Интервью — Радо Антолович, гендиректор Новороссийского морского торгового порта

Vedomosti, 23.01.2013, 8 (3270)

Milana Chellanova

This year the government is relinquishing its block of shares (20%) in Russia’s largest port - the Novorossiysk Commercial Sea Port (NCSP). After that, the state will own only one port - the Port of Ust-Luga, but it is not currently part of any privatization plans. And the battle for 20% of NCSP’s shares could turn serious. Spokesmen for the former deputy minister of regional development, Vladimir Kogan, and the Arabic Fund Invest JSC, have already expressed their interest in buying this block. If the shares end up in the hands of one of the current co-owners, Ziyavudin Magomedov’s Summa Group, he would then become the port’s biggest shareholder. Currently 50.1% of the port’s shares are co-owned by Summa and Transneft.

The port industry is looks very promising today. Rado Antolovich, the general director of NCSP, claims that a $1.1 billion investment program is underway at the port in order to meet growing demand from customers.

The ambitious plans to develop the port were last year entrusted to Mr. Antolovich, who is originally from Yugoslavia. He is the only foreigner serving as the general director of a Russian port. Captain Antolovich has worked in this industry for 35 years, half of which he has spent managing container terminals. During that time he has supervised terminals and ports from New York to Hong Kong.

Mr. Antolovich is an athlete - in 1980, he was part of the Yugoslav weightlifting team that competed in Moscow. That was his first trip to Russia. From 1996 to 2000, Mr. Antolovich oversaw the construction of Russia’s first private container terminal - at Vostochny Port (currently known as Vostochnaya Stevedoring Company and a subsidiary of the Global Ports group owned by Nikita Mishin, Konstantin Nikolaev, and Andrei Filatov). In 2011 he came to NCSP and became a Russian citizen in order to serve as NCSP’s general director. Last March, NCSP presented its development strategy that extends to the year 2020, under which 33% more cargo, as much as 200 million tons, is expected to begin passing through the port. The ports of Novorossiysk and Primorsk will acquire terminals to handle coal, iron-ore concentrate, and fertilizers. “By 2020 we want NCSP to be the second-biggest port in Europe in terms of volume of freight,” says Mr. Antolovich.

- The government’s stake in the port will be sold this year. What are your expectations for that sale?

- We’re working with all the shareholders. The state will decide the fate of its block of shares in NCSP. We’ve prepared all the necessary documents. I’ll just say this: there is interest from investors.

- Along with the 20% stake, the government was also planning to sell the 5% of the shares of NCSP that belong to Russian Railways. But RR convinced the state not to sell them. In your opinion, how legitimate is RR’s presence in the capital of stevedoring companies?

- Why not? If it improves how the ports and railroads work together - it’s a plus. Russian Railways is interested in making a profit - as a commercial enterprise. A stevedoring business is the same type of business as moving cargo by rail.

- Who among the shareholders currently influences the key decisions?

- The managers are responsible for implementing the business strategy and for everything that goes on in the company. The shareholders - Transneft, the state, and Summa group - are represented on the board of directors and have a voice in making all the key decisions. Believe me, all the shareholders are quite interested in what is going on in the company and no decisions are made without a detailed, earnest discussion.

- What do you think of Vladimir Kogan’s interest in the government’s stake in the port?

- I wasn’t aware of his interest.

- How will the privatization of the government stake affect the port’s future?

- NCSP has a very ambitious strategy that requires well-coordinated teamwork. I hope that after the privatization of the government’s stake the port’s new shareholders will support that strategy and help it to flourish.

- You worked in a number of countries before coming to NCSP. You’ve had a connection with the sea since your childhood (see sidebar). Before you came to Russia you worked in Australia. What did you do there?

- I started in Union Shipping of Australia (MOL) in the port as a foreman over a shift of dockworkers. Then I was elected to be chairman of the union. I was going to school at the same time. I got a degree in Transportation Studies at the University of Sydney. By 1996 I was already managing the port in Sydney’s White Bay, which consists of container and grain terminals plus a terminal for handling general cargo. Then I worked at other ports in Australia, New Zealand, and Singapore. The previous year, P&O Ports, which at the time was one of the largest port operators, had purchased the company. So as an employee of P&O Ports I managed terminals and ports in Russia, Italy, Malta, Hong Kong, and Japan. And in 2007, the Arabic DP World, an operator of ports on all continents, bought the assets of P&O Ports. The new shareholders asked me to manage the container terminal in Hong Kong, and then in the Russian Far East and Romania - in the port of Constanta.

- And when did you come to work in Russia?

- I came to work in Russia in 1997, as the senior manager of Vostochny Port. I was assigned the task of expanding the container services. Among other things, we needed to set up a system through which customs, the government, the private sector, and customers could all work together. I worked out East for four years. Although the Trans-Siberian Railway begins at Vostochny, the port services were not the best. And it was in part because of the poor quality of services that neither the port nor the Trans-Siberian railway had the greatest reputation at the time. Despite the potential for increased cargo traffic, the port was not competitive. My job was to improve the level of service.

- From Nakhodka you went to sunny Italy?

- To Sardinia. That was in 2000. The Italian government used EU money to build a modern transshipment hub called the White Elephant. The necessary infrastructure was there and cargo-handling equipment, but there were no workers, customers, or even a basic IT system. My job was to find and train people, create a system of work procedures, and find customers. But in 2001 there was a general strike in Italy, which the port workers took part in. We - myself, a few senior managers and other colleagues, who were not part of the union - had to take over as loaders. We literally lived in the terminal. We were the only terminal in Italy that was open, although our operations were very slow. Then came Malta. Then Hong Kong - where I did my first million TEUs. For the Port of Hong Kong that was normal, but for me it was a real test. I managed - we had a million in just six months.

- And you came back from Hong Kong to Russia, working for DP World?

- Yes. At that time DP World offered to let me pick where I wanted to work - in Europe or in Russia. I said I wanted to go to Russia. I was given the job of analyzing the purchase of new businesses for the company. But then came the economic crisis in 2008 and all of DP World’s plans for Russia collapsed. And I was sent to the Port of Constanta to manage the terminals that handle containers, grain, automobiles, and extra-heavy and oversized cargo...

- But in 2010 you went back to Russia. Why did you accept NCSP Group’s offer?

- I could see a future there - and the opportunity to help develop very interesting assets and to realize their potential. I’m able to make comparisons. Making the port the second-busiest in Europe in terms of quantity of freight, which was the challenge given me by the shareholders, is a very realistic prospect. We’ve historically had a well-diversified cargo base. NCSP’s terminals accept oil and oil products, containers, grain, coal, iron, fertilizers, and so on - that’s a wide spectrum of goods. Each segment has its own laws, but together they create a stable structure, where a decline in one type of cargo can be offset by an increase in others. But if we want to grow, and grow quickly, we need to place our bets on fast-growing, promising segments. In the long term, we also see an opportunity to bring in additional freight by increasing the transit traffic through Russia: the ports on the Black Sea and Baltic Sea can be used as transit ports for goods traveling from Asia to Europe, for example.

- Speaking of significant areas for growth, you probably mean containers...

- Yes. I’m primarily talking about containers. But not exclusively. It’s true that containers today are the fastest-growing type of cargo in Russia. Right now, containerization in this country is little more than 1/5 the level it is in Europe, but the situation is changing rapidly. Nowhere in the world is traffic in container cargo expanding as quickly as it is in Russia. It’s growing here by an average of about 16% per year. Russia’s closest competitors are only seeing an increase at about half that rate. Grain is an equally promising type of cargo, despite being a very seasonal product. At the current pace of agricultural development Russian grain exports could double or triple in the next 5-7 years, assuming the current level of domestic consumption remains stable. More than 80% of grain is exported through ports in the South - to neighboring countries in Asia and North Africa. These are places where imports increased even during the years of the economic crisis, where prices for grain have surpassed even their own record highs. Coal also looks very good. We’re seeing increased consumption in countries in the Mediterranean - North Africa, Italy, and other countries - for use as fuel. Consequently, coal transshipments through the ports on the Black Sea are rising. In an optimistic scenario, exports via the Azov-Black Sea basin will double in the next 5-7 years. Increasing the capacity for handling containers, grain, and bulk and loose cargo such as coal, iron ore, and fertilizers are three key areas of investment in the second phase of our master plan that extends to the year 2020.

- What’s the basic principle of that plan and its end goal?

- By 2020 we want NCSP to be the second-biggest port in Europe in terms of volume of freight. As of September, we were handling only 10-12% less cargo than the Port of Antwerp, which is currently in the number-two spot on that continent. And we’ve even surpassed the Port of Rotterdam - Europe’s largest - in certain types of cargo: 15% more oil and 5% more grain pass through NCSP. Our master plan takes everything into account: the condition of the rail infrastructure, the competitive environment, predictions regarding international trade, the status of tariff rates, market forecasts for cargo, guidelines for purchasing equipment, etc. In essence it boils down to three key elements. The priority placed on expanding capacity in areas with freight that is quickly growing and highly profitable. The introduction of multifunctional cargo-handling equipment that can work with various kinds of bulk and loose goods, including import cargo as well as export. And ensuring that the infrastructure near the port, particularly the railroads, are compatible with our capabilities to receive and process freight. Speaking of infrastructure, I’m not just talking about the capabilities of the Russian Railways system, although that issue is extremely relevant. Many problems can be eliminated by optimizing the management of operations and dispatching and by introducing modern technology to track cargo, such as the Glonass system that has been adopted at our grain terminal. The only way to significantly increase the port’s handling capacity, and to avoid bottlenecks on the access routes that lead to it, is by working with RR and freight shippers to jointly plan for cargo traffic. An important component of this strategy is the use of internal resources to improve operational efficiency: by making more efficient use of warehouse space, modernizing our fleet of cargo-handling equipment, and increasing the port’s traffic capacity by working more efficiently with freight shippers, RR, customs, and other services in terms of joint planning, tracking cargo traffic, and speeding the passage of goods through port.

- Is it too early to talk about results?

- No, it’s not too early. The results are already visible. Our EBITDA margin increased from 52% in 2011 to 59% in 2012. Productivity in 2012 increased by 12-24% at various terminals. Consolidated freight turnover for 2012 also showed growth, despite less than optimal weather and market conditions. We’ve processed nearly 159 million tons of cargo, which is a real record for our group!

- Are some of the projects from the master plan already underway?

- Some of the projects we have already completed. A bunker complex in Primorsk and a fuel-oil terminal in Novorossiysk have already been put into operation. We’re developing a container terminal in Baltiysk (Kaliningrad). We’re beginning a project to expand the container facilities in Novorossiysk, on the basis of Novoroslesexport - up to 700,000 TEUs. We’re buying lots of modern, multifunctional, loading equipment - the first shipment of cranes has already arrived at the port and they’re in use. We’re continuing to modernize the oil-loading facilities in Novorossiysk - the Sheskharis oil depot and IPP.

Most of the investment projects are scheduled for the second phase of the master plan - for the mid-range future. Some of them we’re already starting this year. We plan to inspect all the hydraulic engineering installations to arrange for subsequent dredging, we’ll begin construction of a multifunctional terminal to handle transshipments of coal, iron ores, and fertilizers, and we’ll launch a project to increase the capacity of the grain terminal.

- Isn’t it a problem that the Port of Primorsk, which is included in your group, is still not connected to Russian Railways’ public tracks, and thus cargo has to be piped or trucked into the port?

- Rail service to the Port of Primorsk is already being set up. Seven and a half billion rubles have been allocated from the federal budget to renovate the Vyborg - Ermilovo line. The question isn’t whether or not there will be a railroad to Primorsk. The question is when. The main problem is the lack of technical criteria for connecting Russian Railways’ infrastructure to the station in Ermilovo, which is the station that RR has identified to us as the connection point. Without technical specifications it’s not possible to finalize the design of the intraport infrastructure with regard to linking up to the public rail lines. But RR cannot provide the technical criteria. But both the internal and external rail lines for bringing cargo into Primorsk have to be put into operation at the same time, or else both parties will lose money sitting idle. The longer it takes RR to provide the technical criteria for connecting the port’s rail lines to the railroad station, the more likely it is that the infrastructure of the Primorsk will face delays before it’s ready. It’s no longer a question of whether or not rail service will be brought to the port of Primorsk, it’s about how economical that solution will be. Everyone recognizes the need to develop cargo service into the Port of Primorsk, including the government: money has been allocated from the budget. In recent years the decision has been made on more than one occasion to build a branch line to Primorsk - there were three decrees from President [Vladimir] Putin in 2007 alone. We have potential customers with total cargo of at least 30 million tons a year. “Dirty” cargo, such as coal and chemical fertilizers that can’t pass through ports located within the boundaries of the large cities, can be redirected to Primorsk, which is located outside the city limits. Opening new terminals at Primorsk means adding jobs as well as boosting tax revenues to the regional budget. This project is good for everyone.

- Recently Rosprirodnadzor inspected your port in Primorsk and levied a fine after finding violations.

- We are inspected regularly, several times a year, and have never had any environmental complaints against us. We believe that the 100,000-ruble fine that Rosprirodnadzor levied was illegal, as was the basis for the fine. We’ve filed a lawsuit to that effect. Rosprirodnadzor mistakenly believed that we needed to install additional equipment to block the vapors that arise when loading oil into tankers. The installation of this equipment is not required by environmental laws and is not necessary - a fact that is confirmed by the results of regular assessments of the environment conducted by the regulatory agencies. Not a single Russian port today uses that equipment. Overall, the Port of Primorsk is currently one of the most modern in the world in terms of environmental protection. Our main task is to prevent hazardous situations, and incidentally, we’re one of the central venues where environmental training is conducted for all the ports on the Baltic Sea.

- In March of last year the Baltic Pipeline System - 2 began operations, which funnels to the terminal at the Port of Ust-Luga. Has this meant a declining volume for Primorsk?

- Ust-Luga received a lot of that, but those were mostly shipments that used to pass through the terminals in St. Petersburg and the ports in the Baltic countries. The water in the ports in St. Petersburg and Ust-Luga is not as deep as ours. The Port of Primorsk lies outside city limits and has superior depth of water. For that and other reasons many consignors find it more convenient to ship via Primorsk. But there’s enough freight for Primorsk, and for Ust-Luga and St. Petersburg as well. Within 5-10 years cargo that is currently being exported through the ports of neighboring countries will return to Russian ports. About 16-17% of Russian exports are now shipped from nearby countries - Finland, the Baltic states, and Ukraine. We export about 20 million tons of oil through ports in Estonia alone. Significant quantities of Russian fertilizer are shipped from Latvia and Ukraine. That’s not right - we need to ship our goods from our own ports. That’s a more logical approach - it’s also desirable from a strategic, economical, and political standpoint. In addition, some of the cargo in transit through Russia to the Baltic states can be redirected to Russian ports, including those on the Baltic Sea. An incentive could be used to counteract Russian Railway’s decreasing coefficient in this regard, provided that the cargo goes to a Russian port. Our challenge as a port operator is to provide clients with an environment in which shipping freight via their “home” ports on the Black Sea and Baltic Sea will be more profitable for them.

- The government has finally made a decision about regulating rates for transshipments of cargo - the Federal Tariff Service issued an order that the rates of natural monopolies will be deregulated. How significant is that for the industry?

- It’s very significant. If pricing regulations are abolished that will make it possible for us to establish more flexible rates and to respond rapidly to changes in the competitive environment. The government should allow stevedoring companies to earn some money, not to just make investments. I don’t think that the fears that deregulation will lead to a sharp increase in the price rates are justified - cargo will always seek out the most economical route. But the rates are just part of the picture - the speed at which a stevedore can unload a ship is also important, as well as how quickly and effectively customs can be cleared, the storage guarantees, the condition of the freight when it reaches the recipient ... If I can unload a 100,000-ton ship in two days, while my competitor takes a week, then I can seriously reduce the shipping company’s expenses - by $120,000-130,000 (more than $1 per 1 ton).

- What’s the economic impact of deregulation?

- It’s difficult to calculate - the rates change rapidly. In addition, there are different rate schedules for different types of cargo. If you look at container handling, the customer is not interested in the rate charged for handling - he is interested in the through rate and the time it takes the cargo to be delivered from point A to point B. And there are advantages of deregulation that are not obvious at first glance - for example, the fee for freight storage (under regulated rates, the consignor can store containers for up to seven days for free at the port, thus customers can use our premises as a warehouse). If regulation is abolished, then free storage will only be available for up to four days - which immediately increases the traffic capacity of the terminal.

BIOGRAPHY

Born in 1959 in Yugoslavia. In 1987 he graduated from University of Edvard Kardelj in Ljubljana with a degree in Marine Engineering. In 1994, he received a BA in Transportation Studies from the University of Sydney.

2005

began work at DP World, managing terminals in Hong Kong and Russia

2009

member of the board of directors of Vostochnaya Stevedoring Company’s terminal, which belongs to Global Ports, and the general director of Constanta South Container Terminal in Romania

2011

director of marketing and sales at NCSP

2012

appointed general director of NCSP

”No need to change the team!”

“I was born in Yugoslavia, in the city of Piran, a town that’s over 2,000 years old. It’s very similar to Venice. It has about 12,000 residents, most of whom are sailors. I graduated from the elite naval academy in Piran. As a cadet, my field training was spent at a repair yard, in port, and on ship - I sampled all types of seafaring professions. I was 14 when I was first assigned to a crew and went to Africa as a sailor. At some point I realized that I had reached the top in the shipping business and that I needed to move on. Yes, it’s a big deal to be the captain of an international ship - but it wasn’t interesting for me. As time passed, managing a ship had become simpler. When I began my career, an average crew was made up of 36-38 people. And the cargo being transported was quite varied. But by the time I finished, ships were manned by 16 people at most, and the cargo had largely become homogeneous. The most important thing I took away from my career as a captain is that there’s no need to change the team! Then I went to Australia. I knew I wanted to stay in that country the first time I arrived on a merchant vessel in 1988. It was Christmas Eve. The natural environment in Australia made an impression on me - it’s different than in Europe, Asia, or America ... In the early 90s my dream came true. I moved to Australia. I had to start over from the beginning. But as they say: “The sky is the limit,” which means: you can achieve whatever goal you set for yourself.

Executing NCSP’s master plan

“We analyze the market and gain an understanding of the general trends. Then each project is individually evaluated by experts. We need to understand the long-term prospects for a specific type of cargo and whether the customers can guarantee to provide the necessary quantities and ensure full capacity for several years. There’s no sense in making an investment if it’s obvious that the quantities won’t be there in a few years. A third, and important, factor is that we evaluate our competitiveness in terms of the port’s traffic capacity, nearby infrastructure, through rates, and speed of delivery.

For example, we’re planning to build a multipurpose terminal in Novorossiysk to accept coal, iron ores, and mineral fertilizers - with a capacity of up to 8-12 million tons. It will be an indoor terminal equipped with modern, multifunctional cargo-handling equipment. This terminal will allow us to handle “dirty” cargo without damaging the environment and also let us adapt quickly to the market: if there’s no coal - we’ll load fertilizer and iron ores, if there’s no fertilizer - we’ll load iron ores and coal, and so on. This is a very ambitious project - we increased our transshipments of iron by over 26% just in 2012.

We see the market. We see opportunities. But none of that matters if we can’t accept ships with a deadweight of up to 120,000 tons. Because our primary competitors - Ukrainian ports - accept ships like that, and that’s a serious competitive advantage. That’s why, before building the terminal, we’re going to dredge - a terminal is not competitive without big ships in the wharves <...> We make adjustments [to the master plan] every year - development plans have to correlate to the market ... If we look at the long-term forecast for grain exports, we see that they’re going to increase. Russia has, in theory, great export potential, but the existing cargo-handling facilities are at full capacity. That’s why we will continue to invest in the transshipment of grain. In the mid-range future we plan to increase the capacity of the grain terminal at Novorossiysk up to 1-2 million tons.”

NCSP Group

A port operator

Revenues (the first nine months of 2012, IFRS) - $786 million

Net profits - $319.7 million

Major shareholders: a joint venture between Transneft and Summa Group owns 50.1%, Rosimushchestvo - 20%, Russian Railways - 5.3%.

Capitalization - $1.8 billion.

Freight traffic during the first nine months of 2012 - 134 million tons

NCSP Group (Novorossiysk Commercial Sea Port and Primorsk Trade Port) - the largest stevedoring company in Russia and the third largest in Europe.