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Strategic goals

 

In 2012 NCSP Group presented its long-term development strategy. The strategy was described through core principles of Group’s development, and proposed projects which the Group may implement in various combinations depending on the market conditions.

 

NCSP Group strategic goals are:

· To become the leading operator of port assets in Russia, including in terms of economic and technological efficiency;

· To maintain leading market positions by cargo turnover in Russia and Europe and ensure sustainable growth of cargo turnover in the long term;

· To build up shareholder value over the long term.

 

Core principles of NCSP Group’s strategic development are:

·  To make a transition from developing projects in the framework of individual companies to designing integrated development projects organized around the cargo flows;

·  To leverage market opportunities by developing specialized terminals for high-margin cargo while maintaining a balance of multipurpose transhipment capacity;

·  To maximize utilization and efficiency of existing terminals as prerequisite to implementation of new development projects.

 

NCSP Group’s strategy is structured into three phases

· Short-term strategy till 2012: Increase operating efficiency of existing assets;

· Medium-term strategy till 2015: Develop infrastructure at existing terminals, upgrade technology, completion of brownfield and expansion projects based on existing assets;

· Long-term strategy till 2020: Develop new terminals for handling containers, oil products and bulk cargo, while also pursuing diversification.

 

Progress on strategy in 2012

 

In 2012 the Group implemented main points of its short-term strategy. Its medium-term strategy was also brought up-to-date with the changing market trends.

 

Together with McKinsey, the Group implemented a number of organizational and operational measures in 2012 to eliminate bottlenecks and increase the operations’ efficiency among other:

·   Additional storage space of 950 square meters and 1,500 square meters was arranged for iron ore products and ferrous metals by optimizing warehouse space at PJSC NCSP.

·   New technology for accelerated processing of container trains was implemented in PJSC NCSP’s joint effort with freight forwarders, customs brokers, the North Caucasus Railway and Transcontainer; the processing time for one container train was reduced to 24 hours, doubling the capacity for container rail shipments out of the port.

·   PJSC NCSP and PJSC NLE reached agreement with the customs on longer working hours for customs offices at container terminals, as well as on the introduction of a 24-hour work schedule for customs when cargo traffic reaches 500,000 TEU per year or as required.

·   Crane utilization at PJSC NCSP and PJSC NLE was increased by reducing the duration of operator shift changes to 20 minutes.

·   PJSC NCSP acquired and put into operation three container loaders with capacity of up to 45 tonnes; two forklifts with capacity of 20 tonnes; six automatic loaders with capacity of 12 tonnes and other equipment.

 

In March 2013 PJSC NCSP signed new collective agreement with employees for the period to 2016. It sets out new incentives for employees, including a 5% annual indexation of wages and the linking of further pay increases, particularly in piece rates, to the achievement of targets for labour productivity and cargo transhipment volumes.

 

The Group also carried out several investment projects in 2012 in line with its short-term strategy.

 

Construction of a fuel oil terminal and overhaul of Pier No. 4

 

Construction was completed of a fuel oil terminal with an annual capacity of 4 million tonnes under a 50/50 joint venture between PJSC NCSP and a major oil trader.

 

PJSC NCSP completed the overhaul of its previously unused Pier No. 4, including dredging to 13.5 meters, enabling it to accommodate tankers with displacement of up to 45,000 tonnes.

 

The new terminal handled 2.347 million tonnes of fuel oil in 2012.

 

Expansion of LLC BSC container terminal

 

The first phase of terminal expansion was completed, increasing throughput capacity 200,000 TEU. The terminal’s container turnover amounted to 185,000 TEU in 2012.

 

Development of LLC PTP

 

The construction of a bunkering facility at LLC PTP with annual capacity of 360,000 tonnes per year was completed in the first quarter of 2012 and commercial operation of the terminal began. The project will strengthen the Group’s position on the bunkering market in the Baltic basin, improve the quality and lower the price of bunkering services while also reducing environmental risks. In future, the terminal could also be used for export shipments of oil products.

 

NCSP Group medium-term strategy

 

The renovation and modernization of equipment at PJSC NCSP’s Sheskharis oil terminal is the largest investment project in the Group’s medium-term strategy. Works on the project remained on schedule in 2012. The main objective of the project is to refurbish Berth No. 1, including the construction of a backup loading area capable of maintaining current oil transhipment while Area B is closed for renovations.

 

While updating its medium-term strategy in 2012 in line with the changing market environment, the Group made major changes to a number of projects.

 

In light of greater competition for bulk cargo, particularly iron ore, the Group began developing a project in 2012 to set up roadstead loading of bulk cargo, which will allow clients to use larger vessels with displacement of up to 120,000 tonnes.

 

With the aim of further diversification of its cargo base the Group is considering construction of a specialized terminal for handling vegetable oils with capacity of up to 2 million tonnes per year. The Group signed a letter of intent on this project with United Grain Company (UGC) in February 2013.

 

The Group also developed a plan in 2012 to build a terminal for roll-on/roll-off (Ro-Ro) cargo specializing in unloading automobiles at PJSC NSRZ. The terminal could handle up to 30,000 vehicles in the first year of the project’s implementation, 60,000 in the second year and 90,000 in the third.

 

The project to expand the capacity of the PJSC NLE container terminal was revised in 2012. The revised project calls for expanding the terminal to 330,000 TEU per year by 2015 through modernization. The prospect of further expansion of the terminal is being considered within the context of the Group’s long-term strategy.

 

Two mobile cranes were delivered to NLE in 2012, and a contract has been signed for the delivery of an RTG crane made by Liebherr.

 

The full list of Group investment projects for the period to 2015 includes:

· Modernization of Sheskharis oil terminal at PJSC NCSP;

· Construction of roofed terminal for transhipment of up to 2 million tonnes of mineral fertilizer per year at PJSC NCSP’s Eastern Pier;

·  Equipment renovation at PJSC NSRZ and PJSC NCSP’s Eastern Pier to develop transhipment of bulk and general cargo;

·  Construction of Ro-Ro terminal at PJSC NSRZ to handle up to 90,000 automobiles per year;

·  Construction of a vegetable oil terminal with annual capacity of up to 2 million tonnes in partnership with UGC;

·  Reconstruction of facilities at PJSC IPP, including the expansion of the tank farm and facilities for receiving oil products from trains.

·  Modernization of NLE container terminal to expand annual throughput capacity from 266,000 TEU to 330,000 TEU;

·  Expansion of LLC BSC container terminal to 400,000 TEU per year.

 

In February 2013 PJSC NCSP, OJSC NLE, OJSC NSRZ, and PJSC NGT signed a landmark agreement with FGUP Rosmorport state enterprise on cooperation in design of hydraulic engineering facilities and new cargo terminals in the framework of the Novorossiysk Sea Port Reconstruction and Modernization project. The agreement is aimed at the development of the marine elements of the port, including planning for dredging and construction of new transshipment terminals. The implementation of these plans will enable NCSP Group to receive bulk carriers with deadweight of up to 100,000 tonnes and container carriers of up to 6,000 TEU at the Novorossiysk Port.

 

NCSP Group long-term strategy

 

The Group’s long-term strategy calls for a transition from development projects in the frameworks of individual companies to a new integrated development concept with focus on cargo flows.

 

Possible development projects for the Group include:

· The second phase of modernization of the Sheskharis Oil Terminal;

·  Construction of a container terminal with capacity till 500,000 TEU at PJSC NLE;

·  Construction of a container terminal on PJSC NCSP’s Western pier, which will expand container capacity at PJSC NCSP to 700,000 TEU from 170,000 TEU;

·  Expansion of PJSC NGT capacity by 2 million tonnes;

·  Construction of a terminal to handle iron ore and/or coal with capacity of up to 12 million tonnes, with an option to handle other bulk cargo and reverse operation at PJSC NCSP Wide pier No. 2.

·  Development of a multi-purpose deepwater port on the basis of LLC PTP, including terminals for oil products, containers, general and bulk cargo.