BERD: Moldova’s strategic Danube port offers a lifeline for Ukraine

A river-to-sea port located at the confluence of Danube and Prut rivers, which has given the tiny landlocked country of Moldova in southeastern Europe its only commercial access to international waters, is now fulfilling a vital second function.   Since Russia blockaded ports along the Ukrainian Black Sea coast this spring, Giurgiulesti Port has also been helping get grain and fuel in and out of neighbouring Ukraine.   “Today, not only does Giurgiulesti port safeguard supply chains for Moldovan importers and exporters, but since the start of the war on Ukraine it has also played a key role in helping to uphold supplies to and from Ukraine,” said Alain Pilloux, the EBRD’s Vice-President, Banking, who will visit the port later in July. The EBRD – which has been an investor in the port since its inception – also became the sole ultimate legal owner of the port’s operator, Danube Logistics, on 18 May 2021.   With Russia and Ukraine together usually supplying about 30 per cent of the world’s grain - meaning global food security is at risk as a result of the Russian invasion on 24 February - the hunt is now on for other ways to export Ukraine’s agricultural exports to the world and import supplies to keep its economy running as normally as possible.   Among possibilities being explored are using rail, road transport through Europe - and the Danube, Europe’s second longest river, which flows through much of central and southeastern Europe, from the Black Forest to the Black Sea.   Giurgiulesti’s figures for this year show how helpful the Danube option is, even if all solutions are small compared to the scale of the food security issue. Overall year-on-year volumes moving through Giurgiulesti International Free Port have more than doubled so far in 2022, reaching 804,029 tons, says the port operator, Danube Logistics. This is mainly due to increasing imports of petroleum oil products, coal and fertiliser and exports of grains and vegetable oil. Existing grain transhipment and storage facilities are increasingly used for grain originating from Ukraine.   “The port is both a main point of entry for fuel imports to Moldova and a supplier of fuel to Ukrainian petrol station networks and farmers. While a major objective is exporting cereals from Moldova, Giurgiulesti increasingly tranships grains from Ukraine, contributing to the international effort to avert the food shortages threatened by the war,” said the EBRD’s Head of Office in Moldova, Angela Sax.   That Moldova is able to use its port to perform this crucial function now – supporting not only its own economy but the bigger economy of the region – is all down to an inspired piece of planning that dates back to soon after the country became independent from the Soviet Union.   Moldova, which was a Soviet republic until 1991, is bordered by Romania and  Ukraine and traditionally relied on its bigger neighbours for imports and exports. (Its three million people remain strongly dependent on agriculture, though the service industry is now also a significant part of the national economy, and it is an importer of gas and oil).   But the Danube runs by Moldova’s border at the country’s southernmost tip, where it is joined by the river Prut. And from this Giurgiulesti International Free Port was born.   In 1995, newly independent Moldova decided to construct an oil terminal at the village of Giurgiulesti, which lies 500 metres inland from the Danube. Although the original Greek-Moldovan project quickly ran into financial difficulties, the area got a further boost when, after a long-discussed land swap agreement with Ukraine was finally completed in 1999, Moldova received a short strip of its own Danube shoreline – 450 metres – from which the borders with both Romania and Ukraine can be seen. This allowed the Giurgiulesti project to be expanded into the construction and operation of a port accessible to seagoing vessels and equipped with a terminal for the storage and trans-shipment of refined oil products.   As envisaged in the port agreement made with new owners in December 2004, the port would lie within a Free Economic Zone and comprise not only the oil terminal, but also cargo and passenger terminals as well as an oil refinery. There was also an option to build petrol stations.   Today Giurgiulesti, Moldova's only port accessible to seagoing vessels, situated at km 133.8 (nautical mile 72.2) of the Danube, is operating most of these. The oil terminal was launched on 26 October 2006, a separate passenger terminal built by the government opened in March 2009, and a grain transhipment terminal opened four months later. The operator, Danube Logistics, constructed a cargo terminal in 2011, as well as a berth for a grain terminal, a mixed-gauge railway terminal, port infrastructure, a warehouse, storage areas and office buildings. And it facilitated investments in Giurgiulesti Port by other residents, including a vegetable oil terminal and a sunflower oil extraction plant.   Development hasn’t all been plain sailing. There have been three owners of the company operating the port since 2005, and a complex legal history with multiple court cases, some still active.   But the wisdom of using this river resource to create and operate a well-run port for international shipping – an important strategic asset for Moldova - has become clearer still since the war on Ukraine began.   Within the impressive overall trade volumes for 2022, the port operator’s detailed figures speak of benefits for all concerned, with extra staff being taken on, further investments speeded up, and tariffs for clients being kept at stable levels as both Moldovan and Ukrainian economies benefit, says Mathias von Tucher, General Director of Danube Logistics, the port operator.   Back in 2021, for instance, Giurgiulesti saw an average transhipment volume of 34,000 tons per month of petroleum products. But by May 2022, this was up to 65,000 tons, more than half of which was estimated to be earmarked for onward delivery to Ukraine. (To avoid bottlenecks, he adds, close collaboration is needed with the Moldovan government). Likewise, grain and vegetable exports have been at high levels in 2022 – 309,404 tons and 99,694 tons respectively – with grain transhipment and storage facilities increasingly used for grain from Ukraine.   The transhipment of other cargo groups, such as the import of coal and fertiliser, have resumed after alternative sources and import routes via Ukraine were cut off, says von Tucher. The existing general cargo terminal is being fully used, and the company is in the final design stage of the construction of a new universal booth. The new US$ 5 million terminal will be mainly used for dry bulk and general cargo and is scheduled to open in the second half of 2023.   Finally, von Tucher says, the port is preparing to resume the transhipment of containers from the Romanian port of Constan?a to Moldova and Ukraine. It has developed a new 5,000-square-metre container handling and storage platform, which can be further extended depending on how demand develops. The port is planning the procurement of additional handling equipment to cope with demand in this area, he adds.   Von Tucher says extra staff were taken on to meet the increased demand and the port is about to procure additional equipment. The port residents have undertaken investments of more than US$ 100 million in total.   This only accelerates an already upward trend, showing how the port is supporting Moldova’s economy. By end-2021, figures from the Ministry of Economy show, the port was already employing 553 people, up seven per cent from 2020. Salaries rose 22 per cent, investments rose 43.5 per cent, transhipment was up 52.4 per cent and tax payments rose by 149 per cent.   Other ports nearby, operating under a variety of different wartime pressures, may have recently put up their transhipment tariffs or charge different levels to clients of different nationalities. But Giurgiulesti Port has kept its tariffs relatively stable, reflecting its long-term relationships with clients.   A combination of safe management, extra cargoes and more investment look set to further develop and increase the port’s business, in very much the way the EBRD envisaged when first investing in 1995 and then acquiring it in 2021. In the midst of the tragedy taking place across the Danube in Ukraine, Giurgiulesti Port is creating a virtuous circle in which, as it supports the imports and exports of Ukraine, it benefits the Moldovan economy at large.