Northern Sea Route’s pitfalls

Even in case Northern Sea Route never becomes a global thoroughfare alternative to sea ways through Suez and Indian Ocean, the traffic along it will always be active. In the near future, dozens of million tons of cargoes will be transported along the route, raw materials primarily. Those will include Norilsk Nickel products, oil extracted at Northern Russia’s sea shelf, liquefied gas from Gulf of Ob, coal from Taimyr peninsula. According to Rosatomflot (Russian Nuclear Fleet, subsidiary of the State Atomic Energy Corporation ROSATOM), by 2025 that may mean over 66 million tons of cargoes. The global warming may at some point make a year round navigation along Northern Sea Route possible. These subjects were discussed at the recent 15th Russia and CIS Shelf Exploration International Conference. The forum also identified a number of challenges and conflicting points hindering development of transportation in the Arctic seas.

Vitaliy Ankov / RIA Novosti

In opinion of Yulia Zvorykina, CEO of Bank for Development (VEB)’s Research and Expert Review Institute, the main issue stalling Northern Sea Route’s development is the absence of a political decision on admittance of foreign partners to the Arctic projects. Yet, the matter is not as simple as it may appear, as foreign players, in Zvorykina’s view, will hardly be interested in coming to Russia unless they are at the same time granted control over the ports’ infrastructure.

There are other bottlenecks as well, lack of proper communication channels being one of them. Strange as it may seem, the communication problem in the Arctic areas is much worse than the transportation problem.

Development of sustained strategies of the Arctic region exploration should be based on respective corporate plans, since Northern Sea Route must in the first turn serve the mining industry’s interests. But corporations either conceal their long term development plans or fail to have any.

A few debatable situations have already occurred regarding the Arctic region transportation development, and they will keep glowing in the foreseeable future.

One of such situations may be marked as the Ministry of Transport of the Russian Federation vs the Center for Strategic Research. At the moment, strategic documents do not envisage any massive government investments in Northern Sea Route development. The Transport Ministry will have to struggle to ensuring funding for the projects in the Far North. Yet, many insiders have a feeling that the lack of investments is specifically due to the concept put up by the Center for Strategic Research headed by Alexei Kudrin, former Finance Minister and current Accounting Chamber Chairman. The concept gives priority to urban communities’ development. In the Far North, where the population density is relatively low, the concept is the reason for a serious concern. And therefore it is yet to be seen how the ‘Arctic’ and ‘urban’ projects compete for government funding.

It is noteworthy, the Arctic ports infrastructure modernization may cost RUR 350 billion to RUR 1.5 trillion ($5.7 billion to $24 billion), according to the VEB’s Research and Expert Review Institute.

The new icebreakers’ building program specifically requires funding. That was voiced at the conference by Stanislav Golovinsky, Rosatomflot Deputy CEO for Development and Rosatomflot’s Moscow office director. Rosatomflot is a ROSATOM subsidiary which manages nuclear icebreakers, most of which are only allowed to operate through extended nuclear reactors’ lifetime licenses. The shipping company plans to build 13 new icebreakers (both nuclear and gas powered). Yet, funding of seven of those has not been approved. That means, the money is to be ‘secured’ through substantial efforts. What adds an extra intrigue to the situation, is the fact the three Leader class icebreakers have been designed in such a way that they are too sophisticated for any Russian companies to undertake to build them. Hence, if the decision is made to nevertheless build them in Russia, that will require a dramatic overhaul of all domestic shipyards.

Another conflict concerning icebreakers fleet may evolve around the understanding of the extent of recponcibilities of the Northern Sea Route Infrastructure Operator. The decision on setting up such an operator within ROSATOM was made late last year. By now, a respective bill has been submitted to the Russian Federation Government. It is most likely, that in ROSATOM the establishment of the operator, also referred to as the Northern Sea Route Administration, will be handled by Rosatomflot as it is the corporation’s ‘most Arctic’ division.

Nevertheless, differing opinions could be heard at the conference. Sovcomflot (Russia’s largest shipping company) and Rosatomflot absolutely disagree on who should supervise the entire icebreaking fleet. According to Roman Almakayev, director of the division for Fleet Management and Development for Shelf Projects’ Support at Sovcomflot, the function of an infrastructure operator does not necessarily entail a monopoly to the icebreakers fleet. Currently, the Arctic seas are navigated by ships of Rosatomflot, Sovcomflot, and Rosmorport.

The Northern Sea Route development will therefore be influenced by various factors, including the scale of shelf oil and gas projects implementation, and the subtle struggle of agencies, state corporations and expert groups striving to appropriate the government investments inflow.

By Konstantin Frumkin

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