December 4, 2011
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№ 11 (November 2011)

Removing Stumbling Blocks from the Northern Sea Route Russia Plans to Pass a New Law to Develop Shipping in the Arctic

   Russia intends to offer the international business community a new way of shipping its goods, one running via the Northern Sea Route. Once abandoned and allowed to run into neglect, this rugged sea route, provided it receives substantial investment, can become a competitor to the Suez and Panama Canals.

By Svetlana Kristalinskaya

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   Generally speaking, Russia today is setting itself the dual goal of giving a competitive advantage to the hydrocarbons it produces in its Arctic territories and of protecting its interests in the Arctic. Currently the Northern Sea Route Bill is considered by the State Duma (Draft Federa Law #608695-5 “On Amendments to Some Legislative Acts of the Russian Federation Concerning the State Regulation of Commercial Navigation Along the Routes Lying in the Water Areas of the Northern Sea Route”).

The Northern Sea Route to Be Revived to Optimize Transportation

   It is a well-known fact that the occurrence of large hydrocarbons reserves has been shifting toward the world’s harder-to-reach areas and, in the case of Russia, to the Yamal Peninsula and further offshore, including the offshore areas in its northern latitudes. The Arctic region is home to massive reserves of hydrocarbons in place at Shtokman, Prirazlomnoye and other major fields, not forgetting the substantial reserves of other mineral deposits. Tentative forecasts estimate the Russian Arctic Shelf hydrocarbon resource base to be comparable to that of continental Russia. However, shipping the extracted mineral resources there along the more traditional overland routes, through the vast expanses of the Russian territory, would put that mineral wealth at a competitive disadvantage both on the international markets and on the internal Russian market. The shortest export way lies through the waters of the northern seas, the only real problem there being the absence of year-round navigation. Russia, however, has at its disposal the world’s biggest fleet of ice-breaking ships.

   In this connection, the idea has resurfaced of reviving the year-round navigation along the Northern Sea Route of which the former Soviet Union had made such an active use to have cargos shipped along that route beginning in the 1930’s. With the collapse of the USSR, however, the whole project fell into neglect, with financing of the ice-breaking fleet abandoned and its infrastructure falling into disuse.

   The Rosatomflot state corporation that controls the Russian nuclear-powered ice-breaking fleet has seen freight traffic activity on the Northern Sea Route drop from 6.7 million tons in 1987 to a mere 1.4 million tons in 1998. Beginning from 2000, there emerged a gradual trend toward an increase in the sea-going freight traffic volumes in the Arctic, with volumes remaining in excess of 2 million tons per year during the 2005–2007 period and continuing to rise steadily. According to sources within the corporation, “the Northern Sea Route’s traffic handling capacity, with its current six operating nuclear-powered ice-breakers, is now only used at about 30 percent of its full capacity”. The Northern Sea Route is currently mostly used to deliver equipment, foodstuffs, etc. to Russia’s outlying Northern territories, to export timber and mineral resources and to ply Arctic tourist routes.

   Apart from its immediate uses of securing Russia’s national interests, the Northern Sea Route is also being promoted by the Government as a transit corridor for international freight traffic, one that can become a viable alternative to the more traditional routes in the Atlantic and Pacific oceans passing through the Suez and Panama Canals to countries in the Asian-Pacific Region. The countries there today are the main drivers of growing demand for raw materials and other products and principal suppliers of a vast range of finished goods to the international markets. The distance ships have to cover between the Port of Murmansk and the port of Yokohama, Japan through the Suez Canal equals 12,840 nautical miles, compared with a mere 5,770 nautical miles when taking the Northern Sea Route. Besides, due to piracy rampant in the Gulf of Aden, navigation in the southern seas is no longer a safe business and is becoming costlier due to the constantly growing marine underwriting rates.

Russia Needs New Ice-Breakers and Liquefied-Gas Carriers

   There are several challenges facing the Russian Government in the implementation of its plans in that area. First, there is the need to revive its ice-breaking fleet, something that is a necessity to ensure year-round navigation along that route, given that the normal navigation season length in the Arctic seas lasts on the average between one and two months. The Russian Federation currently has six active nuclear-powered ice-breakers, four of those with horsepower capacity of 75,000 horsepower: the Russia (brought into service in 1985), the Soviet Union (1989), the Yamal (1992), the 50 Years of Victory (2007), and two with horsepower capacity of 40,000 horsepower: the Taimyr and the Vaigach, plus the nuclear-powered lighter container carrier ship the Northern Sea Route (1988).

   However, in the words of the Rosatomflot state corporation chief Sergei Kirienko, beginning soon after 2015–2016, there will be a wholesale decommissioning of the currently operating ice-breakers from the active Russian fleet of ships. “We will only have then just a single modern-type ice-breaker, the 50 Years of Victory,” he said.

   Last September, during The Arctic: Territory of Dialogue International Forum, the Russian Prime Minister Vladimir Putin stated that Russia planned to have further three multipurpose nuclear-powered ice-breakers and six diesel-electric ice-breakers built before the year 2020. In the period through 2014, the government would appropriate some 38 billion rubles toward that end. The total to be spent on the construction of three ice-breakers would be about 90 billion rubles.

   In addition to that, the Sovkomflot shipping company could have some 20 liquefied-gas carrier tankers built, each carrying up to 170,000 cubic meters, to move natural gas from Shtokman Field, with those ships not requiring icebreaker assistance. Last summer, the Northern Sea Route saw its biggest tanker to navigate that route, with 160,000 metric tons deadweight capacity. The company Novatek, within the framework of implementation of its Yamal LNG Project, is also studying the possibility of building icebreaker-class liquefied-gas carriers, with deadweight capacity of 170,000 metric tons. It is quite clear, however, with calculations not fully completed yet, just how many of such tankers and ice-breakers exactly would be required to meet those objectives. In any case, however, icebreaker assistance will be required by supply ships, security vessels and other.

   According to Prime Minister Vladimir Putin, within the framework of infrastructure development for the Northern Sea Route, it is also planned to “expand the existing and build new ports, such as Port Varandei on the Yugorsky Strait and Port Sabetta on the Yamal Peninsula.” “The Northern Sea Route itself and its supporting harbors will be integrated with other transportation modes. It is our plan to modernize river-going, automotive and railroad transportation routes and communications lines, Arctic airfields and airports and renovate our polar aviation fleet”, the Prime Minister added.

The New Law to Address Legal and Environmental Issues

   Secondly, it is necessary to ensure such transit rates and tariffs for the ships and icebreaker assistance that could put the Northern Sea Route on a competitive basis, compared with other transport corridors. Last June, the Russian Federal Tariffs Service (FTS) put caps on the maximum rates to be charged for ice-breaker fleet services on the Northern Sea Route’s lanes, depending in the cargo type and transportation route. The Russian Vice Premier Sergei Ivanov has already stated that the Government had no plans to have those rates raised as a result of the Government’s recent decision to have new ice-breaker class ships built. “With higher tariffs charged, the shippers will simply refuse to take the Northern Sea Route. The freight would become too expensive to move,” Ivanov explained. He stressed further that, as things stand today, navigation along the Northern Sea Route in the summer time is a very lucrative proposition. The economic benefits from the use of that route stand at about 40 percent. And that’s a real money saver”, the Vice Premier added.

   Thirdly, Russia has to ensure its environmental security during in the ships passage through its Arctic territories which, of course, are very sensitive to any form of pollution. And, fourth, Russia will also have to ensure transportation security of the freight along the entire route.

   These and other issues are to be addressed and regulated by a draft federal law on the Northern Sea Route entitled “On Amendments to Some Legislative Acts of the Russian Federation Concerning the State Regulation of Commercial Navigation Along the Routes Lying in the Water Areas of the Northern Sea Route” (the Northern Sea Route Bill). In the words of the Russian President’s representative for Arctic and Antarctic international cooperation, State Duma Member Artur Chilingarov, the bill provides for centralized state administration of the whole transportation system, icebreaker assistance services and provision of regulated access to haulage operators, including the foreign ones.

   The main thrust of the new bill is to clarify the status and the legal regime governing the Northern Sea Route as well as the associated set of measures designed prevent and control pollution of the marine environment in the process of the route’s operation. The bill intends to stipulate conditions under which the route will be used for passage of ships, including foreign ships and naval vessels. Moreover, the bill is expected to regulate the issuance to the prospective users of the navigational, hydrometeorological, ice-related and other information. The document will stipulate liability for discharge of pollutants from ships during the passage along the route as well as the Northern Sea Route Administration’s control measures in ensuring compliance with the stipulated conditions.

   Furthermore, it was necessary to define clear boundaries of the Northern Sea Route. In Chilingarov’s words, it was “not so much a shipping route, in the usual sense of the word, as more of a defined area. The country is granted 12-mile territorial waters and a 200-mile exclusive economic zone in which freely to conduct marine navigation. That is the underlying principle of the international rules concerning navigation on the Northern Sea Route as established 15 years ago. The area of the Northern Sea Route begins at the Kara Strait and ends at the Bering Strait. Essentially, the Northern Sea Route is a whole complex of shipping routes. Their length is a variable quantity depending, as it does, on the year-to-year and seasonal variations in the Arctic seas’ ice cover”.

   Russia is reasserting its presence in the Arctic not only because of the massive natural resources it possesses there, this against the background of certain countries pursuing the policies of revising the economic zone boundaries in the region. The countries having direct access to the Arctic Ocean include the U.S., Canada, Denmark, Norway and Iceland. The UN Commission on the Limits of the Continental Shelf, however, is reviewing dozens of formal claims for additional sectors of the continental shelf from many countries from around the world. Russia, too, has stated its claims to expanding its boundaries on Arctic Ocean’s continental shelf by a further 1.2 mln sq.km.

   Within the framework of addressing the issues of navigation safety and other issues concerning the environmental impact in the Arctic, Russia is cooperating with many other countries. “The Arctic Council’s ministerial-level meeting last May saw the signing of the world’s first legally binding Pan-Arctic document, the Agreement on Cooperation on Aeronautical and Maritime Search and Rescue (SAR) in the Arctic,” said Vladimir Putin. “In the furtherance of that agreement, we are building a warning, monitoring and management system to address the impact of natural or man-made emergencies in the Arctic zone of Russia. As part of the implementation of that program, Russia’s Far North regions will see the establishment of 10 integrated search-and-rescue centers before the year 2015,” the Prime Minister added.

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