added logistics…
– Container handling? What does this have to do with the budget? There are three parts of balance: operational, financial and investment. How does the city want to earn – on the operational part of the budget? This is impossible since the city can’t take up commerce, participate in stevedoring companies or introduce dues for Saint-Petersburg for each container. The second financial part doesn’t contain any opportunities either: the city is not involved in IPO that would give transport market participants additional opportunities. Speaking of the investment part we remember pretty well what any textbook on business says: to earn something you should invest something. Does the city invest into the territory development? No, it only makes money on coordination and document turnover. As a result, pseudo-developers or land speculators get their profits.
Moreover, Saint-Petersburg port brings more and more problems.
– I’d like to remind you that Saint-Petersburg gave special discounts for land in industrial zones of special type such as Shushary, Noidorfa, Predportovy…
– If I were the city administration, I would give Shushary for free, as there are plenty of serious problems with creation of engineer infrastructure and with peat removal from the place. It happens so they have given unprepared land and tell victorious stories about logistic centers construction. It is too early to state that Shushary has become a logistic zone. Our administration shouldn’t prepare industrial zones for strategic foreign investors only. Can we compare the present-day approach to national companies with the Finnish state transport policy?
– Anyway Eurosib has bought land in this zone …
– We haven’t built anything there.
– Nevertheless you are going to do this. Just like Siblogistics and National Container Company are. What about the Eurosib project in Shushary?
– The work is going on; we are preparing territories for construction. I think this zone has ten prospective years and after that it will be overloaded with cargo just like St.Petersburg transport junction is now.
We should think in a strategic way, make plans for more than a ten-year perspective. We need a totally new, more efficient level of coordinating activities between the city and the regional authorities. City and region can’t agree, as everybody stands for their own interests. Consequently, they try to put transit policy under either city or regional control, but this problem must be considered as a whole. The whole style of bureaucratic machine functioning not interested in the creation of effective trade-logistic mechanisms should change. Only then empty territories in industrial zones and money for their preparation can be found. And what is more important partnership between power and private business will set.
– That is to say the major problem lies in the lack of unified approach to the North-West transport region development?
– All normal businessmen invest into cargo flow, in operation activity. What is going on in the North-West region? The port is expanding its operation activities but is unable to expand its assets. There are no conditions for the Big Port of Saint-Petersburg to develop. On the other hand, in 150 kilometers distance there is Ust-Luga with its great potential. Saint-Petersburg should focus on container handling and re-direct all general cargo to Ust-Luga. Frankly speaking, containers as well would feel better there. If these steps were taken, the emptied territory could go for house-building or a real sea fa?ade or an educational center construction. Only then, by the way, the industrial and depressing Admiralteisky and Kirovsky districts would revive.
As for me, I would never start the construction of the so-called «Sea facade» on the Basil island as it isn’t worthwhile either from marketing point of view or from the economic one. Experts know cruise tourism isn’t profitable for the city, as tourist do not leave money for the city infrastructure - they spend it offshore.
– What opportunities for further development of St. Petersburg transport junction in respect of container cargo flows handling do you see?
– Speaking of middle-term perspectives, a container handling volumes increase is possible at the expense of discharging bulk and other sort of cargo. I believe it is a 10-15 years prospect.
Interviewed by IVAN DENISENKO
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[DETAIL_TEXT] => Container transportation takes the lion’s share of the logistic system and badly needs rapid development.
Tatyana Prokofyeva, PhD in Economics, Professor, Loginvest association President, EurAsian Transport Union Vice-President, comments on the present-day market of logistic services and its prospects.
– What are the major directions for logistic infrastructure development in Russia nowadays?
– In conditions of market competition and the world globalization, the most important factor influencing the economy growth is the formation of integrated logistic systems covering both different business areas and whole regions and countries of the world.
For Russia it is first of all the development of regional logistic transport-distribution systems and their further integration with federal and international logistic systems of cargo- and goods flow that will assist in positioning our country as an equal partner in the world business community.
One of the most efficient ways of economic and social development for both separate regions of the country and Russia in general is creation and launch of regional transport-logistic systems.
In my opinion, prospects for logistic development in the Russian Federation are closely connected with the concept of integrated logistic and also with the «Supply Chain Management» logistic concept that is, as foreign experience shows, capable of giving the best economic result. The major directions of logistic infrastructure development are connected with the launch of multimodal logistic centers in the largest transport junctions and sea ports (closest zones to national and international transport corridors) that would provide coordinated cooperation between different modes of transport and transport-distribution process participants: cargo accumulation, handling, business and commercial services at international standards.
– Do you think it is efficient to project foreign logistic experience on the Russian transport system directly?
– I believe direct projection isn’t worthwhile considering out territories, specifics of transport net, economy, geography, climate and the administrative-territorial system of the country. Russia can turn to the experience of foreign transport-forwarding companies – logistic services providers, especially 3PL and 4PL providers.
The specifics of the Russian transport system directly influence the process of model formation for regional transport-logistic systems. The basis for any of them is the launch of multimodal transport-logistic centers (MTLC) in transport net junctions joined by the unified sub-system of information, organization economic, legislative and personnel resources. Models of regional location and specializations of MTLC will be different, taking into account different structures and cargo flows as well as the form of the transport net work and transport junctions of the region (radial-ring, tree-like etc.).
– What is your concept of logistic development in Russia?
– I stand for an integrated corporate logistic based on economic interests coordination and consolidation of cargo-and-goods flow system participants in order to provide trade flows, decrease aggregate expenditures for production and distribution under the condition of satisfying clients in quality of goods and services, and increase general synergetic result.
In order to satisfy the client’s demands in respect of container transportation, to shorten cargo delivery time, to increase cargo safety аnd attract extra volumes, containerized trains for more directions were dispatched.
– Can we consider Saint-Petersburg and Moscow as logistic centers?
– Despite the fact that the two capital cities perform as national distribution centers for the whole country, they are not full-fledged logistic centers. However, they have good chances to develop large logistic national platforms. Not long ago, a powerful base for container, heavy and assembled cargo handling was launched in the area of Moscow transport junction.
All in all, over thirty container terminals and load boards are located here, excluding goods yards with warehouses and technical bases about 50% of which are laid up. The total area of cargo terminals, warehouses and container boards is over 1 mln cubic meters where over 300 loading/unloading machinery units operate, which makes it possible to receive, handle and dispatch over 5000 containers and 15000 tons of cargo per day.
At present the leading position in container handling in the Baltic region is occupied by ZAO First Container Terminal which is located in the Neva river delta in the Eastern part of the Finnish Gulf. The company handles oll types of containers, including refcontainers. Open load boards covering 215.5 thousand cubic meters (21.5 hectares) provide services for a simultaneous storage of 11,000 containers. Handling capacities increase is the most prospective direction for Saint-Petersburg port development. By now the concept of handling the increasing container flow until 2010 has been developed. By that time the company’s area expansion will allow to increase the container terminal capacity up to 600 thousand TEUss per year.
– What factors are restricting the logistic development? Is the absence of legislation base among them?
– It is true, Russia lacks a properly developed legislation. Such concepts as «logistic» and «logistic center» are not defined by any legal document; also the concepts of «multimodal» and «intermodal» transportation are interpreted differently. I suppose the primary task of legislative bodies is to develop a legal basis for organization and functioning of the national transport-logistic system.
Moreover, it is clear enough that such large-scaled investment projects as the launch of multimodal transport-logistic centers (MTLC) within the Russian transport complex development must be implemented on the base of the mechanism of public-private partnership. Unfortunately, the recently approved law on concessions doesn’t function in full.
All interested sides should participate in the implementation of large-scaled investment projects to develop the transport-logistic infrastructure of the country.
This June, according to the Resolution № 6/974/44 from 27.12.2005 issued by the Collegium of the RF Ministry of Transport and the Government of Moscow region, the programme «Development of transport-logistic system of Moscow region for the period of 2006/2010» was developed. The programme envisages investment attraction on the basis of public-private partnership with participation of the Moscow region Government and the RF Transport Ministry, and with National Industrial Holding Corporation performing as a basic developer and investor of the project. Unfortunately, the Moscow Government didn’t participate in the programme: this gives me reasons to believe this project is dead.
Speaking of the formation of a logistic system for cargo- and goods flows in Russia based on the terminal technologies and logistic principles, we should stop «getting customs clearance from the wheels», first of all. It is no secret many terminals (motor trucks, railway) are empty today just because this way of customs procedures have become a wide-spread practice which brings a lot of money. However, it also means a great number of non-registered cargo. I think fast and honest electronic declaration will become a solution.
– Has the economic result of MTLC launch been calculated?
– Foreign practice shows that, following the launch of logistic centers transport expenditures go down by 7-20%, expenditures on loading/unloading procedures, warehousing of material resources and finished commodity decreases by 15-30%, general logistic losses – by 12-35%, while the speed of material resources turnover increases by 20-40% and volumes of material resources and finished commodity in store drop by 50-100%.
According to foreign experience, in modern conditions of trade economic relations expansion and the internationalization of transport, trade, service and information flows, MTLCs located at large transport junctions perform not only as intensive cargo flows concentration spots, but also as centers of business concentration and integration of manufacturers, carriers, forwarders, retailers, bank structures, insurance companies and other business directions involved into servicing the logistic chain. As a rule, an MTLC launch results in a significant commercial and social-economic effect.
Preliminary calculations show that the commercial effect from investment projects of the Programme of Moscow regional transport-logistic system formation in terms of clear profit resulting from saving over a ten-year period amounts to USD 7.5 bln. The programme envisages the launch of thirty terminal complexes and MTLCs in Moscow region. The budget efficiency for the same period, depending on volumes of tax flows to budgets of all levels, is estimated at USD 1.5 bln. The regional efficiency, together with the tax income to Moscow and Moscow region budgets, is defined by the ecological effect estimated at USD 12.5 mln (reduction of atmosphere pollution at the expense of cutting on the number of heavy-trucks allowed into the city) and also by the additional economic effect (USD 1500 mln) received from saving Moscow’s expensive land resources due to the relocation of numerous warehouses from the city to the areas of newly created terminal complexes and logistic centers. The regional and economical efficiency of this programme implementation is characterized by the high social-economic result measured as 50 thousand additional working places.
– What are the nearest prospects of MTLC development in Russia?
– Nowadays the RF Ministry of Transport holds a tender for the net of multimodal transport logistic centers development. It is important the term «multimodal» is finally used since our country, with its long distances and a tremendous width of transport net, has to solve problems arising at the transport junctions.
Today many regions of Russia claim their intention to launch logistic centers. It is extremely important to put their formation on a unified methodological basis and take regular steps in this direction. In particular, there is an idea to launch logistic distribution centers of the Central federal re-gion around Moscow transport junction: the Southern logistic center in Tula, the Western – in Bryansk or Smolensk, the Northern – in Yaroslavl. This idea is efficient, since an equal cargo distribution and, consequently, a huge financial flow running to the capital daily will be of great social-economic importance for the neighboring regions. Moreover, the above-mentioned regions have a larger land resource compared to Moscow.
– What projects are being developed currently?
– They are multimodal centers in Saint-Petersburg transport junction, in Novorossiysk and Murmansk sea ports, in Rostov-on-Don, Nizhny Novgorod, Samara, Ekaterinburg and in the sea ports of Vostochny and Nakhodka. The possibility of launching a logistic transport center in Sakhalin is considered, taking into account its complicated transport scheme, as well as prospects of oil-and-gas offshore deposits development. Such centers will be launched with the attraction of all interested structures’ investment, including national and foreign investors, on the basis of the public-private partnership mechanism. Great prospects for MTLC launch in general transport net junctions and the formation on their basis of regional and interregional transport-logistic systems are true for Siberia and the Russian Far East, considering their geo-political role as a natural transport bridge between Europe, countries of Asian-Pacific region and North America.
– Speaking of these regions, what cities can be considered as primary targets for large MTLC location?
– First of all, they are Novosibirsk, Omsk, Krasnoyarsk, Irkutsk, Chita, Khabarovsk and Vladivostok transport junctions, where coordination and partnership relations between railway, water, motor and air transport are carried out as well as partnership between forwarding companies and other logistic structures. The most advanced projects today are Novosibirsk multimodal transport junction development, the concept of transport-logistic centers launch in Irkutsk region and the formation of Irkutsk regional transport-logistic system on its basis.
– Have effective results for this system been calculated yet?
– According to preliminary data, the launch of 15 MTLCs with the total cost of USD 535 mln and aggregate handling capacity of 6750 thousand tons annually can result in the economic effect worth USD 1340 mln of clear profit over a ten-year period, with the average term of payback period amounting to eight years. At the same time, about 7000 working places will be created additionally and the budget efficiency (tax income) will make USD 900 mln over a ten-year period.
– Anyway, what future can you predict for logistic infrastructure?
– Under the condition of globalization going on in the world now, the unified transport complex is being set in the form of cooperation between big transport, transport-forwarding companies and other logistic structures joined in transnational corporations, regional and international transport-logistic systems. The world practice shows the tendency for improvement of cargo transportation technologies connected with the concentration of transport flows and container transportation growth via intermodal transport corridors which are to become the basis for the unified transport net of the XXI century. Its creation and making it function efficiently is a primary task for the Euro-Asian transport policy. According to foreign experts, by 2010 about 60-70 MTLCs of international level will have been launched in the largest transport junctions of the world: they will be connected by intermodal transport corridors with adjacent regional logistic systems providing every cargoowner with an approach to a cargo consignor. This scheme of cargo delivery organization will result in over 30-40% rise in transport-distribution process efficiency. Within the next 25 years we should form about ten federal MTLCs, twenty regional MTLCs and over fifty territorial MTLCs, considering such factors as the great length and width of the Russian Federation, a branched net of transport communication, the necessity to provide large volumes of cargo transportation and handling, as well as transport–logistic service going hand in hand with international standards.
Interviewed by SVETLANA KHABIROVA
[~DETAIL_TEXT] => Container transportation takes the lion’s share of the logistic system and badly needs rapid development.
Tatyana Prokofyeva, PhD in Economics, Professor, Loginvest association President, EurAsian Transport Union Vice-President, comments on the present-day market of logistic services and its prospects.
– What are the major directions for logistic infrastructure development in Russia nowadays?
– In conditions of market competition and the world globalization, the most important factor influencing the economy growth is the formation of integrated logistic systems covering both different business areas and whole regions and countries of the world.
For Russia it is first of all the development of regional logistic transport-distribution systems and their further integration with federal and international logistic systems of cargo- and goods flow that will assist in positioning our country as an equal partner in the world business community.
One of the most efficient ways of economic and social development for both separate regions of the country and Russia in general is creation and launch of regional transport-logistic systems.
In my opinion, prospects for logistic development in the Russian Federation are closely connected with the concept of integrated logistic and also with the «Supply Chain Management» logistic concept that is, as foreign experience shows, capable of giving the best economic result. The major directions of logistic infrastructure development are connected with the launch of multimodal logistic centers in the largest transport junctions and sea ports (closest zones to national and international transport corridors) that would provide coordinated cooperation between different modes of transport and transport-distribution process participants: cargo accumulation, handling, business and commercial services at international standards.
– Do you think it is efficient to project foreign logistic experience on the Russian transport system directly?
– I believe direct projection isn’t worthwhile considering out territories, specifics of transport net, economy, geography, climate and the administrative-territorial system of the country. Russia can turn to the experience of foreign transport-forwarding companies – logistic services providers, especially 3PL and 4PL providers.
The specifics of the Russian transport system directly influence the process of model formation for regional transport-logistic systems. The basis for any of them is the launch of multimodal transport-logistic centers (MTLC) in transport net junctions joined by the unified sub-system of information, organization economic, legislative and personnel resources. Models of regional location and specializations of MTLC will be different, taking into account different structures and cargo flows as well as the form of the transport net work and transport junctions of the region (radial-ring, tree-like etc.).
– What is your concept of logistic development in Russia?
– I stand for an integrated corporate logistic based on economic interests coordination and consolidation of cargo-and-goods flow system participants in order to provide trade flows, decrease aggregate expenditures for production and distribution under the condition of satisfying clients in quality of goods and services, and increase general synergetic result.
In order to satisfy the client’s demands in respect of container transportation, to shorten cargo delivery time, to increase cargo safety аnd attract extra volumes, containerized trains for more directions were dispatched.
– Can we consider Saint-Petersburg and Moscow as logistic centers?
– Despite the fact that the two capital cities perform as national distribution centers for the whole country, they are not full-fledged logistic centers. However, they have good chances to develop large logistic national platforms. Not long ago, a powerful base for container, heavy and assembled cargo handling was launched in the area of Moscow transport junction.
All in all, over thirty container terminals and load boards are located here, excluding goods yards with warehouses and technical bases about 50% of which are laid up. The total area of cargo terminals, warehouses and container boards is over 1 mln cubic meters where over 300 loading/unloading machinery units operate, which makes it possible to receive, handle and dispatch over 5000 containers and 15000 tons of cargo per day.
At present the leading position in container handling in the Baltic region is occupied by ZAO First Container Terminal which is located in the Neva river delta in the Eastern part of the Finnish Gulf. The company handles oll types of containers, including refcontainers. Open load boards covering 215.5 thousand cubic meters (21.5 hectares) provide services for a simultaneous storage of 11,000 containers. Handling capacities increase is the most prospective direction for Saint-Petersburg port development. By now the concept of handling the increasing container flow until 2010 has been developed. By that time the company’s area expansion will allow to increase the container terminal capacity up to 600 thousand TEUss per year.
– What factors are restricting the logistic development? Is the absence of legislation base among them?
– It is true, Russia lacks a properly developed legislation. Such concepts as «logistic» and «logistic center» are not defined by any legal document; also the concepts of «multimodal» and «intermodal» transportation are interpreted differently. I suppose the primary task of legislative bodies is to develop a legal basis for organization and functioning of the national transport-logistic system.
Moreover, it is clear enough that such large-scaled investment projects as the launch of multimodal transport-logistic centers (MTLC) within the Russian transport complex development must be implemented on the base of the mechanism of public-private partnership. Unfortunately, the recently approved law on concessions doesn’t function in full.
All interested sides should participate in the implementation of large-scaled investment projects to develop the transport-logistic infrastructure of the country.
This June, according to the Resolution № 6/974/44 from 27.12.2005 issued by the Collegium of the RF Ministry of Transport and the Government of Moscow region, the programme «Development of transport-logistic system of Moscow region for the period of 2006/2010» was developed. The programme envisages investment attraction on the basis of public-private partnership with participation of the Moscow region Government and the RF Transport Ministry, and with National Industrial Holding Corporation performing as a basic developer and investor of the project. Unfortunately, the Moscow Government didn’t participate in the programme: this gives me reasons to believe this project is dead.
Speaking of the formation of a logistic system for cargo- and goods flows in Russia based on the terminal technologies and logistic principles, we should stop «getting customs clearance from the wheels», first of all. It is no secret many terminals (motor trucks, railway) are empty today just because this way of customs procedures have become a wide-spread practice which brings a lot of money. However, it also means a great number of non-registered cargo. I think fast and honest electronic declaration will become a solution.
– Has the economic result of MTLC launch been calculated?
– Foreign practice shows that, following the launch of logistic centers transport expenditures go down by 7-20%, expenditures on loading/unloading procedures, warehousing of material resources and finished commodity decreases by 15-30%, general logistic losses – by 12-35%, while the speed of material resources turnover increases by 20-40% and volumes of material resources and finished commodity in store drop by 50-100%.
According to foreign experience, in modern conditions of trade economic relations expansion and the internationalization of transport, trade, service and information flows, MTLCs located at large transport junctions perform not only as intensive cargo flows concentration spots, but also as centers of business concentration and integration of manufacturers, carriers, forwarders, retailers, bank structures, insurance companies and other business directions involved into servicing the logistic chain. As a rule, an MTLC launch results in a significant commercial and social-economic effect.
Preliminary calculations show that the commercial effect from investment projects of the Programme of Moscow regional transport-logistic system formation in terms of clear profit resulting from saving over a ten-year period amounts to USD 7.5 bln. The programme envisages the launch of thirty terminal complexes and MTLCs in Moscow region. The budget efficiency for the same period, depending on volumes of tax flows to budgets of all levels, is estimated at USD 1.5 bln. The regional efficiency, together with the tax income to Moscow and Moscow region budgets, is defined by the ecological effect estimated at USD 12.5 mln (reduction of atmosphere pollution at the expense of cutting on the number of heavy-trucks allowed into the city) and also by the additional economic effect (USD 1500 mln) received from saving Moscow’s expensive land resources due to the relocation of numerous warehouses from the city to the areas of newly created terminal complexes and logistic centers. The regional and economical efficiency of this programme implementation is characterized by the high social-economic result measured as 50 thousand additional working places.
– What are the nearest prospects of MTLC development in Russia?
– Nowadays the RF Ministry of Transport holds a tender for the net of multimodal transport logistic centers development. It is important the term «multimodal» is finally used since our country, with its long distances and a tremendous width of transport net, has to solve problems arising at the transport junctions.
Today many regions of Russia claim their intention to launch logistic centers. It is extremely important to put their formation on a unified methodological basis and take regular steps in this direction. In particular, there is an idea to launch logistic distribution centers of the Central federal re-gion around Moscow transport junction: the Southern logistic center in Tula, the Western – in Bryansk or Smolensk, the Northern – in Yaroslavl. This idea is efficient, since an equal cargo distribution and, consequently, a huge financial flow running to the capital daily will be of great social-economic importance for the neighboring regions. Moreover, the above-mentioned regions have a larger land resource compared to Moscow.
– What projects are being developed currently?
– They are multimodal centers in Saint-Petersburg transport junction, in Novorossiysk and Murmansk sea ports, in Rostov-on-Don, Nizhny Novgorod, Samara, Ekaterinburg and in the sea ports of Vostochny and Nakhodka. The possibility of launching a logistic transport center in Sakhalin is considered, taking into account its complicated transport scheme, as well as prospects of oil-and-gas offshore deposits development. Such centers will be launched with the attraction of all interested structures’ investment, including national and foreign investors, on the basis of the public-private partnership mechanism. Great prospects for MTLC launch in general transport net junctions and the formation on their basis of regional and interregional transport-logistic systems are true for Siberia and the Russian Far East, considering their geo-political role as a natural transport bridge between Europe, countries of Asian-Pacific region and North America.
– Speaking of these regions, what cities can be considered as primary targets for large MTLC location?
– First of all, they are Novosibirsk, Omsk, Krasnoyarsk, Irkutsk, Chita, Khabarovsk and Vladivostok transport junctions, where coordination and partnership relations between railway, water, motor and air transport are carried out as well as partnership between forwarding companies and other logistic structures. The most advanced projects today are Novosibirsk multimodal transport junction development, the concept of transport-logistic centers launch in Irkutsk region and the formation of Irkutsk regional transport-logistic system on its basis.
– Have effective results for this system been calculated yet?
– According to preliminary data, the launch of 15 MTLCs with the total cost of USD 535 mln and aggregate handling capacity of 6750 thousand tons annually can result in the economic effect worth USD 1340 mln of clear profit over a ten-year period, with the average term of payback period amounting to eight years. At the same time, about 7000 working places will be created additionally and the budget efficiency (tax income) will make USD 900 mln over a ten-year period.
– Anyway, what future can you predict for logistic infrastructure?
– Under the condition of globalization going on in the world now, the unified transport complex is being set in the form of cooperation between big transport, transport-forwarding companies and other logistic structures joined in transnational corporations, regional and international transport-logistic systems. The world practice shows the tendency for improvement of cargo transportation technologies connected with the concentration of transport flows and container transportation growth via intermodal transport corridors which are to become the basis for the unified transport net of the XXI century. Its creation and making it function efficiently is a primary task for the Euro-Asian transport policy. According to foreign experts, by 2010 about 60-70 MTLCs of international level will have been launched in the largest transport junctions of the world: they will be connected by intermodal transport corridors with adjacent regional logistic systems providing every cargoowner with an approach to a cargo consignor. This scheme of cargo delivery organization will result in over 30-40% rise in transport-distribution process efficiency. Within the next 25 years we should form about ten federal MTLCs, twenty regional MTLCs and over fifty territorial MTLCs, considering such factors as the great length and width of the Russian Federation, a branched net of transport communication, the necessity to provide large volumes of cargo transportation and handling, as well as transport–logistic service going hand in hand with international standards.
Interviewed by SVETLANA KHABIROVA
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[DETAIL_TEXT] => Container transportation takes the lion’s share of the logistic system and badly needs rapid development.
Tatyana Prokofyeva, PhD in Economics, Professor, Loginvest association President, EurAsian Transport Union Vice-President, comments on the present-day market of logistic services and its prospects.
– What are the major directions for logistic infrastructure development in Russia nowadays?
– In conditions of market competition and the world globalization, the most important factor influencing the economy growth is the formation of integrated logistic systems covering both different business areas and whole regions and countries of the world.
For Russia it is first of all the development of regional logistic transport-distribution systems and their further integration with federal and international logistic systems of cargo- and goods flow that will assist in positioning our country as an equal partner in the world business community.
One of the most efficient ways of economic and social development for both separate regions of the country and Russia in general is creation and launch of regional transport-logistic systems.
In my opinion, prospects for logistic development in the Russian Federation are closely connected with the concept of integrated logistic and also with the «Supply Chain Management» logistic concept that is, as foreign experience shows, capable of giving the best economic result. The major directions of logistic infrastructure development are connected with the launch of multimodal logistic centers in the largest transport junctions and sea ports (closest zones to national and international transport corridors) that would provide coordinated cooperation between different modes of transport and transport-distribution process participants: cargo accumulation, handling, business and commercial services at international standards.
– Do you think it is efficient to project foreign logistic experience on the Russian transport system directly?
– I believe direct projection isn’t worthwhile considering out territories, specifics of transport net, economy, geography, climate and the administrative-territorial system of the country. Russia can turn to the experience of foreign transport-forwarding companies – logistic services providers, especially 3PL and 4PL providers.
The specifics of the Russian transport system directly influence the process of model formation for regional transport-logistic systems. The basis for any of them is the launch of multimodal transport-logistic centers (MTLC) in transport net junctions joined by the unified sub-system of information, organization economic, legislative and personnel resources. Models of regional location and specializations of MTLC will be different, taking into account different structures and cargo flows as well as the form of the transport net work and transport junctions of the region (radial-ring, tree-like etc.).
– What is your concept of logistic development in Russia?
– I stand for an integrated corporate logistic based on economic interests coordination and consolidation of cargo-and-goods flow system participants in order to provide trade flows, decrease aggregate expenditures for production and distribution under the condition of satisfying clients in quality of goods and services, and increase general synergetic result.
In order to satisfy the client’s demands in respect of container transportation, to shorten cargo delivery time, to increase cargo safety аnd attract extra volumes, containerized trains for more directions were dispatched.
– Can we consider Saint-Petersburg and Moscow as logistic centers?
– Despite the fact that the two capital cities perform as national distribution centers for the whole country, they are not full-fledged logistic centers. However, they have good chances to develop large logistic national platforms. Not long ago, a powerful base for container, heavy and assembled cargo handling was launched in the area of Moscow transport junction.
All in all, over thirty container terminals and load boards are located here, excluding goods yards with warehouses and technical bases about 50% of which are laid up. The total area of cargo terminals, warehouses and container boards is over 1 mln cubic meters where over 300 loading/unloading machinery units operate, which makes it possible to receive, handle and dispatch over 5000 containers and 15000 tons of cargo per day.
At present the leading position in container handling in the Baltic region is occupied by ZAO First Container Terminal which is located in the Neva river delta in the Eastern part of the Finnish Gulf. The company handles oll types of containers, including refcontainers. Open load boards covering 215.5 thousand cubic meters (21.5 hectares) provide services for a simultaneous storage of 11,000 containers. Handling capacities increase is the most prospective direction for Saint-Petersburg port development. By now the concept of handling the increasing container flow until 2010 has been developed. By that time the company’s area expansion will allow to increase the container terminal capacity up to 600 thousand TEUss per year.
– What factors are restricting the logistic development? Is the absence of legislation base among them?
– It is true, Russia lacks a properly developed legislation. Such concepts as «logistic» and «logistic center» are not defined by any legal document; also the concepts of «multimodal» and «intermodal» transportation are interpreted differently. I suppose the primary task of legislative bodies is to develop a legal basis for organization and functioning of the national transport-logistic system.
Moreover, it is clear enough that such large-scaled investment projects as the launch of multimodal transport-logistic centers (MTLC) within the Russian transport complex development must be implemented on the base of the mechanism of public-private partnership. Unfortunately, the recently approved law on concessions doesn’t function in full.
All interested sides should participate in the implementation of large-scaled investment projects to develop the transport-logistic infrastructure of the country.
This June, according to the Resolution № 6/974/44 from 27.12.2005 issued by the Collegium of the RF Ministry of Transport and the Government of Moscow region, the programme «Development of transport-logistic system of Moscow region for the period of 2006/2010» was developed. The programme envisages investment attraction on the basis of public-private partnership with participation of the Moscow region Government and the RF Transport Ministry, and with National Industrial Holding Corporation performing as a basic developer and investor of the project. Unfortunately, the Moscow Government didn’t participate in the programme: this gives me reasons to believe this project is dead.
Speaking of the formation of a logistic system for cargo- and goods flows in Russia based on the terminal technologies and logistic principles, we should stop «getting customs clearance from the wheels», first of all. It is no secret many terminals (motor trucks, railway) are empty today just because this way of customs procedures have become a wide-spread practice which brings a lot of money. However, it also means a great number of non-registered cargo. I think fast and honest electronic declaration will become a solution.
– Has the economic result of MTLC launch been calculated?
– Foreign practice shows that, following the launch of logistic centers transport expenditures go down by 7-20%, expenditures on loading/unloading procedures, warehousing of material resources and finished commodity decreases by 15-30%, general logistic losses – by 12-35%, while the speed of material resources turnover increases by 20-40% and volumes of material resources and finished commodity in store drop by 50-100%.
According to foreign experience, in modern conditions of trade economic relations expansion and the internationalization of transport, trade, service and information flows, MTLCs located at large transport junctions perform not only as intensive cargo flows concentration spots, but also as centers of business concentration and integration of manufacturers, carriers, forwarders, retailers, bank structures, insurance companies and other business directions involved into servicing the logistic chain. As a rule, an MTLC launch results in a significant commercial and social-economic effect.
Preliminary calculations show that the commercial effect from investment projects of the Programme of Moscow regional transport-logistic system formation in terms of clear profit resulting from saving over a ten-year period amounts to USD 7.5 bln. The programme envisages the launch of thirty terminal complexes and MTLCs in Moscow region. The budget efficiency for the same period, depending on volumes of tax flows to budgets of all levels, is estimated at USD 1.5 bln. The regional efficiency, together with the tax income to Moscow and Moscow region budgets, is defined by the ecological effect estimated at USD 12.5 mln (reduction of atmosphere pollution at the expense of cutting on the number of heavy-trucks allowed into the city) and also by the additional economic effect (USD 1500 mln) received from saving Moscow’s expensive land resources due to the relocation of numerous warehouses from the city to the areas of newly created terminal complexes and logistic centers. The regional and economical efficiency of this programme implementation is characterized by the high social-economic result measured as 50 thousand additional working places.
– What are the nearest prospects of MTLC development in Russia?
– Nowadays the RF Ministry of Transport holds a tender for the net of multimodal transport logistic centers development. It is important the term «multimodal» is finally used since our country, with its long distances and a tremendous width of transport net, has to solve problems arising at the transport junctions.
Today many regions of Russia claim their intention to launch logistic centers. It is extremely important to put their formation on a unified methodological basis and take regular steps in this direction. In particular, there is an idea to launch logistic distribution centers of the Central federal re-gion around Moscow transport junction: the Southern logistic center in Tula, the Western – in Bryansk or Smolensk, the Northern – in Yaroslavl. This idea is efficient, since an equal cargo distribution and, consequently, a huge financial flow running to the capital daily will be of great social-economic importance for the neighboring regions. Moreover, the above-mentioned regions have a larger land resource compared to Moscow.
– What projects are being developed currently?
– They are multimodal centers in Saint-Petersburg transport junction, in Novorossiysk and Murmansk sea ports, in Rostov-on-Don, Nizhny Novgorod, Samara, Ekaterinburg and in the sea ports of Vostochny and Nakhodka. The possibility of launching a logistic transport center in Sakhalin is considered, taking into account its complicated transport scheme, as well as prospects of oil-and-gas offshore deposits development. Such centers will be launched with the attraction of all interested structures’ investment, including national and foreign investors, on the basis of the public-private partnership mechanism. Great prospects for MTLC launch in general transport net junctions and the formation on their basis of regional and interregional transport-logistic systems are true for Siberia and the Russian Far East, considering their geo-political role as a natural transport bridge between Europe, countries of Asian-Pacific region and North America.
– Speaking of these regions, what cities can be considered as primary targets for large MTLC location?
– First of all, they are Novosibirsk, Omsk, Krasnoyarsk, Irkutsk, Chita, Khabarovsk and Vladivostok transport junctions, where coordination and partnership relations between railway, water, motor and air transport are carried out as well as partnership between forwarding companies and other logistic structures. The most advanced projects today are Novosibirsk multimodal transport junction development, the concept of transport-logistic centers launch in Irkutsk region and the formation of Irkutsk regional transport-logistic system on its basis.
– Have effective results for this system been calculated yet?
– According to preliminary data, the launch of 15 MTLCs with the total cost of USD 535 mln and aggregate handling capacity of 6750 thousand tons annually can result in the economic effect worth USD 1340 mln of clear profit over a ten-year period, with the average term of payback period amounting to eight years. At the same time, about 7000 working places will be created additionally and the budget efficiency (tax income) will make USD 900 mln over a ten-year period.
– Anyway, what future can you predict for logistic infrastructure?
– Under the condition of globalization going on in the world now, the unified transport complex is being set in the form of cooperation between big transport, transport-forwarding companies and other logistic structures joined in transnational corporations, regional and international transport-logistic systems. The world practice shows the tendency for improvement of cargo transportation technologies connected with the concentration of transport flows and container transportation growth via intermodal transport corridors which are to become the basis for the unified transport net of the XXI century. Its creation and making it function efficiently is a primary task for the Euro-Asian transport policy. According to foreign experts, by 2010 about 60-70 MTLCs of international level will have been launched in the largest transport junctions of the world: they will be connected by intermodal transport corridors with adjacent regional logistic systems providing every cargoowner with an approach to a cargo consignor. This scheme of cargo delivery organization will result in over 30-40% rise in transport-distribution process efficiency. Within the next 25 years we should form about ten federal MTLCs, twenty regional MTLCs and over fifty territorial MTLCs, considering such factors as the great length and width of the Russian Federation, a branched net of transport communication, the necessity to provide large volumes of cargo transportation and handling, as well as transport–logistic service going hand in hand with international standards.
Interviewed by SVETLANA KHABIROVA
[~DETAIL_TEXT] => Container transportation takes the lion’s share of the logistic system and badly needs rapid development.
Tatyana Prokofyeva, PhD in Economics, Professor, Loginvest association President, EurAsian Transport Union Vice-President, comments on the present-day market of logistic services and its prospects.
– What are the major directions for logistic infrastructure development in Russia nowadays?
– In conditions of market competition and the world globalization, the most important factor influencing the economy growth is the formation of integrated logistic systems covering both different business areas and whole regions and countries of the world.
For Russia it is first of all the development of regional logistic transport-distribution systems and their further integration with federal and international logistic systems of cargo- and goods flow that will assist in positioning our country as an equal partner in the world business community.
One of the most efficient ways of economic and social development for both separate regions of the country and Russia in general is creation and launch of regional transport-logistic systems.
In my opinion, prospects for logistic development in the Russian Federation are closely connected with the concept of integrated logistic and also with the «Supply Chain Management» logistic concept that is, as foreign experience shows, capable of giving the best economic result. The major directions of logistic infrastructure development are connected with the launch of multimodal logistic centers in the largest transport junctions and sea ports (closest zones to national and international transport corridors) that would provide coordinated cooperation between different modes of transport and transport-distribution process participants: cargo accumulation, handling, business and commercial services at international standards.
– Do you think it is efficient to project foreign logistic experience on the Russian transport system directly?
– I believe direct projection isn’t worthwhile considering out territories, specifics of transport net, economy, geography, climate and the administrative-territorial system of the country. Russia can turn to the experience of foreign transport-forwarding companies – logistic services providers, especially 3PL and 4PL providers.
The specifics of the Russian transport system directly influence the process of model formation for regional transport-logistic systems. The basis for any of them is the launch of multimodal transport-logistic centers (MTLC) in transport net junctions joined by the unified sub-system of information, organization economic, legislative and personnel resources. Models of regional location and specializations of MTLC will be different, taking into account different structures and cargo flows as well as the form of the transport net work and transport junctions of the region (radial-ring, tree-like etc.).
– What is your concept of logistic development in Russia?
– I stand for an integrated corporate logistic based on economic interests coordination and consolidation of cargo-and-goods flow system participants in order to provide trade flows, decrease aggregate expenditures for production and distribution under the condition of satisfying clients in quality of goods and services, and increase general synergetic result.
In order to satisfy the client’s demands in respect of container transportation, to shorten cargo delivery time, to increase cargo safety аnd attract extra volumes, containerized trains for more directions were dispatched.
– Can we consider Saint-Petersburg and Moscow as logistic centers?
– Despite the fact that the two capital cities perform as national distribution centers for the whole country, they are not full-fledged logistic centers. However, they have good chances to develop large logistic national platforms. Not long ago, a powerful base for container, heavy and assembled cargo handling was launched in the area of Moscow transport junction.
All in all, over thirty container terminals and load boards are located here, excluding goods yards with warehouses and technical bases about 50% of which are laid up. The total area of cargo terminals, warehouses and container boards is over 1 mln cubic meters where over 300 loading/unloading machinery units operate, which makes it possible to receive, handle and dispatch over 5000 containers and 15000 tons of cargo per day.
At present the leading position in container handling in the Baltic region is occupied by ZAO First Container Terminal which is located in the Neva river delta in the Eastern part of the Finnish Gulf. The company handles oll types of containers, including refcontainers. Open load boards covering 215.5 thousand cubic meters (21.5 hectares) provide services for a simultaneous storage of 11,000 containers. Handling capacities increase is the most prospective direction for Saint-Petersburg port development. By now the concept of handling the increasing container flow until 2010 has been developed. By that time the company’s area expansion will allow to increase the container terminal capacity up to 600 thousand TEUss per year.
– What factors are restricting the logistic development? Is the absence of legislation base among them?
– It is true, Russia lacks a properly developed legislation. Such concepts as «logistic» and «logistic center» are not defined by any legal document; also the concepts of «multimodal» and «intermodal» transportation are interpreted differently. I suppose the primary task of legislative bodies is to develop a legal basis for organization and functioning of the national transport-logistic system.
Moreover, it is clear enough that such large-scaled investment projects as the launch of multimodal transport-logistic centers (MTLC) within the Russian transport complex development must be implemented on the base of the mechanism of public-private partnership. Unfortunately, the recently approved law on concessions doesn’t function in full.
All interested sides should participate in the implementation of large-scaled investment projects to develop the transport-logistic infrastructure of the country.
This June, according to the Resolution № 6/974/44 from 27.12.2005 issued by the Collegium of the RF Ministry of Transport and the Government of Moscow region, the programme «Development of transport-logistic system of Moscow region for the period of 2006/2010» was developed. The programme envisages investment attraction on the basis of public-private partnership with participation of the Moscow region Government and the RF Transport Ministry, and with National Industrial Holding Corporation performing as a basic developer and investor of the project. Unfortunately, the Moscow Government didn’t participate in the programme: this gives me reasons to believe this project is dead.
Speaking of the formation of a logistic system for cargo- and goods flows in Russia based on the terminal technologies and logistic principles, we should stop «getting customs clearance from the wheels», first of all. It is no secret many terminals (motor trucks, railway) are empty today just because this way of customs procedures have become a wide-spread practice which brings a lot of money. However, it also means a great number of non-registered cargo. I think fast and honest electronic declaration will become a solution.
– Has the economic result of MTLC launch been calculated?
– Foreign practice shows that, following the launch of logistic centers transport expenditures go down by 7-20%, expenditures on loading/unloading procedures, warehousing of material resources and finished commodity decreases by 15-30%, general logistic losses – by 12-35%, while the speed of material resources turnover increases by 20-40% and volumes of material resources and finished commodity in store drop by 50-100%.
According to foreign experience, in modern conditions of trade economic relations expansion and the internationalization of transport, trade, service and information flows, MTLCs located at large transport junctions perform not only as intensive cargo flows concentration spots, but also as centers of business concentration and integration of manufacturers, carriers, forwarders, retailers, bank structures, insurance companies and other business directions involved into servicing the logistic chain. As a rule, an MTLC launch results in a significant commercial and social-economic effect.
Preliminary calculations show that the commercial effect from investment projects of the Programme of Moscow regional transport-logistic system formation in terms of clear profit resulting from saving over a ten-year period amounts to USD 7.5 bln. The programme envisages the launch of thirty terminal complexes and MTLCs in Moscow region. The budget efficiency for the same period, depending on volumes of tax flows to budgets of all levels, is estimated at USD 1.5 bln. The regional efficiency, together with the tax income to Moscow and Moscow region budgets, is defined by the ecological effect estimated at USD 12.5 mln (reduction of atmosphere pollution at the expense of cutting on the number of heavy-trucks allowed into the city) and also by the additional economic effect (USD 1500 mln) received from saving Moscow’s expensive land resources due to the relocation of numerous warehouses from the city to the areas of newly created terminal complexes and logistic centers. The regional and economical efficiency of this programme implementation is characterized by the high social-economic result measured as 50 thousand additional working places.
– What are the nearest prospects of MTLC development in Russia?
– Nowadays the RF Ministry of Transport holds a tender for the net of multimodal transport logistic centers development. It is important the term «multimodal» is finally used since our country, with its long distances and a tremendous width of transport net, has to solve problems arising at the transport junctions.
Today many regions of Russia claim their intention to launch logistic centers. It is extremely important to put their formation on a unified methodological basis and take regular steps in this direction. In particular, there is an idea to launch logistic distribution centers of the Central federal re-gion around Moscow transport junction: the Southern logistic center in Tula, the Western – in Bryansk or Smolensk, the Northern – in Yaroslavl. This idea is efficient, since an equal cargo distribution and, consequently, a huge financial flow running to the capital daily will be of great social-economic importance for the neighboring regions. Moreover, the above-mentioned regions have a larger land resource compared to Moscow.
– What projects are being developed currently?
– They are multimodal centers in Saint-Petersburg transport junction, in Novorossiysk and Murmansk sea ports, in Rostov-on-Don, Nizhny Novgorod, Samara, Ekaterinburg and in the sea ports of Vostochny and Nakhodka. The possibility of launching a logistic transport center in Sakhalin is considered, taking into account its complicated transport scheme, as well as prospects of oil-and-gas offshore deposits development. Such centers will be launched with the attraction of all interested structures’ investment, including national and foreign investors, on the basis of the public-private partnership mechanism. Great prospects for MTLC launch in general transport net junctions and the formation on their basis of regional and interregional transport-logistic systems are true for Siberia and the Russian Far East, considering their geo-political role as a natural transport bridge between Europe, countries of Asian-Pacific region and North America.
– Speaking of these regions, what cities can be considered as primary targets for large MTLC location?
– First of all, they are Novosibirsk, Omsk, Krasnoyarsk, Irkutsk, Chita, Khabarovsk and Vladivostok transport junctions, where coordination and partnership relations between railway, water, motor and air transport are carried out as well as partnership between forwarding companies and other logistic structures. The most advanced projects today are Novosibirsk multimodal transport junction development, the concept of transport-logistic centers launch in Irkutsk region and the formation of Irkutsk regional transport-logistic system on its basis.
– Have effective results for this system been calculated yet?
– According to preliminary data, the launch of 15 MTLCs with the total cost of USD 535 mln and aggregate handling capacity of 6750 thousand tons annually can result in the economic effect worth USD 1340 mln of clear profit over a ten-year period, with the average term of payback period amounting to eight years. At the same time, about 7000 working places will be created additionally and the budget efficiency (tax income) will make USD 900 mln over a ten-year period.
– Anyway, what future can you predict for logistic infrastructure?
– Under the condition of globalization going on in the world now, the unified transport complex is being set in the form of cooperation between big transport, transport-forwarding companies and other logistic structures joined in transnational corporations, regional and international transport-logistic systems. The world practice shows the tendency for improvement of cargo transportation technologies connected with the concentration of transport flows and container transportation growth via intermodal transport corridors which are to become the basis for the unified transport net of the XXI century. Its creation and making it function efficiently is a primary task for the Euro-Asian transport policy. According to foreign experts, by 2010 about 60-70 MTLCs of international level will have been launched in the largest transport junctions of the world: they will be connected by intermodal transport corridors with adjacent regional logistic systems providing every cargoowner with an approach to a cargo consignor. This scheme of cargo delivery organization will result in over 30-40% rise in transport-distribution process efficiency. Within the next 25 years we should form about ten federal MTLCs, twenty regional MTLCs and over fifty territorial MTLCs, considering such factors as the great length and width of the Russian Federation, a branched net of transport communication, the necessity to provide large volumes of cargo transportation and handling, as well as transport–logistic service going hand in hand with international standards.
Interviewed by SVETLANA KHABIROVA
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Working from Wheels
The tendency was noticed by the authorities. In June 2006, the RF Ministry of Transport held a meeting devoted to the problems of logistic infrastructure and transport services market development in the Russian Federation. At the meeting, the RF Minister of Transport Igor Levitin appealed to representatives of commercial structures to work out a unified strategy necessary for the development of infrastructure and logistic services market.
As for business, it was not the first time that it managed to outstrip the state. «We cannot speak of carrying out such scaled projects as construction of terminal and logistic infrastructure objects without taking into consideration the transport strategy of the state and the region», believes Director General of Rosdevelopment company Ivan Sitnikov.
However, the reality is completely different. The chaotic development of terminal and logistic capacities on the territory of Russia causes a serious problem. And it is not businessmen’s fault. It is hard to get land for logistic terminals construction. As a rule, it is necessary to build them in cites, where there is a problem of the lack of space. Naturally, construction of infrastructure in ports is most profitable. Besides, experts believe in the efficiency of regional terminals construction in the heart of the country, in the cities with the population of over 1 million people.
Industrial real estate experts believe that in a year several players operating in the sector of logistic centers will appear on the market.
Specialists believe that among the problems of logistic terminals development there are the high degree of criminalization and the isolation of this market sector. Neither state bodies nor private associations, nor research companies have accurate data regarding the sector, its structure, leaders and their shares. Meanwhile, as the Deputy Minister of Transport of the Russian Federation Alexander Misharin highlighted, the Ministry of Transport is interested in cooperation with the companies with fair names.
Some market players also note that the credit rate is too high. Thus, special programs of granting money for warehouses construction would change the situation for the better.
Sergey Igishev, Director General of OOO TransLogistic-Express, defines another factor that slows down the development of logistic centers’ infrastructure. It is the low level of management in cargo owning companies. «Special research, in particular held by the agency of marketing communication «Marko» in cooperation with Saint-Petersburg State University, shows that the majority of current top-managers have Soviet stereotypes. They do not recognize outsourcing, preferring natural economy; spend huge sums on maintenance of warehouses for their produce and raw materials. They neither can nor want to work «from wheels» as it is done in the whole world», he said.
Speaking of investment attraction the projects of logistic centers construction, the coordinator of the logistic terminal project in Yanino, Deputy Director of OOO Containerships Saint-Petersburg Dmitry Komov noted that it is investment companies that are most interested in such projects. «As for transport companies, it is possible to say that they are also interested in such projects. But a lot depends on the companies’ wish to invest into the development of such a terminal. Many of them would prefer to be a client, without investing their own means. So, they will be able to make business offers to cargo owners, thus keeping their competitive position on the market», believes Dmitry Komov.
On Grand Scale
Lately, warehouses construction in Moscow and near it has become more active. According to the data of NAI Vesco, developers announced the construction of over fifteen objects with the total area of 4.3 mln. square meters. Such activity is connected with the increasing profitability of logistic facilities, high rent rates and reduced terms of payback. According to the report of NAI Global, in 2005 the profitability of development in this sector was about 20%, which significantly exceeded the profitability of offices (13%) and trade centers (14%). Last year it was the first time when large projects, such as logistic park Pushkino and Leningradsky terminal, meeting all the modern logistic requirements, were put into operation. However, it is not a tendency yet. The demand for high quality warehouses exceeds the supply twofold. Objects are often not constructed in time. The most popular reason for it is long mechanisms of adjustment, connected with area transfer from one function to another. According to I.Sitnikov, difficulties connected with area transfer from agricultural to industrial status take at least two years; however, this term can be prolonged up to five years.
In the Moscow region there is a lack of container areas. In April 2006, OAO Far Eastern Transport Group started to construct a new container terminal in Tuchkovo. The joint project of one of Russia’s largest private railway operators and OOO FNS CIS (representative office of the South Korean transport companies Pan Korea in Russia) is to become one of the largest transport infrastructure objects in the Moscow region.
Representatives of the company said that the cost of the terminal is USD 7 million. It is to be put in operation in the autumn of 2006. The design capacity is 400 containers monthly in 2006, and 1,400 containers monthly by 2010. The terminal is built to fulfill the transport demands of the plant belonging to the South Korean company LG, which is being constructed in Ruza (Moscow region). The plant’s production volume is to be four million units annually in three years.
Tuchkovo terminal will become LG’s logistic buffer to handle, warehouse and deliver full containers to the plant and to service empty containers. At the same time, Far Eastern Transport Group will possibly attract other clients. The companies are to finance the construction on parity basis. The terminal will be managed by ZAO Kontrans – a joint-stock company of Far Eastern Transport Group (49% shareholding) and OOO FNS CIS (51% shareholding).
Logistic Gates of Russia
Nowadays, in the North-Western region there are no logistic terminals meeting all the requirements and operating as a coordinator of all the stages of transport process, although several companies actively operate in the sector. As a result, the cost of freight servicing is so high that it reduces the competitiveness of the whole Saint-Petersburg transport junction. A significant barrier for the development of the Big Port of Saint-Petersburg is also the lack of land for port infrastructure. Several companies are now investing into the construction of logistic terminals that would handle cargoes and improve the quality of services at the ring-road. Among such companies are OOO National Container Company (Shushary settlement), Eurosib Group of Companies (Predportovaya station), and OOO Containerships East (Yanino settlement).
Two logistic terminals will be constructed by OOO MLP-KAD and Containerships East in the Vsevolozhsk district of Leningradskaya Oblast. The total investment is to amount to USD 205 million. «Construction of the logistic terminal in Yanino is justified by the favourable location of the area», tells the coordinator of the project Dmitry Komov. «It is connected with the terminal’s closeness to the ring-road and an available access to railway. For efficient development of the logistic center, the company plans to invest USD 70 million of its own funds, and it is reasonable, because the concept of a logistic terminal in Yanino suggests a most prospective combination of servicing containerized and general cargoes against the background of constantly increasing demand for logistic services in the region».
For Interterminal group of companies, container business is not the major direction of investment activities. However, the container terminal included into the transport and logistic complex «Interterminal-Predportovy» is the largest center of reception, handling, warehousing and dispatch of empty and full containers – of single units and whole trains – in Saint-Petersburg, as well as in Russia. The throughput of the container terminal with the total area of 33,255 square meters and the capacity of 2,500-4,000 TEUs is nowadays about 200 containers daily, including dispatch by road hauliers and railway. «And this figure will grow», highlights Vladimir Krasovsky, OOO Interterminal Deputy Director General, responsible for railway transportation. «We also plan to increase the amount of dispatched block trains to ten units monthly and the volume of re-packed cargoes to 10-15 thousand tons monthly. As for transportation by road hauliers, there are no problems or limitations», he stresses. «Speaking of the railway, bearing in mind that Saint-Petersburg is the main logistic gates of Russia and having business relations with the Octyabrskaya (October) railway, we can’t but recognize that the ratio of development of the Saint-Petersburg transport junction’s infrastructure falls behind the ratio of development of container and logistic business in Saint-Petersburg, as well as in the whole of Russian Federation».
By now not only a container area with the annual handling capacity of 300 thousand TEUs, but also heated warehouses of «A» class with the total area of 19,384 square meters have been put into operation. When the terminal is constructed (Q2 of 2007), the total area of warehouses of «A» class is to make 64,900 square meters. The terminal will provide warehousing, reception and dispatch of full and empty containers, cargo handling and dispatch by railway.
The main advantage is that a client can get a full service-pack in one place.
OOO MLP-KAD has a project of another logistic terminal with the investment volume of USD 135 million. It is to be built in Novosaratovka village (Vsevolozhsk district). The terminal will provide value-added logistic services. The construction of the first stage with the area of 50,000 square meters will take only thirteen months. In the suburbs of Saint-Petersburg (Shushary settlement), a dry terminal of National Container Company is being built. It will be a modern warehousing, logistic and distributing terminal. The clients will obtain the services of National Container Depot, including repair and maintenance of empty containers, reception and warehousing.
In future, the National Container Company plans to create its own container park o lease it.
These are only some companies that go in for terminal construction nowadays. Experts believe that the warehousing projects in the Big Port of Saint-Petersburg area are profitable now: in spite of the long term of recoupment – over six years, the profitability is 80%.
Profitable East
Taking into account the geopolitical importance of the Far Eastern region, the creation of transport and logistic system is very prospective there. OOO Firma Transgarant has started to construct a network of transport and logistic terminals. On the basis of Stroyopttorg they plan to create a universal terminal that will provide services in the railway transportation sector, including reception and dispatch of wagons and containers, handling and warehousing of cargoes.
«Nowadays, the largest railway companies are eager to expand and enlarge their business in the so-called sector adjacent to road and railway, including construction of logistic and warehousing terminals. It is a correct direction, since it enables to diversify transport business», tells Alexander Metelkin, Head of Marketing Department of OOO Firma Transgarant. «In accordance with the strategy of development, an available network of logistic terminals only enlarges our operator business. In particular, at the end of the year, the construction of the second transport and logistic terminal in Chelyabinsk is to start». The company believes Stroyopttorg to be a very profitable purchase, because the warehouse is situated close to the federal road Moscow–Khabarovsk and Khabarovsk–Nakhodka. The total area of the complex is 9.8 hectares. The enterprise’s railway approach has three tracks. The total warehousing area exceeds 25 thousand square meters, mainly in covered warehouses. Besides, the territory of the warehousing complex borders with the Amur river. «We also plan to use this complex for handling containers and dispatching them by railway; moreover, there is a container area at the warehouse. The problem is that the railway station adjoining the Krasnaya Rechka warehouse is not yet opened for reception and dispatch of standard containers», A.Metelkin complained.
In the Far East, other projects of transport and logistic terminals construction are being carried out. Thus, in the framework of the subprogramme «Export of Transport Services» of the Federal Target Programme «Modernization of the RF Transport System in 2004-2010», OOO Vostochny Logistic Container Terminal carries out the project of the Far Eastern Logistic Center construction. The Center will be located in the Far Eastern largest transport junction Vostochny-Nakhodka, close to Khmylovsky railway halt, 18 kilometers away from the container terminal in the port of Vostochny. Its area will be 50 hectares.
According to Director General of OOO Vostochny Logistic Container Terminal G.Zverev, the center will provide a full pack of services connected with handling and warehousing of containers, including refcontainers and containers with hazardous cargoes, forwarding and customs-brokerage. The design capacity of the logistic container terminal is 1,200 thousand TEUs. Construction is to begin in Q1 of 2007. «The terminal will create a number of advantages for cargo owners, including a significant reduction of expenses due to the optimization and speeding up the process of containers handling, which leads to the reduction of containers’ idling at the port terminals, and, as a result, to a shorter delivery time», noted G.Zverev.
Developers’ Regional Grip
The process of regions development is not so active as those in the capital, North-Western region, or in the Far East. However, the tendency is obvious. Thus, one of Russia’s largest companies-developers Consortium Roseurogroup plans to participate in the construction of a logistic center with the cost of USD 100 million on the territory of Nizhny Novgorod airport, investing USD 10 million in designing and the first stage of construction. Nowadays, the authorities are transferring the area into regional property. The procedure is to be completed this year; thereafter a competition of projects will be held for potential investors for the construction of the terminal. The Government of the region plans to select several investors.
Rostov region develops dynamically: large Russian, as well as foreign, retailers and producers have come to its market. By November 2006, Roseurogroup plans to put into operation the first stage of logistic terminal in Bataysk. The cost of the first stage is USD 17 million. The total area of the terminal is to amount to 50,000 square meters. The planned total investment volume is estimated at RUR 1 billion. The recoupment term is five or six years. NLK-Bataysk will service federal, as well as local producers and distributors, providing a full pack of logistic services. The project envisages that trains will also be serviced at the terminal; however, their share in the terminal’s throughput has not been defined yet.
Another transport and logistic terminal will be built in Ulyanovsk region in the framework of the Federal Target Programme «Modernization of Russian Transport System in 2002-2010». To carry out the project, a managing company OAO Ulyanovsky Terminal and Logistic Complex will be launched. Its shareholders will be the Government of the region, ZAO Center of Development of Regional Transport and Technological Systems, ZAO Estar-Holding, enterprises of railway, air and river transport as well as road hauliers and investment companies. Investments of USD 40-55 million are necessary. At the first stage, the sources of financing will be non-budget funds, at the second stage – re-invested profit.
MLP is to construct a warehouse with the area of 100 thousand square meters in Novosibirsk. It will be the holding company’s first regional project. The company has already started to build a logistic terminal with the area of 200 thousand square meters. According to Vasily Yurchenko, Vice-Governor of the region, the realization of the project will require investments of about USD 100 million. The local authorities have already assigned the area of 80 hectares near Tolmachevo airport. «It is expected that the terminal construction will be launched this year. The documents are being approved by the regional authorities», he said. The terminal is to be operated by Relogix, launched by Renova-Capital.
Who Will Coordinate?
The necessity of proper coordination of activities and joint efforts by the state and businessmen, including those to work out the legislative and normative basis, became obvious. It was decided to discuss the possibility of creating an interdepartmental logistic committee including representatives of federal and regional authorities. In the words of Igor Levitin, the committee should be similar to expert councils working in the field of public-private partnership and civil aviation. Besides, it was decided to discuss the problem of passing the function of logistic processes coordination to one of the agencies within the jurisdiction of the Ministry of Transport.
EKATERINA GLAZUNOVA
[~DETAIL_TEXT] =>
Working from Wheels
The tendency was noticed by the authorities. In June 2006, the RF Ministry of Transport held a meeting devoted to the problems of logistic infrastructure and transport services market development in the Russian Federation. At the meeting, the RF Minister of Transport Igor Levitin appealed to representatives of commercial structures to work out a unified strategy necessary for the development of infrastructure and logistic services market.
As for business, it was not the first time that it managed to outstrip the state. «We cannot speak of carrying out such scaled projects as construction of terminal and logistic infrastructure objects without taking into consideration the transport strategy of the state and the region», believes Director General of Rosdevelopment company Ivan Sitnikov.
However, the reality is completely different. The chaotic development of terminal and logistic capacities on the territory of Russia causes a serious problem. And it is not businessmen’s fault. It is hard to get land for logistic terminals construction. As a rule, it is necessary to build them in cites, where there is a problem of the lack of space. Naturally, construction of infrastructure in ports is most profitable. Besides, experts believe in the efficiency of regional terminals construction in the heart of the country, in the cities with the population of over 1 million people.
Industrial real estate experts believe that in a year several players operating in the sector of logistic centers will appear on the market.
Specialists believe that among the problems of logistic terminals development there are the high degree of criminalization and the isolation of this market sector. Neither state bodies nor private associations, nor research companies have accurate data regarding the sector, its structure, leaders and their shares. Meanwhile, as the Deputy Minister of Transport of the Russian Federation Alexander Misharin highlighted, the Ministry of Transport is interested in cooperation with the companies with fair names.
Some market players also note that the credit rate is too high. Thus, special programs of granting money for warehouses construction would change the situation for the better.
Sergey Igishev, Director General of OOO TransLogistic-Express, defines another factor that slows down the development of logistic centers’ infrastructure. It is the low level of management in cargo owning companies. «Special research, in particular held by the agency of marketing communication «Marko» in cooperation with Saint-Petersburg State University, shows that the majority of current top-managers have Soviet stereotypes. They do not recognize outsourcing, preferring natural economy; spend huge sums on maintenance of warehouses for their produce and raw materials. They neither can nor want to work «from wheels» as it is done in the whole world», he said.
Speaking of investment attraction the projects of logistic centers construction, the coordinator of the logistic terminal project in Yanino, Deputy Director of OOO Containerships Saint-Petersburg Dmitry Komov noted that it is investment companies that are most interested in such projects. «As for transport companies, it is possible to say that they are also interested in such projects. But a lot depends on the companies’ wish to invest into the development of such a terminal. Many of them would prefer to be a client, without investing their own means. So, they will be able to make business offers to cargo owners, thus keeping their competitive position on the market», believes Dmitry Komov.
On Grand Scale
Lately, warehouses construction in Moscow and near it has become more active. According to the data of NAI Vesco, developers announced the construction of over fifteen objects with the total area of 4.3 mln. square meters. Such activity is connected with the increasing profitability of logistic facilities, high rent rates and reduced terms of payback. According to the report of NAI Global, in 2005 the profitability of development in this sector was about 20%, which significantly exceeded the profitability of offices (13%) and trade centers (14%). Last year it was the first time when large projects, such as logistic park Pushkino and Leningradsky terminal, meeting all the modern logistic requirements, were put into operation. However, it is not a tendency yet. The demand for high quality warehouses exceeds the supply twofold. Objects are often not constructed in time. The most popular reason for it is long mechanisms of adjustment, connected with area transfer from one function to another. According to I.Sitnikov, difficulties connected with area transfer from agricultural to industrial status take at least two years; however, this term can be prolonged up to five years.
In the Moscow region there is a lack of container areas. In April 2006, OAO Far Eastern Transport Group started to construct a new container terminal in Tuchkovo. The joint project of one of Russia’s largest private railway operators and OOO FNS CIS (representative office of the South Korean transport companies Pan Korea in Russia) is to become one of the largest transport infrastructure objects in the Moscow region.
Representatives of the company said that the cost of the terminal is USD 7 million. It is to be put in operation in the autumn of 2006. The design capacity is 400 containers monthly in 2006, and 1,400 containers monthly by 2010. The terminal is built to fulfill the transport demands of the plant belonging to the South Korean company LG, which is being constructed in Ruza (Moscow region). The plant’s production volume is to be four million units annually in three years.
Tuchkovo terminal will become LG’s logistic buffer to handle, warehouse and deliver full containers to the plant and to service empty containers. At the same time, Far Eastern Transport Group will possibly attract other clients. The companies are to finance the construction on parity basis. The terminal will be managed by ZAO Kontrans – a joint-stock company of Far Eastern Transport Group (49% shareholding) and OOO FNS CIS (51% shareholding).
Logistic Gates of Russia
Nowadays, in the North-Western region there are no logistic terminals meeting all the requirements and operating as a coordinator of all the stages of transport process, although several companies actively operate in the sector. As a result, the cost of freight servicing is so high that it reduces the competitiveness of the whole Saint-Petersburg transport junction. A significant barrier for the development of the Big Port of Saint-Petersburg is also the lack of land for port infrastructure. Several companies are now investing into the construction of logistic terminals that would handle cargoes and improve the quality of services at the ring-road. Among such companies are OOO National Container Company (Shushary settlement), Eurosib Group of Companies (Predportovaya station), and OOO Containerships East (Yanino settlement).
Two logistic terminals will be constructed by OOO MLP-KAD and Containerships East in the Vsevolozhsk district of Leningradskaya Oblast. The total investment is to amount to USD 205 million. «Construction of the logistic terminal in Yanino is justified by the favourable location of the area», tells the coordinator of the project Dmitry Komov. «It is connected with the terminal’s closeness to the ring-road and an available access to railway. For efficient development of the logistic center, the company plans to invest USD 70 million of its own funds, and it is reasonable, because the concept of a logistic terminal in Yanino suggests a most prospective combination of servicing containerized and general cargoes against the background of constantly increasing demand for logistic services in the region».
For Interterminal group of companies, container business is not the major direction of investment activities. However, the container terminal included into the transport and logistic complex «Interterminal-Predportovy» is the largest center of reception, handling, warehousing and dispatch of empty and full containers – of single units and whole trains – in Saint-Petersburg, as well as in Russia. The throughput of the container terminal with the total area of 33,255 square meters and the capacity of 2,500-4,000 TEUs is nowadays about 200 containers daily, including dispatch by road hauliers and railway. «And this figure will grow», highlights Vladimir Krasovsky, OOO Interterminal Deputy Director General, responsible for railway transportation. «We also plan to increase the amount of dispatched block trains to ten units monthly and the volume of re-packed cargoes to 10-15 thousand tons monthly. As for transportation by road hauliers, there are no problems or limitations», he stresses. «Speaking of the railway, bearing in mind that Saint-Petersburg is the main logistic gates of Russia and having business relations with the Octyabrskaya (October) railway, we can’t but recognize that the ratio of development of the Saint-Petersburg transport junction’s infrastructure falls behind the ratio of development of container and logistic business in Saint-Petersburg, as well as in the whole of Russian Federation».
By now not only a container area with the annual handling capacity of 300 thousand TEUs, but also heated warehouses of «A» class with the total area of 19,384 square meters have been put into operation. When the terminal is constructed (Q2 of 2007), the total area of warehouses of «A» class is to make 64,900 square meters. The terminal will provide warehousing, reception and dispatch of full and empty containers, cargo handling and dispatch by railway.
The main advantage is that a client can get a full service-pack in one place.
OOO MLP-KAD has a project of another logistic terminal with the investment volume of USD 135 million. It is to be built in Novosaratovka village (Vsevolozhsk district). The terminal will provide value-added logistic services. The construction of the first stage with the area of 50,000 square meters will take only thirteen months. In the suburbs of Saint-Petersburg (Shushary settlement), a dry terminal of National Container Company is being built. It will be a modern warehousing, logistic and distributing terminal. The clients will obtain the services of National Container Depot, including repair and maintenance of empty containers, reception and warehousing.
In future, the National Container Company plans to create its own container park o lease it.
These are only some companies that go in for terminal construction nowadays. Experts believe that the warehousing projects in the Big Port of Saint-Petersburg area are profitable now: in spite of the long term of recoupment – over six years, the profitability is 80%.
Profitable East
Taking into account the geopolitical importance of the Far Eastern region, the creation of transport and logistic system is very prospective there. OOO Firma Transgarant has started to construct a network of transport and logistic terminals. On the basis of Stroyopttorg they plan to create a universal terminal that will provide services in the railway transportation sector, including reception and dispatch of wagons and containers, handling and warehousing of cargoes.
«Nowadays, the largest railway companies are eager to expand and enlarge their business in the so-called sector adjacent to road and railway, including construction of logistic and warehousing terminals. It is a correct direction, since it enables to diversify transport business», tells Alexander Metelkin, Head of Marketing Department of OOO Firma Transgarant. «In accordance with the strategy of development, an available network of logistic terminals only enlarges our operator business. In particular, at the end of the year, the construction of the second transport and logistic terminal in Chelyabinsk is to start». The company believes Stroyopttorg to be a very profitable purchase, because the warehouse is situated close to the federal road Moscow–Khabarovsk and Khabarovsk–Nakhodka. The total area of the complex is 9.8 hectares. The enterprise’s railway approach has three tracks. The total warehousing area exceeds 25 thousand square meters, mainly in covered warehouses. Besides, the territory of the warehousing complex borders with the Amur river. «We also plan to use this complex for handling containers and dispatching them by railway; moreover, there is a container area at the warehouse. The problem is that the railway station adjoining the Krasnaya Rechka warehouse is not yet opened for reception and dispatch of standard containers», A.Metelkin complained.
In the Far East, other projects of transport and logistic terminals construction are being carried out. Thus, in the framework of the subprogramme «Export of Transport Services» of the Federal Target Programme «Modernization of the RF Transport System in 2004-2010», OOO Vostochny Logistic Container Terminal carries out the project of the Far Eastern Logistic Center construction. The Center will be located in the Far Eastern largest transport junction Vostochny-Nakhodka, close to Khmylovsky railway halt, 18 kilometers away from the container terminal in the port of Vostochny. Its area will be 50 hectares.
According to Director General of OOO Vostochny Logistic Container Terminal G.Zverev, the center will provide a full pack of services connected with handling and warehousing of containers, including refcontainers and containers with hazardous cargoes, forwarding and customs-brokerage. The design capacity of the logistic container terminal is 1,200 thousand TEUs. Construction is to begin in Q1 of 2007. «The terminal will create a number of advantages for cargo owners, including a significant reduction of expenses due to the optimization and speeding up the process of containers handling, which leads to the reduction of containers’ idling at the port terminals, and, as a result, to a shorter delivery time», noted G.Zverev.
Developers’ Regional Grip
The process of regions development is not so active as those in the capital, North-Western region, or in the Far East. However, the tendency is obvious. Thus, one of Russia’s largest companies-developers Consortium Roseurogroup plans to participate in the construction of a logistic center with the cost of USD 100 million on the territory of Nizhny Novgorod airport, investing USD 10 million in designing and the first stage of construction. Nowadays, the authorities are transferring the area into regional property. The procedure is to be completed this year; thereafter a competition of projects will be held for potential investors for the construction of the terminal. The Government of the region plans to select several investors.
Rostov region develops dynamically: large Russian, as well as foreign, retailers and producers have come to its market. By November 2006, Roseurogroup plans to put into operation the first stage of logistic terminal in Bataysk. The cost of the first stage is USD 17 million. The total area of the terminal is to amount to 50,000 square meters. The planned total investment volume is estimated at RUR 1 billion. The recoupment term is five or six years. NLK-Bataysk will service federal, as well as local producers and distributors, providing a full pack of logistic services. The project envisages that trains will also be serviced at the terminal; however, their share in the terminal’s throughput has not been defined yet.
Another transport and logistic terminal will be built in Ulyanovsk region in the framework of the Federal Target Programme «Modernization of Russian Transport System in 2002-2010». To carry out the project, a managing company OAO Ulyanovsky Terminal and Logistic Complex will be launched. Its shareholders will be the Government of the region, ZAO Center of Development of Regional Transport and Technological Systems, ZAO Estar-Holding, enterprises of railway, air and river transport as well as road hauliers and investment companies. Investments of USD 40-55 million are necessary. At the first stage, the sources of financing will be non-budget funds, at the second stage – re-invested profit.
MLP is to construct a warehouse with the area of 100 thousand square meters in Novosibirsk. It will be the holding company’s first regional project. The company has already started to build a logistic terminal with the area of 200 thousand square meters. According to Vasily Yurchenko, Vice-Governor of the region, the realization of the project will require investments of about USD 100 million. The local authorities have already assigned the area of 80 hectares near Tolmachevo airport. «It is expected that the terminal construction will be launched this year. The documents are being approved by the regional authorities», he said. The terminal is to be operated by Relogix, launched by Renova-Capital.
Who Will Coordinate?
The necessity of proper coordination of activities and joint efforts by the state and businessmen, including those to work out the legislative and normative basis, became obvious. It was decided to discuss the possibility of creating an interdepartmental logistic committee including representatives of federal and regional authorities. In the words of Igor Levitin, the committee should be similar to expert councils working in the field of public-private partnership and civil aviation. Besides, it was decided to discuss the problem of passing the function of logistic processes coordination to one of the agencies within the jurisdiction of the Ministry of Transport.
EKATERINA GLAZUNOVA
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Working from Wheels
The tendency was noticed by the authorities. In June 2006, the RF Ministry of Transport held a meeting devoted to the problems of logistic infrastructure and transport services market development in the Russian Federation. At the meeting, the RF Minister of Transport Igor Levitin appealed to representatives of commercial structures to work out a unified strategy necessary for the development of infrastructure and logistic services market.
As for business, it was not the first time that it managed to outstrip the state. «We cannot speak of carrying out such scaled projects as construction of terminal and logistic infrastructure objects without taking into consideration the transport strategy of the state and the region», believes Director General of Rosdevelopment company Ivan Sitnikov.
However, the reality is completely different. The chaotic development of terminal and logistic capacities on the territory of Russia causes a serious problem. And it is not businessmen’s fault. It is hard to get land for logistic terminals construction. As a rule, it is necessary to build them in cites, where there is a problem of the lack of space. Naturally, construction of infrastructure in ports is most profitable. Besides, experts believe in the efficiency of regional terminals construction in the heart of the country, in the cities with the population of over 1 million people.
Industrial real estate experts believe that in a year several players operating in the sector of logistic centers will appear on the market.
Specialists believe that among the problems of logistic terminals development there are the high degree of criminalization and the isolation of this market sector. Neither state bodies nor private associations, nor research companies have accurate data regarding the sector, its structure, leaders and their shares. Meanwhile, as the Deputy Minister of Transport of the Russian Federation Alexander Misharin highlighted, the Ministry of Transport is interested in cooperation with the companies with fair names.
Some market players also note that the credit rate is too high. Thus, special programs of granting money for warehouses construction would change the situation for the better.
Sergey Igishev, Director General of OOO TransLogistic-Express, defines another factor that slows down the development of logistic centers’ infrastructure. It is the low level of management in cargo owning companies. «Special research, in particular held by the agency of marketing communication «Marko» in cooperation with Saint-Petersburg State University, shows that the majority of current top-managers have Soviet stereotypes. They do not recognize outsourcing, preferring natural economy; spend huge sums on maintenance of warehouses for their produce and raw materials. They neither can nor want to work «from wheels» as it is done in the whole world», he said.
Speaking of investment attraction the projects of logistic centers construction, the coordinator of the logistic terminal project in Yanino, Deputy Director of OOO Containerships Saint-Petersburg Dmitry Komov noted that it is investment companies that are most interested in such projects. «As for transport companies, it is possible to say that they are also interested in such projects. But a lot depends on the companies’ wish to invest into the development of such a terminal. Many of them would prefer to be a client, without investing their own means. So, they will be able to make business offers to cargo owners, thus keeping their competitive position on the market», believes Dmitry Komov.
On Grand Scale
Lately, warehouses construction in Moscow and near it has become more active. According to the data of NAI Vesco, developers announced the construction of over fifteen objects with the total area of 4.3 mln. square meters. Such activity is connected with the increasing profitability of logistic facilities, high rent rates and reduced terms of payback. According to the report of NAI Global, in 2005 the profitability of development in this sector was about 20%, which significantly exceeded the profitability of offices (13%) and trade centers (14%). Last year it was the first time when large projects, such as logistic park Pushkino and Leningradsky terminal, meeting all the modern logistic requirements, were put into operation. However, it is not a tendency yet. The demand for high quality warehouses exceeds the supply twofold. Objects are often not constructed in time. The most popular reason for it is long mechanisms of adjustment, connected with area transfer from one function to another. According to I.Sitnikov, difficulties connected with area transfer from agricultural to industrial status take at least two years; however, this term can be prolonged up to five years.
In the Moscow region there is a lack of container areas. In April 2006, OAO Far Eastern Transport Group started to construct a new container terminal in Tuchkovo. The joint project of one of Russia’s largest private railway operators and OOO FNS CIS (representative office of the South Korean transport companies Pan Korea in Russia) is to become one of the largest transport infrastructure objects in the Moscow region.
Representatives of the company said that the cost of the terminal is USD 7 million. It is to be put in operation in the autumn of 2006. The design capacity is 400 containers monthly in 2006, and 1,400 containers monthly by 2010. The terminal is built to fulfill the transport demands of the plant belonging to the South Korean company LG, which is being constructed in Ruza (Moscow region). The plant’s production volume is to be four million units annually in three years.
Tuchkovo terminal will become LG’s logistic buffer to handle, warehouse and deliver full containers to the plant and to service empty containers. At the same time, Far Eastern Transport Group will possibly attract other clients. The companies are to finance the construction on parity basis. The terminal will be managed by ZAO Kontrans – a joint-stock company of Far Eastern Transport Group (49% shareholding) and OOO FNS CIS (51% shareholding).
Logistic Gates of Russia
Nowadays, in the North-Western region there are no logistic terminals meeting all the requirements and operating as a coordinator of all the stages of transport process, although several companies actively operate in the sector. As a result, the cost of freight servicing is so high that it reduces the competitiveness of the whole Saint-Petersburg transport junction. A significant barrier for the development of the Big Port of Saint-Petersburg is also the lack of land for port infrastructure. Several companies are now investing into the construction of logistic terminals that would handle cargoes and improve the quality of services at the ring-road. Among such companies are OOO National Container Company (Shushary settlement), Eurosib Group of Companies (Predportovaya station), and OOO Containerships East (Yanino settlement).
Two logistic terminals will be constructed by OOO MLP-KAD and Containerships East in the Vsevolozhsk district of Leningradskaya Oblast. The total investment is to amount to USD 205 million. «Construction of the logistic terminal in Yanino is justified by the favourable location of the area», tells the coordinator of the project Dmitry Komov. «It is connected with the terminal’s closeness to the ring-road and an available access to railway. For efficient development of the logistic center, the company plans to invest USD 70 million of its own funds, and it is reasonable, because the concept of a logistic terminal in Yanino suggests a most prospective combination of servicing containerized and general cargoes against the background of constantly increasing demand for logistic services in the region».
For Interterminal group of companies, container business is not the major direction of investment activities. However, the container terminal included into the transport and logistic complex «Interterminal-Predportovy» is the largest center of reception, handling, warehousing and dispatch of empty and full containers – of single units and whole trains – in Saint-Petersburg, as well as in Russia. The throughput of the container terminal with the total area of 33,255 square meters and the capacity of 2,500-4,000 TEUs is nowadays about 200 containers daily, including dispatch by road hauliers and railway. «And this figure will grow», highlights Vladimir Krasovsky, OOO Interterminal Deputy Director General, responsible for railway transportation. «We also plan to increase the amount of dispatched block trains to ten units monthly and the volume of re-packed cargoes to 10-15 thousand tons monthly. As for transportation by road hauliers, there are no problems or limitations», he stresses. «Speaking of the railway, bearing in mind that Saint-Petersburg is the main logistic gates of Russia and having business relations with the Octyabrskaya (October) railway, we can’t but recognize that the ratio of development of the Saint-Petersburg transport junction’s infrastructure falls behind the ratio of development of container and logistic business in Saint-Petersburg, as well as in the whole of Russian Federation».
By now not only a container area with the annual handling capacity of 300 thousand TEUs, but also heated warehouses of «A» class with the total area of 19,384 square meters have been put into operation. When the terminal is constructed (Q2 of 2007), the total area of warehouses of «A» class is to make 64,900 square meters. The terminal will provide warehousing, reception and dispatch of full and empty containers, cargo handling and dispatch by railway.
The main advantage is that a client can get a full service-pack in one place.
OOO MLP-KAD has a project of another logistic terminal with the investment volume of USD 135 million. It is to be built in Novosaratovka village (Vsevolozhsk district). The terminal will provide value-added logistic services. The construction of the first stage with the area of 50,000 square meters will take only thirteen months. In the suburbs of Saint-Petersburg (Shushary settlement), a dry terminal of National Container Company is being built. It will be a modern warehousing, logistic and distributing terminal. The clients will obtain the services of National Container Depot, including repair and maintenance of empty containers, reception and warehousing.
In future, the National Container Company plans to create its own container park o lease it.
These are only some companies that go in for terminal construction nowadays. Experts believe that the warehousing projects in the Big Port of Saint-Petersburg area are profitable now: in spite of the long term of recoupment – over six years, the profitability is 80%.
Profitable East
Taking into account the geopolitical importance of the Far Eastern region, the creation of transport and logistic system is very prospective there. OOO Firma Transgarant has started to construct a network of transport and logistic terminals. On the basis of Stroyopttorg they plan to create a universal terminal that will provide services in the railway transportation sector, including reception and dispatch of wagons and containers, handling and warehousing of cargoes.
«Nowadays, the largest railway companies are eager to expand and enlarge their business in the so-called sector adjacent to road and railway, including construction of logistic and warehousing terminals. It is a correct direction, since it enables to diversify transport business», tells Alexander Metelkin, Head of Marketing Department of OOO Firma Transgarant. «In accordance with the strategy of development, an available network of logistic terminals only enlarges our operator business. In particular, at the end of the year, the construction of the second transport and logistic terminal in Chelyabinsk is to start». The company believes Stroyopttorg to be a very profitable purchase, because the warehouse is situated close to the federal road Moscow–Khabarovsk and Khabarovsk–Nakhodka. The total area of the complex is 9.8 hectares. The enterprise’s railway approach has three tracks. The total warehousing area exceeds 25 thousand square meters, mainly in covered warehouses. Besides, the territory of the warehousing complex borders with the Amur river. «We also plan to use this complex for handling containers and dispatching them by railway; moreover, there is a container area at the warehouse. The problem is that the railway station adjoining the Krasnaya Rechka warehouse is not yet opened for reception and dispatch of standard containers», A.Metelkin complained.
In the Far East, other projects of transport and logistic terminals construction are being carried out. Thus, in the framework of the subprogramme «Export of Transport Services» of the Federal Target Programme «Modernization of the RF Transport System in 2004-2010», OOO Vostochny Logistic Container Terminal carries out the project of the Far Eastern Logistic Center construction. The Center will be located in the Far Eastern largest transport junction Vostochny-Nakhodka, close to Khmylovsky railway halt, 18 kilometers away from the container terminal in the port of Vostochny. Its area will be 50 hectares.
According to Director General of OOO Vostochny Logistic Container Terminal G.Zverev, the center will provide a full pack of services connected with handling and warehousing of containers, including refcontainers and containers with hazardous cargoes, forwarding and customs-brokerage. The design capacity of the logistic container terminal is 1,200 thousand TEUs. Construction is to begin in Q1 of 2007. «The terminal will create a number of advantages for cargo owners, including a significant reduction of expenses due to the optimization and speeding up the process of containers handling, which leads to the reduction of containers’ idling at the port terminals, and, as a result, to a shorter delivery time», noted G.Zverev.
Developers’ Regional Grip
The process of regions development is not so active as those in the capital, North-Western region, or in the Far East. However, the tendency is obvious. Thus, one of Russia’s largest companies-developers Consortium Roseurogroup plans to participate in the construction of a logistic center with the cost of USD 100 million on the territory of Nizhny Novgorod airport, investing USD 10 million in designing and the first stage of construction. Nowadays, the authorities are transferring the area into regional property. The procedure is to be completed this year; thereafter a competition of projects will be held for potential investors for the construction of the terminal. The Government of the region plans to select several investors.
Rostov region develops dynamically: large Russian, as well as foreign, retailers and producers have come to its market. By November 2006, Roseurogroup plans to put into operation the first stage of logistic terminal in Bataysk. The cost of the first stage is USD 17 million. The total area of the terminal is to amount to 50,000 square meters. The planned total investment volume is estimated at RUR 1 billion. The recoupment term is five or six years. NLK-Bataysk will service federal, as well as local producers and distributors, providing a full pack of logistic services. The project envisages that trains will also be serviced at the terminal; however, their share in the terminal’s throughput has not been defined yet.
Another transport and logistic terminal will be built in Ulyanovsk region in the framework of the Federal Target Programme «Modernization of Russian Transport System in 2002-2010». To carry out the project, a managing company OAO Ulyanovsky Terminal and Logistic Complex will be launched. Its shareholders will be the Government of the region, ZAO Center of Development of Regional Transport and Technological Systems, ZAO Estar-Holding, enterprises of railway, air and river transport as well as road hauliers and investment companies. Investments of USD 40-55 million are necessary. At the first stage, the sources of financing will be non-budget funds, at the second stage – re-invested profit.
MLP is to construct a warehouse with the area of 100 thousand square meters in Novosibirsk. It will be the holding company’s first regional project. The company has already started to build a logistic terminal with the area of 200 thousand square meters. According to Vasily Yurchenko, Vice-Governor of the region, the realization of the project will require investments of about USD 100 million. The local authorities have already assigned the area of 80 hectares near Tolmachevo airport. «It is expected that the terminal construction will be launched this year. The documents are being approved by the regional authorities», he said. The terminal is to be operated by Relogix, launched by Renova-Capital.
Who Will Coordinate?
The necessity of proper coordination of activities and joint efforts by the state and businessmen, including those to work out the legislative and normative basis, became obvious. It was decided to discuss the possibility of creating an interdepartmental logistic committee including representatives of federal and regional authorities. In the words of Igor Levitin, the committee should be similar to expert councils working in the field of public-private partnership and civil aviation. Besides, it was decided to discuss the problem of passing the function of logistic processes coordination to one of the agencies within the jurisdiction of the Ministry of Transport.
EKATERINA GLAZUNOVA
[~DETAIL_TEXT] =>
Working from Wheels
The tendency was noticed by the authorities. In June 2006, the RF Ministry of Transport held a meeting devoted to the problems of logistic infrastructure and transport services market development in the Russian Federation. At the meeting, the RF Minister of Transport Igor Levitin appealed to representatives of commercial structures to work out a unified strategy necessary for the development of infrastructure and logistic services market.
As for business, it was not the first time that it managed to outstrip the state. «We cannot speak of carrying out such scaled projects as construction of terminal and logistic infrastructure objects without taking into consideration the transport strategy of the state and the region», believes Director General of Rosdevelopment company Ivan Sitnikov.
However, the reality is completely different. The chaotic development of terminal and logistic capacities on the territory of Russia causes a serious problem. And it is not businessmen’s fault. It is hard to get land for logistic terminals construction. As a rule, it is necessary to build them in cites, where there is a problem of the lack of space. Naturally, construction of infrastructure in ports is most profitable. Besides, experts believe in the efficiency of regional terminals construction in the heart of the country, in the cities with the population of over 1 million people.
Industrial real estate experts believe that in a year several players operating in the sector of logistic centers will appear on the market.
Specialists believe that among the problems of logistic terminals development there are the high degree of criminalization and the isolation of this market sector. Neither state bodies nor private associations, nor research companies have accurate data regarding the sector, its structure, leaders and their shares. Meanwhile, as the Deputy Minister of Transport of the Russian Federation Alexander Misharin highlighted, the Ministry of Transport is interested in cooperation with the companies with fair names.
Some market players also note that the credit rate is too high. Thus, special programs of granting money for warehouses construction would change the situation for the better.
Sergey Igishev, Director General of OOO TransLogistic-Express, defines another factor that slows down the development of logistic centers’ infrastructure. It is the low level of management in cargo owning companies. «Special research, in particular held by the agency of marketing communication «Marko» in cooperation with Saint-Petersburg State University, shows that the majority of current top-managers have Soviet stereotypes. They do not recognize outsourcing, preferring natural economy; spend huge sums on maintenance of warehouses for their produce and raw materials. They neither can nor want to work «from wheels» as it is done in the whole world», he said.
Speaking of investment attraction the projects of logistic centers construction, the coordinator of the logistic terminal project in Yanino, Deputy Director of OOO Containerships Saint-Petersburg Dmitry Komov noted that it is investment companies that are most interested in such projects. «As for transport companies, it is possible to say that they are also interested in such projects. But a lot depends on the companies’ wish to invest into the development of such a terminal. Many of them would prefer to be a client, without investing their own means. So, they will be able to make business offers to cargo owners, thus keeping their competitive position on the market», believes Dmitry Komov.
On Grand Scale
Lately, warehouses construction in Moscow and near it has become more active. According to the data of NAI Vesco, developers announced the construction of over fifteen objects with the total area of 4.3 mln. square meters. Such activity is connected with the increasing profitability of logistic facilities, high rent rates and reduced terms of payback. According to the report of NAI Global, in 2005 the profitability of development in this sector was about 20%, which significantly exceeded the profitability of offices (13%) and trade centers (14%). Last year it was the first time when large projects, such as logistic park Pushkino and Leningradsky terminal, meeting all the modern logistic requirements, were put into operation. However, it is not a tendency yet. The demand for high quality warehouses exceeds the supply twofold. Objects are often not constructed in time. The most popular reason for it is long mechanisms of adjustment, connected with area transfer from one function to another. According to I.Sitnikov, difficulties connected with area transfer from agricultural to industrial status take at least two years; however, this term can be prolonged up to five years.
In the Moscow region there is a lack of container areas. In April 2006, OAO Far Eastern Transport Group started to construct a new container terminal in Tuchkovo. The joint project of one of Russia’s largest private railway operators and OOO FNS CIS (representative office of the South Korean transport companies Pan Korea in Russia) is to become one of the largest transport infrastructure objects in the Moscow region.
Representatives of the company said that the cost of the terminal is USD 7 million. It is to be put in operation in the autumn of 2006. The design capacity is 400 containers monthly in 2006, and 1,400 containers monthly by 2010. The terminal is built to fulfill the transport demands of the plant belonging to the South Korean company LG, which is being constructed in Ruza (Moscow region). The plant’s production volume is to be four million units annually in three years.
Tuchkovo terminal will become LG’s logistic buffer to handle, warehouse and deliver full containers to the plant and to service empty containers. At the same time, Far Eastern Transport Group will possibly attract other clients. The companies are to finance the construction on parity basis. The terminal will be managed by ZAO Kontrans – a joint-stock company of Far Eastern Transport Group (49% shareholding) and OOO FNS CIS (51% shareholding).
Logistic Gates of Russia
Nowadays, in the North-Western region there are no logistic terminals meeting all the requirements and operating as a coordinator of all the stages of transport process, although several companies actively operate in the sector. As a result, the cost of freight servicing is so high that it reduces the competitiveness of the whole Saint-Petersburg transport junction. A significant barrier for the development of the Big Port of Saint-Petersburg is also the lack of land for port infrastructure. Several companies are now investing into the construction of logistic terminals that would handle cargoes and improve the quality of services at the ring-road. Among such companies are OOO National Container Company (Shushary settlement), Eurosib Group of Companies (Predportovaya station), and OOO Containerships East (Yanino settlement).
Two logistic terminals will be constructed by OOO MLP-KAD and Containerships East in the Vsevolozhsk district of Leningradskaya Oblast. The total investment is to amount to USD 205 million. «Construction of the logistic terminal in Yanino is justified by the favourable location of the area», tells the coordinator of the project Dmitry Komov. «It is connected with the terminal’s closeness to the ring-road and an available access to railway. For efficient development of the logistic center, the company plans to invest USD 70 million of its own funds, and it is reasonable, because the concept of a logistic terminal in Yanino suggests a most prospective combination of servicing containerized and general cargoes against the background of constantly increasing demand for logistic services in the region».
For Interterminal group of companies, container business is not the major direction of investment activities. However, the container terminal included into the transport and logistic complex «Interterminal-Predportovy» is the largest center of reception, handling, warehousing and dispatch of empty and full containers – of single units and whole trains – in Saint-Petersburg, as well as in Russia. The throughput of the container terminal with the total area of 33,255 square meters and the capacity of 2,500-4,000 TEUs is nowadays about 200 containers daily, including dispatch by road hauliers and railway. «And this figure will grow», highlights Vladimir Krasovsky, OOO Interterminal Deputy Director General, responsible for railway transportation. «We also plan to increase the amount of dispatched block trains to ten units monthly and the volume of re-packed cargoes to 10-15 thousand tons monthly. As for transportation by road hauliers, there are no problems or limitations», he stresses. «Speaking of the railway, bearing in mind that Saint-Petersburg is the main logistic gates of Russia and having business relations with the Octyabrskaya (October) railway, we can’t but recognize that the ratio of development of the Saint-Petersburg transport junction’s infrastructure falls behind the ratio of development of container and logistic business in Saint-Petersburg, as well as in the whole of Russian Federation».
By now not only a container area with the annual handling capacity of 300 thousand TEUs, but also heated warehouses of «A» class with the total area of 19,384 square meters have been put into operation. When the terminal is constructed (Q2 of 2007), the total area of warehouses of «A» class is to make 64,900 square meters. The terminal will provide warehousing, reception and dispatch of full and empty containers, cargo handling and dispatch by railway.
The main advantage is that a client can get a full service-pack in one place.
OOO MLP-KAD has a project of another logistic terminal with the investment volume of USD 135 million. It is to be built in Novosaratovka village (Vsevolozhsk district). The terminal will provide value-added logistic services. The construction of the first stage with the area of 50,000 square meters will take only thirteen months. In the suburbs of Saint-Petersburg (Shushary settlement), a dry terminal of National Container Company is being built. It will be a modern warehousing, logistic and distributing terminal. The clients will obtain the services of National Container Depot, including repair and maintenance of empty containers, reception and warehousing.
In future, the National Container Company plans to create its own container park o lease it.
These are only some companies that go in for terminal construction nowadays. Experts believe that the warehousing projects in the Big Port of Saint-Petersburg area are profitable now: in spite of the long term of recoupment – over six years, the profitability is 80%.
Profitable East
Taking into account the geopolitical importance of the Far Eastern region, the creation of transport and logistic system is very prospective there. OOO Firma Transgarant has started to construct a network of transport and logistic terminals. On the basis of Stroyopttorg they plan to create a universal terminal that will provide services in the railway transportation sector, including reception and dispatch of wagons and containers, handling and warehousing of cargoes.
«Nowadays, the largest railway companies are eager to expand and enlarge their business in the so-called sector adjacent to road and railway, including construction of logistic and warehousing terminals. It is a correct direction, since it enables to diversify transport business», tells Alexander Metelkin, Head of Marketing Department of OOO Firma Transgarant. «In accordance with the strategy of development, an available network of logistic terminals only enlarges our operator business. In particular, at the end of the year, the construction of the second transport and logistic terminal in Chelyabinsk is to start». The company believes Stroyopttorg to be a very profitable purchase, because the warehouse is situated close to the federal road Moscow–Khabarovsk and Khabarovsk–Nakhodka. The total area of the complex is 9.8 hectares. The enterprise’s railway approach has three tracks. The total warehousing area exceeds 25 thousand square meters, mainly in covered warehouses. Besides, the territory of the warehousing complex borders with the Amur river. «We also plan to use this complex for handling containers and dispatching them by railway; moreover, there is a container area at the warehouse. The problem is that the railway station adjoining the Krasnaya Rechka warehouse is not yet opened for reception and dispatch of standard containers», A.Metelkin complained.
In the Far East, other projects of transport and logistic terminals construction are being carried out. Thus, in the framework of the subprogramme «Export of Transport Services» of the Federal Target Programme «Modernization of the RF Transport System in 2004-2010», OOO Vostochny Logistic Container Terminal carries out the project of the Far Eastern Logistic Center construction. The Center will be located in the Far Eastern largest transport junction Vostochny-Nakhodka, close to Khmylovsky railway halt, 18 kilometers away from the container terminal in the port of Vostochny. Its area will be 50 hectares.
According to Director General of OOO Vostochny Logistic Container Terminal G.Zverev, the center will provide a full pack of services connected with handling and warehousing of containers, including refcontainers and containers with hazardous cargoes, forwarding and customs-brokerage. The design capacity of the logistic container terminal is 1,200 thousand TEUs. Construction is to begin in Q1 of 2007. «The terminal will create a number of advantages for cargo owners, including a significant reduction of expenses due to the optimization and speeding up the process of containers handling, which leads to the reduction of containers’ idling at the port terminals, and, as a result, to a shorter delivery time», noted G.Zverev.
Developers’ Regional Grip
The process of regions development is not so active as those in the capital, North-Western region, or in the Far East. However, the tendency is obvious. Thus, one of Russia’s largest companies-developers Consortium Roseurogroup plans to participate in the construction of a logistic center with the cost of USD 100 million on the territory of Nizhny Novgorod airport, investing USD 10 million in designing and the first stage of construction. Nowadays, the authorities are transferring the area into regional property. The procedure is to be completed this year; thereafter a competition of projects will be held for potential investors for the construction of the terminal. The Government of the region plans to select several investors.
Rostov region develops dynamically: large Russian, as well as foreign, retailers and producers have come to its market. By November 2006, Roseurogroup plans to put into operation the first stage of logistic terminal in Bataysk. The cost of the first stage is USD 17 million. The total area of the terminal is to amount to 50,000 square meters. The planned total investment volume is estimated at RUR 1 billion. The recoupment term is five or six years. NLK-Bataysk will service federal, as well as local producers and distributors, providing a full pack of logistic services. The project envisages that trains will also be serviced at the terminal; however, their share in the terminal’s throughput has not been defined yet.
Another transport and logistic terminal will be built in Ulyanovsk region in the framework of the Federal Target Programme «Modernization of Russian Transport System in 2002-2010». To carry out the project, a managing company OAO Ulyanovsky Terminal and Logistic Complex will be launched. Its shareholders will be the Government of the region, ZAO Center of Development of Regional Transport and Technological Systems, ZAO Estar-Holding, enterprises of railway, air and river transport as well as road hauliers and investment companies. Investments of USD 40-55 million are necessary. At the first stage, the sources of financing will be non-budget funds, at the second stage – re-invested profit.
MLP is to construct a warehouse with the area of 100 thousand square meters in Novosibirsk. It will be the holding company’s first regional project. The company has already started to build a logistic terminal with the area of 200 thousand square meters. According to Vasily Yurchenko, Vice-Governor of the region, the realization of the project will require investments of about USD 100 million. The local authorities have already assigned the area of 80 hectares near Tolmachevo airport. «It is expected that the terminal construction will be launched this year. The documents are being approved by the regional authorities», he said. The terminal is to be operated by Relogix, launched by Renova-Capital.
Who Will Coordinate?
The necessity of proper coordination of activities and joint efforts by the state and businessmen, including those to work out the legislative and normative basis, became obvious. It was decided to discuss the possibility of creating an interdepartmental logistic committee including representatives of federal and regional authorities. In the words of Igor Levitin, the committee should be similar to expert councils working in the field of public-private partnership and civil aviation. Besides, it was decided to discuss the problem of passing the function of logistic processes coordination to one of the agencies within the jurisdiction of the Ministry of Transport.
EKATERINA GLAZUNOVA
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[DETAIL_TEXT] => Ruben Terteryan, Director General of OOO Agency of Special Research, comments on the current situation and problems of development of terminals and logistic complexes for containers handling in Russia.
Demand Exceeds the Capacity
– Could you characterize the level of logistic container terminals development in Russia? What are the main tendencies and prospects of container terminal infrastructure development in the country?
– Containerization (I mean, not just a simple increase of container transportation volume, but the increase of the share of such transportation in the world throughput) is a common tendency of transport logistic development. During the last five years the world container turnover grew from 36 million TEUss in 2001 to almost 50 million TEUss in 2005 (38% growth). On the whole, the container transportation market grows by 7.6-8.2% annually. Russia’s role on the container transportation market is not a significant one: the RF total container throughput was 1.7-1.8 million TEUss last year, which makes only 3.6% of the world market. However, the ratio of growth in this country is much higher, i.e. 20.5% annually on average during the last five years, which exceeds the world growth ratio three-fold.
It turned out that we are not ready to such a situation: the infrastructure of container transportation in Russia does not correspond to the current market. Firstly, there is a lack of container terminal capacities to handle all the container freight flow – domestic, as well as the foreign trade one. Nowadays, only 63-67% of foreign trade containerized cargoes are handled at Russian terminals; the remaining volume is handled in the ports of neighbouring countries.
As for the market of domestic container transportation, I believe, it is in its infancy. It is because the most part of domestic container transportation is provided by road hauliers, while the share of railway transport does not exceed 20%. Meanwhile, road hauliers carry containers at the distance of more than 850-1,000 kilometers, which is absurd for developed markets. For example, in Europe the average distance of auto haul is not more that 200-250 km.
Nowadays, railway transport does not play the key role in container transportation. Infrastructure and rolling stock have not been renewed since the Soviet epoch, so they do not meet the modern requirements. However, the lack of containers or platforms is not the main problem – it is possible to construct or purchase them. The reason for the fact that the role of railway transport is not the key one in container transportation is the lack of proper linear container service on the domestic market. It is impossible for a cargo owner not only to get a container to load it, but also, having delivered it to the station, to forecast the term of its delivery to the destination point. Since the cargo is transported not within block trains but in the framework of general transportation process, it significantly prolongs the delivery time. Nowadays, this figure is one of the most important in the work of an enterprise’s logistic system, especially for consumer goods spread via distributing channels.
Nowadays, the minimal term of container delivery by railway is 5-7 days, which does not meet the commercial requirements of delivery time not to exceed three days. That is why most cargo owners prefer to use road hauliers to transport containers to their warehouses.
– But containers are created for convenient multimodal transportation.
– Taking into account the territory of Russia, there is no alternative to the railway; that is why opportunities for creating a real container service at the railway are being discussed.
As for the country’s terminal infrastructure, nowadays container infrastructure, oriented at foreign trade cargoes handling, is actively developing. First of all, it happens in port cities and places, where the main export flows of cargoes for containerization (paper, non-ferrous metals etc.) is generated. The active growth of investments into port infrastructure started at the beginning of the century. In 2005 international sea transportation amounted to 1.67 million TEUss or 92-95% of the country’s container turnover. At the same time, the ratio of containerized import cargo growth was hardly lower than 30% annually during the last 5 years, and it is very prospective. The intensification of the process of port handling and the lack of port areas were the reason for taking value-added logistic services out of the ports to the logistic centers.
That is why, the second stage of the country’s container infrastructure development has started, i.e. investments into the logistic centrs, the functions of which include consolidation/reconsolidation of consignment, cargo servicing, and container depot. Container terminals are constructed in port cities, as well as in places where export goods are produced. One of such terminals has been put into operation in Syktyvkar by Noyzidler company; RUSAL has announced similar projects. In fact, foreign trade transportation by sea is now the locomotive of container transportation market and infrastructure development.
However, containers are still transported by road hauliers from ports. That is why the next stage of infrastructure development will be the construction of large regional container terminals, using railway as the main transport mode, in the heart of the Russian Federation.
At first, the distance between such terminals will be 1,500-2,000 km.; later on, when the national system of container railway routes is developed, it will reduce to 800-1,000 km. Thus, the infrastructure development will move from ports to the heart of the country, and a network of regional and interregional terminals and a system of regional logistic terminals connected with them will be created. Still, this process should be accompanied by a simultaneous formation of the system of container routes between the basic terminals.
Stake on Prospects
– How can the increased attention of private transport companies, such as, for example, Far Eastern Transport Group, National Container Company, Eurosib, Transgarant, and Containerships East, to projects of terminals and multimodal logistic centres construction be explained?
Are these investments reasonable?
– All the companies you mentioned, with the exception of Transgarant, are carrying out projects of logistic centers construction. All of them have different ideas of their development strategies; however, they start to carry out the projects in port cities that generate the basic volume of the freight base. Among these companies, personally, I would distinguish Eurosib and Transgarant, which are working out plans of national terminal network construction. That will enable them to become in future largest domestic container operators, an analogue to sea container lines but inside Russia. Taking into account that in medium-term and long-term outlooks container transportation will continue to increase faster than the total throughput, investments into terminal infrastructure projects with the average investment payback period of six-eight years seem to be very promising.
– What projects are most prospective in the sphere?
– Speaking of the near future (three-five years), the most profitable (with a guaranteed volume of freight base) projects are connected with port and inland container infrastructure construction in the existing or developing ports. Taking into account almost fourfold growth of the country’s container turnover by 2025 (moderate forecast), the existing port infrastructure will not be enough. In particular, this problem will be urgent for the North-Western region of Russia, where over 86% of the international container freight flow to the Russian Federation is delivered.
I believe that construction of regional container terminals in the heart of the country, in those subjects of the Federation that have turned into regional distribution centers – Samara, Ekaterinburg and Novosibirsk, – is also promising. These cities already have a sufficient freight basis to provide such terminals with work.
– Is there any estimation of the potential volumes in acting and designing logistic centers? Which regions of Russia need development of container infrastructure badly?
– There is an estimation of the potential volumes of container throughput in the main centers of the country. As for port cities and sea transportation, everything is quite clear: there are ports statistics. According to these data, last year 1.678 million TEUs was handled, including 1.19 million TEUs (66.7%) in the port of Saint-Petersburg, 223.9 thousand TEUs (13.3%) in the port of Vostochny, 156.7 thousand TEUs (9.3%) in the port of Novorossiysk, and 61 thousand TEUs and 57 thousand TEUs in the ports of Vladivostok and Kaliningrad respectively. The share of other port cities is less than 1%. Thus, in the country the leader is the port of Saint-Petersburg that accumulates 1.19 million TEUs, and about 450 thousand TEUs is handled not far from the city – in the ports of Finland and Baltic states. Far Eastern ports handle about 310 thousand TEUs (port Vostochny is the leader among them).
Inside the country the situation is more complicated. The main volume is concentrated in Moscow, up to 79% of the total container import is delivered there. However, there is no powerful container terminal in Moscow, because cargoes are carried from Moscow, which is the main distributing center in Russia, by road vehicles. That is why the real container throughput inside the country is small. To assess the prospects of container terminals construction, it would be more correct to speak of potential volumes of container freight flow, calculated on the basis of containerized cargo volumes. Our Agency held the analysis of the basic RF regional centers. The forecasted volume of container turnover was calculated using a whole complex of social and economic figures. I can say that the estimation for Moscow is 850-1,000 thousand TEUs annually, for Ekaterinburg it is 350-450 thousand TEUs, for Novosibirsk and Samara 300-350 thousand TEUs and 200-250 thousand TEUs respectively.
Big Money
– Do you think that such projects are attractive for other private companies?
– Construction of a terminal network in the Russian Federation, in particular of container capacities, attracts many companies nowadays. It is difficult to find a serious company on the market that considers this business non-prospective. But the construction of infrastructure, especially one for transport, is very costly. That is why payback period for warehouses construction investment is five or six years; for container warehouses the term is prolonged to eight years. In this country there is no private company able to carry out a project on terminals network construction single-handedly. Often there is a lack of money for even one terminal. On the other hand, construction of terminals is not a business of logistic companies. It is companies-developers who should go in for it.
– Is there a tendency for consolidation of several transport companies to finance and construct logistic centers?
– There are no such alliances yet and they will hardly appear in the near future, because there is no high margin in this business, and no transport company will share its freight base with anybody. A union of a transport operator (for example, Eurosib) and a warehouse operator (NLC (National Logistics Service), for example) is possible. I know that many projects of terminals envisage such unions; however, such plans have not been fulfilled yet.
Nowadays, a pool of companies specializing in this segment development is being formed (OOO MLP-KAD, for example). This structure seems to have the aim of strengthening its positions in all the key regions for the container market, and it is going to develop projects of terminal infrastructure there. However, now developers lack financial resources, because it is much easier to build a house (where meters can be sold when the foundation has been constructed, thus the recoupment of investments starts very fast) than a container terminal, which needs more money, has a longer recoupment period and another dynamics of investments payback.
– Do foreign investors show their interest in this sector of the market?
– The main problem with container terminals construction is the search for long-term investments. Big sums invested for a long term. There is such money abroad, where there is an institution of structural investors (first of all, pension funds, insuring companies, private funds). Foreign investors are interested in the Russian development market, including terminals. Meanwhile, it is hardly possible to meet the requirements of foreign investors. Nowadays, access of foreign money to such projects is provided by guarantees of largest national business groups. MLP also attracts foreign investments; obviously, the company’s founders give guarantees. Most transport companies have no such guaranties; few of them can cooperate with foreigners due to their turnover. However, the situation has changed for the better. Starting from 2007, the system will be really implemented, and the projects of public-private partnership, especially related to transport infrastructure (Western Speeded-Up Diameter (part of Saint-Petersburg ring road), Orlovsky tunnel, Moscow–Saint-Petersburg highway) will be launched. These projects will give an impulse and create a basis for development of less scaled projects, for example, construction of terminals.
Potential Should Not Be Destroyed
– What are the specific features and the urgent problems arising when developing logistic distribution centers now working on the territory of the Russian Federation?
– The main problem of the country’s freight distribution centers is the lack of block trains, which would connect these centers and ensure proper delivery time. The existing container transportation is provided in accordance with a usual schedule of railway transportation.
The present-day container routes connect ports and places where export freight is generated.
Due to the lack of linear container rail operator inside the country, road vehicles started to transport containers, providing suitable delivery time and prices. As a result, each regional freight center develops according to its own scheme, which depends on the regional freight base and its level. Thus, Saint-Petersburg is oriented at the sea constituent; consequently, the system of port terminals and logistic center develops actively. Taking into account the foreign trade throughput carried to the region from the heart of the country, one of the key transport modes is railway. So, among the main directions of development of the freight distributing center is the construction of a powerful container terminal with railway approaches to it.
Moscow follows the scheme of creating a distribution center of national level; that is why a ring of large logistic settlements is formed there. The most attention is paid to modern distributing warehouses construction. The stake is made on road vehicles, while railway transport is not considered to be a major necessity for the terminals being built. Distribution centers in the Urals and Siberia have a large share of industrial cargoes, which determines the development of railway as a transport constituent. However, a lot of final destinations of cargo are situated far from each other, which stimulates the development of small terminals oriented at servicing cargoes of one or two enterprises.
Thus, without a joint network of container routes, each distributing center develops independently, based on the current freight situation.
– What difficulties do companies who construct their own terminals face?
– I have already mentioned the lack of financial resources. On the whole, the problems of development are the lack and high price of land, the lack of efficient land market, long procedures of areas transfer from one category to another, long procedure of project approval, lack of high-quality construction base.
Among structural limitations, the lack of area and developed engineering infrastructure are most important. Nowadays it is very difficult to purchase area for terminal construction in big cities. Primary investments into such projects cannot be recouped fast because the land in too expensive.
There is no developed market in most regions of the Russian Federation.
There the legislative status of land giving does not meet the requirements of foreign investors.
The lack of engineer infrastructure destroys the potential of an area, because terminals and warehouses need significant capacities of electricity and heat. If there is no sanitation on the territory, it is hardly possible to speak of any construction works on it.
Construction of any real estate object (and terminal infrastructure is, in fact, a specific object of real estate) involves high risks. When investing into terminal infrastructure, risks are much higher than with investments into housing construction. Many investment projects are unprofitable because of administrative bodies, general contractors and suppliers, designers, engineers and architects, and only then – consultants. At the same time, all of them either are not in charge, or do not have enough assets to compensate for investor’s losses.
The main risks when working with administrative bodies are delays of terms of approval, illegal denials or change of decisions made earlier, demand for illegal payments, additional procedures etc. Their share exceeds 50% of the project’s risks. Meanwhile, administrative bodies will not account for the losses. Many projects have been ruined at the stage of draft and approval.
About 40% of losses take place when a project is being carried out. Main risks concerned with construction are frustration of the terms, improper quality and rejection of guarantee services, lack of correspondence with the project and failure to meet obligatory requirements, unforeseeable consequences (soil settlement, water outlet, natural disasters, fire), idling and overtime work caused by irregular financing, and fraud.
Nowadays, in Russia there are few professionals experienced in terminal construction. Their building capacities are much lower than the demand is, so there have been many cases of hiring unfair contractors.
Nowadays, at construction of terminals and warehouses plenty of difficulties are faced. It will take businessmen much time to overcome all of them, if the authorities (federal as well as local ones) do not help. To stimulate the process of investment in terminals and transport infrastructure, regional authorities are to take normative and practical measures aimed at simplifying the procedures of project approval and infrastructural territory development. The case of Saint-Petersburg, where a concept of transport and logistic complex was developed, can be considered an example of such an approach to the problem.
Interviewed by EKATERINA GLAZUNOVA
[~DETAIL_TEXT] => Ruben Terteryan, Director General of OOO Agency of Special Research, comments on the current situation and problems of development of terminals and logistic complexes for containers handling in Russia.
Demand Exceeds the Capacity
– Could you characterize the level of logistic container terminals development in Russia? What are the main tendencies and prospects of container terminal infrastructure development in the country?
– Containerization (I mean, not just a simple increase of container transportation volume, but the increase of the share of such transportation in the world throughput) is a common tendency of transport logistic development. During the last five years the world container turnover grew from 36 million TEUss in 2001 to almost 50 million TEUss in 2005 (38% growth). On the whole, the container transportation market grows by 7.6-8.2% annually. Russia’s role on the container transportation market is not a significant one: the RF total container throughput was 1.7-1.8 million TEUss last year, which makes only 3.6% of the world market. However, the ratio of growth in this country is much higher, i.e. 20.5% annually on average during the last five years, which exceeds the world growth ratio three-fold.
It turned out that we are not ready to such a situation: the infrastructure of container transportation in Russia does not correspond to the current market. Firstly, there is a lack of container terminal capacities to handle all the container freight flow – domestic, as well as the foreign trade one. Nowadays, only 63-67% of foreign trade containerized cargoes are handled at Russian terminals; the remaining volume is handled in the ports of neighbouring countries.
As for the market of domestic container transportation, I believe, it is in its infancy. It is because the most part of domestic container transportation is provided by road hauliers, while the share of railway transport does not exceed 20%. Meanwhile, road hauliers carry containers at the distance of more than 850-1,000 kilometers, which is absurd for developed markets. For example, in Europe the average distance of auto haul is not more that 200-250 km.
Nowadays, railway transport does not play the key role in container transportation. Infrastructure and rolling stock have not been renewed since the Soviet epoch, so they do not meet the modern requirements. However, the lack of containers or platforms is not the main problem – it is possible to construct or purchase them. The reason for the fact that the role of railway transport is not the key one in container transportation is the lack of proper linear container service on the domestic market. It is impossible for a cargo owner not only to get a container to load it, but also, having delivered it to the station, to forecast the term of its delivery to the destination point. Since the cargo is transported not within block trains but in the framework of general transportation process, it significantly prolongs the delivery time. Nowadays, this figure is one of the most important in the work of an enterprise’s logistic system, especially for consumer goods spread via distributing channels.
Nowadays, the minimal term of container delivery by railway is 5-7 days, which does not meet the commercial requirements of delivery time not to exceed three days. That is why most cargo owners prefer to use road hauliers to transport containers to their warehouses.
– But containers are created for convenient multimodal transportation.
– Taking into account the territory of Russia, there is no alternative to the railway; that is why opportunities for creating a real container service at the railway are being discussed.
As for the country’s terminal infrastructure, nowadays container infrastructure, oriented at foreign trade cargoes handling, is actively developing. First of all, it happens in port cities and places, where the main export flows of cargoes for containerization (paper, non-ferrous metals etc.) is generated. The active growth of investments into port infrastructure started at the beginning of the century. In 2005 international sea transportation amounted to 1.67 million TEUss or 92-95% of the country’s container turnover. At the same time, the ratio of containerized import cargo growth was hardly lower than 30% annually during the last 5 years, and it is very prospective. The intensification of the process of port handling and the lack of port areas were the reason for taking value-added logistic services out of the ports to the logistic centers.
That is why, the second stage of the country’s container infrastructure development has started, i.e. investments into the logistic centrs, the functions of which include consolidation/reconsolidation of consignment, cargo servicing, and container depot. Container terminals are constructed in port cities, as well as in places where export goods are produced. One of such terminals has been put into operation in Syktyvkar by Noyzidler company; RUSAL has announced similar projects. In fact, foreign trade transportation by sea is now the locomotive of container transportation market and infrastructure development.
However, containers are still transported by road hauliers from ports. That is why the next stage of infrastructure development will be the construction of large regional container terminals, using railway as the main transport mode, in the heart of the Russian Federation.
At first, the distance between such terminals will be 1,500-2,000 km.; later on, when the national system of container railway routes is developed, it will reduce to 800-1,000 km. Thus, the infrastructure development will move from ports to the heart of the country, and a network of regional and interregional terminals and a system of regional logistic terminals connected with them will be created. Still, this process should be accompanied by a simultaneous formation of the system of container routes between the basic terminals.
Stake on Prospects
– How can the increased attention of private transport companies, such as, for example, Far Eastern Transport Group, National Container Company, Eurosib, Transgarant, and Containerships East, to projects of terminals and multimodal logistic centres construction be explained?
Are these investments reasonable?
– All the companies you mentioned, with the exception of Transgarant, are carrying out projects of logistic centers construction. All of them have different ideas of their development strategies; however, they start to carry out the projects in port cities that generate the basic volume of the freight base. Among these companies, personally, I would distinguish Eurosib and Transgarant, which are working out plans of national terminal network construction. That will enable them to become in future largest domestic container operators, an analogue to sea container lines but inside Russia. Taking into account that in medium-term and long-term outlooks container transportation will continue to increase faster than the total throughput, investments into terminal infrastructure projects with the average investment payback period of six-eight years seem to be very promising.
– What projects are most prospective in the sphere?
– Speaking of the near future (three-five years), the most profitable (with a guaranteed volume of freight base) projects are connected with port and inland container infrastructure construction in the existing or developing ports. Taking into account almost fourfold growth of the country’s container turnover by 2025 (moderate forecast), the existing port infrastructure will not be enough. In particular, this problem will be urgent for the North-Western region of Russia, where over 86% of the international container freight flow to the Russian Federation is delivered.
I believe that construction of regional container terminals in the heart of the country, in those subjects of the Federation that have turned into regional distribution centers – Samara, Ekaterinburg and Novosibirsk, – is also promising. These cities already have a sufficient freight basis to provide such terminals with work.
– Is there any estimation of the potential volumes in acting and designing logistic centers? Which regions of Russia need development of container infrastructure badly?
– There is an estimation of the potential volumes of container throughput in the main centers of the country. As for port cities and sea transportation, everything is quite clear: there are ports statistics. According to these data, last year 1.678 million TEUs was handled, including 1.19 million TEUs (66.7%) in the port of Saint-Petersburg, 223.9 thousand TEUs (13.3%) in the port of Vostochny, 156.7 thousand TEUs (9.3%) in the port of Novorossiysk, and 61 thousand TEUs and 57 thousand TEUs in the ports of Vladivostok and Kaliningrad respectively. The share of other port cities is less than 1%. Thus, in the country the leader is the port of Saint-Petersburg that accumulates 1.19 million TEUs, and about 450 thousand TEUs is handled not far from the city – in the ports of Finland and Baltic states. Far Eastern ports handle about 310 thousand TEUs (port Vostochny is the leader among them).
Inside the country the situation is more complicated. The main volume is concentrated in Moscow, up to 79% of the total container import is delivered there. However, there is no powerful container terminal in Moscow, because cargoes are carried from Moscow, which is the main distributing center in Russia, by road vehicles. That is why the real container throughput inside the country is small. To assess the prospects of container terminals construction, it would be more correct to speak of potential volumes of container freight flow, calculated on the basis of containerized cargo volumes. Our Agency held the analysis of the basic RF regional centers. The forecasted volume of container turnover was calculated using a whole complex of social and economic figures. I can say that the estimation for Moscow is 850-1,000 thousand TEUs annually, for Ekaterinburg it is 350-450 thousand TEUs, for Novosibirsk and Samara 300-350 thousand TEUs and 200-250 thousand TEUs respectively.
Big Money
– Do you think that such projects are attractive for other private companies?
– Construction of a terminal network in the Russian Federation, in particular of container capacities, attracts many companies nowadays. It is difficult to find a serious company on the market that considers this business non-prospective. But the construction of infrastructure, especially one for transport, is very costly. That is why payback period for warehouses construction investment is five or six years; for container warehouses the term is prolonged to eight years. In this country there is no private company able to carry out a project on terminals network construction single-handedly. Often there is a lack of money for even one terminal. On the other hand, construction of terminals is not a business of logistic companies. It is companies-developers who should go in for it.
– Is there a tendency for consolidation of several transport companies to finance and construct logistic centers?
– There are no such alliances yet and they will hardly appear in the near future, because there is no high margin in this business, and no transport company will share its freight base with anybody. A union of a transport operator (for example, Eurosib) and a warehouse operator (NLC (National Logistics Service), for example) is possible. I know that many projects of terminals envisage such unions; however, such plans have not been fulfilled yet.
Nowadays, a pool of companies specializing in this segment development is being formed (OOO MLP-KAD, for example). This structure seems to have the aim of strengthening its positions in all the key regions for the container market, and it is going to develop projects of terminal infrastructure there. However, now developers lack financial resources, because it is much easier to build a house (where meters can be sold when the foundation has been constructed, thus the recoupment of investments starts very fast) than a container terminal, which needs more money, has a longer recoupment period and another dynamics of investments payback.
– Do foreign investors show their interest in this sector of the market?
– The main problem with container terminals construction is the search for long-term investments. Big sums invested for a long term. There is such money abroad, where there is an institution of structural investors (first of all, pension funds, insuring companies, private funds). Foreign investors are interested in the Russian development market, including terminals. Meanwhile, it is hardly possible to meet the requirements of foreign investors. Nowadays, access of foreign money to such projects is provided by guarantees of largest national business groups. MLP also attracts foreign investments; obviously, the company’s founders give guarantees. Most transport companies have no such guaranties; few of them can cooperate with foreigners due to their turnover. However, the situation has changed for the better. Starting from 2007, the system will be really implemented, and the projects of public-private partnership, especially related to transport infrastructure (Western Speeded-Up Diameter (part of Saint-Petersburg ring road), Orlovsky tunnel, Moscow–Saint-Petersburg highway) will be launched. These projects will give an impulse and create a basis for development of less scaled projects, for example, construction of terminals.
Potential Should Not Be Destroyed
– What are the specific features and the urgent problems arising when developing logistic distribution centers now working on the territory of the Russian Federation?
– The main problem of the country’s freight distribution centers is the lack of block trains, which would connect these centers and ensure proper delivery time. The existing container transportation is provided in accordance with a usual schedule of railway transportation.
The present-day container routes connect ports and places where export freight is generated.
Due to the lack of linear container rail operator inside the country, road vehicles started to transport containers, providing suitable delivery time and prices. As a result, each regional freight center develops according to its own scheme, which depends on the regional freight base and its level. Thus, Saint-Petersburg is oriented at the sea constituent; consequently, the system of port terminals and logistic center develops actively. Taking into account the foreign trade throughput carried to the region from the heart of the country, one of the key transport modes is railway. So, among the main directions of development of the freight distributing center is the construction of a powerful container terminal with railway approaches to it.
Moscow follows the scheme of creating a distribution center of national level; that is why a ring of large logistic settlements is formed there. The most attention is paid to modern distributing warehouses construction. The stake is made on road vehicles, while railway transport is not considered to be a major necessity for the terminals being built. Distribution centers in the Urals and Siberia have a large share of industrial cargoes, which determines the development of railway as a transport constituent. However, a lot of final destinations of cargo are situated far from each other, which stimulates the development of small terminals oriented at servicing cargoes of one or two enterprises.
Thus, without a joint network of container routes, each distributing center develops independently, based on the current freight situation.
– What difficulties do companies who construct their own terminals face?
– I have already mentioned the lack of financial resources. On the whole, the problems of development are the lack and high price of land, the lack of efficient land market, long procedures of areas transfer from one category to another, long procedure of project approval, lack of high-quality construction base.
Among structural limitations, the lack of area and developed engineering infrastructure are most important. Nowadays it is very difficult to purchase area for terminal construction in big cities. Primary investments into such projects cannot be recouped fast because the land in too expensive.
There is no developed market in most regions of the Russian Federation.
There the legislative status of land giving does not meet the requirements of foreign investors.
The lack of engineer infrastructure destroys the potential of an area, because terminals and warehouses need significant capacities of electricity and heat. If there is no sanitation on the territory, it is hardly possible to speak of any construction works on it.
Construction of any real estate object (and terminal infrastructure is, in fact, a specific object of real estate) involves high risks. When investing into terminal infrastructure, risks are much higher than with investments into housing construction. Many investment projects are unprofitable because of administrative bodies, general contractors and suppliers, designers, engineers and architects, and only then – consultants. At the same time, all of them either are not in charge, or do not have enough assets to compensate for investor’s losses.
The main risks when working with administrative bodies are delays of terms of approval, illegal denials or change of decisions made earlier, demand for illegal payments, additional procedures etc. Their share exceeds 50% of the project’s risks. Meanwhile, administrative bodies will not account for the losses. Many projects have been ruined at the stage of draft and approval.
About 40% of losses take place when a project is being carried out. Main risks concerned with construction are frustration of the terms, improper quality and rejection of guarantee services, lack of correspondence with the project and failure to meet obligatory requirements, unforeseeable consequences (soil settlement, water outlet, natural disasters, fire), idling and overtime work caused by irregular financing, and fraud.
Nowadays, in Russia there are few professionals experienced in terminal construction. Their building capacities are much lower than the demand is, so there have been many cases of hiring unfair contractors.
Nowadays, at construction of terminals and warehouses plenty of difficulties are faced. It will take businessmen much time to overcome all of them, if the authorities (federal as well as local ones) do not help. To stimulate the process of investment in terminals and transport infrastructure, regional authorities are to take normative and practical measures aimed at simplifying the procedures of project approval and infrastructural territory development. The case of Saint-Petersburg, where a concept of transport and logistic complex was developed, can be considered an example of such an approach to the problem.
Interviewed by EKATERINA GLAZUNOVA
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[DETAIL_TEXT] => Ruben Terteryan, Director General of OOO Agency of Special Research, comments on the current situation and problems of development of terminals and logistic complexes for containers handling in Russia.
Demand Exceeds the Capacity
– Could you characterize the level of logistic container terminals development in Russia? What are the main tendencies and prospects of container terminal infrastructure development in the country?
– Containerization (I mean, not just a simple increase of container transportation volume, but the increase of the share of such transportation in the world throughput) is a common tendency of transport logistic development. During the last five years the world container turnover grew from 36 million TEUss in 2001 to almost 50 million TEUss in 2005 (38% growth). On the whole, the container transportation market grows by 7.6-8.2% annually. Russia’s role on the container transportation market is not a significant one: the RF total container throughput was 1.7-1.8 million TEUss last year, which makes only 3.6% of the world market. However, the ratio of growth in this country is much higher, i.e. 20.5% annually on average during the last five years, which exceeds the world growth ratio three-fold.
It turned out that we are not ready to such a situation: the infrastructure of container transportation in Russia does not correspond to the current market. Firstly, there is a lack of container terminal capacities to handle all the container freight flow – domestic, as well as the foreign trade one. Nowadays, only 63-67% of foreign trade containerized cargoes are handled at Russian terminals; the remaining volume is handled in the ports of neighbouring countries.
As for the market of domestic container transportation, I believe, it is in its infancy. It is because the most part of domestic container transportation is provided by road hauliers, while the share of railway transport does not exceed 20%. Meanwhile, road hauliers carry containers at the distance of more than 850-1,000 kilometers, which is absurd for developed markets. For example, in Europe the average distance of auto haul is not more that 200-250 km.
Nowadays, railway transport does not play the key role in container transportation. Infrastructure and rolling stock have not been renewed since the Soviet epoch, so they do not meet the modern requirements. However, the lack of containers or platforms is not the main problem – it is possible to construct or purchase them. The reason for the fact that the role of railway transport is not the key one in container transportation is the lack of proper linear container service on the domestic market. It is impossible for a cargo owner not only to get a container to load it, but also, having delivered it to the station, to forecast the term of its delivery to the destination point. Since the cargo is transported not within block trains but in the framework of general transportation process, it significantly prolongs the delivery time. Nowadays, this figure is one of the most important in the work of an enterprise’s logistic system, especially for consumer goods spread via distributing channels.
Nowadays, the minimal term of container delivery by railway is 5-7 days, which does not meet the commercial requirements of delivery time not to exceed three days. That is why most cargo owners prefer to use road hauliers to transport containers to their warehouses.
– But containers are created for convenient multimodal transportation.
– Taking into account the territory of Russia, there is no alternative to the railway; that is why opportunities for creating a real container service at the railway are being discussed.
As for the country’s terminal infrastructure, nowadays container infrastructure, oriented at foreign trade cargoes handling, is actively developing. First of all, it happens in port cities and places, where the main export flows of cargoes for containerization (paper, non-ferrous metals etc.) is generated. The active growth of investments into port infrastructure started at the beginning of the century. In 2005 international sea transportation amounted to 1.67 million TEUss or 92-95% of the country’s container turnover. At the same time, the ratio of containerized import cargo growth was hardly lower than 30% annually during the last 5 years, and it is very prospective. The intensification of the process of port handling and the lack of port areas were the reason for taking value-added logistic services out of the ports to the logistic centers.
That is why, the second stage of the country’s container infrastructure development has started, i.e. investments into the logistic centrs, the functions of which include consolidation/reconsolidation of consignment, cargo servicing, and container depot. Container terminals are constructed in port cities, as well as in places where export goods are produced. One of such terminals has been put into operation in Syktyvkar by Noyzidler company; RUSAL has announced similar projects. In fact, foreign trade transportation by sea is now the locomotive of container transportation market and infrastructure development.
However, containers are still transported by road hauliers from ports. That is why the next stage of infrastructure development will be the construction of large regional container terminals, using railway as the main transport mode, in the heart of the Russian Federation.
At first, the distance between such terminals will be 1,500-2,000 km.; later on, when the national system of container railway routes is developed, it will reduce to 800-1,000 km. Thus, the infrastructure development will move from ports to the heart of the country, and a network of regional and interregional terminals and a system of regional logistic terminals connected with them will be created. Still, this process should be accompanied by a simultaneous formation of the system of container routes between the basic terminals.
Stake on Prospects
– How can the increased attention of private transport companies, such as, for example, Far Eastern Transport Group, National Container Company, Eurosib, Transgarant, and Containerships East, to projects of terminals and multimodal logistic centres construction be explained?
Are these investments reasonable?
– All the companies you mentioned, with the exception of Transgarant, are carrying out projects of logistic centers construction. All of them have different ideas of their development strategies; however, they start to carry out the projects in port cities that generate the basic volume of the freight base. Among these companies, personally, I would distinguish Eurosib and Transgarant, which are working out plans of national terminal network construction. That will enable them to become in future largest domestic container operators, an analogue to sea container lines but inside Russia. Taking into account that in medium-term and long-term outlooks container transportation will continue to increase faster than the total throughput, investments into terminal infrastructure projects with the average investment payback period of six-eight years seem to be very promising.
– What projects are most prospective in the sphere?
– Speaking of the near future (three-five years), the most profitable (with a guaranteed volume of freight base) projects are connected with port and inland container infrastructure construction in the existing or developing ports. Taking into account almost fourfold growth of the country’s container turnover by 2025 (moderate forecast), the existing port infrastructure will not be enough. In particular, this problem will be urgent for the North-Western region of Russia, where over 86% of the international container freight flow to the Russian Federation is delivered.
I believe that construction of regional container terminals in the heart of the country, in those subjects of the Federation that have turned into regional distribution centers – Samara, Ekaterinburg and Novosibirsk, – is also promising. These cities already have a sufficient freight basis to provide such terminals with work.
– Is there any estimation of the potential volumes in acting and designing logistic centers? Which regions of Russia need development of container infrastructure badly?
– There is an estimation of the potential volumes of container throughput in the main centers of the country. As for port cities and sea transportation, everything is quite clear: there are ports statistics. According to these data, last year 1.678 million TEUs was handled, including 1.19 million TEUs (66.7%) in the port of Saint-Petersburg, 223.9 thousand TEUs (13.3%) in the port of Vostochny, 156.7 thousand TEUs (9.3%) in the port of Novorossiysk, and 61 thousand TEUs and 57 thousand TEUs in the ports of Vladivostok and Kaliningrad respectively. The share of other port cities is less than 1%. Thus, in the country the leader is the port of Saint-Petersburg that accumulates 1.19 million TEUs, and about 450 thousand TEUs is handled not far from the city – in the ports of Finland and Baltic states. Far Eastern ports handle about 310 thousand TEUs (port Vostochny is the leader among them).
Inside the country the situation is more complicated. The main volume is concentrated in Moscow, up to 79% of the total container import is delivered there. However, there is no powerful container terminal in Moscow, because cargoes are carried from Moscow, which is the main distributing center in Russia, by road vehicles. That is why the real container throughput inside the country is small. To assess the prospects of container terminals construction, it would be more correct to speak of potential volumes of container freight flow, calculated on the basis of containerized cargo volumes. Our Agency held the analysis of the basic RF regional centers. The forecasted volume of container turnover was calculated using a whole complex of social and economic figures. I can say that the estimation for Moscow is 850-1,000 thousand TEUs annually, for Ekaterinburg it is 350-450 thousand TEUs, for Novosibirsk and Samara 300-350 thousand TEUs and 200-250 thousand TEUs respectively.
Big Money
– Do you think that such projects are attractive for other private companies?
– Construction of a terminal network in the Russian Federation, in particular of container capacities, attracts many companies nowadays. It is difficult to find a serious company on the market that considers this business non-prospective. But the construction of infrastructure, especially one for transport, is very costly. That is why payback period for warehouses construction investment is five or six years; for container warehouses the term is prolonged to eight years. In this country there is no private company able to carry out a project on terminals network construction single-handedly. Often there is a lack of money for even one terminal. On the other hand, construction of terminals is not a business of logistic companies. It is companies-developers who should go in for it.
– Is there a tendency for consolidation of several transport companies to finance and construct logistic centers?
– There are no such alliances yet and they will hardly appear in the near future, because there is no high margin in this business, and no transport company will share its freight base with anybody. A union of a transport operator (for example, Eurosib) and a warehouse operator (NLC (National Logistics Service), for example) is possible. I know that many projects of terminals envisage such unions; however, such plans have not been fulfilled yet.
Nowadays, a pool of companies specializing in this segment development is being formed (OOO MLP-KAD, for example). This structure seems to have the aim of strengthening its positions in all the key regions for the container market, and it is going to develop projects of terminal infrastructure there. However, now developers lack financial resources, because it is much easier to build a house (where meters can be sold when the foundation has been constructed, thus the recoupment of investments starts very fast) than a container terminal, which needs more money, has a longer recoupment period and another dynamics of investments payback.
– Do foreign investors show their interest in this sector of the market?
– The main problem with container terminals construction is the search for long-term investments. Big sums invested for a long term. There is such money abroad, where there is an institution of structural investors (first of all, pension funds, insuring companies, private funds). Foreign investors are interested in the Russian development market, including terminals. Meanwhile, it is hardly possible to meet the requirements of foreign investors. Nowadays, access of foreign money to such projects is provided by guarantees of largest national business groups. MLP also attracts foreign investments; obviously, the company’s founders give guarantees. Most transport companies have no such guaranties; few of them can cooperate with foreigners due to their turnover. However, the situation has changed for the better. Starting from 2007, the system will be really implemented, and the projects of public-private partnership, especially related to transport infrastructure (Western Speeded-Up Diameter (part of Saint-Petersburg ring road), Orlovsky tunnel, Moscow–Saint-Petersburg highway) will be launched. These projects will give an impulse and create a basis for development of less scaled projects, for example, construction of terminals.
Potential Should Not Be Destroyed
– What are the specific features and the urgent problems arising when developing logistic distribution centers now working on the territory of the Russian Federation?
– The main problem of the country’s freight distribution centers is the lack of block trains, which would connect these centers and ensure proper delivery time. The existing container transportation is provided in accordance with a usual schedule of railway transportation.
The present-day container routes connect ports and places where export freight is generated.
Due to the lack of linear container rail operator inside the country, road vehicles started to transport containers, providing suitable delivery time and prices. As a result, each regional freight center develops according to its own scheme, which depends on the regional freight base and its level. Thus, Saint-Petersburg is oriented at the sea constituent; consequently, the system of port terminals and logistic center develops actively. Taking into account the foreign trade throughput carried to the region from the heart of the country, one of the key transport modes is railway. So, among the main directions of development of the freight distributing center is the construction of a powerful container terminal with railway approaches to it.
Moscow follows the scheme of creating a distribution center of national level; that is why a ring of large logistic settlements is formed there. The most attention is paid to modern distributing warehouses construction. The stake is made on road vehicles, while railway transport is not considered to be a major necessity for the terminals being built. Distribution centers in the Urals and Siberia have a large share of industrial cargoes, which determines the development of railway as a transport constituent. However, a lot of final destinations of cargo are situated far from each other, which stimulates the development of small terminals oriented at servicing cargoes of one or two enterprises.
Thus, without a joint network of container routes, each distributing center develops independently, based on the current freight situation.
– What difficulties do companies who construct their own terminals face?
– I have already mentioned the lack of financial resources. On the whole, the problems of development are the lack and high price of land, the lack of efficient land market, long procedures of areas transfer from one category to another, long procedure of project approval, lack of high-quality construction base.
Among structural limitations, the lack of area and developed engineering infrastructure are most important. Nowadays it is very difficult to purchase area for terminal construction in big cities. Primary investments into such projects cannot be recouped fast because the land in too expensive.
There is no developed market in most regions of the Russian Federation.
There the legislative status of land giving does not meet the requirements of foreign investors.
The lack of engineer infrastructure destroys the potential of an area, because terminals and warehouses need significant capacities of electricity and heat. If there is no sanitation on the territory, it is hardly possible to speak of any construction works on it.
Construction of any real estate object (and terminal infrastructure is, in fact, a specific object of real estate) involves high risks. When investing into terminal infrastructure, risks are much higher than with investments into housing construction. Many investment projects are unprofitable because of administrative bodies, general contractors and suppliers, designers, engineers and architects, and only then – consultants. At the same time, all of them either are not in charge, or do not have enough assets to compensate for investor’s losses.
The main risks when working with administrative bodies are delays of terms of approval, illegal denials or change of decisions made earlier, demand for illegal payments, additional procedures etc. Their share exceeds 50% of the project’s risks. Meanwhile, administrative bodies will not account for the losses. Many projects have been ruined at the stage of draft and approval.
About 40% of losses take place when a project is being carried out. Main risks concerned with construction are frustration of the terms, improper quality and rejection of guarantee services, lack of correspondence with the project and failure to meet obligatory requirements, unforeseeable consequences (soil settlement, water outlet, natural disasters, fire), idling and overtime work caused by irregular financing, and fraud.
Nowadays, in Russia there are few professionals experienced in terminal construction. Their building capacities are much lower than the demand is, so there have been many cases of hiring unfair contractors.
Nowadays, at construction of terminals and warehouses plenty of difficulties are faced. It will take businessmen much time to overcome all of them, if the authorities (federal as well as local ones) do not help. To stimulate the process of investment in terminals and transport infrastructure, regional authorities are to take normative and practical measures aimed at simplifying the procedures of project approval and infrastructural territory development. The case of Saint-Petersburg, where a concept of transport and logistic complex was developed, can be considered an example of such an approach to the problem.
Interviewed by EKATERINA GLAZUNOVA
[~DETAIL_TEXT] => Ruben Terteryan, Director General of OOO Agency of Special Research, comments on the current situation and problems of development of terminals and logistic complexes for containers handling in Russia.
Demand Exceeds the Capacity
– Could you characterize the level of logistic container terminals development in Russia? What are the main tendencies and prospects of container terminal infrastructure development in the country?
– Containerization (I mean, not just a simple increase of container transportation volume, but the increase of the share of such transportation in the world throughput) is a common tendency of transport logistic development. During the last five years the world container turnover grew from 36 million TEUss in 2001 to almost 50 million TEUss in 2005 (38% growth). On the whole, the container transportation market grows by 7.6-8.2% annually. Russia’s role on the container transportation market is not a significant one: the RF total container throughput was 1.7-1.8 million TEUss last year, which makes only 3.6% of the world market. However, the ratio of growth in this country is much higher, i.e. 20.5% annually on average during the last five years, which exceeds the world growth ratio three-fold.
It turned out that we are not ready to such a situation: the infrastructure of container transportation in Russia does not correspond to the current market. Firstly, there is a lack of container terminal capacities to handle all the container freight flow – domestic, as well as the foreign trade one. Nowadays, only 63-67% of foreign trade containerized cargoes are handled at Russian terminals; the remaining volume is handled in the ports of neighbouring countries.
As for the market of domestic container transportation, I believe, it is in its infancy. It is because the most part of domestic container transportation is provided by road hauliers, while the share of railway transport does not exceed 20%. Meanwhile, road hauliers carry containers at the distance of more than 850-1,000 kilometers, which is absurd for developed markets. For example, in Europe the average distance of auto haul is not more that 200-250 km.
Nowadays, railway transport does not play the key role in container transportation. Infrastructure and rolling stock have not been renewed since the Soviet epoch, so they do not meet the modern requirements. However, the lack of containers or platforms is not the main problem – it is possible to construct or purchase them. The reason for the fact that the role of railway transport is not the key one in container transportation is the lack of proper linear container service on the domestic market. It is impossible for a cargo owner not only to get a container to load it, but also, having delivered it to the station, to forecast the term of its delivery to the destination point. Since the cargo is transported not within block trains but in the framework of general transportation process, it significantly prolongs the delivery time. Nowadays, this figure is one of the most important in the work of an enterprise’s logistic system, especially for consumer goods spread via distributing channels.
Nowadays, the minimal term of container delivery by railway is 5-7 days, which does not meet the commercial requirements of delivery time not to exceed three days. That is why most cargo owners prefer to use road hauliers to transport containers to their warehouses.
– But containers are created for convenient multimodal transportation.
– Taking into account the territory of Russia, there is no alternative to the railway; that is why opportunities for creating a real container service at the railway are being discussed.
As for the country’s terminal infrastructure, nowadays container infrastructure, oriented at foreign trade cargoes handling, is actively developing. First of all, it happens in port cities and places, where the main export flows of cargoes for containerization (paper, non-ferrous metals etc.) is generated. The active growth of investments into port infrastructure started at the beginning of the century. In 2005 international sea transportation amounted to 1.67 million TEUss or 92-95% of the country’s container turnover. At the same time, the ratio of containerized import cargo growth was hardly lower than 30% annually during the last 5 years, and it is very prospective. The intensification of the process of port handling and the lack of port areas were the reason for taking value-added logistic services out of the ports to the logistic centers.
That is why, the second stage of the country’s container infrastructure development has started, i.e. investments into the logistic centrs, the functions of which include consolidation/reconsolidation of consignment, cargo servicing, and container depot. Container terminals are constructed in port cities, as well as in places where export goods are produced. One of such terminals has been put into operation in Syktyvkar by Noyzidler company; RUSAL has announced similar projects. In fact, foreign trade transportation by sea is now the locomotive of container transportation market and infrastructure development.
However, containers are still transported by road hauliers from ports. That is why the next stage of infrastructure development will be the construction of large regional container terminals, using railway as the main transport mode, in the heart of the Russian Federation.
At first, the distance between such terminals will be 1,500-2,000 km.; later on, when the national system of container railway routes is developed, it will reduce to 800-1,000 km. Thus, the infrastructure development will move from ports to the heart of the country, and a network of regional and interregional terminals and a system of regional logistic terminals connected with them will be created. Still, this process should be accompanied by a simultaneous formation of the system of container routes between the basic terminals.
Stake on Prospects
– How can the increased attention of private transport companies, such as, for example, Far Eastern Transport Group, National Container Company, Eurosib, Transgarant, and Containerships East, to projects of terminals and multimodal logistic centres construction be explained?
Are these investments reasonable?
– All the companies you mentioned, with the exception of Transgarant, are carrying out projects of logistic centers construction. All of them have different ideas of their development strategies; however, they start to carry out the projects in port cities that generate the basic volume of the freight base. Among these companies, personally, I would distinguish Eurosib and Transgarant, which are working out plans of national terminal network construction. That will enable them to become in future largest domestic container operators, an analogue to sea container lines but inside Russia. Taking into account that in medium-term and long-term outlooks container transportation will continue to increase faster than the total throughput, investments into terminal infrastructure projects with the average investment payback period of six-eight years seem to be very promising.
– What projects are most prospective in the sphere?
– Speaking of the near future (three-five years), the most profitable (with a guaranteed volume of freight base) projects are connected with port and inland container infrastructure construction in the existing or developing ports. Taking into account almost fourfold growth of the country’s container turnover by 2025 (moderate forecast), the existing port infrastructure will not be enough. In particular, this problem will be urgent for the North-Western region of Russia, where over 86% of the international container freight flow to the Russian Federation is delivered.
I believe that construction of regional container terminals in the heart of the country, in those subjects of the Federation that have turned into regional distribution centers – Samara, Ekaterinburg and Novosibirsk, – is also promising. These cities already have a sufficient freight basis to provide such terminals with work.
– Is there any estimation of the potential volumes in acting and designing logistic centers? Which regions of Russia need development of container infrastructure badly?
– There is an estimation of the potential volumes of container throughput in the main centers of the country. As for port cities and sea transportation, everything is quite clear: there are ports statistics. According to these data, last year 1.678 million TEUs was handled, including 1.19 million TEUs (66.7%) in the port of Saint-Petersburg, 223.9 thousand TEUs (13.3%) in the port of Vostochny, 156.7 thousand TEUs (9.3%) in the port of Novorossiysk, and 61 thousand TEUs and 57 thousand TEUs in the ports of Vladivostok and Kaliningrad respectively. The share of other port cities is less than 1%. Thus, in the country the leader is the port of Saint-Petersburg that accumulates 1.19 million TEUs, and about 450 thousand TEUs is handled not far from the city – in the ports of Finland and Baltic states. Far Eastern ports handle about 310 thousand TEUs (port Vostochny is the leader among them).
Inside the country the situation is more complicated. The main volume is concentrated in Moscow, up to 79% of the total container import is delivered there. However, there is no powerful container terminal in Moscow, because cargoes are carried from Moscow, which is the main distributing center in Russia, by road vehicles. That is why the real container throughput inside the country is small. To assess the prospects of container terminals construction, it would be more correct to speak of potential volumes of container freight flow, calculated on the basis of containerized cargo volumes. Our Agency held the analysis of the basic RF regional centers. The forecasted volume of container turnover was calculated using a whole complex of social and economic figures. I can say that the estimation for Moscow is 850-1,000 thousand TEUs annually, for Ekaterinburg it is 350-450 thousand TEUs, for Novosibirsk and Samara 300-350 thousand TEUs and 200-250 thousand TEUs respectively.
Big Money
– Do you think that such projects are attractive for other private companies?
– Construction of a terminal network in the Russian Federation, in particular of container capacities, attracts many companies nowadays. It is difficult to find a serious company on the market that considers this business non-prospective. But the construction of infrastructure, especially one for transport, is very costly. That is why payback period for warehouses construction investment is five or six years; for container warehouses the term is prolonged to eight years. In this country there is no private company able to carry out a project on terminals network construction single-handedly. Often there is a lack of money for even one terminal. On the other hand, construction of terminals is not a business of logistic companies. It is companies-developers who should go in for it.
– Is there a tendency for consolidation of several transport companies to finance and construct logistic centers?
– There are no such alliances yet and they will hardly appear in the near future, because there is no high margin in this business, and no transport company will share its freight base with anybody. A union of a transport operator (for example, Eurosib) and a warehouse operator (NLC (National Logistics Service), for example) is possible. I know that many projects of terminals envisage such unions; however, such plans have not been fulfilled yet.
Nowadays, a pool of companies specializing in this segment development is being formed (OOO MLP-KAD, for example). This structure seems to have the aim of strengthening its positions in all the key regions for the container market, and it is going to develop projects of terminal infrastructure there. However, now developers lack financial resources, because it is much easier to build a house (where meters can be sold when the foundation has been constructed, thus the recoupment of investments starts very fast) than a container terminal, which needs more money, has a longer recoupment period and another dynamics of investments payback.
– Do foreign investors show their interest in this sector of the market?
– The main problem with container terminals construction is the search for long-term investments. Big sums invested for a long term. There is such money abroad, where there is an institution of structural investors (first of all, pension funds, insuring companies, private funds). Foreign investors are interested in the Russian development market, including terminals. Meanwhile, it is hardly possible to meet the requirements of foreign investors. Nowadays, access of foreign money to such projects is provided by guarantees of largest national business groups. MLP also attracts foreign investments; obviously, the company’s founders give guarantees. Most transport companies have no such guaranties; few of them can cooperate with foreigners due to their turnover. However, the situation has changed for the better. Starting from 2007, the system will be really implemented, and the projects of public-private partnership, especially related to transport infrastructure (Western Speeded-Up Diameter (part of Saint-Petersburg ring road), Orlovsky tunnel, Moscow–Saint-Petersburg highway) will be launched. These projects will give an impulse and create a basis for development of less scaled projects, for example, construction of terminals.
Potential Should Not Be Destroyed
– What are the specific features and the urgent problems arising when developing logistic distribution centers now working on the territory of the Russian Federation?
– The main problem of the country’s freight distribution centers is the lack of block trains, which would connect these centers and ensure proper delivery time. The existing container transportation is provided in accordance with a usual schedule of railway transportation.
The present-day container routes connect ports and places where export freight is generated.
Due to the lack of linear container rail operator inside the country, road vehicles started to transport containers, providing suitable delivery time and prices. As a result, each regional freight center develops according to its own scheme, which depends on the regional freight base and its level. Thus, Saint-Petersburg is oriented at the sea constituent; consequently, the system of port terminals and logistic center develops actively. Taking into account the foreign trade throughput carried to the region from the heart of the country, one of the key transport modes is railway. So, among the main directions of development of the freight distributing center is the construction of a powerful container terminal with railway approaches to it.
Moscow follows the scheme of creating a distribution center of national level; that is why a ring of large logistic settlements is formed there. The most attention is paid to modern distributing warehouses construction. The stake is made on road vehicles, while railway transport is not considered to be a major necessity for the terminals being built. Distribution centers in the Urals and Siberia have a large share of industrial cargoes, which determines the development of railway as a transport constituent. However, a lot of final destinations of cargo are situated far from each other, which stimulates the development of small terminals oriented at servicing cargoes of one or two enterprises.
Thus, without a joint network of container routes, each distributing center develops independently, based on the current freight situation.
– What difficulties do companies who construct their own terminals face?
– I have already mentioned the lack of financial resources. On the whole, the problems of development are the lack and high price of land, the lack of efficient land market, long procedures of areas transfer from one category to another, long procedure of project approval, lack of high-quality construction base.
Among structural limitations, the lack of area and developed engineering infrastructure are most important. Nowadays it is very difficult to purchase area for terminal construction in big cities. Primary investments into such projects cannot be recouped fast because the land in too expensive.
There is no developed market in most regions of the Russian Federation.
There the legislative status of land giving does not meet the requirements of foreign investors.
The lack of engineer infrastructure destroys the potential of an area, because terminals and warehouses need significant capacities of electricity and heat. If there is no sanitation on the territory, it is hardly possible to speak of any construction works on it.
Construction of any real estate object (and terminal infrastructure is, in fact, a specific object of real estate) involves high risks. When investing into terminal infrastructure, risks are much higher than with investments into housing construction. Many investment projects are unprofitable because of administrative bodies, general contractors and suppliers, designers, engineers and architects, and only then – consultants. At the same time, all of them either are not in charge, or do not have enough assets to compensate for investor’s losses.
The main risks when working with administrative bodies are delays of terms of approval, illegal denials or change of decisions made earlier, demand for illegal payments, additional procedures etc. Their share exceeds 50% of the project’s risks. Meanwhile, administrative bodies will not account for the losses. Many projects have been ruined at the stage of draft and approval.
About 40% of losses take place when a project is being carried out. Main risks concerned with construction are frustration of the terms, improper quality and rejection of guarantee services, lack of correspondence with the project and failure to meet obligatory requirements, unforeseeable consequences (soil settlement, water outlet, natural disasters, fire), idling and overtime work caused by irregular financing, and fraud.
Nowadays, in Russia there are few professionals experienced in terminal construction. Their building capacities are much lower than the demand is, so there have been many cases of hiring unfair contractors.
Nowadays, at construction of terminals and warehouses plenty of difficulties are faced. It will take businessmen much time to overcome all of them, if the authorities (federal as well as local ones) do not help. To stimulate the process of investment in terminals and transport infrastructure, regional authorities are to take normative and practical measures aimed at simplifying the procedures of project approval and infrastructural territory development. The case of Saint-Petersburg, where a concept of transport and logistic complex was developed, can be considered an example of such an approach to the problem.
Interviewed by EKATERINA GLAZUNOVA
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Due to Domestic Consumption
According to the analysts of OAO RZD, having beaten the preliminary forecasts, the results of the first half of 2006 were a surprise, which can be explained by a favourable situation on the domestic market. The forecast of ferrous metals transportation volume on Russian railways for 2006 was based on the forecast of the RF Ministry of Economic Development and Trade, which only envisaged a stabilization or slight growth of metal production this year. However, due to the increase of capital construction and machine building volumes, and the new directions of export deliveries to European countries (the tendency became especially noticeable in May 2006), the produce of ferrous metals and goods made of them has been constantly growing, and thus their loading on the railway transport increases.
As a result, in 2005 the loading of freight metallurgy products for domestic transportation increased by 1.3% year-on-year; in H1 of 2006 analysts said that the figure grew by 8.2% year-on-year. Thus, the share of ferrous metals delivered to the Russian market reduced. Traditionally, 50% ferrous metal products are delivered to the domestic market and the rest 50% – to foreign markets; nowadays the ratio is 52.3% and 47.7% respectively. OAO Severstal increased the volume of ferrous metals transportation by 25.8%, OAO Magnitogorsk Iron and Steel Works increased the volume by 17.3%, OAO Novolipetsky Metallurgical Mill and OAO Chelyabinsk Metallurgical Enterprise increased the volume by 21.6% and by 16.1% respectively.
The ratio of iron ore is completely different: 80% is carried inside the country and only 20% is exported. However, several years ago the export share of iron ore in the loading structure was much smaller. Exporters’ activity was provided by powerful development of steel-casting production in China, as a result Russian producers did succeed in concluding profitable contracts for iron ore delivery to China.
Nowadays, the ratio remains the same, but the dynamics of domestic iron ore loading and transportation amounted to 1.3% in H1 of 2006.
Analyzing the situation from the export standpoint, iron ore transportation market seems to be more stable than that of ferrous metals. In 2005, the volume of iron ore exported by railway increased by 6.5%; the figure grew by 5.1% in H1 of 2006. On the foreign market for ferrous metal cargoes the situation changed completely. In 2005, the export of ferrous metals transported by railway reduced by 3.1%, while in H1 of 2006 the growth in the sector amounted to 4.5%.
At the end of 2005, most representatives of Russian metallurgical holding companies said that one of the reasons for it was a non-balanced policy of tariffs on freight transportation by Russian railways. Metallurgists said that the universal approach to tariff formation is inaccessible, taking into account the distant location of main enterprises from the markets and key border crossings.
Nowadays, about 72% of ferrous metals is exported via Russian ports, the rest is transported to border crossings. However, according to the results of 2005, the ratio was 82.2% and 17.8%. Thus, since the beginning of 2006 ferrous metals transportation to Russian ports reduced by 10%. Analysts point at the fact that only 91.2% of the total Russian terminals’ capacities is used; however, in practice the terminals are loaded irregularly. Thus, the volume of ferrous metals delivered to the ports at the Black Sea and the Azov Sea exceeds the capacities of the ports by 33%. Meanwhile, only 78% of the capacities of North-Western region ports and 64% of the capacities of the Far Eastern ports are loaded. And it is railway tariffs that are the reason for it.
Last year it became obvious that ferrous metals are leaving the Far Eastern ports and getting re-oriented to the ports of other basins. Are railway tariffs the real reason for it? Analysts claim that a number of privileged tariffs was implemented in 2005 to stimulate freight transportation in that direction, so the main reason is the reduction of business activity in terms of Russian ferrous metallurgy products consumption on the Chinese market (according to the data of OAO RZD, export of ferrous metals to China reduced by 12.2% in H1 of 2006), which the majority of ferrous metals handled in the ports of the Far Eastern region was destined for.
It is proved by OAO RZD’s analysis of the situation, which confirmed the changes on the world market of ferrous metallurgy that will influence the geography of ferrous metals export.
Prospects of Export
According to the Department of Market Situation Analysis of OAO RZD, nowadays on the world market of ferrous metals there is a significant gap in prices between on the one hand, the Western European and North American markets, and, on the other hand, the East-Asian markets.
At the same time, the key factor on the steel semi-finished products market is the reduction of business activity in Eastern Asia that provoked a price decrease in Asia and in the Middle East. Because of the lack of demand for their production, the Chinese exporters of steel semi-finished products had to compromise with customers. If in the first half of July 2006 the long-length semi-finished products produced in China were sold at a price of USD 400-410 per ton in South-Eastern Asia (including charter), in the second half of the month the price reduced to USD 390-400 per ton. Moreover, the semi-finished products cost USD 380 per ton in Korea, but even this price is not low enough to stimulate the customer demand.
On the market of the Middle East, the increased volumes of steel semi-finished products from China caused a reduction of price for them. Thus, the price for Russian and Ukrainian semi-finished products was about USD 400 per ton (excluding charter). Similar Turkish production cost USD 440-460 per ton (excluding charter rates); however, real contracts on its delivery are concluded on terms more profitable for the client.
The situation on the slab market has not changed: prices continue to reduce in the East Asian countries, while in Europe and the USA they remain very high. Because of the reduction of demand and prices for hot-rolled reels, the prices remain very low on the East-Asian market of slabs. The second week running, the prices for the type of steel semi-finished products make USD 450-490 per ton (including charter) at the minimal level of supply. The most part of world export deliveries of slabs is provided in the USA and the EU, where they cost about USD 550 per ton (including charter). Slabs produced in Russia are delivered at the price of over USD 500 per ton (excluding charter). On the whole, experts say that there is a lack of slabs on the world market, which started in Q2 of 2006, in spite of the re-launch Brazilian metallurgical enterprise CSN and Japanese companies that were out of the market for several months. According to forecasts, the shortage on the market will be liquidated only in autumn, and then the prices for slabs may reduce slightly.
A similar situation takes place on the market of structural steel, where there is a price differentiation in accordance with the region: in the EU and the USA prices are growing, while in the countries of Eastern Asia their level remains low. On the East-Asian market Taiwanese and Thailand metallurgical companies brought an antidumping suit against the Chinese suppliers of rolled wire, which had significantly increased its import volumes. Nowadays, the price for Chinese rolled wire is about USD 430 per tons in Korea and Taiwan (including charter). The enlargement of import supplies of long-length rolled metal from China to the markets of the Middle East makes exporters from other countries reduce prices of similar production. For example, reinforcement and rolled wire from Turkey is sold at a price of USD 520-550 per ton on the Middle East market (excluding charter). Prices for the produce of Russian and Ukrainian enterprises amount to USD 430-440 per ton (excluding charter). On the European market, prices for reinforcement make EUR 440-460 per ton (on European plants), and similar import production is sold at a price of EUR 460 per ton (including charter). At the same time, the demand for structural steel and consumers’ activity have reduced. However, producers are optimistic and believe that prices, especially for sheet products and steel sections, will continue growing in August. On the North American market producers failed to obtain the agreement of consumers to increase the prices for reinforcement and sheet products. However, several leading metallurgical companies there have already announced about a 4-5% increase of prices for rolled wire. It can be explained by the antidumping dues, which are still in force in the USA and the protect interests of local producers.
On the market of sheet steel, the tendencies are different. In Europe and the USA the prices are either stable or slightly growing. On the East-Asian market the prices for mass sorts of flat rolled metal decreased because of the overproduction of flat rolled metal in China. In particular, prices for hot-rolled reels amount to USD 510-540 per ton (excluding charter). On the whole, since the beginning of August, the prices for many types of Chinese sheet rolled metal have reduced by USD 50 per ton in the region. Meanwhile, the prices are reducing for mass types of flat steel referring to the metallurgical low processing produce, while the cost of higher quality rolled metal grows. For example, Japanese metallurgical companies announced that they are going to increase by 10% the prices for flat produce delivered directly to automobile plants. At the same time, the Japanese metallurgical company JFE announced its intention to increase by 20% (to USD 680 per ton) prices for shipbuilding steel delivered to Korea (excluding charter).
On the European market business activity is reducing. Prices for import hot-rolled reels amount to EUR 500 per ton, and similar production of Russian enterprises is sold in the EU countries at a cost of EUR 580-620 per ton (excluding charter). According to the data of the EU customs bodies, the Russian Federation had used about 75% of its quota for 2006 by the beginning of July. So, according to forecasts, supplies of Russian export metal produce may be re-oriented from the European market to the market of the USA in the near future. Meanwhile, European metallurgical companies have announced an increase of prices for flat rolled metal in Q4 of 2006. They believe, there remains a shortage of flat steel in the region, and the local producers of flat rolled metal are provided with contracts for the next several months.
The prices on the stainless rolled metal market remain high. In the East-Asian countries, some regional producers of stainless steel announced an increase of prices in August 2006. In particular, the Japanese metallurgical company Nisshin Steel announced that it will raise by 10% prices for light stainless flat; the Korean metallurgical company Posco increased prices for the whole range of its production from special sorts of steel by 9-10% in July. Prices grow on the Chinese domestic market too in spite of overproduction (that becam e even more intense after a new enterprise of Korean metallurgical company Posco, with the annual capacity of 600 thousand tons, was put into operation). For example, the Chinese metallurgical company Taiyuan Steel announced a 5% increase of the cost of its stainless production. At the same time, to stabilize the market, several leading Chinese producers of stainless steel, including Posco’s branch company, announced a 20% reduction of steel output. On the European market of stainless rolled metal, local producers have already set the August prices and are not going to change them. Thus, in Europe since the beginning of August the price for cold-rolled stainless steel amounts to EUR 2,800-2,850 per ton (3-4% up month-on-month).
Prices for ferrous metals scrap continue to reduce. Most metallurgical companies of the Mediterranean and East Asian countries have stopped purchases, which reduced the price. At the Mediterranean market the price for metal scrap from the CIS and European countries is USD 280 per ton (including charter). Prices also reduced on the Asian market. In particular, Japanese steel mills decreased the purchasing prices for metal scrap by 6-7% to USD 223-236 per ton (including delivery).
Thus, export prices for ferrous metal scrap reduced in the region. For example, Taiwanese companies buy scrap at USD 265 per ton (including charter), 7% down year-on-year. Experts believe that on the world market the supply volume is very large, so when consumers recommence purchases, prices may be back to the previous level.
Summing up all the facts, the current tendencies on the world market of metallurgical produce contribute to the re-orientation of export flows of Russian metal produce from the Asian market to the markets of the EU and the USA. Meanwhile, in the near future Russian metal produce may be re-oriented from the European to the USA market.
ZLATA YASENEVA
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Due to Domestic Consumption
According to the analysts of OAO RZD, having beaten the preliminary forecasts, the results of the first half of 2006 were a surprise, which can be explained by a favourable situation on the domestic market. The forecast of ferrous metals transportation volume on Russian railways for 2006 was based on the forecast of the RF Ministry of Economic Development and Trade, which only envisaged a stabilization or slight growth of metal production this year. However, due to the increase of capital construction and machine building volumes, and the new directions of export deliveries to European countries (the tendency became especially noticeable in May 2006), the produce of ferrous metals and goods made of them has been constantly growing, and thus their loading on the railway transport increases.
As a result, in 2005 the loading of freight metallurgy products for domestic transportation increased by 1.3% year-on-year; in H1 of 2006 analysts said that the figure grew by 8.2% year-on-year. Thus, the share of ferrous metals delivered to the Russian market reduced. Traditionally, 50% ferrous metal products are delivered to the domestic market and the rest 50% – to foreign markets; nowadays the ratio is 52.3% and 47.7% respectively. OAO Severstal increased the volume of ferrous metals transportation by 25.8%, OAO Magnitogorsk Iron and Steel Works increased the volume by 17.3%, OAO Novolipetsky Metallurgical Mill and OAO Chelyabinsk Metallurgical Enterprise increased the volume by 21.6% and by 16.1% respectively.
The ratio of iron ore is completely different: 80% is carried inside the country and only 20% is exported. However, several years ago the export share of iron ore in the loading structure was much smaller. Exporters’ activity was provided by powerful development of steel-casting production in China, as a result Russian producers did succeed in concluding profitable contracts for iron ore delivery to China.
Nowadays, the ratio remains the same, but the dynamics of domestic iron ore loading and transportation amounted to 1.3% in H1 of 2006.
Analyzing the situation from the export standpoint, iron ore transportation market seems to be more stable than that of ferrous metals. In 2005, the volume of iron ore exported by railway increased by 6.5%; the figure grew by 5.1% in H1 of 2006. On the foreign market for ferrous metal cargoes the situation changed completely. In 2005, the export of ferrous metals transported by railway reduced by 3.1%, while in H1 of 2006 the growth in the sector amounted to 4.5%.
At the end of 2005, most representatives of Russian metallurgical holding companies said that one of the reasons for it was a non-balanced policy of tariffs on freight transportation by Russian railways. Metallurgists said that the universal approach to tariff formation is inaccessible, taking into account the distant location of main enterprises from the markets and key border crossings.
Nowadays, about 72% of ferrous metals is exported via Russian ports, the rest is transported to border crossings. However, according to the results of 2005, the ratio was 82.2% and 17.8%. Thus, since the beginning of 2006 ferrous metals transportation to Russian ports reduced by 10%. Analysts point at the fact that only 91.2% of the total Russian terminals’ capacities is used; however, in practice the terminals are loaded irregularly. Thus, the volume of ferrous metals delivered to the ports at the Black Sea and the Azov Sea exceeds the capacities of the ports by 33%. Meanwhile, only 78% of the capacities of North-Western region ports and 64% of the capacities of the Far Eastern ports are loaded. And it is railway tariffs that are the reason for it.
Last year it became obvious that ferrous metals are leaving the Far Eastern ports and getting re-oriented to the ports of other basins. Are railway tariffs the real reason for it? Analysts claim that a number of privileged tariffs was implemented in 2005 to stimulate freight transportation in that direction, so the main reason is the reduction of business activity in terms of Russian ferrous metallurgy products consumption on the Chinese market (according to the data of OAO RZD, export of ferrous metals to China reduced by 12.2% in H1 of 2006), which the majority of ferrous metals handled in the ports of the Far Eastern region was destined for.
It is proved by OAO RZD’s analysis of the situation, which confirmed the changes on the world market of ferrous metallurgy that will influence the geography of ferrous metals export.
Prospects of Export
According to the Department of Market Situation Analysis of OAO RZD, nowadays on the world market of ferrous metals there is a significant gap in prices between on the one hand, the Western European and North American markets, and, on the other hand, the East-Asian markets.
At the same time, the key factor on the steel semi-finished products market is the reduction of business activity in Eastern Asia that provoked a price decrease in Asia and in the Middle East. Because of the lack of demand for their production, the Chinese exporters of steel semi-finished products had to compromise with customers. If in the first half of July 2006 the long-length semi-finished products produced in China were sold at a price of USD 400-410 per ton in South-Eastern Asia (including charter), in the second half of the month the price reduced to USD 390-400 per ton. Moreover, the semi-finished products cost USD 380 per ton in Korea, but even this price is not low enough to stimulate the customer demand.
On the market of the Middle East, the increased volumes of steel semi-finished products from China caused a reduction of price for them. Thus, the price for Russian and Ukrainian semi-finished products was about USD 400 per ton (excluding charter). Similar Turkish production cost USD 440-460 per ton (excluding charter rates); however, real contracts on its delivery are concluded on terms more profitable for the client.
The situation on the slab market has not changed: prices continue to reduce in the East Asian countries, while in Europe and the USA they remain very high. Because of the reduction of demand and prices for hot-rolled reels, the prices remain very low on the East-Asian market of slabs. The second week running, the prices for the type of steel semi-finished products make USD 450-490 per ton (including charter) at the minimal level of supply. The most part of world export deliveries of slabs is provided in the USA and the EU, where they cost about USD 550 per ton (including charter). Slabs produced in Russia are delivered at the price of over USD 500 per ton (excluding charter). On the whole, experts say that there is a lack of slabs on the world market, which started in Q2 of 2006, in spite of the re-launch Brazilian metallurgical enterprise CSN and Japanese companies that were out of the market for several months. According to forecasts, the shortage on the market will be liquidated only in autumn, and then the prices for slabs may reduce slightly.
A similar situation takes place on the market of structural steel, where there is a price differentiation in accordance with the region: in the EU and the USA prices are growing, while in the countries of Eastern Asia their level remains low. On the East-Asian market Taiwanese and Thailand metallurgical companies brought an antidumping suit against the Chinese suppliers of rolled wire, which had significantly increased its import volumes. Nowadays, the price for Chinese rolled wire is about USD 430 per tons in Korea and Taiwan (including charter). The enlargement of import supplies of long-length rolled metal from China to the markets of the Middle East makes exporters from other countries reduce prices of similar production. For example, reinforcement and rolled wire from Turkey is sold at a price of USD 520-550 per ton on the Middle East market (excluding charter). Prices for the produce of Russian and Ukrainian enterprises amount to USD 430-440 per ton (excluding charter). On the European market, prices for reinforcement make EUR 440-460 per ton (on European plants), and similar import production is sold at a price of EUR 460 per ton (including charter). At the same time, the demand for structural steel and consumers’ activity have reduced. However, producers are optimistic and believe that prices, especially for sheet products and steel sections, will continue growing in August. On the North American market producers failed to obtain the agreement of consumers to increase the prices for reinforcement and sheet products. However, several leading metallurgical companies there have already announced about a 4-5% increase of prices for rolled wire. It can be explained by the antidumping dues, which are still in force in the USA and the protect interests of local producers.
On the market of sheet steel, the tendencies are different. In Europe and the USA the prices are either stable or slightly growing. On the East-Asian market the prices for mass sorts of flat rolled metal decreased because of the overproduction of flat rolled metal in China. In particular, prices for hot-rolled reels amount to USD 510-540 per ton (excluding charter). On the whole, since the beginning of August, the prices for many types of Chinese sheet rolled metal have reduced by USD 50 per ton in the region. Meanwhile, the prices are reducing for mass types of flat steel referring to the metallurgical low processing produce, while the cost of higher quality rolled metal grows. For example, Japanese metallurgical companies announced that they are going to increase by 10% the prices for flat produce delivered directly to automobile plants. At the same time, the Japanese metallurgical company JFE announced its intention to increase by 20% (to USD 680 per ton) prices for shipbuilding steel delivered to Korea (excluding charter).
On the European market business activity is reducing. Prices for import hot-rolled reels amount to EUR 500 per ton, and similar production of Russian enterprises is sold in the EU countries at a cost of EUR 580-620 per ton (excluding charter). According to the data of the EU customs bodies, the Russian Federation had used about 75% of its quota for 2006 by the beginning of July. So, according to forecasts, supplies of Russian export metal produce may be re-oriented from the European market to the market of the USA in the near future. Meanwhile, European metallurgical companies have announced an increase of prices for flat rolled metal in Q4 of 2006. They believe, there remains a shortage of flat steel in the region, and the local producers of flat rolled metal are provided with contracts for the next several months.
The prices on the stainless rolled metal market remain high. In the East-Asian countries, some regional producers of stainless steel announced an increase of prices in August 2006. In particular, the Japanese metallurgical company Nisshin Steel announced that it will raise by 10% prices for light stainless flat; the Korean metallurgical company Posco increased prices for the whole range of its production from special sorts of steel by 9-10% in July. Prices grow on the Chinese domestic market too in spite of overproduction (that becam e even more intense after a new enterprise of Korean metallurgical company Posco, with the annual capacity of 600 thousand tons, was put into operation). For example, the Chinese metallurgical company Taiyuan Steel announced a 5% increase of the cost of its stainless production. At the same time, to stabilize the market, several leading Chinese producers of stainless steel, including Posco’s branch company, announced a 20% reduction of steel output. On the European market of stainless rolled metal, local producers have already set the August prices and are not going to change them. Thus, in Europe since the beginning of August the price for cold-rolled stainless steel amounts to EUR 2,800-2,850 per ton (3-4% up month-on-month).
Prices for ferrous metals scrap continue to reduce. Most metallurgical companies of the Mediterranean and East Asian countries have stopped purchases, which reduced the price. At the Mediterranean market the price for metal scrap from the CIS and European countries is USD 280 per ton (including charter). Prices also reduced on the Asian market. In particular, Japanese steel mills decreased the purchasing prices for metal scrap by 6-7% to USD 223-236 per ton (including delivery).
Thus, export prices for ferrous metal scrap reduced in the region. For example, Taiwanese companies buy scrap at USD 265 per ton (including charter), 7% down year-on-year. Experts believe that on the world market the supply volume is very large, so when consumers recommence purchases, prices may be back to the previous level.
Summing up all the facts, the current tendencies on the world market of metallurgical produce contribute to the re-orientation of export flows of Russian metal produce from the Asian market to the markets of the EU and the USA. Meanwhile, in the near future Russian metal produce may be re-oriented from the European to the USA market.
ZLATA YASENEVA
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Due to Domestic Consumption
According to the analysts of OAO RZD, having beaten the preliminary forecasts, the results of the first half of 2006 were a surprise, which can be explained by a favourable situation on the domestic market. The forecast of ferrous metals transportation volume on Russian railways for 2006 was based on the forecast of the RF Ministry of Economic Development and Trade, which only envisaged a stabilization or slight growth of metal production this year. However, due to the increase of capital construction and machine building volumes, and the new directions of export deliveries to European countries (the tendency became especially noticeable in May 2006), the produce of ferrous metals and goods made of them has been constantly growing, and thus their loading on the railway transport increases.
As a result, in 2005 the loading of freight metallurgy products for domestic transportation increased by 1.3% year-on-year; in H1 of 2006 analysts said that the figure grew by 8.2% year-on-year. Thus, the share of ferrous metals delivered to the Russian market reduced. Traditionally, 50% ferrous metal products are delivered to the domestic market and the rest 50% – to foreign markets; nowadays the ratio is 52.3% and 47.7% respectively. OAO Severstal increased the volume of ferrous metals transportation by 25.8%, OAO Magnitogorsk Iron and Steel Works increased the volume by 17.3%, OAO Novolipetsky Metallurgical Mill and OAO Chelyabinsk Metallurgical Enterprise increased the volume by 21.6% and by 16.1% respectively.
The ratio of iron ore is completely different: 80% is carried inside the country and only 20% is exported. However, several years ago the export share of iron ore in the loading structure was much smaller. Exporters’ activity was provided by powerful development of steel-casting production in China, as a result Russian producers did succeed in concluding profitable contracts for iron ore delivery to China.
Nowadays, the ratio remains the same, but the dynamics of domestic iron ore loading and transportation amounted to 1.3% in H1 of 2006.
Analyzing the situation from the export standpoint, iron ore transportation market seems to be more stable than that of ferrous metals. In 2005, the volume of iron ore exported by railway increased by 6.5%; the figure grew by 5.1% in H1 of 2006. On the foreign market for ferrous metal cargoes the situation changed completely. In 2005, the export of ferrous metals transported by railway reduced by 3.1%, while in H1 of 2006 the growth in the sector amounted to 4.5%.
At the end of 2005, most representatives of Russian metallurgical holding companies said that one of the reasons for it was a non-balanced policy of tariffs on freight transportation by Russian railways. Metallurgists said that the universal approach to tariff formation is inaccessible, taking into account the distant location of main enterprises from the markets and key border crossings.
Nowadays, about 72% of ferrous metals is exported via Russian ports, the rest is transported to border crossings. However, according to the results of 2005, the ratio was 82.2% and 17.8%. Thus, since the beginning of 2006 ferrous metals transportation to Russian ports reduced by 10%. Analysts point at the fact that only 91.2% of the total Russian terminals’ capacities is used; however, in practice the terminals are loaded irregularly. Thus, the volume of ferrous metals delivered to the ports at the Black Sea and the Azov Sea exceeds the capacities of the ports by 33%. Meanwhile, only 78% of the capacities of North-Western region ports and 64% of the capacities of the Far Eastern ports are loaded. And it is railway tariffs that are the reason for it.
Last year it became obvious that ferrous metals are leaving the Far Eastern ports and getting re-oriented to the ports of other basins. Are railway tariffs the real reason for it? Analysts claim that a number of privileged tariffs was implemented in 2005 to stimulate freight transportation in that direction, so the main reason is the reduction of business activity in terms of Russian ferrous metallurgy products consumption on the Chinese market (according to the data of OAO RZD, export of ferrous metals to China reduced by 12.2% in H1 of 2006), which the majority of ferrous metals handled in the ports of the Far Eastern region was destined for.
It is proved by OAO RZD’s analysis of the situation, which confirmed the changes on the world market of ferrous metallurgy that will influence the geography of ferrous metals export.
Prospects of Export
According to the Department of Market Situation Analysis of OAO RZD, nowadays on the world market of ferrous metals there is a significant gap in prices between on the one hand, the Western European and North American markets, and, on the other hand, the East-Asian markets.
At the same time, the key factor on the steel semi-finished products market is the reduction of business activity in Eastern Asia that provoked a price decrease in Asia and in the Middle East. Because of the lack of demand for their production, the Chinese exporters of steel semi-finished products had to compromise with customers. If in the first half of July 2006 the long-length semi-finished products produced in China were sold at a price of USD 400-410 per ton in South-Eastern Asia (including charter), in the second half of the month the price reduced to USD 390-400 per ton. Moreover, the semi-finished products cost USD 380 per ton in Korea, but even this price is not low enough to stimulate the customer demand.
On the market of the Middle East, the increased volumes of steel semi-finished products from China caused a reduction of price for them. Thus, the price for Russian and Ukrainian semi-finished products was about USD 400 per ton (excluding charter). Similar Turkish production cost USD 440-460 per ton (excluding charter rates); however, real contracts on its delivery are concluded on terms more profitable for the client.
The situation on the slab market has not changed: prices continue to reduce in the East Asian countries, while in Europe and the USA they remain very high. Because of the reduction of demand and prices for hot-rolled reels, the prices remain very low on the East-Asian market of slabs. The second week running, the prices for the type of steel semi-finished products make USD 450-490 per ton (including charter) at the minimal level of supply. The most part of world export deliveries of slabs is provided in the USA and the EU, where they cost about USD 550 per ton (including charter). Slabs produced in Russia are delivered at the price of over USD 500 per ton (excluding charter). On the whole, experts say that there is a lack of slabs on the world market, which started in Q2 of 2006, in spite of the re-launch Brazilian metallurgical enterprise CSN and Japanese companies that were out of the market for several months. According to forecasts, the shortage on the market will be liquidated only in autumn, and then the prices for slabs may reduce slightly.
A similar situation takes place on the market of structural steel, where there is a price differentiation in accordance with the region: in the EU and the USA prices are growing, while in the countries of Eastern Asia their level remains low. On the East-Asian market Taiwanese and Thailand metallurgical companies brought an antidumping suit against the Chinese suppliers of rolled wire, which had significantly increased its import volumes. Nowadays, the price for Chinese rolled wire is about USD 430 per tons in Korea and Taiwan (including charter). The enlargement of import supplies of long-length rolled metal from China to the markets of the Middle East makes exporters from other countries reduce prices of similar production. For example, reinforcement and rolled wire from Turkey is sold at a price of USD 520-550 per ton on the Middle East market (excluding charter). Prices for the produce of Russian and Ukrainian enterprises amount to USD 430-440 per ton (excluding charter). On the European market, prices for reinforcement make EUR 440-460 per ton (on European plants), and similar import production is sold at a price of EUR 460 per ton (including charter). At the same time, the demand for structural steel and consumers’ activity have reduced. However, producers are optimistic and believe that prices, especially for sheet products and steel sections, will continue growing in August. On the North American market producers failed to obtain the agreement of consumers to increase the prices for reinforcement and sheet products. However, several leading metallurgical companies there have already announced about a 4-5% increase of prices for rolled wire. It can be explained by the antidumping dues, which are still in force in the USA and the protect interests of local producers.
On the market of sheet steel, the tendencies are different. In Europe and the USA the prices are either stable or slightly growing. On the East-Asian market the prices for mass sorts of flat rolled metal decreased because of the overproduction of flat rolled metal in China. In particular, prices for hot-rolled reels amount to USD 510-540 per ton (excluding charter). On the whole, since the beginning of August, the prices for many types of Chinese sheet rolled metal have reduced by USD 50 per ton in the region. Meanwhile, the prices are reducing for mass types of flat steel referring to the metallurgical low processing produce, while the cost of higher quality rolled metal grows. For example, Japanese metallurgical companies announced that they are going to increase by 10% the prices for flat produce delivered directly to automobile plants. At the same time, the Japanese metallurgical company JFE announced its intention to increase by 20% (to USD 680 per ton) prices for shipbuilding steel delivered to Korea (excluding charter).
On the European market business activity is reducing. Prices for import hot-rolled reels amount to EUR 500 per ton, and similar production of Russian enterprises is sold in the EU countries at a cost of EUR 580-620 per ton (excluding charter). According to the data of the EU customs bodies, the Russian Federation had used about 75% of its quota for 2006 by the beginning of July. So, according to forecasts, supplies of Russian export metal produce may be re-oriented from the European market to the market of the USA in the near future. Meanwhile, European metallurgical companies have announced an increase of prices for flat rolled metal in Q4 of 2006. They believe, there remains a shortage of flat steel in the region, and the local producers of flat rolled metal are provided with contracts for the next several months.
The prices on the stainless rolled metal market remain high. In the East-Asian countries, some regional producers of stainless steel announced an increase of prices in August 2006. In particular, the Japanese metallurgical company Nisshin Steel announced that it will raise by 10% prices for light stainless flat; the Korean metallurgical company Posco increased prices for the whole range of its production from special sorts of steel by 9-10% in July. Prices grow on the Chinese domestic market too in spite of overproduction (that becam e even more intense after a new enterprise of Korean metallurgical company Posco, with the annual capacity of 600 thousand tons, was put into operation). For example, the Chinese metallurgical company Taiyuan Steel announced a 5% increase of the cost of its stainless production. At the same time, to stabilize the market, several leading Chinese producers of stainless steel, including Posco’s branch company, announced a 20% reduction of steel output. On the European market of stainless rolled metal, local producers have already set the August prices and are not going to change them. Thus, in Europe since the beginning of August the price for cold-rolled stainless steel amounts to EUR 2,800-2,850 per ton (3-4% up month-on-month).
Prices for ferrous metals scrap continue to reduce. Most metallurgical companies of the Mediterranean and East Asian countries have stopped purchases, which reduced the price. At the Mediterranean market the price for metal scrap from the CIS and European countries is USD 280 per ton (including charter). Prices also reduced on the Asian market. In particular, Japanese steel mills decreased the purchasing prices for metal scrap by 6-7% to USD 223-236 per ton (including delivery).
Thus, export prices for ferrous metal scrap reduced in the region. For example, Taiwanese companies buy scrap at USD 265 per ton (including charter), 7% down year-on-year. Experts believe that on the world market the supply volume is very large, so when consumers recommence purchases, prices may be back to the previous level.
Summing up all the facts, the current tendencies on the world market of metallurgical produce contribute to the re-orientation of export flows of Russian metal produce from the Asian market to the markets of the EU and the USA. Meanwhile, in the near future Russian metal produce may be re-oriented from the European to the USA market.
ZLATA YASENEVA
[~DETAIL_TEXT] =>
Due to Domestic Consumption
According to the analysts of OAO RZD, having beaten the preliminary forecasts, the results of the first half of 2006 were a surprise, which can be explained by a favourable situation on the domestic market. The forecast of ferrous metals transportation volume on Russian railways for 2006 was based on the forecast of the RF Ministry of Economic Development and Trade, which only envisaged a stabilization or slight growth of metal production this year. However, due to the increase of capital construction and machine building volumes, and the new directions of export deliveries to European countries (the tendency became especially noticeable in May 2006), the produce of ferrous metals and goods made of them has been constantly growing, and thus their loading on the railway transport increases.
As a result, in 2005 the loading of freight metallurgy products for domestic transportation increased by 1.3% year-on-year; in H1 of 2006 analysts said that the figure grew by 8.2% year-on-year. Thus, the share of ferrous metals delivered to the Russian market reduced. Traditionally, 50% ferrous metal products are delivered to the domestic market and the rest 50% – to foreign markets; nowadays the ratio is 52.3% and 47.7% respectively. OAO Severstal increased the volume of ferrous metals transportation by 25.8%, OAO Magnitogorsk Iron and Steel Works increased the volume by 17.3%, OAO Novolipetsky Metallurgical Mill and OAO Chelyabinsk Metallurgical Enterprise increased the volume by 21.6% and by 16.1% respectively.
The ratio of iron ore is completely different: 80% is carried inside the country and only 20% is exported. However, several years ago the export share of iron ore in the loading structure was much smaller. Exporters’ activity was provided by powerful development of steel-casting production in China, as a result Russian producers did succeed in concluding profitable contracts for iron ore delivery to China.
Nowadays, the ratio remains the same, but the dynamics of domestic iron ore loading and transportation amounted to 1.3% in H1 of 2006.
Analyzing the situation from the export standpoint, iron ore transportation market seems to be more stable than that of ferrous metals. In 2005, the volume of iron ore exported by railway increased by 6.5%; the figure grew by 5.1% in H1 of 2006. On the foreign market for ferrous metal cargoes the situation changed completely. In 2005, the export of ferrous metals transported by railway reduced by 3.1%, while in H1 of 2006 the growth in the sector amounted to 4.5%.
At the end of 2005, most representatives of Russian metallurgical holding companies said that one of the reasons for it was a non-balanced policy of tariffs on freight transportation by Russian railways. Metallurgists said that the universal approach to tariff formation is inaccessible, taking into account the distant location of main enterprises from the markets and key border crossings.
Nowadays, about 72% of ferrous metals is exported via Russian ports, the rest is transported to border crossings. However, according to the results of 2005, the ratio was 82.2% and 17.8%. Thus, since the beginning of 2006 ferrous metals transportation to Russian ports reduced by 10%. Analysts point at the fact that only 91.2% of the total Russian terminals’ capacities is used; however, in practice the terminals are loaded irregularly. Thus, the volume of ferrous metals delivered to the ports at the Black Sea and the Azov Sea exceeds the capacities of the ports by 33%. Meanwhile, only 78% of the capacities of North-Western region ports and 64% of the capacities of the Far Eastern ports are loaded. And it is railway tariffs that are the reason for it.
Last year it became obvious that ferrous metals are leaving the Far Eastern ports and getting re-oriented to the ports of other basins. Are railway tariffs the real reason for it? Analysts claim that a number of privileged tariffs was implemented in 2005 to stimulate freight transportation in that direction, so the main reason is the reduction of business activity in terms of Russian ferrous metallurgy products consumption on the Chinese market (according to the data of OAO RZD, export of ferrous metals to China reduced by 12.2% in H1 of 2006), which the majority of ferrous metals handled in the ports of the Far Eastern region was destined for.
It is proved by OAO RZD’s analysis of the situation, which confirmed the changes on the world market of ferrous metallurgy that will influence the geography of ferrous metals export.
Prospects of Export
According to the Department of Market Situation Analysis of OAO RZD, nowadays on the world market of ferrous metals there is a significant gap in prices between on the one hand, the Western European and North American markets, and, on the other hand, the East-Asian markets.
At the same time, the key factor on the steel semi-finished products market is the reduction of business activity in Eastern Asia that provoked a price decrease in Asia and in the Middle East. Because of the lack of demand for their production, the Chinese exporters of steel semi-finished products had to compromise with customers. If in the first half of July 2006 the long-length semi-finished products produced in China were sold at a price of USD 400-410 per ton in South-Eastern Asia (including charter), in the second half of the month the price reduced to USD 390-400 per ton. Moreover, the semi-finished products cost USD 380 per ton in Korea, but even this price is not low enough to stimulate the customer demand.
On the market of the Middle East, the increased volumes of steel semi-finished products from China caused a reduction of price for them. Thus, the price for Russian and Ukrainian semi-finished products was about USD 400 per ton (excluding charter). Similar Turkish production cost USD 440-460 per ton (excluding charter rates); however, real contracts on its delivery are concluded on terms more profitable for the client.
The situation on the slab market has not changed: prices continue to reduce in the East Asian countries, while in Europe and the USA they remain very high. Because of the reduction of demand and prices for hot-rolled reels, the prices remain very low on the East-Asian market of slabs. The second week running, the prices for the type of steel semi-finished products make USD 450-490 per ton (including charter) at the minimal level of supply. The most part of world export deliveries of slabs is provided in the USA and the EU, where they cost about USD 550 per ton (including charter). Slabs produced in Russia are delivered at the price of over USD 500 per ton (excluding charter). On the whole, experts say that there is a lack of slabs on the world market, which started in Q2 of 2006, in spite of the re-launch Brazilian metallurgical enterprise CSN and Japanese companies that were out of the market for several months. According to forecasts, the shortage on the market will be liquidated only in autumn, and then the prices for slabs may reduce slightly.
A similar situation takes place on the market of structural steel, where there is a price differentiation in accordance with the region: in the EU and the USA prices are growing, while in the countries of Eastern Asia their level remains low. On the East-Asian market Taiwanese and Thailand metallurgical companies brought an antidumping suit against the Chinese suppliers of rolled wire, which had significantly increased its import volumes. Nowadays, the price for Chinese rolled wire is about USD 430 per tons in Korea and Taiwan (including charter). The enlargement of import supplies of long-length rolled metal from China to the markets of the Middle East makes exporters from other countries reduce prices of similar production. For example, reinforcement and rolled wire from Turkey is sold at a price of USD 520-550 per ton on the Middle East market (excluding charter). Prices for the produce of Russian and Ukrainian enterprises amount to USD 430-440 per ton (excluding charter). On the European market, prices for reinforcement make EUR 440-460 per ton (on European plants), and similar import production is sold at a price of EUR 460 per ton (including charter). At the same time, the demand for structural steel and consumers’ activity have reduced. However, producers are optimistic and believe that prices, especially for sheet products and steel sections, will continue growing in August. On the North American market producers failed to obtain the agreement of consumers to increase the prices for reinforcement and sheet products. However, several leading metallurgical companies there have already announced about a 4-5% increase of prices for rolled wire. It can be explained by the antidumping dues, which are still in force in the USA and the protect interests of local producers.
On the market of sheet steel, the tendencies are different. In Europe and the USA the prices are either stable or slightly growing. On the East-Asian market the prices for mass sorts of flat rolled metal decreased because of the overproduction of flat rolled metal in China. In particular, prices for hot-rolled reels amount to USD 510-540 per ton (excluding charter). On the whole, since the beginning of August, the prices for many types of Chinese sheet rolled metal have reduced by USD 50 per ton in the region. Meanwhile, the prices are reducing for mass types of flat steel referring to the metallurgical low processing produce, while the cost of higher quality rolled metal grows. For example, Japanese metallurgical companies announced that they are going to increase by 10% the prices for flat produce delivered directly to automobile plants. At the same time, the Japanese metallurgical company JFE announced its intention to increase by 20% (to USD 680 per ton) prices for shipbuilding steel delivered to Korea (excluding charter).
On the European market business activity is reducing. Prices for import hot-rolled reels amount to EUR 500 per ton, and similar production of Russian enterprises is sold in the EU countries at a cost of EUR 580-620 per ton (excluding charter). According to the data of the EU customs bodies, the Russian Federation had used about 75% of its quota for 2006 by the beginning of July. So, according to forecasts, supplies of Russian export metal produce may be re-oriented from the European market to the market of the USA in the near future. Meanwhile, European metallurgical companies have announced an increase of prices for flat rolled metal in Q4 of 2006. They believe, there remains a shortage of flat steel in the region, and the local producers of flat rolled metal are provided with contracts for the next several months.
The prices on the stainless rolled metal market remain high. In the East-Asian countries, some regional producers of stainless steel announced an increase of prices in August 2006. In particular, the Japanese metallurgical company Nisshin Steel announced that it will raise by 10% prices for light stainless flat; the Korean metallurgical company Posco increased prices for the whole range of its production from special sorts of steel by 9-10% in July. Prices grow on the Chinese domestic market too in spite of overproduction (that becam e even more intense after a new enterprise of Korean metallurgical company Posco, with the annual capacity of 600 thousand tons, was put into operation). For example, the Chinese metallurgical company Taiyuan Steel announced a 5% increase of the cost of its stainless production. At the same time, to stabilize the market, several leading Chinese producers of stainless steel, including Posco’s branch company, announced a 20% reduction of steel output. On the European market of stainless rolled metal, local producers have already set the August prices and are not going to change them. Thus, in Europe since the beginning of August the price for cold-rolled stainless steel amounts to EUR 2,800-2,850 per ton (3-4% up month-on-month).
Prices for ferrous metals scrap continue to reduce. Most metallurgical companies of the Mediterranean and East Asian countries have stopped purchases, which reduced the price. At the Mediterranean market the price for metal scrap from the CIS and European countries is USD 280 per ton (including charter). Prices also reduced on the Asian market. In particular, Japanese steel mills decreased the purchasing prices for metal scrap by 6-7% to USD 223-236 per ton (including delivery).
Thus, export prices for ferrous metal scrap reduced in the region. For example, Taiwanese companies buy scrap at USD 265 per ton (including charter), 7% down year-on-year. Experts believe that on the world market the supply volume is very large, so when consumers recommence purchases, prices may be back to the previous level.
Summing up all the facts, the current tendencies on the world market of metallurgical produce contribute to the re-orientation of export flows of Russian metal produce from the Asian market to the markets of the EU and the USA. Meanwhile, in the near future Russian metal produce may be re-oriented from the European to the USA market.
ZLATA YASENEVA
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[DETAIL_TEXT] => President of the Russian Union of Metal Production Suppliers, Organizational Committee of the International Specialized Exhibition «Metal-Expo» Co-Chairperson Alexander Romanov tells «The RZD-Partner International» business magazine about the development of the Russian metals market.
– Could you comment on the current situation on the Russian metal produce market? What is the average annual volume of metal production? What is the ratio of the produce sold on the domestic market? What share of metal production is exported?
– Last year, 28.4 million tons of steel rolled metal was sold on the domestic market, while the production volume amounted to 60 million tons. Thus, about 50% of the produced metals (28.5 million tons) is exported to different countries, especially to South-East Asia. Being the second largest exporter of metals in the world, Russia is competitive according to metals’ quality and price. However, nowadays over 45% of the exported rolled metal is semi-finished products.
As for the domestic consumption, nowadays about 220 kilograms of metal produce consumption accounts per one Russian citizen. In the USA the figure is 400 kilograms, and in Japan it is 600 kilograms. Russian industry consumes little metal produce, because the machine building sector is not developed. The main consumers are now building, transport and energy industries. These industries will remain the locomotives of the market volume growth.
Meanwhile, Russian producers of metals are striving to occupy stable positions on the Russian market, counting on its further growth. Different metallurgical companies come to the market more and more actively. Our union includes such companies as Evraz-Holding, Severstal-Invest, TMK (Tube Metallurgical Company), UralTruboStal (Me-TriC-Tirus), and OMK-Stal. It is clear that the target of each large metallurgical company is the increase of its presence on the domestic market, including the formation of a distributing network and construction of large warehouses in the main centers of metal consumption. However, independent net companies also enlarge their presence, using their competitive advantages. As for regional companies, they are to choose their direction of further development in the next two-three years. These directions are retail, and improvement of service, produce of constrictions, semi-finished products and metal processing.
– What products of the range are popular on the domestic market? What products are popular on the foreign market?
– It is consumption that will influence the market situation from the standpoint of product types in the near future. Flat produce will be popular on the Russian market. The machine building sector will require high-quality profiled iron, i.e. structural and long-length production. Building industry also increases its requirements to the profiled iron. As for export, Russian slabs, profiled semi-finished products for further processing on rolling mills will remain popular. The access to foreign markets is very complicated for the high value-added production because of a number of protection measures. To get an access to the European and American markets, Russian metallurgists purchase steel mills and rolling capacities on the markets. The tendency is that in the export structure the share of products of deep processing (cold-rolled sheet, coated sheets, profiled iron produced using modern technologies and modern equipment) will increase. Export of steel pipes will significantly grow (by 22-28%). The same thing applies to wire products. On the world market, the demand for pipes produced in Russia increases: the geography of export grew from 15 countries in 2001 to 68 states in 2005, and the export volume has doubled.
– What is the estimation of producing capacities enabling to create production of deep processing in Russia? Is the sector attractive for investments?
– In 2004-2005 average investments increased by 2.85 times comparing to 2000-2003. Metallurgical companies have hundreds million dollars investment programmes. Metallurgical companies improve their equipment, put into operation equipment for non-stop work material casting, electric furnaces, and give up the open-hearth process of steel production. The complex of measures for technical re-equipment of production is being carried out most radically and successively at MMK. In 2006, Magnitogorsk Iron and Steel Works will give up the open-hearth process, replacing it by electric furnace steelmaking. Section rolling production has also been renewed. Three new mills for production of rolled wire, wire and structural shapes with the annual total capacity of two million tons have been put into operation. During the last four years, a double-stand reversing cold-rolling mill, a non-stop hot-zinc-plating unit and a polymeric coating aggregate were put into operation.
Severstal, Novolipetsky Metallurgical Mill, Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and other enterprises also take measures for further development and technical re-equipment. The projects that are being carried out in the pipe producing industry are fundamentally important for the development of ferrous metallurgy and the Russian economy on the whole. Nowadays, the capacities of Russian pipe industry can satisfy the requirements of the leading Russian oil and gas and machine-building companies. As a result of speeding up the innovations implementation, the production structure of the metallurgical sector improves, which enables to increase the competitiveness of production and its correspondence to the requirements of the market. Metallurgical traders have been producing more and more high-value added output recently. During the latest decade, Russian metal business increased significantly its activities in metal processing. Nowadays, for example, several dozens of companies – members of the Russian Union of Metal Production Suppliers – are engaged in sheet-processing. The outsourcing of services connecting with processing of flat rolled metals, reinforcing steel, production of fabricated nets, frames for building industry enterprises develops slowly in Russia. Naturally, the process will speed up soon: now it is developed in the large cities of the Russian Federation, later it will start in the regions, and even in the regional centers, because metal should be processed in specialized metal centers. The market develops dynamically, and in several years distribution of metal production in Russia will be of the same level as it is in European countries.
– What is the volume of import metal produce? What products are purchased abroad? Are there analogues to them on the domestic market?
– Now Russian producers manage to maintain «substitution price», which makes foreign producers’ supplies to the Russian market unprofitable. At the same time, prices in Russia are not lower than in the world (and it is the direct result of the world market situation), and that is why the RF market is very attractive. The Russian market becomes a priority not only for Russian, but also for foreign metallurgical companies. Recently foreign companies represented by their affiliates registered in the Russian Federation have started to work actively on the market. For example, the Finnish company Ruuki ThyssenKrupp has been developing a trade network named ThyssenKrupp Materials, which has strengthened its position lately. Foreign producers of stainless steel also work actively on the market. As a rule, they are engaged in delivery of stainless steel not produced in Russia.
Nowadays, foreign companies are not always satisfied with the investment climate; besides, there are different corruption mechanisms in the Russian business. So, foreign companies do not show their worth on the Russian market. Naturally, when Russia joins the WTO, it will be a more civilized state. And then foreign companies will start to purchase actively the metal trade networks working on the Russian market.
– Could you assess the situation from the demand/supply standpoint? What are the problems with the sale of produce? Could you evaluate the quality and competitiveness of the Russian produce?
– The production of Russian ferrous metallurgy is characterized by high competitiveness compared to the production of other largest states-metal producers. According to the data of different foreign and international analytical and consulting companies, expenses on the production of one ton of steel is lower by 1.2-1.5 times in Russia than in developing countries (China, India, Brazil), by 1.5-1.6 times than in Japan, by 1.5-1.7 times than in the EU, and by 1.4-1.8 times than in the USA. The main factors providing the high competitiveness of Russian metal produce are cheap energy and labour force. However, the Russian metallurgy’s long-term strategy of development is hardly based on them. In several years these advantages of the Russian ferrous metallurgy will be lost, and then it will have to compete on the market terms: quality and service.
The misbalance of demand and supply on the metal market emerges only because of seasonal factor. For example, in summer there was a lack of reinforcing bar. Respectively, there can hardly be any problems with sales.
– What is the situation with the transportation? What is the share of the transport constituent in the ultimate price?
– On average, the share of the transport constituent in the production cost can amount to 24%, while the share of raw materials can reach 62%. This stimulates metallurgists to develop their own transport assets, because it is possible to save on transport expenses using one’s own rolling stock and paying to OAO RZD only the expenses on the exploitation of infrastructure – tracks and locomotives. As for Severstaltrans, its assets purchase locomotives as well. (However, despite the fact that Severstaltrans started with Severstal’s freight transportation, now in the aggregate throughput of independently managed Severstaltrans Severstal takes only about 3.5%, while the rest is cargoes for other clients. The head of Severstal – Alexey Mordashov – owns 50% of Severstaltrans shares, another 50% of shares belongs to the management of Severstaltrans. – «The RZD-Partner International»). Being one of the leaders on the Russian transport market, the Severstaltrans group of companies occupies leading positions according to the volume of transported cargoes: its share of railway transportation makes 5% of the total Russian transportation by railway. Nowadays, Severstaltrans takes up all types of transport business but air transportation. The company transports by railway 18% of all ferrous metals, 16.8% of iron ore, 11.4% of oil and products; its share in the total Russian port throughput is also significant.
The Nezavisimaya Transportnaya Kompaniya (Independent Transport Company) owned by Novolipetsky Metallurgical Mill transports most cargoes of the Mill. This direction of business diversification was historically predetermined for metallurgists. For example, the length of railway tracks on the territory of Novolipetsky Metallurgical Mill can be compared to the territory of the Moscow underground, which is not the shortest in the world at all. The total length of railways of Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and Novoluznetsky Metallurgical Mill is over 1,000 kilometers, which is 1.2% of the total length of railways of the former Ministry of Railways of Russia. The total volume of cargoes carried by the railway transport of Evraz-Holding’s enterprises exceeds 10% of the volume transported along the whole Russian railway network. And it is a large figure!
The average monthly volume of cargoes forwarded by Evraztrans (a transport company of Evraz-Holding), is 2.5-2.7 million tons, and on average the holding company requires 70 million tons annually. So, it is no wonder that metallurgical companies are eager to create their own transport divisions and logistic centers.
Magnitogorsk Iron and Steel Works’ company-operator MMK-Trans provides transportation for 35% of the company’s export production using about 3,000 own and rented wagons. Mechel group of companies includes Mechel-Trans, which transports about 2.5 million tons of freight monthly. TMK-Trans specializes in transportation of pipes of different diameters, organization of pipes and rolled metal handling in ports, and value added services.
In the last few years many new Russian port owners emerged: Magnitogorsk Iron and Steel Works (commercial sea port of Vladivostok), Mechel group of companies (port of Posyet), Evraz-Holding (commercial sea port of Nakhodka), Nornickel (commercial sea port of Arkhangelsk). Novolipetsky Metallurgical Mill purchased the ports of Tuapse, Saint-Petersburg and Taganrog. Severstaltrans initiated the tendency: it owns the port of Vostochny, and the Neva-Metal company that operates in the port of Saint-Petersburg and specializes in handing rolled ferrous metals from Cherepovetsk Mill.
It is obvious: the better a company reduces the prime cost of its produce and production costs, the more important logistics becomes. A company that has better routes of commodity output transportation and adjusted logistic schemes gets a larger profit. To control the logistic constituent, the Metalloinvest holding company plans to increase its rolling stock park to 7,000 wagons. Metalloinvest-Trans, incorporated into the holding company, is considering the option of either purchase or construction of new terminals on the territory of the sea ports in Russia, Ukraine or Baltic states. Metallurgical traders also solve logistic problems by creating optimal transport schemes.
These facts prove once again that the transport business is very prospective for investors. Transport becomes a more and more attractive sector, very dynamical, with a large potential.
– How is it possible to evaluate tariffs on transportation of metal production by railway and road hauliers? What are the advantages of these transport modes?
– The production of metallurgical enterprises makes about 30% of railway transport throughput. This transport mode is beyond comparison. For example, every two minutes a wagon loaded with iron ore is dispatched from the Mikhailovsky ore mining and processing enterprise. No other transport mode could service such large-scaled volumes.
Naturally, the tariff policy is very important in the sector. The reason for the increase of prime cost of metal produce will be the growth of prices on the resources consumed by the sector, wages, re-evaluation of the main funds and rise of capital allowances, and the increase of the tariffs on freight transportation (more exactly – their annual indexation) as well. Nobody expects any preferences nowadays. Thanks God, the mechanism of tariff formation by the RF Ministry of Transport has become more transparent and controlled.
– What are the main targets of the sector nowadays? How is it possible to reach them?
– I believe that the state industrial policy should envisage a growth of the domestic metal produce market at the expense of machine building industry resumption and service improvement. It is necessary to re-equip enterprises faster, to reduce the material and power intensity of metal produce, to increase labour productivity.
According to the forecast of the RF Ministry of Industry and Energy, in 2005-2009 consumption of rolled metal will increase by 6.7-12.7% compared to 2005. Because of the changes in demand for metal produce, it is forecasted that in 2006-2009 the volume of finished rolled metal production will grow to 57-59 million tons, i.e. 3.8-8.1% up compared to 2005, when 54.6 million tons of rolled metal was produced.
According to the same forecast of the RF Ministry of Industry and Energy, in 2006-2009 the annual profit of metallurgical sector will increase by 3-4% compared to the level of 2005. In 2006 the profit is to increase by 1% year-on-year. I believe that if profit accumulates as it is forecasted, metallurgists will be able to solve all the problems arising in the sector.
At the same time, there is a necessity for intersectoral cooperation, in particular, between metallurgical and transport businesses. Logistics and transport are the most important elements of infrastructure of any state’s economy. That is why I appreciate the meetings held by the RF Ministry of Transport devoted to the development of a logistic infrastructure and the market of logistic services. The problems of logistics and transport improvement, optimal placing of modern warehousing complexes from the standpoint of current situation and the prospects of the country’s economy development are discussed at such meetings. The Russian Union of Metal Production Suppliers regularly participates in such meetings, round table discussions and conferences devoted to the development of logistics and transport systems.
Interviewed by TATYANA TOKAREVA
[~DETAIL_TEXT] => President of the Russian Union of Metal Production Suppliers, Organizational Committee of the International Specialized Exhibition «Metal-Expo» Co-Chairperson Alexander Romanov tells «The RZD-Partner International» business magazine about the development of the Russian metals market.
– Could you comment on the current situation on the Russian metal produce market? What is the average annual volume of metal production? What is the ratio of the produce sold on the domestic market? What share of metal production is exported?
– Last year, 28.4 million tons of steel rolled metal was sold on the domestic market, while the production volume amounted to 60 million tons. Thus, about 50% of the produced metals (28.5 million tons) is exported to different countries, especially to South-East Asia. Being the second largest exporter of metals in the world, Russia is competitive according to metals’ quality and price. However, nowadays over 45% of the exported rolled metal is semi-finished products.
As for the domestic consumption, nowadays about 220 kilograms of metal produce consumption accounts per one Russian citizen. In the USA the figure is 400 kilograms, and in Japan it is 600 kilograms. Russian industry consumes little metal produce, because the machine building sector is not developed. The main consumers are now building, transport and energy industries. These industries will remain the locomotives of the market volume growth.
Meanwhile, Russian producers of metals are striving to occupy stable positions on the Russian market, counting on its further growth. Different metallurgical companies come to the market more and more actively. Our union includes such companies as Evraz-Holding, Severstal-Invest, TMK (Tube Metallurgical Company), UralTruboStal (Me-TriC-Tirus), and OMK-Stal. It is clear that the target of each large metallurgical company is the increase of its presence on the domestic market, including the formation of a distributing network and construction of large warehouses in the main centers of metal consumption. However, independent net companies also enlarge their presence, using their competitive advantages. As for regional companies, they are to choose their direction of further development in the next two-three years. These directions are retail, and improvement of service, produce of constrictions, semi-finished products and metal processing.
– What products of the range are popular on the domestic market? What products are popular on the foreign market?
– It is consumption that will influence the market situation from the standpoint of product types in the near future. Flat produce will be popular on the Russian market. The machine building sector will require high-quality profiled iron, i.e. structural and long-length production. Building industry also increases its requirements to the profiled iron. As for export, Russian slabs, profiled semi-finished products for further processing on rolling mills will remain popular. The access to foreign markets is very complicated for the high value-added production because of a number of protection measures. To get an access to the European and American markets, Russian metallurgists purchase steel mills and rolling capacities on the markets. The tendency is that in the export structure the share of products of deep processing (cold-rolled sheet, coated sheets, profiled iron produced using modern technologies and modern equipment) will increase. Export of steel pipes will significantly grow (by 22-28%). The same thing applies to wire products. On the world market, the demand for pipes produced in Russia increases: the geography of export grew from 15 countries in 2001 to 68 states in 2005, and the export volume has doubled.
– What is the estimation of producing capacities enabling to create production of deep processing in Russia? Is the sector attractive for investments?
– In 2004-2005 average investments increased by 2.85 times comparing to 2000-2003. Metallurgical companies have hundreds million dollars investment programmes. Metallurgical companies improve their equipment, put into operation equipment for non-stop work material casting, electric furnaces, and give up the open-hearth process of steel production. The complex of measures for technical re-equipment of production is being carried out most radically and successively at MMK. In 2006, Magnitogorsk Iron and Steel Works will give up the open-hearth process, replacing it by electric furnace steelmaking. Section rolling production has also been renewed. Three new mills for production of rolled wire, wire and structural shapes with the annual total capacity of two million tons have been put into operation. During the last four years, a double-stand reversing cold-rolling mill, a non-stop hot-zinc-plating unit and a polymeric coating aggregate were put into operation.
Severstal, Novolipetsky Metallurgical Mill, Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and other enterprises also take measures for further development and technical re-equipment. The projects that are being carried out in the pipe producing industry are fundamentally important for the development of ferrous metallurgy and the Russian economy on the whole. Nowadays, the capacities of Russian pipe industry can satisfy the requirements of the leading Russian oil and gas and machine-building companies. As a result of speeding up the innovations implementation, the production structure of the metallurgical sector improves, which enables to increase the competitiveness of production and its correspondence to the requirements of the market. Metallurgical traders have been producing more and more high-value added output recently. During the latest decade, Russian metal business increased significantly its activities in metal processing. Nowadays, for example, several dozens of companies – members of the Russian Union of Metal Production Suppliers – are engaged in sheet-processing. The outsourcing of services connecting with processing of flat rolled metals, reinforcing steel, production of fabricated nets, frames for building industry enterprises develops slowly in Russia. Naturally, the process will speed up soon: now it is developed in the large cities of the Russian Federation, later it will start in the regions, and even in the regional centers, because metal should be processed in specialized metal centers. The market develops dynamically, and in several years distribution of metal production in Russia will be of the same level as it is in European countries.
– What is the volume of import metal produce? What products are purchased abroad? Are there analogues to them on the domestic market?
– Now Russian producers manage to maintain «substitution price», which makes foreign producers’ supplies to the Russian market unprofitable. At the same time, prices in Russia are not lower than in the world (and it is the direct result of the world market situation), and that is why the RF market is very attractive. The Russian market becomes a priority not only for Russian, but also for foreign metallurgical companies. Recently foreign companies represented by their affiliates registered in the Russian Federation have started to work actively on the market. For example, the Finnish company Ruuki ThyssenKrupp has been developing a trade network named ThyssenKrupp Materials, which has strengthened its position lately. Foreign producers of stainless steel also work actively on the market. As a rule, they are engaged in delivery of stainless steel not produced in Russia.
Nowadays, foreign companies are not always satisfied with the investment climate; besides, there are different corruption mechanisms in the Russian business. So, foreign companies do not show their worth on the Russian market. Naturally, when Russia joins the WTO, it will be a more civilized state. And then foreign companies will start to purchase actively the metal trade networks working on the Russian market.
– Could you assess the situation from the demand/supply standpoint? What are the problems with the sale of produce? Could you evaluate the quality and competitiveness of the Russian produce?
– The production of Russian ferrous metallurgy is characterized by high competitiveness compared to the production of other largest states-metal producers. According to the data of different foreign and international analytical and consulting companies, expenses on the production of one ton of steel is lower by 1.2-1.5 times in Russia than in developing countries (China, India, Brazil), by 1.5-1.6 times than in Japan, by 1.5-1.7 times than in the EU, and by 1.4-1.8 times than in the USA. The main factors providing the high competitiveness of Russian metal produce are cheap energy and labour force. However, the Russian metallurgy’s long-term strategy of development is hardly based on them. In several years these advantages of the Russian ferrous metallurgy will be lost, and then it will have to compete on the market terms: quality and service.
The misbalance of demand and supply on the metal market emerges only because of seasonal factor. For example, in summer there was a lack of reinforcing bar. Respectively, there can hardly be any problems with sales.
– What is the situation with the transportation? What is the share of the transport constituent in the ultimate price?
– On average, the share of the transport constituent in the production cost can amount to 24%, while the share of raw materials can reach 62%. This stimulates metallurgists to develop their own transport assets, because it is possible to save on transport expenses using one’s own rolling stock and paying to OAO RZD only the expenses on the exploitation of infrastructure – tracks and locomotives. As for Severstaltrans, its assets purchase locomotives as well. (However, despite the fact that Severstaltrans started with Severstal’s freight transportation, now in the aggregate throughput of independently managed Severstaltrans Severstal takes only about 3.5%, while the rest is cargoes for other clients. The head of Severstal – Alexey Mordashov – owns 50% of Severstaltrans shares, another 50% of shares belongs to the management of Severstaltrans. – «The RZD-Partner International»). Being one of the leaders on the Russian transport market, the Severstaltrans group of companies occupies leading positions according to the volume of transported cargoes: its share of railway transportation makes 5% of the total Russian transportation by railway. Nowadays, Severstaltrans takes up all types of transport business but air transportation. The company transports by railway 18% of all ferrous metals, 16.8% of iron ore, 11.4% of oil and products; its share in the total Russian port throughput is also significant.
The Nezavisimaya Transportnaya Kompaniya (Independent Transport Company) owned by Novolipetsky Metallurgical Mill transports most cargoes of the Mill. This direction of business diversification was historically predetermined for metallurgists. For example, the length of railway tracks on the territory of Novolipetsky Metallurgical Mill can be compared to the territory of the Moscow underground, which is not the shortest in the world at all. The total length of railways of Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and Novoluznetsky Metallurgical Mill is over 1,000 kilometers, which is 1.2% of the total length of railways of the former Ministry of Railways of Russia. The total volume of cargoes carried by the railway transport of Evraz-Holding’s enterprises exceeds 10% of the volume transported along the whole Russian railway network. And it is a large figure!
The average monthly volume of cargoes forwarded by Evraztrans (a transport company of Evraz-Holding), is 2.5-2.7 million tons, and on average the holding company requires 70 million tons annually. So, it is no wonder that metallurgical companies are eager to create their own transport divisions and logistic centers.
Magnitogorsk Iron and Steel Works’ company-operator MMK-Trans provides transportation for 35% of the company’s export production using about 3,000 own and rented wagons. Mechel group of companies includes Mechel-Trans, which transports about 2.5 million tons of freight monthly. TMK-Trans specializes in transportation of pipes of different diameters, organization of pipes and rolled metal handling in ports, and value added services.
In the last few years many new Russian port owners emerged: Magnitogorsk Iron and Steel Works (commercial sea port of Vladivostok), Mechel group of companies (port of Posyet), Evraz-Holding (commercial sea port of Nakhodka), Nornickel (commercial sea port of Arkhangelsk). Novolipetsky Metallurgical Mill purchased the ports of Tuapse, Saint-Petersburg and Taganrog. Severstaltrans initiated the tendency: it owns the port of Vostochny, and the Neva-Metal company that operates in the port of Saint-Petersburg and specializes in handing rolled ferrous metals from Cherepovetsk Mill.
It is obvious: the better a company reduces the prime cost of its produce and production costs, the more important logistics becomes. A company that has better routes of commodity output transportation and adjusted logistic schemes gets a larger profit. To control the logistic constituent, the Metalloinvest holding company plans to increase its rolling stock park to 7,000 wagons. Metalloinvest-Trans, incorporated into the holding company, is considering the option of either purchase or construction of new terminals on the territory of the sea ports in Russia, Ukraine or Baltic states. Metallurgical traders also solve logistic problems by creating optimal transport schemes.
These facts prove once again that the transport business is very prospective for investors. Transport becomes a more and more attractive sector, very dynamical, with a large potential.
– How is it possible to evaluate tariffs on transportation of metal production by railway and road hauliers? What are the advantages of these transport modes?
– The production of metallurgical enterprises makes about 30% of railway transport throughput. This transport mode is beyond comparison. For example, every two minutes a wagon loaded with iron ore is dispatched from the Mikhailovsky ore mining and processing enterprise. No other transport mode could service such large-scaled volumes.
Naturally, the tariff policy is very important in the sector. The reason for the increase of prime cost of metal produce will be the growth of prices on the resources consumed by the sector, wages, re-evaluation of the main funds and rise of capital allowances, and the increase of the tariffs on freight transportation (more exactly – their annual indexation) as well. Nobody expects any preferences nowadays. Thanks God, the mechanism of tariff formation by the RF Ministry of Transport has become more transparent and controlled.
– What are the main targets of the sector nowadays? How is it possible to reach them?
– I believe that the state industrial policy should envisage a growth of the domestic metal produce market at the expense of machine building industry resumption and service improvement. It is necessary to re-equip enterprises faster, to reduce the material and power intensity of metal produce, to increase labour productivity.
According to the forecast of the RF Ministry of Industry and Energy, in 2005-2009 consumption of rolled metal will increase by 6.7-12.7% compared to 2005. Because of the changes in demand for metal produce, it is forecasted that in 2006-2009 the volume of finished rolled metal production will grow to 57-59 million tons, i.e. 3.8-8.1% up compared to 2005, when 54.6 million tons of rolled metal was produced.
According to the same forecast of the RF Ministry of Industry and Energy, in 2006-2009 the annual profit of metallurgical sector will increase by 3-4% compared to the level of 2005. In 2006 the profit is to increase by 1% year-on-year. I believe that if profit accumulates as it is forecasted, metallurgists will be able to solve all the problems arising in the sector.
At the same time, there is a necessity for intersectoral cooperation, in particular, between metallurgical and transport businesses. Logistics and transport are the most important elements of infrastructure of any state’s economy. That is why I appreciate the meetings held by the RF Ministry of Transport devoted to the development of a logistic infrastructure and the market of logistic services. The problems of logistics and transport improvement, optimal placing of modern warehousing complexes from the standpoint of current situation and the prospects of the country’s economy development are discussed at such meetings. The Russian Union of Metal Production Suppliers regularly participates in such meetings, round table discussions and conferences devoted to the development of logistics and transport systems.
Interviewed by TATYANA TOKAREVA
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[DETAIL_TEXT] => President of the Russian Union of Metal Production Suppliers, Organizational Committee of the International Specialized Exhibition «Metal-Expo» Co-Chairperson Alexander Romanov tells «The RZD-Partner International» business magazine about the development of the Russian metals market.
– Could you comment on the current situation on the Russian metal produce market? What is the average annual volume of metal production? What is the ratio of the produce sold on the domestic market? What share of metal production is exported?
– Last year, 28.4 million tons of steel rolled metal was sold on the domestic market, while the production volume amounted to 60 million tons. Thus, about 50% of the produced metals (28.5 million tons) is exported to different countries, especially to South-East Asia. Being the second largest exporter of metals in the world, Russia is competitive according to metals’ quality and price. However, nowadays over 45% of the exported rolled metal is semi-finished products.
As for the domestic consumption, nowadays about 220 kilograms of metal produce consumption accounts per one Russian citizen. In the USA the figure is 400 kilograms, and in Japan it is 600 kilograms. Russian industry consumes little metal produce, because the machine building sector is not developed. The main consumers are now building, transport and energy industries. These industries will remain the locomotives of the market volume growth.
Meanwhile, Russian producers of metals are striving to occupy stable positions on the Russian market, counting on its further growth. Different metallurgical companies come to the market more and more actively. Our union includes such companies as Evraz-Holding, Severstal-Invest, TMK (Tube Metallurgical Company), UralTruboStal (Me-TriC-Tirus), and OMK-Stal. It is clear that the target of each large metallurgical company is the increase of its presence on the domestic market, including the formation of a distributing network and construction of large warehouses in the main centers of metal consumption. However, independent net companies also enlarge their presence, using their competitive advantages. As for regional companies, they are to choose their direction of further development in the next two-three years. These directions are retail, and improvement of service, produce of constrictions, semi-finished products and metal processing.
– What products of the range are popular on the domestic market? What products are popular on the foreign market?
– It is consumption that will influence the market situation from the standpoint of product types in the near future. Flat produce will be popular on the Russian market. The machine building sector will require high-quality profiled iron, i.e. structural and long-length production. Building industry also increases its requirements to the profiled iron. As for export, Russian slabs, profiled semi-finished products for further processing on rolling mills will remain popular. The access to foreign markets is very complicated for the high value-added production because of a number of protection measures. To get an access to the European and American markets, Russian metallurgists purchase steel mills and rolling capacities on the markets. The tendency is that in the export structure the share of products of deep processing (cold-rolled sheet, coated sheets, profiled iron produced using modern technologies and modern equipment) will increase. Export of steel pipes will significantly grow (by 22-28%). The same thing applies to wire products. On the world market, the demand for pipes produced in Russia increases: the geography of export grew from 15 countries in 2001 to 68 states in 2005, and the export volume has doubled.
– What is the estimation of producing capacities enabling to create production of deep processing in Russia? Is the sector attractive for investments?
– In 2004-2005 average investments increased by 2.85 times comparing to 2000-2003. Metallurgical companies have hundreds million dollars investment programmes. Metallurgical companies improve their equipment, put into operation equipment for non-stop work material casting, electric furnaces, and give up the open-hearth process of steel production. The complex of measures for technical re-equipment of production is being carried out most radically and successively at MMK. In 2006, Magnitogorsk Iron and Steel Works will give up the open-hearth process, replacing it by electric furnace steelmaking. Section rolling production has also been renewed. Three new mills for production of rolled wire, wire and structural shapes with the annual total capacity of two million tons have been put into operation. During the last four years, a double-stand reversing cold-rolling mill, a non-stop hot-zinc-plating unit and a polymeric coating aggregate were put into operation.
Severstal, Novolipetsky Metallurgical Mill, Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and other enterprises also take measures for further development and technical re-equipment. The projects that are being carried out in the pipe producing industry are fundamentally important for the development of ferrous metallurgy and the Russian economy on the whole. Nowadays, the capacities of Russian pipe industry can satisfy the requirements of the leading Russian oil and gas and machine-building companies. As a result of speeding up the innovations implementation, the production structure of the metallurgical sector improves, which enables to increase the competitiveness of production and its correspondence to the requirements of the market. Metallurgical traders have been producing more and more high-value added output recently. During the latest decade, Russian metal business increased significantly its activities in metal processing. Nowadays, for example, several dozens of companies – members of the Russian Union of Metal Production Suppliers – are engaged in sheet-processing. The outsourcing of services connecting with processing of flat rolled metals, reinforcing steel, production of fabricated nets, frames for building industry enterprises develops slowly in Russia. Naturally, the process will speed up soon: now it is developed in the large cities of the Russian Federation, later it will start in the regions, and even in the regional centers, because metal should be processed in specialized metal centers. The market develops dynamically, and in several years distribution of metal production in Russia will be of the same level as it is in European countries.
– What is the volume of import metal produce? What products are purchased abroad? Are there analogues to them on the domestic market?
– Now Russian producers manage to maintain «substitution price», which makes foreign producers’ supplies to the Russian market unprofitable. At the same time, prices in Russia are not lower than in the world (and it is the direct result of the world market situation), and that is why the RF market is very attractive. The Russian market becomes a priority not only for Russian, but also for foreign metallurgical companies. Recently foreign companies represented by their affiliates registered in the Russian Federation have started to work actively on the market. For example, the Finnish company Ruuki ThyssenKrupp has been developing a trade network named ThyssenKrupp Materials, which has strengthened its position lately. Foreign producers of stainless steel also work actively on the market. As a rule, they are engaged in delivery of stainless steel not produced in Russia.
Nowadays, foreign companies are not always satisfied with the investment climate; besides, there are different corruption mechanisms in the Russian business. So, foreign companies do not show their worth on the Russian market. Naturally, when Russia joins the WTO, it will be a more civilized state. And then foreign companies will start to purchase actively the metal trade networks working on the Russian market.
– Could you assess the situation from the demand/supply standpoint? What are the problems with the sale of produce? Could you evaluate the quality and competitiveness of the Russian produce?
– The production of Russian ferrous metallurgy is characterized by high competitiveness compared to the production of other largest states-metal producers. According to the data of different foreign and international analytical and consulting companies, expenses on the production of one ton of steel is lower by 1.2-1.5 times in Russia than in developing countries (China, India, Brazil), by 1.5-1.6 times than in Japan, by 1.5-1.7 times than in the EU, and by 1.4-1.8 times than in the USA. The main factors providing the high competitiveness of Russian metal produce are cheap energy and labour force. However, the Russian metallurgy’s long-term strategy of development is hardly based on them. In several years these advantages of the Russian ferrous metallurgy will be lost, and then it will have to compete on the market terms: quality and service.
The misbalance of demand and supply on the metal market emerges only because of seasonal factor. For example, in summer there was a lack of reinforcing bar. Respectively, there can hardly be any problems with sales.
– What is the situation with the transportation? What is the share of the transport constituent in the ultimate price?
– On average, the share of the transport constituent in the production cost can amount to 24%, while the share of raw materials can reach 62%. This stimulates metallurgists to develop their own transport assets, because it is possible to save on transport expenses using one’s own rolling stock and paying to OAO RZD only the expenses on the exploitation of infrastructure – tracks and locomotives. As for Severstaltrans, its assets purchase locomotives as well. (However, despite the fact that Severstaltrans started with Severstal’s freight transportation, now in the aggregate throughput of independently managed Severstaltrans Severstal takes only about 3.5%, while the rest is cargoes for other clients. The head of Severstal – Alexey Mordashov – owns 50% of Severstaltrans shares, another 50% of shares belongs to the management of Severstaltrans. – «The RZD-Partner International»). Being one of the leaders on the Russian transport market, the Severstaltrans group of companies occupies leading positions according to the volume of transported cargoes: its share of railway transportation makes 5% of the total Russian transportation by railway. Nowadays, Severstaltrans takes up all types of transport business but air transportation. The company transports by railway 18% of all ferrous metals, 16.8% of iron ore, 11.4% of oil and products; its share in the total Russian port throughput is also significant.
The Nezavisimaya Transportnaya Kompaniya (Independent Transport Company) owned by Novolipetsky Metallurgical Mill transports most cargoes of the Mill. This direction of business diversification was historically predetermined for metallurgists. For example, the length of railway tracks on the territory of Novolipetsky Metallurgical Mill can be compared to the territory of the Moscow underground, which is not the shortest in the world at all. The total length of railways of Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and Novoluznetsky Metallurgical Mill is over 1,000 kilometers, which is 1.2% of the total length of railways of the former Ministry of Railways of Russia. The total volume of cargoes carried by the railway transport of Evraz-Holding’s enterprises exceeds 10% of the volume transported along the whole Russian railway network. And it is a large figure!
The average monthly volume of cargoes forwarded by Evraztrans (a transport company of Evraz-Holding), is 2.5-2.7 million tons, and on average the holding company requires 70 million tons annually. So, it is no wonder that metallurgical companies are eager to create their own transport divisions and logistic centers.
Magnitogorsk Iron and Steel Works’ company-operator MMK-Trans provides transportation for 35% of the company’s export production using about 3,000 own and rented wagons. Mechel group of companies includes Mechel-Trans, which transports about 2.5 million tons of freight monthly. TMK-Trans specializes in transportation of pipes of different diameters, organization of pipes and rolled metal handling in ports, and value added services.
In the last few years many new Russian port owners emerged: Magnitogorsk Iron and Steel Works (commercial sea port of Vladivostok), Mechel group of companies (port of Posyet), Evraz-Holding (commercial sea port of Nakhodka), Nornickel (commercial sea port of Arkhangelsk). Novolipetsky Metallurgical Mill purchased the ports of Tuapse, Saint-Petersburg and Taganrog. Severstaltrans initiated the tendency: it owns the port of Vostochny, and the Neva-Metal company that operates in the port of Saint-Petersburg and specializes in handing rolled ferrous metals from Cherepovetsk Mill.
It is obvious: the better a company reduces the prime cost of its produce and production costs, the more important logistics becomes. A company that has better routes of commodity output transportation and adjusted logistic schemes gets a larger profit. To control the logistic constituent, the Metalloinvest holding company plans to increase its rolling stock park to 7,000 wagons. Metalloinvest-Trans, incorporated into the holding company, is considering the option of either purchase or construction of new terminals on the territory of the sea ports in Russia, Ukraine or Baltic states. Metallurgical traders also solve logistic problems by creating optimal transport schemes.
These facts prove once again that the transport business is very prospective for investors. Transport becomes a more and more attractive sector, very dynamical, with a large potential.
– How is it possible to evaluate tariffs on transportation of metal production by railway and road hauliers? What are the advantages of these transport modes?
– The production of metallurgical enterprises makes about 30% of railway transport throughput. This transport mode is beyond comparison. For example, every two minutes a wagon loaded with iron ore is dispatched from the Mikhailovsky ore mining and processing enterprise. No other transport mode could service such large-scaled volumes.
Naturally, the tariff policy is very important in the sector. The reason for the increase of prime cost of metal produce will be the growth of prices on the resources consumed by the sector, wages, re-evaluation of the main funds and rise of capital allowances, and the increase of the tariffs on freight transportation (more exactly – their annual indexation) as well. Nobody expects any preferences nowadays. Thanks God, the mechanism of tariff formation by the RF Ministry of Transport has become more transparent and controlled.
– What are the main targets of the sector nowadays? How is it possible to reach them?
– I believe that the state industrial policy should envisage a growth of the domestic metal produce market at the expense of machine building industry resumption and service improvement. It is necessary to re-equip enterprises faster, to reduce the material and power intensity of metal produce, to increase labour productivity.
According to the forecast of the RF Ministry of Industry and Energy, in 2005-2009 consumption of rolled metal will increase by 6.7-12.7% compared to 2005. Because of the changes in demand for metal produce, it is forecasted that in 2006-2009 the volume of finished rolled metal production will grow to 57-59 million tons, i.e. 3.8-8.1% up compared to 2005, when 54.6 million tons of rolled metal was produced.
According to the same forecast of the RF Ministry of Industry and Energy, in 2006-2009 the annual profit of metallurgical sector will increase by 3-4% compared to the level of 2005. In 2006 the profit is to increase by 1% year-on-year. I believe that if profit accumulates as it is forecasted, metallurgists will be able to solve all the problems arising in the sector.
At the same time, there is a necessity for intersectoral cooperation, in particular, between metallurgical and transport businesses. Logistics and transport are the most important elements of infrastructure of any state’s economy. That is why I appreciate the meetings held by the RF Ministry of Transport devoted to the development of a logistic infrastructure and the market of logistic services. The problems of logistics and transport improvement, optimal placing of modern warehousing complexes from the standpoint of current situation and the prospects of the country’s economy development are discussed at such meetings. The Russian Union of Metal Production Suppliers regularly participates in such meetings, round table discussions and conferences devoted to the development of logistics and transport systems.
Interviewed by TATYANA TOKAREVA
[~DETAIL_TEXT] => President of the Russian Union of Metal Production Suppliers, Organizational Committee of the International Specialized Exhibition «Metal-Expo» Co-Chairperson Alexander Romanov tells «The RZD-Partner International» business magazine about the development of the Russian metals market.
– Could you comment on the current situation on the Russian metal produce market? What is the average annual volume of metal production? What is the ratio of the produce sold on the domestic market? What share of metal production is exported?
– Last year, 28.4 million tons of steel rolled metal was sold on the domestic market, while the production volume amounted to 60 million tons. Thus, about 50% of the produced metals (28.5 million tons) is exported to different countries, especially to South-East Asia. Being the second largest exporter of metals in the world, Russia is competitive according to metals’ quality and price. However, nowadays over 45% of the exported rolled metal is semi-finished products.
As for the domestic consumption, nowadays about 220 kilograms of metal produce consumption accounts per one Russian citizen. In the USA the figure is 400 kilograms, and in Japan it is 600 kilograms. Russian industry consumes little metal produce, because the machine building sector is not developed. The main consumers are now building, transport and energy industries. These industries will remain the locomotives of the market volume growth.
Meanwhile, Russian producers of metals are striving to occupy stable positions on the Russian market, counting on its further growth. Different metallurgical companies come to the market more and more actively. Our union includes such companies as Evraz-Holding, Severstal-Invest, TMK (Tube Metallurgical Company), UralTruboStal (Me-TriC-Tirus), and OMK-Stal. It is clear that the target of each large metallurgical company is the increase of its presence on the domestic market, including the formation of a distributing network and construction of large warehouses in the main centers of metal consumption. However, independent net companies also enlarge their presence, using their competitive advantages. As for regional companies, they are to choose their direction of further development in the next two-three years. These directions are retail, and improvement of service, produce of constrictions, semi-finished products and metal processing.
– What products of the range are popular on the domestic market? What products are popular on the foreign market?
– It is consumption that will influence the market situation from the standpoint of product types in the near future. Flat produce will be popular on the Russian market. The machine building sector will require high-quality profiled iron, i.e. structural and long-length production. Building industry also increases its requirements to the profiled iron. As for export, Russian slabs, profiled semi-finished products for further processing on rolling mills will remain popular. The access to foreign markets is very complicated for the high value-added production because of a number of protection measures. To get an access to the European and American markets, Russian metallurgists purchase steel mills and rolling capacities on the markets. The tendency is that in the export structure the share of products of deep processing (cold-rolled sheet, coated sheets, profiled iron produced using modern technologies and modern equipment) will increase. Export of steel pipes will significantly grow (by 22-28%). The same thing applies to wire products. On the world market, the demand for pipes produced in Russia increases: the geography of export grew from 15 countries in 2001 to 68 states in 2005, and the export volume has doubled.
– What is the estimation of producing capacities enabling to create production of deep processing in Russia? Is the sector attractive for investments?
– In 2004-2005 average investments increased by 2.85 times comparing to 2000-2003. Metallurgical companies have hundreds million dollars investment programmes. Metallurgical companies improve their equipment, put into operation equipment for non-stop work material casting, electric furnaces, and give up the open-hearth process of steel production. The complex of measures for technical re-equipment of production is being carried out most radically and successively at MMK. In 2006, Magnitogorsk Iron and Steel Works will give up the open-hearth process, replacing it by electric furnace steelmaking. Section rolling production has also been renewed. Three new mills for production of rolled wire, wire and structural shapes with the annual total capacity of two million tons have been put into operation. During the last four years, a double-stand reversing cold-rolling mill, a non-stop hot-zinc-plating unit and a polymeric coating aggregate were put into operation.
Severstal, Novolipetsky Metallurgical Mill, Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and other enterprises also take measures for further development and technical re-equipment. The projects that are being carried out in the pipe producing industry are fundamentally important for the development of ferrous metallurgy and the Russian economy on the whole. Nowadays, the capacities of Russian pipe industry can satisfy the requirements of the leading Russian oil and gas and machine-building companies. As a result of speeding up the innovations implementation, the production structure of the metallurgical sector improves, which enables to increase the competitiveness of production and its correspondence to the requirements of the market. Metallurgical traders have been producing more and more high-value added output recently. During the latest decade, Russian metal business increased significantly its activities in metal processing. Nowadays, for example, several dozens of companies – members of the Russian Union of Metal Production Suppliers – are engaged in sheet-processing. The outsourcing of services connecting with processing of flat rolled metals, reinforcing steel, production of fabricated nets, frames for building industry enterprises develops slowly in Russia. Naturally, the process will speed up soon: now it is developed in the large cities of the Russian Federation, later it will start in the regions, and even in the regional centers, because metal should be processed in specialized metal centers. The market develops dynamically, and in several years distribution of metal production in Russia will be of the same level as it is in European countries.
– What is the volume of import metal produce? What products are purchased abroad? Are there analogues to them on the domestic market?
– Now Russian producers manage to maintain «substitution price», which makes foreign producers’ supplies to the Russian market unprofitable. At the same time, prices in Russia are not lower than in the world (and it is the direct result of the world market situation), and that is why the RF market is very attractive. The Russian market becomes a priority not only for Russian, but also for foreign metallurgical companies. Recently foreign companies represented by their affiliates registered in the Russian Federation have started to work actively on the market. For example, the Finnish company Ruuki ThyssenKrupp has been developing a trade network named ThyssenKrupp Materials, which has strengthened its position lately. Foreign producers of stainless steel also work actively on the market. As a rule, they are engaged in delivery of stainless steel not produced in Russia.
Nowadays, foreign companies are not always satisfied with the investment climate; besides, there are different corruption mechanisms in the Russian business. So, foreign companies do not show their worth on the Russian market. Naturally, when Russia joins the WTO, it will be a more civilized state. And then foreign companies will start to purchase actively the metal trade networks working on the Russian market.
– Could you assess the situation from the demand/supply standpoint? What are the problems with the sale of produce? Could you evaluate the quality and competitiveness of the Russian produce?
– The production of Russian ferrous metallurgy is characterized by high competitiveness compared to the production of other largest states-metal producers. According to the data of different foreign and international analytical and consulting companies, expenses on the production of one ton of steel is lower by 1.2-1.5 times in Russia than in developing countries (China, India, Brazil), by 1.5-1.6 times than in Japan, by 1.5-1.7 times than in the EU, and by 1.4-1.8 times than in the USA. The main factors providing the high competitiveness of Russian metal produce are cheap energy and labour force. However, the Russian metallurgy’s long-term strategy of development is hardly based on them. In several years these advantages of the Russian ferrous metallurgy will be lost, and then it will have to compete on the market terms: quality and service.
The misbalance of demand and supply on the metal market emerges only because of seasonal factor. For example, in summer there was a lack of reinforcing bar. Respectively, there can hardly be any problems with sales.
– What is the situation with the transportation? What is the share of the transport constituent in the ultimate price?
– On average, the share of the transport constituent in the production cost can amount to 24%, while the share of raw materials can reach 62%. This stimulates metallurgists to develop their own transport assets, because it is possible to save on transport expenses using one’s own rolling stock and paying to OAO RZD only the expenses on the exploitation of infrastructure – tracks and locomotives. As for Severstaltrans, its assets purchase locomotives as well. (However, despite the fact that Severstaltrans started with Severstal’s freight transportation, now in the aggregate throughput of independently managed Severstaltrans Severstal takes only about 3.5%, while the rest is cargoes for other clients. The head of Severstal – Alexey Mordashov – owns 50% of Severstaltrans shares, another 50% of shares belongs to the management of Severstaltrans. – «The RZD-Partner International»). Being one of the leaders on the Russian transport market, the Severstaltrans group of companies occupies leading positions according to the volume of transported cargoes: its share of railway transportation makes 5% of the total Russian transportation by railway. Nowadays, Severstaltrans takes up all types of transport business but air transportation. The company transports by railway 18% of all ferrous metals, 16.8% of iron ore, 11.4% of oil and products; its share in the total Russian port throughput is also significant.
The Nezavisimaya Transportnaya Kompaniya (Independent Transport Company) owned by Novolipetsky Metallurgical Mill transports most cargoes of the Mill. This direction of business diversification was historically predetermined for metallurgists. For example, the length of railway tracks on the territory of Novolipetsky Metallurgical Mill can be compared to the territory of the Moscow underground, which is not the shortest in the world at all. The total length of railways of Zapadno-Sibirsky Metallurgical Plant, Nizhnetagilsky Metallurgical Mill and Novoluznetsky Metallurgical Mill is over 1,000 kilometers, which is 1.2% of the total length of railways of the former Ministry of Railways of Russia. The total volume of cargoes carried by the railway transport of Evraz-Holding’s enterprises exceeds 10% of the volume transported along the whole Russian railway network. And it is a large figure!
The average monthly volume of cargoes forwarded by Evraztrans (a transport company of Evraz-Holding), is 2.5-2.7 million tons, and on average the holding company requires 70 million tons annually. So, it is no wonder that metallurgical companies are eager to create their own transport divisions and logistic centers.
Magnitogorsk Iron and Steel Works’ company-operator MMK-Trans provides transportation for 35% of the company’s export production using about 3,000 own and rented wagons. Mechel group of companies includes Mechel-Trans, which transports about 2.5 million tons of freight monthly. TMK-Trans specializes in transportation of pipes of different diameters, organization of pipes and rolled metal handling in ports, and value added services.
In the last few years many new Russian port owners emerged: Magnitogorsk Iron and Steel Works (commercial sea port of Vladivostok), Mechel group of companies (port of Posyet), Evraz-Holding (commercial sea port of Nakhodka), Nornickel (commercial sea port of Arkhangelsk). Novolipetsky Metallurgical Mill purchased the ports of Tuapse, Saint-Petersburg and Taganrog. Severstaltrans initiated the tendency: it owns the port of Vostochny, and the Neva-Metal company that operates in the port of Saint-Petersburg and specializes in handing rolled ferrous metals from Cherepovetsk Mill.
It is obvious: the better a company reduces the prime cost of its produce and production costs, the more important logistics becomes. A company that has better routes of commodity output transportation and adjusted logistic schemes gets a larger profit. To control the logistic constituent, the Metalloinvest holding company plans to increase its rolling stock park to 7,000 wagons. Metalloinvest-Trans, incorporated into the holding company, is considering the option of either purchase or construction of new terminals on the territory of the sea ports in Russia, Ukraine or Baltic states. Metallurgical traders also solve logistic problems by creating optimal transport schemes.
These facts prove once again that the transport business is very prospective for investors. Transport becomes a more and more attractive sector, very dynamical, with a large potential.
– How is it possible to evaluate tariffs on transportation of metal production by railway and road hauliers? What are the advantages of these transport modes?
– The production of metallurgical enterprises makes about 30% of railway transport throughput. This transport mode is beyond comparison. For example, every two minutes a wagon loaded with iron ore is dispatched from the Mikhailovsky ore mining and processing enterprise. No other transport mode could service such large-scaled volumes.
Naturally, the tariff policy is very important in the sector. The reason for the increase of prime cost of metal produce will be the growth of prices on the resources consumed by the sector, wages, re-evaluation of the main funds and rise of capital allowances, and the increase of the tariffs on freight transportation (more exactly – their annual indexation) as well. Nobody expects any preferences nowadays. Thanks God, the mechanism of tariff formation by the RF Ministry of Transport has become more transparent and controlled.
– What are the main targets of the sector nowadays? How is it possible to reach them?
– I believe that the state industrial policy should envisage a growth of the domestic metal produce market at the expense of machine building industry resumption and service improvement. It is necessary to re-equip enterprises faster, to reduce the material and power intensity of metal produce, to increase labour productivity.
According to the forecast of the RF Ministry of Industry and Energy, in 2005-2009 consumption of rolled metal will increase by 6.7-12.7% compared to 2005. Because of the changes in demand for metal produce, it is forecasted that in 2006-2009 the volume of finished rolled metal production will grow to 57-59 million tons, i.e. 3.8-8.1% up compared to 2005, when 54.6 million tons of rolled metal was produced.
According to the same forecast of the RF Ministry of Industry and Energy, in 2006-2009 the annual profit of metallurgical sector will increase by 3-4% compared to the level of 2005. In 2006 the profit is to increase by 1% year-on-year. I believe that if profit accumulates as it is forecasted, metallurgists will be able to solve all the problems arising in the sector.
At the same time, there is a necessity for intersectoral cooperation, in particular, between metallurgical and transport businesses. Logistics and transport are the most important elements of infrastructure of any state’s economy. That is why I appreciate the meetings held by the RF Ministry of Transport devoted to the development of a logistic infrastructure and the market of logistic services. The problems of logistics and transport improvement, optimal placing of modern warehousing complexes from the standpoint of current situation and the prospects of the country’s economy development are discussed at such meetings. The Russian Union of Metal Production Suppliers regularly participates in such meetings, round table discussions and conferences devoted to the development of logistics and transport systems.
Interviewed by TATYANA TOKAREVA
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Merger and acQuisition
Ferrous metallurgy has always been among the major sectors of the Russian economy. Nowadays, its share in the country’s GDP is 12%. Ferrous metallurgy produce is the most important export cargo of Russia, besides it provides activities of the adjacent machine building sectors. In its turn, the stable development of the latter is a stimulus for the growth of the domestic market of ferrous metals.
Russian metallurgical enterprises were given a powerful push in 2001, when the USA reduced quotas on the import of Russian steel. As a result of skilled lobby, Russian metallurgical enterprises managed to get significant privileges from the RF Government regarding taxes, as well as some tariff privileges on their produce transportation. China also played an important role in stirring up Russian metallurgical enterprises. Having obtained large credits from the world bank institutions, China has been actively investing into the development of machine- and lathe- building while purchasing Russian metals, which is quite understandable, taking into account that these countries are neighbours. The next step of China was the development of steel industry, so Beijing paid attention to Russian iron ore and coking coal. This was the main reason for the launch of largest vertically integrated holding companies, uniting extracting, producing and transport assets.
On the one hand, metallurgical enterprises were very optimistic when metal was sold to China at high (much exceeding Russian domestic and even international) purchasing prices. On the other hand, when a similar offer was made to the Russian producers of iron ore (at some estimation, prices for iron ore grew by 70% at the end of 2003 and by 20-30% more in H1 of 2004), metallurgical companies found themselves in a very unfavourable position and raised an alarm. Having fast reacted to the market situation, Russian producers of iron ore and coke re-oriented sale flow to the countries of Asian and Pacific region, thus depriving Russian ferrous metallurgical sector of significant volumes of necessary raw materials. Bit even the iron ore that continued to be delivered to the Russian domestic market was sold at higher price, which couldn’t but influence the prime cost of metal production.
As a result, the largest companies of the Russian metallurgical sector chose integration and creation of holding companies to secure themselves against the lack of raw materials. A most typical problem of metallurgical and adjacent sectors emerged in 2004: it was a conflict between Magnitogorsk Iron and Steel Works (MMK) and Mikhailovsky Ore Mining and Processing Enterprise.
For many years Mikhailovsky Ore Mining and Processing Enterprise was one of the iron ore suppliers of MMK. It was also one of the first enterprises that concluded contracts with Chinese companies, thus making a representative of Mugnitogorsk Iron and Steel Works worried about a possible reduction of metals production because of growing prices and the lack of raw materials. However, soon the situation on the world metal market changed: new serious players – enterprises of China, Kazakhstan and Ukraine – appeared on the world market. They offered iron ore of almost the same quality as the Russian one, but at lower prices. As a result, the demand for Russian metal reduced, but there was plenty of iron ore. Then, Mikhailovsky Ore Mining and Processing Enterprise offered MMK to resume their cooperation. However, Magnitogorsk Iron and Steel Works had already found reliable suppliers in Ukraine and got tariff privileges on import of iron ore from Ukraine. As a result, in 2004 the majority shareholding of Mikhailovsky Ore Mining and Processing Enterprise was purchased by ZAO Metalloinvest, and MMK had to buy about 90% of raw materials in another state.
On the whole, buying over raw materials enterprises is one of the specific features of the recent years. Meanwhile, having divided domestic resources, Russian metallurgical companies are paying more and more attention to foreign markets. For example, in 2004 Severstal-group purchased American Metallurgical Works Severstal North America in Detroit; in 2005 it bought the Luccini group of companies (Italy). Evrazholding purchased the Italian enterprise Palini e Bertoli and Vitkovice Steel in Czechia. Mechel steel group owns three plants in Romania, one in Croatia and one in Lithuania.
Having solved the problem of raw materials delivery, most Russian metallurgical companies failed to find a solution to coke supply problem. Prices on coke grew significantly and the producers refused to decrease them. As a result, large holding companies had to purchase enterprises producing coke. The enterprises to which large holding companies paid no attention lost a significant market and had to reduce production volumes. Small metallurgical works decreased production volumes because they could not purchase coke at new prices.
Investments Are Necessary
As a result, the enlargement of metallurgical companies is a characteristic feature of the Russian market, which is supported by the RF Government. Experts notice that a further increase of metal production profitability is impossible if the old approach is used. Major metallurgical enterprises work at their full productive capacity. According to some estimations, the coefficient of their usage amounts to 90%. Besides, the Russian structure of production in the metallurgical sector is absolutely different from the foreign one. It is characterized by a very low share of high value-added produce with (less than 10% in the sectoral product) and by a large volume of raw materials production and products of basic recast. Thus, one of the urgent problems is investments into the industry. Experts of the Ministry of Industry and Energy notice that small business can be the resource of innovations; however, concentration of capital and managing and producing resources with an emphasis on realization of the full technologic chain, including utilization, are required for efficient development. Only big companies in cooperation with the state can carry out such a strategy.
Meanwhile, there are prerequisites to stirring up the investment activities in the sector. According to the statistics of the RF Ministry of Industry and Energy, in 2005 investments into the metallurgical sector grew by 1.5 times to RUR 155 billion, including RUR 100 billion invested into ferrous metals production. Besides, nowadays, the world market of ferrous metals is characterized by a high level of competition, when tariff and non-tariff limitations on deliveries from Russia are implemented in more than forty countries. Analysts highlight that not just separate metallurgical companies, holding companies or corporations are competing, but states, which have powerful administrative resources. In spite of positive dynamics in the development of the sector, there are still some problems.
Firstly, specialists mention a strong import trend caused by low competitiveness of a number of products. In particular, their data show that imported production of ferrous metallurgy makes about 20% in the turnover of the Russian domestic market. As can be seen from some speeches of the representatives of the Ministry of Industry and Energy of Russia, the state has some mechanisms to stimulate development of Russian producers. First of all, the level of customs rates on the export of Russian produce, as well as on the import of foreign one, is lobbied. Meanwhile, Russian metal traders were against the decision to implement prohibitive duties on the import of Ukrainian metal production. At the beginning of July, after a number of RF metallurgical enterprises appealed to the RF Ministry of Economic Development and Trade, an antidumping research was held. It showed that by the end of May 2006 the share of Ukrainian metallurgical enterprises on the Russian market amounted to 6%, 1% up year-on-year, which caused reduction of Russian metallurgical companies sales volumes by more than 11% since the beginning of 2006. As a result, 25-30% prohibitive duties on the import of cold-rolled mill products from Ukraine were put into operation. However, metal traders protest against such a decision, pointing at a possible growth of prices on this type of production on the domestic market as a result of reduced competition. What decision will be made is still a mystery. From the point of view of experts specializing in the Ukrainian market, the most compromised decision will be 10-15% prohibitive duties, which will surely reduce the import of metal produce from Ukraine, but will not stop it.
At the same time, it is worth noting that such mechanisms can be used till Russia joins the WTO. The former Head of the Central Bank of Russia and now the Chairman of the Board of YUKOS Viktor Geraschenko said that it is Russian metallurgists who are interested in the country’s joining the World Trade Organization, because they will enter new markets. However, the import of ferrous metallurgy production to the Russian Federation can significantly increase. That is why the best instrument of state support to the sector is non-tariff regulation. In particular, the heads of the RF Ministry of Trade Economic Development and highlight in their reports that much attention is nowadays paid to the implementation of measures of state support provided to Russian exporters, envisaging a partial compensation from the federal budget of expenses used to pay interest on credits obtained from Russian credit organizations. It seems that such an approach on behalf of the state will encourage a further development of the sector and lead to active investment activities by its subjects.
An increase of investment activity is an absolute necessity for the metallurgical sector. In particular, the low competitiveness of some types of ferrous metallurgy production is often caused by the high level of equipment deterioration. Experts say that in the leading countries steel is hardly produced by the open-hearth method. In Russia, over 20% of steel is produced in open-hearth furnaces. As to the average amount of coke necessary to produce a ton of cast iron, it amounts to 380 kilograms per ton in industrial countries, and to over 450 kilograms per ton in Russia.
Another important problem is the low volumes of exploration work and the low competitiveness of ore. According to the data of the Federal Statistics Service, in 1994-2003 the share of exploration work on non-ferrous and less-common metals reduced from 4.9% to 0.9%, and on ferrous metals ore – from 0.6% to 0.2%, while in the oil and gas sector it fluctuated between 73.1-77.8%. Besides, the minerals mining tax put into operation in 2002 does not take into account the differences between geographical, economic, mining, geological and other conditions of field development, believe specialists of the RF Ministry of Industry and Energy. As a result, companies with higher expenses on extraction (which does not depend on them) pay a higher tax. Thus, many fields of critical types of mineral ore can be developed only under conditions of special taxes.
Certain Growth
In H1 of 2005, the work of the metallurgical sector was characterized by high dynamics of development. Thus, in six months of 2006 growth of metallurgical production and finished metal products increased by 11.3% year-on-year; metallurgical production grew by 8.2%. In January-June production of finished steel increased by 7.3% year-on-year, that one of steel pipes and grew by 16.2%, output of iron ore and coke increased by 4.5% and 0.2% respectively. In June 2006 Russian ferrous metallurgy produced over 4.3 million tons of cast iron (+19.5% year-on-year), 6 million tons of steel (+16.7%), 5 million tons of finished steel (+17.1%). In H1 of 2006, the growth of these products made +7.3%, +7.2% and +7.3% respectively. According to the data of the RF Ministry of Industry and Energy, in June 2005 finished steel production increased by 16.9% at OAO Magnotogorsk Iron and Steel Works, by 5.3% at OAO Nizhnetagilsky Iron and Steel Works, by 11.6% at OAO Severstal-Cherepovetsk Iron and Steel Works, by 51.6% at OAO Chelyabinsk Iron and Steel Works, by 24.6% and OAO Novolipetsky Metallurgical Mill. Production of steel pipes (the most actively developing sector) increased by 16.8% year-on-year. In particular, it grew by 71% year-on-year at OAO Vyksa Steel Works, by 11% at OAO Chelyabinsk Tube-Rolling Mills, by 11% at OAO Taganrogsky Metallurgical Works, by 5% at OAO Pervouralsky Novotrubny Plant, and by 4% at OAO Seversky Pipe Plant.
In Russia, the domestic consumption of metal produce has been increasing during the six months of 2006. If the 50% to 50% ratio of Russian metal produce sale was considered traditional, in H1 of 2006, export of ferrous metals and metal products reduced by 19% year-on-year, including export to foreign countries (?) which decreased by 20% and export to the CIS which grew by 6.5%. At the same time, analysts claim that iron ore delivery to foreing countries increased by 11.5% during the period. Meanwhile, export of coke fell by 60%. On the whole, the share of ferrous metals and metal products export to foreign countries made 13%, and 11% to the CIS. As for domestic consumption of ferrous metals and products, according to the data of the RF Ministry of Industry and Energy, increased by 21.1% in H1 of 2006, including 22.6% growth of finished steel and 22.3% rise of steel pipes consumption.
Summing up all the mentioned above, activation at the domestic market gives some guarantees to the future of Russian metallurgists, in particular as a result of Russian machine building sector development. Thus, in H1 of 2006 the production of lathes increased by 11.6% year-on-year. Production of transport means and equipment grew by 5.6%. To strengthen their positions on foreign market, Russian metallurgists must increase the share of export of high-value added produce.
Russian experts believe that prices will reduce, which can be explained by the total overproduction of ferrous metals on the world market. According to some data, if the world production of steel grew by 7% in 2005, consumption increased by 4% only, surplus exceeded 100 million tons, one third of it is was produced by China. In the short-term outlook analysts forecast prices fall by 10%, besides new players can appear on the market, which may significantly change the current position.
It is also worth noticing that on experts’ opinion the development of economy in China will continue to be the main factor of development of the world metallurgical sector. In 2004, Chinese companies produced 273 million tons of steel, in 2005 this figure amounted to 300 million. Meanwhile, in 2004 Russia delivered 4.6 million tons of metal production to China, and in 2005 – only 3.5 million tons. This tendency still has place. Besides, having large capacities, China has a chance to become a large exporter of ferrous metals in the near future.
According to analysts’ estimation, in the medium-term outlook, there are two variant of development of the situation. The first one is based on the forecast of abrupt reduction of China’s demand for metal while new capacities are put into operation in the state, which will lead to 10-13% reduction of prices in 2006. However, the next rise will begin in 2007. The second variant envisages that China’s demand for steel will continue to increase (taking into account the growth of price for iron ore), then the world prices will remain the same till 2009.
TATYANA TOKAREVA
[~DETAIL_TEXT] =>
Merger and acQuisition
Ferrous metallurgy has always been among the major sectors of the Russian economy. Nowadays, its share in the country’s GDP is 12%. Ferrous metallurgy produce is the most important export cargo of Russia, besides it provides activities of the adjacent machine building sectors. In its turn, the stable development of the latter is a stimulus for the growth of the domestic market of ferrous metals.
Russian metallurgical enterprises were given a powerful push in 2001, when the USA reduced quotas on the import of Russian steel. As a result of skilled lobby, Russian metallurgical enterprises managed to get significant privileges from the RF Government regarding taxes, as well as some tariff privileges on their produce transportation. China also played an important role in stirring up Russian metallurgical enterprises. Having obtained large credits from the world bank institutions, China has been actively investing into the development of machine- and lathe- building while purchasing Russian metals, which is quite understandable, taking into account that these countries are neighbours. The next step of China was the development of steel industry, so Beijing paid attention to Russian iron ore and coking coal. This was the main reason for the launch of largest vertically integrated holding companies, uniting extracting, producing and transport assets.
On the one hand, metallurgical enterprises were very optimistic when metal was sold to China at high (much exceeding Russian domestic and even international) purchasing prices. On the other hand, when a similar offer was made to the Russian producers of iron ore (at some estimation, prices for iron ore grew by 70% at the end of 2003 and by 20-30% more in H1 of 2004), metallurgical companies found themselves in a very unfavourable position and raised an alarm. Having fast reacted to the market situation, Russian producers of iron ore and coke re-oriented sale flow to the countries of Asian and Pacific region, thus depriving Russian ferrous metallurgical sector of significant volumes of necessary raw materials. Bit even the iron ore that continued to be delivered to the Russian domestic market was sold at higher price, which couldn’t but influence the prime cost of metal production.
As a result, the largest companies of the Russian metallurgical sector chose integration and creation of holding companies to secure themselves against the lack of raw materials. A most typical problem of metallurgical and adjacent sectors emerged in 2004: it was a conflict between Magnitogorsk Iron and Steel Works (MMK) and Mikhailovsky Ore Mining and Processing Enterprise.
For many years Mikhailovsky Ore Mining and Processing Enterprise was one of the iron ore suppliers of MMK. It was also one of the first enterprises that concluded contracts with Chinese companies, thus making a representative of Mugnitogorsk Iron and Steel Works worried about a possible reduction of metals production because of growing prices and the lack of raw materials. However, soon the situation on the world metal market changed: new serious players – enterprises of China, Kazakhstan and Ukraine – appeared on the world market. They offered iron ore of almost the same quality as the Russian one, but at lower prices. As a result, the demand for Russian metal reduced, but there was plenty of iron ore. Then, Mikhailovsky Ore Mining and Processing Enterprise offered MMK to resume their cooperation. However, Magnitogorsk Iron and Steel Works had already found reliable suppliers in Ukraine and got tariff privileges on import of iron ore from Ukraine. As a result, in 2004 the majority shareholding of Mikhailovsky Ore Mining and Processing Enterprise was purchased by ZAO Metalloinvest, and MMK had to buy about 90% of raw materials in another state.
On the whole, buying over raw materials enterprises is one of the specific features of the recent years. Meanwhile, having divided domestic resources, Russian metallurgical companies are paying more and more attention to foreign markets. For example, in 2004 Severstal-group purchased American Metallurgical Works Severstal North America in Detroit; in 2005 it bought the Luccini group of companies (Italy). Evrazholding purchased the Italian enterprise Palini e Bertoli and Vitkovice Steel in Czechia. Mechel steel group owns three plants in Romania, one in Croatia and one in Lithuania.
Having solved the problem of raw materials delivery, most Russian metallurgical companies failed to find a solution to coke supply problem. Prices on coke grew significantly and the producers refused to decrease them. As a result, large holding companies had to purchase enterprises producing coke. The enterprises to which large holding companies paid no attention lost a significant market and had to reduce production volumes. Small metallurgical works decreased production volumes because they could not purchase coke at new prices.
Investments Are Necessary
As a result, the enlargement of metallurgical companies is a characteristic feature of the Russian market, which is supported by the RF Government. Experts notice that a further increase of metal production profitability is impossible if the old approach is used. Major metallurgical enterprises work at their full productive capacity. According to some estimations, the coefficient of their usage amounts to 90%. Besides, the Russian structure of production in the metallurgical sector is absolutely different from the foreign one. It is characterized by a very low share of high value-added produce with (less than 10% in the sectoral product) and by a large volume of raw materials production and products of basic recast. Thus, one of the urgent problems is investments into the industry. Experts of the Ministry of Industry and Energy notice that small business can be the resource of innovations; however, concentration of capital and managing and producing resources with an emphasis on realization of the full technologic chain, including utilization, are required for efficient development. Only big companies in cooperation with the state can carry out such a strategy.
Meanwhile, there are prerequisites to stirring up the investment activities in the sector. According to the statistics of the RF Ministry of Industry and Energy, in 2005 investments into the metallurgical sector grew by 1.5 times to RUR 155 billion, including RUR 100 billion invested into ferrous metals production. Besides, nowadays, the world market of ferrous metals is characterized by a high level of competition, when tariff and non-tariff limitations on deliveries from Russia are implemented in more than forty countries. Analysts highlight that not just separate metallurgical companies, holding companies or corporations are competing, but states, which have powerful administrative resources. In spite of positive dynamics in the development of the sector, there are still some problems.
Firstly, specialists mention a strong import trend caused by low competitiveness of a number of products. In particular, their data show that imported production of ferrous metallurgy makes about 20% in the turnover of the Russian domestic market. As can be seen from some speeches of the representatives of the Ministry of Industry and Energy of Russia, the state has some mechanisms to stimulate development of Russian producers. First of all, the level of customs rates on the export of Russian produce, as well as on the import of foreign one, is lobbied. Meanwhile, Russian metal traders were against the decision to implement prohibitive duties on the import of Ukrainian metal production. At the beginning of July, after a number of RF metallurgical enterprises appealed to the RF Ministry of Economic Development and Trade, an antidumping research was held. It showed that by the end of May 2006 the share of Ukrainian metallurgical enterprises on the Russian market amounted to 6%, 1% up year-on-year, which caused reduction of Russian metallurgical companies sales volumes by more than 11% since the beginning of 2006. As a result, 25-30% prohibitive duties on the import of cold-rolled mill products from Ukraine were put into operation. However, metal traders protest against such a decision, pointing at a possible growth of prices on this type of production on the domestic market as a result of reduced competition. What decision will be made is still a mystery. From the point of view of experts specializing in the Ukrainian market, the most compromised decision will be 10-15% prohibitive duties, which will surely reduce the import of metal produce from Ukraine, but will not stop it.
At the same time, it is worth noting that such mechanisms can be used till Russia joins the WTO. The former Head of the Central Bank of Russia and now the Chairman of the Board of YUKOS Viktor Geraschenko said that it is Russian metallurgists who are interested in the country’s joining the World Trade Organization, because they will enter new markets. However, the import of ferrous metallurgy production to the Russian Federation can significantly increase. That is why the best instrument of state support to the sector is non-tariff regulation. In particular, the heads of the RF Ministry of Trade Economic Development and highlight in their reports that much attention is nowadays paid to the implementation of measures of state support provided to Russian exporters, envisaging a partial compensation from the federal budget of expenses used to pay interest on credits obtained from Russian credit organizations. It seems that such an approach on behalf of the state will encourage a further development of the sector and lead to active investment activities by its subjects.
An increase of investment activity is an absolute necessity for the metallurgical sector. In particular, the low competitiveness of some types of ferrous metallurgy production is often caused by the high level of equipment deterioration. Experts say that in the leading countries steel is hardly produced by the open-hearth method. In Russia, over 20% of steel is produced in open-hearth furnaces. As to the average amount of coke necessary to produce a ton of cast iron, it amounts to 380 kilograms per ton in industrial countries, and to over 450 kilograms per ton in Russia.
Another important problem is the low volumes of exploration work and the low competitiveness of ore. According to the data of the Federal Statistics Service, in 1994-2003 the share of exploration work on non-ferrous and less-common metals reduced from 4.9% to 0.9%, and on ferrous metals ore – from 0.6% to 0.2%, while in the oil and gas sector it fluctuated between 73.1-77.8%. Besides, the minerals mining tax put into operation in 2002 does not take into account the differences between geographical, economic, mining, geological and other conditions of field development, believe specialists of the RF Ministry of Industry and Energy. As a result, companies with higher expenses on extraction (which does not depend on them) pay a higher tax. Thus, many fields of critical types of mineral ore can be developed only under conditions of special taxes.
Certain Growth
In H1 of 2005, the work of the metallurgical sector was characterized by high dynamics of development. Thus, in six months of 2006 growth of metallurgical production and finished metal products increased by 11.3% year-on-year; metallurgical production grew by 8.2%. In January-June production of finished steel increased by 7.3% year-on-year, that one of steel pipes and grew by 16.2%, output of iron ore and coke increased by 4.5% and 0.2% respectively. In June 2006 Russian ferrous metallurgy produced over 4.3 million tons of cast iron (+19.5% year-on-year), 6 million tons of steel (+16.7%), 5 million tons of finished steel (+17.1%). In H1 of 2006, the growth of these products made +7.3%, +7.2% and +7.3% respectively. According to the data of the RF Ministry of Industry and Energy, in June 2005 finished steel production increased by 16.9% at OAO Magnotogorsk Iron and Steel Works, by 5.3% at OAO Nizhnetagilsky Iron and Steel Works, by 11.6% at OAO Severstal-Cherepovetsk Iron and Steel Works, by 51.6% at OAO Chelyabinsk Iron and Steel Works, by 24.6% and OAO Novolipetsky Metallurgical Mill. Production of steel pipes (the most actively developing sector) increased by 16.8% year-on-year. In particular, it grew by 71% year-on-year at OAO Vyksa Steel Works, by 11% at OAO Chelyabinsk Tube-Rolling Mills, by 11% at OAO Taganrogsky Metallurgical Works, by 5% at OAO Pervouralsky Novotrubny Plant, and by 4% at OAO Seversky Pipe Plant.
In Russia, the domestic consumption of metal produce has been increasing during the six months of 2006. If the 50% to 50% ratio of Russian metal produce sale was considered traditional, in H1 of 2006, export of ferrous metals and metal products reduced by 19% year-on-year, including export to foreign countries (?) which decreased by 20% and export to the CIS which grew by 6.5%. At the same time, analysts claim that iron ore delivery to foreing countries increased by 11.5% during the period. Meanwhile, export of coke fell by 60%. On the whole, the share of ferrous metals and metal products export to foreign countries made 13%, and 11% to the CIS. As for domestic consumption of ferrous metals and products, according to the data of the RF Ministry of Industry and Energy, increased by 21.1% in H1 of 2006, including 22.6% growth of finished steel and 22.3% rise of steel pipes consumption.
Summing up all the mentioned above, activation at the domestic market gives some guarantees to the future of Russian metallurgists, in particular as a result of Russian machine building sector development. Thus, in H1 of 2006 the production of lathes increased by 11.6% year-on-year. Production of transport means and equipment grew by 5.6%. To strengthen their positions on foreign market, Russian metallurgists must increase the share of export of high-value added produce.
Russian experts believe that prices will reduce, which can be explained by the total overproduction of ferrous metals on the world market. According to some data, if the world production of steel grew by 7% in 2005, consumption increased by 4% only, surplus exceeded 100 million tons, one third of it is was produced by China. In the short-term outlook analysts forecast prices fall by 10%, besides new players can appear on the market, which may significantly change the current position.
It is also worth noticing that on experts’ opinion the development of economy in China will continue to be the main factor of development of the world metallurgical sector. In 2004, Chinese companies produced 273 million tons of steel, in 2005 this figure amounted to 300 million. Meanwhile, in 2004 Russia delivered 4.6 million tons of metal production to China, and in 2005 – only 3.5 million tons. This tendency still has place. Besides, having large capacities, China has a chance to become a large exporter of ferrous metals in the near future.
According to analysts’ estimation, in the medium-term outlook, there are two variant of development of the situation. The first one is based on the forecast of abrupt reduction of China’s demand for metal while new capacities are put into operation in the state, which will lead to 10-13% reduction of prices in 2006. However, the next rise will begin in 2007. The second variant envisages that China’s demand for steel will continue to increase (taking into account the growth of price for iron ore), then the world prices will remain the same till 2009.
TATYANA TOKAREVA
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Merger and acQuisition
Ferrous metallurgy has always been among the major sectors of the Russian economy. Nowadays, its share in the country’s GDP is 12%. Ferrous metallurgy produce is the most important export cargo of Russia, besides it provides activities of the adjacent machine building sectors. In its turn, the stable development of the latter is a stimulus for the growth of the domestic market of ferrous metals.
Russian metallurgical enterprises were given a powerful push in 2001, when the USA reduced quotas on the import of Russian steel. As a result of skilled lobby, Russian metallurgical enterprises managed to get significant privileges from the RF Government regarding taxes, as well as some tariff privileges on their produce transportation. China also played an important role in stirring up Russian metallurgical enterprises. Having obtained large credits from the world bank institutions, China has been actively investing into the development of machine- and lathe- building while purchasing Russian metals, which is quite understandable, taking into account that these countries are neighbours. The next step of China was the development of steel industry, so Beijing paid attention to Russian iron ore and coking coal. This was the main reason for the launch of largest vertically integrated holding companies, uniting extracting, producing and transport assets.
On the one hand, metallurgical enterprises were very optimistic when metal was sold to China at high (much exceeding Russian domestic and even international) purchasing prices. On the other hand, when a similar offer was made to the Russian producers of iron ore (at some estimation, prices for iron ore grew by 70% at the end of 2003 and by 20-30% more in H1 of 2004), metallurgical companies found themselves in a very unfavourable position and raised an alarm. Having fast reacted to the market situation, Russian producers of iron ore and coke re-oriented sale flow to the countries of Asian and Pacific region, thus depriving Russian ferrous metallurgical sector of significant volumes of necessary raw materials. Bit even the iron ore that continued to be delivered to the Russian domestic market was sold at higher price, which couldn’t but influence the prime cost of metal production.
As a result, the largest companies of the Russian metallurgical sector chose integration and creation of holding companies to secure themselves against the lack of raw materials. A most typical problem of metallurgical and adjacent sectors emerged in 2004: it was a conflict between Magnitogorsk Iron and Steel Works (MMK) and Mikhailovsky Ore Mining and Processing Enterprise.
For many years Mikhailovsky Ore Mining and Processing Enterprise was one of the iron ore suppliers of MMK. It was also one of the first enterprises that concluded contracts with Chinese companies, thus making a representative of Mugnitogorsk Iron and Steel Works worried about a possible reduction of metals production because of growing prices and the lack of raw materials. However, soon the situation on the world metal market changed: new serious players – enterprises of China, Kazakhstan and Ukraine – appeared on the world market. They offered iron ore of almost the same quality as the Russian one, but at lower prices. As a result, the demand for Russian metal reduced, but there was plenty of iron ore. Then, Mikhailovsky Ore Mining and Processing Enterprise offered MMK to resume their cooperation. However, Magnitogorsk Iron and Steel Works had already found reliable suppliers in Ukraine and got tariff privileges on import of iron ore from Ukraine. As a result, in 2004 the majority shareholding of Mikhailovsky Ore Mining and Processing Enterprise was purchased by ZAO Metalloinvest, and MMK had to buy about 90% of raw materials in another state.
On the whole, buying over raw materials enterprises is one of the specific features of the recent years. Meanwhile, having divided domestic resources, Russian metallurgical companies are paying more and more attention to foreign markets. For example, in 2004 Severstal-group purchased American Metallurgical Works Severstal North America in Detroit; in 2005 it bought the Luccini group of companies (Italy). Evrazholding purchased the Italian enterprise Palini e Bertoli and Vitkovice Steel in Czechia. Mechel steel group owns three plants in Romania, one in Croatia and one in Lithuania.
Having solved the problem of raw materials delivery, most Russian metallurgical companies failed to find a solution to coke supply problem. Prices on coke grew significantly and the producers refused to decrease them. As a result, large holding companies had to purchase enterprises producing coke. The enterprises to which large holding companies paid no attention lost a significant market and had to reduce production volumes. Small metallurgical works decreased production volumes because they could not purchase coke at new prices.
Investments Are Necessary
As a result, the enlargement of metallurgical companies is a characteristic feature of the Russian market, which is supported by the RF Government. Experts notice that a further increase of metal production profitability is impossible if the old approach is used. Major metallurgical enterprises work at their full productive capacity. According to some estimations, the coefficient of their usage amounts to 90%. Besides, the Russian structure of production in the metallurgical sector is absolutely different from the foreign one. It is characterized by a very low share of high value-added produce with (less than 10% in the sectoral product) and by a large volume of raw materials production and products of basic recast. Thus, one of the urgent problems is investments into the industry. Experts of the Ministry of Industry and Energy notice that small business can be the resource of innovations; however, concentration of capital and managing and producing resources with an emphasis on realization of the full technologic chain, including utilization, are required for efficient development. Only big companies in cooperation with the state can carry out such a strategy.
Meanwhile, there are prerequisites to stirring up the investment activities in the sector. According to the statistics of the RF Ministry of Industry and Energy, in 2005 investments into the metallurgical sector grew by 1.5 times to RUR 155 billion, including RUR 100 billion invested into ferrous metals production. Besides, nowadays, the world market of ferrous metals is characterized by a high level of competition, when tariff and non-tariff limitations on deliveries from Russia are implemented in more than forty countries. Analysts highlight that not just separate metallurgical companies, holding companies or corporations are competing, but states, which have powerful administrative resources. In spite of positive dynamics in the development of the sector, there are still some problems.
Firstly, specialists mention a strong import trend caused by low competitiveness of a number of products. In particular, their data show that imported production of ferrous metallurgy makes about 20% in the turnover of the Russian domestic market. As can be seen from some speeches of the representatives of the Ministry of Industry and Energy of Russia, the state has some mechanisms to stimulate development of Russian producers. First of all, the level of customs rates on the export of Russian produce, as well as on the import of foreign one, is lobbied. Meanwhile, Russian metal traders were against the decision to implement prohibitive duties on the import of Ukrainian metal production. At the beginning of July, after a number of RF metallurgical enterprises appealed to the RF Ministry of Economic Development and Trade, an antidumping research was held. It showed that by the end of May 2006 the share of Ukrainian metallurgical enterprises on the Russian market amounted to 6%, 1% up year-on-year, which caused reduction of Russian metallurgical companies sales volumes by more than 11% since the beginning of 2006. As a result, 25-30% prohibitive duties on the import of cold-rolled mill products from Ukraine were put into operation. However, metal traders protest against such a decision, pointing at a possible growth of prices on this type of production on the domestic market as a result of reduced competition. What decision will be made is still a mystery. From the point of view of experts specializing in the Ukrainian market, the most compromised decision will be 10-15% prohibitive duties, which will surely reduce the import of metal produce from Ukraine, but will not stop it.
At the same time, it is worth noting that such mechanisms can be used till Russia joins the WTO. The former Head of the Central Bank of Russia and now the Chairman of the Board of YUKOS Viktor Geraschenko said that it is Russian metallurgists who are interested in the country’s joining the World Trade Organization, because they will enter new markets. However, the import of ferrous metallurgy production to the Russian Federation can significantly increase. That is why the best instrument of state support to the sector is non-tariff regulation. In particular, the heads of the RF Ministry of Trade Economic Development and highlight in their reports that much attention is nowadays paid to the implementation of measures of state support provided to Russian exporters, envisaging a partial compensation from the federal budget of expenses used to pay interest on credits obtained from Russian credit organizations. It seems that such an approach on behalf of the state will encourage a further development of the sector and lead to active investment activities by its subjects.
An increase of investment activity is an absolute necessity for the metallurgical sector. In particular, the low competitiveness of some types of ferrous metallurgy production is often caused by the high level of equipment deterioration. Experts say that in the leading countries steel is hardly produced by the open-hearth method. In Russia, over 20% of steel is produced in open-hearth furnaces. As to the average amount of coke necessary to produce a ton of cast iron, it amounts to 380 kilograms per ton in industrial countries, and to over 450 kilograms per ton in Russia.
Another important problem is the low volumes of exploration work and the low competitiveness of ore. According to the data of the Federal Statistics Service, in 1994-2003 the share of exploration work on non-ferrous and less-common metals reduced from 4.9% to 0.9%, and on ferrous metals ore – from 0.6% to 0.2%, while in the oil and gas sector it fluctuated between 73.1-77.8%. Besides, the minerals mining tax put into operation in 2002 does not take into account the differences between geographical, economic, mining, geological and other conditions of field development, believe specialists of the RF Ministry of Industry and Energy. As a result, companies with higher expenses on extraction (which does not depend on them) pay a higher tax. Thus, many fields of critical types of mineral ore can be developed only under conditions of special taxes.
Certain Growth
In H1 of 2005, the work of the metallurgical sector was characterized by high dynamics of development. Thus, in six months of 2006 growth of metallurgical production and finished metal products increased by 11.3% year-on-year; metallurgical production grew by 8.2%. In January-June production of finished steel increased by 7.3% year-on-year, that one of steel pipes and grew by 16.2%, output of iron ore and coke increased by 4.5% and 0.2% respectively. In June 2006 Russian ferrous metallurgy produced over 4.3 million tons of cast iron (+19.5% year-on-year), 6 million tons of steel (+16.7%), 5 million tons of finished steel (+17.1%). In H1 of 2006, the growth of these products made +7.3%, +7.2% and +7.3% respectively. According to the data of the RF Ministry of Industry and Energy, in June 2005 finished steel production increased by 16.9% at OAO Magnotogorsk Iron and Steel Works, by 5.3% at OAO Nizhnetagilsky Iron and Steel Works, by 11.6% at OAO Severstal-Cherepovetsk Iron and Steel Works, by 51.6% at OAO Chelyabinsk Iron and Steel Works, by 24.6% and OAO Novolipetsky Metallurgical Mill. Production of steel pipes (the most actively developing sector) increased by 16.8% year-on-year. In particular, it grew by 71% year-on-year at OAO Vyksa Steel Works, by 11% at OAO Chelyabinsk Tube-Rolling Mills, by 11% at OAO Taganrogsky Metallurgical Works, by 5% at OAO Pervouralsky Novotrubny Plant, and by 4% at OAO Seversky Pipe Plant.
In Russia, the domestic consumption of metal produce has been increasing during the six months of 2006. If the 50% to 50% ratio of Russian metal produce sale was considered traditional, in H1 of 2006, export of ferrous metals and metal products reduced by 19% year-on-year, including export to foreign countries (?) which decreased by 20% and export to the CIS which grew by 6.5%. At the same time, analysts claim that iron ore delivery to foreing countries increased by 11.5% during the period. Meanwhile, export of coke fell by 60%. On the whole, the share of ferrous metals and metal products export to foreign countries made 13%, and 11% to the CIS. As for domestic consumption of ferrous metals and products, according to the data of the RF Ministry of Industry and Energy, increased by 21.1% in H1 of 2006, including 22.6% growth of finished steel and 22.3% rise of steel pipes consumption.
Summing up all the mentioned above, activation at the domestic market gives some guarantees to the future of Russian metallurgists, in particular as a result of Russian machine building sector development. Thus, in H1 of 2006 the production of lathes increased by 11.6% year-on-year. Production of transport means and equipment grew by 5.6%. To strengthen their positions on foreign market, Russian metallurgists must increase the share of export of high-value added produce.
Russian experts believe that prices will reduce, which can be explained by the total overproduction of ferrous metals on the world market. According to some data, if the world production of steel grew by 7% in 2005, consumption increased by 4% only, surplus exceeded 100 million tons, one third of it is was produced by China. In the short-term outlook analysts forecast prices fall by 10%, besides new players can appear on the market, which may significantly change the current position.
It is also worth noticing that on experts’ opinion the development of economy in China will continue to be the main factor of development of the world metallurgical sector. In 2004, Chinese companies produced 273 million tons of steel, in 2005 this figure amounted to 300 million. Meanwhile, in 2004 Russia delivered 4.6 million tons of metal production to China, and in 2005 – only 3.5 million tons. This tendency still has place. Besides, having large capacities, China has a chance to become a large exporter of ferrous metals in the near future.
According to analysts’ estimation, in the medium-term outlook, there are two variant of development of the situation. The first one is based on the forecast of abrupt reduction of China’s demand for metal while new capacities are put into operation in the state, which will lead to 10-13% reduction of prices in 2006. However, the next rise will begin in 2007. The second variant envisages that China’s demand for steel will continue to increase (taking into account the growth of price for iron ore), then the world prices will remain the same till 2009.
TATYANA TOKAREVA
[~DETAIL_TEXT] =>
Merger and acQuisition
Ferrous metallurgy has always been among the major sectors of the Russian economy. Nowadays, its share in the country’s GDP is 12%. Ferrous metallurgy produce is the most important export cargo of Russia, besides it provides activities of the adjacent machine building sectors. In its turn, the stable development of the latter is a stimulus for the growth of the domestic market of ferrous metals.
Russian metallurgical enterprises were given a powerful push in 2001, when the USA reduced quotas on the import of Russian steel. As a result of skilled lobby, Russian metallurgical enterprises managed to get significant privileges from the RF Government regarding taxes, as well as some tariff privileges on their produce transportation. China also played an important role in stirring up Russian metallurgical enterprises. Having obtained large credits from the world bank institutions, China has been actively investing into the development of machine- and lathe- building while purchasing Russian metals, which is quite understandable, taking into account that these countries are neighbours. The next step of China was the development of steel industry, so Beijing paid attention to Russian iron ore and coking coal. This was the main reason for the launch of largest vertically integrated holding companies, uniting extracting, producing and transport assets.
On the one hand, metallurgical enterprises were very optimistic when metal was sold to China at high (much exceeding Russian domestic and even international) purchasing prices. On the other hand, when a similar offer was made to the Russian producers of iron ore (at some estimation, prices for iron ore grew by 70% at the end of 2003 and by 20-30% more in H1 of 2004), metallurgical companies found themselves in a very unfavourable position and raised an alarm. Having fast reacted to the market situation, Russian producers of iron ore and coke re-oriented sale flow to the countries of Asian and Pacific region, thus depriving Russian ferrous metallurgical sector of significant volumes of necessary raw materials. Bit even the iron ore that continued to be delivered to the Russian domestic market was sold at higher price, which couldn’t but influence the prime cost of metal production.
As a result, the largest companies of the Russian metallurgical sector chose integration and creation of holding companies to secure themselves against the lack of raw materials. A most typical problem of metallurgical and adjacent sectors emerged in 2004: it was a conflict between Magnitogorsk Iron and Steel Works (MMK) and Mikhailovsky Ore Mining and Processing Enterprise.
For many years Mikhailovsky Ore Mining and Processing Enterprise was one of the iron ore suppliers of MMK. It was also one of the first enterprises that concluded contracts with Chinese companies, thus making a representative of Mugnitogorsk Iron and Steel Works worried about a possible reduction of metals production because of growing prices and the lack of raw materials. However, soon the situation on the world metal market changed: new serious players – enterprises of China, Kazakhstan and Ukraine – appeared on the world market. They offered iron ore of almost the same quality as the Russian one, but at lower prices. As a result, the demand for Russian metal reduced, but there was plenty of iron ore. Then, Mikhailovsky Ore Mining and Processing Enterprise offered MMK to resume their cooperation. However, Magnitogorsk Iron and Steel Works had already found reliable suppliers in Ukraine and got tariff privileges on import of iron ore from Ukraine. As a result, in 2004 the majority shareholding of Mikhailovsky Ore Mining and Processing Enterprise was purchased by ZAO Metalloinvest, and MMK had to buy about 90% of raw materials in another state.
On the whole, buying over raw materials enterprises is one of the specific features of the recent years. Meanwhile, having divided domestic resources, Russian metallurgical companies are paying more and more attention to foreign markets. For example, in 2004 Severstal-group purchased American Metallurgical Works Severstal North America in Detroit; in 2005 it bought the Luccini group of companies (Italy). Evrazholding purchased the Italian enterprise Palini e Bertoli and Vitkovice Steel in Czechia. Mechel steel group owns three plants in Romania, one in Croatia and one in Lithuania.
Having solved the problem of raw materials delivery, most Russian metallurgical companies failed to find a solution to coke supply problem. Prices on coke grew significantly and the producers refused to decrease them. As a result, large holding companies had to purchase enterprises producing coke. The enterprises to which large holding companies paid no attention lost a significant market and had to reduce production volumes. Small metallurgical works decreased production volumes because they could not purchase coke at new prices.
Investments Are Necessary
As a result, the enlargement of metallurgical companies is a characteristic feature of the Russian market, which is supported by the RF Government. Experts notice that a further increase of metal production profitability is impossible if the old approach is used. Major metallurgical enterprises work at their full productive capacity. According to some estimations, the coefficient of their usage amounts to 90%. Besides, the Russian structure of production in the metallurgical sector is absolutely different from the foreign one. It is characterized by a very low share of high value-added produce with (less than 10% in the sectoral product) and by a large volume of raw materials production and products of basic recast. Thus, one of the urgent problems is investments into the industry. Experts of the Ministry of Industry and Energy notice that small business can be the resource of innovations; however, concentration of capital and managing and producing resources with an emphasis on realization of the full technologic chain, including utilization, are required for efficient development. Only big companies in cooperation with the state can carry out such a strategy.
Meanwhile, there are prerequisites to stirring up the investment activities in the sector. According to the statistics of the RF Ministry of Industry and Energy, in 2005 investments into the metallurgical sector grew by 1.5 times to RUR 155 billion, including RUR 100 billion invested into ferrous metals production. Besides, nowadays, the world market of ferrous metals is characterized by a high level of competition, when tariff and non-tariff limitations on deliveries from Russia are implemented in more than forty countries. Analysts highlight that not just separate metallurgical companies, holding companies or corporations are competing, but states, which have powerful administrative resources. In spite of positive dynamics in the development of the sector, there are still some problems.
Firstly, specialists mention a strong import trend caused by low competitiveness of a number of products. In particular, their data show that imported production of ferrous metallurgy makes about 20% in the turnover of the Russian domestic market. As can be seen from some speeches of the representatives of the Ministry of Industry and Energy of Russia, the state has some mechanisms to stimulate development of Russian producers. First of all, the level of customs rates on the export of Russian produce, as well as on the import of foreign one, is lobbied. Meanwhile, Russian metal traders were against the decision to implement prohibitive duties on the import of Ukrainian metal production. At the beginning of July, after a number of RF metallurgical enterprises appealed to the RF Ministry of Economic Development and Trade, an antidumping research was held. It showed that by the end of May 2006 the share of Ukrainian metallurgical enterprises on the Russian market amounted to 6%, 1% up year-on-year, which caused reduction of Russian metallurgical companies sales volumes by more than 11% since the beginning of 2006. As a result, 25-30% prohibitive duties on the import of cold-rolled mill products from Ukraine were put into operation. However, metal traders protest against such a decision, pointing at a possible growth of prices on this type of production on the domestic market as a result of reduced competition. What decision will be made is still a mystery. From the point of view of experts specializing in the Ukrainian market, the most compromised decision will be 10-15% prohibitive duties, which will surely reduce the import of metal produce from Ukraine, but will not stop it.
At the same time, it is worth noting that such mechanisms can be used till Russia joins the WTO. The former Head of the Central Bank of Russia and now the Chairman of the Board of YUKOS Viktor Geraschenko said that it is Russian metallurgists who are interested in the country’s joining the World Trade Organization, because they will enter new markets. However, the import of ferrous metallurgy production to the Russian Federation can significantly increase. That is why the best instrument of state support to the sector is non-tariff regulation. In particular, the heads of the RF Ministry of Trade Economic Development and highlight in their reports that much attention is nowadays paid to the implementation of measures of state support provided to Russian exporters, envisaging a partial compensation from the federal budget of expenses used to pay interest on credits obtained from Russian credit organizations. It seems that such an approach on behalf of the state will encourage a further development of the sector and lead to active investment activities by its subjects.
An increase of investment activity is an absolute necessity for the metallurgical sector. In particular, the low competitiveness of some types of ferrous metallurgy production is often caused by the high level of equipment deterioration. Experts say that in the leading countries steel is hardly produced by the open-hearth method. In Russia, over 20% of steel is produced in open-hearth furnaces. As to the average amount of coke necessary to produce a ton of cast iron, it amounts to 380 kilograms per ton in industrial countries, and to over 450 kilograms per ton in Russia.
Another important problem is the low volumes of exploration work and the low competitiveness of ore. According to the data of the Federal Statistics Service, in 1994-2003 the share of exploration work on non-ferrous and less-common metals reduced from 4.9% to 0.9%, and on ferrous metals ore – from 0.6% to 0.2%, while in the oil and gas sector it fluctuated between 73.1-77.8%. Besides, the minerals mining tax put into operation in 2002 does not take into account the differences between geographical, economic, mining, geological and other conditions of field development, believe specialists of the RF Ministry of Industry and Energy. As a result, companies with higher expenses on extraction (which does not depend on them) pay a higher tax. Thus, many fields of critical types of mineral ore can be developed only under conditions of special taxes.
Certain Growth
In H1 of 2005, the work of the metallurgical sector was characterized by high dynamics of development. Thus, in six months of 2006 growth of metallurgical production and finished metal products increased by 11.3% year-on-year; metallurgical production grew by 8.2%. In January-June production of finished steel increased by 7.3% year-on-year, that one of steel pipes and grew by 16.2%, output of iron ore and coke increased by 4.5% and 0.2% respectively. In June 2006 Russian ferrous metallurgy produced over 4.3 million tons of cast iron (+19.5% year-on-year), 6 million tons of steel (+16.7%), 5 million tons of finished steel (+17.1%). In H1 of 2006, the growth of these products made +7.3%, +7.2% and +7.3% respectively. According to the data of the RF Ministry of Industry and Energy, in June 2005 finished steel production increased by 16.9% at OAO Magnotogorsk Iron and Steel Works, by 5.3% at OAO Nizhnetagilsky Iron and Steel Works, by 11.6% at OAO Severstal-Cherepovetsk Iron and Steel Works, by 51.6% at OAO Chelyabinsk Iron and Steel Works, by 24.6% and OAO Novolipetsky Metallurgical Mill. Production of steel pipes (the most actively developing sector) increased by 16.8% year-on-year. In particular, it grew by 71% year-on-year at OAO Vyksa Steel Works, by 11% at OAO Chelyabinsk Tube-Rolling Mills, by 11% at OAO Taganrogsky Metallurgical Works, by 5% at OAO Pervouralsky Novotrubny Plant, and by 4% at OAO Seversky Pipe Plant.
In Russia, the domestic consumption of metal produce has been increasing during the six months of 2006. If the 50% to 50% ratio of Russian metal produce sale was considered traditional, in H1 of 2006, export of ferrous metals and metal products reduced by 19% year-on-year, including export to foreign countries (?) which decreased by 20% and export to the CIS which grew by 6.5%. At the same time, analysts claim that iron ore delivery to foreing countries increased by 11.5% during the period. Meanwhile, export of coke fell by 60%. On the whole, the share of ferrous metals and metal products export to foreign countries made 13%, and 11% to the CIS. As for domestic consumption of ferrous metals and products, according to the data of the RF Ministry of Industry and Energy, increased by 21.1% in H1 of 2006, including 22.6% growth of finished steel and 22.3% rise of steel pipes consumption.
Summing up all the mentioned above, activation at the domestic market gives some guarantees to the future of Russian metallurgists, in particular as a result of Russian machine building sector development. Thus, in H1 of 2006 the production of lathes increased by 11.6% year-on-year. Production of transport means and equipment grew by 5.6%. To strengthen their positions on foreign market, Russian metallurgists must increase the share of export of high-value added produce.
Russian experts believe that prices will reduce, which can be explained by the total overproduction of ferrous metals on the world market. According to some data, if the world production of steel grew by 7% in 2005, consumption increased by 4% only, surplus exceeded 100 million tons, one third of it is was produced by China. In the short-term outlook analysts forecast prices fall by 10%, besides new players can appear on the market, which may significantly change the current position.
It is also worth noticing that on experts’ opinion the development of economy in China will continue to be the main factor of development of the world metallurgical sector. In 2004, Chinese companies produced 273 million tons of steel, in 2005 this figure amounted to 300 million. Meanwhile, in 2004 Russia delivered 4.6 million tons of metal production to China, and in 2005 – only 3.5 million tons. This tendency still has place. Besides, having large capacities, China has a chance to become a large exporter of ferrous metals in the near future.
According to analysts’ estimation, in the medium-term outlook, there are two variant of development of the situation. The first one is based on the forecast of abrupt reduction of China’s demand for metal while new capacities are put into operation in the state, which will lead to 10-13% reduction of prices in 2006. However, the next rise will begin in 2007. The second variant envisages that China’s demand for steel will continue to increase (taking into account the growth of price for iron ore), then the world prices will remain the same till 2009.
TATYANA TOKAREVA
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[DETAIL_TEXT] => E-Business becomes more and more active in all sectors, including the transport and logistic ones, thus the use of paper documents becomes an anachronism, said OAO RZD President Vladimir Yakunin at the first meeting of International Organization Committee of the constantly acting Forum Dialogue «East-West: integration and development».
«It is e-signature that can make business communication juridically significant», believes Vladimir Yakunin.
The programme is the product of activities and ideas of the World Social Forum «Dialogue of Civilizations» and of the International Congress of Industrialists and Businessmen to unite intellectual resources of the states, to exchange information between the businessmen of the Eurasian countries and to cooperate to find new approaches to the problems of social and economic relations.
Officials Ink Agreement on New Irkutsk Airport
An agreement on the construction of a new airport near the Siberian city of Irkutsk was signed by Russia’s Federal Air Transportation Agency and the Irkutsk Region Administration in July.
Governor Alexander Tishanin said the airport’s draft design would be ready in 2007 and the construction financing will begin in 2008. He added that Moscow would finance the construction of the runway, but the administration would have to find investors to build a terminal and facilities.
The new airport will be located about 22 miles to the northwest of Irkutsk.
MLP Starts Building Logistics Complex in Leningrad Region
International Logistics Partnership (MLP), which is based in Moscow, launched construction on a class-A multi-functional logistics complex at the cost of USD 135 million in the Leningrad region at the end of June.
The logistics complex will provide transportation and information services, logistics services for receiving, storing and loading cargoes and will service production, trade, network and retail companies. The assortment of cargoes will include home appliances, electrical appliances, food products and factory packaging.
MLP-KAD will build the complex in several stages. The first stage will take 13 months. The total area under construction amounts to 185,000 square meters. A 50,000 square meter terminal is to be completed by April 2008.
The logistics complex is being built near the Novosaratovka village (the Leningrad region, Vsevolozhsk town) and is part of a large MLP project that envisages the creation of several similar complexes with total area of 1.2 million square meters in the Leningrad, Moscow, Rostov and Sverdlovsk regions of Russia and the Kiyev region of Ukraine.
750-800 Thousand TEU by 2015
By 2015 OAO RZD plans to increase transit container transportation to 750-800 thousand TEU, said Vadim Morozov, OAO RZD’s First Vice President, at the round-table discussion «Transit Potential of Russia».
In his words, the total volume of transit container transportation by railway amounted to 17.4 million tons in 2005.
«Such volume has remained the same for several years; however, this figure is smaller than the one in 2000-2001».
Speaking of the problems of container transportation development, the First Vice President of OAO RZD marked that the total annual volume of the world market of container transportation is 37.7 million containers nowadays, including 14 million containers carried via the Pacific and European markets. Out of this volume, the freight basis of the Northern provinces of China (1-1.3 million containers annually), Japan and South Korea (3 million containers) is formed. It is planned to attract a part of containerized freight to the Transsib.
Vadim Morozov said that 184 thousand TEU was transported along the Transsib in 2005. «We are not satisfied with this figure. We have a powerful railway infrastructure. It takes just 11-12 days to transport containers along the Transsib from the Far East to Europe. In the medium-term outlook, the company aims at increasing its transit transportation volume to 330-350 thousand TEU, and to 750-800 thousand TEU by 2015», the company’s First Vice President said.
V. Morozov also mentioned a number of problems preventing development of transit container transportation by railway, including the lack of a proper logistic product for transit servicing and impossibility of fast response to the market situation by changing the tariff transportation constituent.
«Our position won’t change: transit tariff must compensate for the losses on transportation and provide the necessary profitability», said Vadim Morozov.
Sovcomflot Plans to Increase Oil Transportation
OAO Sovcomflot plans to increase oil transportation from the terminal of Caspian Pipeline Consortium in Novorossiysk, said Director General of Sovcomflot Sergey Frank after signing a Memorandum with Chevron Shipping Company.
In his words, the Memorandum envisages an increase of the two companies’ cooperation in oil transportation from the Caspian Pipeline Consortium’s terminals and participation in Burgas–Alexandroupolis project.
Sergey Frank noticed that the document envisages an increase of oil transportation by tankers of Sovcomflot for Chevron Shipping Company. He suggested that both companies could use their tanker fleet in the Black Sea basin. «Such a possibility is being discussed», said the Head of Sovcomflot.
General Cargo Will Be Handled in Vysotsk
The authorities of the Leningradskaya Oblast (the Leningrad region) are discussing the declaration of Rosmorport concerning the development of the territory of Vysotsk port to increase its handling capacity and the use of port territories, said the Chairman of the Committee of Economy and Investments of the Government of Leningradskaya Oblast Georgy Dvas.
He stressed that Rosmorport plans to increase the capacity of the port’s navigating channel, so that the port could service vessels with the tonnage of 70 thousand tons. Besides, Rosmorport is to increase the length of the harbor wall by 50% and to enlarge the area of the terminal threefold. The terminals will handle general cargoes. G.Dvas said that the matter concerns the enlargement of existing territories but not the construction of new capacities. He also mentioned that there are many companies wishing to construct and enlarge terminals, including the owner of the port ROSA-Holding.
Multimodal Transport Junction to Be Launched in Krasnoyarsk
On July 13, 2006, the construction of a modern freight terminal started in Krasnoyarsk. The largest Japanese air freight carrier Nippon Cargo Airlines is interested in the launch of a multimodal transport junction on the basis of Krasnoyarsk Airport.
This step is the next and obligatory stage of the project for multimodal transport junction construction on the basis of Krasnoyarsk airport. The project is controlled by the Administration of Krasnoyarsk region, KrasAir and AirBridgeCargo.
The terminal with the total area of over 6 thousand square meters will be located between the runway and the warehouse of combustive-lubricating materials, which will enable to provide fast and efficient work of the freight hub. The new terminal will service and warehouse all types of cargoes. Its annual capacity is to be up to 400 thousand tons. Nowadays, the capacity of the existing warehouse in the Krasnoyarsk airport is 20 thousand tons annually.
It is planned that the freight terminal will be put into operation in July 2007. Later the freight complex of the Krasnoyarsk airport will be enlarged so that it will be able to handle up to two million tons of freight annually. The total cost of improving the freight infrastructure of the airport is estimated at USD 40 million in the next six years.
Two toll roads to Be Constructed by 2009 in Russia
Two toll-roads will appear in Russia by 2009. The construction will be financed from the Investment Fund, said RF Minister of Transport Igor Levitin.
The first of them will pass along the shore of the Finnish Gulf via the center of Saint-Petersburg. The second one – Moscow–Saint-Petersburg is to connect Moscow ring-road and Solnechnogorsk via the Sheremetyevo airport. Igor Levitin underlined that both projects are aimed at daily carrying capacity of 25,000 vehicles. There will be no similar construction in other regions of Russia because of «the lack of the market».
«We assumed that Moscow and Saint-Petersburg are most popular directions nowadays: transit volume is very large there. 250 thousand vehicles run to and from Moscow daily, which exceeds the handling capacity twofold or even threefold, thus the toll roads sector is very promising», the Minister said.
He also added that, according to the plan of the RF transport system modernization in 2007-2009, a 30%-growth of roads construction financing is envisaged.
Georgian Railway Increased Freight Transportation
In January-June 2006, the Georgian Railway increased freight transportation by 34.2% year-on-year to 11.15 million tons.
Specialists of the Georgian Railway forecast that the tendency of throughput growth, over 60% of which is oil and products, will remain. In H1 of 2006, passenger transportation also increased. In six months of 2006, the railway carried 1.82 million passengers, 13.8% up year-on-year. In particular, this year Tbilisi–Moscow railway communication has been recommenced; a new speeded up line Erevan-Batumi has been put into operation, two new trains to Adzharia have been implemented. In 2005, the Georgian Railway transported 18.986 million tons, 23% up year-on-year.
Transport and Logistic Terminal near ekaterinburg
The construction of an international logistic terminal at Ekaterinburg will start in the near future.
The international logistic terminal will be constructed near the Gipsovaya station. The authorities of Yekaterinburg have authorized the transfer of about 53 hectares, including 38 hectares of usable area.120 thousand square meters of warehouses of «A» and «B» classes and railway approaches are to be built there. The terminal will enable to reduce the Sverdlovsk-Tovarny station, and the cleared area will be used for houses construction.
[~DETAIL_TEXT] => E-Business becomes more and more active in all sectors, including the transport and logistic ones, thus the use of paper documents becomes an anachronism, said OAO RZD President Vladimir Yakunin at the first meeting of International Organization Committee of the constantly acting Forum Dialogue «East-West: integration and development».
«It is e-signature that can make business communication juridically significant», believes Vladimir Yakunin.
The programme is the product of activities and ideas of the World Social Forum «Dialogue of Civilizations» and of the International Congress of Industrialists and Businessmen to unite intellectual resources of the states, to exchange information between the businessmen of the Eurasian countries and to cooperate to find new approaches to the problems of social and economic relations.
Officials Ink Agreement on New Irkutsk Airport
An agreement on the construction of a new airport near the Siberian city of Irkutsk was signed by Russia’s Federal Air Transportation Agency and the Irkutsk Region Administration in July.
Governor Alexander Tishanin said the airport’s draft design would be ready in 2007 and the construction financing will begin in 2008. He added that Moscow would finance the construction of the runway, but the administration would have to find investors to build a terminal and facilities.
The new airport will be located about 22 miles to the northwest of Irkutsk.
MLP Starts Building Logistics Complex in Leningrad Region
International Logistics Partnership (MLP), which is based in Moscow, launched construction on a class-A multi-functional logistics complex at the cost of USD 135 million in the Leningrad region at the end of June.
The logistics complex will provide transportation and information services, logistics services for receiving, storing and loading cargoes and will service production, trade, network and retail companies. The assortment of cargoes will include home appliances, electrical appliances, food products and factory packaging.
MLP-KAD will build the complex in several stages. The first stage will take 13 months. The total area under construction amounts to 185,000 square meters. A 50,000 square meter terminal is to be completed by April 2008.
The logistics complex is being built near the Novosaratovka village (the Leningrad region, Vsevolozhsk town) and is part of a large MLP project that envisages the creation of several similar complexes with total area of 1.2 million square meters in the Leningrad, Moscow, Rostov and Sverdlovsk regions of Russia and the Kiyev region of Ukraine.
750-800 Thousand TEU by 2015
By 2015 OAO RZD plans to increase transit container transportation to 750-800 thousand TEU, said Vadim Morozov, OAO RZD’s First Vice President, at the round-table discussion «Transit Potential of Russia».
In his words, the total volume of transit container transportation by railway amounted to 17.4 million tons in 2005.
«Such volume has remained the same for several years; however, this figure is smaller than the one in 2000-2001».
Speaking of the problems of container transportation development, the First Vice President of OAO RZD marked that the total annual volume of the world market of container transportation is 37.7 million containers nowadays, including 14 million containers carried via the Pacific and European markets. Out of this volume, the freight basis of the Northern provinces of China (1-1.3 million containers annually), Japan and South Korea (3 million containers) is formed. It is planned to attract a part of containerized freight to the Transsib.
Vadim Morozov said that 184 thousand TEU was transported along the Transsib in 2005. «We are not satisfied with this figure. We have a powerful railway infrastructure. It takes just 11-12 days to transport containers along the Transsib from the Far East to Europe. In the medium-term outlook, the company aims at increasing its transit transportation volume to 330-350 thousand TEU, and to 750-800 thousand TEU by 2015», the company’s First Vice President said.
V. Morozov also mentioned a number of problems preventing development of transit container transportation by railway, including the lack of a proper logistic product for transit servicing and impossibility of fast response to the market situation by changing the tariff transportation constituent.
«Our position won’t change: transit tariff must compensate for the losses on transportation and provide the necessary profitability», said Vadim Morozov.
Sovcomflot Plans to Increase Oil Transportation
OAO Sovcomflot plans to increase oil transportation from the terminal of Caspian Pipeline Consortium in Novorossiysk, said Director General of Sovcomflot Sergey Frank after signing a Memorandum with Chevron Shipping Company.
In his words, the Memorandum envisages an increase of the two companies’ cooperation in oil transportation from the Caspian Pipeline Consortium’s terminals and participation in Burgas–Alexandroupolis project.
Sergey Frank noticed that the document envisages an increase of oil transportation by tankers of Sovcomflot for Chevron Shipping Company. He suggested that both companies could use their tanker fleet in the Black Sea basin. «Such a possibility is being discussed», said the Head of Sovcomflot.
General Cargo Will Be Handled in Vysotsk
The authorities of the Leningradskaya Oblast (the Leningrad region) are discussing the declaration of Rosmorport concerning the development of the territory of Vysotsk port to increase its handling capacity and the use of port territories, said the Chairman of the Committee of Economy and Investments of the Government of Leningradskaya Oblast Georgy Dvas.
He stressed that Rosmorport plans to increase the capacity of the port’s navigating channel, so that the port could service vessels with the tonnage of 70 thousand tons. Besides, Rosmorport is to increase the length of the harbor wall by 50% and to enlarge the area of the terminal threefold. The terminals will handle general cargoes. G.Dvas said that the matter concerns the enlargement of existing territories but not the construction of new capacities. He also mentioned that there are many companies wishing to construct and enlarge terminals, including the owner of the port ROSA-Holding.
Multimodal Transport Junction to Be Launched in Krasnoyarsk
On July 13, 2006, the construction of a modern freight terminal started in Krasnoyarsk. The largest Japanese air freight carrier Nippon Cargo Airlines is interested in the launch of a multimodal transport junction on the basis of Krasnoyarsk Airport.
This step is the next and obligatory stage of the project for multimodal transport junction construction on the basis of Krasnoyarsk airport. The project is controlled by the Administration of Krasnoyarsk region, KrasAir and AirBridgeCargo.
The terminal with the total area of over 6 thousand square meters will be located between the runway and the warehouse of combustive-lubricating materials, which will enable to provide fast and efficient work of the freight hub. The new terminal will service and warehouse all types of cargoes. Its annual capacity is to be up to 400 thousand tons. Nowadays, the capacity of the existing warehouse in the Krasnoyarsk airport is 20 thousand tons annually.
It is planned that the freight terminal will be put into operation in July 2007. Later the freight complex of the Krasnoyarsk airport will be enlarged so that it will be able to handle up to two million tons of freight annually. The total cost of improving the freight infrastructure of the airport is estimated at USD 40 million in the next six years.
Two toll roads to Be Constructed by 2009 in Russia
Two toll-roads will appear in Russia by 2009. The construction will be financed from the Investment Fund, said RF Minister of Transport Igor Levitin.
The first of them will pass along the shore of the Finnish Gulf via the center of Saint-Petersburg. The second one – Moscow–Saint-Petersburg is to connect Moscow ring-road and Solnechnogorsk via the Sheremetyevo airport. Igor Levitin underlined that both projects are aimed at daily carrying capacity of 25,000 vehicles. There will be no similar construction in other regions of Russia because of «the lack of the market».
«We assumed that Moscow and Saint-Petersburg are most popular directions nowadays: transit volume is very large there. 250 thousand vehicles run to and from Moscow daily, which exceeds the handling capacity twofold or even threefold, thus the toll roads sector is very promising», the Minister said.
He also added that, according to the plan of the RF transport system modernization in 2007-2009, a 30%-growth of roads construction financing is envisaged.
Georgian Railway Increased Freight Transportation
In January-June 2006, the Georgian Railway increased freight transportation by 34.2% year-on-year to 11.15 million tons.
Specialists of the Georgian Railway forecast that the tendency of throughput growth, over 60% of which is oil and products, will remain. In H1 of 2006, passenger transportation also increased. In six months of 2006, the railway carried 1.82 million passengers, 13.8% up year-on-year. In particular, this year Tbilisi–Moscow railway communication has been recommenced; a new speeded up line Erevan-Batumi has been put into operation, two new trains to Adzharia have been implemented. In 2005, the Georgian Railway transported 18.986 million tons, 23% up year-on-year.
Transport and Logistic Terminal near ekaterinburg
The construction of an international logistic terminal at Ekaterinburg will start in the near future.
The international logistic terminal will be constructed near the Gipsovaya station. The authorities of Yekaterinburg have authorized the transfer of about 53 hectares, including 38 hectares of usable area.120 thousand square meters of warehouses of «A» and «B» classes and railway approaches are to be built there. The terminal will enable to reduce the Sverdlovsk-Tovarny station, and the cleared area will be used for houses construction.
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[DETAIL_TEXT] => E-Business becomes more and more active in all sectors, including the transport and logistic ones, thus the use of paper documents becomes an anachronism, said OAO RZD President Vladimir Yakunin at the first meeting of International Organization Committee of the constantly acting Forum Dialogue «East-West: integration and development».
«It is e-signature that can make business communication juridically significant», believes Vladimir Yakunin.
The programme is the product of activities and ideas of the World Social Forum «Dialogue of Civilizations» and of the International Congress of Industrialists and Businessmen to unite intellectual resources of the states, to exchange information between the businessmen of the Eurasian countries and to cooperate to find new approaches to the problems of social and economic relations.
Officials Ink Agreement on New Irkutsk Airport
An agreement on the construction of a new airport near the Siberian city of Irkutsk was signed by Russia’s Federal Air Transportation Agency and the Irkutsk Region Administration in July.
Governor Alexander Tishanin said the airport’s draft design would be ready in 2007 and the construction financing will begin in 2008. He added that Moscow would finance the construction of the runway, but the administration would have to find investors to build a terminal and facilities.
The new airport will be located about 22 miles to the northwest of Irkutsk.
MLP Starts Building Logistics Complex in Leningrad Region
International Logistics Partnership (MLP), which is based in Moscow, launched construction on a class-A multi-functional logistics complex at the cost of USD 135 million in the Leningrad region at the end of June.
The logistics complex will provide transportation and information services, logistics services for receiving, storing and loading cargoes and will service production, trade, network and retail companies. The assortment of cargoes will include home appliances, electrical appliances, food products and factory packaging.
MLP-KAD will build the complex in several stages. The first stage will take 13 months. The total area under construction amounts to 185,000 square meters. A 50,000 square meter terminal is to be completed by April 2008.
The logistics complex is being built near the Novosaratovka village (the Leningrad region, Vsevolozhsk town) and is part of a large MLP project that envisages the creation of several similar complexes with total area of 1.2 million square meters in the Leningrad, Moscow, Rostov and Sverdlovsk regions of Russia and the Kiyev region of Ukraine.
750-800 Thousand TEU by 2015
By 2015 OAO RZD plans to increase transit container transportation to 750-800 thousand TEU, said Vadim Morozov, OAO RZD’s First Vice President, at the round-table discussion «Transit Potential of Russia».
In his words, the total volume of transit container transportation by railway amounted to 17.4 million tons in 2005.
«Such volume has remained the same for several years; however, this figure is smaller than the one in 2000-2001».
Speaking of the problems of container transportation development, the First Vice President of OAO RZD marked that the total annual volume of the world market of container transportation is 37.7 million containers nowadays, including 14 million containers carried via the Pacific and European markets. Out of this volume, the freight basis of the Northern provinces of China (1-1.3 million containers annually), Japan and South Korea (3 million containers) is formed. It is planned to attract a part of containerized freight to the Transsib.
Vadim Morozov said that 184 thousand TEU was transported along the Transsib in 2005. «We are not satisfied with this figure. We have a powerful railway infrastructure. It takes just 11-12 days to transport containers along the Transsib from the Far East to Europe. In the medium-term outlook, the company aims at increasing its transit transportation volume to 330-350 thousand TEU, and to 750-800 thousand TEU by 2015», the company’s First Vice President said.
V. Morozov also mentioned a number of problems preventing development of transit container transportation by railway, including the lack of a proper logistic product for transit servicing and impossibility of fast response to the market situation by changing the tariff transportation constituent.
«Our position won’t change: transit tariff must compensate for the losses on transportation and provide the necessary profitability», said Vadim Morozov.
Sovcomflot Plans to Increase Oil Transportation
OAO Sovcomflot plans to increase oil transportation from the terminal of Caspian Pipeline Consortium in Novorossiysk, said Director General of Sovcomflot Sergey Frank after signing a Memorandum with Chevron Shipping Company.
In his words, the Memorandum envisages an increase of the two companies’ cooperation in oil transportation from the Caspian Pipeline Consortium’s terminals and participation in Burgas–Alexandroupolis project.
Sergey Frank noticed that the document envisages an increase of oil transportation by tankers of Sovcomflot for Chevron Shipping Company. He suggested that both companies could use their tanker fleet in the Black Sea basin. «Such a possibility is being discussed», said the Head of Sovcomflot.
General Cargo Will Be Handled in Vysotsk
The authorities of the Leningradskaya Oblast (the Leningrad region) are discussing the declaration of Rosmorport concerning the development of the territory of Vysotsk port to increase its handling capacity and the use of port territories, said the Chairman of the Committee of Economy and Investments of the Government of Leningradskaya Oblast Georgy Dvas.
He stressed that Rosmorport plans to increase the capacity of the port’s navigating channel, so that the port could service vessels with the tonnage of 70 thousand tons. Besides, Rosmorport is to increase the length of the harbor wall by 50% and to enlarge the area of the terminal threefold. The terminals will handle general cargoes. G.Dvas said that the matter concerns the enlargement of existing territories but not the construction of new capacities. He also mentioned that there are many companies wishing to construct and enlarge terminals, including the owner of the port ROSA-Holding.
Multimodal Transport Junction to Be Launched in Krasnoyarsk
On July 13, 2006, the construction of a modern freight terminal started in Krasnoyarsk. The largest Japanese air freight carrier Nippon Cargo Airlines is interested in the launch of a multimodal transport junction on the basis of Krasnoyarsk Airport.
This step is the next and obligatory stage of the project for multimodal transport junction construction on the basis of Krasnoyarsk airport. The project is controlled by the Administration of Krasnoyarsk region, KrasAir and AirBridgeCargo.
The terminal with the total area of over 6 thousand square meters will be located between the runway and the warehouse of combustive-lubricating materials, which will enable to provide fast and efficient work of the freight hub. The new terminal will service and warehouse all types of cargoes. Its annual capacity is to be up to 400 thousand tons. Nowadays, the capacity of the existing warehouse in the Krasnoyarsk airport is 20 thousand tons annually.
It is planned that the freight terminal will be put into operation in July 2007. Later the freight complex of the Krasnoyarsk airport will be enlarged so that it will be able to handle up to two million tons of freight annually. The total cost of improving the freight infrastructure of the airport is estimated at USD 40 million in the next six years.
Two toll roads to Be Constructed by 2009 in Russia
Two toll-roads will appear in Russia by 2009. The construction will be financed from the Investment Fund, said RF Minister of Transport Igor Levitin.
The first of them will pass along the shore of the Finnish Gulf via the center of Saint-Petersburg. The second one – Moscow–Saint-Petersburg is to connect Moscow ring-road and Solnechnogorsk via the Sheremetyevo airport. Igor Levitin underlined that both projects are aimed at daily carrying capacity of 25,000 vehicles. There will be no similar construction in other regions of Russia because of «the lack of the market».
«We assumed that Moscow and Saint-Petersburg are most popular directions nowadays: transit volume is very large there. 250 thousand vehicles run to and from Moscow daily, which exceeds the handling capacity twofold or even threefold, thus the toll roads sector is very promising», the Minister said.
He also added that, according to the plan of the RF transport system modernization in 2007-2009, a 30%-growth of roads construction financing is envisaged.
Georgian Railway Increased Freight Transportation
In January-June 2006, the Georgian Railway increased freight transportation by 34.2% year-on-year to 11.15 million tons.
Specialists of the Georgian Railway forecast that the tendency of throughput growth, over 60% of which is oil and products, will remain. In H1 of 2006, passenger transportation also increased. In six months of 2006, the railway carried 1.82 million passengers, 13.8% up year-on-year. In particular, this year Tbilisi–Moscow railway communication has been recommenced; a new speeded up line Erevan-Batumi has been put into operation, two new trains to Adzharia have been implemented. In 2005, the Georgian Railway transported 18.986 million tons, 23% up year-on-year.
Transport and Logistic Terminal near ekaterinburg
The construction of an international logistic terminal at Ekaterinburg will start in the near future.
The international logistic terminal will be constructed near the Gipsovaya station. The authorities of Yekaterinburg have authorized the transfer of about 53 hectares, including 38 hectares of usable area.120 thousand square meters of warehouses of «A» and «B» classes and railway approaches are to be built there. The terminal will enable to reduce the Sverdlovsk-Tovarny station, and the cleared area will be used for houses construction.
[~DETAIL_TEXT] => E-Business becomes more and more active in all sectors, including the transport and logistic ones, thus the use of paper documents becomes an anachronism, said OAO RZD President Vladimir Yakunin at the first meeting of International Organization Committee of the constantly acting Forum Dialogue «East-West: integration and development».
«It is e-signature that can make business communication juridically significant», believes Vladimir Yakunin.
The programme is the product of activities and ideas of the World Social Forum «Dialogue of Civilizations» and of the International Congress of Industrialists and Businessmen to unite intellectual resources of the states, to exchange information between the businessmen of the Eurasian countries and to cooperate to find new approaches to the problems of social and economic relations.
Officials Ink Agreement on New Irkutsk Airport
An agreement on the construction of a new airport near the Siberian city of Irkutsk was signed by Russia’s Federal Air Transportation Agency and the Irkutsk Region Administration in July.
Governor Alexander Tishanin said the airport’s draft design would be ready in 2007 and the construction financing will begin in 2008. He added that Moscow would finance the construction of the runway, but the administration would have to find investors to build a terminal and facilities.
The new airport will be located about 22 miles to the northwest of Irkutsk.
MLP Starts Building Logistics Complex in Leningrad Region
International Logistics Partnership (MLP), which is based in Moscow, launched construction on a class-A multi-functional logistics complex at the cost of USD 135 million in the Leningrad region at the end of June.
The logistics complex will provide transportation and information services, logistics services for receiving, storing and loading cargoes and will service production, trade, network and retail companies. The assortment of cargoes will include home appliances, electrical appliances, food products and factory packaging.
MLP-KAD will build the complex in several stages. The first stage will take 13 months. The total area under construction amounts to 185,000 square meters. A 50,000 square meter terminal is to be completed by April 2008.
The logistics complex is being built near the Novosaratovka village (the Leningrad region, Vsevolozhsk town) and is part of a large MLP project that envisages the creation of several similar complexes with total area of 1.2 million square meters in the Leningrad, Moscow, Rostov and Sverdlovsk regions of Russia and the Kiyev region of Ukraine.
750-800 Thousand TEU by 2015
By 2015 OAO RZD plans to increase transit container transportation to 750-800 thousand TEU, said Vadim Morozov, OAO RZD’s First Vice President, at the round-table discussion «Transit Potential of Russia».
In his words, the total volume of transit container transportation by railway amounted to 17.4 million tons in 2005.
«Such volume has remained the same for several years; however, this figure is smaller than the one in 2000-2001».
Speaking of the problems of container transportation development, the First Vice President of OAO RZD marked that the total annual volume of the world market of container transportation is 37.7 million containers nowadays, including 14 million containers carried via the Pacific and European markets. Out of this volume, the freight basis of the Northern provinces of China (1-1.3 million containers annually), Japan and South Korea (3 million containers) is formed. It is planned to attract a part of containerized freight to the Transsib.
Vadim Morozov said that 184 thousand TEU was transported along the Transsib in 2005. «We are not satisfied with this figure. We have a powerful railway infrastructure. It takes just 11-12 days to transport containers along the Transsib from the Far East to Europe. In the medium-term outlook, the company aims at increasing its transit transportation volume to 330-350 thousand TEU, and to 750-800 thousand TEU by 2015», the company’s First Vice President said.
V. Morozov also mentioned a number of problems preventing development of transit container transportation by railway, including the lack of a proper logistic product for transit servicing and impossibility of fast response to the market situation by changing the tariff transportation constituent.
«Our position won’t change: transit tariff must compensate for the losses on transportation and provide the necessary profitability», said Vadim Morozov.
Sovcomflot Plans to Increase Oil Transportation
OAO Sovcomflot plans to increase oil transportation from the terminal of Caspian Pipeline Consortium in Novorossiysk, said Director General of Sovcomflot Sergey Frank after signing a Memorandum with Chevron Shipping Company.
In his words, the Memorandum envisages an increase of the two companies’ cooperation in oil transportation from the Caspian Pipeline Consortium’s terminals and participation in Burgas–Alexandroupolis project.
Sergey Frank noticed that the document envisages an increase of oil transportation by tankers of Sovcomflot for Chevron Shipping Company. He suggested that both companies could use their tanker fleet in the Black Sea basin. «Such a possibility is being discussed», said the Head of Sovcomflot.
General Cargo Will Be Handled in Vysotsk
The authorities of the Leningradskaya Oblast (the Leningrad region) are discussing the declaration of Rosmorport concerning the development of the territory of Vysotsk port to increase its handling capacity and the use of port territories, said the Chairman of the Committee of Economy and Investments of the Government of Leningradskaya Oblast Georgy Dvas.
He stressed that Rosmorport plans to increase the capacity of the port’s navigating channel, so that the port could service vessels with the tonnage of 70 thousand tons. Besides, Rosmorport is to increase the length of the harbor wall by 50% and to enlarge the area of the terminal threefold. The terminals will handle general cargoes. G.Dvas said that the matter concerns the enlargement of existing territories but not the construction of new capacities. He also mentioned that there are many companies wishing to construct and enlarge terminals, including the owner of the port ROSA-Holding.
Multimodal Transport Junction to Be Launched in Krasnoyarsk
On July 13, 2006, the construction of a modern freight terminal started in Krasnoyarsk. The largest Japanese air freight carrier Nippon Cargo Airlines is interested in the launch of a multimodal transport junction on the basis of Krasnoyarsk Airport.
This step is the next and obligatory stage of the project for multimodal transport junction construction on the basis of Krasnoyarsk airport. The project is controlled by the Administration of Krasnoyarsk region, KrasAir and AirBridgeCargo.
The terminal with the total area of over 6 thousand square meters will be located between the runway and the warehouse of combustive-lubricating materials, which will enable to provide fast and efficient work of the freight hub. The new terminal will service and warehouse all types of cargoes. Its annual capacity is to be up to 400 thousand tons. Nowadays, the capacity of the existing warehouse in the Krasnoyarsk airport is 20 thousand tons annually.
It is planned that the freight terminal will be put into operation in July 2007. Later the freight complex of the Krasnoyarsk airport will be enlarged so that it will be able to handle up to two million tons of freight annually. The total cost of improving the freight infrastructure of the airport is estimated at USD 40 million in the next six years.
Two toll roads to Be Constructed by 2009 in Russia
Two toll-roads will appear in Russia by 2009. The construction will be financed from the Investment Fund, said RF Minister of Transport Igor Levitin.
The first of them will pass along the shore of the Finnish Gulf via the center of Saint-Petersburg. The second one – Moscow–Saint-Petersburg is to connect Moscow ring-road and Solnechnogorsk via the Sheremetyevo airport. Igor Levitin underlined that both projects are aimed at daily carrying capacity of 25,000 vehicles. There will be no similar construction in other regions of Russia because of «the lack of the market».
«We assumed that Moscow and Saint-Petersburg are most popular directions nowadays: transit volume is very large there. 250 thousand vehicles run to and from Moscow daily, which exceeds the handling capacity twofold or even threefold, thus the toll roads sector is very promising», the Minister said.
He also added that, according to the plan of the RF transport system modernization in 2007-2009, a 30%-growth of roads construction financing is envisaged.
Georgian Railway Increased Freight Transportation
In January-June 2006, the Georgian Railway increased freight transportation by 34.2% year-on-year to 11.15 million tons.
Specialists of the Georgian Railway forecast that the tendency of throughput growth, over 60% of which is oil and products, will remain. In H1 of 2006, passenger transportation also increased. In six months of 2006, the railway carried 1.82 million passengers, 13.8% up year-on-year. In particular, this year Tbilisi–Moscow railway communication has been recommenced; a new speeded up line Erevan-Batumi has been put into operation, two new trains to Adzharia have been implemented. In 2005, the Georgian Railway transported 18.986 million tons, 23% up year-on-year.
Transport and Logistic Terminal near ekaterinburg
The construction of an international logistic terminal at Ekaterinburg will start in the near future.
The international logistic terminal will be constructed near the Gipsovaya station. The authorities of Yekaterinburg have authorized the transfer of about 53 hectares, including 38 hectares of usable area.120 thousand square meters of warehouses of «A» and «B» classes and railway approaches are to be built there. The terminal will enable to reduce the Sverdlovsk-Tovarny station, and the cleared area will be used for houses construction.
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[DETAIL_TEXT] => «We believe that it is necessary to create conditions for a successful competition between Russian shipyards and foreign ones, to support the shipbuilding industry.
To achieve it, the low level of prices for constructing vessels should be kept artificially on the initial stage of construction», thinks Mikhail Fedorenko, Director of the First Department for VIP Servicing.
In Theory and in Practice
– Could you evaluate the current condition and the prospects of ship building development in Russia? It has been noted many times that to build vessels in Russia is expensive. How can the situation be changed?
– In the Sea Doctrine until 2020, approved by the President of the Russian Federation, the main targets of the Russian sea policy are defined. Fleet construction is one of the priorities; besides, «it is necessary to create conditions stimulating fleet construction on the Russian enterprises». However, during the last five-six years no significant measures were taken. In 2004-2005, in the documents of the Sea Collegium under the RF Government it was written that the volumes of shipbuilding for the Russian transport and trade fleet renewal are very small, which is caused by the lack of normative-legislative and organizational conditions. At the same time, some measures have been already taken to change the situation for the better. On January 26, 2006, Federal Law №168 from December 20, 2005 «On Putting Amendments to Separate Documents of the Russian Federation in Part Dealing with Creation of Russian International Vessel Registration» came in force.
Speaking of shipbuilding, one should take its specific nature into account. On the one hand, the condition of the shipbuilding industry characterizes the level of the country’s development; on the other hand, it stimulates economic development.
A dynamic development of the sector could increase rates of production growth of the metallurgical industry, stimulate development of the machine building, electronics and other industries.
Examining the structure of demand on the shipbuilding industry market, it is necessary to remember that the basic customer is the state. The volume of its demand depends on the priorities of the budget policy. Mainly, these are supplies of sea machinery, realized in the frameworks of military-technical cooperation and in correspondence with government contractual defense work. I’d like to add that the task of the largest Russian shipbuilding yards has almost always been construction of warships. The logistics of producing this type of vessels differs from the one of civil ships. That is why, in cases when large series of civil vessels are ordered, the synergetic effect will be less powerful than if the order is placed at specialized shipbuilding yards. At the same time, Russia needs new vessels badly. For the period of 2006-2010 the demand is estimated at USD 22.8 bln. As it was mentioned at the meeting of the Sea Collegium, if respective conditions are created on the Russian shipbuilding yards, there can be constructed vessels and self-floating structures for the total sum of USD 21.2 bln.
Since the beginning of 2006, a new impulse was given to the legislation initiatives in shipbuilding. In particular, at the meeting of the Sea Collegium held in February, the measures of first importance were defined. If they are taken, the Russian market of trade shipbuilding will enlarge. The measures are as follows:
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In Theory and in Practice
– Could you evaluate the current condition and the prospects of ship building development in Russia? It has been noted many times that to build vessels in Russia is expensive. How can the situation be changed?
– In the Sea Doctrine until 2020, approved by the President of the Russian Federation, the main targets of the Russian sea policy are defined. Fleet construction is one of the priorities; besides, «it is necessary to create conditions stimulating fleet construction on the Russian enterprises». However, during the last five-six years no significant measures were taken. In 2004-2005, in the documents of the Sea Collegium under the RF Government it was written that the volumes of shipbuilding for the Russian transport and trade fleet renewal are very small, which is caused by the lack of normative-legislative and organizational conditions. At the same time, some measures have been already taken to change the situation for the better. On January 26, 2006, Federal Law №168 from December 20, 2005 «On Putting Amendments to Separate Documents of the Russian Federation in Part Dealing with Creation of Russian International Vessel Registration» came in force.
Speaking of shipbuilding, one should take its specific nature into account. On the one hand, the condition of the shipbuilding industry characterizes the level of the country’s development; on the other hand, it stimulates economic development.
A dynamic development of the sector could increase rates of production growth of the metallurgical industry, stimulate development of the machine building, electronics and other industries.
Examining the structure of demand on the shipbuilding industry market, it is necessary to remember that the basic customer is the state. The volume of its demand depends on the priorities of the budget policy. Mainly, these are supplies of sea machinery, realized in the frameworks of military-technical cooperation and in correspondence with government contractual defense work. I’d like to add that the task of the largest Russian shipbuilding yards has almost always been construction of warships. The logistics of producing this type of vessels differs from the one of civil ships. That is why, in cases when large series of civil vessels are ordered, the synergetic effect will be less powerful than if the order is placed at specialized shipbuilding yards. At the same time, Russia needs new vessels badly. For the period of 2006-2010 the demand is estimated at USD 22.8 bln. As it was mentioned at the meeting of the Sea Collegium, if respective conditions are created on the Russian shipbuilding yards, there can be constructed vessels and self-floating structures for the total sum of USD 21.2 bln.
Since the beginning of 2006, a new impulse was given to the legislation initiatives in shipbuilding. In particular, at the meeting of the Sea Collegium held in February, the measures of first importance were defined. If they are taken, the Russian market of trade shipbuilding will enlarge. The measures are as follows:
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Concessionaires will build roads, airports and… ice–breakers
No doubts, the approval of the Federal Law «On concession agreements» №115, signed by the Russian President on July 21 last year, was closely connected with modern market demands, since concessionaires are interested in the construction of toll-roads, port objects and airports in Russia. Some companies are ready to invest into the construction of ice-breakers which are infrastructure objects and beyond privatization.
According to the Ministry of Economic Development and Trade and some investors are ready to participate in concession agreements for certain objects today. Concession projects within frameworks of pablic private partnership are being prepared in different areas.
The Law envisages a transfer of 99 objects belonging to the state and which can’t be privatized to private business. According to this document, items of concession agreement include all objects of transport infrastructure, ice-breakers and hydro-technical constructions. Moreover, concession projects can also include housing and communal services objects, educational and public health service objects, as well as objects of engineer infrastructure. However, natural resources is a seriously restricted area for launching projects of this sort.
The law says concession agreement can be concluded on projects under full state ownership. The contractual term isn’t limited and is set for each separate contract in accordance with the term of construction or reconstruction of the object. Moreover, some objects are of strategic importance and only the RF President is authorized to make a decision about their transfer to the concession status.
It should be said that the law remains underdeveloped both in the opinion of its developers and that of transport businessmen. In particular, some transport businessmen believe the law fails in respect of the fact that it prohibits putting the concession object in pledge. At the same time, it makes it impossible to attract debt finance for construction and modernization of the object. Commenting on this issue, Svetlana Nesvetailova, the Head of transport and communication reconstruction department of the RF Ministry of Economic Development and Trade and said that it was a deliberate decision. Most concession objects must be state controlled due to the fact that they are determined for common use. «We can’t allow amortization of objects that are to be under the state control, for example, roads. This is a principle position of the Ministry», she stressed.
Starting from September 1, Saint-Petersburg administration plans to launch a concession tender for Western High-Speed Diameter (a part og the ring-road) construction and conclude all agreements with the winner by the beginning of June.
Legal limit of «Free Will»
The Law «On concession agreements» envisages development of model agreement for 14 types of objects.
Late in May the RF Government approved the model agreement for roads and engineer constructions of transport infrastructure, including bridges, overbridges, tunnels, car parking places, and motor transport check-points, with the respective resolution signed by Mikhail Fradkov, Chairman of the Government.
The concession agreement for certain objects is concluded in accordance with the model agreement and can include clauses that aren’t regulated by this agreement but not contradicting the RF legislation.
One more peculiarity of this document should be mentioned: the Government resolution envisages an opportunity of bilateral amendments to the document. Business «free will» is only limited by the already mentioned accordance with the RF legislation and the Concedent decision on concession agreement conclusion. According to the Ministry of Economic Development and Trade and the approval of the resolution will allow to create a legal basis for concession contracts regulation, including amendment and expiration of respective concession agreements. It will give additional guarantees to businessmen investing into the state property. The necessary condition of concession agreements is defining the sides’ rights and obligations, conditions of Concedent’s control over Concessionaire’s obligations, the way the concession object and, if necessary Concedent’s other property is transferred to Concessionaire, as well as the reversal process of passing this property back, the way of construction or reconstruction of concession agreement object, conditions and procedure of concession agreement payment and other clauses envisaged by the Federal Law for concession agreement.
Moreover, the agreement must take into account the specifics of property construction or reconstruction, as well as the conditions of work involving this property in respect of motor ways, bridges, overbridges and tunnels.
Also there must be clarified criteria for the valuation of Concessionaire’s activity, obligatory data expected from the Concessionaire, regularity and quality of services provided, support of necessary technical operating conditions etc. The way of prescheduled expiration of a concession agreement is agreed in case of Concessionaire’s breaking terms of the contract, as well as the way of transferring concession object after the contractual term expiration. Concession agreements include elements of different obligations (rent, asset management etc.). The difference between concession and other types of relations is determined by the target which the state tries to achieve. The basic goal here lies in private investment attraction in order to improve quality and use state and municipal property, as well as construct new property. An obligatory condition for concession agreement is Concessionaire’s investment into construction and reconstruction of the object to improve it in accordance with its target use.
According to experts, the absence of implemented projects within the framework of concession legislation was due to the absence of the very model agreement. At the same time, according to Fyodor Teselkin, legal expert of Freshfields Bruckhaus Deringer, the approved agreement is not perfect, as it does not allow for the specifics of every single project and, thus, increases potential risks for investor. However, according to him, within present day activities held on concession legislation improvement, the issue of ascribing a model agreement the status of recommendation is considered, since it can assist in this problem solution.
IVAN SERGEYEV
[~DETAIL_TEXT] =>
Concessionaires will build roads, airports and… ice–breakers
No doubts, the approval of the Federal Law «On concession agreements» №115, signed by the Russian President on July 21 last year, was closely connected with modern market demands, since concessionaires are interested in the construction of toll-roads, port objects and airports in Russia. Some companies are ready to invest into the construction of ice-breakers which are infrastructure objects and beyond privatization.
According to the Ministry of Economic Development and Trade and some investors are ready to participate in concession agreements for certain objects today. Concession projects within frameworks of pablic private partnership are being prepared in different areas.
The Law envisages a transfer of 99 objects belonging to the state and which can’t be privatized to private business. According to this document, items of concession agreement include all objects of transport infrastructure, ice-breakers and hydro-technical constructions. Moreover, concession projects can also include housing and communal services objects, educational and public health service objects, as well as objects of engineer infrastructure. However, natural resources is a seriously restricted area for launching projects of this sort.
The law says concession agreement can be concluded on projects under full state ownership. The contractual term isn’t limited and is set for each separate contract in accordance with the term of construction or reconstruction of the object. Moreover, some objects are of strategic importance and only the RF President is authorized to make a decision about their transfer to the concession status.
It should be said that the law remains underdeveloped both in the opinion of its developers and that of transport businessmen. In particular, some transport businessmen believe the law fails in respect of the fact that it prohibits putting the concession object in pledge. At the same time, it makes it impossible to attract debt finance for construction and modernization of the object. Commenting on this issue, Svetlana Nesvetailova, the Head of transport and communication reconstruction department of the RF Ministry of Economic Development and Trade and said that it was a deliberate decision. Most concession objects must be state controlled due to the fact that they are determined for common use. «We can’t allow amortization of objects that are to be under the state control, for example, roads. This is a principle position of the Ministry», she stressed.
Starting from September 1, Saint-Petersburg administration plans to launch a concession tender for Western High-Speed Diameter (a part og the ring-road) construction and conclude all agreements with the winner by the beginning of June.
Legal limit of «Free Will»
The Law «On concession agreements» envisages development of model agreement for 14 types of objects.
Late in May the RF Government approved the model agreement for roads and engineer constructions of transport infrastructure, including bridges, overbridges, tunnels, car parking places, and motor transport check-points, with the respective resolution signed by Mikhail Fradkov, Chairman of the Government.
The concession agreement for certain objects is concluded in accordance with the model agreement and can include clauses that aren’t regulated by this agreement but not contradicting the RF legislation.
One more peculiarity of this document should be mentioned: the Government resolution envisages an opportunity of bilateral amendments to the document. Business «free will» is only limited by the already mentioned accordance with the RF legislation and the Concedent decision on concession agreement conclusion. According to the Ministry of Economic Development and Trade and the approval of the resolution will allow to create a legal basis for concession contracts regulation, including amendment and expiration of respective concession agreements. It will give additional guarantees to businessmen investing into the state property. The necessary condition of concession agreements is defining the sides’ rights and obligations, conditions of Concedent’s control over Concessionaire’s obligations, the way the concession object and, if necessary Concedent’s other property is transferred to Concessionaire, as well as the reversal process of passing this property back, the way of construction or reconstruction of concession agreement object, conditions and procedure of concession agreement payment and other clauses envisaged by the Federal Law for concession agreement.
Moreover, the agreement must take into account the specifics of property construction or reconstruction, as well as the conditions of work involving this property in respect of motor ways, bridges, overbridges and tunnels.
Also there must be clarified criteria for the valuation of Concessionaire’s activity, obligatory data expected from the Concessionaire, regularity and quality of services provided, support of necessary technical operating conditions etc. The way of prescheduled expiration of a concession agreement is agreed in case of Concessionaire’s breaking terms of the contract, as well as the way of transferring concession object after the contractual term expiration. Concession agreements include elements of different obligations (rent, asset management etc.). The difference between concession and other types of relations is determined by the target which the state tries to achieve. The basic goal here lies in private investment attraction in order to improve quality and use state and municipal property, as well as construct new property. An obligatory condition for concession agreement is Concessionaire’s investment into construction and reconstruction of the object to improve it in accordance with its target use.
According to experts, the absence of implemented projects within the framework of concession legislation was due to the absence of the very model agreement. At the same time, according to Fyodor Teselkin, legal expert of Freshfields Bruckhaus Deringer, the approved agreement is not perfect, as it does not allow for the specifics of every single project and, thus, increases potential risks for investor. However, according to him, within present day activities held on concession legislation improvement, the issue of ascribing a model agreement the status of recommendation is considered, since it can assist in this problem solution.
IVAN SERGEYEV
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Concessionaires will build roads, airports and… ice–breakers
No doubts, the approval of the Federal Law «On concession agreements» №115, signed by the Russian President on July 21 last year, was closely connected with modern market demands, since concessionaires are interested in the construction of toll-roads, port objects and airports in Russia. Some companies are ready to invest into the construction of ice-breakers which are infrastructure objects and beyond privatization.
According to the Ministry of Economic Development and Trade and some investors are ready to participate in concession agreements for certain objects today. Concession projects within frameworks of pablic private partnership are being prepared in different areas.
The Law envisages a transfer of 99 objects belonging to the state and which can’t be privatized to private business. According to this document, items of concession agreement include all objects of transport infrastructure, ice-breakers and hydro-technical constructions. Moreover, concession projects can also include housing and communal services objects, educational and public health service objects, as well as objects of engineer infrastructure. However, natural resources is a seriously restricted area for launching projects of this sort.
The law says concession agreement can be concluded on projects under full state ownership. The contractual term isn’t limited and is set for each separate contract in accordance with the term of construction or reconstruction of the object. Moreover, some objects are of strategic importance and only the RF President is authorized to make a decision about their transfer to the concession status.
It should be said that the law remains underdeveloped both in the opinion of its developers and that of transport businessmen. In particular, some transport businessmen believe the law fails in respect of the fact that it prohibits putting the concession object in pledge. At the same time, it makes it impossible to attract debt finance for construction and modernization of the object. Commenting on this issue, Svetlana Nesvetailova, the Head of transport and communication reconstruction department of the RF Ministry of Economic Development and Trade and said that it was a deliberate decision. Most concession objects must be state controlled due to the fact that they are determined for common use. «We can’t allow amortization of objects that are to be under the state control, for example, roads. This is a principle position of the Ministry», she stressed.
Starting from September 1, Saint-Petersburg administration plans to launch a concession tender for Western High-Speed Diameter (a part og the ring-road) construction and conclude all agreements with the winner by the beginning of June.
Legal limit of «Free Will»
The Law «On concession agreements» envisages development of model agreement for 14 types of objects.
Late in May the RF Government approved the model agreement for roads and engineer constructions of transport infrastructure, including bridges, overbridges, tunnels, car parking places, and motor transport check-points, with the respective resolution signed by Mikhail Fradkov, Chairman of the Government.
The concession agreement for certain objects is concluded in accordance with the model agreement and can include clauses that aren’t regulated by this agreement but not contradicting the RF legislation.
One more peculiarity of this document should be mentioned: the Government resolution envisages an opportunity of bilateral amendments to the document. Business «free will» is only limited by the already mentioned accordance with the RF legislation and the Concedent decision on concession agreement conclusion. According to the Ministry of Economic Development and Trade and the approval of the resolution will allow to create a legal basis for concession contracts regulation, including amendment and expiration of respective concession agreements. It will give additional guarantees to businessmen investing into the state property. The necessary condition of concession agreements is defining the sides’ rights and obligations, conditions of Concedent’s control over Concessionaire’s obligations, the way the concession object and, if necessary Concedent’s other property is transferred to Concessionaire, as well as the reversal process of passing this property back, the way of construction or reconstruction of concession agreement object, conditions and procedure of concession agreement payment and other clauses envisaged by the Federal Law for concession agreement.
Moreover, the agreement must take into account the specifics of property construction or reconstruction, as well as the conditions of work involving this property in respect of motor ways, bridges, overbridges and tunnels.
Also there must be clarified criteria for the valuation of Concessionaire’s activity, obligatory data expected from the Concessionaire, regularity and quality of services provided, support of necessary technical operating conditions etc. The way of prescheduled expiration of a concession agreement is agreed in case of Concessionaire’s breaking terms of the contract, as well as the way of transferring concession object after the contractual term expiration. Concession agreements include elements of different obligations (rent, asset management etc.). The difference between concession and other types of relations is determined by the target which the state tries to achieve. The basic goal here lies in private investment attraction in order to improve quality and use state and municipal property, as well as construct new property. An obligatory condition for concession agreement is Concessionaire’s investment into construction and reconstruction of the object to improve it in accordance with its target use.
According to experts, the absence of implemented projects within the framework of concession legislation was due to the absence of the very model agreement. At the same time, according to Fyodor Teselkin, legal expert of Freshfields Bruckhaus Deringer, the approved agreement is not perfect, as it does not allow for the specifics of every single project and, thus, increases potential risks for investor. However, according to him, within present day activities held on concession legislation improvement, the issue of ascribing a model agreement the status of recommendation is considered, since it can assist in this problem solution.
IVAN SERGEYEV
[~DETAIL_TEXT] =>
Concessionaires will build roads, airports and… ice–breakers
No doubts, the approval of the Federal Law «On concession agreements» №115, signed by the Russian President on July 21 last year, was closely connected with modern market demands, since concessionaires are interested in the construction of toll-roads, port objects and airports in Russia. Some companies are ready to invest into the construction of ice-breakers which are infrastructure objects and beyond privatization.
According to the Ministry of Economic Development and Trade and some investors are ready to participate in concession agreements for certain objects today. Concession projects within frameworks of pablic private partnership are being prepared in different areas.
The Law envisages a transfer of 99 objects belonging to the state and which can’t be privatized to private business. According to this document, items of concession agreement include all objects of transport infrastructure, ice-breakers and hydro-technical constructions. Moreover, concession projects can also include housing and communal services objects, educational and public health service objects, as well as objects of engineer infrastructure. However, natural resources is a seriously restricted area for launching projects of this sort.
The law says concession agreement can be concluded on projects under full state ownership. The contractual term isn’t limited and is set for each separate contract in accordance with the term of construction or reconstruction of the object. Moreover, some objects are of strategic importance and only the RF President is authorized to make a decision about their transfer to the concession status.
It should be said that the law remains underdeveloped both in the opinion of its developers and that of transport businessmen. In particular, some transport businessmen believe the law fails in respect of the fact that it prohibits putting the concession object in pledge. At the same time, it makes it impossible to attract debt finance for construction and modernization of the object. Commenting on this issue, Svetlana Nesvetailova, the Head of transport and communication reconstruction department of the RF Ministry of Economic Development and Trade and said that it was a deliberate decision. Most concession objects must be state controlled due to the fact that they are determined for common use. «We can’t allow amortization of objects that are to be under the state control, for example, roads. This is a principle position of the Ministry», she stressed.
Starting from September 1, Saint-Petersburg administration plans to launch a concession tender for Western High-Speed Diameter (a part og the ring-road) construction and conclude all agreements with the winner by the beginning of June.
Legal limit of «Free Will»
The Law «On concession agreements» envisages development of model agreement for 14 types of objects.
Late in May the RF Government approved the model agreement for roads and engineer constructions of transport infrastructure, including bridges, overbridges, tunnels, car parking places, and motor transport check-points, with the respective resolution signed by Mikhail Fradkov, Chairman of the Government.
The concession agreement for certain objects is concluded in accordance with the model agreement and can include clauses that aren’t regulated by this agreement but not contradicting the RF legislation.
One more peculiarity of this document should be mentioned: the Government resolution envisages an opportunity of bilateral amendments to the document. Business «free will» is only limited by the already mentioned accordance with the RF legislation and the Concedent decision on concession agreement conclusion. According to the Ministry of Economic Development and Trade and the approval of the resolution will allow to create a legal basis for concession contracts regulation, including amendment and expiration of respective concession agreements. It will give additional guarantees to businessmen investing into the state property. The necessary condition of concession agreements is defining the sides’ rights and obligations, conditions of Concedent’s control over Concessionaire’s obligations, the way the concession object and, if necessary Concedent’s other property is transferred to Concessionaire, as well as the reversal process of passing this property back, the way of construction or reconstruction of concession agreement object, conditions and procedure of concession agreement payment and other clauses envisaged by the Federal Law for concession agreement.
Moreover, the agreement must take into account the specifics of property construction or reconstruction, as well as the conditions of work involving this property in respect of motor ways, bridges, overbridges and tunnels.
Also there must be clarified criteria for the valuation of Concessionaire’s activity, obligatory data expected from the Concessionaire, regularity and quality of services provided, support of necessary technical operating conditions etc. The way of prescheduled expiration of a concession agreement is agreed in case of Concessionaire’s breaking terms of the contract, as well as the way of transferring concession object after the contractual term expiration. Concession agreements include elements of different obligations (rent, asset management etc.). The difference between concession and other types of relations is determined by the target which the state tries to achieve. The basic goal here lies in private investment attraction in order to improve quality and use state and municipal property, as well as construct new property. An obligatory condition for concession agreement is Concessionaire’s investment into construction and reconstruction of the object to improve it in accordance with its target use.
According to experts, the absence of implemented projects within the framework of concession legislation was due to the absence of the very model agreement. At the same time, according to Fyodor Teselkin, legal expert of Freshfields Bruckhaus Deringer, the approved agreement is not perfect, as it does not allow for the specifics of every single project and, thus, increases potential risks for investor. However, according to him, within present day activities held on concession legislation improvement, the issue of ascribing a model agreement the status of recommendation is considered, since it can assist in this problem solution.
IVAN SERGEYEV
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