Northern route to the shipyard

Only Russian-built vessels will be able to transport coal and hydrocarbons along the Northern Sea Route, as well as engage in cabotage, icebreaking and pilotage. Such a draft government decree was prepared by the Ministry of Industry and Trade in development of the amendments to the Merchant Shipping Code approved at the end of May. However, the government still has ample room to grant exemptions. Experts call the list intimidating and believe that big business will again achieve exemptions for their projects.

The Ministry of Industry and Trade has prepared a draft resolution with a list of activities that can only be carried out by Russian-built vessels (in accordance with the 719th government resolution). The list includes sea transportation of oil, gas (including liquefied gas), gas condensate and coal mined in the Russian Federation (including on the continental shelf) and loaded onto ships in the water area of ​​the Northern Sea Route to the first point of unloading or reloading. The restrictions will include the storage of coal and hydrocarbons on a ship in the water area of ​​the Northern Sea Route. Also on the list: cabotage, hydrotechnical, underwater technical and other similar work in internal sea waters or the territorial sea, sanitary, quarantine and other types of control, as well as icebreaker and pilotage. The purpose of the innovations is the development of import substitution in shipbuilding and the provision of orders for Russian shipyards.

The mechanism itself was created in the course of amendments to the Merchant Shipping Code (KTM), which the president signed on May 26. It became a development of amendments to the KTM adopted at the end of 2017, according to which cabotage and transportation of oil, gas and coal on the Northern Sea Route must necessarily be carried out by ships flying the flag of the Russian Federation. Previously, NOVATEK, the main shipper on the Northern Sea Route, actively opposed the obligation to build ships in the Russian Federation. The company was able to obtain exemptions for the use of ships flying a foreign flag (see Kommersant dated March 19, 2019), and will also be able to build six gas carriers for its LNG projects abroad. At the same time, NOVATEK has already ordered 15 gas carriers at the Far East “Zvezda”.

According to the amendments to the KTM, the requirements for the use of Russian-built vessels (that is, those corresponding to the parameters of the 719th localization decree) do not apply to ships that have already been delivered or ordered.

In addition, the government may allow the use of foreign vessels if there are no conditions or the possibility of technological operations for their construction in the Russian Federation. Also, the government can allow ships that do not meet the criteria of the 719th decree to operate if their construction is “impossible to secure”.

The Ministry of Industry and Trade and the Ministry of Transport do not comment on the topic. The United Shipbuilding Corporation (USC) was in favor of the restrictions. But, speaking at a round table on import substitution in the State Duma, the head of the USC Alexei Rakhmanov noted that in the amendments to the KTM “there are so many exceptions that the law has remained in form, but in fact has been emasculated to zero.”

The oil and gas companies did not respond to Kommersant’s request. The Volga Shipping Company says that the creation of restrictions on cabotage will lead to the loss of a cargo base for ships operating under the Russian flag, and will negatively affect the industry. They believe that incentives have already been created for the growth of orders at the shipyards of the Russian Federation in the form of state support for the “well-proven 305-FZ”, as well as high import duties on components.

Kommersant’s sources in the shipping community are confident that large customers will be able to justify exceptions.

One of the interlocutors calls the restrictions “correct”: until there is a tough approach and a significant volume of orders, shipbuilding will not develop. But another notes that the prepared list is completely copied from the restrictions on the flag, and these are “fundamentally different things” and the list needs to be changed taking into account the real capabilities of the shipyards.

The head of the Gekon consulting center Mikhail Grigoriev, speaking about cabotage restrictions, notes that developing shipping companies providing transportation to Sabetta, Dudinka, Yenisei Bay, Pevek buy ships on the secondary market, and there is no domestic-built fleet. He adds that the cost of building ships in Russia is much higher than abroad. The list is “daunting”, the expert adds, but again “there will be decisions to exclude individual projects.” At the same time, he considers it strange that the transportation of mining products was not included in the list, which is why Norilsk Nickel, Polymetal (Mayskoye deposit), EuroChem iron ore concentrate, and the Baimskoye deposit avoided restrictions.

After the release of the issue in the Ministry of Transport, Kommersant was informed that they support this project, advocating the localization of ship building in Russia. Currently, consultations are underway with the Ministry of Industry and Trade, manufacturers of ship equipment, representatives of shipyards and ship owners in order to determine a balance between the needs of ship owners and the capabilities of manufacturers of ship equipment and shipbuilding enterprises, for a gradual and smooth transition to a greater localization of ship construction in the Russian Federation, concluded in the Ministry of Transport …

Anastasia Vedeneeva