World News – April-May 2019
The Russian Railways Logistics JSC and the Turkish logistics operator Pacific Eurasia Logistics have agreed to establish a joint venture to develop logistics routes for cargo supply via the Baku-Tbilisi-Kars (BTK) railway, Trend reports referring to the External Communications Department of the Russian Railways Logistics company.
The corresponding memorandum was signed by First Deputy Director General of the Russian Railways Logistics company Eduard Alyrzaev and Director General of Pacific Eurasia Logistics Fatih Nusret Dur.
The memorandum was concluded at the meeting between Director General and Chairman of the Executive Board of the Russian Railways company Oleg Belozerov and the heads of the Turkish and Azerbaijani railway companies, which was held in Ankara and was devoted to the development of regular rail traffic along the BTK route.
The sides agreed that the the joint venture is established with the purpose of the further development of transport and logistics activity and trade between Russia and Turkey. The main tasks of JV will be the use of a cargo base in Russia and Turkey for cargo transportation along the Baku-Tbilisi-Kars railway and rendering a wide range of logistics services to the customers.
“Special and sometimes even unique competences are required to successfully cope with the tasks of the logistics operator on the international transport corridors, and our company does possess such competences,” Alyrzaev said.
“For a long time, we have been developing and improving the efficiency of „East-West” and „North-South” international transport corridors, as well as working to launch and promote the new Vietnam-Russia-Vietnam and Japan-Europe international transport corridors,” he added.
“We are ready to share our knowledge and skills with our Turkish colleagues while establishing a joint venture in future,” Alyrzaev said. “These knowledge and skills will be useful for servicing such a promising route as Baku-Tbilisi Kars railway.”
Turkey has elaborated a project to create a logistics hub in Ukraine.
The project was discussed at a meeting in the Embassy of Ukraine in Ankara on Thursday, an Ukrinform correspondent reports.
“We have elaborated a logistics project and intend to open a logistics hub in Ukraine, as well as in Georgia. Of course, we plan to do this at the state level, and thus it will be a very large contribution to the transport sector of both countries. Expanding the fleet and the maritime traffic between our countries in the Black Sea will be a great contribution to the development of the transport sector,” said Kemal Guney, a representative of the Ministry of Transport and Infrastructure of Turkey.
Ukrainian Ambassador to Turkey Andrii Sybiha underscored the interest of the Ukrainian side in such cooperation.
“For us, Turkey is also an opportunity to join the Silk Road, if we speak about the transport dimension. We have reached serious agreements between our transport agencies and we want to work in this direction. It includes the existing networks, Kars — Tbilisi – Baku, and the development of ferry connection, as well as all other moments, since the entire transit to Iran and the Middle East from Ukraine is delivered, in fact, through this region,” Sybiha said.
According to him, the use of joint transit potential of the countries is a very important area of cooperation, which is not yet fully utilized.
“As far as I understand, the cost of cargo delivery will be profitable. However, these issues should be the subject of expert discussion. This year, a meeting of a relevant commission will be held, and I hope that these issues will be brought to a new, higher level,” the diplomat noted.
As reported, Ukraine and Turkey are finalizing the last provisions to sign a free trade agreement.
WSP’s Johan-Paul Verschuure explains why the gap needs to be bridged between financial institutions and port opportunities in developing markets
Obtaining funding for port developments in developing markets remains challenging, even in the current investment climate. While the appetite of large private financial institutions for finding new infrastructure investments is large and the need for additional and upgraded port facilities is pressing in quite a few developing markets, there remains a funding gap. What is preventing financial institutions from looking a bit further outside their conventional markets?
Keen financial interest was proven by the 52 parties that showed interest in the first bidding round for Long Beach Container Terminal. For DCT Gdansk there was also significant interest from industry players, financial institutions and shipping lines. In the developed world, great interest for such assets is pushing up the price and reducing the return.
However, when looking at the interest in port developments in, for example, Africa, it remains subdued. With the exception of international financial institutions – such as the African Development Bank – and some entrepreneurial investors, there are few western parties actively looking for opportunities in these markets. Noteworthy is that one group of players active in western markets is generally absent from emerging markets: private financial institutions.
Government involvement risks
Logically, the major hurdle in many countries is political risk. Recent developments around the concession of the Doraleh container terminal in Djibouti are an example of an event that international financial institutions fear most. Political involvement around the operations of ports should be limited as much as possible. And although the political climate and governance will be difficult to change for a port entity, the level of political influence in the port organisation should be minimised. Typical required returns are set higher in these regions to offset these risks, which in turn leads to reduced investment. As a consequence, export financing has become increasingly popular over the last decade. In this type of financing, western countries are willing to take on the political risk in developing markets from the private sector in exchange for securing work (and hence jobs) or sharing in the profits.
With political involvement there is also the risk of the asset falling into foreign hands. In the last few years this ‘debt trap’ has been particularly evident in Africa. Extremely favourable financial terms were offered to projects, particularly by politically-backed financiers, and when the projects defaulted the assets fell into foreign hands.
Commercially offered political insurances can provide a solution here. Although the terms may be less favourable than the ‘political’ alternatives, there is less political consequence in the case of a default. Commercial insurances for projects in developing countries are used more often in other sectors and is still a new concept in the port industry although companies like Willis and Lloyd’s are picking up some initial business in the sector.
Increase of political influence
Also, after years of increasing privatisation of ports, the trend now seems to be reversing and political involvement in port infrastructure is picking up again. This may see export financing increase in popularity. The strategic labelling of ports through the Belt and Road Initiative has been widely discussed, but this is not the only example of this trend.
Governments are increasingly influencing transactions either via lobbying or via funds tied to governments bidding on assets. Recently, for example, Belgium-based Euroports was acquired by Monaco Resources backed by two state funds, FPIM and PMV. Be warned that the introduction of this political component may end up impacting the general investment or financing capability of the sector.
Another key reason why financial institutions have shown limited interest in these markets is that business cases for ports in developing markets can vary greatly in quality. To attract the attention of the financial industry the business case has to be crystal clear. In almost all cases offtake contracts (or at the minimum, letters of intent) for the facility are required to secure external financing. Financial institutions typically step in when the business case is detailed, risks are identified and managed. However, port developers in developing markets often struggle with this. If developers struggle to develop a detailed and credible business case, teaming up with a joint venture partner or having consultants to assist in the process can help. That said, just doing the homework required for a good business plan is not enough. Transparency of the port developer is key – surprises kill a deal.
Shipping lines and global port operators appear more determined to look for opportunities in developing markets. These groups are often already involved in some form or another in these markets and can step in more easily to take over control if needed. However, these two groups also require more than a feasibility study alone.
Lack of accessible data
Part of the challenge in achieving transparent business cases is that financial institutions face difficulties in carrying out due diligence in these markets. As they are not historically core markets, available internal data is generally limited. Macroeconomic and market data from local statistical offices is often difficult to obtain and/or of poor quality. The maritime industry in western countries has developed to become much more data driven and the financial industry has become used to this level of data availability. With a wide range of digital applications and the introduction of new initiatives, such as blockchain, this focus on data is only set to increase. Developing markets must find a way to at least keep up with this development to provide the right statistics to attract investment.
Another problem with port financing in developing countries can be finding the right match. The world of financial investors is a blended one consisting of many different types of investors, each with different expertise and project requirements. Understanding these requirements and expectations and knowing when to approach investors is key.
Venture capital providers will be more interested in developing greenfield port projects but also want to be involved from day one of the project and likely on an equal basis. Clear and sound political governance is required in a country for venture capitalists to step in. Local entities must be willing to co-operate with these parties to make it a success.
At the other extreme are debt providers. These parties prefer to step into projects in developing countries when the port has been developed and is up and running. They will set very high standards for the documentation in place to prevent any issues arising on the environmental, social and operational aspects.
Debt financing comes in different forms with unilateral/multilateral financing institutions currently picking up most of the deals in developing markets. Parties like the African or Asian Development Bank can offer very favourable terms, but will go through an extensive and detailed due diligence process, for which the port developer has to ensure the right resources and documentation is made available.
Commercial banks are another option, but typically only follow global port operators or players into developing markets. Terms are typically somewhat less favourable but can be setup more flexibly. With more developing markets accessing international financial markets the option of issuing bonds has arisen. However, this can only be done when the ports are developed and operational.
In between these two extremes is the domain of private equity and infrastructure funds. Each has their interest in when they would like to step in, the level of control they want to get back for that, what their risk preference is, and geographical focus. It is in this area where most opportunities lie for new players. These parties are used to taking on more risk and are willing to do more extensive due diligence locally.
Addressing the mismatch
The mismatch between financial investors and port opportunities in developing markets does not only lie on the side of the port developers. Most financial investors have regional boundaries set through fundraising conditions, credit committees and extensive compliance processes. Most of these procedures are determined by whether the investor has experience in particular markets.
Increased regulation in the financial industry has not helped in this respect.
Over the last decade the risk of investing in developing markets has been reduced due to increased transparency, more political stability, and a better understanding of how to develop port infrastructure. But few institutions have changed their procedures to reflect this and the size of their investments has lagged behind.
With global port operators and shipping lines increasing their activities in these markets, this is a real opportunity for more infrastructure fund activity in these markets. With very crowded deals on western port assets, the risk-reward balance can hardly be worse in developing markets.
Johan-Paul Verschuure is technical director for WSP, based in the UK.
Ukraine has all the possibilities for infrastructure development and can compete with its neighbors in logistics and the quality of transport services.
Ukrainian Prime Minister Volodymyr Groysman said this at a regular meeting of the government’s strategic committee on Monday, according to the government portal.
«It is extremely important that the economy could grow and we could offer transport services of good quality. It is the service of the national economy. It is important that strategies could be predictable and long-term. We need a clear answer as to how will we develop airports, ports and dominate as a state that is qualitatively connected with the world — from the point of view of logistics and services. We really started to grow, and we need to accelerate that,» Groysman said.
Government officials reviewed the fundamentals of Ukraine’s aviation transport strategy until 2030 and the strategy for the development of sea ports of Ukraine until 2038. According to the report, the implementation of these documents will ensure not only the development of ports directly, but also help create new jobs, update cargo handling technologies and increase passenger flows. According to the forecast of the Infrastructure Ministry, the implementation, for example, of the aviation strategy will help increase passenger flows to 80 million passengers a year already in 2030.
Groysman also drew attention to the fact that the reform of the Customs Service, introduced by the Cabinet of Ministers, could also play a role in favor of infrastructure development. If there is the possibility of the most expeditious clearance of goods, it will be the undisputed competitive advantage of the state, he said.
Similarly, the involvement of local authorities in port development projects, including airports, could be positive too.
The Cabinet of Ministers of Ukraine created the strategic committee on January 10, 2019. The purpose of its work is to formulate policies and foundations for government decisions in the context of Ukraine’s transition to three-year budget planning.
Ukraine may become the main exporter of food products, in particular of corn and sunflower oil, to the People’s Republic of China.
“Ukraine and China have already signed five interstate protocols that regulate the requirements for the export of crops — corn, barley, soybeans, sunflower oil cake, and beet pulp. However, Ukraine may become the main supplier of food and agricultural products to China, in particular of corn and sunflower oil. After all, these products are in great demand among Chinese consumers,” Irina Dushnik, the Executive Director of the Grain and Oilseed Committee of the European Business Association said in a commentary to the Agropolit online media outlet.
China plans to import products and services to the tune of over $10 trillion in the next five years, she noted.
According to the expert, Ukraine needs to expand the list of agricultural products exported to China, especially as regards to peas, wheat, grain sorghum, and rapeseed. She is confident that against the backdrop of tense trade with the United States, China will increasingly buy feed grain, barley and sorghum from other countries to replace American supplies. Meanwhile, Ukraine’s grain exports, according to the data provided by Dushnik, will grow up to 70 million tonnes in the coming years. Last year, 41.7 million tonnes of Ukrainian grain was delivered to foreign markets.
China is already among the five largest importers of Ukrainian agricultural products, Dushnik stressed. That is why, she emphasizes, China is determined as a market in focus in the Export Strategy of Ukraine for 2017-2021.
According to the data of the State Statistics Service, Ukraine exported goods to the tune of $2.2 billion to China in 2018.
The Cabinet of Ministers of Ukraine has contemplated the basics of Air Transport Strategy of Ukraine till 2030 and Sea Ports Development Strategy till 2038. Implementation of these instruments is going to secure not only development of the very ports, but also new jobs, cargo handling techniques renovation and growth of passenger flow.
Ukraine is properly connected to the world, and we have every possibility for developing our infrastructure and compete with neighbours in logistics and transport services quality. This was said by Prime Minister of Ukraine Volodymyr Groisman during the meeting of Government’s Strategic Committee. It was dedicated, among others, to the matters of long-term transport development – in particular, port infrastructure and aviation sector.
“It is extremely important that the economy should grow and we could offer transport services of high quality. This is the support of our national economy. It is vital that the strategies should be predictable and long- sighted. A clear answer is required: how we are going to develop airports, sea ports, and dominate as a state properly connected to the world, said Volodymyr Groisman. We have really begun growing and it has to be accelerated.”
Head of Government has also drawn attention to the fact that the Customs reform started by Government can serve the infrastructure development as well. If there emerge opportunities of maximally fast cargo clearance, it should certainly come the state’s competitive advantage, Head of Government is sure.
What could be also positive is involving local authorities in ports development projects, including airports. “We need to unite the country by domestic air traffic, too”, noted Volodymyr Groisman.
On Tuesday the sea port of Aktau (Kazakhstan) launched the first Kazakh feeder m/v Turkestan with containers aboard to the sea port of Baku (Azerbaijan) within Trans-Caspian International Transport Route (TITR), as per the Press Office of JS Kazakhstani Railways.
Just timely the International Association TITR has held its meeting in Kyiv to discuss the rail traffic matters, and its Secretary General Rakhmetolla Kudaybergenov commented some issues.
The feeders are going to shuttle on a regular weekly basis. The vessels admitting 225 TEU secure intake of two full-length container trains each. Formerly the boxes from Kazakhstani ports were brought out only by ferries while bulkers were used mainly for grain and metals carriage.
“The project’s maritime operator is NMSC Kazmortransflot LLP. We hope that upon the regular feeder connection Aktau-Baku launched we would be able to transport almost 75-100,000 containers a year”, reported Chairman of the Board of the Kazakh national railway operator JS Qazaqstan Temir Joly (Kazakhstani Railways) Sauat Mynbayev.
As he noted, TITR serves a key link of Eurasian transport arteries of the region and complements the Kazakhstani transit corridors system. “Regular feeder service favours the growth of cargo flows by TITR and further development of the cargoes containerisation in the Caspian region. Along with Kazakh export goods in containers, transit cargoes will be transferred from China to Europe”, underlined Mr Mynbayev.
Consolidated transit cargoes from China to Europe together with Kazakh export cargoes in containers will be transported in accelerated mode. The railways of Kazakhstan, Azerbaijan, Georgia, and Turkey are ready to secure the transit cargoes traffic in container trains passing from Lianyungang to Istanbul for as little as 16 days.
RK: In 2017 the box traffic embraced 8,600 TEU, general cargo – 1M t; in 2018 – 15,000 TEU, gencargo – some 1M t too. Of all this volume only around 50,000 t went to Ukraine. That’s too little so far… For 2018 60-70 full-length container trains went. But with the feeder service launched there will be more. Previously a ferry used to steam due to the cargo availability. The feeder ship is going to sail on schedule, and container shippers will strive to catch it for the sake of faster delivery.
“Whereby the active use of the logistic infrastructure of borderline station (Kazakhstan – China) Altynkol, dry port of EEZ Khorgos – Eastern Gate, and seaport Aktau is going to provide efficiency of transit traffic via Kazakhstan”, added Mr Mynbayev.
As reported to Interfax- Kazakhstan Agency a representative of a transport company, the used of freighters for the sea traffic of containers enables to optimise the shippers’ expenses. “Expenses decrease on account of the fact that along with more or less equal cost of carriage, an average Caspian bulker admits around 30% more boxes than a ferry boat”, remarked the source.
By his assessment, the cost of one TEU carriage by a freighter from Aktau to Alat (Azerbaijan) may amount to $460, taking into account the empty back travel within the route. The cost of laden railcars by ferry from Aktau to Alat, by his data, from the start of the year amounts to $48 per metre, and the empty back travel $39 p/m.
Providing container deliveries from Kazakhstan by the route Baku – Tbilisi – Kars (Turkey) the carriers apply through rates calculated till the end-point in Turkey.
RK: We are customer-directed, i.e. we analyse alternative routes, current rates, and elaborate a certain rate together with the customer. Everyone gives his tariff. Say, Kazakh Railway, ports, sea carriers, Ukrferry etc. …and then we approve the single through rate.
“Loading off grain from Aktau in boxes comes cheaper than pouring onboard a freighter. Say, stevedoring in the port takes $67 per TEU. Pouring grain into bulker holds costs some $5 per tonne, comprising the port’s rate $1.7 and 3.5 per tonne for the services of grain terminal Ak Biday”, said the informer.
Along with that, container load/discharge rates in Aktau and Alat exceed the railcars roll on/off rates for ferry. Roll on/off in Aktau takes $56.37 per car, and $70 in Alat.
In April 2018 the Azerbaijani feeder m/v Makhmoud Rakhimov served the first run by route Baku – Aktau – Baku in the course of the feeder container service at Trans-Caspian International Transport Route.
R.K.: Regarding the container trains via Ukraine: some final decisions are very probably expected on Polish-Ukrainan route as soon as May-June. It’s a test voyage of the train China – Europe – China through Ukraine. This initiative comes from the Chinese part due to deficiency of capacities at the Belarus route. There are some matters unsolved with technology and tariffs, which is difficult as we are going to transport via territories of Kazakhstan, Ukraine and Poland, and back via the Black and Caspian Seas.
Ukraine’s infrastructure is self-reliant. Of course, there are some tiny issues – regarding the lack of rolling stock etc. Yet for out corridor it’s even over-self-reliant. The capacities exceed our needs. Cargoes go via ports while your ports are undercharged nowadays. So no problem.
Trans-Caspian International Transport Route is a transport corridor connecting China, Kazakhstan, Azerbaijan, Georgia, Ukraine, and European countries employing ferry connections through ports of the Caspian and Black Seas.