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Ust-Luga Port as an investment engine for Northwest Russian transport infrastructure
Date: 04.03.2011

Ust-Luga Port as an investment engine for Northwest Russian transport infrastructure

On January 31, the Oil Cargo Complex of Ust-Luga port (Leningrad region) marked its first trial shipment of fuel oil with the load of the Russian Sovcomflot tanker SCF Neva. After having loaded two more oil tankers during February, another terminal of Ust-Luga port was put into full operation.

Ust-Luga Port is a merchant seaport of the Northwest Russia situated in Leningrad region, in the Luga bay of the Gulf of Finland, near Ust-Luga settlement. The project started from a coal transshipment complex launched in December 2001. Later, a minor forestry terminal in the mouth of the Luga river was added to the port infrastructure.
At present, the following cargo terminals are operating at Ust-Luga Port:
  • Yug-2 multipurpose transshippment complex (OAO Ust-Luga Sea Merchant Port),
  • Forestry terminal (OAO Factor Forestry Terminal),
  • Universal transshipment terminal (OAO Universal Transshipment Complex),
  • Coal terminal (OAO Rosterminalugol),
  • Technical sulphur transshipment complex (OAO European Sulphur Terminal),
  • Auto-railway ferry complex (FGUP Rosmorport),
  • Oil products terminal (OAO Rosneftbunker).
  • Nine terminals more are still under development and construction. In 2010, the port handled 11.8 million metric tons of cargoes.


    The history of Ust-Luga Port starts in 1992 with the foundation of AOOT Ust-Luga Company. After that, the construction project nearly halted during 90s with the only exception to be the partially inwashed territory for a coal terminal. The change of OAO Ust-Luga shareholders in 1999 became the crucial point for the port. Implementation and construction plans were covered in a four-way agreement on mutual commitments signed by the Russian Transport Ministry, the Russian Railway Ministry, Ust Luga Company, and the Leningrad regional administration. According to its terms, OAO Ust-Luga Company acted as a building owner and a developer for the construction of port terminals and the infrastructure of Ust-Luga Port not classified as the federal property. The following construction scheme was chosen for the object: port terminals were to be constructed on territories leased to OAO Ust-Luga. The Transport Ministry was in charge of entrance channels, water deepening, etc. OAO Russian Railways assured the railway access to the port. The Leningrad region was to provide ground areas as well as objects of engineering, transport and social infrastructure. In order to construct a sea terminal, OAO Ust-Luga established an affiliated company. For certain project stages (planning, building, maintenance) OAO Ust-Luga was to attract an outside investor selling some of the company’s assets to it (or the whole company).
    The construction of a port in Ust-Luga was initiated by a private individual in 1992. Meant to be the first non-state port, by 2011 it became a vital strategic initiative of the state.
    After a coal terminal, four transshipment complexes were launched during the second half of 2000s. Starting with 2005, Ust-Luga Port’s freight turnover boosted more than 16-fold (Chart 1).

    Chart 1

    Source: OAO Ust-Luga Company

    After the launch of the Oil Cargo Complex with its capacity of 30 million metric tons per annum, foreign Baltic ports may partly lose their attractiveness in cargo transshipment with Ust-Luga Port becoming a major Baltic trade route. Baltic Go-ahead Elephants Group has already discussed this possibility back in 2008 (see the article «Growth of modern Northwest port terminals as an essential condition for Russia’s economic security»). The economic downturn has interfered with the plans for terminal development in Ust-Luga for a while. Construction terms were postponed significantly for the container terminal and the Novaya Gavan (New Harbour) car import terminal since in the freight structure of Russian ports these two markets were among the most badly affected. As soon as the situation started to improve, port terminals of Ust-Luga resumed their expansion.
    The Oil Cargo Complex became the seventh operating terminal of Ust-Luga Port. The plans for 2011 include a launch of a container terminal belonging to the National Container Company and the Novaya Gavan car terminal of Russian Transport Lines, the leader of container transshipment in Russia. In 2010, its container turnover amounted to 1.160 million TEU. The maximum throughput capacity of the new container NCC terminal in Ust-Luga is meant to comprise 3 million TEU.
    The Novaya Gavan car terminal is situated in Vistino settlement, 12 km away from Ust-Luga Port. In 2009, the terminal was added to the port’s infrastructure. The start-up of the first terminal stage with the throughput annual capacity of up to 200 thousand cars is scheduled for the summer of 2011. After the completion of the third stage, the terminal will be able to handle 500 thousand cars a year.
    The notable scale of investments in Ust-Luga terminals together with investor names commands the utmost respect. Among investors of operating terminals are the Port Holding of Vladimir Lisin with its Universal Transshipment Complex; the world’s fourth largest (by revenues) oil trader Gunvor owing the Oil Cargo Complex; and Russia’s coal miner Kuzbassrazrezugol, the second in the country by coal mining volumes, controlling the coal terminal.

    The National Container Company and Russian Transport Lines, the domestic leaders in container transshipment and logistics of imported cars, have been investing heavily in terminals that are soon to be launched. Among other investors taking part in terminal projects which are currently under development or construction are: OAO Transneft (the Ust-Luga Bunkering Complex terminal and the Baltic Pipeline System-II oil pipeline), OAO NOVATEK (the transshipment complex for stable gas condensate), OAO SIBUR-Holding (the transshipment complex for liquefied hydrocarbon gas and light oil products), OAO EuroChim Mineral-Chemical Company (the transshipment terminal for mineral fertilizers), ZAO United Metallurgical Company (the Baltic Metallurgical Terminal). The United Company Russian Aluminum may also join an impressive investor list as in 2008 it signed a memorandum with OAO Ust-Luga Company on construction a two-terminal complex (for aluminum and alumina transshipment).
    OAO Russian Railways is working actively in Ust-Luga. Together with its subsidiaries, the company is the major shareholder of OAO Ust-Luga Company, now engaged in construction and modernisation of service and primary railways to Ust-Luga Port. The company has already invested more than 14 billion rubles in the reinforcement of Mga – Gatchina – Veimarn – Ust-Luga line during 2007–2009. According to its investment budget, more than 20.9 billion rubles are to be directed for further project activities in 2010–2012. The investment costs for construction of Rosneftebunker terminal are supposed to reach 26 billion rubles.
    By 2020, the investments of the National Container Company in Ust-Luga container terminal will amount to 800 million dollars. Not less than 110 million dollars would come from the state budget. According to the prices of 2008, the construction costs for BPS-II pipeline constituted 95 billion rubles. The pipeline is supposed to reduce the dependence of Russian oil companies from transiting partnering countries including Belarus.
    After the construction of the scheduled terminals has been completed, Ust-Luga will become a universal merchant seaport. For now, its freight turnover has a frank orientation for raw materials export (see Chart 2).

    When hosting a container terminal and two car terminals (Yug-2 multipurpose transshipping complex and Novaya Gavan), Ust-Luga will transform into the largest port of the country both in transshipment throughput and in car import.

    Chart 2

    Source: OAO Ust-Luga Company

    By 2018, the annual turnover of Ust-Luga Port could potentially boost to 180 million metric tons. This is an optimistic forecast while according to more realistic estimates it may increase up to 120 million tons. But even in that case Ust-Luga Port becomes the largest Baltic Sea port. The prospects seem quite realistic but they are very likely to stumble on certain obstacles. It is absolutely no secret that long and complex vessel and cargo clearance procedures in Russian ports hold back their development to a considerable degree.
    The reasons are well known: regulative and legal bases governing activities of state control authorities are too imperfect; administrative registration procedures for incoming and leaving ships in Russian sea border crossing points are overabundant. The fact seemed quite obvious also during the public hearings which were held recently by the Public Chamber of Russian Federation together with the Civic Board of Rosgranitza (Russian Border Maintenance Federal Agency).
    ПAccording to exerts, the country is losing up to 60 million tons of cargos annually because owners of ships and cargos prefer alternative ports to avoid dealing with the Russian customs service. In 2010, the total freight turnover of Russian ports constituted 525.85 million tons.
    Many companies investing in domestic port terminals including Ust-Luga have got other outlets for cargo rerouting across neighbouring states. Moreover, many Russian companies possess their own terminals in foreign ports. Russian Transport Lines choose ports of Latvia and Ukraine for car delivery. EuroChim and Gunvor work with Estonia, and the NCC deals with Ukraine. While bypass routes imply certain political risks, Russian ports have their own force majéurs in store for businesses. A total inspection of St. Petersburg’s Bolshoi Port by the Federal Customs Service of the Baltic Customs, which took place during July and August 2010, has paralyzed nearly all container terminals for two months. For the port’s turnover it meant loss of not less than one million tons of cargos.
    It is clear that construction of a modern infrastructure for Russian ports is only a part of task set for attracting additional cargos. The second part of it calls for terms of ship and cargo clearance procedures comparable with the terms of ports in competing countries.


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