Ports in transition: Baltic Europe prepares for a trans-shipment boom

European Business Review

ISSN: 0955-534X

Article publication date: 1 August 2000

Keywords

Citation

Ország-Land, T. (2000), "Ports in transition: Baltic Europe prepares for a trans-shipment boom", European Business Review, Vol. 12 No. 4. https://doi.org/10.1108/ebr.2000.05412dab.005

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Emerald Group Publishing Limited

Copyright © 2000, MCB UP Limited


Ports in transition: Baltic Europe prepares for a trans-shipment boom

Thomas Ország-Land

Thomas Ország-Land is an author and foreign correspondent who writes on global affairs

Keywords Transport, Infrastructure

The cranes are going up all over the ports lining the Baltic coastline once dominated by Moscow. They are preparing for a recovery of business after the great Russian economic meltdown. A global crash of confidence in the Russian economy struck late in 1998, in response to the general inefficiency and corruption as well as the rise of organized crime which had reached phenomenal proportions during the Yeltsin era.

Outbound Russian transit traffic crossing the Baltic ports, comprising mostly oil and other raw materials, have in fact soared during the crisis as Moscow desperately sought to raise foreign exchange in order to maintain a semblance of control over the economy. Russia's imports dramatically dropped, in the absence of cash or credit.

And the ongoing transition towards a market-based economy sweeping the formerly communist-controlled region has been vigorous enough to generate sufficient investment capital to prepare the Baltic ports for a balanced boom of two-way transit traffic when Russia's fortune at last turns. This may now come about after the long expected end of the Yeltsin rule at the start of the new year.

Estonia, Latvia and Lithuania, the only ex-Soviet republics that have declined membership of the Commonwealth of Independent States (CIS), are perhaps to benefit the most from the process. These countries were originally invaded by the Red Army in 1940 and overrun by Hitler's armies advancing on Moscow in World War II - which ended for them with the re-imposition of Soviet rule. Now they are progressing towards full membership of the European Union (EU).

Their geographical location between the sea and the largely landlocked former communist world have made them into a major trans-shipment zone linking East and West. They have relatively developed transport links: major sea and airports, extensive rail and road networks and crude oil product pipelines which earn about one-third of their gross combined income.

With a total population of just 7.7m souls, they have so far attracted close to 500m Euros from the European Investment Bank (EIB) - the principal financing organization of the EU - largely for transport infrastructure development, waste water treatment and other aspects of environmental regeneration as well as energy and telecommunications.

Substantial further investment has been raised for them by the World Bank, the European Bank for Reconstruction and Development (EBRD), the EU's Phare assistance programme and various other global and regional financing organizations. The privatizsation of their state monopoly industries has also generated steady investment (see Table I).

Table I Ex-Soviet Republics: Transport infrastructure investment (in current Euro/millions)

These are the principal development priorities of these newly-independent Baltic republics:

  • integrate their transport systems with the West European transport network and services market while retaining their tranditional, lucrative links with the CIS;

  • harmonize their transport regulations with EU law;

  • demonopolize and privatize most of their state enterprises inherited from the communist past, providing commercial services with a view to creating an open transport market and promoting private capital investment in the sector;

  • and deploy public investment to ensure the stability of the transport infrastructure and to promote its reconstruction and development.

Latvia has just received a new 8m Euro loan from the EIB for the expansion and improvement of the port of Ventspils, the biggest in the Baltic states, with a throughput of 36m tonnes of cargo a year. Total cost of the current improvements is 34m Euros, including the strengthening of quays and dredging to deepen the port's river channel to allow improved capacity utilization and the accommodation of larger vessels. The project is to enhance the port's services as a major transit point for cargo traffic with Russia and other East European countries.

The former Soviet naval base of Liepaja, on Latvia's southern Baltic coast, is being transformed into a commercial hub for East-West trade. The port has been transformed into a special economic zone showing enormous commercial promise. A new container terminal is to be erected in Riga, part of an extensive expansion strategy that should double its cargo, handling capacity to 17m tonnes a year within a decade.

Lithuania is investing more than 170m Euros in improving the port of Klaipeda, upgrading several sections of Via Baltica - a crucial trans-European network corridor crossing the three Baltic countries to link Helsinki and Warsaw - as well as several railway and energy schemes. Both Lithuania and Estonia have begun the privatization of their state-owned railway.

Estonia is also engaged in the rehabilitation of sections of Via Baltica as well as the Tallinn-Narva road linking a dozen major cities in the Baltics and their hinterland.

The port of Talinn has experienced a sustained rise in Russian export traffic during recent months (up from a 17 per cent increase during the first four months of 1999, over the same period in 1998). The port has responsed to the challenge by staging a very thorough management restructuring programme and raising a 10.5m Euro loan from a syndicate of five commercial banks to finance growth.

In the nearby deepwater port of Muuga, a steel terminal and a container terminal are being planned as part of an ambitious expansion programme. Unlike Latvia and Lithuania, Estonia has entered the cruise passenger market in a big way.

To the north, Finland is preparing for an expansion of trans-shipment trade for Russia, a country to which it is linked in a special, albeit often difficult, relationship.

Finland's south-eastern port of Kotka, has just built the biggest new container handling and storage area in the country, with an annual capacity of 300,000teu now, to be expanded to 500,000teu in a forthcoming second development stage. The nearby port, Hamina, opened a 300,000 teu container facility in 1995, with a new quay just added. Transit trade now comprises 35 per cent of business handled by Kitka and 57 per cent by Hamina. Both ports, located near the Russian border, are looking forward to improvements (see Table II).

Table II Finland: capital value of transport infrastructure (in current Euro/millions)

Three big Finnish ports - Hamina as well as Rauma and Turku - are about to expand ro-ro capacity. A major new harbour to replace Helsinki's existing cargo facilities is being planned in a 350m Euro construction project to start in two years' time. It will have an annual capacity of 12m tonnes of unitized cargo. The facility will be served by a new road complex.

The national infrastructure development priorities are dictated by Finland's geographical position, explains the Ministry of Transport in Helsinki. It says the most important international projects for Finland are the Helsinki-St Petersburg-Moscow Transport Corridor, the Via Baltica Connection, the Nordic Triangle that joins together the capitals of the region and the Barents Euro-Arctic Transport Area that connects nothern Russia with Scandinavia.

Nordic Transgas, a Russian-Finnish company, has just completed a feasibility study for a pipeline system that would supply Siberian natural gas to Western Europe through Finland and Germany. Russia is planning another pipeline complex as a matter of top priority to transport up to 12m tonnes of oil a year to the Gulf of Finland from the Siberian Timan-Pechora province, the Urals and Volga regions.

And a third pipeline for the import of Caspian oil to Baltic Europe across Ukraine and Poland - a branch line of the 600m Euro Baku-Supsa connection financed by the EBRD and the Interational Fiancee Corporation - is already more than 60 per cent complete.

Poland's maritime transport infrastructure comprises three main sea harbours - Gdansk, Gdynia and Szczecin-Swinoujscie - with a total cargo handling capacity of 60m tonnes a year. This formerly Soviet-dominated country has just joined the North Atlantic Treaty Organization.

The country is engaged in an enormous shipping infrastructure development programme, using all available sources of finance. Authoritative projections issues by transport ministry sources estimate at 13bn Euros the minimum investment essential to upgrade the national transport infrastructure by the year 2003 in preparation for joining the EU. A further 30bn Euro investment is earmarked for sea, road, rail and air transport facilities by 2015.

An internationally-financed technology transfer and training programme is underway in Poland, as well as its three newly-independent Baltic neighbours to the north, to redefine the relationship between central government, local government, port authorities and the private sector in order to establish an efficient administrative structure for the shipping industry.

The EIB has so far invested 1.79bn Euros and the EBRD well over 500m Euros in the Polish economic restructuring process.The lastest 65m Euros investment by the EBRD goes towards the construction and operation of a state-of-the-art deepwater grain terminal at Gdansk.

The recipient of that loan is Europort Poland, a newly-established company that will operate the terminal for trade in grain, wheat and meal and edible oil. The facility will serve Poland as well as its neighbours. Shareholders and sponsors of the project are the Saskatchewan Wheat Pool, the largest Canadian grain company, Strait Crossings, Dessaport International and Joseph d'Andrea. Part of the investment is underwritten by Royal Bank of Canada Europe.

The EIB recently raised a total of 138.5m Euros for Poland to finance two major motorway projects. One of them will cost 127.8m Euros for upgrading 25km of the A4 motorway between Sosnica and Murckowska in the Katowice region, part of the high-priority Trans-European Motorway along the Berlin-Dresden-Wrocklaw-Katowice-Krakow-Rzeszow-Kiev route.

The second scheme involves the construction of a 10.7m Euro, 13.3km bypass on the A2 motorway around the city of Poznan, part of the Trans-European Corridor II, from Berlin to Moscow via Poznan, Warsaw and Minsk.

Earlier, the EIB, the EBRD and the EU's Phare assistance programme together raised 238.5m Euros towards a 414.8m Euro programme to modernize Poland's main rail artery, a 478km-long section know as E20. This Warsaw-Poznan-Kunowice section is the country's principal link with the EU and part of the trans-European network. The investment has enabled the railways to maintain a competitive and environmentally perferable alternative to road transport, an important consideration in Poland, where some industrial regions endure the highest levels of atmospheric pollution in Europe (see Table III).

Table III Poland: Transport infrastructure investment (in current Euro/millions)

Further on the Baltic coast, the north German port of Kiel last year suffered a 11.4 per cent decline in business, to 4.14m tonnes, as a result of the Russian economic meltdown. But port director Jorg Rudel, says prospects are improving. His optimism seems to be borne out by the experience of some of his competitors.

The nearby port of Lubeck last year handled 25.2m tonnes of cargo, an increase of 1.2 per cent, yielding the best results in its entire history. Rolf Klein, of the port operator Hafen-Gesellschaft, perceives a cheerful long-term trend affecting all the north German ports.

He attributes the trend to the early effects of Germany's first ever long-term transport infrastructure construction strategy covering both halves of that formerly divided country. The master-plan projects investment of some 880bn Euros by the year 2010. Environment-friendly modes of transport, such as shipping and railways, have won priority in the framework of investment policy.

Germany's top transport investment priority has been to overcome the constraints of economic development imposed on the eastern half of the country by Soviet rule since World War II. After reunification on October 3 1990, the east German ports were taken over by the Treuhand privatization agency, transformed into companies and tranferred to private ownership in 1993. The result was a string of modern port enterprises lining the Baltic coast, modelled on their counterparts in western Germany, attracting massive investment and generating wealth and employment throughout the region (see Table IV).

Table IV Germany: Transport infrastructure investment (in current Euro/millions)

Their long-term prosperity from trans-shipment business has been assured by the implosion of Soviet power a decade ago. Many great, formerly Soviet-administered ports - such as Tallinn, Riga and Klaipeda - have been lost to Russia since the breakup of the Soviet Union. St Petersburg is the only remaining major Russian port serving the Baltic. It has undergone extensive modernization before the current economic crisis.

And the discrepency between the shipping industry standards of the Baltic region and Russia may well intensify in the years to come. The European Commission - the administrative headquarters of the EU in Brussels - estimates that the whole of formerly communist-dominated east-central Europe must invest close to 100bn Euros in the transport industry by 2015 in order to catch up with the standards of the West.

In the Baltic region, the shipping infrastructure development process is advancing within the guidelines of a gigantic regional marine environment protection programme to safeguard the fragile ecology of the virtually enclosed Baltic Sea. The scheme, drawn up by the Helsinki Commission for the Protection of the Baltic Marine Environment (Helcom), envisages the investment of some 20bn Euros within 20 years to clean up numerous "pollution hotspots".

Helcom already reports a significant decline of pollution reaching the sea, due largely to the construction of pollution control facilities and the demise of the notorously inefficient industries of the bygone Soviet command economy. The accelerating economic transition sweeping the region may well intensify the trend.