Analysis – Russia to develop modern container terminals in the Caspian Sea and Volga river

Astrakhan, Russia (PortSEurope) September 29, 2020 – There are no modern Russian container terminals on the Caspian Sea and the Volga river and it looks like finally, the Russian government wants to build a large container port in Astrakhan region, primarily for transshipment of goods. Moscow is looking for ways to take over cargo from Azeri and Kazakh ports. The opening of a feeder line last year from China and India through Kazakhstan and Azerbaijan turned Azerbaijan's Baku and Kazakhstan's Aktau ports into key transshipment facilities in the Caspian. A modern new port, Turkmenbashi, has been built in Turkmenistan in the eastern part of the Caspian Sea. It also has regular lines that serve routes to Baku and Aktau. Astrakhan is a Volga river port town located close to Russia’s North Caspian Sea coastline and has regular sea connections with Turkmenbashi International Seaport, the main passenger harbour and cargo port in Turkmenistan. The main problem for a new container terminal in Astrakhan is the lack of modern multimodal transport infrastructure, particularly highways and the integration of the railway in the river port. The governments of Azerbaijan and Kazakhstan are protecting the market from the penetration of new players, and the geopolitical situation, including international sanctions, both of which contribute to restraining Russian cargo traffic. The outdated equipment of the Russian ports and the low level of presence of the Russian fleet in the Caspian are also serious issues. Sanctions against Iran also hinder the development of the transit of goods to Europe. According to cargo carriers, the new port of Turkmenbashi could become a link in the Caspian Sea and forward cargo to the Russian ports of Olya (where a new port is being developed, just 50 km to the north), Makhachkala and Astrakhan due to the reorientation of cargo from Uzbekistan, Kazakhstan and Iran to the Caspian Sea. Earlier this year the consul of Turkmenistan in Astrakhan, Guych Garayev, and the Governor of Astrakhan region, Igor Babushkin, discussed the possibility of opening a logistics centre for Turkmen goods in a new economic zone near Olya port. They also spoke about direct flights between Turkmenistan and Astrakhan. After years of neglect, it seems that Moscow is slowly discovering the potential of its three Caspian Sea ports and the role they can play in the International North-South Transport Corridor, a 7,200-km-long multi-mode network of ship, rail, and road route for moving cargo between China, India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe. Russia wants a transport hub in the Caspian Sea to challenge developments in other littoral states as it seeks a stake in the cargo transit business between Asia and Europe, which is manifested in various international transport corridors which form part of China's new Silk Road. The Russian government is planning to develop the infrastructure of Makhachkala port, Dagestan, on its west Caspian Sea coast and turn it into a transit hub for the country. The target is to attract additional traffic in oil, grain and fish, to improve Dagestan crisis-hit economy and give a push to local socio-economic development. Lagan port One more reason for the sudden “discovery” of Makhachkala’s potential is that a group of Iranian companies, financed by China, wants to invest in the development of the small southern Russian port of Lagan, a few kilometres from the Caspian Sea, Batu Khasikov, governor of Russia’s Kalmykia Republic, said in March. Lagan is some 200 km north of Makhachkala. The Iranians want to invest 100 billion rubles (€1.16 billion) in port facilities capable of handling 22.5 million tonnes of cargo transhipment capacity per year. The idea seems to be over-ambitious as the total current capacity of all Russian ports on the Caspian Sea is only 12 million tonnes. But this year, Russia’s Caspian Sea ports were the best performers in the country. In the January-July period, Caspian basin ports handled 4.93 million tonnes (+15.7%) of cargo, of which the dry cargo was 2.12 million tonnes (+28.4%), liquid cargo – 2.81 million tonnes (+7%). A new port in Lagan might make more sense if combined with a proposed new east–west canal (Eurasia Canal) to the Sea of Azov – and thus to the Black Sea and onward to European markets. Theoretically, the new Lagan port could become operational within two years from the start of its construction. A canal from Lagan to the port of Yeysk (Eisk) on the Azov Sea might initially be dredged to a depth of only 2.5-3.5 metres, and only used for barge traffic. Dredging a canal for sea ships is expected to cost additional 200-300 billion rubles (€2.3-3.4 billion). The Moscow response to the Iranian-Chinese initiative for Lagan was a July 29 order of the Russian government that states: “The construction of the Caspian seaport of Lagan is included in the amended scheme of territorial planning of the Russian Federation in the field of federal transport. The construction of the port is included in the “Individual program of social and economic development of the (Russia’s) Republic of Kalmykia” for the period up to 2024”. The order explains, in particular, that the construction of this port is of "geopolitical significance" for Russia, and will accelerate "the integration of the transport complex of Kalmykia into the world transport system through participation in the formation of international transport corridors." The documents prescribe the construction of a modern port in Lagan with grain and oil terminals with a capacity of up to 5 million tons and 500 thousand tons per year, respectively. Also, terminals for packaged and containerized cargo are planned in Lagan (their capacities are being specified). Volga-Don Canal Currently, the Azov and Black Seas are connected via the Volga–Don Canal, which has limited capacity and is unsuitable for larger ships (depth of only 3-3.5 metres, with further summer limitations). The Eurasia Canal (700 km long) will be shorter and will allow the passage of bigger ships. Eurasia Canal maintenance is also much cheaper (sand dredging is estimated to cost 100 times less than that of the Volga-Don Canal one). The Lenin Volga–Don Shipping Canal connects the Volga and Don rivers (both in Russia) at their closest points. The 101 km canal together with the lower Volga and the lower Don, provides the most direct (over 800 km long) navigable connection between the Caspian Sea and the world’s oceans via the Sea of Azov and the Black Sea. The Canal ends in the port of Astrakhan, which in the first half of 2020 processed 1.2 million tonnes (+14.0%) of cargo. Another advantage of Lagan, about 120 km south of Astrakhan, is that it is ice-free in winter, while the ports of Olya and Astrakhan (both in the Volga river delta) are blocked by ice for 3-4 months of the year. Makhachkala, Olya and Lagan (if build) need significant investments to become modern multimodal transport hubs. They lack well-developed railway and road connections, modern port-related infrastructure, airports and other transport systems. All these has to be matched with roads and railway lines – to connect the ports with northern Russian ports and the country’s Black Sea ports of Novorossiysk and Sochi. Other Caspian ports The Caspian is an inland sea, with a fixed number of ships operating there, and the creation of a new mega port or the development of existing ones there would deprive all other Caspian ports of cargo. Especially affected will be Azerbaijan which has already developed Baku into a regional transit hub with facilities in place to receive cargo ships from Iran, Kazakhstan and Turkmenistan, and rail connections to tranship cargo to Black Sea ports in Turkey and Georgia, and then onwards to European markets. Investors in Lagan China’s Poly Group and China Energy Engineering Group International have already confirmed their plans to invest in the construction of the future Lagan port, but no firm commitments have been made. China Poly Group Corporation is a state-owned Chinese business group among 102 central state-owned enterprises under the supervision of State-owned Assets Supervision and Administration Commission of the State Council (SASAC). It is primarily engaged in representing the Chinese defence manufacturing industry in international sales and paradoxically it is also the world’s third-largest art auction house (behind Sotheby’s and Christie’s). China Energy Engineering Corporation or Energy China is a Chinese state-owned conglomerate under the supervision of SASAC. Its major group companies include the China Gezhouba Group Corporation (CGGC), China Power Engineering Consulting Group Corporation (CPECC), Electric Power Planning & Engineering Institute (EPPEI), China Energy Equipment, the Engineering Department (14 design and survey institutes in 14 provinces, municipalities and autonomous regions), the Construction Department (22 construction enterprises in 15 provinces) Moscow seems to be very neutral towards the new project, despite the fact that if the combined Lagan port and canal to the Azov/Black Sea idea is realised, the Caspian will not be a Russian “lake” anymore. On the other hand, the Russian government promotes the Eurasia Canal driven by security-related and economic motives. The project is to facilitate the development of Russia’s economic relations with Kazakhstan, India, Pakistan, China, Vietnam, Iran (and via it with the Persian Gulf countries) and to reinforce Russia’s transhipment role in the trade between China and the West. Both Iran and Russia are members of the International North–South Transport Corridor (INSTC) the objective of which is to increase trade connectivity between major cities such as Mumbai, Moscow, Baku, Astrakhan, Tehran, Bandar Abbas and Bandar Anzali. According to the Director-General of Lagan Port, Vitalii Daginov, the idea for a new port dates from 2015 when a group of Russian grain companies were looking for a way to develop a project in Iranian port of Amirabad to be supplied with grain oil seeds and meal from Russia. Lagan, 550 miles from Amirabad, was chosen as the most suitable location. The initial idea was for a 13-metre deep port with 32 berths, grain silos for over 300,000 tonnes, terminals for delivery, storage and expedition of vegetable oils, meals, fruits and vegetables, containers. A new port on the northern shores of Caspian Sea will also help the export efforts of metals and construction materials producers. China The long shadow of China looms over this mega transport infrastructure project as well. China would benefit from an alternative transport corridor in the region, especially considering the fact that Lagan is a year-round ice-free port. Via Poly Group and China Energy Engineering Group International, China would be opening another shorter, faster and cheaper trade corridor towards Russia and Europe facilitating its new Silk Road. The new Silk Road (part of the Belt and Road initiative also known as One Belt, One Road, or OBOR) is a Chinese economic strategy to seek better access for Chinese-made products in European markets, which includes acquiring stakes in ports and other transport facilities, and cooperation agreements with countries along the Silk Road routes. It remains to be seen how the Chinese money will work via Iranian investors and the role the federal government in Moscow will play in the realisation of the project. It is very likely that the Lagan port project will be a way for China to control key Russian transport facilities. Copyright (C) PortSEurope. All Rights Reserved. 2020.

Analysis – Russia to develop modern container terminals in the Caspian Sea and Volga river

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Analysis – Russia to develop modern container terminals in the Caspian Sea and Volga river

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