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Water Transport 1991-2000
Currently, the fleet of the Russian Federation's nine marine shipping companies consists of 973 vessels, while its river fleet amounts to 35,000 ships of different types. Together they can carry 24.7 million tons of freight. The state owns five atomic and two diesel engine icebreakers, ecological and hydrographic ships, as well as a fleet of ships to deepen the marine or river bottom.
The majority of Russian ships were built in the Soviet era and their average age is about 20 years. Foreign fleets are usually 4-5 years younger. About 34% of river fleet vessels are too old to be used, yet they still work on internal water routes. During the last year, the marine trade fleet received just 13 new ships, and only three of them were built in Russia. During the last decade, the fleet lost about 104 vessels.
As a result, the Russian fleet satisfies just about 6% of the national need in cargo transportation. Annually, domestic freight owners spent about $3 billion on foreign freight charters. In 2000, Russian shipping companies earned altogether $210 million. The only area in which Russia still maintains the world leadership is the volume of freight transportation in the Far North, that amounts to 1.9 million tons yearly.
HISTORY: 1991-2000
The post-Soviet history of the Russian marine trade fleet is tantamount to the death of a squadron. Prior to 1991, the trade fleet had been earning for the state budget up to $6 billion annually. In the last year, all shipping lines together earned less than $1 billion. However, their directors are now starting to talk, though with caution, about the industry's recovery.
1991
The newly-independent CIS states with an access to the marines started fighting for a share in the Soviet trade fleet. Of the 17 shipping lines that had existed in the Soviet Union, 10 remained in Russia. Of 1800 vessels of different types, Latvia got 87, Lithuania 70, Estonia 75, Georgia 60, and Ukraine over 300. The trade freight volume decreased twofold, from 163 million tons to 85 million tons. As a result, from being about the top ten states in marine cargo transportation, Russia dropped to 28th place.
Viktor Kharchenko became the new general director of the Baltic Sea Shipping Line (BMP) with its 178 vessels. He signed the first contract in post- Soviet history for renting ships out to a private company. 15 BMP ships were rented for $3.8 million by the international public organization "The World Laboratory" headed by Andrei Filkinshtein. Later on, the leaders of the Union of Russian Ship Owners (SOROSS) would call the deal "the first step towards the collapse of the shipping line." Kharchenko himself thought the deal lucrative as "the cost-effectiveness of every vessel increased up to 50% instead of the usual 12%."
1992
The Ministry of Finance and the State Committee of Property ordered all shipping companies to prepare documents for privatization by the end of the year. The following shipping companies were privatized: Murmansk, Baltic (St Petersburg), Northern (Arkhangelsk), Sakhalin, Kamchatka, Novorossiysk and Far Eastern. In all shipping companies the state retained large stakes. Only the Primorye Marine Shipping Line became fully privately-owned.
1993
In March 1993, the president of the Baltic Marine Shipping Line Viktor Kharchenko and seven of his top managers were arrested on embezzlement charges. The accusation centered on the 1991 contract regarding the renting out of the company's ships to "The World Laboratory."
In October, a shareholder meeting of the Baltic Marine Shipping Line sacked Viktor Kharchenko from the post of company president. His place was taken by Arnold Rusin, Kharhenko's former deputy. The former president did not make it even into the company's board.
At the same time, the North-Western River Shipping Line was transformed into a holding under the name of North-Western Ship Line (SZP). Later, the company's managers thought a decision to scrap the word "river" from the company's name prophetic. Three years later, following BMP's bankruptcy, SZP became the main Russian shipping line in the Baltic region.
1994
In August 1994, the Sovintorg company started to buy up shares of the Sakhalin Maritime Shipping Line (SakhMP) from its employees and Far Eastern voucher funds. In the process, Sovintorg learned that its 14% share holding was to become 1.4% as a result of an additional emission of shares. The emission leading to the increase of the initial capital from 934 million to 11 billion rubles was approved by SakhMP shareholders in May.
In November, the board of directors of the Primorye Maritime Shipping Line (PMP) decided to conduct an additional emission worth 212.22 million rubles. The agent for the new emission was a PMP subsidiary - AO Prisko-Stoks, which bought up all the new shares. As a result, the bank CS First Boston, that owned 11% of PMP shares, was left with just 3%. The deal became possible thanks to a change in the legislation on privatization allowing a company to proceed with an additional emission of shares without a prior review of the company's value. In 2001, in an interview with Vlast', the head of PMP Aleksandr Kirilichev said: "It was important to retain the company in the hands of its management, not allowing for the dispersion of its shares in order to prevent its break-up and to lower its dependence on foreign speculators. I am confident that this has been our major achievement."
1995
In late February, the major shareholder of the Baltic Marine Shipping Line, the Committee on State Property Management of St Petersburg, owning 25.2% of the shipping company, demanded that the members of the board of directors and the company's president Arnold Rusin step down.
In the same month, in London there started a unique litigation between two Russian shipping owners - The Far-Eastern Marine Shipping Line (DVMP) and the commercial shareholder company Sovkomflot (SKF). At the core of the conflict was a 1989 contract to build in Japan 18 ships for DVMP. The contract with Mitsubishi Corporation was signed not by the shipping company itself, but by the foreign trade organization Sovkomflot. That was the reason why in 1992 the shipping company decided that it would not honor the contract. DVMP turned to a court first in Russia and then in London and made Sovkomflot pay the $7.3 million that the shipping company had earlier paid the Japanese. Then, Sovkomflot sued the shipping company for $80 million for breaking the contract. In connection with this lawsuit a DVMP ship was seized in Hong Kong for a week. But at the end DVMP did not pay any damages to Sovkomflot.
In June, at a shareholder meeting of the Baltic Marine Shipping Line Ivan Lushchinsky was elected the chairman of the board of directors.
In July, the North-Western shipping company was transformed into a holding company. It included 19 companies of different profiles, including 9 ports and 5 shipbuilding and repair factories. The same month, the Russian Fund for Federal Property (RFFI) and the Federal Stock-exchange Corporation organized the first cash auction, aiming to sell shares of the AO Moscow River Shipping Line.
In October, the Baltic Marine Shipping Line remained once again without its top manager: the chairman of the BMP board of directors Ivan Lushchinsky was killed in St Petersburg. The case has not been yet solved.
In December, an auction of the Novorossiysk Marine Shipping Line (NMP) took place. Having offered a maximum credit of $22.65 million, the shipping line easily defeated the competition. Five years later, the legitimacy of the deal was challenged by a NMP minority shareholder.
1996
In March, at the Kanavinsky district court in the city of Nizhny Novgorod a trial began against the management of the stock company (AO) Volga-flot (Nizhegorod river shipping line) charged with fraud. According to the prosecution, the top managers bribed officials at Tokobank and the bank Nizhegorodsky Kredit to receive loans amounting to 3.8 billion rubles. The loans were approved on the basis of a false contract with a Russian-American joint- venture Hoory Enterprises. The money was converted into hard currency and smuggled abroad. Investigators managed to arrest the accounts of Volga-flot and partially compensated the banks' losses.
There was another change of management at the Baltic Marine Shipping line. In April, at a shareholder meeting, the president of BMP Grigory Filimonov announced his resignation.
In April, the director of North-Western Shipping Line (SZP) Evgeny Zubarev disclosed the extraordinary losses his company suffered in 1995. They amounted to over 130 billion rubles. Three months later, the Leningrad region agency of the Federal Administration on Insolvency started a bankruptcy procedure against the stock company North-Western Shipping Line, the largest operator of river transport in Russia. The industrial-financial group Interros, which controlled the company, issued a statement protesting that such measures would destroy a promising company. In the end, Interros succeeded in saving the company from bankruptcy.
In May, at a shareholder meeting of the stock company Far-Eastern Shipping Line a decision was made to increase the initial capital 100 times to 1643.6 billion rubles. In addition, shareholders approved the increase of foreign participation in the company from 19.3% to 32.6%.
In June, at an extraordinary shareholder meeting of the Baltic Marine Shipping Line a new statute of the company was approved and the company's controlling council was closed down. The main issue at the meeting was the election of a new general director. The post was taken by the president of the Russian Union of Ship Owners Mikhail Romanovsky.
In July, President Boris Yeltsin signed a decree "On state support for the marine trade fleet of Russia on the Baltic Sea." According to the decree, the stock company Baltic Marine Shipping Line was to receive state subsidies. However, half a year later, it became clear that the assistance came too late. The same month, Moscow Mayor Yury Luzhkov announced that the capital authorities were interested in acquiring a controlling stake in the company Moscow River Shipping Line. But nothing was done to actually buy it.
In December, the general director of the Baltic Marine Shipping Line Mikhail Romanovsky resigned from his post and Oleg Bondarenko became the acting general director. Meanwhile, the council of creditors of BMP initiated the appointment of an external emergency manager to head the company. On 26 December, the St. Petersburg arbitration court declared the company bankrupt. Mikhail Romanovsky was appointed to oversee its liquidation. By that time, the company still possessed just 9 ships out of the 178 it owned in 1990. Thanks to BMP mismanagement Russia lost all of its cruise ships. Of 9 cruise ships, 6 were sold to the USA, 3 were rented out to the Black Sea Shipping Line (ChMP) and later seized in various European ports for the latter's debts.
1997
In April, a shareholder meeting of the North-Western Shipping Line (SZP) took place. The SZP experts together with the auditor Coopers & Lybrand worked out a program for the company's restructuring according to which 12 affiliated companies were to be created.
In July, the St. Petersburg arbitration court declined a bankruptcy lawsuit started by the territorial agency of the Federal Administration on Insolvency (FUDN) in Leningrad region against the North-Western Shipping Line. The lawsuit was based on the nonpayment of debts by one of the company's branches - the Neva shipbuilding company - to the budget of the Leningrad region and other state organizations.
1998
In February, the general director of the Moscow River Shipping Line Vadim Berezin once again appealed to the city authorities to follow up on their earlier promise and buy a controlling stake in the company. The mayor's office was to decide by the autumn. However, the August financial crisis made the issue irrelevant.
In December, a controlling stake (50.02%) in the Murmansk Marine Shipping Line (MMP) was bought by the stock company LUKOIL-Arktik-Tanker, an affiliated company of LUKOIL. The state retained 25.5% of MMP shares.
1999
In May, a shareholder meeting of the Far-Eastern Marine Shipping Line (DVMP) took place. 6.4% of its shares belonged to the investment company Partnerstvo. The head of Partnerstvo Anatoly Milashevich's bid for the post of the chairman of the company's board of directors was not supported by shareholders. The former chairman - Pavel Vasil'chenko - did not participate in the election. The region's governor Evgeny Nazdratenko demanded that foreign shareholders of the DVMP review the decisions adopted at the shareholder meeting, threatening them with arrest if they did not. The foreigners called a press conference instead.
In June, the Baltic Marine Shipping Line was closed down. At a shareholder meeting it was decided to declare the company bankrupt. The North-Western Shipping Line became the biggest Russian ship owner in the Baltic Sea.
The authorities of Samara took over the control of the largest Russian river shipping line - the stock company Volgotanker. Supported by the regional authorities, Valery Gorchakov became the company's general director. The former director Nikolai Strokin, who was close to the holding Rosprom and the investment fund Barings, decided not to run for the post.
July. The struggle between foreign and Russian shareholders for control over the Far-Eastern Marine Shipping Line continued. With the support of the governor Evgeny Nazdratenko Aleksandr Lugovets, a representative of the Ministry of Transport, was elected to become the head of the company's supervisory council. Foreign shareholders had a majority in the council (six, against five supporters of Mr. Lugovets). However, something unexpected happened. Six out of 11 members of the council voted for the head of Rosmorflot supported by Mr. Nazdratenko. The ballot was a closed event. A representative of Tiger Securities Richard Thomas was suspected of treason. After the vote he disappeared from Vladivostok. Foreign shareholders were quick to react. Tiger Securities published through the mass media a statement, in which the appointment of Lugovets was qualified as a "seizure of power" in the DVMP by supporters of Nazdratenko.
In August, the chairman of the council of directors of Vostoktransflot, Anatoly Milashevich, demanded in a letter to the Procecutor General's office of the Russian Federation to start an investigation of a misappropriation of the company by the governor-backed forces, requesting that the highest law- enforcement agency in Russia "send an investigator to Vladivostok to restore law and order."
In September, Taisiya Ponomareva, a legal adviser to Anatoly Milashevich, was murdered in Vladivostok. Neither the killers nor those who gave the order to kill have been found.
2000
In March, sailors from refrigerator vessels belonging to Vostoktransflot, seized in the port of St Petersburg, threatened the city authorities with a hunger strike and blocked the waterway with boats as their wages were not paid. The ships were seized after one of the company's Cypriot shareholders filed a lawsuit demanding the payment of dividends. The shareholders of the Far-Eastern Marine Shipping Line (DVMP) elected the deputy minister of transport of the Russian Federation Aleksandr Lugovets the general director of the company. He was supported by the Ministry of State Property and the state company Sovkomflot, and, most importantly, by the governor of the Primorye region Evgeny Nazdratenko.
In August, the council of directors of the open stock company (OAO) Sovkomflot elected Dmitry Kozak, the deputy head of the presidential administration, as its chairman.
In September, the captains of six refrigerator vessels belonging to the company Vostoktransflot, arrested in the port of St Petersburg, started to flood the holds of their ships threatening to sink them altogether if their wages are not paid up. By that time, out for 112 vessels the company owned only 9. All of them were arrested in St. Petersburg or Vladivostok.
In October, Viktor Kisilev, the first deputy general director of OAO Murmansk Marine Shipping Line, was appointed its acting general director. On 12 October, the former general director Vyacheslav Ruksha became the first deputy minister of transport and the head of the Russian marine fleet service (Rosmorflot).
In December, the board of directors of OAO Vostoktransflot demanded that the company's ships arrested in St Petersburg over a year ago were sold. The creditors were to appeal to the court of arbitration to make the then external manager of the company Vladimir Sergeev head it.
by Sergei Chereshnev
PRESENT
The redistribution of property in shipping companies has continued. The main focus of the struggle is not the controlling stakes, as they have not been privatized yet. But the owner of smaller stakes strive to consolidate in their hands bigger packages of shares so they might gain control over the companies' finances before it is done by their main owner, the state.
The Far East
In Primorye, there are two large Russian marine shipping corporations - Primorye (PMP) and Far-Eastern (DVMP). Almost one quarter of the domestic trade fleet (127 ships able to carry 1.7 million tons of freight) is concentrated on the Pacific ocean in these two shipping corporations. The PMP fleet is the youngest in the country (the average age of its ships is less than 10 years), which allows its management to save on its modernization. The companies do not compete in transportation: PMP specializes in oil tankers, while DVMP works the international container routes.
Until recently, these two companies had one thing in common - for over a decade, the Ministry of Transport and other state organizations did not have any leverage to control these shipping companies. The state has no assets in PMP, while its share in DVMP is just 19.8%. In April, Minister of Transport Sergei Frank, who had started his career in DVMP, made it easier for himself to control the company. The state share in DVMP did not grow, but as a result of the actions of the former deputy minister Aleksandr Lugovets, who became the general director of DVMP, the foreign share holding was halved. While on 1 March, they had 43%, on 20 April, one the eve of shareholders' meeting, their package was just 19%. The representatives of the Ministry of Transport and DVMP have refused to comment on what had happened.
According to unofficial sources, two companies, GUP Morsvyaz'sputnik and AO Morbank, bought most shares from DVMP foreign shareholders, though in the register these two do not appear as major shareholders. As a result, the Ministry of Transport got three of the nine places in the board of directors.
In May, commenting on the changes among the shareholders, Aleksandr Lugovets said that lowering foreign influence serves "the interest of the state." The head of DVMP disagreed with the foreign investors, above all with CS First Boston, over how to use the fleet. In an interview with Vlast' he said: "It was attempted to turn the shipping company into a ship owner who rents its vessels out and does not show interest in them anymore. DVMP is a shipping corporation and it is in its own interests to serve the fleet's needs in freight transportation."
In the spring, foreign investors declared that they do not trust the DVMP management. A member of the controlling council of the shipping company Andrew Fox, who represented the interests of CS First Boston, argued that by international standards DVMP is a loss-making company.
Interestingly enough, a rival of Mr. Lugovets in the fight for the post of the company's head was the director of PMP Aleksandr Kirilichev who had earlier neglected the interests of foreign investors by organizing a scandalous additional emission of shares. However, the Ministry of Transport blocked the change in the top management of both companies. Nowadays, the company of Mr. Kirilichev is unique: PMP is the only fully private-owned shipping company, with the general director alone making decisions. Despite a long list of shareholders, the company is fully controlled by the management.
In comparison with other shipping lines, DVMP and PMP have always remained pillars of stability. They did not experience a sharp loss of vessels, and for the last three years both have been profitable. The balance of DVMP in the current year could be undermined by the recklessness of the captain of the vessel "Maksim Mikhailov" who had by accident deprived Australia and New Zealand of the Internet. The shipping drifted along the coastline with the anchor out and tore the cable. Australia presented DVMP with a bill for $7 million, while the after-tax profit of the company in 2000 was just over $1 million.
LUKOIL: the Northern Marine Route
Undoubtedly, the most significant success on the water transport market was achieved by an affiliated company of LUKOIL - LUKOIL-Arktik-Tanker (LAT). Though it owns just 7 tankers of icebreaker type, the company is only a step away from a full monopoly in the northern seas. In April, the company started buying up shares of the Northern Marine Shipping Company (Arkhangelsk, SMP) from small foreign investors and consolidated a controlling stake: according to the Association of Transport Workers of Arkhangelsk region, it now has 53%. Taken into account that with 55% LAT also controls the Murmansk Marine Shipping Company (MMP), the company has no serious competitors in the Arctic seas. The fleet of these two shipping companies accounts for 10% of all Russian ships. Originally, the goal of LAT was to transport LUKOIL's oil from the Timano-Pechora deposit. The company's management refuses to comment on the size of SMP and MMP shares controlled by LUKOIL. But Vagit Alekperov, the head of Russia's biggest oil company, does not make a secret of his control over both shipping companies. When during a visit to Murmansk Vladimir Putin asked who owns the local shipping company, the president of LUKOIL, who was at his side, replied that it belongs to him.
A quick rise of a new shipping owner was much disliked. The reason being that the MMP used to manage all Russian icebreakers. Thus, LUKOIL automatically acquired the possibility of controlling the tariffs on the icebreakers that accompany ships. The concern Norilsk Nickel for one did not like the situation and at some point the company was seriously considering transporting its production by submarines. However, the idea did not go farther than a letter to the government, after which MMP was deprived of an exclusive right to manage icebreakers.
Meanwhile, the development of a LUKOIL transport structure prompted Norilsk Nickel to invest in transport too. In October, the company started building its own fleet on the basis of the Yenisei River Shipping Company (YeRP), after it had bought shares from LUKOIL. According to some sources, LUKOIL was glad to use the opportunity to sell its shares in YeRP: on the one hand, it thus freed itself from accusations that it was building a monopoly on the Northern sea route; on the other, it received cash for a company that had for seven years been working without a profit. The deal was estimated at $10 million. Besides, Norilsk Nickel did not get a controlling stake, but just 48.5%.
Meanwhile, LAT searched for an opportunity to start transport business on the Baltic Sea. The local North-Western Marine Shipping Company was controlled by the UNEXIM bank group. Therefore, LAT intended to participate in a tender to buy the controlling stake in the Latvian marine shipping company. However, at the very last moment, it decided not to as the $100 million starting price for a 68% package seemed too high.
Nothing is Unsinkable
While this issue was about to go to press, the news came that the general director of Novorossiysk Marine Shipping Company (NMP) Leonid Loza, who has been managing the company since the Soviet era, lost its place. NMP has always been the leader among the Russian shipping companies in terms of deadweight - with 3.4 million tons, it amounted to over 30% of the total capacity of the Russian fleet. The controlling stake (50.3%) belonged to the state. However, in 1995, as a result of a loan auction its largest stake part (26.7% of voting shares) was transferred to the company's management.
Early this year, representatives of the Ministry of State Property demanded, unexpectedly, that Leonid Loza be sacked on the pretext that he misused the company's assets. During his time as the head of Novoship Leonid Loza always stressed the need to use the company' profit to strengthen its own fleet. For last two years, Novoship built in Yugoslavia, Japan, and Russia 15 vessels (tankers, freighters and container vessels). However, the vessels were given a so-called "flag of convenience." The officials in the Ministry of State Property did not like that. For his part, Loza tried to convince the ministry that vessels are fully controlled by NMP, and it is the existing tax system in Russia that makes it impossible for them to use the Russian flag. Nonetheless, in April, an extraordinary shareholder meeting was called to elect a new head of the company. But the Ministry of Transport defended Leonid Loza. The question of his resignation was not discussed, though his functions were restricted: from then on, he was to negotiate all financial issues with the board of directors.
In October, the board sacked him. It is said in Novorossiysk that the resignation was lobbied by the Ministry of Transport and personally by its head Sergei Frank. The resignation was an unpleasant surprise for Mr Loza. The NMP is headed now by Tagir Izmailov, who had formerly worked in the state company Sovkomflot. According to Novorossiysk managers, Sergei Frank and the head of Rosmorflot Vyacheslav Ruksha became the most important figures in the water transport business as they now controlled DVMP, NMP and Sovkomflot (deadweight 3.3 million tons), the three major companies of the Russian trade fleet.
A Remote Pond
Much less attention is given to Russia's river fleet, though the summary volume of cargo transportation on internal water routes is four times larger than on marine routs (in 2000, it amounted to 116 million tons). Profitable shipping companies are few. Even the above-mentioned Yenisei River Shipping Company had not been much used until 1999 when LUKOIL and Norilsk Nickel became interested in it. Foreign vessels are banned from using internal water routes and thus foreign investment does not come to river companies.
With one notable exception -- the fleet of the company Volgotanker that works on the Caspian Sea and in the CIS states. This company was involved in the largest scandal of the year. In December 2000, AO Volgotanker filed a lawsuit in the London court of arbitration against the company Burren Energy Shipping & Transportation (BEST), accusing it of unlawfully renting out the company's 16 tankers. The vessels were transferred to BEST as a payment for shares given to Gazinvest. Later, the company YUKOS, controlling 60% of the shipping company, gave its stake to the management of Volgotanker. Then BEST, which was interested in the prolongation of the lease, attempted to return to the company as a shareholder and bought up 12.9% from Gazinvest. The company's formal owner was the company Baring Vostok, which was, like BEST, part of Barings group. The board of directors of Volgotanker decided to file a suit. But the conflict was settled before the trial: 8 vessels returned to Samara, while the rent for other 8 vessels was prolonged. The state controlling organization Russian River Fleet (Rosrechflot) did not interfere in the conflict.
The shares of the Moscow Steamship Company (21%), which the RFFI tried to auction in June, did not attract investors. Though the company is considered to be one of the leaders in Rosrechflot (it owns over 300 vessels with a yearly cargo turnover of over 1 million tons), it accumulated a 200 million ruble debt. At first, the company Sovfrakht showed an interest in MRP, but then decided that the price of 85 million rubles for a debt-laden company was far too much. The auction failed. In July, the Ministry of Transport announced that there was a buyer for MRP. According to the head of MRP Roman Trotsenko, the company's management retained the control over the company. However, Trotsenko did not explain where the sinking company found money to buy its own shares. He also refused to name the buyer. There has also been no official information regarding the company's shareholder register. All that means most probably that the buyer did not materialize and the shares were transferred under the custody of the company's management.
by Sergei Chereshnev
TRENDS
According to the RFFI plan, the share packages of five river shipping lines are to be prepared for sale. The Ministry of Transport obviously intends to play the role of an arbiter between the owners. Meanwhile, leading companies stress that they are ready now to fight for the Russian fleet to return its lost position at the international markets. They say they would modernize the fleet if the state supports them.
In the Ministry's Shadow
In the 2002 budget, funds are allocated for buying up a controlling stake in NMP from its management for the same $2.65 million which was at a 1995 pledge auction given to the Ministry of Finance as a credit by the guarantors. Thus, the Ministry of Transport would get a controlling stake in the largest shipping company, while its newly elected head Tagir Izmailov would in fact become a state employee.
That is the first case in the history of the transport industry when the government found money to buy up assets. For the first time such option was discussed by the former ministry department head Sergei Zhelannov in his March interview with Vlast'. Then the Basmanny municipal court of Moscow supported a lawsuit of Oleg Stepanov, an individual shareholder of NMP, who demanded that the results of the pledge auction be cancelled. The shareholder argued that NMP, not being a credit organization, did not have a right to credit the Ministry of Finance.
Representatives of Sputnik Group, one of the smallest shareholders of NMP, considered the lawsuit as a direct attempt by the Ministry of Transport to gain control over NMP. Sergei Frank, the minister, never hid such an intention. At the beginning of the year, the ministry's lawyers refused to acknowledge their involvement in the lawsuit, though they said that the court decision to return the shares to the state undermines the results of all pledge auctions. Nowadays, officials confirm that without this lawsuit the money to buy up Novoshipping would not have been found.
The transfer of real control over NMP to the Ministry of Transport is not the only sign that officials have learned how to dictate their will. When necessary, the ministry finds allies to defeat directors it considers out of place. In July, the Ministry of Transport in alliance with the Ministry of State Property and a Novosibirsk company KSK organized an attack against the general director of the West-Siberian River Shipping Company (ZSRP) Vladimir Yepimakhov. The latter sold a large package of shares (28.2%) of ZSRP, which had earlier belonged to its affiliated company Reka, to a firm Zolotaya gorka-1 backed by Vostokgazprom.
The deputy minister of transport Boris Novosel'tsev commented on the creation of the alliance as follows: "The state and private shareholders owning large packages of shares should be partners in managing ZSRP. It was decided to start the procedure of changing the board of directors as the financial deals which led to Vostokgazprom accumulating a large stake of the company were dubious." The ministry achieved its goal - the board of directors of ZSRP was fully changed, though nominally a state stake in the company is just 25.5%.
It is possible that now the ministry will turn its attention to the Primorye Marine Shipping Company (PMP). The independence of its director Aleksandr Kirilichev has been irritating. For his part, Mr. Kirilichev does not believe that his company might again come under the state control: "I would watch out to prevent any speculations with PMP shares." Nevertheless, the first sign that the situation might change was an action by the procurator general's office of the Primorye region. The acting procurator general Sergei Dzhavadov demanded through a court of arbitration that the 1992 agreement on the privatization by PMP of the seaman's school, dormitories and hotel was nullified. Kirilichev presented the court with documents proving that the company invested in these assets $21 million of its own funds. The court decided against the general procurator office.
Searching for a Waterway
The PMP director noted that retaining a control over his company's assets is not currently his biggest problem. The time has come for the companies with "sane shareholders" to stop competing with each other and start making a common effort to make a comeback to the international market. "Nobody there wants us back," added Kirilichev.
For the last five years, the total volume of cargo transported by the marine trade shipping fleet decreased from 74 to 31 million tons. As the president of Sovfrakht company Dmitry Purim told Vlast', prior to the 1998 financial crisis his company had tried to maintain a united agent network for the Russian shipping lines and a system of working the international routes. But now everything is to be started anew.
In words of the director of DVMP Aleksandr Lugovets, "the company's big success was an agreement with American and Australian companies to adopt the framework of slot-charter (the mutual usage of ships) on the Pacific ocean routes. It allows the company to return to the international market and earn up to $10 million a year." Before 2001, the DVMP was the only Russian shipping line working full-time on international lines.
Following long negotiations, Sovfrakht signed two key agreements on behalf of Russian ship owners. In March, together with a Chinese Trans Marine Inc., a company Sovtrans Asia Ltd. was created to work a new route Shanghai-Hong Kong- Bangkok-Hoshimin. In Shanghai, containers from South-East Asia are transferred by the DVMP's ships to the port Vostochny. According to the president of Sovfrakht, "it would not significantly increase the cargo transportation volume. However, at the international lines the cargo owners get used to particular lines, and it is important to attract their attention to the transport corridor of Trans-Siberian railway (Transib)." In July, the Iranian state company Hazar Ship Company became a partner of Sovfrakht. They established an expedition company at the Caspian route Astrakhan'-Makhachkala-Iranian ports. Sovfrakht sent to this route its own ships. The Ministry of Transport acted as a guarantor of the project, as it allows to increase cargo flows along the North-South corridor.
Meanwhile, shipping lines have serious reasons to complain about the ministry. In the USA, China and Iran the shipping lines are fully backed by the state. When new routes are opened, the transport officials set up conditions guaranteeing that the companies from a respective country would have a share. According to Dmitry Purim, in Russia "owners cannot agree between themselves on a united policy. The situation in the port of Astrakhan' is a typical example. Sovfrakht has a half of the cargo going to Iran, but the quality of service in the port is not high. As a result, the volume of international cargo transportation could not be increased."
Further attempts by the Russian shipping companies to extend their presence on the international market are limited by the deficiencies of Russian infrastructure. In the Far East, where ports can provide modern facilities for increasing volumes of cargo, shipping companies together with Sovfrakht plan to open a new route USA-Russia-China. The ministers of transport of the USA and Russia already signed a declaration of intent. Yet, in practice the establishing of a new route could take from one month to forever.
Time to Think
It was just two years ago that the Union of Russian Shipping Owners (SOROSS) gave an unpleasant prognosis: by 2005 90% of all Russian ships could be sent for scrap. On average, Russian ships are 20 years old. Nowadays, the growing investment of ship owners into their fleets makes the future of the Russian fleet look promising. For instance, Sovkomflot announced a modernization program for its fleet and signed a contract with the South Korean company Daewoo to buy tankers of the Aframax type. PMP signed contacts with a Croatian shipbuilding company Brodosplit and with a Korean company Hyundai Heavy Industries for building tankers of 108 thousand tons tonnage.
A tanker of such type costs $40 million. That is the expense not many could afford. For instance, the profit of PMP last year was just 80 million rubles. But PMP and Sovkomflot have the youngest fleet in the country and they can take time looking for long-term credits, planning the tempo of their fleets' modernization. In the NMP the situation is much worse - its ships are up to 14 years old. The Sakhalin and Kamchatka shipping lines do not have money even for small ships.
In September, the company Rosneft, partly foreseeing the future problems of ship owners, and partly not wishing to pay Sovkomflot $3 million a year, announced a plan to build its own Far-Eastern Marine Shipping Company. Interestingly, the funds it is going to invest into its own ships --$200 million -- exceed the investment made by all Russian shipping lines in the Far East taken together.
River shipping lines, if they don't have sponsors of the LUKOIL level, have not modernized their fleet for last 9 years. Therefore, the fleet will continue to decline. The situation has worsened as the result of a new regulation banning the use of single-hulled tankers from 2003 (30% of all Russian trade fleet). It would affect NMP, Sovkomflot and Volgotanker. The only way the Mintrans could help these companies is to pay 50% of their international credits. But this privilege is given only to those who build their ships in Russia. But Russian ship builders cannot build a tanker with deadweight over 80,000 tons.
Even if a ship is built in Russia, the shipping line would have a problem - what flag is it to be given? Currently, only 40% of the domestic ship fleet have the Russian flag, mostly on the rivers. According to current tax code, servicing a Russian ship in the ports of Kaliningrad or Novorossiysk would be 20% more expensive than a foreign one. The problem has been discussed from 1995, when the current rules were adopted.
It is a bitter irony that all ships of Sovkomflot, the only company fully owned by the state, have a "flag of convenience." Building ships abroad also entails another big problem - large custom duties. The solution to this problem has not been found yet. For its part, the Ministry of Transport promised, once again, to prepare all the necessary changes next year.
by
Sergei Chereshnev
All the Article in Russian as of Nov. 20, 2001
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