Russian government mulls establishment of national dredging company

Russian needs dredging fleet for the Arctic basin, where the government runs numerous infrastructure projects. Credit: Vladislav Vorotnikov

The Russian government is still considering different ways of establishing a national dredging company (NDC) in the country, said a spokesperson for the Ministry of Industry and Trade. The new entity is poised to become the monopolist on the Russian dredging market, but it is unlikely that this company would be set up until the end of 2019, as it was originally planned, the ministry announced 

The roadmap of the project was developed in May 2019. Russian dredging company IEC proposed to invest RUB20 billion (USD350 million) to build at least 15 dredging vessels for the NDC. A fleet of that size would be enough to meet the Russian demand in dredging operations in the Azov-Black Sea basin and the Northern basin, it was determined.  

Foreign dredging companies have taken nearly USD1.5 billion from the Russian federal budget under different contracts over the past few years because there was a lack of dredging vessels and experience in dredging operations in Russia, Andrey Mushkarev, member of the IEC board, said. It is rather dangerous to keep it that way on the background of the western sanctions against Russia, Mushkarev said.  

For example, in August 2018, China Communications Construction Company won a competitive bidding procedure on the dredging project in the Bolshoy Kamen Bay in Primorsky Krai, Russia, with the overall cost of the project valued at USD300 million. As of today, this is the biggest contract concluded in Russia with dredging company, according to the Russian government tender database.  

All 15 ships for the NDC are slated to be built by 2026 and would run under the Russian flag, Mushkarev said. There would be no state funding, but the NDC could be subjected to some state aid, including tax breaks, subsidised interest rates on loans, and some guaranteed orders from the government, Mushkarev added.  

The NDC could manage all dredging projects for the state-owned oil and gas companies in Russia, including Novatek and Gazprom, Mushkarev said. These companies are harbouring some big projects on the Russian Arctic shelf and will require dredging services in the Northern basin.  

Funding is a stumbling block 

In June 2019, Russian Deputy Prime Minister Yury Borisov ordered the Ministry of Industry and Trade and Ministry of Transport to elaborate details of the project, and to consider whether it was possible to build the new dredging fleet at Russian shipyards.  

There was no consensus on the funding of the project, Boris Cabacov, director of the shipbuilding department of the Russian Ministry of Industry and Trade, said in an open letter in July 2019. There were two different options to find necessary investments, either from the Netherlands or from the Russian leasing companies, he said.  

The first option could be viable if the entire new Russian dredging fleet would be built in the Netherlands’s shipyards, while the second would be if there were some guaranteed orders from the Russian government, Cabacov said.  

In particular, the NDC could sign a concession agreement with the Federal Agency for Maritime and River Transportation to get all orders on dredging operations in the Russian seaports, Cabacov added.   

There is still no final decision on the project. Russian newspaper Kommersant cited that the Federal Agency for Maritime and River Transportation vetoed the idea of passing all dredging projects to the NDC. Moreover, the agency would not be able to guarantee that there would be enough orders for the NDC to maintain its profitability. Placing orders for building of the new dredging fleet in the European Union, the government could also face certain sanction risks.  

As of today, the biggest contracts on dredging operations in the country have already been signed with foreign companies. For example, a Russian subsidiary of DEMA Group holds the contract on dredging in the Sabetta port on the Northern Sea Route, while the China Communications Construction Company is signed to provide dredging services for the new Russian shipyard Zvezda in the Far East.