Expert opinions, INVESTMENT CLIMATE

$21.8 bln to boost Russian transit for Belarus

By the end of 2025, the freight operations from the Republic of Belarus to Russian ports via railways may increase to the record-high 38 mln tons per year, including up to 18 mln tons in 2024. These plans were discussed at a recent meeting between the presidents of Russia and Belarus. According to experts, the total amount of funding to be provided for modernizing old and building new railway routes will reach around 2 trillion rubles ($21.8 bln), including the budget for this year.  

January 29, 2024. President of Russia Vladimir Putin and President of the Republic of Belarus Alexander Lukashenko at a meeting of the Supreme State Council of the Union State of Russia and Belarus in St. Petersburg. Photo by Vyacheslav Prokofiev / POOL

Belarus has proposed to expedite modernization of the Russian infrastructure to boost the transit of its freight. That would allow to go above the agreed volume of 18 million tons in 2024 as per the intergovernmental agreements.

President of the Republic of Belarus Alexander Lukashenko expressed his readiness to increase the financing of Russian railway infrastructure associated with the transportation of goods to the northwestern ports. He has also supported the decision to reopen seven railway junctions directed towards the ports of St. Petersburg, which were closed at the end of last century.

In late January, the transit of Belarusian cargo through Russia was as a primary topic during a meeting of the Supreme State Council of the Union State. As a result, the two presidents signed a resolution focusing on the modernization and development of railway infrastructure.

In 2023, according to Dmitry Mezentsev, the Secretary of State of the Union State, the transit volume towards the northwestern ports of Russia rose to nearly 13 million tons (12.9 million tons), with the major cargo flow occurring at the ports of St. Petersburg.

However, according to Ambassador of the Republic of Belarus to Russia Dmitry Krutoi, the current railway infrastructure has essentially reached its limit, exhausting possibilities for increasing transit volumes.

“These are substantial numbers, which have seen a significant increase compared to 2021–2022,” Dmitry Krutoi said in an interview with Belarus-1 TV channel.

An additional factor hindering the growth of Belarusian transit over the next two years is the ongoing modernization of railway routes. Construction and repair activities inevitably restrict train movement, leading to extended delivery times for transit cargo and increased station parking durations.

Despite these objective limitations, the presidents of Russia and Belarus have set an ambitious goal of increasing transit volumes via rail routes to the ports of St. Petersburg to 15 million tons within a year.

“Next, we will use the advantages of Murmansk and the Northern Sea Route,” Dmitry Krutoi said.

Overall, the Belarusian side anticipates reaching record levels of Belarusian cargo traffic, reaching up to 38 million tons by the end of 2025.

Following the imposition of economic sanctions by Western countries, Belarus redirected its cargo transit to Russia. According to Vadim Filatov, head of the Business Russia committee on transport logistics, 20 Russian ports are currently involved in transshipping Belarusian export cargo.

“In addition to the ports in the northwest, shipments from the republic are currently directed to harbors in the Black Sea and Far Eastern regions, particularly Novorossiysk and Vladivostok,” Vadim Filatov noted.

The expert believes that the escalating cargo flow from the friendly republic requires the establishment of new logistics centers and terminals for transferring goods from rail to water transport. However, experts interviewed believe that expediting the modernization of the existing infrastructure won’t address the issue; there is a need to amplify the financing volume for construction, including contributions from the Belarusian side and major Russian companies interested in new infrastructure. Preliminary estimates suggest that the cost of the undertaking could reach 2 trillion rubles over the next two years.

As of now, neither the Belarusian nor the Russian side has specified the exact amount earmarked for the development of infrastructure for Belarusian transit in the next two years. However, Secretary of State of the Union State Dmitry Mezentsev said that enhancing railways and augmenting capacity demand resources that were not initially planned for investment, but the presidents have outlined such a task, and specific instructions have been issued to the ministries and departments of both countries.

Oleg Degtyaryov, General Director of RusTrans, member of ACEX Alliance in Moscow, agrees that massive investments in new infrastructure are the only remaining option. According to him, cargo can be redirected to Russian Black Sea ports, but it all comes down to the economy and limited opportunities for our exporters.

“Traditionally, shippers from the Republic of Belarus delivered cargo via Baltic ports due to the short distance from stations of departure to transshipment ports. The Black Sea ports were not very actively involved; certain attempts were made to supply crude oil to Belarus via Ukrainian ports which failed due to the idle economy. Amidst sanctions, remaining options include the northwestern ports such as St. Petersburg, Ust-Luga, Murmansk and Arkhangelsk. The problem is about these ports’ throughput capacity. Redirecting all exports in this direction would limit opportunities for our exporters, meaning the sole option is the construction of new port infrastructure with expanded railroad access,” Oleg Degtyaryov noted.

Belarus is willing to invest in the project for constructing a specialized terminal in Murmansk for fertilizers transit, the expert added. As Murmansk Region Governor Andrei Chibis previously stated, the terminal on Kola Bay’s western coast will boast the throughput capacity of 5-7 million tons.

In early 2024, in his comments following a meeting of the Supreme State Council of the Union State, Ambassador of Belarus to Russia Dmitry Krutoi once again confirmed that Belarus was not abandoning plans on building new ports in Russia, including a port in the Murmansk Region.

Delovoy Profil (Business Profile) Group management consulting analysts told Gudok that last year Russia amounted to 83% of Belarusian railway exports, 1.5 times higher against 2022. Nearly half of this amount – 14.1 million tons, or 2.5 times more than in 2022 – was handled by twenty Russian ports.

Additionally, Belarusian timber and related products, as well as fertilizers and dairy products were shipped by rail through Russia to Kazakhstan and other CIS countries in the east. A significant share of Belarusian rail exports consists of deliveries via Russia and Kazakhstan to China, which increased 1.7-fold last year. Belarus’ container shipping to China went up 1.5-fold, with 1,500 container trains sent.

As estimated by Business Profile experts, the high cost of transportation and insufficient capacity of operational railway routes do not allow for increasing rail freight traffic from Belarus. In the former case, Belarus managed to agree on 10%-40% discounts on shipments to St. Petersburg ports as well as via the North-South transport corridor, while the later case requires substantial investments.

“Cargo transit cannot be extensively increased due to the existing port and rail infrastructure used at almost full capacity,” Business Profile analysts claim. “The project for construction of new railway routes, which would boost cargo transportation from Belarus, is still under discussion. The construction costs are hard to estimate. The modernization of 1 km of rail track would cost approximately 43 million rubles while building a new one will cost more by another 40%, meaning that investment projects to boost Belarusian cargo transportation via Oktyabrskaya Railway would inevitably require over tens of billions of rubles.”

By Igor Pylaev, mass communications specialist, author of PR and marketing books

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