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General

Key ports

Which are the key ports in your jurisdiction and what sort of facilities do they comprise? What is the primary purpose of the ports?

Russia has the fourth-longest coastline in the world (37,650 kilo­metres). This coastline is divided between the coasts of the Atlantic Ocean, the Arctic Ocean and the Pacific Ocean. Russia is also one of the five Caspian states and has an extensive network of internal waterways. Due to this, Russia’s seaports relate to five separate areas (basins):

  • the Arctic;
  • Azov and the Black Sea;
  • the Baltic Sea;
  • the Caspian Sea; and
  • the Far East (Pacific coast).

The principal purpose of most of Russia’s major ports is to service Russia’s extensive foreign trade. This comprises the import and export of goods - principally hydrocarbons, metals, grain and fertilisers. At the same time, many of the ports in the Far East and Arctic regions also support the fishing industry; ports in the Caspian, Far East and the Arctic service the offshore industries; and ports such as Saint Petersburg and Sochi are notable ports of call for cruise liners. The principal ports, by area, are as follows.

The Arctic

  • Arkhangelsk - general cargo;
  • Varandey - oil;
  • Vitino - oil;
  • Dudinka - general cargo, containers, bulk; and
  • Murmansk - containers, bulk, oil, refrigerated cargo.

Azov and the Black Sea

  • Novorossiysk - oil, general cargo, bulk;
  • Tuapse - oil;
  • Rostov-on-Don - general cargo, bulk; and
  • Sochi - passengers.

The Baltic

  • Saint Petersburg - general cargo, containers, ferry and passenger;
  • Vysotsk - bulk, oil;
  • Primorsk - oil; and
  • Ust-Luga - general cargo, oil, containers.

The Caspian Sea

  • Astrakhan - general cargo, oil; and
  • Makhachkal - general cargo.

The Far East

  • Vladivostok - general cargo, oil;
  • Vanino - bulk, general cargo;
  • Vostochniy - bulk, oil;
  • Nakhodka - general cargo, containers, bulk;
  • De-Kastri - oil; and
  • Prigorodnoye - oil, liquid natural gas (LNG).

Reform

Describe any port reform that has been undertaken over the past few decades and the principal port model or models in your jurisdiction.

In the early 1990s, as the Russian economy transitioned from a planned socialist model to a market economy, most of the major ports were privatised. At the same time, the state has kept certain types of port assets, particularly those relating to ensuring the safety of port navigation, in its ownership and, on the basis of these assets, has organised a system of port administrations through which state functions, including port control and ship registration, have been exercised. However, throughout most of the 1990s Russia’s port system, from an organisational standpoint, did not follow one particular pattern. A gradual reform started at the end of that decade: in 1999, President Boris Yeltsin signed the new Merchant Shipping Code (MSC), which introduced the definition of a ‘merchant seaport’, which is:

a complex of installations located on the specifically allocated territory and aquatory and intended for serving vessels used for the purposes of merchant shipping, serving passengers, conducting cargo operations and other types of services which are normally rendered in the merchant seaport.

The MSC also laid down the general provisions in respect of state port control, which was thereupon to be exercised by the harbourmasters functioning as part of the port administration and appointed by the federal agency responsible for exercising supervision over sea transport.

In 2002, a new federal state unitary enterprise, Rosmorport, was founded in order to exercise centralised management of state property in the ports, including port fleet, berths and other hydrotechnical installations. In addition to managing the state-owned infrastructure, Rosmorport is entitled to collect port dues in Russian ports and also engages in rendering various port services as a commercial company.

In 2007, a new federal law devoted specifically to regulating port activities ‘on seaports in the Russian Federation’ (FLSP) was adopted. This law essentially fixed the model for development of ports that originated in the 1990s, with the state being responsible for port control, safety of navigation and investment in the principal port infrastructure, and private enterprises being mostly responsible for rendering the principal cargo and passenger services and also being entitled to invest and own elements of port infrastructure, including terminals.

In accordance with the FLSP, decisions on the building, extension and closure of a seaport are in the competence of the federal government. However, in the last 15 years a number of port projects have implemented the public-private partnership (PPP) model.

State development policy

Is there an overall state policy for the development of ports in your jurisdiction?

In general, development of ports will be effected in accordance with the Sea Doctrine of the Russian Federation in the Period up to 2020, and with the Strategy of Development of Seaports in the Period up to 2030 (Strategy-2030). Both documents set the goals for further development and modernisation of Russia’s port infrastructure; they aim to meet the demands of the Russian economy for handling cargo imported and exported using sea transport, as well as to ensure the growth of transit of goods through Russian territory in the course of international trade.

Green ports

What ‘green port’ principles are proposed or required for ports and terminals in your jurisdiction?

At present, documents governing the development of ports in Russia do not use ‘green port’ terminology, but Strategy-2030 stresses the aim to meet high environmental safety standards in the course of the construction of new, and the extension of existing, ports.

Legislative framework and regulation

Development framework

Is there a legislative framework for port development or operations in your jurisdiction?

At present, FLSP is the principal legislative act devoted to regulating various aspects of port activities and development. However, in many spheres (such as land issues, construction rules, antimonopoly regulations, foreign investment into port service providers, etc), port activities and development are regulated by other applicable federal legislation.

Regulatory authorities

Is there a regulatory authority for each port or for all ports in your jurisdiction?

From a regulative standpoint, port-related issues are in the competence of the federal government. At an operational level, ports are under the control of the Ministry of Transport and the Federal Agency for Maritime and River Transport. The latter agency is responsible for appointing heads of port administrations and harbourmasters. In some areas (eg, the Baltic and the northern part of the Far East of Russia) some port management functions are exercised by port administrations that manage more than one port.

What are the key competences and powers of the port regulatory authority in your jurisdiction?

The government of the Russian Federation is responsible for:

  • making decisions on the construction of a new seaport, or the extension or closure of an existing seaport;
  • defining the limits of the seaport;
  • approving the rules of navigation in ports and adjacent areas, and of staying in the ports; and
  • resolving other issues that fall into the competence of the federal government.

The Ministry of Transport is responsible for:

  • setting the rules for lease of state property located in the ports;
  • adopting the regulations on harbourmasters;
  • adopting the rules on ship registration; and
  • managing federal property that is located in the ports.

The Federal Agency for Maritime and River Transport:

  • has overall responsibility for rendering state services in ports;
  • has overall responsibility for ensuring safety of navigation;
  • is responsible for appointing heads of port administrations and harbourmasters; and
  • is responsible for keeping the registry of seaports.

Harbourmasters

How is a harbourmaster for a port in your jurisdiction appointed?

Harbourmasters of Russian seaports are appointed by the Federal Agency for Maritime and River Transport, and are answerable to this authority.

Competition

Are ports in your jurisdiction subject to specific national competition rules?

Yes. Russian ports and the entities operating in ports, including both state and private companies, are subject to the same competition rules, in particular to the rules set by the federal laws On Protection of Competition and On Natural Monopolies.

Tariffs

Are there regulations in relation to the tariffs that are imposed on ports and terminals users in your jurisdictions and how are tariffs collected?

Port dues are payable by the respective users of port services directly or through agents through Rosmorport. Rates of port dues, as well as prices for certain services in ports if providers of such services are considered to be subjects of natural monopoly, are regulated by the Federal Service for Tariffs - a special state authority responsible for regulating the prices and rates of products sold by natural monopolies.

Are there restrictions relating to the currency applied to the tariffs or to any fees that are payable by a port operator to the government or port authority? Are any specific currency conditions imposed on port operators more generally?

See www.gettingthedealthrough.com.

Public service obligations

Does the state have any public service obligations in relation to port access or services? Can it satisfy these obligations through a contract with a private party?

There are a number of principal functions that the state performs in ports, such as ensuring security, safety of navigation, access and use of state-owned port infrastructure. In most cases, the state performs such functions directly through its bodies of authority or through state-owned entities, but in some cases private contractors are hired to assist in fulfilling these functions (private companies may be hired to construct or repair navigation aids, dredge access canals, etc).

Joint ventures

Can a state entity enter into a joint venture with a port operator for the development or operation of a port in your jurisdiction? Is the state’s stake in the venture subject to any percentage threshold?

Yes, this is possible and a number of port projects have been or are being implemented using PPP. However, so far there is no generally accepted model of implementing such partnerships, and each of the past or ongoing projects have been carried out using a combination of various legal mechanisms, which in most cases did not involve a direct joint venture (ie, a company co-owned by the state and by a private investor).

Owing to this, responses to subsequent questions that concern aspects of ‘typical’ situations are to a certain extent an extrapolation of the general provisions and principles of Russian law.

Foreign participation

Are there restrictions on foreign participation in port projects?

Some of the service providers in the ports are considered ‘companies of strategic importance’. This mainly concerns entities whose services take up more than 20 per cent of the local market (ie, in a particular port). The purchase of shares in such companies by foreign investors or by their Russian affiliated entities may require preliminary approval.

Public procurement and PPP

Legislation

Is the legislation governing procurement and PPP general or specific?

Issues of procurement and PPP in the port sphere are regulated by the general legislation.

Proposal consideration

May the government or relevant port authority consider proposals for port privatisation/PPP other than as part of a formal tender?

Normally, such proposals are considered using tender procedures. There are few exceptions to this rule, which mostly concern cases when the development of new port projects is conducted at the initiative of the government.

Joint venture and concession criteria

What criteria are considered when awarding award port concessions and port joint venture agreements?

As mentioned above, there is currently no single procedure that is used for implementing PPP in port projects, so there is no single set of criteria. For example, in accordance with the federal law On Creation of Artificial Land Plots, the principal criterion for identifying the winner of the tender (subject to other conditions set in the terms) is the price offered by the bidder for the right to create an artificial plot. In accordance with the federal law On Concession Agreements, applicable criteria could vary and include:

  • the term of construction of the object of an agreement (eg, a port terminal);
  • the amount of concession fees; and
  • the technical parameters of the object of an agreement, etc.

Model agreement

Is there a model PPP agreement that is used for port projects? To what extent can the public body deviate from its terms?

There is no such model at present.

Approval

What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Must any specific law be passed in your jurisdiction for this?

Implementation of any port-related joint project using the PPP model requires approval from the federal government and, optionally, the regional government.

Projects

On what basis are port projects in your jurisdiction typically implemented?

As mentioned above, no single model applies. However, considering that private enterprises are entitled to own items of port infrastructure, such as terminals, it may be assumed that the BOO model (build-own-operate, without obligatory transfer) will become increasingly popular.

Term length

Is there a minimum or maximum term for port PPPs in your jurisdiction? What is the average term?

There is no standard term at present.

On what basis can the term be extended?

See question 21.

Fee structure

What fee structures are used in your jurisdiction? Are they subject to indexation?

These issues are determined on a project-by-project basis.

Exclusivity

Does the government provide guarantees in relation to port PPPs or grant the port operator exclusivity?

No.

Other incentives

Does the government or the port authority provide any other incentives to investors in ports?

See www.gettingthedealthrough.com.

Port development and construction

Approval

What government approvals are required for a port operator to commence construction at the relevant port? How long does it typically take to obtain approvals?

In order to commence construction, the operator must first obtain permission. This must be issued by the competent authority within 10 days upon application. Together with the application, the applicant must also submit documents that, in particular, confirm the applicant’s rights to construct particular objects on the land plots in question and confirm the professional expertise of the applicant’s construction plans. Owing to this, the overall preparation of documents might take several months.

Port construction

Does the government or relevant port authority typically undertake any part of the port construction?

Yes. In the port projects that have been implemented using the PPP model, the state effected part of the construction - quays, access roads, etc.

Does the port operator have to adhere to any specific construction standards, and may it engage any contractor it wishes?

The party that is responsible for the construction of the port facilities must ensure compliance with generally applicable building standards, but is normally free to appoint subcontractors as long as it remains responsible for their performance.

What remedies are available for delays and defects in the construction of the port?

Remedies for delays and defects in the construction of a port can include:

  • penalties and interest;
  • compensation for damages;
  • reduction of the contract price; and
  • obligation of the contractor to make good the defects at its own cost or to compensate the customer for the expenses incurred by the latter in order to rectify the defects.

In the event of grave violations of the concession or construction contract, the concessionaire or customer is entitled to demand the termination of the contract through the courts.

Port operations

Approval

What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals?

In order to start operating the newly constructed item of port infrastructure, the operator must obtain permission for commencement of operations, which may be applied for upon completion of construction. An application must be accompanied by a substantial number of documents that confirm the object’s acceptance and compliance with various applicable standards. Competent authorities must issue the permission for commencement of operations within 10 days of an application. However, owing to the need to gather all the supporting documentation, preparation to apply may take several months.

If the terminal in question is intended for handling dangerous cargo, it will also be necessary for an operator to obtain the respective licence. Together with the preparation period, this may take two to three months.

Typical services

What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services?

This differs greatly from port to port, as in some areas services related to cargo operations may be rendered by state organisations (though not port authorities as such). However, normally, state companies and port authorities would render services relating to safety of navigation, security, etc, while private enterprises would render port fleet services, cargo operation services, servicing of passengers, etc.

Access to hinterland

Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections?

These issues are determined on a project-by-project basis.

Suspension

How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them?

The Federal Agency for Maritime and River Transport is the authority that supervises ports on an everyday level. Control over the operators’ activities is exercised by a number of methods, including inspections and licensing, among others. The operation of a terminal may be suspended in case of emergency or violation of the safety requirements or other licensing requirements (if applicable).

Port access and control

In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations?

Essentially, a port area is open to port authorities whenever they are exercising their duties, particularly when conducting state control over the activities of the operators. Port operations can be taken over in case of emergency.

Failure to operate and maintain

What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed?

An operator that fails to operate the port facility in accordance with the applicable regulations or agreement may:

  • lose its licence (where applicable);
  • have the facility’s operations suspended;
  • be subject to fines; or
  • face other administrative sanctions.

The operator’s officers may also be subject to administrative and criminal liability for the violations committed.

If the operator is bound by an agreement with state bodies, such an agreement may be terminated in the case of a substantial breach of such a contract.

Transferrable assets

What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets?

The operator will be required to return the principal object of the concession to the state authority, as well as any property that must be returned or transferred to the concedent in accordance with the concession agreement.

Miscellaneous

Special purpose vehicles

Is a port operator that is to construct or operate a port in your jurisdiction permitted (or required) to do so via a special purpose vehicle (SPV)? Must it be incorporated in your jurisdiction?

Yes, it is possible to use a company that is specifically designated for the construction or operation of the port facility. In most cases, such a company must be incorporated in the Russian Federation.

Transferring ownership interests

Are ownership interests in the port operator freely transferable?

Shares or interests in port operators are generally freely transferable, with the exception of stakes in such operators that are considered ‘companies of strategic importance’ (see question 14). Such transfer may also be subject to antimonopoly regulations, requiring the consent or notification of the antimonopoly authorities.

Granting security

Can the port operator grant security over its rights under the PPP agreement to its project financing banks? Does a port authority in your jurisdiction typically agree to enter into direct agreements with the project financing banks and, if so, what are the key terms?

Theoretically, this may be possible, but only subject to the state party’s (concedent’s) consent.

Agreement variation and termination

In what circumstances may agreements to construct or operate a port facility be varied or terminated?

Other than by mutual agreement of the parties, a concession agreement may be amended if the laws of Russia change the validity of the agreement to the effect that the concessionaire will be substantially deprived of the benefits that it was reasonably intending to obtain when entering into the agreement. Other than upon expiry, the concession agreement may be terminated by mutual agreement or, in cases provided for in the agreement, by the court upon request of one of the parties in the case of a material breach of the agreement by another party.

Contractual breach

What remedies are available to a government or port authority for contractual breach by a port operator?

See question 40. In addition to the right to terminate the agreement when provided by the contract, the concedent’s side may apply to the court in the event of material breach from the side of concessionaire for termination of the agreement.

Governing law

Must all port PPP agreements be governed by the laws of your jurisdiction?

In general, yes.

Disputes

How are disputes between the government or port authority and the port operator customarily settled?

In most cases, such disputes are considered by the Russian courts.

The information in this chapter is accurate as of 2017.