Yamal’s Strategic Thoroughfare Ran Into Red Tape Barrier

17.12.2009 — Analysis

The actual implementation of the transportation component for the megaproject "The Industrial Urals - the Polar Urals" has been postponed for several months at best. The RusBusinessNews observer found out that the commencement of the construction of the Salekhard-Nadym railroad in Yamal, contemplated for 2009, has been disrupted for reasons beyond contractor organizations' control. 

The Office of the Plenipotentiary Envoy of the RF President, which had been the key initiator and inspirer of the "The Industrial Urals - the Polar Urals" project, failed to hasten the commencement of work for building the Salekhard-Nadym railroad line. The 354 kilometre-long trunk railroad, costing about 2 billion U.S. dollars, is intended to become the thoroughfare for the transportation of gas condensate from the Yamal peninsula.

A few months ago Alexander Beletski, the Deputy Plenipotentiary Envoy in the Urals, stated that the OJSC "The Industrial Urals - the Polar Urals Corporation" (established by governments of several Russian regions for the implementation of the megaproject) would conduct tenders for the construction of this railroad in November 2009. As early as December, the winner contractor should have dispatched the required machinery to the work site and commence the performance of work. "We must not lose the tempo. The construction must commence in 2009," Mr Beletski was hurrying the organizers of the tender and potential bidders.

The official's wishes haven't come true. "Tenders for the construction of the Salekhard-Nadym railroad have been postponed to the end of December 2009 - beginning of January 2010. The reason is the long time it took to define the criteria for the selection of organizations. The range of these criteria turned out to be very broad," Galina Morozova, the Advisor to the Acting CEO of the "TIU-TPU" Corporation, told RusBusinessNews.

In addition to this, she said that the signing of the agreement between the Corporation and the key potential investor - OAO NOVATEK - which was scheduled for November is being postponed as well. "The management team of our Corporation has regular meetings with this company's representatives; terms of the draft agreement are being adjusted. Its signing will most likely happen in the end of December 2009 as well," the advisor pointed out.

Other private investments in the "TIU-TPU" projects seem to fall short, too. The total amount thereof, following the results of 2008-2009, was 1.98 billion roubles versus 2.23 billion declared before. However, the Corporation maintains that it is their intention to save non-budget resources in order to achieve cost optimisation. As a result of the optimisation, the costs of developing project documentation for the construction of the Salekhard-Nadym railroad have been reduced significantly.

A few days ago the "TIU-TPU" Corporation got Novaar (Saudi Arabia), one of the world's largest investment funds, interested in "The Industrial Urals - the Polar Urals" project by signing a Memorandum of Mutual Understanding. The content of the document is treated as confidential and is not disclosed. In 2010 the Corporation expects Novaar to commence active work on signing agreements related to the construction of specific facilities within the megaproject. An almost identical memorandum was signed in 2008 with NOVATEK; however, they never got as far as to make the actual investment.

So far the Corporation has managed to attract funds from the budget. In December 2009 Alexander Misharin, the new Governor of the Sverdlovsk Oblast, has officially announced that the region would become a shareholder in the "TIU-TPU" Corporation. The Sverdlovsk Oblast will contribute 450 million roubles to the registered capital. The form of the Kurgan Oblast participation in the project will also be defined soon. Thus, all subjects of the Urals Federal District will take part in the project.

Meanwhile, a fact is a fact - the actual implementation of the transportation component for the megaproject has been postponed until the beginning of 2010 at best. The companies which were supposed to be involved in the construction work remain confused, which is expressed by the phrase, "Why did they have to hurry us?"

"There has been no progress in the implementation of the transportation component of "TIU-TPU" project recently. This is why our management team is unwilling to talk to press," that's what RusBusinessNews was told at OJSC "Yamal Railroad Company" which is going to become the operator of the Salekhard-Nadym railroad as well as directly participate in its construction.

"We have gathered the required documents and applied for participation in the tender. However, we haven't dispatched the machinery to the work site, haven't received any design or cost estimate documentation," Leonid Fesenko, the Deputy Director General of OJSC Arcticneftegazstroy (Nadym), told RusBusinessNews. "We were not awarded any contract for the construction of bridges or crossings section. We have had and do have the intention to work on this project."

It should be noted that Yamal construction organizations largely rely on the prompt commencement of the actual implementation of the transportation project since they had to reduce their scope of work in 2009 for reasons beyond their control. "There is only one customer for all types of construction work in Yamal - Gazprom. However, it has reduced volumes of funding, and a further reduction is planned for 2010," Mr Fesenko explains. "Therefore our capacities for the performance of construction, assembly, and road work are not being used fully. Once we have the contract we will deliver the machinery next day if they want."

Whilst the transportation component of the "TIU-TPU" project keeps standing still, the progress has commenced in its raw material component. Thus, in December 2009 the RF Ministry of Natural Resources and Ecology has approved the Integral Plan for the development of mineral and raw material base within the megaproject. Its purpose is the development of ferrous, non-ferrous, and noble metal ores as well as non-metals and power station coal within the Northern, Subpolar, and Polar Urals; these resources will ensure the operation of the Urals' industrial system.

The MNR press-service told RusBusinessNews that the plan envisages the performance of work in 2010-2015 paid for out of the three funding sources: Federal budget funds (4.7 billion roubles); the RF subjects treasuries (833 million roubles); and non-budget sources (in excess of 11 trillion roubles).

Thus, the lion's share of the expenses for the project's mineral and raw material base development will also be imposed on business. However, it will only be possible to start raising private investment if companies see the real development of transportation and other support infrastructure. The commencement of the Salekhard-Nadym railroad construction may break the psychological barrier and encourage the signing of important investment agreements.

Pavel Kober