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. Last Updated: 07/27/2016

Port Fee Discrimination Halted

For MTThe Novorossiisk port now charges tonnage dues of 9 cents per cubic meter.
In a bid to smooth its way into the World Trade Organization, the Russian government has ordered its ports to stop discriminating against ships based on their flag.

Earlier, a two-tier system was in place under which countries that had bilateral agreements with Moscow enjoyed tonnage dues up to three times lower than for other countries, a holdover from Soviet days. As of Jan. 1, all ships are charged the lower, "privileged" rate to bring cargo into a Russian port.

At the Black Sea port of Novorossiisk, the privileged rate was 9 cents per cubic meter, compared with a regular rate of 27 cents. In St. Petersburg, the privileged rate was 8 cents per cubic meter, compared with a regular rate of 24 cents.

Since the first agreement with Britain in the 1920s, Russia had struck such deals with about 100 countries.

Ships flying "flags of convenience" -- or open registers, countries that offer their flag to ships of other origin -- were charged the higher rate, making it prohibitively expensive to trade in Russian ports. Panama, Liberia and the Bahamas are open registers.

"Take a 50,000-ton dead-weight vessel, if it flew a convenience flag, it would have had to pay around $100,000 for one port call, compared with half the price paid by ships whose countries have agreements with Russia," said Sergei Burima, general manager of charter and fleet operations at Novorossiisk Shipping Co., or Novoship. His company runs 73 vessels, 15 of which are registered under the Maltese flag and 24 under the Liberian. "On short voyages, especially, it completely changed the financial picture, making calls at Russian ports nonviable," he said.

Brad Burmen, a spokesman for the Liberian International Ship & Corp. Registry, said the two-tiered system was problematic for his company.

"It was a disadvantage to fly Liberia. We estimate there are several hundred vessels ... that might traditionally fly the Liberian flag but did not fly it because of this issue," he said by telephone from New York.

With around 2,000 ships, 10 percent of the world's commercial fleet, Liberia is the second-largest open register, after Panama.

Ironically, more than 60 percent of Russian vessels operate under open registers, according to the Transport Ministry -- meaning they were charged higher rates at their home ports. Such ships often chose ports in neighboring Ukraine or Finland.

Shipping companies use open registers to avoid high taxes, and, most important, to attract long-term, low-rate loans from international banks to purchase their vessels.

"Mortgaging such assets as a ship requires registration acceptable to their bank, for instance Liberian," Burima said.

Also, ships under open registers are harassed less by port control authorities outside of Russia because of their better safety records and reputation for higher quality, experts say.

The Anti-Monopoly Ministry had ordered the two-tier system scrapped in November. "The Transport Ministry suggested the change, and we agreed with its reasoning," said Andrei Lavrishchev, head of the Anti-Monopoly Ministry's department on regulation of natural monopolies on transport, in a recent interview. "The system was discriminatory," he said.

But the main reason for abandoning the two-tier system is to ease entry into the WTO, Transport Ministry officials said."This is a WTO requirement," said Viktor Yuryev, deputy head of shipping policy at the ministry.

But there is one drawback -- the new, lower rates will cost millions of dollars in reduced dues.

Russia will lose $11.5 million this year, according to the Anti-Monopoly Ministry. St. Petersburg will lose $5.3 million. Considerable losses also are expected at Novorossiisk, Tuapse, Vostochny and Murmansk.

Furthermore, Russian-flagged ships are losing out because they have become less competitive, said Yuryev. "Before, they paid reduced dues and were somewhat privileged," he said. "Now that the larger dues have been lifted, Panama-flagged ships ... are more competitive than the Russian flag, which is taxed more."

But Russia is hoping to profit from the increased traffic at its ports, thus compensating for the lower rates, Transport Ministry officials say. Yuryev said that additional revenues could come from more ships using repair facilities at Russian ports.

Shipowners hailed the new system.

"It's good for both Russia and the world shipping community, it will encourage more and more good-quality ships to use Russian ports, and Russian ships [under open registers] will trade back to Russia," said Yoram Cohen, CEO of Liberian International.

"We give two thumbs up to this project," said Andrei Sharikov, fleet manager at state-owned Sovkomflot, which operates 69 ships under various foreign flags. "The dues directly relate to the competitiveness of a voyage. Now that everyone enjoys the same rights, why not call [at Russian ports]?"

"This practice of charging various dues exists only in a limited number of countries, and [now this practice has been dropped] it makes us more competitive," said Novorossiisk's Burima.

Port authorities were also positive about the new system.

Yury Parfyonov, deputy head of the Novorossiisk port administration, said the port supported the move and hopes to profit in the long term.