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“Kapitan Spivak” before the sale in spring, 2003, with Novoship’s funnel mark and Liberian flag. Photo: Madli Vitismann
The long-awaited new Russian ship register
On 7th December, 142 members of the Council of Federation of the Federal Assembly of the Russian Federation – the Upper Chamber of the Russian parliament – voted in favour of an act that will enable the establishment of a Russian International Ship Register. The purpose of this law, which has been in preparation for half a decade, is to bring back under the Russian flag at least a certain percentage of the domestic fleet that has left during the past decade.
A shrinking fleet
According to the explanation given by the Ministry of Transportation of the Russian Federation, the new register is much needed, as soon after the collapse of the Soviet Union the tendency of registering ships under so-called flags of convenience also started. The commercial fleet of the Soviet Union held the fourth position worldwide, being made up of some 15,000 vessels owned by 17 shipping companies, amounting to a total of 18 million DWT.
At present, less than 200 large ships with a total DWT of 2.6 million are registered under the Russian flag, whereas back in 1992, the number of such vessels was 800 and their DWT amounted to a total of 10.5 million. At present, the Russian ship register mainly includes smaller ships – river vessels and river-sea type vessels.
A lack of modern vessels
Currently, the Russian commercial fleet lacks productive specialised container ships, reefers and ferries. There is a shortage of modern crude oil carriers and large bulkers for the transport of grain, coal, ores and fertilisers; there also are no gas and chemical tankers, although Russia’s need for foreign trade transportation keeps growing continuously.
For example, the volume of external trade increased from 204 million tons in 1998 to 450 million in 2004. In monetary terms, this increase equals a growth from USD 4 billion to USD 7.5 billion; however, in 2004 Russian shipping companies only earned about USD 300 million, which is a mere 4 per cent of that freight.
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“Polar Costa Rica” – flying the Cypriot flag – summer 2004 in St Petersburg. Last year, she was renamed “Crystal Lily” by Neva Shipmanagement in St Petersburg and flies the Maltese flag. Photo: Madli Vitismann |
Lower taxes
According to the estimate of the Ministry of Transportation, one of the main reasons for the ships registering elsewhere and leaving the Russian flag was the large share of taxes in the transportation costs, especially in comparison with countries having free registration for all or an international register.
Therefore the aim is to establish a lower cost register in order to improve the competitiveness of Russian shipowners. The new register will be available for vessels “that are used solely for the international carriage of passengers and cargo and associated transportation services thereof”. The ships can be registered either for a specified term or without a term – in the latter case, however, the registration has to be renewed annually.
Money every year
The law on the international register prescribes that state fees shall be paid both when registering and when renewing the registration term annually. Therefore the trade-off payment for the exemption from value added tax at the initial registering in the ship register will be the obligation to pay state fees for the initial registration, and later on to add to the state treasury with the annual registration renewal fees. Although the shipowners will be burdened with the social tax, they will be granted value added tax incentives, corporate income tax incentives and corporate property tax incentives.
The new act on amendments to separate statutory regulations of the Russian Federation in order to create a Russian international ship register provides for the applicable state fees. For example, the initial registration of an Aframax tanker would cost RUB 163,000 (USD 5,663). The renewal of the registration term is going to cost much more, and this can be considered as some sort of a tonnage fee – for the same vessel that fee would amount to RUB 370,000 (USD 12,855) per annum. A passenger vessel with a GT of 20,000, would set the shipowner back by about USD 3,405 at the initial registration and USD 6,740 annually thereafter.
According to the Ministry of Transportation, the purpose of the new register is not to raise funds for the state treasury, but to liven up the economy a bit. In spite of this, SeaNews.ru considers registration in the new register to be too costly – it is 3 to 5 times the cost of the ship registration fees of South Korea, Denmark or Norway, not to mention about 10 times more that the fees charged by Panama or Liberia. Even in Estonia, registering a ship costs remarkably less – initial registration is EEK 2,000 (USD 155) and establishing the maritime mortgage another EEK 2,000 and the fee for the issue of certificate of nationality is EEK 300 (USD 23). The registration fees are independent of the size of the ship, and there is no annual cost.
Two Russian flags
Russia has set its course towards external trade shipments under the Russian flag; however, the ships entered in the new registry will have no right to call at any of the ports in the home country, as an amendment in the Tax Code provides for the ships “that are used for the international carriage of cargo, passengers and luggage, and associated transportation services thereof, under the condition that both the departure and destination ports for the cargo, passengers and luggage transported remain outside of the territory of the Russian Federation.”
Two major shipping companies – Sovcomflot and Novoship – have both so far preferred the flags of convenience of Liberia and Malta. Novoship only has 11 vessels registered under the Russian flag, and Sovcomflot has none. Considering these two companies are mostly owned by the state, one could imagine both of them would be among the first to re-register in the Russian register.
Nevertheless, Sovcomflot is currently building new ice-class tankers, having already concluded contracts for these vessels for the transportation of Russian oil and gas exports, and they will have to face a choice: no tax incentives or no calls at Russian ports while registered under the Russian flag.
Let’s see how it turns out!
The new law will enter into force a month after it was published; the president signed it on the 20th of December. Right now, there is no legislation pursuant to this law. A government draft regulation is also being developed, providing a list of ports the harbour masters of which will be authorized to register vessels in the new ship register. And the Ministry of Transportation will have to develop the detailed rules and instructions for the registration process.
Although the last wording of the act does not include the word “solely” that should be before the phrase “for the international carriage of cargo, passengers and luggage” in both the quoted provisions, SeaNews.ru believes that the new law will direct Russian shippers into the international transportation market to compete against the shipping companies of other countries.
Income for the state?
Mr Alexey Bezborodov, Development Director of Seanews.ru justified his newsagency’s somewhat sceptical attitude towards the new register with the possibility that the contents of the subordinate legislation pursuant to the new law may have so many “additions” that it will be more convenient for shipowners to keep their vessels registered where they are at present and what is more convenient for them anyway. Therefore this new register will not provide extra income for the state budget; it may, however, increase the number of the ever increasing army of state officials.
– I will have no faith in it before I witness the first ship being registered in this register, he added.
//Madli Vitismann
Latest update 18-10-2006 8:49
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