Coal port project “Lavna” stalled

The drop in coal prices again calls into question the construction of the Lavna port on the west bank of Kola Bay. The main players of the project have not signed any binding agreements on terminals and are not trying to participate in a project in which the state has already invested 32 billion rubles. The project operator claims to have made adjustments to its financial model, business plan and implementation schedule. Experts doubt, however, that the coal port has fundamental perspectives in today’s reality.

Construction of the Lavna coal terminal, the first phase of which was planned for the end of 2020, could be postponed indefinitely, industry experts told Kommersant newspaper. According to them, representatives of coal companies and investors have already said at the last meetings that there will be no terminal.

According to a report in the Kommersant newspaper, the main problem is that, under the conditions of the current crisis and falling coal prices, shippers have not signed the binding documents for loading the terminal on ‘take-or-pay’ terms (declaration at the end). The head of the Ministry of Transport, Yevgeny Dietrich, told at a meeting of the working group of the State Council for Transport and Energy on August 14, 2020 that such agreements were lacking. He noted that the state had already invested 32 billion rubles (347 million euros) in the project and several other investors 15 billion rubles (163 million euros).

The decision to build the Lavna coal terminal as part of the development of the Murmansk transport hub was already taken in 2012. However, the project, with a capacity of 18 million tonnes per year, has been in turmoil before. Several times, the investor groups and financing plans changed and the project stuttered.

As recently as March, the governor of the Murmansk region, Andrei Chibis, announced that the port of Lavna would be put into operation in 2022 and reach its design capacity of 18 million tonnes per year in the first quarter of the same year. Sources from Kommersant reported back in the summer that the project also had difficulties with the construction of the railway line.

Currently, the financial model, the business plan of the project and the timing of the concession are being adjusted, Igor Freidin, General Manager of Lavna, told Kommersant. This was due to a change in the coal market situation during the pandemic and a postponement of the date for the construction of the railway. The project will be implemented, he added: ʺThe project documentation has been prepared, the equipment has been purchased, the construction of the road is continuing, work for financing it by Gazprom bank is underway. The bank was ready to provide the “State Transport Leasing Company” with more than 30 billion rubles (325 million euros) for implementation of the project .

The Ministry of Transport informed Kommersant that the construction on the federal land was carried out as part of the development of the “Lavna” terminal according to the timetable laid down in the state contract. Possible options for supplementing coal with other types of cargo, such as mineral fertilizer and iron ore, are currently being considered.

The head of Infoline Analytics, Mikhail Burmistrov, says that the main problem due to the situation with the coronavirus is related to the time of construction of the railway. This will lead to a postponement of the project, but it is too early to talk about a failure, the expert said.

According to Maxim Khudalov of ACRA, however, the construction of a coal terminal for loading in a western direction has no future nowadays. “The decarbonisation of the EU is a long-term trend. In certain market situations, it is possible to transport coal from Western ports to Asia, but it is too risky to invest in such a development,” says the analyst. ʺFertilizier that Belarus wants to target Russian ports might replace coal for “Lavna,” but this option also seems riskyʺ. According to Maxim Khudalov, concentrating on just one type of goods is a dangerous step.

Explanation Take-or-Pay

The Take–or–Paycontract is a contract in which someone assumes an unconditional obligation to pay, regardless of whether the other contracting party provides an agreed consideration by the supply of goods or services.

Heiner Kubny, PolarJournal