Russia's biggest companies in the oil and metals industries seem to have found a drastic way to reduce their transportation costs.

They are rushing to buy up the assets of Russian ports – and the state, which owns most of the country's seaports, is ready and willing to sell this property at low cost.

Moreover, the state is investing in infrastructure development at the privately owned ports.

In mid-March, it became public that, this year, the Severstaltrans company, working with Yukos, plans to start building an oil-loading facility with a capacity of 7 million tons a year at Vostochny Port.

The project is scheduled to finish in 2005, but its first section, with a capacity of 4.5 million tons a year, is expected to begin operation in 2003.

Yukos and Vostochny Port plan to set up a joint-stock company to oversee construction and subsequent operation of the complex – a decision made during negotiations between Yukos and Severstaltrans.

Until recently, the oil and metal sectors had not set up alliances for port reconstruction. Instead, they just bought up existing facilities. That was enough to reduce export-delivery costs and, just as importantly, to conceal actual export volumes from fiscal structures.

The latter aim has been confirmed by the exporters themselves. It is no coincidence that auctions held this January to sell the state's stakes in the ports of Taganrog, Tuapse and Murmansk created intense bidding activity, from companies including Sibneft, Rosneft and Norilsk Nickel.

Insiders said Sibneft was extremely interested in Tuapse Port, from which it exports high-quality Siberian light oil. Its potential competitors include Tyumen Oil Company and Rosneft, though Sibneft was expected to offer the largest sum of money.

Norilsk Nickel was named as hopeful of getting Murmansk Port, while Taganrog Port was named as the least attractive asset. Bidders for the latter were the transportation company Sovfrakht and the Delo group, owner of a stake in Novorossiisk Port.

The auction results were as expected, and the stakes were sold at prices close to the starting prices.

Then, out of nowhere, the Russian Railway Ministry announced its intent to invest 150 million rubles in modernizing and upgrading the Tuapse transportation system, including the port, oil terminal and railroad station. Railroads Minister Gennady Fadeyev announced the plans during his visit to Tuapse.

So, what is really going on? After having sold almost all of its shares in Tuapse Port, the government, represented by the Railway Ministry, suddenly decided to invest in the port and its infrastructure.

Simultaneously, the Railway Ministry is actively cooperating with Russian exporters, to the benefit of both sides. Recently, the ministry concluded a cooperation agreement with the oil company LUKoil, signed by Fadeyev and LUKoil president Vagit Alekperov.

According to the ministry's press service, the agreement provides for cooperation in transporting oil and petrochemicals, and will reduce LUKoil's transportation costs.

It is worth recalling that the previous cooperation agreement between the Railway Ministry and LUKoil was concluded in 1997.

The present agreement provides for increasing LUKoil's stock of oil tanker cars to 9,000 by 2005. LUKoil will transport half of its oil and petrochemicals in its own tanker cars.

The company will also participate in the development, modernization and upgrade of railroad infrastructures.

The Railway Ministry's role will be to repair tanker cars owned by LUKoil, to assist the company in exploiting its mobile stock, and to take measures to increase the capacity of the Sverdlovsk railroad segment. The railway must be capable of handling the transport of increasing amounts of petrochemicals produced by the Perm Oil Refinery.

One way or another, cutting the transportation costs of Russia's major exporters will benefit foreign buyers interested in purchasing Russian products at low prices. On the other hand, foreign oil and steel producers may be unhappy about their Russian rivals' ability-to pursue flexible pricing policies. Port acquisition is becoming a series of political games and lobbying.

Meanwhile, Russian authorities have plans to place ports under stricter control.

St. Petersburg Port's head of administration, Gennady Batalin, said a government resolution on port reorganization, and a presidential decree – "On improving the structure of management of the Russian Federation's sea ports" – have been drafted. They will probably be signed by the end of June.

Among other measures, port reorganization calls for limiting the function of port administration to exercising state monitoring and control.

It will also set up an ad-hoc management structure, Rosmorport, to oversee matters relating to business governance in the sector.

Analysts from the Metropol investment company say Rosmorport is unlikely to interfere in the business of private companies. But the government's program will help establish proper order in the functioning of Russia's ports.

Reference information on Russia's ports:

Murmansk Port: The Murmansk merchant seaport is the only warm-water port in Russia's northwestern territory. The main cargoes transported via the Murmansk port include coal, steel and nonferrous metals. A 6.6 percent stake of the port belongs to the Balakovo Mineral Fertilizers company, part of the Apatit group, and 6 percent belongs to Hudro Aluminum C.I.S.

Taganrog Port: The Taganrog merchant seaport is a small port on the Azov sea, handling mainly metal, coal and timber exports. Some 10 percent of the port belongs to the Doninvest financial-industrial group, and a somewhat smaller stake is held by Transstal, which is affiliated with Severstaltrans.

Tuapse Port: The Tuapse merchant seaport is located on Russia's Black Sea coast. It specializes in oil and petrochemical exports, bulk cargoes and special cargoes. A veto – in excess of 25 percent – stake in the port belongs to Severstaltrans.

The author is a Moscow-based freelancer.