Golden Road For Russian Gas

29.10.2009 — Analysis

The construction of the rail road in Yamal for the transportation of natural resources has acquired the clear financial and organisational foundation. The RusBusinessNews observer found out that the new scheme has attracted private companies, which might spare the federal budget some serious spending, and will help start the construction in 2009.

The implementation of the transportation component of the Industrial Urals - Polar Urals (IP-UP) project is proceeding into a new stage. The many years of paper circulation between various authorities' officials at long last will smoothly evolve into the beginning of construction of the railway in Yamal. Other project's components - the establishment of power generation infrastructure and the development of the North's natural resources itself - are impossible without it.

This has been preceded by a reshuffle in the management of the OJSC "The Industrial Urals - the Polar Urals Corporation" which has been established by governments of several Russian regions. "The dynamic has been lost, this includes the exploration work, there is no monitoring of this work, no contact between the Ministry of Natural Resources of Russia and the Industrial Urals - Polar Urals Corporation" Aleksandr Beletskiy, the Deputy Urals RF Presidential Envoy, pointed out. "People needed convincing, we needed a platform for discussions, including scientific, on exploration work. This work was not efficient enough."

After the changes in the Corporation's management the implementation of the project has accelerated significantly. "There is no point even talking about the fact that we are ready to start the construction work because this is what all construction companies in Yamal have been waiting for for the last 5-6 years. Less has been done in recent years than in the previous 3-4 months", Igor Nak, the Director General of OJSC Yamaltransstroy, asserted.

We are talking about two rail lines, the north-south line Polunochnoye-Obskaya-Salekhard and the east-west line Salekhard-Nadym. The construction of the former is going to cost 126 billion roubles and should start in 2010 and be completed in 2014.

It is planned to cover the north-south line construction costs from the investment fund of the RF. It is this very circumstance that is causing serious doubts today. Aleksandr Beletskiy stresses, "In the current economic situation the issue of financing the project out of the government budget is rather complicated. This is why we decided to focus on those projects which are going to attract investments, and will start with the Salekhard-Nadym line. The construction of this line will be a starting point for the establishment of the transport infrastructure of "IU-PU".

The construction cost of the 354 kilometre long east-west line Salekhard-Nadym is estimated at 60 billion 967 million roubles. It is expected that 80% of this money will be put up by private investors. Why is the state so sure that this money will be found? Because, in contrast to the north-south line, it has already become clear what cargo will be transported along the east-west line. This will be the transportation of up to 7 million tons of gas condensate from Yamal.

Federal authorities openly name NOVATEK as the future key investor into the Salekhard-Nadym line. "We have prepared the draft contract with the company, we are planning to sign the contract in November. At the moment NOVATEK is transporting gas condensate using a longer route. This one will be more economical" said Alerksandr Beletskiy.

NOVATEK has confirmed its interest in the implementation of the project. "The construction of the railway line Salekhard-Nadym is very interesting for us, we will be able to transport cargo along this route" Mikhail Lozovoy, the Press Secretary of the company, told RusBusinessNews. He did not, however, answer the question whether the investment agreement is really being drafted or not.

At the construction stage the investments will be required, first of all, from the road building companies: they will only be paid in full after the final hand-over of the completed work. The investment loan will evidently be provided by Vnesheconombank that has signed an agreement with the Industrial Urals - Polar Urals Corporation on strategic funding. In order to enable the highest possible number of construction companies to participate, both in financial and technical terms, in the project, the Salekhard-Nadym line will be split into 7 approximately equal commission pieces.

It is planned to hold the tender for each of the 7 pieces in November 2009 because Glavgosekspertiza (General State Expert Review Directorate of Russia) has approved the project in October. The tender results are predetermined, essentially: the contractors will be chosen predominantly from companies based in the Yamal-Nenets Autonomous Okrug which have extensive experience of work in the extreme conditions of the North. These include, in particular, OJSC Yamaltransstroy, OJSC Nadymtransstroy, OJSC Arktikneftegazstroy, OJSC Yamal Construction Company, OJSC Yamalstroymekhanizatsiya.

An important condition is imposed on the tender participants: all the machinery required must be mobilized to the sites by December 2009. So, the construction of the east-west line (starting from both ends - Salekhard and Nadym) will begin a year sooner than expected.

This sort of finance and organisation scheme simultaneously takes off the state some of the huge burden of the Industrial Urals - Polar Urals project implementation and, at last, gives a public-private partnership some defined shape.

"This is a real break-through approach where the standard state funding is absent" says Igor Nak, "This is the approach where the strategic goals of JSC Russian Railways, and the future spheres of the development of the Urals Federal District, and the perception of the future of construction companies are tied together. What is of principal importance here is the fact that it is not the construction itself, but the efficiency of the project that is assigned the primary significance.

The participation of the state in the transport project will come, first of all, in the shape of the construction of two gigantic bridge passes over the rivers Nadym and Ob. This construction will be financed by the federal targeted programme and money raised by the northern regions.

The adjacent property facilities which belong to Gazprom (Pangody-Nadym line) and JSC Russian Railways will be transferred to the Yamal Railway Company, the future operator of the east-west line. "We will get the through cargo tariff for the gas condensate, transportation of which will source the investment payback" Aleksandr Beletskiy points out.

"Our company is ready to carry out the functions which we are offered" said Yakob Kraft, the Director General of Yamal Railway Company, "We are also prepared to participate in a range of contractual work, in particular - in shuttling the cargo."

The construction of roads in the Russian Extreme North - be it automotive or railways - can be measured in the weight of gold. In all senses. However expensive is the road, the lack of roads costs Russia even more.

Pavel Kober