New Way

Russian export-oriented companies are increasingly building their own port terminals for the sake of more efficient foreign shipments, as well as for reducing political risks. Thus, thanks to its transshipment terminal project in Taman that TogliattiAzot started implementing almost 20 years ago, and that is going to be launched in 2020, the company will solve several problems at once. First of all, the company will not need a transit through Ukraine, the relations with which have become much more complicated in the past three years, and will also receive a number of competitive advantages. The experts say that transshipment using a shorter path through the Russian port may attract other manufacturers as well.

In 2020, TogliattiAzot (TOAZ) which is one of the largest manufacturers of nitrogen fertilizers in Russia plans to launch two lines of the new terminal in Krasnodar Territory for the transshipment of 2 million tons of ammonia and 3 million tons of carbamide. In future, the company is looking into the possibility of creating a third stage of the complex with an increase in cargo turnover up to 13 million tons a year. The construction works are being carried out as part of the Taman sea port project which, in its turn, is a part of the government program entitled “The Russian Transport System Development in 2010-2021". The construction of the infrastructure, that will create a basis for the development of transport and logistics capacities of the Azov and the Black Sea basin, is estimated at 228 billion rubles.

TogliattiAzot is the largest Russian manufacturer of ammonia, mineral fertilizers and other chemical products. In 2017, the manufacturing volume amounted to 2.6 million tons of ammonia and 720 thous. tons of carbamide.

By steep and toilsome ways to the port

TogliattiAzot started constructing the first deep-sea complex in Russia for the transhipment of ammonia and bulk fertilizers back in 1999. However, in 2005, the operations had to be suspended for the reasons beyond the control of the company. They had been resumed only ten years later. In March 2015, TogliattiAzot obtained approval of the Federal Agency for Marine and Inland Water Transport of the declaration of intentions for the construction of ammonia and carbamide transshipment complex, and signed a cooperation agreement with FSUE Rosmorport on the implementation of its investment project. During 2016, a number of governmental decrees and orders had been signed following which the TOAZ project in the port of Taman was included in the land-use planning scheme of the Russian Federation, pertaining to the federal transport. Also, the cargo traffic of the transshipment complex is taken into account in the development plan of the Taman transport hub with regard to the railway component, and its deployment is provided for by the road map for the development of ports of the Azov and the Black Sea basins until 2020. Thanks to the given documents, the TogliattiAzot transshipment complex construction project obtained a federal status.

At the same time, in 2016-2017, TOAZ made a revision of the project documentation together with the main process design solutions of the transshipment complex. The company also made an inspection and an assessment of technical condition of the facilities, structures and equipment, taking into account the connections to the external power and utility lines, transport infrastructure, as well as operation of the offshore zone and the hydraulic engineering structures.

As of today, TOAZ looks at several options for the delivery of products from the plant to the new terminal in Taman. Currently, it is assumed that the cargo will be delivered to the port by rail.

The port itself has a motorway, a railway, and a number of product pipelines. Also, cargo berths and a unique trestle had been built, the former protruding into the sea for 2.5 km helping to deliver ammonia and carbamide for subsequent loading on board a ship.

Another option is a branch from the Togliatti-Odessa pipeline in the Voronezh Region to the Taman port. The instruction to study such a route was given by the Russian President Vladimir Putin in June 2016.

“We consider both direct delivery from Togliatti and the partial use of the Russian segment of ammonia pipeline with further transshipment of cargo to the rail transport,” a TOAZ representative explained to Kommersant.

The implementation of the transshipment complex project is fully financed by TOAZ by means of its own funds. No loans and assets of the state budget are attracted. At the moment, the total volume of investments is about 14 billion rubles. The company notes that the construction of the terminal is supported at the federal level, and negotiations with regional authorities on a number of issues related to the already constructed infrastructure of the Taman terminal are under way.

“We still count on a constructive stand of the administration of Krasnodar Territory that does not yet seek to support the investor capable of providing jobs and developing the local infrastructure and social welfare facilities, as well as significant tax revenues for the local and regional budgets,” explained a source at the enterprise to Kommersant.

Since 2014, the company has had a legal argument with the local administration that claims to recognize a number of facilities of the TOAZ infrastructure as those constructed illegally.

The Arbitration and the Appeal Court of Krasnodar Territory issued a ruling to transfer the part of infrastructure structures by TOAZ as part of the project involving the construction of the ammonia and carbamide transshipment complex to the ownership of Krasnodar Territory. However, the reversal was in favour of the company.

TOAZ representatives also mention a problem with the land plots. The company says that surprisingly the land plots leased for the complex construction from Krasnodar Territory turned out to be a private property; the new owners refuse to provide land for the implementation of the strategic project, even at the disposal of Roszheldor. Currently, the individuals and entities owning the land plots have legal proceedings with Roszheldor.

The other way round

The Taman terminal is a key project for TOAZ. Planned as far back as 20 years ago, the construction of the terminal in Taman will let the company completely reroute the product export traffic, discarding the current one – through the territory of Ukraine which over the past three years has become problematic. Historically, ammonia had been transferred from a plant in Russia to the port of Yuzhny in Odessa through a pipeline. However, in recent years the company has repeatedly faced problems with the transfer process and disagreements with the local operator - Ukrkhimtransammiak.

The complex construction began long before the current unstable political situation in Ukraine. The main goals pursued in the process of the terminal construction were to guarantee independence of the enterprise, reduce logistics complexities and cut the costs. Nevertheless, launching the terminal will help reduce the political risks that have emerged in recent years.

The issues associated with transit deliveries through Ukraine emerged between TOAZ and Ukrkhimtransammiak as far back as August 2015, when Kiev demanded an extra charge of $8 for the transfer of each ton. The Russian company appealed against the decision of the Ministry of Economic Development and Trade of Ukraine in court and in November 2016 won the dispute. It made TOAZ products more competitive in view of the prices existing at that time.

However, another problem emerged in an instant. In late 2016, the company was ready to increase supplies, but could not reach an agreement with the Ukrainian side. The traditional transit quota for TOAZ is 1.8 million tons a year. And since by the beginning of the fourth quarter, the given amount was reached, TOAZ had to stop transfer through the pipeline, and hence, reduce production by stopping part of the units.

TOAZ representative explains: “In early 2017, further unconstructive position of the Ukrainian side on the fares forced the company to extend the transit stop for another month and a half.” Anyways, in February the transit was restored following the provisions of the agreement that was in effect at that time between TogliattiAzot and Ukrkhimtransammiak.

A year later, problems sprung up with the environmental regulatory authority of Ukraine. This February, ships with the freight of ammonia of various manufacturers, including TogliattiAzot, were blocked by the State Environmental Inspection of Ukraine on the plea of violation of the environmental protection legislation by the Odessa port plant. “The situation was resolved only in ten days, which caused significant losses due to violation of the term of delivery to the buyers,” reminds a representative of TOAZ explaining that the actions of the Ukrainian side are unpredictable and often depend on the current political situation in the country, which jeopardizes TOAZ operations.

And although the construction of the transshipment complex in Taman began long before the current unstable political situation in Ukraine, and the main challenges were to guarantee independence of the enterprise, reduce logistics complexities and cut the costs, the launch of the complex had become even more urgent.

The Russian company says that putting the terminal into operation will help reduce the political risks that have emerged in recent years, and will significantly strengthen the company's position in the world market.

Also, launching the complex in Taman, will let TOAZ gain competitive advantages by enforcing control over the supply chain, which is especially important given that a lot of new ammonia and carbamide production facilities are being currently commissioned all over the world.

The transshipment capacity of the terminal amounting to 2 million tons of ammonia annually exceeds the existing TOAZ quota for the pipeline transfer through Odessa. Thus, even taking into account the planned growth in production capacity, the terminal shall fully cover the company’s need in the cargo transshipment. Moreover, a refusal of transit will give the company an additional economic benefit. “We expect that the difference in the cost of transshipment will be quite significant, since, among other things, it will not depend on the foreign currency exchange rate which the cost of transit through the territory of Ukraine is currently bound to,” said TOAZ representative.

It may bring in other manufacturers of mineral fertilizers as well. The company explains that the uniqueness of the port will interest the exporters currently using foreign ports.

The Deputy Director of the Analytical Department at Alpari Natalia Milchakova notes that the port construction project in Taman may be considered effective for two reasons: firstly, it is the state and Krasnodar Territory which are interested in the new port in the first place, given that the government takes on the minimum expenses under the project and the major part is borne by a private investor. Secondly, the new port in Taman will be well integrated with the sea ports of the Crimea, and together with the already constructed Crimean bridge across the Kerch Strait will form a single Crimean transport corridor. According to the expert, the total cost of construction of the terminal may reach $350-380 million, based on the cost of construction of similar ports.

The expert admits that the terminal may be of interest for other carbamide manufacturers, since this type of fertilizers is exported from the northern and north-western regions of Russia mainly through the ports of the Baltic States. She believes that now, when Russia has its own marine terminal, it will make no sense paying other countries for rental of their ports, especially that there are no analogues yet to this terminal in Russia.

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