Analysis – Strategic and overambitious Iranian move in Russian Caspian, financed by China, or much ado about nothing

Lagan, Russia (Ports Europe) March 23 - 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. The Iranians want to invest 100 billion ruble (€1.16 billion) in port facilities capable of handling 22.5 million tonnes of cargo transshipment 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 7.5 million tonnes and their total freight turnover for January-April 2018 1.72 million tons – about half of the 2017 result. The new port 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 ruble. Currently, the two 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 that 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. 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 are blocked by ice for 3-4 months of the year. The new port would also need significant related infrastructure which currently does not exist - a highway and railway connection, ship automatic traffic systems, service buildings - whose cost is included in the 100 billion ruble estimate. 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) The Caspian Sea is an inland sea, with a fixed number of ships operating there, and the creation of a new mega port there would deprive all other Caspian ports of cargo. Worst affected will be the other Russian ports of Astrakhan, Mahachkala, Olya (where a new port is being developed, just 50 km to the north) and Kaspiysk (where a construction of a deep-sea port is planned) as well as the ports of Azerbaijan. 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 the 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 transshipment role in the trade between China and the West. Both Iran and Russia are members of the International North–South Transport Corridor (INSTC), a 7,200 km long multi-modal network of ship, rail, and road routes for transport of freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe. The objective of the corridor 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. 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 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) Ports Europe. All Rights Reserved. 2020.

Analysis – Strategic and overambitious Iranian move in Russian Caspian, financed by China, or much ado about nothing

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Analysis – Strategic and overambitious Iranian move in Russian Caspian, financed by China, or much ado about nothing

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