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Summary of Working Paper No. 116-1998

III.02.2 The Future of Murmansk, Arkhangelsk and other Western NSR Ports in a Regional Perspective

By Alf Brodin, Dept. of Human and Economic Geography, School of Economics and Commercial Law, Gothenburg University, Sweden.

In this Working Paper a number of factors related to the development of the Russian transport sector, but also economic trends have been presented. The complexity of the environment within which Russian ports works has called for the use of a multitude of sources to support the statements presented here. Still only some few of all factors, and sub-factors, that can be said to influence development. The difficulty in making predictions in the Russian environment remains as large as during the first years of the 1990ís. In a Russian setting projections can be made invalid due to unexpected changes in basic assumptions at practically any time. This also makes prediction extremely insecure also when it is only intended to cover the coming two or three years.

Within the next 2 - 3 years, the supply of port services in Russia is not likely to change dramatically, and this leaves some two more years of respite for the two ports in the Russian north-west. The situation for the two ports focused upon here, Murmansk and Arkhangelsk, has for some years been problematic, but improved slightly during 1997, when both ports increased their turnover to 7.1 and 800.000 tonnes respectively. In volume terms, it was a substantial improvement in Murmansk, and in percentage terms the same could be said for Arkhangelsk. What will happen during the first two years of the next millennium is a dramatic increase on the supply side of port capacity in the Baltic States and in the Russian part of the Gulf of Finland. In a first step capacity is likely to increase by 50% of present capacity until 2001 and within five years, yet another 50% capacity increase will take place. Such an increase in capacity is not likely to be met by a similar increase in, which is most important here, exported bulk cargo volumes. The present plans for many of these projected ports, especially in the Gulf of Finland, have been well covered in this paper. To add so much new capacity to a port market, that already today shows no signs of saturation, will of course increase competition between existing as well as new transport corridors and ports immensely. It must be remembered that also ports in the Baltic countries are expanding, but are operating existing facilities and have had time and possibility to adjust to, and practise, market behaviour longer and better than their Russian counterparts. All ports, existing and new, will from the beginning of next millennium have great difficulty in finding cargoes. To run a port in a location off the main flow of cargoes under such conditions will probably prove more than difficult. Which is the case in both the ports of Murmansk and Arkhangelsk.

The Russian port sector is far from the only, and not the most obvious, sector in the country that hopes to attract large foreign investments. The most obvious field for FDI's is perhaps oil and gas prospecting and extracting. For oil and gas some insecurities in the legislation have been clarified at the same time as others have been created. Positive side-effects from oil and gas prospecting in the north are what is often mentioned as the future basic industry for the Russian north. To set high hopes on oil and gas might be a realistic scenario, but not in the short run while oil prices are continuing to fall to new record lows. It has also been shown that the importance of such an expansion, at least when counted in tonnage, will be of rather marginal importance for the ports concerned as a large share of the equipment will be produced domestically.

If the Barents co-operation partner, Finland, manages to arrange the opening up of the long discussed Ledmozero - Kochkoma railway, this will become yet another factor that will further deplete the already weak competitive position of the ports in Murmansk and Arkhangelsk.

Based on the multitude of facts that have been presented in this paper no other conclusion can be drawn than that the two ports in Murmansk and Arkhangelsk face a gloomy future. This in times of drastically increasing capacity in the Russian port sector. The hour of destiny is still two or three years away, but after that point the two ports will have to concentrate on the handling of locally generated cargoes for their future turnover.