• 2023 May 23

    Aspects hindering the Far East direction development

    Russia is deficient in at least three aspects crucial for smooth logistics in the Far East direction: railway capacity of the Eastern Polygon, icebreaker support on the NSR as well as shipbuilding and repair facilities in the Far East.

    The talk of the town

    The acute shortage of capacity at long-distance railway approaches to the ports of the Far East has long been the talk of the town. The problem has aggravated amid the sharp tightening of Western sanctions and the eastward pivot of Russian logistics. At the same time, the Russian Government is not satisfied with how it is being addressed. When speaking at the meeting of the Board of the Ministry for the Development of the Far East and the Arctic, held on 19 May 2023, Yury Trutnev, Deputy Prime Minister of the Russian Federation - Presidential Plenipotentiary Envoy to the Far Eastern Federal District, said that the Ministry was not paying sufficient attention to this issue.

    “I don’t see much activity of the Ministry for the Development of the Russian Far East and Arctic in the development of the Eastern Polygon,” said Yury Trutnev.

    He emphasized that the work on the development of the Northern Sea Route with the participation of the Ministry was going well while the development of the Eastern Polygon was not very good although these two routes are the priorities in the development of Russia’s foreign trade amid the current geopolitical conditions.

    According to the Ministry of Economic Development, the export-import cargo traffic through the Eastern Polygon totaled 157.4 million tonnes in 2021. Taking into account the forecast of the Ministry for the Development of the Russian Far East and Arctic, railway traffic in the eastern direction will reach at least 219 million tonnes per year by 2030. Russian Railways earlier announced its plans to export about 160 million tonnes through the Eastern Polygon in 2023.

    At the same time, it should be noted that the plans for the Eastern Polygon development were made up in completely different geopolitical conditions. Such a surge in the demand for transportation in this direction was not expected at that time. Therefore, now both the state and the business have to endeavour in order to increase the carrying capacity and ensure the delivery of goods crucial for the economy.

    Yury Trutnev has given instructions to the Ministry of Transport of the Russian Federation, the Ministry of Economic Development and Russian Railways to work out proposals for prioritizing cargo transported through the Eastern Polygon.

    “It is necessary to analyze the urgency of applications. Cargo capacity has increased, but does not take into account the real needs of shippers. All works must be organized with respect on the real needs of the country, rather than the plans adopted in other scenario conditions. After that, having decided on what really needs to be transported, we need to understand how much work can be performed by Russian Railways, and for the remaining work we need to find those able to execute it,” Yury Trutnev said after the meeting of the Government Commission on Social Issues and Economic Development of the Far East.

    State corporations join this work. As VEB.RF Deputy Chairman Artem Dovlatov said during the Board meeting, the corporation plans to provide off-budget financing of the projects foreseen by the government roadmap in order to increase freight traffic in the eastern direction to 343 million tonnes per year. Among the projects is the creation of a backbone network of transport and logistics complexes, the development of port infrastructure and the Eastern Polygon railways.

    Besides, VEB.RF plans to continue participating in the implementation of such projects as the reconstruction of the Rem Nova DV shipyard (Kamchatka Territory), the creation of a composite shipbuilding shipyard (Sakhalin Region), and the creation of a sea tourism center (Magadan Region). Master plans for these projects were developed in 2022, financing is to begin at the second stage in 2023. Read more about the problems of the Arctic ship repair in our article.

    The corporation is also set to invest in modernization of port equipment in the Primorsky Territory.

    “There is a task to develop a transport and logistics corridor in the eastern direction. VEB is a kind of project office in terms of assessing the possibilities to finance certain projects ... There are projects that are already close to their implementation,” said the corporation representative calling on the stakeholders to contact the corporation.

    In its turn, Federal Autonomous Scientific Institution “Eastern State Planning Center” is going to develop a simulation model of the Eastern Polygon by the end of 2023, submit proposals on the development of river transportation as part of the Northern Delivery, assess environmental risks on the Northern Sea Route, and make a review on seven APR countries in the context of Russia's foreign trade and its prospects, as well as to work out possible measures to support ship repair in the Arctic.

    The business, in its turn, invests in optimization of transportation technologies. It is no secret that the main export cargo in the Far East ports is coal, and the import cargo is containers. Coal is transported in gondola cars. Therefore, in order to optimize logistics, it is reasonable to transport containers in them in the opposite direction. For example, Vostochny Port JSC has mastered and optimized the technology for transporting containers in gondola cars. In 2023, the number of containers shipped in gondola cars is expected to almost double as we wrote earlier. 

    By the Northern Sea Route

    The second corridor for cargo transportation to the Far East and back is the Northern Sea Route. Rosatom and NOVATEK are set to launch year-round navigation in the eastern part of the Northern Sea Route early next year. “This is a truly historic decision, which is crucial for the development of the entire Arctic region and particularly important for our country’s economy,” commented Alexey Likhachev, Director General of the State Atomic Energy Corporation Rosatom.

    He also reminded about the NSR traffic objectives for this year – 36 million tonnes.

    “I would like to note that the embargo introduced by some European countries on the shipment of oil and oil products has become more than just a challenge, it has opened a new window of opportunity for creating an additional cargo shipping base on the NSR. We are working with Russian companies on redirecting Russian oil from Baltic ports through the NSR as the safest and most attractive route. Thanks to the NSR, we have the opportunity to transfer many sea shipping activities from the West to the East,” said the head of Rosatom.

    It should be noted that container carrier Sevmorput already makes subsidized coastal voyages on the Northern Sea Route. In the summer-autumn navigation season of 2023, the nuclear-powered ship will make two subsidized voyages on the NSR. As Alexey Chekunkov, Minister for the Development of the Russian Far East and Arctic, said at the President’s meeting with Government members, the number of ports of call on the NSR coastal line will be increased from 4 to 11 in 2023, and the route will be extended to Vladivostok.

    “At a time when a number of unfriendly states are trying to revise their plans for transit along the NSR, we are seeing growing interest in using the NSR from China, India and Southeast Asia,” explained the Minister.

    However, it is necessary to create a strong fleet of icebreakers, commercial, technical and auxiliary ships to organize a full-scale transit in the eastern part of the Northern Sea Route.

    When speaking at President’s meeting with Government members on 18 May 2023, Alexey Likhachev said that “the implementation of shippers’ investment plans will require an additional shipbuilding order. This order is on a completely different scale. I mentioned the five nuclear-powered icebreakers; now, we need to make a decision on starting another four conventionally-powered icebreakers this year. Overall, we will need up to 100 Arctic class ships, as well as at least 15 floating energy units. This many new ships is of course a challenge for the domestic shipbuilding industry.”

    As a summary, it should be it should be recognized that, the development of transport corridors in the Far East direction must be accelerated in the new geopolitical conditions, since the previous plans for their development were written in other realities. The deficiencies should be eliminated (at least reduced to a minimum), preferably within months, not years.

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