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Analysis – Russia “discovers” Its Strategic Caspian Sea Ports

Analysis – Russia “discovers” its strategic Caspian Sea ports

Makhachkala, Russia (PortSEurope) August 13, 2020 – After years of neglect, it seems that Moscow is slowly discovering the potential of its three Caspian Sea ports and the role they can play in the International North South Transport Corridor, a 7,200-km-long multi-mode network of ship, rail, and road route for moving cargo between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe. Russia wants
a transport hub in the Caspian Sea to challenge developments in other littoral states as it seeks a stake in the cargo transit business between Asia and Europe, which is manifested in various international transport corridors which form part of the new Silk Road. The Russian government is planning to develop the infrastructure of Makhachkala port, Dagestan, on its west Caspian Sea coast and turn it into a transit hub for the country. First Deputy Minister of Economic Development of the Russian Federation, Mikhail Babich, has visited Makhachkala in August to discuss with local authorities the possibilities of increasing activities at the only ice-free port of Russia in the Caspian Sea. The target is to attract additional traffic in oil, grain, and fish; to improve Dagestan crisis-hit economy and give a push to local socio-economic development. General Director of the Makhachkala Sea Trade Port, Murad Khidirov, said that the port can receive oil tankers with a carrying capacity of 13,000 tons but the insufficiency depth of canals limits ship transport to 8,500 tons. Dredging is required to increase the volume of oil and oil products transhipment by 2 million tonnes a year without a need for port’s capacity upgrade. The volume of cargo transhipment in the Makhachkala Port for the first six months of this year increased by 20.4% to 2.6 million tonnes, compared to the same period of 2019. Moscow also wants to build a deep-sea port in Kaspiysk, which is only 18 km south of Makhachkala. Russia has three ports on the Caspian Sea coast: Makhachkala (Mahachkala), Olya (Olia, where a new port is being developed, just 50 km to the north) and Astrakhan (Astrahan). Lagan port But there might be one more reason for the sudden “discovery” of Makhachkala’s potential. A group of Iranian companies, financed by China, wants to invest in the development of the small southern Russian port of Lagan, a few kilometres from the Caspian Sea, Batu Khasikov, governor of Russia’s Kalmykia Republic, said in March. Lagan is some 200 km north of Makhachkala. The Iranians want to invest 100 billion rubles (€1.16 billion) in port facilities capable of handling 22.5 million tonnes of cargo transhipment capacity per year. The idea seems to be over ambitious as the total current capacity of all Russian ports on the Caspian Sea is only 12 million tonnes. But this year, Russia’s Caspian Sea ports were the best performers in the country. In the January-July period, Caspian basin ports handled 4.93 million tonnes (+15.7%) of cargo, of which the dry cargo was 2.12 million tonnes (+28.4%), liquid cargo – 2.81 million tonnes (+7%). In the first half of the year, operators of seaports in the Caspian Basin handled 4.2 million tonnes (+17.8%) of cargo including 1.8 million tonnes of dry bulk cargo (+34.6%) and 2.4 million tonnes of liquid bulk cargo (+7.8%). A new port in Lagan might make more sense if combined with a proposed new east–west canal (Eurasia Canal) to the Sea of Azov – and thus to the Black Sea and onward to European markets. Theoretically, the new Lagan port could become operational within two years from the start of its construction. A canal from Lagan to the port of Yeysk (Eisk) on the Azov Sea might initially be dredged to a depth of only 2.5-3.5 metres, and only used for barge traffic. Dredging a canal for sea ships is expected to cost additional 200-300 billion rubles (€2.3-3.4 billion). Volga-Don Canal Currently, the two seas are connected via the Volga–Don Canal, which has limited capacity and is unsuitable for larger ships (depth of only 3-3.5 metres, with further summer limitations). The Eurasia Canal (700 km long) will be shorter and will allow the passage of bigger ships. Eurasia Canal maintenance is also much cheaper (sand dredging is estimated to cost 100 times less that of the Volga-Don Canal one). The Lenin Volga–Don Shipping Canal connects the Volga and Don rivers (both in Russia) at their closest points. The 101 km canal together with the lower Volga and the lower Don, provides the most direct (over 800 km long) navigable connection between the Caspian Sea and the world’s oceans via the Sea of Azov and the Black Sea. The Canal ends with the Caspian Sea port of Astrakhan, which in the first half of 2020 processed 1.2 million tonnes (+14.0%) of cargo. Another advantage of Lagan, about 120 km south of Astrakhan, is that it is ice free in winter, while the ports of Olya and Astrakhan (both in the Volga river delta) are blocked by ice for 3-4 months of the year. Makhachkala, Olya and Lagan (if build) need significant investments in order to be turned into modern multimodal transport hubs. They lack well-developed railway and road connections, modern port-related infrastructure, such as airports and other transport systems. Any development of Makhachkala port will have to be matched by land transport infrastructure – roads and railway lines – to connect the port with northern Russian ports and the country’s Black Sea ports of Novorossiysk and Sochi. Other Caspian ports The Caspian is an inland sea, with a fixed number of ships operating there, and the creation of a new mega port or the development of existing ones there would deprive all other Caspian ports of cargo. Especially affected will be Azerbaijan which has already developed Baku into a regional transit hub with facilities in place to receive cargo ships from Iran, Kazakhstan and Turkmenistan, and rail connections to tranship cargo to Black Sea ports in Turkey and Georgia, and then onwards to European markets. Kazakhstan has invested in Aktau port and Turkmenistan in Turkmenbashi port. As a result, all three countries are active in international transport corridors. Investors in Lagan China’s Poly Group and China Energy Engineering Group International have already confirmed their plans to invest in the construction of the future Lagan port, but no firm commitments have been made. China Poly Group Corporation is a state-owned Chinese business group among 102 central state-owned enterprises under the supervision of State-owned Assets Supervision and Administration Commission of the State Council (SASAC). It is primarily engaged in representing the Chinese defence manufacturing industry in international sales and paradoxically it is also the world’s third-largest art auction house (behind Sotheby’s and Christie’s). China Energy Engineering Corporation or Energy China is a Chinese state-owned conglomerate under the supervision of SASAC. Its major group companies include the China Gezhouba Group Corporation (CGGC), China Power Engineering Consulting Group Corporation (CPECC), Electric Power Planning & Engineering Institute (EPPEI), China Energy Equipment, the Engineering Department (14 design and survey institutes in 14 provinces, municipalities and autonomous regions), the Construction Department (22 construction enterprises in 15 provinces) Moscow seems to be very neutral towards the new project, despite the fact that if the combined Lagan port and canal to the Azov/Black Sea idea is realised, the Caspian will not be a Russian “lake” anymore. On the other hand, the Russian government promotes the Eurasia Canal driven by security-related and economic motives. The project is to facilitate the development of Russia’s economic relations with Kazakhstan, India, Pakistan, China, Vietnam, Iran (and via it with the Persian Gulf countries) and to reinforce Russia’s transhipment role in the trade between China and the West. Both Iran and Russia are members of the International North–South Transport Corridor (INSTC) the objective of which is to increase trade connectivity between major cities such as Mumbai, Moscow, Baku, Astrakhan, Tehran, Bandar Abbas and Bandar Anzali. According to the Director-General of Lagan Port, Vitalii Daginov, the idea for a new port dates from 2015 when a group of Russian grain companies were looking for a way to develop a project in Iranian port of Amirabad to be supplied with grain oil seeds and meal from Russia. Lagan, 550 miles from Amirabad, was chosen as the most suitable location. The initial idea was for a 13-metre deep port with 32 berths, grain silos for over 300,000 tonnes, terminals for delivery, storage and expedition of vegetable oils, meals, fruits and vegetables, containers. A new port on the northern shores of Caspian Sea will also help the export efforts of metals and construction materials producers. China The long shadow of China looms over this mega transport infrastructure project as well. China would benefit from an alternative transport corridor in the region, especially considering the fact that Lagan is a year-round ice-free port. Via Poly Group and China Energy Engineering Group International, China would be opening another shorter, faster and cheaper trade corridor towards Russia and Europe facilitating its new Silk Road. The new Silk Road (part of the Belt and Road initiative also known as One Belt, One Road, or OBOR) is a Chinese economic strategy to seek better access for Chinese-made products in European markets, which includes acquiring stakes in ports and other transport facilities, and cooperation agreements with countries along the Silk Road routes. It remains to be seen how the Chinese money will work via Iranian investors and the role the federal government in Moscow will play in the realisation of the project. It is very likely that the Lagan port project will be a way for China to control key Russian transport facilities. Copyright (C) PortSEurope. All Rights Reserved. 2020.

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