Development of the Russian port industry is increasingly leaning towards privately-funded projects. The state seems to be interested in the projects which do not only modernize port capacities but also create an entire infrastructure complex with maritime, river, railway and motor routes efficiently complementing each other and ensuring a high quality of freight logistics. Sergei Kokin, Director General of the Arkhangelsk Transport Hub, the management company of the deep-water area development project at the Arkhangelsk Sea Port, spoke about possible private-public partnership mechanisms in the port industry based on the example of the project.
There are a number of principal factors that determine the form of incorporation for infrastructure projects. First of all, the selected model must provide for lower burden on the state budget. At the same time, the model must make the project an attractive investment for a private partner.
Over 2012-2016, the share of the government expenditure on infrastructure has reduced from 3.5% to 2.7% of GDP while a large share of the funds is still spent on restructuring and modernization rather than development of new facilities.
The government gives priority to major projects that, along with benefits for a particular region, are also an important part of national strategies. These include, for example, infrastructure projects in the Arctic, which will contribute to building up the capacity of the Northern Sea Route as an alternative maritime artery for international shipping.
As for investors, they have a good reason to join PPP projects because the arrangement guarantees them a return of financial investment. Investors consider infrastructure projects and logistic hubs development initiatives in the context of favorable geographical location of the site for a future port, a confirmed potential freight handling load, including the demand for export shipments, as well as prospects for integrating the planned port into domestic and international transport corridors such as the Northern Sea Route.
The investment agreement with Rosmorport is a classic public-private partnership, an arrangement employed in all port projects in the new history of Russia.
Concession is a mechanism that can provide, on the one hand, minimization of the government’s financial participation in the project, and, on the othert hand, the project’s commercial attractiveness for an investor. The construction of a multimodal deep-water hub in Arkhangelsk will become the first greenfield project to be implemented on the basis of concession.
The project’s strategic partner, which is also seeking financial support with the assistance from Russia’s Vnesheconombank, is China’s industrial and technologic conglomerate Poly International Holding, a subsidiary of Poly Group. Previously, the company had sucessfully implemented projects for such transnational corporations as Boeing, Bombardier Inc., Chevron Texaco, Daimler-Benz, Ferrari, and Rosoboronexport.
The new deep water area is interesting for investors primarily as the base for creating the Ice Silk Road and developing China-Russia transit potential. The investor believes that building a sufficient advanced port infrastructure on the Arctic coast is one of the main conditions for boosting transit traffic along the Northern Sea Route.
Sergei Kokin, Director General of the Arctic transport and industrial hub Arkhangelsk