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Major Russian seaport nationalised?

Has Moscow used a labour strike as a pretext to take control of Vladivostok port?

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A period of social unrest, strikes and protests in Russia’s biggest Pacific coast port, the Commercial Seaport of Vladivostok (VMTP), lasting more than a month appears to be over. The official line is that FESCO Transportation Group, which owns the port, has agreed to “share managementand operations” with Rosatom, Russia’s state-owned atomic energy corporation.


Under the deal, the parties will form a road map to guide future developments, and Rosatom will delegate one of its branches as a managing company at the port.

The problems at Vladivostok started on 1 October, after FESCO suddenly dismissed VMTP’s popular director general, Zairbek Yusupov, who had been in charge since March 2016, and replaced him with Roman Kukharuk, an outsider with no previous involvement in the port.

Elena Khoroshun, a spokeswoman of VMTP’s trade union committee, said: “Yusupov has been a very successful manager, while Kukharuk is a total noname in the eyes of our members.”


Successful tenure

On Yusupov’s watch, facilities were upgraded and throughput more than doubled from 5.6 Mt in 2016 to 11.5 Mt last year – an all-time record. Train handling speeds went up from 278 to 549 railcars a day, while EBITDA more than doubled. Real wages increased every year, earning the loyalty of the 2,500-strong workforce.

The dispute became national news on 6 October. At a meeting intended to defuse tensions, Kukharuk and FESCO’s new president, Arkady Korostelev, were physically assaulted and forced to leave.


This led to a stand-off, with neither side prepared to give way. FESCO called on the authorities to investigate criminal assaults and accused the trade union of stirring up trouble for ulterior political motives.


However, according to Khoroshun, Kukharuk was brought in as a ‘hatchet man’ to cut jobs and costs. This suspicion was fuelled by the fact that Korostelev was appointed president only on 4 September, having previously been CCO. Trying to explain his dismissal, Yusupov said he had made VMTP “too successful” and claimed that it now accounted for 71% of FESCO’s total value.

Power struggle

There is little doubt that a power struggle has been taking place among FESCO’s shareholders. One of Yusupov’s main backers has been Ziyavudin Magomedov, until recently (see below) FESCO’s biggest shareholder (32.9%) through a Cypriot company controlling Summa Group. He has been in prison since March 2018 and is still awaiting trial.

On 15 September, FESCO Group launched a suit against Magomedov for US$1B. Together with his then business partners, he had acquired a controlling stake in the company in December 2012 by means of a leveraged buy-out, under which FESCO borrowed funds to finance their share purchases.


In any event, the involvement of Rosatom calmed things down and FESCO was finally able to confirm Kukharuk as director general on 11 November. He has promised to protect the interests of the workforce, and the trade union perceives Rosatom (and behind it the Kremlin) as a kind of guarantor.


A three-year collective bargaining agreement has been concluded between FESCO and the trade union, with a built-in possibility to extend the term. “The involvement of Russia’s federal authorities [via Rosatom] righted the ship,” said Korostelev.

Hidden agenda?

The hidden point is that, through Rosatom, the state may be moving to nationalise VMTP, FESCO’s most profitable asset, as part of its battle against Magomedov. Korostelev, who became president after a block of shares changed hands, reportedly ‘invited’ Rosatom to manage VMTP. It has been claimed that Rosatom will ‘take over’ the port at the start of next year.

FESCO itself has denied this. Responding to a charge from regional governor Oleg Kozhemyako that Rosatom would become the owner of the group, the company said that the agreement was limited to cooperation in managing VMTP.

VMTP is certainly strategically important to Rosatom. The country’s biggest icebreaker operator is officially authorised to develop transcontinental shipping through the Russian Arctic – the North East Passage, or NEA route – and in any case, it is an important customer for FESCO’s regular shipping services.

Last year, Aleksandr Neklyudov, director general of Rosatom Cargo (Rosatom’s logistics arm), declared the corporation’s readiness to invest the equivalent of US$274.5M in “a transport and logistics hub” that would be instrumental in developing the infrastructure for the NEA route.


Rosatom has also been in talks with a number of operators, including DP World and Integrated Service Solutions (ISS), over the possible establishment of a joint venture to operate a future Murmansk-Vladivostok container shipping service.


Behind the scenes

The problem is that it is not possible to explain this affair in purely transactional terms. Recent changes in FESCO’s Board reflect changes in ownership in September and early October, and precipitated the decision to change the management at VMTP, which led to the damaging port strike and the decision to invite Rosatom into the port’s management.

Investment companies GHP Group and US-based TPG Capital, close allies of Magomedov in the purchase of FESCO in 2012, sold their stakes of 33.8% and 17.4%, respectively. The former was acquired by one of Domidias Ltd (BVI), Novatorinvest and Nautilus (both Russian). On 4 October, they stated that, between them, they now own a 33.9% stake in FESCO and that they support the US$1B lawsuit filed against Magomedov.

The TPG stake was acquired by Mikhail Rabinovich, co-owner of Locko-Bank and of Sibirskiy Titan, which is a joint venture with Rosatom. According to Russian media, Rabinovich is closely associated with the three aforementioned shareholders, so they now own 51.3% between them and are easily able to outvote Magomedov.


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