Legislation Changes the Face of Russia's Maritime Industry

Lomonosov Prospect
Lomonosov Prospect

Published Jan 29, 2019 5:39 PM by Nadezhda Malysheva and Vitaly Chernov

2018 was a crucial year for water transport, shipbuilding and port industries in Russia, with key personnel changes, unexpected events and important legislative amendments. Nothing remains constant, and a lot is to be done in 2019.

Control of the Northern Sea Route

In 2018, Russian President has signed the law “On introduction of amendments into certain legislative acts of the Russian Federation (on participation of Rosatom Corporation in functioning of the Northern Sea Route).” According to the law, the bulk of authority is handed over to Rosatom Corporation which is to have its plans approved by the Ministry of Transport under the “two-key” principle.

One “key” is held by Vyacheslav Ruksha, head of Rosatom’s Northern Sea Route Directorate.

In fact, transition of the “two-key” principle from legislation into practice is not easy. As Yury Tsvetkov told journalists in December 2018, there are at least two issues to be settled by the Transport Ministry and Rosatom – administration of the Hydrographic Company and vessel traffic management system in the Arctic. Rosatom has drafted the Rules for providing navigational and hydrographic support in the water area of the Northern Sea Route, hoping for taking over the Hydrographic Company.

Actually, this year has not brought final clearance to the issues of Arctic development. The Ministry of Defence and the Ministry of Nature still have their interests in the Arctic. Denis Khramov has been appointed as Deputy Minister of Natural Resources and Environment of the Russian Federation in charge of geological and economical issues, use of subsurface resources, development of projects in the Arctic zone.

The Security Council of the Russian Federation, in its turn, continues promoting an idea of establishing a separate state body on the Arctic issues. Sergey Vakhrukov, Deputy Secretary of the Security Council has recently said: “We want such a body to appear, and we expect the Government to make such a decision in the nearest future.”

At least three different approaches to legislation and state planning related to the Arctic will meet next year. In 2019, Rosatom is going to start working on a plan for comprehensive development of Northern Sea Route infrastructure; the Ministry of Nature will develop its own project “Implementation of the Arctic’s logistics and raw materials potential,” while the Ministry of Transport undertakes to implement activities under a comprehensive plan for upgrading and expanding core infrastructure through 2024 including the federal projects “Seaports of Russia” and “Northern Sea Route.” When participating in meetings on Arctic issues the officials persistently repeat, like a mantra, that the target of 80 million tons of cargo traffic on the Northern Sea Route set up by President Vladimir Putin should be reached by 2024.


Meanwhile, Novatek is striving to occupy a share in the fast growing global market of LNG. The company has commissioned the second and third phases of its facilities on the Yamal peninsula, six months and over a year ahead of schedule. The total capacity of the Yamal LNG plant is 16.5 million tons of LNG per year with each phase having a capacity of 5.5 million tons. In fact, the capacity of cargo fleet able to export LNG is lagging behind the Novatek’s achievements.

According to the Federal Law On Amending the Merchant Shipping Code effective from February 1, 2018, foreign-flagged ships are not allowed to transport hydrocarbons on the Northern Sea Route and participate in short-sea transportation. As of today, vessels involved in three Arctic projects may fall under this law: gas carriers flying foreign flags under Novatek’s project, tankers for oil exports under Gazprom Neft’s project in the Gulf of Ob (currently operating under the flag of the Russian Federation) and bulk carriers intended for coal port Chaika which has not been put into operation yet. In practice, this regulation was not put into effect in 2018.

Novatek is going to deploy 15 ice-class Arc7 ice-breaking LNG carriers for transportation of LNG on the Northern Sea Route. As of today, eight LNG carriers make calls to Sabetta with the rest to be put into operation throughout 2019. All of them are foreign-flagged ships built by foreign shipyards but contracted before the amendments came into effect. Therefore, the law does not apply to them.

Amid the surge of cargo volumes, Novatek needs more ships. It proved to be a challenge to find Arc7 ships in the global market. Such vessels are usually ordered for specific projects. Moreover, chartering of vessels with lower ice class, Arc4, for operation on the Northern Sea Route during summer navigation season is not possible because of the amendments introduced into the Merchant Shipping Code. Applications for exemption to the law have not succeeded so far. However, according to some media reports, the Government has submitted amendments to the law to allow Novatek to use foreign-flagged Arctic vessels.

Nevertheless, the company has managed to increase LNG shipments. In late November 2018, a new offshore facility for ship-to-ship LNG transshipment was launched near the port of Honningsvag (North-East of Norway). In the future, Novatek is going to have two transshipment facilities built in the Murmansk Region and Kamchatka.

As Yury Tsvetkov told journalists in December 2018, the issue of a three-year long transition period in respect of using Russian-flagged ships in the Arctic is under consideration. Of course, it is Novatek that is interested in such a decision most of all. In the future, the company is going to have ships for its projects (like Arctic LNG 2) built at Zvezda shipyard. In three years, Rosneft is expected to complete construction of a shipbuilding complex in the Primorsky Territory intended for building ships of such class and size.

LNG as bunker

2018 saw the beginning of the cargo fleet’s transition to new environmentally friendly bunker fuel. A joint project by Sovcomflot and Shell is currently represented by two ice-class Arc4 tankers with LNG used as their key fuel: the Gagarin Prospect and the Lomonosov Prospect. The vessels operate in the Baltic Sea with the series being continued.

Gazpromneft Shipping, a subsidiary of Gazpromneft Marine Bunker (the leader of Russia’s bunkering market), has recently placed an order for construction of Russia’s first LNG bunkering tanker.

From Summa to prison

In late March, Ziyavudin and Magomed Magomedov, the co-owners of the Summa group, were detained over a case on embezzlement of public funds on a grand scale and are still in custody. That event is important for the industry since Summa’s assets included Novorossiysk Commercial Sea Port, TransContainer and FESCO.

The development has also affected the project of the United Grain Company (part of Summa Group) for the construction of a transshipment facility in Zarubino port (Primorsky Territory). There is a plan to build a terminal for transshipment of grain (wheat, corn and soya) with a design capacity of 33.5 million tons per year.

As a result, from autumn 2018, Novorossiysk Commercial Sea Port is controlled by Transneft, Federal Property Management Agency (20 percent) and minor shareholders.

Delo Group buys Global Ports

In spring 2018, Sergey Shishkarev’s Delo Group purchased a more than 30 percent stake in Global Ports from N-Trans. Global Ports’ terminals are located in the Baltic and Far East Basins. Global Ports operates five container terminals in Russia (Petrolesport, First Container Terminal, Ust-Luga Container Terminal and Moby Dik in the Russian Baltics, and Vostochnaya Stevedoring Company in the Russian Far East) and two container terminals in Finland (Multi-Link Terminals in Helsinki and Kotka).

The same stake in Global Ports is held by A.P. Moeller-Maersk A/S through APM Terminals B.V. The market experts do not rule out a possibility of Delo Group’s NUTEP, a container terminal in Novorossiysk, joining Global Ports via a sale and purchase transaction.

A port welcomes concession

A concession agreement for the construction of the coal terminal Lavna on the left shore of the Kola Bay (Murmansk Region) was signed in November. The agreement provides for a concession operator to build the 18 million ton capacity terminal with the concession grantor to ensure accessibility by transport and to complete Phase I of railway infrastructure construction.

Pre-construction works, grading and leveling are underway at the site. A contract has been signed for equipment supply. The terminal’s Phase I, with a capacity of nine million tons, is to be put into operation in December 2019; Phase II in December 2021.

Main lines future

The future of Russian ports will be determined by the plan for core transport infrastructure development till 2024, corporatization of Rosmorport and legislative improvements. All of this is to raise the overall annual capacity of Russian ports by at least 350 million tons with their throughput to grow by one third.

According to the basic scenario, the annual capacity of ports in the Arctic Basin is to grow by 65 million tons, in the Far East Basin – by 130 million tons, in the North-West Basin – by almost 55 million tons, in the Azov-Black Sea Basin and the Caspian Basin by 105 million tons.

The coming year is expected to be crucial for inland water ways in terms of a balance between different types of transport, mostly railways and inland water ways. Discounts for railway transportation during the navigation period are among the key barriers hindering the development of cargo transportation by rivers. As Yury Tsvetkov told journalists in December 2018, the criteria of transport balance are to be defined by spring 2019.

Nadezhda Malysheva and Vitaly Chernov write for IAA PortNews.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.