Take or pay east

Russian Railways wants to introduce ship-or-pay agreements at the third stage of the Eastern range. The monopoly has long insisted on the need for such contracts, but there is no regulatory framework for them. The third stage of BAM assumes a phased increase in capacity by 75 million tons in 2025-2032, but the project has not yet been approved, and the design of its last concession part is also incomprehensible. According to analysts, shippers now have the money to invest in logistics, but Russian Railways cannot provide acceptable partnership conditions on a ship-or-pay basis.

The head of Russian Railways, Oleg Belozerov, at a meeting with the head of the Ministry for the Development of the Far East, Alexei Chekunkov, said on June 23 that the monopoly proposes to introduce a ship-or-pay mechanism (“carry or pay”) at the third stage of the Eastern landfill. “As part of the third stage of the development of the Eastern range, it would be right to assign to shippers the possibilities and responsibilities for the transportation of goods, the so-called “carry or pay” principle,” the Russian Railways Telegram channel quotes Mr. Belozerov. “Because we must clearly understand for whom we build who we will carry. From a technical and technological point of view, we are absolutely ready to do this.”

The “carry or pay” mechanism implies mutual obligations of the carrier and the client, when the first is obliged to transport the agreed volume of cargo, and the second is to pay for it, even if it is not presented for transportation. While it is not used on the railways, attempts to introduce it turned out to be a failure.

But its varieties actually already exist, in particular, according to Kommersant’s interlocutors, in the field of transporting ore to the Far Eastern border crossings.

The main obstacle to its full implementation is the lack of a regulatory opportunity to give priority on public routes to shippers entering into such contracts, as well as the enormous financial mutual obligations that arise when concluding contracts for years to come.

The last iteration of the bill on the introduction of ship-or-pay on the railways was withdrawn from the State Duma at the end of May for technical reasons, a Kommersant source in the industry said. At the same time, Russian Railways has been insisting for several years on the need for such contracts; it intended to start concluding them with coal miners as early as 2022.

The project for the expansion of the Eastern test site in the form of BAM-3 has not yet been approved. Conceptually, it consists of three parts: the first is the expansion of capacities by 2029 to 197 million tons under 16.6 million tons of coal from the Elga deposit. The second is to bring the carrying capacity to 210 million tons by 2030. The third is the expansion to 255 million tons due to the concession initiative of Bamtonnelstroy-Most by Ruslan Baisarov and Gazprombank (see “Kommersant” dated June 1, 2022): within its framework, it is proposed to build four expensive objects in the bottlenecks of the BAM (tunnels and a bridge).

At the meeting on June 23, according to Kommersant’s information, it was not specified what part of the third stage was involved and what volume of the cargo base is supposed to be covered by ship-or-pay contracts. Russian Railways did not provide additional details.

But if in the first part of the project we are actually talking about the Elsie mono-consumer, then in the second and third stages there are many consumers of expanded infrastructure services.

In addition, there are now temporary rules for distributing the capacities of the Eastern Polygon, according to which priority is given to the transportation of non-coal cargo, domestic transportation, and so on, in connection with which the composition of shippers has noticeably changed. According to the interlocutor of Kommersant in the industry, it is not a fact that by the time of the transition to the third stage it will not change again under the influence of state interests.

The head of Infoline-Analytics, Mikhail Burmistrov, notes that a significant part of large shippers are registered with holding companies in unfriendly countries, and their beneficiaries are under personal sanctions, therefore, not being able to pay dividends, they accumulated significant funds in their accounts in 2022 and keep accumulating them. Now, when it is obvious to everyone that the shortage of transportation capacity, locomotive crews and the decrease in the technical readiness of locomotives continue to worsen the car turnover indicators, cargo owners are ready to invest in logistics assets and infrastructure projects, he said.

But Russian Railways cannot clearly explain to shippers what exactly they get when using ship-or-pay: neither priorities nor the invariance of tariff conditions are guaranteed, as the example of coal companies shows, for which the tariff has increased by 50–80% in 2022. And either shippers, like Elsie, will start building their own infrastructure, or they will actively purchase locomotives, or Russian Railways will still be able to offer them an acceptable, fairly effective and transparent version of public-private partnership.

Natalya Skorlygina