October 1997

by Dan Brennan

Three major new commercial ports are under construction in the Leningrad oblast as part of Russia's long-term bid to reduce dependence on ports in neighboring Baltic countries. U.S. companies shipping products in and out of Russia should monitor the development of these ports in planning future logistics needs.

The first port to begin operations is located at Batereinaya Bay, 47 miles from St. Petersburg on the Gulf of Finland. The port will be used primarily to handle oil shipments and is expected to have an annual capacity of 15 million tons once it becomes fully operational by the end of 1998. The project will cost an estimated $250 million, and is being financed chiefly by the Russian oil company Surgutneftegaz.

The Batereinaya project officially opened on June 19, at a ceremony attended by Russian Deputy Prime Minister Vladimir Bulgak, Transport Minister Nikolai Tsakh, and the Governor of the Leningrad oblast, Vadim Gustov. Gustov, who has been a strong supporter of the Batereinaya project since taking office last year, has publicly stated that the new port would inject $l billion into municipal and regional coffers by the year 2001.

Batareinaya will be joined by two other ports being developed in the region, at Ust-Luga (78 miles southwest of St. Petersburg) and Primorsk (70 miles northwest of St. Petersburg). Collectively, the three ports will boost annual port turnover by an estimated 100 million tons, 60 million of which will consist of crude oil, petroleum products, and gas.

Ilya Baskin, of the Leningrad Oblast Port Authority, said that the new ports would provide a major boost to Russian exporters, who currently pay a total of $24 million each year for the right to transport shipments via the Baltics. News of the new ports has already had a direct impact on Russian coal exports. A contract to supply Germany with 8 million tons of coal from 1998 to 2005 was concluded soon after plans were finalized for the Batereinaya port.

The Ust-Luga port, where construction began in February of this year, will have an overall capacity in excess of 35 million tons. The initial phase will focus on construction of a dedicated coal terminal, to be followed by a terminal for mineral fertilizer. The Ust-Luga company has already signed handling contracts for future consignments of 5 million tons of fertilizer. Further dedicated terminals for timber, ore, cement, bauxite, grain, unrefined sugar, and containers, as well as rail, automobile, and ferry facilities, are also in the planning stage. The Port Authority's Baskin asserted to the Itar-TASS news agency that "Ust-Luga is destined to become Russia's leading and best equipped commercial seaport, and has the potential to secure economic growth not just in the Leningrad oblast, but in the whole of the Northwest [of Russia]."

The main backer for the Ust-Luga port is another Russian energy giant, Rosterminalugol, which is currently holding talks with a number of German banks to obtain funding for the project, according to the Interfax news agency. According to a representative of Rosterminalugol, the door to foreign funding for Ust-Luga and the other two ports was opened by the new presidential decree "On Freight Transit via Finland," which was signed on June 6 of this year. In fact, all three ports have been in the planning stage since 1993, but have been slow to get off the ground due to lack of serious investment. The new decree commits the government to provide the investment guarantees needed to back port construction work, subject to provision of a freight transit development program prepared jointly by the St. Petersburg municipal and Leningrad oblast authorities. The objective of the program, according to the decree, is to "secure Russia's national interests and economic security."

Other transportation infrastructure projects are underway in the Leningrad oblast, as well. In addition to plans to establish a new international cargo terminal at St. Petersburg's Pulkovo Airport, which has qualified for a major credit from the World Bank, the region has also commissioned a feasibility study into the conversion of a disused military airbase at Veshchevo (62 miles northwest of St. Petersburg) into an international cargo airport. The study is being conducted by American aviation consultants, Airis International. If the project, which could cost an estimated $250 million, goes ahead as expected, Veshchevo will become the largest dedicated cargo airport in Europe and the fourth largest in the world. This article expresses the views of the author, and should not be construed as a statement of U.S. Government policy. This story is reprinted with permission from Russian Customs News of London, which is published by CIS Information Publishing in association with the Adam Smith Institute.

Dan Brennan is Editor of Russian Customs News.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)