Russian Rail pumps another $670m into Gulf of Finland port project

8 Jul '10
Oleg Kouzbit, Online News Managing Editor

Russian Railways is putting up another $670m to develop rail access roads to the sea port of Ust-Luga as construction of the $2bn multipurpose mercantile port logistic complex in the Gulf of Finland just off St. Petersburg restarts after months of investment shortages. With its projected throughput capacity of 120 million tons of various goods a year, the port is designed to be a key transit point in European transportation infrastructure. Its prospective 16 transshipping terminals also include an oil-loading complex. Ust-Luga is projected to be the terminus of the envisioned Baltic Transportation System (BTS-2) and, following recent energy disagreements with neighboring Belarus, may serve as a seaway alternative to mainland pipelines pumping oil via that country.

National rail operator Russian Railways has announced $670m plans for the next two and a half years to develop rail access roads to the sea port of Ust-Luga in the Leningrad region as the ambitious $2+bn mercantile port project is making headway after the crisis-stricken 2009.

By spending an average of $220m a year between now and 2012 Russian Railways wants to build second lines on at least two major station-to-station spans plus a long section that leads to the port facilities, to make the road a double-track one capable of handling up to 46 million tons of freight by 2015 and as much as 95 million tons by 2020óas is Russian Railís plan for the upcoming decade.

Also under plans is construction of rail substations and oil-handling stations. Russian Railways has a total of 271.5km of tracks and roadbed surrounding Ust-Luga to build and/or overhaul.

The Ust-Luga sea port is being built about 130km west of St. Petersburg by the Bay of Luga that opens on the Balticís Gulf of Finland.

Tiny stake, biggest investment?

As of now Russian Railways appears to be the largest investor in spite of holding only a minority stake of 8.5% in the ongoing project. According to company managers, between 2005 and 2009 Russian Railís investment into Ust-Lugaís rail infrastructure hit a total of $658m.

The amount could have been bigger; last yearís investment alone was planned to be more than $400m. But the financial crisis curtailed short-term investment strategy to a bare minimum. Another $60m was also pledged by Russiaís Investment Fund, but the appropriation was stalled and is only anticipated this year. More federal funds are expected as construction advances.

The Ust-Luga management company, the primary developer and stevedore for the port set up by the Leningrad regional administration to hold 25% plus one share of the project, went into the credit market last year looking for new money. In early February 2009 it got a $100m, nine-year line of credit with the Eurasian Bank for Development.

Transshipping coal, timber and cars

Russian Railís $670m effort is part of a broader $2+bn Ust-Luga port development program that includes construction of 16 transshipping complexes.

Ust-Luga is designed to be a multipurpose port with specialized terminals offering transshipment and deep processing services for more than 20 categories of cargo. Its projected throughput capacity is 120 million tons of various goods a year.

A number of facilities have already been put into operation. In 2008 a coal terminal was commissioned to handle coal as well as timber. Also that year the first $50m stage of a vehicle transshipping terminal with a capacity of 100,000 cars a year was put into operation.

Under original plans, a second, 250,000-car stage was supposed to kick off last year to enable the terminal in 2010 to handle up to 350,000 vehicles a year. In 2009, the vehicle transshipping terminal was temporarily shelved due to the financial crisis.

An oil seaway to Europe

The oil-loading terminal also being built has a projected capacity of 10.5 million tons of crude a year, with the possibility to boost it to 13-14 million tons. It will reportedly be able to load tankers with up to 120,000-tons displacement.

The terminal is primarily designed to play a crucial part in Russiaís ambitious $2.4bn second stage of the Baltic Transportation System (BTS-2), being built by oil company Transneft. The new pipeline system starts in the Bryansk region not far from Southern Belarus, and the Ust-Luga port is BTS-2ís terminus. The pipeline project is expected to smooth out oil supplies both within Russiaís North-West and beyond to Western Europe.

Some analysts feel that there is another purpose the terminal may serve: to provide a possible alternative to mainland pipelines through Belarus which are no longer seen by the RF government, for political reasons, as completely reliable.

As the most recent gas-focused verbal bickering with the Minsk administration shows little sign of subsiding, Russia seems to be eyeing alternative solutions. (Before this yearís change of political regime in Kiev the Russian government had the same concern regarding Ukraine.)

Another good start?

Earlier this summer the Ust-Luga company announced it would become construction work in earnest after a forced year-long delay. Regional officials are expected to provide ample support.

According to deputy CEO Alexander Goloviznin, the portís logistic hub is a priority for 2010. The transshipment of vehicles is once again a focus after last yearís standstill; nevertheless, the ambitious plan of handling 350-360,000 vehicles a year has been pushed back to 2013.

The port already reportedly transships cars, predominantly Asian models. The volumes are fairly modest, thoughóa reported 58,000. The second car transshipment stage to be commissioned in August 2010 is expected to boost the capacity to 100,000. Alongside cars the facility is also said to be able to handle bulk and general cargos.

By 2012 the Ust-Luga management hopes to increase this specific terminalís capacity to 4.6 million tons a year; an investment of $280m is purportedly required, of which about $60-70m is viewed as the RF Investment Fundís contribution.

Welcome to Ust-Luga

On top of that, a new town, Ust-Luga, with a projected population of 30-35,000 people, is expected to break ground in the fall of this year to be home to those operating the port complex and their families, as well as residents of surrounding villages.

Most experts agree that the new port of Ust-Luga has a lot more potential than its regional competition. Its deep, 16m harbor and a short, 3.7km waterway entrance make it Russiaís only Baltic port capable of handling bulk carriers with deadweights up to 75,000 tons and tankers up to 120,000 tons.

According to the port management company, a second waterway entrance will be built later this year to enable even faster turn-around.

Another advantage is the portís all-year-round accessibility. In winter, icebreakers will be needed only if temperatures stay in the very low sub-zero range.
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