Johnson's Russia List
#6232
9 May 2002

#16
Subject: PIECE ON RUSSIA/EU INFRASTRUCTURE
Date: Wed, 8 May 2002
From: "Robert Nurick" <[log in to unmask]>
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René Nyberg
Ambassador of Finland
http://www.finemb-moscow.fi/
Meeting of the  "Russia in an Integrated Europe" Committee Moscow
26 April 2002

The Gulf of Finland as the new Sound;
the Northern Dimension and traffic infrastructure in North-West Russia

My intention is to examine the infrastructure of the interface between the
enlarging European Union (EU) and Russia. My special concentration will be
on maritime traffic, but without overlooking inland waterways, railways,
road traffic, severely underdeveloped air traffic and the actions of the
customs, which are gnawing away at everything. I shall also comment on
transit traffic. My geographical attention will be on the Gulf of Finland,
which is the focal point of logistics in the entire region, and I want to
compare it to the focal point at the other end of the Baltic, the Sound
(Öresund).
The core idea in the EU's Northern Dimension policy aptly reflected the
challenges that an enlarging Union faces in North-West Europe. In only a
couple of years' time, the Baltic will become to all intents and purposes
an inland sea of the Union and  Russia. This poses new and increased
challenges to the Union's policy on Russia.
The concepts on which the Finnish Government based its Northern Dimension
initiative from 1997 still reflect the situation. The most important of
them is positive interdependence. This is a thoroughly European concept. It
describes the post-war growing together of Western Europe's economy and
traffic infrastructure to the extent that, as many Germans today do not
even remember, Germany's biggest port is Rotterdam and not Hamburg. The
second central concept by means of which we wanted to emphasise the
challenge facing us was the expression normative divide. It reflects the
challenges facing Russia to integrate into the European and global
economies. The European Union and Russia agreed at their summit in Moscow
in May last year to create a Common European Economic Space.
Economic growth in the market region of Northern Europe is faster than
anywhere else in our continent. Some 50 million people live in the Nordic
countries, North-West Russia and the three Baltic States. If we add to this
the populations of the Baltic coast regions of Germany and Poland, we can
talk of an economic space containing about 80 million people.
The explosive growth that we have seen in transport and travel highlights
the importance of traffic infrastructure as the Russian and EU economies
grow together. The advice given by President Putin in his "State of the
Union" address on 18 April, namely that world-level models should be taken
as the criterion for success, is also suitable as the goal to be pursued in
its development.
The St. Petersburg region is developing into a major transport node and
logistics centre serving Russia's foreign trade.  It is there that sea
lanes to the west meet railway lines and inland shipping routes from the
east and south, the Volga-Balt and Volga-Don links, the Trans-Siberian
Railway, the North-South Corridor from the Caspian Sea and Iran.
The Gulf of Finland region is already a logistics nexus. Ports in both
Finland and Estonia offer significant functional advantages for transport
to and from Russia, thereby improving the standard of service and lowering
the cost of conducting foreign trade. Natural conditions in the eastern end
of the Gulf of Finland are awkward for sea transport. Pack ice persists for
a long time after the Estonian coast and Finnish ports have been freed of
it. The shallow waters off St. Petersburg mean that shipping lanes must be
constantly dredged.
Trilateral cooperation between Finland, Russia and Estonia in the Gulf of
Finland began between the frontier guards ten years ago. The goal now is to
follow the examples of the English Channel and the Sound and create a
Vessel Traffic Management and Information System for the Gulf of Finland by
2004. As passenger traffic at right angles to the main east-west shipping
flows as well as oil transports increase, this system is essential for both
environmental protection and traffic safety in general. The project still
requires the approval of the International Maritime Organization.
Strongly positive development is concentrating on the Gulf of Finland. The
ports of Tallinn and St. Petersburg have been growing fastest. The
significance of Finnish ports is growing when goods flows are measured in
terms of value rather than tonnage. The other North-West Russian ports,
Murmansk and Archangel, are likewise developing, but mainly as exporters of
Russian raw materials. The same applies to the Latvian and Lithuanian
ports, where goods flows are significant and reflect the growing share of
these countries' own foreign trade in addition to traditional transit
traffic.
On the basis of goods volumes transported, it is possible to say already
today that a strong positive growth spiral has begun in the Gulf of
Finland, and the internal mechanisms of cargo logistics are supporting it.
One of the central factors is the number of services and links, which
commercial actors regard as a matter of key importance. Consignments are
taken to the place from which they immediately begin their onward journey.
Where there is plenty of cargo, there are also frequent services. The many
independent actors involved in a logistics chain - forwarders, railway
companies, road hauliers - channel their investments into the places where
there is already transport. These investments in fixed structures
strengthen and before long clinch the winners in competition between ports.
An example of the cross-border mechanisms that the logistics concentration
in the Gulf of Finland region boasts is the fact that today only Finland
can offer a return-freight demand for containers.  Finland's very
considerable total exports (worth ?47.7 billion in 2001) need empty
containers, which Russia's imports bring into the Gulf of Finland region.
The containers and trucks arriving in the St. Petersburg region and ports
in the Baltic States have to be taken away empty. But shared use of these
containers and trucks reduces the cost of trade for both Finland and Russia.
Inland waterway transport is of very great importance in Continental
Europe and especially North America. It was also hugely important during
the Soviet era. Today, Russia's extensive network of inland waterways has a
dilapidated infrastructure and is poorly integrated with other transport
modes. Russia is committed under the terms of the Partnership and
Cooperation Agreement to opening up her inland waterways to vessels from EU
countries. Finland has experience of using the Volga-Balt system, for
example to deliver large drilling rigs to the Caspian Sea.
The underdeveloped road infrastructure in Russia is hindering growth in
truck traffic. This becomes evident when one travels by car from Moscow to
the "Northern capital" St. Petersburg. Construction of a motorway meeting
international criteria has not even commenced. The main emphasis in
North-West Russia is on building road bypasses of St. Petersburg and
Vyborg. Forty per cent of Russia's import and export by road goes through
Finland.
The great bulk, about 80%, of surface transport in Russia is still by
rail. The most important recent investment from the perspective of
international transport was an upgrade of the Moscow-St. Petersburg track
and a separation of goods and passenger services between the two cities.
Goods trains now run via Vologda. The recently completed direct connection
between the Murmansk railway line and the harbours of the Gulf of Bothnia
(Lietmajärvi-Kotshkoma-Kostamus) opens up a direct connection also to
Arkhangelsk. The plan to continue the further to Perm and the
Trans-Siberian railroad is a hundred years old. What has become known as
the BELKOMUR project is of renewed interest, since it would make possible
the exploitation of the vast forestry resources of Arkhangelsk and Komi.
The decision to create a high-speed train connection, initially between
Helsinki and St. Petersburg and later also as far as Moscow is very
important. It would be the first passenger train service of an
international standard running between the EU and Russia several times each
day. The Finnish Government has already allocated the funds to build a
shortcut line from Helsinki northwards to the city of Lahti. The present
journey time of five and a half hours will be cut to only four and a half
by the year 2004, and the aim is to reduce it further to three hours by
2007/2008.
As was the case a century ago, a new crossing of the River Neva will be
needed to extend the high-speed train service to Moscow. The first railway
bridge over the river, known as the Finland Bridge (Finljandskij most) and
still in use, was built using Finnish Crown funds and following a
protracted controversy in 1913, nearly half a century after the completion
of the rail link between Helsinki and St. Petersburg. This time, the money
to build a bridge over the Neva will have to come out of Russia's state
coffers.
The most underdeveloped part of North-West Russia's infrastructure is
absolutely air services. This applies not only to St. Petersburg, but to
the entire region, from Murmansk to Pskov and from Karelia to Komi.
International air services are a central prerequisite for the development
of companies and economic life in any region. In the case of St. Petersburg
one can even talk of underdevelopment. Traffic rights are reserved almost
exclusively for Russian companies. However, air traffic does not exist for
airline companies, but rather for international trade and travel.
Based on international experience, it is patently obvious that the St.
Petersburg economic region, like the whole of North-West Russia, is
suffering from the present situation. A positive spiral like the one we
have seen in sea traffic can be accomplished also in air services.  But
that will happen only by opening up and putting in place the prerequisites
for all airlines to come to St. Petersburg. As an example of differences of
opinion between the EU and Russia, let me mention the dispute that has
persisted for years on the subject of fees for overflying Siberia. The EU
would like the sums paid to be used to develop Russia's air traffic
infrastructure rather than, as is now the case, subsidising Russian
airlines. Another example is the current dispute over aircraft noise. As a
countermeasure, Russia has limited the number of flights that certain
foreign airlines are allowed to operate into St. Petersburg, among other
cities. This is already harming travel to and from the city.
The biggest common denominator in traffic between the EU and Russia is the
long shadow of the customs. It is a nuisance to truck traffic in
particular. The nub of the matter is simple. Customs services in the EU
countries and Russia have strategies that run along largely similar lines.
However, implementation on the practical level is different. This is due to
different operational cultures and economic conditions. The emphasis in the
EU is on ensuring that legal trade and traffic flow smoothly, whilst the
Russian focus is on crime prevention. When the Duma discussed the question
of customs on 11 March, the Rector of Russia's Customs Academy, Leonid
Lozbenko, reported that he had studied the operations of the customs
services on both sides of the Finnish-Russian border. In his view, the
difference is as follows: "On the Finnish side of the border, the customs
perform purely a service function: supervision through service or service
through supervision. On the Russian side, for objective reasons, customs
means the same things as 100% supervision."
The best models that President Putin has called for in the customs sector
will not prevent goods from moving efficiently across borders. In border
arrangements based on these best models there are only two authorities -
the frontier guard and the customs.
A globalised post-modern system does not emphasise sovereignty nor a
separation of internal and external affairs. The EU is an excellent example
of this, but so is the WTO. Integration is a growing together of different
countries' economies, a building of common markets and ultimately the
creation of a common economic area. This presupposes an opening up and
liberalisation of competition on all sides. As a result of competition,
some actors will exit the scene, but the economy of the region as a whole
will be stronger.
St. Petersburg's constantly strengthening status as a goods transport and
logistics centre for Russia's foreign trade is the first example of a
positive growth spiral in this country. Its close integration with the
entire Gulf of Finland region, which has the potential to develop into
another Sound, accentuates its international importance.

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