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Posted on 04/09/2003 4:08:04 PM PDT by Enemy Of The State
China in surprise move on Russian ports
By John Helmer
MOSCOW - In a move that threatens to transform competition in the lucrative Pacific coal market, the Chinese government has proposed taking over two Russian far eastern ports on long-term lease.
The Pacific ports, Posyet and Zarubino, are close to the Sino-Russian border, and plans to upgrade them as an outlet for Chinese exports across the Pacific have been under discussion by Russian, Chinese and US transportation officials for several years.
Those talks were focused on creating what participants called an "East by West" corridor to enable mostly container cargoes to move out of China's northeastern province of Jilin to export markets in Japan and the west coast of the United States. Changchun, Hunchun and other Jilin production centers are closest by rail and road due eastward to the sea outlets at Posyet and Zarubino. Harbin, in Heilongjiang province, is closer to the much larger Russian ports of Vostochny and Vladivostok, to the southeast. To the south, however, the Chinese port of Dalian is much farther away.
Chinese officials have wanted to spur exports of light industrial and consumer goods from Jilin and Heilongjiang to enable the regions to move away from the heavy industry concentration they had developed in the 1950s. The US west coast market was viewed as the primary target, and easing transit through Russia was viewed as the optimum way of dispatching containers in both directions.
However, Chinese frustration at Russian inaction, and Russian concern with Chinese trade competition, especially for the lucrative Japanese and North American coal markets, have now led to the unprecedented bid to change national management of the ports.
The proposal was tabled by Chinese representatives at a recent session of the inter-government commission on economic cooperation that meets every six months. China said it wanted to manage the ports for export of various products, notably coal, from the Tunangan economic region. Intended markets for these port shipments are Japan and the US.
The proposal is officially still under study, and the inter-government commission has yet to discuss it formally. But already, Deputy Transport Minister Chingiz Izmaylov told Asia Times Online, the Russian Ministry of Transport is opposed to the leasing scheme.
Izmaylov said that as the national transportation authority, the Transport Ministry "advocates the use of existing port facilities by Russian companies and doesn't see the need to rent out port terminals to foreign companies, when Russian companies can provide the transportation services and develop port facilities". Izmaylov added that he would consider negotiating alternative proposals from the Beijing government for export operations through the ports, on condition that there would be no change in legal management.
The Chinese government-to-government move has taken Russian commercial port interests by surprise, because both Posyet and Zarubino are owned by private Russian joint stock companies. Posyet is controlled by the Moscow-based MDM Group, which holds a controlling 65 percent stake in the port, and has announced its own plan to expand Posyet for transportation of coal and metals produced by companies MDM also controls. Zarubino is controlled by Universe-Holding.
A spokesman of SUEK Baikal-Ugol, a coal company affiliated with the MDM Group, told Asia Times Online that MDM has so far received no approaches from the Chinese government regarding a leasing scheme for Posyet. He added that "in principle the company is ready to discuss business proposals for transportation of Chinese coal through Posyet". But he also conceded that his company was likely to turn it down, as Chinese coal would be competing for the same export markets as Russian coal produced by MDM's units.
"It doesn't make sense to assist natural competitors," a source said, "or help Chinese coal producers to get better access to export markets of coal. We have our own large coal production, and plan to further develop our own coal exports through Posyet." He noted that in 2002 the company doubled its throughput of coal through the port and is now considering a capital expenditure program for further expanding the port's coal capacity. SUEK Baikal-Ugol has also been a vocal opponent in the past of proposals from China to build rail access for their coal exports to the Trans Siberian (Transsib) rail network and thence to the larger Russian far eastern ports of Vladivostok and Vostochny. Frustration at this commercial lobbying by Russian coal companies may have prodded Beijing to seek direct approval for the port scheme from the Kremlin.
In 2002, Posyet reports that it increased the volume of its cargoes to 614,500 tonnes, a jump of 120 percent on the 2001 level.
Officials from Prikorsky Krai, the regional government, and maritime industry sources said the owners of Zarubino port have been in discussions with Chinese counterparts for a 49-year leasehold at Zarubino that would facilitate coal shipments from China. The talks, which must be approved by the federal authorities in Moscow, have yet to reach an outcome. The region says it favors joint ventures with the Chinese, but it is flatly opposed to any deal with the Chinese that would give them port control.
The Chinese move comes at an awkward time, as Russian rail executives claim that, as a result of war in Iraq and rising insurance premiums, charter rates and shipping risks, a significant diversion of container shipments is taking place right now from Asia to Europe through Transsib.
Russian rail officials said that the latest figures for the first quarter ending March 31 show that container volume has more than doubled, as shippers in Japan, Korea and Vietnam opt for the land route instead of by sea, through the Suez Canal. The volume of transit container traffic through Transsib was 18,320 large-size containers, an increase of 175 percent compared with the same period last year. In March the jump was even more dramatic - up 270 percent compared with March 2002.
Federal rail sources told Asia Times Online that they have added an extra third container train per day from the Nakhodka-Vostochnaya railway station alone, while officials are considering going up to five trains per day if demand continues to rise. The daily norm is two trains. The chief of the far eastern railway division, Valery Yakhimovich, has said publicly that the war in Iraq is driving cargo shippers in Asia to stay as far away as possible from seaborne shipping and the conflict zone.
Rail Ministry sources say that the Transsib system has a capacity for transportation of 250,000 large-size containers per year; in 2002 Transsib carried 48,000 twenty-foot-equivalent units (TEUs). The dramatic growth in the volume of container transportation through Transsib is also confirmed by stevedoring sources who report that orders for box movement through Vostochny port will be well up this month over March. The main reason for that, a source close to Vostochny port said, "is that the war also results in increased premiums for insurance of vessels against war risks, which in turn drives the charter rates up".
This may be too much of a good thing for the Russian rail system, however. Rail sources in Moscow admit that the far eastern division is short of railcars for the new container volume, and has placed an urgent order for conversion of multi-purpose railcars to accommodate the box trade. To ease the congestion at Russian far eastern railheads, Moscow rail administrators have assigned 20 additional locomotives to the east. Vostochny International Container Service (VICS) has also announced the launch of a new container line between Ningbo and Vostochny; the first delivery of the Chao Yang Shipping Lines' vessel Ginter Star with 302 TEUs was made on March 24. Russia's Far Eastern Shipping Co (FESCO) has also increased its Vostochny-to-Korea service (KSDL - Korean Soviet Direct Line) to twice a week, as of April 2.
The volume of China shipments to Russia is also rising fast. According to the federal Rail Ministry in Moscow, total volume of cargo transportation between China and Russia was 15.4 million tonnes last year, and is expected to top 22 million tonnes this year. In order to handle the increased box trade between the two countries, an additional direct container train between Beijing and Moscow via Zabaikalsk has been launched. The border crossing at Zabaikalsk, in southeastern Siberia, is reporting that container traffic this past month was up 37 percent compared with March 2002. This month's increase is projected to be 71.5 percent compared with April of last year.
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