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Russian plans for the Arctic  
Arctic Ship
Arctic Ship
Sovcomflot and Novoship, Russia's largest shipping companies, have estimated their total worth at $3.37 billion.

Experts think that after the companies' merger happening by the end of this year, the new mega-company may become the world's third largest shipping company according to its assets and the second largest in terms of gross tonnage.

The decision to create a powerful shipping holding was made in June, when the president signed a decree allowing the two companies to merge. This ended the lengthy dispute between the advocates and opponents of the idea. The Russian Transport Ministry, primarily its former head Sergei Frank, was its chief lobbyist. Three years ago as Deputy Prime Minister he said that this step would help the Russian shipping business maintain its position in a climate of globalization."

Later, when Frank was elected Sovcomflot's director general, at a government recommendation, the project reached the final stages. Novoship's managers who opposed the merger were dismissed and the new leadership immediately agreed to the merger. The plan was approved by the Economic Development and Trade Ministry and the Transport Ministry. To complete the deal, it was only necessary to coordinate some minor "technical details."

Under the presidential decree, a 50.34% state-owned stake in Novoship will be transferred to Sovcomflot, which is a fully state-controlled company. While maintaining their juridical independence, the two shipping companies will operate jointly dividing their spheres of influence and working on joint projects. One of these projects, building Arctic shuttle tankers, was presented in June 2007. The Admiralteiskiye Verfi shipyard in St. Petersburg has already started building the first tanker of this kind.

The new company's fleet will consist of 113 vessels. The company has plans for another 32 consisting mostly of tankers and several modern ice-class liquefied gas carriers to be added in the next three years. There is no doubt that the fleet's main task in the next few decades will be to transport hydrocarbons from the Arctic shelf.

Oil and gas deposits in the Arctic Ocean are a major energy hope of Russia and the world, especially since the peak of yet another energy crisis is approaching, perhaps the most serious in history. UN experts estimated the shelf reserves at 140-180 billion metric tons of hydrocarbons. A group of international researchers named the much smaller figure of 30 billion metric tons in their report on the future of the Arctic. However, they referred only to proven reserves and even these will last for a long time.

According to the data of the Houston World Oil Conference, 69% of gas deposits are in the Russian Arctic zone. Russia will have to defend its rights to a considerable part of this territory but, judging by all signs, it is gathering strength for its Arctic campaign without waiting for the UN commission's verdict on the limits of the continental shelf.

Russian natural gas monopoly Gazprom has already agreed with its foreign partners, French oil major Total and Norway's StatoilHidro, to develop the Shtokman gas condensate deposit in the Barents Sea. They must set up a joint venture by the end of the year. Sevmash, in Severodvinsk, is already building offshore drilling rigs for Gazprom. The Murmansk Shipping Company, which has a unique icebreaker fleet given to it by the state, is expanding the network of its oil-loading terminals in Arctic ports. Transneft is laying a pipeline from East Siberia to the Pacific and is planning another one that will run along the Barents Sea coast.

The new shipping company will play a special role in this campaign because it has Russia's largest and most modern tanker fleet at its disposal. Recently two more vessels for LNG transportation have been added to its fleet. In the next 20 years, these tankers will export hydrocarbons from the Sakhalin-2 deposit, which has been under Gazprom's control since last year. A joint venture, which is being set up now by Sovcomflot and the project's operator Sakhalin Energy, will manage the Prigorodnoye port, which is to be used for gas transportation. The Baltic LNG company established by Sovcomflot jointly with Gazprom in 2005 will build an LNG plant in Primorsk (Leningrad Region).

There are other promising Russian plans for the Arctic. Sovcomflot has signed an agreement with Sovmorneftegaz on oil transportation from the Prirazlomnoye field, with Naryanmarneftegaz on its delivery from the Varandei terminal, and with Rosneft on the joint servicing of shelf projects.

Moreover, a representative of the holding will have a seat on the board of directors of the United Shipbuilding Corporation, which is currently being established for the placement of orders with the Russian shipyards. This is an obligatory condition for the merger. According to experts, Russia will need 100 new specialized vessels to transport hydrocarbons from Russian shelf deposits.

The merger of the two shipping companies, which is one of the largest transactions of the year, is in line with the policy of the country's present leadership aimed at the revision and consolidation of state assets. However, as experience shows, the state has not always been an efficient and successful owner of its assets.

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