Shipyard Rescuers
Datum: 02.11.2011

Shipyard Rescuers

Striving for a bright future, United Shipbuilding Corporation is acting as a rescuer so far

During October, the state-owned United Shipbuilding Corporation (USC) was actively gathering under its wing a number of industry enterprises based in St. Petersburg:

  • Beginning October, Russia’s Central Bank transferred Baltiysky Zavod OAO (the Baltic Shipyard) under temporal administration of USC. The shipyard’s assets were pledged to the Central Bank to secure credits granted to United Industrial Corporation headed by ex-senator Sergei Pugachev.

  • In the middle of the month, the Central Bank transferred the shares of the Shipbuilding Plant Severnaya Verf (the Northern Shipyard) under fiduciary management of USC. The plant’s assets were also in pawn for credits granted to United Industrial Corporation.

  • End October, the government ordered USC to purchase 52.75% authorized capital of Proletarsky Zavod OAO.

  • United Shipbuilding Corporation OAO is the largest shipbuilding company of Russia founded in 2007. 100% of its assets belong to the state. The holding unites more than 50 industry enterprises and institutions (main shipbuilding and ship-repairing yards, leading RD centres). By now, USC consolidates more than 70% of local shipbuilding industry.
    The corporation’s structure includes 3 regional subsidiary holdings: the Western Shipbuilding Centre OAO in St. Petersburg; the Northern Shipbuilding and Maintenance Centre OAO in Severodvinsk and the Far Eastern Shipbuilding and Maintenance Centre OAO in Vladivostok complemented by leading research and development centres.

    In fact, joining USC (even only as USC-managed companies) means a chance to survive for the Baltiysky Zavod and the Proletarsky Zavod as both plants are close to bankruptcy. Former Pugachev’s assets were long expected to be transferred to USC as the state-run corporation already owns 20% of the Severnaya Verf shares. The move was only a question of time. But the purchase of the Proletarsky Zavod became a kind of surprise. Looks like the government fully believed in the anti-crisis management talent of Roman Trotsenko, USC’s head, deciding to hand him over the Proletarsky Zavod, too.
    Specialising in ship and power engineering, Proletarsky Zavod OAO offers products for naval and civil shipbuilding working with many enterprises belonging to USC. Its current debt is more than 2 billion rubles (about $65 million). USC is going to offer a plan to pull the plant out of the crisis and to contribute another billion rubles worth of contracts. The final decision to transfer a blocking stake to USC was announced after a visit of Prime Minister Vladimir Putin to the Proletarsky Zavod.
    The financial state of the Baltiysky Zavod is even more serious with the burden of its debts amounting to 7 billion rubles (about $230 million). Due to this debt, the main order of the Baltiysky Zavod —world's first floating nuclear power plant — was impounded by the court at the request of Rosenergoatom. Still, the plant has certain advantages over its competitors as it continues to be the only Russian builder of atomic ships and vessels, including icebreakers. Recently, Viktor Olersky, Deputy Minister of Transport, discussed the plans to build Russian icebreakers. According to him, the Ministry is ordering four new diesel icebreakers worth a total of 79 billion rubles. Earlier, the Russian Transport Minister Igor Levitin announced that a new nuclear icebreaker would be rolled out as early as next year. Though it is not clear yet whether the government plans a tender or is ready to give the order straight to USC, the Baltiysky Zavod will obviously build the nuclear ship. Moreover, the chances are rather high for the plant to get one more order for diesel icebreakers. Under USC’s management, the Baltiysky Zavod would not desperately seek for orders. The corporation has already given the yard the right to lay keel for a Gazflot ice-class supply vessel worth about 3 billion rubles (about $100 million). Previously, the ship was to be constructed by the Amursk shipbuilding yard also belonging to USC.
    The financial state of the Severnaya Verf remains stable. According to USC representatives, United Industrial Corporation have divided its two plants on purpose, trying to make a profit centre from the Severnaya Verf and a future bankrupt from the Baltiysky Zavod. Now that both yards are managed by USC, their workload will be nearly equal. Being a part of USC means assured naval corvette and frigate orders for the Severnaya Verf along with marine shelf equipment. Escaping from a useless competition with Kaliningrad-based Yantar shipbuilding plant in the naval segment, the yard will get regular orders from the Russian Navy.

    In October, United Shipbuilding Corporation succeeded to strengthen its position considerably after its Board had named Vladimir Lisin as the USC’s Chairman. Lisin took up this post from Igor Sechin following presidential order that banned high-profile governmental officials from sitting on a board of state-run corporations. Lisin is not new to shipbuilding business: his corporation unites shipbuilding yards and seaports. The board headed by one of the richest persons in Russia, who knows the industry well, will surely do good for USC.
    At the end of September, during the 4th International Innovation Forum, the authorities of St. Petersburg and USC signed an agreement on the shipbuilding cluster establishment. The document was signed by St. Petersburg’s Governor Georgy Poltavchenko and USC president USC Roman Trotsenko. The agreement proposes building of a new shipbuilding complex in Kronstadt and an engineering centre for developing and implementing of marine equipment for future Arctic exploration. The shipbuilding cluster is to unite about 200 enterprises engaged in shipbuilding and components manufacturing. The main declared aim is to produce import substituting equipment for the shipbuilding industry. Thus, with modernization of old shipbuilding facilities supplemented by introduction of new capacities, the shipbuilding industry of Russia’s North-West will be able to reach a new quality level.
    USC has got big plans for building ship and vessels at other local yards aw well. Together with partners from South Korea, the corporation constructs a new shipyard in Primorie for heavy-tonnage (from 100 thousand tons) civil vessels—tankers and gas-carriers. Earlier it was impossible to build heavy ships in Russia due to the absence of modern facilities. Sovcomflot Group of Companies has already signed contracts for vessels from the new shipyard. Apart from naval and civil shipbuilding, USC sets big hopes on production of specialised equipment for shelf works (oil-and-gas drilling platforms, specialised supply and support vessels). In September, during a visit of Prime Minister Vladimir Putin to Arkhangelsk, Roman Trotsenko asked him to ensure that licence agreements on Artic offshore fields required the purchase of Russian-made marine equipment. Trotsenko is sure that USC is ready to meet the highest demands of oil and gas industry as the corporation starts to cooperate actively with leading foreign companies in the sphere of shelf development vessels.
    For example, in December 2010, United Shipbuilding Corporation and Arctech Helsinki Shipyard agreed to found a joint-venture company owned by USC and STX Finland, a global leader in Artic maritime technologies and researches. The joint venture is based in Helsinki and specializes in arctic shipbuilding technologies and state-of-the-art ice class ships. Almost immediately, the newly founded company received an order from Sovcomflot for two icebreaking supply vessels.
    In September 2011, USC and Saipem engineering firm, a subsidiary of Eni Italian group, agreed to establish a joint venture in the Russian Federation, with the scope of work including hi-tech maritime technologies—compresses natural gas plants and oil platforms.
    Government defence contracts for nuclear-powered submarines under State Defence Order 2011 remain the only task that has not been set yet by USC. Several naval ship contracts have been already signed after Russian Prime Minister urged to have defence agreements fixed.
    In October, the Council of Federation approved the Law on State Support Measures for Shipbuilding and Navigation, passed by Russia’s State Duma in the third reading. And this is going to be an important event for the Russian shipbuilding industry. While the final variant does not include all propositions promoting shipbuilding and navigation development, industry exerts appreciate the new law very positively.
    The law offers Russian shipyards a status of industrial and production special economic zones. Being residents of special economic zones, Russian shipyards will be exempt from land and property tax for 10 years while ship owners will also be tax-exempt from profits received from the operation or sale of Russian-built vessels. Classification and examination services for marine vessels are not taxable any more.
    The new law is likely to have a positive impact for USC, which is actively engaged in upgrading and construction of shipbuilding plants, as well as for navigation companies planning to purchase new vessels from local yards.

    While the corporation’s plans seem rather challenging, recent events related to USC’s activities suggest that in spite of a deep crisis in the shipbuilding industry of Russia, chances are good that certain enterprises will finally succeed in reaching a world-class modern level.

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