DEVELOPMENT OF BALTIC STATES PORTS

Transcription

1 DEVELOPMENT OF BALTIC STATES PORTS Lauri Ojala 1, Matti-Mikael Koskinen 2 Abstract The paper aims at highlighting the most recent developments in the seaport of the Baltic States, including the implications of the ever-increasing Russian oil traffic. The text is written with policy-making implications in mind. The total seaborne trade in the Baltic Sea is over 400 million tons. Ports in the Baltic States handle about 30 percent of this volume. The volume of transit oil and oil products handled at Baltic States and Russian Baltic Sea ports has increased from 50 million tons in 1997 to over 100 million tons in Operations of ferry lines have increased significantly especially in trade with EU countries, where such use is common. Governments own the land occupied by large ports of the Baltic States, while private companies generally carry out stevedoring and warehousing. The major ports as well as the privately-run cargo handling operations in them have been very profitable. The key developments in the Baltic States maritime transport and ports during the past few years could be summarized as follows: (a) ports have shown strong economic results during the past few years; (b) stevedoring and shipping companies have been almost completely privatized; (c) further strengthening of the maritime administration is needed; (d) international regulation on maritime safety at sea and in ports need to be followed; and (e) environmental issues have grown more important. The only ports of the Baltic States handling a million tons or more of cargo annually are Tallinn, Kunda and Parnu in Estonia; Ventspils, Riga and Liepaja in Latvia; and Klaipeda and Butinge in Lithuania. Among these ports, only the port of Tallinn has significant international passenger traffic. 1 Professor Lauri Ojala is the correspondent author 2 Turku School of Economics and Business Administration, Rehtorinpellonkatu 3, FIN TURKU, lauri.ojala@tukkk.fi and matti-mikael.koskinen@tukkk.fi

2 2 1. Introduction The purpose of this paper is to present some key findings on Baltic States ports as important terminals for a growing liner traffic, and analyse the current and future state of the substantial transit traffic. Among the notable transport trends in the Baltic States is the rapid growth of demand for transport, growth at a faster rate than that of the gross national product. There has also been increasing demand for consolidated transport related support services. Moreover, privatization has been widely used as a vehicle to restructure transport and transport infrastructure markets. Public-private partnerships have been introduced as a mechanism for providing good quality transport and infrastructure services at a reasonable cost, especially in port services. Meanwhile, the Baltic States have made considerable progress in their preparations for EU accession. The Baltic States have financed many of the major transportation sector projects with exclusive or partial funding obtained either from international financing institutions or from other international organizations such as the European Union. The main such organizations in this field include the EBRD, EIB, NIB and the World Bank. EBRD has financed mainly road and rail projects, EIB largely airports, ports and roads, NIB mainly road projects and the World Bank principally road and port projects. Through its PHARE, ISPA and other programs, the European Union has had a substantial impact on institutional development of the transport sector in all three Baltic States and in the closely related fields of trade and transport facilitation concerning Customs, border crossing stations, including seaports. 1.1 Key trends of Baltic States Foreign Trade Each of the Baltic States has experienced substantial growth in the volume of merchandise exports and imports. This trend is partly a reflection of the rapid growth of transit traffic. The foreign trade of the Baltic States generally shifted toward the EU during the 1990s. Roughly 70 percent of Estonia's foreign trade, both exports and imports was with the 15 EU countries in The corresponding figure for Latvia is 60 percent and for Lithuania is 50 percent. In January-November 2003, 80 percent of Estonia s and Latvia s, and over 60 percent of Lithuania s export is with the 25 old and new EU countries. 75 percent of Latvia s, 65 percent of Estonia s and 57 percent of Lithuania s imports come from EU25. Estonia s trade is closely linked with Finland, Sweden and Germany while Latvia s and Lithuania s trade is closely linked with Germany, Russia and Britain. Intra-Baltic trade has been relatively limited, but it has increased substantially both in absolute and relative terms during the past few years. The relative share of trade with Russia has declined, while its absolute volume has increased. Transport services trade is important for the Baltic States. Latvia has the highest net cash flow from trade in transport services, a situation mainly attributable to transit flow of oil and related products by railways and pipeline. By contrast, Estonia has the highest value of transport services sold to and bought from other countries, indicating the high degree of internationalization of the Estonian transport sector. Transit trade is a significant source of income from abroad, and the main services provided include rail transport and terminal handling and storage services in ports. Rail transport work (all products) grew between 23% and 33% in in the Baltic States propelled almost exclusively by oil transit trade. In the medium to long term, continued growth may be limited, as oil transport arrangements develop in Russian territory. Over 80% of Estonian and over 70% of Latvian rail freight traffic is oil and oil product transit trade through ports. Transit traffic to Kaliningrad is likely to remain a substantial operation for Lithuania; in 2002, it accounted for 36% of the cargo volume carried by rail.

3 3 1.2 Significant transport infrastructure investments The three countries have invested substantially in their TEN-T transport infrastructure. In , Estonia invested 235 million euros, of which almost half in ports. In the same period, Latvia invested almost 370 million euros, 2/3 of which into railways. Lithuania invested 270 million euros, half of which in roads. For the period , Estonia intends to spend over 550 million euros, mostly on roads and ports. Latvia has plans to invest approximately 500 million euros, half of which on roads. Lithuania plans to invest up to 1,250 million euros mostly on railways and ports. Combined, this makes 2,300 million euros till 2010 even without the proposed Rail Baltica project. 2. Maritime transport and ports Key findings: The ports have shown very good economic results during the past few years. Stevedoring and shipping companies have been privatized almost completely. Further strengthening of the Maritime Administrations is needed. Shipping and ports have attracted substantial FDI. Frequent liner shipping services are available in all the countries. Implementing ISPS, but also Port State Control and CSI is problematic. Better port and maritime IT systems needed, such as Portnet that is used in Finland and in Klaipeda (Lithuania). This Chapter outlines the structure and operations of the maritime and ports sector. Because of its great importance for all Baltic States, transit traffic of Russian oil is discussed in a separate section of this paper. PO RT INFRASTRUCTURE PORT SERVICES (STEVEDORING) ESTONIA LATVIA LITHUANIA 1990 ESTONIA LATVIA LITHUANIA PUBLIC SECTOR PRIVATE SECTOR Figure 1. The roles of the private and the public sector in port infrastructure management and cargo-handling services in ports. Source: Ojala et al. eds The Government owns port administrations in the large ports of the Baltic States, whereas smaller ports or harbors may belong to municipalities, or as in Estonia, they may be

4 4 privately owned (Figure 1). Private companies carry out the port work (stevedoring, warehousing). The situation has remained unchanged since Port and waterway infrastructure Ports are important transport nodes for all three Baltic States, especially in transit traffic, yet despite the relatively large volumes, there are very few major ports in the Baltic States. The only ports with a cargo turnover of 1 million tons in 2003 are Tallinn, Kunda and Parnu in Estonia, Ventspils, Riga and Liepaja in Latvia, and Klaipeda and Butinge in Lithuania. ( Table 1., See also Attachment 2.) In , slightly over 50 percent of the cargo in Latvian ports comprised crude oil and oil products: the corresponding figure was over 40 percent for Estonia and over 30 percent for Lithuania. Only the Port of Tallinn has significant international passenger movements, with around 6 million passengers in There are no other ports in the three Baltic States, which operate more than 200,000 passengers in international traffic per year. In Estonia, the islands of Saaremaa and Hiiumaa generate domestic ferry traffic, where the travel distance is approximately 40 km. In 2001, 1.3 million passengers and 0.3 million tons of cargo was carried by the state-owned Saarte Liinid AS. Table 1. Cargo traffic in major seaports in Baltic States, and for reference the Ports of St. Petersburg and Kaliningrad in , millions of tons. Source: Estonian, Latvian and Lithuanian MoTC, Port statistics Year Port of Tallinn Other Estonian ports Estonian ports Total Port of Ventspils Port of Riga Port of Liepaja Other Latvian ports Latvian ports Total Klaipeda State Seaport Butinge Oil Terminal Lithuania Total Baltic States total St. Petersburg Kaliningrad Port organization and activities The prevalent port management practice in the Baltic States is the landlord port, where the owner of land area is either the Government or the Municipality, whereas private

5 5 companies carry out cargo handling operations. The landlord type of port is the most common arrangement as 75 percent of EU ports also fall into this category. Independent stevedoring companies, shipbuilding and ship repair yards operate within the port area on the basis of land lease contract agreements concluded with the Port Authority. The Port companies use the superstructure: handling and ship repair equipment, warehouses and etc. The port authorities in major ports have shown very good economic results in , and the preliminary data for 2003 is also very good. (Table 2.) Labor costs account, on average in , 19 per cent of revenues in Riga, 16 per cent in Tallinn and 12 per cent in Klaipeda Estonian ports All included, there are 101 ports in Estonia both publicly and privately owned, 31 of which provide operations related to international merchant marine. There are two public limited companies, which operate public ports: the Port of Tallinn and Island's Lines, and the state is the sole shareholder of these two companies. (See also Box I.1) Saarte Liinid AS (Island's Lines) operates small ports of Roomassaare, Virtsu, Kuivastu, Rohuküla, Heltermaa, and Sviby, which maintain coastal traffic and ferry connections between the mainland and islands of West-Estonia. The Port of Tallinn consists of four constituent harbors: the Old City Harbor, the Muuga Harbor, the Paljassaare Harbor, and the Paldiski South Harbor. Table 2. Income statement data from major ports in USD million in Source: Ojala et al. 2004; based on data from port statistics and MoT s Port of Tallinn Revenue Costs Depreciation Tax Profit Freeport of Riga Revenue Costs Depreciation Tax Profit Klaipeda SSA Revenue Costs Depreciation Tax Profit In the Port of Tallinn, the Old City Harbor is the main port for passenger traffic with about 6 million passengers per year. It also provides and Lo-Lo services, and has a container and general cargo terminal. Muuga Harbor handles liquid and dry bulk, general, and reefer cargo, and has facilities for and container handling. It also has storage areas for vehicles and timber. Construction of both a new container terminal, with the capacity of 250,000 TEU per year, and of a new steel terminal is under way. Paljassaare Harbor has terminals for both liquid and dry bulk and for general cargo, including a reefer complex. The

6 6 Paldiski South Harbor handles mainly scrap metal, timber, dry bulk, peat and cargo. A new quay for peat handling is being constructed. The Port of Tallinn operates as a classic landlord port owning only the infrastructure. The superstructure and equipment are owned and operated by private firms. Other ports and their facilities are privately owned. In some ports, of which the biggest are Parnu, the north western port of Paldiski and the Miiduranna port, municipal authorities together with private companies have shareholding interests. A container terminal in Muuga was financed jointly by Port cash flow, and by financial instruments from the operators, which include Rotterdam-based Europe s Terminals (ECT) and Estonian logistics groups. The two-berth terminal has been in operation since Latvian ports Latvia has three large ports Ventspils, Riga, and Liepaja and seven small ports. Port land may be a property of the state, local government or other legal entities or physical persons. Only the state and local government are entitled to buy port land and it is forbidden for the Port Authority to sell the port land. Port waters are the property of the state and both these and state land is assigned into the possession of the respective port authority. This excludes that state land which serves as railroad infrastructure: these areas are administered as part of the state public railroad infrastructure. Quays at the ports of Riga, Liepaja, and Ventspils are the property of the state or local government, but port superstructure and equipment (warehouses, cranes, forklifts etc.) are privately owned. The land belonging to the state or local government may be let or leased to private companies on the basis of contract agreements concluded with the Port Authority. In 2003, the Government has wanted to take a stronger position in the management of the ports of Riga and Ventspils, which has caused some unrest between the port management and the Government. Ventspils port deals mainly with oil and chemical cargo. Maximal draught in the river navigation channel is 15.0 m. Riga port handles mainly general cargo and bulk cargoes, but it also turns over oil products and reefer cargoes, and caters for passenger ships. Maximal draught in the river navigation channel is 10.6 m. Liepaja port handles the transshipment of timber, metals, bulk and liquid cargo, Ro/Ro, and fish. Maximal draught in the river navigation channel is 9.5 m. Seven small ports handle small tonnage ships and minor commodities. Port Authorities in Latvia are non-profit organizations. The financial resources at the disposal of the Port Authority may be used only for the maintenance and development of the port and its infrastructure and for performing its functions. Port Authorities finance new public investments in Latvian ports. Neither the Port Authority, the state nor local Governments subsidize ship or cargo handling activities in the port. Within the framework of the Public Investment Program, Government has provided sovereign guarantees for loans aimed at the development of the infrastructure. The Port Authorities repay the loans Lithuanian port organization In Lithuania, the land territory, the port waters, the hydrotechnical equipment, the quay-walls, the navigation channel and routes, the aids to navigation and other infrastructure objects belong to the State. Klaipeda State Seaport Authority is responsible for the management of state - owned objects that are within the territory of the port and the Port Authority is responsible for the reconstruction and modernization of the port infrastructure. Independent stevedoring companies, as well as shipbuilding and ship repair yards, operate within the port area, on the basis of land lease contact agreements concluded with the

7 7 Port Authority. The Port companies use the superstructure - handling and ship repair equipment, warehouses and etc. and all stevedoring companies are private. There are eight specialized stevedoring companies in Klaipeda Seaport: Klaipeda Stevedoring Company (KLASCO) is the largest in Lithuania, handling more than half of the cargo through the port, which comprises a general cargo port, an international ferry terminal and a container terminal, which opened in In 1999, a local consortium led by Vialogas acquired a 90 percent stake in KLASCO for LTL 200 million (USD 50 million). The company is in the process of expanding its terminal facilities with a bulk fertilizer, liquid foodstuff and liquid gas terminals. In Lithuania, the operation of port infrastructure generates a profit which is invested in port facilities. Revenues from port activities (mainly from port dues and land leasing) balance the financing of new public investment in Port of Klaipeda. 2.3 Cost comparison of Baltic Sea ports Baltic Ports Organization (BPO) compared vessels dues and charges in a number of Baltic Sea ports in According to the study, it is complicated to compare the total cost for vessel calling at the port in different countries due to the differences in the revenue structure and form of ownership of the ports, different pricing system in different countries and differences in tariffs, which are in some cases negotiable and in other cases totally nonnegotiable. (Table 3.) For this reason, the results do not show which port is the most expensive and which port is the cheapest in the Baltic, but it gives valuable indications of cost differentials. For the objective comparison of transport costs, the total cost of the logistical chain of different transport corridors, not its separate components, must be compared. Table 3. Costs for one port call in euros in 2002 in selected Baltic Sea ports for different types of traffic. Source: Port Pricing, Working Group Final Report, BPO Communication Committee 2002 Vessel type Tallin Riga Venstpils Klaipeda St.Petersburg Helsinki Stockholm Swinousjie Wismar Bulker (1) Bulker (2) n.a n.a General cargo RO-RO Tanker (1) n.a n.a. n.a. n.a. Tanker (2) Passenger n.a. n.a n.a. n.a. Cruise (1) n.a. n.a Cruise (2) n.a. n.a. n.a n.a. n.a. Vessel type Gross tons Net tons No. of calls per year No. of pax per call Ice class Cargo tons Bulker (1) B non EU Bulker (2) B non EU A 190 TEU non EU General cargo B non EU RO-RO A EU Tanker (1) B non EU Tanker (2) B non EU Passenger *) 1B Cruise (1) Cruise (2) *) in & out per 363 calls: 478,669 incl. 23,933 children and 8,290 drivers Flag

8 8 However, the study concluded that in landlord type of ports the share of port dues in total revenue is larger than the share of cargo charge, rental fee and other charges. In that case the port authority uses its own equity to invest into the construction and reconstruction of new quays, terminals etc. In municipal and state owned ports the town or the country covers the larger part of the investments into the development of the port infrastructure. Box 1. Shipping markets of minor bulk cargoes in the Baltic States A large part of the dry bulk trades within the Baltic Sea is carried by ships in the 1,000 to 5,000 range. Typical of this micro-bulk trade is the demand for great flexibility between voyages. The tonnage is mainly employed under single-voyage clauses on spot basis within the Baltic Sea. A typical microbulk ship in the Baltic trades makes about cargo voyages per year sailing about 40,000 miles of which % in ballast condition. A 1,000 dwt ship carries about 60,000 80,000 tons or m3 and a 3,000 dwt ship around 250, ,000 tons or m3 in a year. In terms of transport work, they produce around 2 or 6 million ton-miles each, respectively. The fleet of micro bulkers that regularly operate in the Baltic Sea comprises about 150 ships. Ship operators work hard to build continuous series of loaded voyages, which means different cargo types and short ballast legs or loadings in the same port immediately after discharging. Here, ships own cargo handling equipment is often a valuable asset. Vessels are often old and of traditional construction, and they have to be capable to load different cargoes with different requirements. Cargo voyages inside the Baltic Sea are short and allow only a limited period for preparation for the next loading, which is typically known very late. All preparations have to be done by the very few typically four to six - crew members. In this market factors such as fairway and berth depths, availability of cargo handling equipment and rather short distances mean that economies of scale of ships is not as important as in dry bulk markets in general. This partly explains why such a large number of small ports exist in Estonia, and relatively many also in Latvia. According to Captain Arpiainen, the level of port infrastructure and cargo handling equipment in small Baltic ports not to mention the large ones - has improved significantly since the early 1990s. Especially wood handling ports and terminals are well fitted with appropriate equipment and stevedores working arrangements allow flexible loadings. In some cases it seems that they have even over-invested in cranes and cargo handling equipment, as the capacity utilization rate is often low over the entire year. Berthing procedures and pilotage are mainly managed in a smooth manner in Baltic States ports. Documentary formalities before discharging have not developed so well, but a good trend is visible also there. However, difference between Russian and Baltic ports today is remarkable in all these aspects. On heavy winters all Baltic coasts are covered with ice and even on normal winters there are ice restrictions in all Finnish ports and also in ports up to the Gulf of Riga. This means that ice navigation skills and ice classed tonnage are also needed. Ice breaker assistance is often in short supply in the Baltic States, which can make scheduling of voyages an imaginary effort. Most of the tonnage is owned and operated by small or medium-sized German, Dutch, Danish, or Norwegian shipping companies. The crews are mostly from the Baltic States or CIS countries. Russian is increasingly used on board and in navigational communication. Independent of the shipping company or flag of the vessel, the crew, VTS operators, ice breaker officers or pilot organizations are switching fluently into Russian along eastern Baltic Sea coast from Vyborg to Gdansk. As a consequence, non-russian speakers may find it difficult to maintain a general view of what is going on at sea. Source: Based on an interview with Captain and M.Sc. (Econ.) Paavo Arpiainen in December 2003; he has over ten years experience in the region as a Master of a small bulker. 2.4 The main liner shipping routes in the Baltic Sea The ferry services between Tallinn and Helsinki have expanded rapidly during the last years. There were relatively very few ferry services to and from Latvia and Lithuania in the 1990s (Ojala and Queiroz, 2001, 147). In 2002 and 2003, a number of new liner shipping routes or route configurations have emerged that better connect Baltic States ports to port in southern Baltic Sea and European continental ports.

9 9 The significance of ferry lines has become greater since each Baltic State is clearly oriented to the European Union in foreign trade, and Baltic transport companies operate widely in the European Union area. Intermodal transport connections facilitate both accompanied transport units and trailer traffic. Transport and freight forwarding companies are increasingly forced to provide a scheduled service because of market demand. Ferry connections provide an alternative routing when reliability of transit time is important. For example, the Tallinn-Helsinki route carries about 150,000 cargo vehicles or units per year. The traffic is generally well balanced in both directions. Over 60 % of the units are trailers accompanied by a tractor and driver. Unaccompanied trailers and other units make up the remainder. Most of the traffic is between Finland and the Baltic States or Hungary. This means that transit cargoes to or from Poland, Germany or Italy in the south or Russia in the east do not use this route. In 2004, liner shipping connections are fairly well developed, and routes have relatively high frequency. Compared with year 2001, for example, the situation has improved substantially. Vessels on the routes have successively been renewed, and sub-standard vessels have been phased out from the market (see Attachment 3). 2.5 Regulatory issues in port and maritime transport Private sector participation in port operation has reached a significant dimension over the last decade. This has been driven by broader trends within the transport sector as well as by a new understanding of the general role of the public sector in the provision of infrastructure services. The countries that have led this reform process have been able to attract significant private capital investment to refurbish infrastructure assets and to modernize cargo-handling equipment. Under private management, ports have significantly improved performance with regard to service quality and reduction of handling costs. Whether these initial achievements - largely driven by competitive tendering of concessions - can be sustained in the long term, will depend heavily on the ability of port authorities to stimulate effective intra port competition. Driven by the emergence of multi-modal transport networks, regional competition will gain relevance and thus the need for regional and multi-modal assessments of competitive structures will require port authorities to coordinate on a broader scale. Furthermore, increased globalization of the port, terminal, and shipping industry means that new competition conditions appear which require governments and public port authorities to monitor the market across national boundaries. In such a context, the role of an effective public regulation of the sector will become critical to optimize the efficiency of the new partnerships developing between the public and private sectors on the one hand, and between ports, terminal operators and shipping lines, on the other. In the maritime sector, the main regulatory issues include manning of the vessels, safety at sea and in ports, as well as keeping up with the inspection of the technical requirements of vessels. The inspection involves both national and foreign vessels through Port State Control. The main international maritime standards on safety, manning, loading and cargo inspection are in place. Since 2001, regulation on security issues in ports and at sea has been initiated mainly by the Unites States. The measures include, among others, the International Ship and Port Facility Security Code (ISPS) and the Security Initiative (CSI). The Baltic States ports have started to implement these, as all ports have to comply to ISPS by July 2004.

10 10 The maritime authorities of Russia, Finland and Estonia decided to establish a VTMIS in the Gulf of Finland, which is scheduled for start-up in July The system resembles the one used in air traffic. The traffic is under constant surveillance, since the VTS centers do not only receive ships' reports but they also monitor their movements in the passages, and instruct them in danger situations. The relevant administrative structures in the maritime area are in place, but management systems of Maritime Administration need to be strengthened in all three countries. The training of seamen and officers and their availability for national vessels and for the landside duties requiring nautical expertise is a problem in all three countries. Even if the wages paid to seamen are high compared to the national level, they are far below salaries in similar international jobs. Especially for officers it is fairly easy to take employment on foreign-flagged vessels. 3. Transshipment of Russian oil via Baltic ports Russia and a number of CIS countries have large resources of oil located far away from regions of consumption. Oil and gas exports are estimated to account for around 40 per cent of Russia s total exports and nearly 10 per cent of its GDP. Russian oil production, refining and exports is forecast to increase substantially. If realized, the volumes of crude oil export would reach 300 million tons by 2010, or double the year 2000 level. Russia also exports around 50 million tons of oil products annually, and this volume is likely to increase in a similar fashion. Construction of new export facilities on Russian territory has intensified due to constraints in the oil export logistics, Russian national security thinking and the aim to lower the payments of transit fees of oil transport. 3.1 Economic importance of transit traffic to the Baltic States Transit fees are an important source of revenue for the three Baltic States and companies operating in them. The GDP shares of transit revenues are estimated to be between 5 and 10 per cent in the Baltic States (Laurila 2002, 26). It is, however, difficult to measure correct volumes of transit goods since trade statistics issued by Ministries of transport, statistical offices, port authorities and operators in different countries tend to have incompatible methods in providing data. Competition for transit cargoes between Baltic ports has increased not only due to new Russian export facilities, but also because of Russian companies aspire controlling stakes in companies operating oil export facilities in the Baltic States. Oil transit has - until the shutting down of Ventspils crude oil pipeline in early constituted the largest segment of transit cargoes in all three Baltic States. 3 The Finnish Maritime Administration at: ; The acronym VTMIS (Vessel Traffic Management and Information Services) is used for the various telematics and information systems developed to enhance the safety and effectiveness of the maritime traffic. Also the term Offshore VTS has been used in the same context (VTS = Vessel Traffic Service).

11 Terminal and harbor infrastructure Russian ports Primorsk oil export terminal, owned by the state pipeline monopoly Transneft, started operations in December The port has a berth for two vessels of 100, ,000 dwt and has a maximum draught limit of 15.3 meters. The port requires the use of double-hulled tankers, but vessels with double bottom or sides may be used in certain conditions. Currently the terminal has a storage capacity of 500,000 m 3. The port of St. Petersburg is navigable for tankers having a maximum draught of 11 meters. Together with length limitations the current maximum size of vessels is around 40,000 tons. Petersburg oil terminal, the largest in the port, has storage capacity of 214,000 m 3 and appropriate facilities for railcar handling. The Port of Kaliningrad was opened for the international vessel traffic in the beginning of the 1990s. The port areas are connected to the Baltic Sea by a 42 km long channel. Maximum draught to the port is 8.0 m. The largest oil terminal operator in the port is a subsidiary of Russian oil company LUKoil Estonian ports Tallinn is the biggest and most important transit port in Estonia. The Muuga harbor is the main cargo harbor in the Port of Tallinn and its cargo volume accounts for approximately 90 per cent of Estonian transit. The port is able to serve vessels with maximum draft of 15.3 meters and deadweight of 120,000 tons. Several terminal companies are offering services for railcar discharging and storing of oil. The biggest operator is Pakterminal AS, which has storage facilities for over 250,000 m 3, of which 213,000 m 3 are owned by the firm. It is half-owned by Vopak, a listed Dutch firm and Trans Kullo Ltd, an Estonian investment firm. The second largest oil terminal operator in Tallinn is Eurodek Group with a total storage capacity of 215,000 m 3. Estonian Oil Service (E.O.S), the third largest operator, concentrates on transshipment of fuel oils. The storage capacity of the company s twenty-eight tanks is 175,000 tons. Another company, Oiltanking Tallinn, is focusing on the transit of oil products. This terminal offers storage capacity of 84,000 m Latvian ports Ventspils is Latvia s most important oil transit terminal, serving vessels up to 120,000 dwt and 15 meters of draught. After the completion of the reconstruction and modernization works, the services and equipment of the port correspond to modern technical, safety and environmental protection standards. After the completion of the dredging works in the sea entrance channel and the port area, the largest vessels capable of entering the Baltic Sea can be accepted by the port. The total tank farm capacity exceeds 1,300,000 m 3. The largest terminal operator is JSC Ventspils Nafta. The largest shareholders of the company are JSC Latvijas Naftas Tranzits (42 %) and the Republic of Latvia (39 %). Ventspils Nafta, in turn, is the largest owner of LASCO, a shipping company, with 1/3 of the shares. Port of Riga is the main general cargo port in Latvia and ranks second in oil products transport after Ventspils. Approximately 80% of cargo turnover at Riga port involves transit freight to and from CIS. The draught limitation of around 11 meters in the approaching channel restricts the maximum vessel size to around 40,000 dwt. Plans for a new oil product terminal are under consideration. The Port of Liepaja is the third largest port and growing due to the status as a special economic zone. A former Soviet naval base, it is now a business port turning over 3 million tons in Oil products cover more than 80 per cent of the liquid cargoes.

12 Lithuanian ports Klaipeda State Oilport was constructed in 1959 in order to export Soviet heavy fuel oil. The oil terminal is operated by Klaipedos Nafta Ltd. and it has an annual capacity of 7 million tons. Vessel draft in the port is limited to around 11 meters and the maximum vessel size is thus about 40,000 dwt. Butinge oil export / import marine terminal, close to the Lithuanian border and owned by AB Mazeikiu Nafta, was opened in It is connected to Mazeiku refinery with a crude oil pipeline with an annual capacity of 13 million tons. The loading principle is an offshore loading buoy, which initially had problems with oil spills. The terminal s storage capacity is 254,000 m 3. The terminal is capable of loading vessels with draught up to 15.3 meters and 120,000 dwt. 3.3 Oil transshipment volumes in the Baltic Sea Region The volume of oil and oil products handled in ports has almost doubled from 53.6 million tons in 1997 to almost 100 million tons in 2002 (Table 4.). In the port of Tallinn oil and oil products turnover has tripled and most other ports have also increased their cargo volumes. Sharply declining volumes throught the port of Ventspils, due to the closure of the crude oil pipeline, have increased the use of rail transport and the share of oil products is growing through that port. The port of Primorsk is a crude oil export terminal. Most of the volumes shipped through St. Petersburg consist of oil products. In port of Tallinn large scale transshipment of crude oil started in 1999 reaching nearly 7 million tons in Table 4. Oil and oil products cargo turnover in million tons. Figures for 2003 are from the period January-August. Source: Port Authorities and Latvian MoT* Primorsk no data St. Petersburg No data Tallinn Ventspils * 13.2 Riga * 3.5 Liepaja * 0.5 Butinge Klaipeda Kaliningrad No data Gdansk Total The major part of oil transit volumes in ports of Riga, Liepaja and Klaipeda are oil products. At the moment the Butinge marine terminal handles only crude oil. The exception is the port of Gdansk, where the turnover consists of both loaded and discharged oil cargoes. 3.4 Competition between the Baltic Sea ports of transit traffic Competition between the Baltic seaports for transit freights has intensified. All Baltic States have taken measures to modernize basic port infrastructures, to provide modern superstructure (terminals), to increase sector privatization and commercialization as well as to improve transport logistics and storage facilities. The major Russian oil companies have successfully played off the Baltic ports against each other and pressed down transit fees. In

13 13 addition, Russia has increased its own direct sea transports through St. Petersburg and its other Baltic Sea ports, Kaliningrad and Primorsk oil terminal. Russian Federation has recently reformed its Railway Tariff Policy in order to create favorable conditions for freight carriage to Russian ports. Therefore freight transport to Russian ports has become cheaper compared to similar freight carriages towards Russia s land border. Cost of transport through land borders (e.g. Latvian ports) is 2 to 4 times higher compared with transport via Russian ports (Latvian MoT). 4. Conclusion 4.1 Maritime Transport and Ports The key developments in the Baltic States maritime transport and ports during the past few years could be summarized as follows: (a) ports have shown strong economic results during the past few years; (b) stevedoring and shipping companies have been almost completely privatized; (c) further strengthening of the maritime administration is needed; (d) international regulation on maritime safety at sea and in ports need to be followed; and (e) environmental issues have grown more important. Major ports are owned by Governments and they have been very profitable Governments own the land occupied by large ports of the Baltic States while smaller ports may belong to municipalities or, as in Estonia, may involve some private ownership of port land. Private companies generally carry out port work such as stevedoring and warehousing. The only ports of the Baltic States handling a million tons or more of cargo annually are Tallinn, Kunda and Parnu in Estonia; Ventspils, Riga and Liepaja in Latvia; and Klaipeda and Butinge in Lithuania. Among these ports, only the port of Tallinn has significant international passenger traffic. The islands of Saaremaa and Hiiumaa in Estonia generate domestic ferry traffic. The major ports of Tallinn, Riga and Klaipeda handle relatively diverse traffic while the traffic of Ventspils is mainly oil and chemicals, and the traffic of Liepaja comprises principally timber, metals and bulk liquids. The major ports as well as the privately-run cargo handling operations in them have been very profitable. Private sector participation in port operations has increased significantly in recent years, driven by increased opportunities made available as the role of public authorities has become more limited. The countries adopting this new policy have been able to attract substantial amounts of private capital investment to refurbish infrastructure and modernize cargo handling equipment. Under private management of certain operations, ports have improved performance in terms of improved quality of service and reduced cost of cargo handling. Over 100 million tons through Baltic ports, with unitized traffic increasing fast The total seaborne trade in the Baltic Sea is over 400 million tons. Ports in the Baltic States handle about 30 percent of this volume. Individual ships in the Baltic Sea do not exceed tons because of draft restrictions in the Danish straits. Also, lack of berths and limited cargo handling capacity limit the size of ships that can be accommodated. Operations of ferry lines have increased significantly especially in trade with EU countries, where such use is common. Traffic in passengers and vehicles between Tallinn and Helsinki grew steadily till 2001 and volumes are well balanced in the two directions. A number of EU-based shipping companies have formed joint ventures in the Baltic States, or opened liner routes with their and container vessels.

14 14 New Vessels Traffic Systems are being implemented Increased ship traffic in the Baltic Sea during recent years has increased the dangers of ship operations there. These growing dangers have led to the creation and implementation of an advanced system for control. A vessel traffic management and information system (VTMIS) is being implemented in the Gulf of Finland in 2004 jointly by Finnish, Russian and Estonian maritime authorities. Information flow and safety among key development areas The workshop on maritime and port issues in the Parnu seminar prioritized the most important development areas as follows (Ojala et al. 2004): (1) information flows and systems, (2) maritime safety issues, and especially ISPS, (3) infrastructure development and (4) environmental protection. Other issues that were mentioned included EU Transport Policy, transit traffic, cargo security, competition of ports and shipping as well as institutional development. 4.2 Transit of Oil and Oil Products in the Baltic States The volume of transit oil and oil products handled at Baltic States and Russian Baltic Sea ports has increased from 50 million tons in 1997 to 100 million tons in The economic impact of oil transit traffic through the Baltic States is quite significant to these countries. Transit revenues represent 5 to 8 percent of gross domestic product of the three Baltic countries. Each Baltic state earns a significant amount of revenues from this transit traffic. Russian firms, recognizing the importance of the transit revenue through the Baltic States, have tried to obtain controlling stakes in companies operating oil export facilities in the Baltic countries. The Polotsk-Ventspils crude oil pipeline leading to the port of Ventspils has an annual capacity of 14 to 16 million tons of crude oil; parallel to the crude pipeline is an oil products pipeline with an annual capacity of 4 million tons. The Lithuania oil export terminal at Butinge is served by a pipeline with an annual capacity of 13 million tons of crude oil. The terminal facilities at Butinge are owned by a company in which the Russian oil company, Yukos, has a controlling stake. Most of the crude oil and products brought to the port of Tallinn arrive by railway. For the ports of Riga, Liepaja and Klaipeda, railways are the only economically feasible means of transporting oil to the ports. Capacity in Russian terminals is increasing, and tariff policy favors these terminals Competition between the Baltic ports for transit traffic has intensified during recent years. All the Baltic ports have modernized their facilities to attract that important traffic. At the same time, major Russian oil companies have successfully played off the Baltic ports against each other and thus pressed down transit fees. As a further measure favoring Russian interests, the volume of oil shipped on tankers from Russian ports on the Baltic has increased sharply. St. Petersburg has increased its oil shipping capabilities while a new, nearby Russian oil shipping port of Primorsk was developed and began shipping oil in 2001, and will reach a capacity of 40 million tons in Another Russian terminal in Vysotsk in the Gulf of Finland goes operational in 2004 with an annual capacity of 10 million tons. Also, the Russian Federation has revised railway tariffs in such a way as to benefit railway shipments of oil through Russian ports. Notwithstanding these negative influences on Baltic States oil transit revenues, it is expected that Russian oil exports will rise substantially in the years ahead and that the Baltic States will benefit from this trade through transit operations. In recent years, some 80 percent

15 15 of Russian oil exports have gone to Europe. While the Russians are looking for other markets in the world, Europe will undoubtedly continue to be a major market. 4.3 Provision of unitized and LTL/LCL Services Key findings on provision of logistics services for unitized goods and LTL/LCL shipments are as follows (a) infrastructure limitations and regulatory issues are not major concerns of those firms providing transport related services in the Baltic States; (b) the supply of transport related services in these countries is adequate and generally of good quality; (c) advanced information technology is becoming increasingly important to companies providing transport related services in the Baltic countries; and (d) well over half of the transport related services in the Baltic States are provided by international firms. The market for transport support services is competitive and service quality is good The principal transport related services provided are freight forwarding, customs brokerage, customs service, warehousing services, insurance, and banking. In all three of the Baltic States, these services are almost entirely privatized and the general quality of services is good and improving. Freight forwarding services in the Baltic States is dominated by less than ten companies. These firms handle about half of the total market for these services. The freight forwarding market has been growing rapidly here. During the past five years, the net turnover in this market grew three-fold in Estonia. Most of the main freight forwarding operators are subsidiaries of major international logistics firms, and they offer a wide range of transport and logistics services. Throughout the three countries, buyers increasingly favor "one-stop-shopping" for the various transport related services such as customs, warehousing and the like. The overall quality of these services in terms of timeliness, accuracy of documentation and the absence of fraud, has improved dramatically during the past ten years, especially since the mid 1990s. The various transport related services provided by specialist firms in this field are particularly attractive to companies engaged in international trade. Expedited clearance of imported goods often permits companies to reduce their inventories of such goods with consequent savings in cost and improved delivery times to their customers.

16 16 References EC Communication on Reinforcing Quality Service in Sea Ports: A Key for European Transport, February 13, 2001, Brussels. EC (2003) Comprehensive monitoring reports on Accession countries, available at Efimova, Elena Popova, Liudmila Sutyrin, Sergei (2003) Maritime oil transportation in the Baltic Sea: A Russian perspective. In: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed.by Kari Liuhto, Lappeenranta University of Technology. EU Candidate States database, CanStat Bulletin 2/2003, at: Gatautis, Rimantas Snieska Vytautas Virvilaite, Regina (2003) Russian oil transit through Lithuania. In: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed.by Kari Liuhto, Lappeenranta University of Technology. Kaarnite, Raita (2003) The impact of Russian oil transit on the Latvian economy and development perspectives of Latvian ports. In: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed.by Kari Liuhto, Lappeenranta University of Technology. Koskinen, Matti-Mikael and Ojala, Lauri (2003) Tanker shipping markets in the Baltic Sea: With implications to Russian oil exports, in: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed. by Kari Liuhto, Lappeenranta University of Technology. Laurila, Juhani (2002) Determinants of transit transports between the European Union and Russia. Bank of Finland, Institute for Economies in Transition. BOFIT Online, Liuhto, Kari (2003) Shipments of Russian oil via the Baltic Sea: A source of integration or disintegration in Europe? In: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed.by Kari Liuhto, Lappeenranta University of Technology. Markina, Anna (2003) The Russian oil transit via the Baltic ports. In: Growing Russian oil shipments in the Baltic Sea: Strategic decision or environmental Risk? ed.by Kari Liuhto, Lappeenranta University of Technology. Ojala, L. and Queiroz, C (2001, eds.) Transport Sector Restructuring in the Baltic States, Proceedings of a Seminar held in Riga, November 16-17, The World Bank; also available at: 89a2a?OpenDocument Ojala, L., Naula, T. and Queiroz, C (2004, eds.) Transport Sector Restructuring in the Baltic States toward EU Accession, Proceedings of a Seminar held in Parnu, November 16-17, The World Bank; also available at: Proposal for a Directive of the European Parliament and of the council On Market Access to Port Services, European Commission, February 13, 2001, Brussels Public Financing and Charging Practices in the Community Sea Port Sector (2001) European Commission staff working paper, February 2001, Brussels. Statistical Analyses of the Baltic Maritime Traffic (2002) VTT Technical Research Centre of Finland, Espoo. Research report No. VAL TEN-Invest report 2003, PLANCO Consulting, Essen. Tschudi & Eitzen Holding AS, read February 24, 2001.

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18 18 Attachment 1. Key transport corridors in the Baltic Sea region. Source: Finnish Ministry of Transport and Communications 2003 Attachment 2. Cargo traffic in major Baltic States ports in thousand tons Source: Ministries of Transport loaded unloaded Riga total loaded unloaded Ventspils total loaded unloaded Liepaja total loaded unloaded Klaipeda total loaded unloaded Tallinn total