Tuesday, June 10, 2014

Russia's New Crimean Shipbuilding Sector

By Eugene Gerden

Russia is considering a massive shipbuilding program, utilizing the facilities of Crimean enterprises and plants, according to an official representative of the country’s Ministry of Industry and Trade.

As part of these plans, a special commission headed by Vladimir Shmakov, President of the United Shipbuilding Corporation, Russia’s state monopoly in the field of shipbuilding, has recently visited the Crimea to evaluate the shipbuilding potential of local enterprises.

According to state plans, the Russian Military-Industrial Commission, (which is a permanently functioning body with vast responsibilities for supervising the distribution and implementation of the “State defense order”) will soon provide the Crimean shipbuilding enterprises with state orders on the building and servicing of both military and commercial ships.

According to earlier statements by Dmitry Rogozin, Russia’s Deputy Prime Minister, who is responsible for the development of the military and industrial complex in the Russian government, Crimea has big shipbuilding potential.

“Crimea currently has several large ship repair and shipbuilding plants, located in Feodosia, Kerch and Sevastopol, which were among the largest during the Soviet times,” said Rogozin. “We have already evaluated their potential and have already decided to start production of some of vessels and marine equipment at their facilities this year”.

At present Crimea has about a dozen large-scale shipbuilding enterprises. In Sevastopol such plants include the Sevastopol Marine Plant named Ordzhonikidze, which was founded as far back as in 1783, the South Sevastopol plant and the Maritime Industrial complex.

In Kerch, shipbuilding is expected to be established at the local Zaliv plant and the Kerch Shipyard. Finally, in Feodosia, production may take place at the facilities of the existing More factory, which was founded in 1938 and which specializes in the production of hovercrafts and hydrofoils.

An official representative of United Shipbuilding Corporation (USC) has already confirmed the company’s interest in Crimean enterprises, but declined to provide details. He added that if the Crimean enterprises receive orders, it will help to save their production, scientific and technical potential, as well as ensure their integration into the Russian shipbuilding industry.

The USC believes that the transfer of some orders to Crimean enterprises will not affect the rate of utilization of the corporation itself and enterprises, which are part of it.

In the meantime, Russian experts in the field of shipbuilding have already welcomed the new state initiative, believing that it will have a positive effect on the economy of Crimea and the whole of Russia.

According to Ruslan Pukhov, director of the Center for Analysis of Strategies and Technologies, one of Russia’s leading analyst agencies in the field of maritime and shipbuilding, the annexation of Crimea by Russia is also beneficial because the Russian Black Sea Fleet will return to its historic base in Sevastopol from Novorossiysk and will no longer have to pay to rent naval bases in Sevastopol.

It is planned that at the initial stage the Crimean plants will focus first on the implementation of state orders, and later on commercial contracts. This will take place after the completion of a modernization of the facilities.

Among the planned production range are oil tankers, LNG carriers and vessels for the development of the Russian continental shelf and in particular the Arctic.

Sevmorzavod, which is the largest shipbuilding plant in Sevastopol, is expected to be one of the Crimean enterprises, which will receive funds from the Russian government.

According to Dmitry Belik, Acting Mayor of Sevastopol, Sevmorzavod is a former shipbuilding and shiprepair base for the Russian Black Sea Fleet, which had employed more than 15,000 workers in the past.

In addition to shipbuilding itself, there are plans for the development of diesel engine manufacturing, as well as casting and galvanizing production. Finally, a significant amount of funds are expected to be invested to establish the production of marine screws and other marine equipment.

Belik also added that all the Crimean shipbuilding plants will be repurchased from their current owners without any expropriation, while all the current workers will keep their jobs.

The utilization of Crimean enterprises will also help USC to implement one of the most ambitious goals for the current year and to double its revenue up to 350 billion rubles (USD$11 billion) this year, according to Alexander Neugebauer, the company’s vice president for economics and finance. In contrast to previous years, when the majority of revenue was generated by State defense orders, this year the share of revenue attracted by commercial orders will be significantly increased, which is expected to help to achieve such ambitious figures.

According to USC, its military and commercial order book is full. The largest commercial orders to be implemented in 2014 will be the production of icebreakers and offshore drilling platforms, which will be supplied both to domestic and foreign customers. In the case of domestic customers, OSC already has preliminary agreements on the supply of its new vessels and equipment to the country’s leading oil and gas producers, such as Rosneft and Gazprom. The names of foreign customers are currently not available, but according to analysts of the Russian Ministry of Industry and Trade, the new ships may be of interest to Rosneft and Gazprom foreign partners who participate in the development of oil and gas fields, including on the country’s sea shelf. Among such companies could be ExxonMobil, BP, Total and others.

In recent years, the development of shipbuilding has become one of the priority targets of the Russian government. In addition to Crimea, the government plans to continue its active development in the Far East. As part of this, the government plans to speed implementation of a project to build the Zvezda super shipyard, which will be located in Primorye (Far East) and will be the largest shipyard in the country.

According to the latest decision of the Russian government, the shipyard should be built no later than by 2018, instead of originally planned 2021, due to pressure of the country’s leading oil and gas producers. Upon completion of construction, Zvezda will become the largest shipyard in Russia, which will augment the existing state shipbuilding program by about 30 percent.

The building of the shipyard is expected to attract some leading design bureaus from St. Petersburg, Moscow, Europe and the US as well as leading shipbuilding corporations from Southeast Asia, and in particular from Korea.

Already during the first stage the shipyard will have the capacity to build ships with a length of 250 meters and launching weight of up to 30,000 tons.

The shipyard will specialize in the construction of tankers with a deadweight of up to 350,000 tons, gas, ice-class vessels, special vessels, offshore platform elements and other marine equipment.

Analysts of Russian Ministry of Industry and Trade believe that the segment of offshore vessels is expected to be the most profitable for USC and the whole Russian shipbuilding industry in the near future. According to earlier estimates of Russia’s President Vladimir Putin, the USC’s portfolio in this segment may reach 512 vessels by 2030, with a total value of 6.5 trillion rubles (USD$180 billion).

However implementation of these ambitious plans may never take place, due to current financial difficulties being experienced by the Russian government, associated with the recent Crimean crisis and devaluation of the ruble. According to Alexey Rachmanov, Russia’s Minister of Industry and Trade, the funding of the existing state program to help develop the national shipbuilding industry through 2030, initially estimated at RUB 1.3 trillion (USD$37 billion) could be cut by up to 40 percent.

Eugene Gerden is a free-lance writer based in Moscow, Russia who has covered the European maritime industry for 10 years. He can be reached at gerden.eug@gmail.com.