Sergei Kokin: The Port of Arkhangelsk is Russia’s northern gateway to the Arctic
Mr. Kokin, please tell us about Arkhangelsk Transport Hub development.
The history of the Port of Arkhangelsk began over 400 years ago. At that time, it was a key maritime port that linked Russia with Western Europe. The center retains its strategic functions to this day, serving as Russia's northern gateway to the Arctic and used in the development of its mineral deposits. The port can be accessed by rail with surplus mainline capacity, and it also has access to the M8 federal motorway and the Northern Sea Route. So Arkhangelsk provides a commercially profitable transport route for shipping to either the west or the east.
Promising hub-development projects include expanding the existing port and a project to open new opportunities for entering leading international freight-delivery markets, including the Northern Sea Route, and construction of a deep-water port near the city.
Our company, the Arkhangelsk Transport Hub (ATH), is carrying out these promising projects. All our projects are designed to attract new freight traffic through the Arkhangelsk Transport Hub by using these competitive advantages.
The deep-water seaport project will make it possible to meet the business community's demand for port capacity to handle commercial and specialized shipments, as well as the state's demand for expanding economic ties between Arctic macro-region territories and the rest of Russia.
A deep-water hub in Arkhangelsk will restructure freight export and import logistics to Europe, North America and the Asia Pacific countries. We can reach the world's oceans here without any restrictions. There are no straits in the vicinity; nor do ships have to sail along the coasts of other countries. This eliminates the risk of arbitrarily applying international restrictions or barriers to Russian ships.
In April 2018, we reached a cooperation agreement with the Port of Antwerp, the second-largest freight hub in Europe. Our colleagues are interested in launching regular shipping traffic between Antwerp and Arkhangelsk and maintaining sea communications with the Arctic regions, in part to deliver equipment to oil deposits.
Other promising projects include developing the port to support the establishment and operations of the Pavlovskoye deposit under Rosatom. Projected annual shipping volume along this route is estimated at 458,800 metric tons. There are also plans to build the Arkhangelsk production-logistics facility for the Russian Defense Ministry; its projected annual shipping volume is about 800,000 metric tons.
The Port of Arkhangelsk has a lot of experience in transiting construction materials for Arctic projects, including the Port of Sabetta and the oil rig for the Prirazlmonoye oilfield.
So, you are responsible for expanding several transport hub projects, rather than just the deep-water port project. Do you also have any experience in operating territorial development projects?
We are doing our best to reboot the Arkhangelsk Transport Hub in line with free-market economic demands. Hopefully, my personal experience in port and infrastructure construction, in establishing and implementing transport infrastructure projects, as well as my team's strong experience in port management and in other important areas, will help us realize all these plans.
After only 18 months, the Arkhangelsk Transport Hub that was initially established for managing the deep-water port project, has turned into the marketing and coordinating center for the Arkhangelsk Transport Hub. The local authorities and the business community recognize this.
As I mentioned, we are overseeing two project packages, including the development of the current infrastructure and construction of the deep-water hub north of Arkhangelsk in the White Sea's Dvina Bay.
We are creating a system of regular marine services for Russian exporters from among the macro region's industrial companies at the port. We provide logistics solutions for niche-freight consignors (chemicals, petroleum and processed gas products); there is almost no transshipment capacity for shipping these consignments in Russia because they require a special transport process. We are also studying the possibility of launching trial freight deliveries for consignors trying to find alternative transport channels and new sales markets for their products; this would reduce logistics chains and costs.
Can you update us on your progress in obtaining the permits for the deep-water port project? When will construction begin? When do you estimate completion? When will the port open and reach full operational capacity?
The Federal Agency for Maritime and River Transport approved the Declaration of Intent on investing in the project in 2017. This was a necessary point of departure for any port construction project in Russia.
Under this document, the project will be carried out in two stages: the design phase, construction and launch of the deep-water port are expected to be completed by 2023. Starting in 2026 the existing infrastructure will be expanded so that the port can reach its projected capacity in 2028. One thing to keep in mind is that this schedule is based on the average time it takes to obtain the required approvals with all the parties involved in the project, which means that adjustments are possible.
At this point, the preconstruction surveys have been completed, and the best location for the construction site has been identified. According to our projections, the project will break even in 13 years. VEB could help the project attract funding and its primary assessment was positive, saying that the project was consistent with the list of national economic priorities.
Poly International Holding, a Chinese company, is the project's strategic partner. This is an industrial and technological conglomerate that operates as a subsidiary of Poly Group. The company has experience in various projects with a number of major multinationals, and is looking forward to the construction of a new deep-water port as an element of the Ice Silk Road and to promoting transit shipments between China and Russia. They believe that modern port infrastructure along the Arctic coast is a prerequisite to increasing shipping volume along the Northern Sea Route. We have signed a memorandum of understanding with our colleagues regarding this project.
What is your estimate for cargo volume through this port over the next 10 to 15 years?
With the existing infrastructure, Arkhangelsk handles 4 to 4.5 million metric tons per year, and shipments are expected to remain at this level over the next few years considering the infrastructure limitations.
With the construction of a new port, the lack of port depth and the inability to use certain transshipment processes will no longer be problems, so that by 2035 annual volume could reach 38 million tons. Of this total, 27 million tons will be shipments in the following categories: first, cargo diverted from other transport routes in order to benefit from attractive logistics terms offered by a deep-water port in Arkhangelsk; second, shipments by industrial companies from nearby regions that are now expanding production; third, niche shipments that require specialized transshipment facilities, and finally, shipments diverted from Baltic and Ukrainian ports.
The bulk of future shipments through the deep-water port will come from the Northern Sea Route and the BELKOMUR Railway.
Which categories of freight will be shipped through the deep-water port the most?
The current port primarily forwards Arctic supplies and processed timber for export. This freight can be carried by ships with a capacity of up to 30,000 tons and does not require a deep water facility.
The deep-water port is mainly for transshipment of bulk freight (mineral fertilizers and other bulk commodities, oil and gas products and other liquid commodities) that require depths sufficient for high-capacity ships with deadweight of over 70,000 tons.
The deep-water hub for oil and oil products in the Yamalo-Nenets Autonomous Area has great potential because the Port of Arkhangelsk is the closest all-season seaport on the route to Europe. In the absence of infrastructure and regulatory restrictions for transshipment facilities, the deep-water port is a progressive platform for processing specialized freight such as mineral fertilizers.
So, there probably won't be any overlap in terms of the cargo being processed at the current port and the new deep-water hub. With both the infrastructure of the current port and the offshore deep-water port, the port of Arkhangelsk will become an attractive hub both for the eastern and western directions for many types of freight.
There is an opinion that, despite the optimistic forecasts of the government, the Northern Sea Route will not be used to its full capacity. What do you think?
There are currently a large number of projects in the Arctic at various stages of implementation that are related to the development of deposits. Large fuel and energy companies are investing extensively in geological surveys in the shelf area. Russia is exporting energy resources in both directions, to Europe and the Asia Pacific Region. The Russian Ministry of Natural Resources and Environment estimates the annual shipping volume on the Northern Sea Route at 40 to 43 million tons by 2020 and 60 to 70 million tons by 2030. Under a respective Presidential Executive Order, the annual shipping volume on the Northern Sea Route must reach 80 million tons by 2024.
In order to succeed and ensure year-round navigation on the Northern Sea Route, we must have navigation security and a modern port infrastructure along the entire Arctic shore, and provide the entire range of services for vessels and freight based on international standards. The current infrastructure is not always adequate. To the east of Arkhangelsk, there are in fact port stations rather than multipurpose hubs that should be in place there due to the competition in the maritime freight market. Many of them do not even have mooring facilities and the freight is unloaded on open ice.
Additionally, the pricing policy needs to be reviewed with consideration for the Arctic projects. We need to find that price-based competitive advantage that will allow shifting a percent of shipments from the traditional route via the Suez Canal to the Northern Sea Route. Our pain on the traditional route is the pirate raids. As you see, in this case the problem is not a delay due to weather conditions but the risk of losing all of the freight and the entire vessel. These are costs at a completely different level, not to mention the risks to the lives of the crews.
There are currently about ten ports on the Northern Sea Route and the Arkhangelsk Port is the ‘gateway' of the route. Arctic conditions begin here because the port freezes in winter. However, it can still operate throughout the year and around the clock and provide the entire range of services like any foreign port.
The entire infrastructure of the Russian Arctic can be upgraded to the same level. We don't have to focus completely on foreign commercial freight and transit since there is always a demand for domestic shipments. Don't forget that to the east of Murmansk there is also port infrastructure that requires upgrades and new construction, and the areas to the east of Arkhangelsk are inhabited and need supplies, from food to drilling units. Development of the Northern Sea Route will bring economic development to the entire northern territory associated with it. If we consider the Northern Sea Route as an international transport corridor and a promising source of income, we need to start with the port infrastructure that will ensure Russia's transportation independence.
Will the deep-water port be so necessary if the BELKOMUR Railway is delayed or not built at all?
As I mentioned, the deep-water port is a strategic project, part of the federal programs on the development of Russia's transport infrastructure. Obviously the project is important for entrepreneurs, that is, shippers and investors. The involved parties are very interested in the commercial potential of the project, and when we were drafting it, we were considering the current geopolitical situation, the influence of other infrastructure projects and the freight volume of the regions and manufacturers gravitating towards Arkhangelsk.
The 2025 base cargo volume has been confirmed by about 45 percent. The Arkhangelsk Transport Hub (ATH) continues working toward this and is in discussions with potential shippers.
The BELKOMUR Railway project will further increase the need for a deep-water port. This new railway will result in about 9 million metric tons of mineral fertilizer shipments from the Berezniki-Solikamsk industrial region every year. Naturally, the BELKOMUR Railway would increase the macro-economic and cross-sectoral need for the deep-water port, but this will not affect the scheduled opening of the project.
What are the main problems with the transit hub now? What about the condition of the infrastructure? What kind of funds need to be invested in modernization? Where will these funds come from, the federal budget alone or also from large companies?
In general, the current port infrastructure offers a full list of port services. However, to enhance its competitive potential, the port needs to be able to accommodate super-ships and have the special equipment for processing niche freight.
This is an impetus behind the development of the Arkhangelsk Transit Hub and the construction of the deep-water port. The cost of these projects is estimated at 149.8 billion rubles in prices of the relevant years. The project will be carried out as a public-private partnership. Although the investors are ready to fund the project, they need the state to demonstrate its interest in the project and its willingness to assume part of the risk. This could include co-financing of some capital outlay and tax benefits.
How much dredging will be required? Or can super-ships already enter the port?
The port's technical parameters make it possible to accept ships with a draft of up to 9.2 meters and a deadweight of up to 30,000 metric tons. The Arkhangelsk deep-water port region will be able to process super-ships with a maximum draft of up to 14.5 meters and a deadweight of up to 75,000 metric tons. To make this possible, the project includes an access channel and an operational basin with a maximum level of minus 17.4 meters in the Baltic Normal Height System. This will require dredging 23.8 million cubic meters.
Won't the construction hurt the Arctic environment?
The design, construction and operation of the hub will be carried out in strict conformity with environmental law. Experts have already studied and projected the hub's environmental impact and the measures to prevent the aggravation of environmental conditions in the region.