South Korea swims over to the North-West

Three projects for construction of superyards capable of building ships with cargo capacity exceeding 100,000 tonnes have been simultaneously announced in St. Petersburg and the Leningrad region. Will the city or the region become a “New South Korea” in the segment of supership construction and will S.Korean shipbuilders contribute to it?

Three pillars for the North-West 

As of today, three large projects for construction of superyards - in Primorsk, at Kotlin Island (Kronshtadt) and at Severnaya Verf shipyard in St. Petersburg - have been announced in St. Petersburg and the Leningrad region.

The project of the new shipyard in Primorsk (Vyborg Shipyard) envisages the construction of gas carriers with displacement of up to 200,000 tonnes, ice-class tankers (over 100,000 tonnes) and drilling platforms. The project with its infrastructure is valued at RUR 58 bln.

The Kotlin project depends on the future of the Admiralty Shipyards (part of the United Shipbuilding Corporation) currently located in the very center of St. Petersburg. There are two alternatives here – either modernization and expansion of the shipyard facilities at the currently occupied territory for annual production of 5-6 large-capacity vessels or construction of new facilities at the Kotlin island near St. Petersburg. According to the latter alternative valued at RUR 65 bln, two dry docks are to be built for production of some 15 vessels per year, including aircraft carriers, perhaps.

The United Industrial Corporation (OPK) plans to create a shipbuilding complex on the basis of Severnaya Verf (St. Petersburg) with a capacity to build 300,000-dwt vessels (500,000 dwt per year at full capacity). It should be noted that this project implies the development of both Baltiysky Zavod (also a part of OPK) and Severnaya Verf – the two shipyards are to operate as a single complex.

One thing at a time

However, simultaneous implementation of such great projects is physically impossible because of the deficiency of both hands and finances. According to Vladimir Aleksandrov, Director General of Admiralty Shipyards, the order of priority will be determined at the government level by the end of 2009. “There are three large projects to be implemented in our region. It is too much for our builders and for our financial resources as all the projects are to be financed by VTB and similar structures. We hope that the priorities are to be determined by the year end – which project is to be the first. OSK is a state company and we will do what we are told to though all the three projects are independent and have different owners,” Director General of Admiralty Shipyards said.

Vladimir Aleksandrov also thinks that Kotlin project will require substantial state investments as the corporation lacks resources to implement such a project.

“I think it is a state matter … Everybody says it is OSK to build such shipyards, it is to find money but I think it is not a promising way. The state should certainly solve this issue. Another question is how the government is to return this money. Such shipyards can build for RUR 100-120 bln and with average profitability of 10% in commercial shipbuilding the payback period may last for 6-8 years. A correct approach is as follows: the government helps to arrange this business today and the companies to manage the shipbuilding complex undertake to return this money as such a shipyard exceeds OSK ability,” Vladimir Aleksandrov says.

In this context it is curious that SamsungHeavyIndustries (SHI) took an interest in Kotlin and Severnaya Verf projects. According to Vladimir Aleksandrov, negotiations with the foreign corporation are currently in the process. Financialparticipation is not excluded.

Meanwhile, OPK and SHI have recently signed a memorandum of cooperation. As OPK press center reports, it envisages cooperation in construction of a new shipbuilding complex at Severnaya Verf in St. Petersburg and in construction of vessels for Gazprom although OPK does not reveal the details yet.

Is outfitting worth the candle?

The issue of SHI participation is not an idle inquiry as Russian shipbuilding needs not only docks and slipways to build hulls of superships but new technologies as well as, and the development of the related industries – instrument engineering, engine building etc. Is St. Petersburg to become a center producing low value added goods while foreign shipbuilders retain technologies and outfitting?

However, the situation is far from desirable. For example, St. Petersburg-based company Zvezda announced its new development strategy at the International Maritime Defense Show -2009. Accordingto it the company rejects focus on production of marinediesel engines. The plant’s Director General Pavel Plavnik says the decision is brought by the absence of national policy in this sector. “We see an unprecedented displacement of home made equipment with the foreign one in naval, border and commercial fleet … Apart from this, the industry development is hindered by general adverse economic trends resulting in cost development, struggle for renewal of fixed assets without any support, deficit of qualified staff parallel to the break of intergenerational continuity. It is obvious that the development of such hi-tech segments as diesel engine manufacturing is impossible without a comprehensive national policy. Meanwhile, state participation in the development of diesel production is practically at the zero level today. If the situation does not change, Russian diesel production will disappear by 2015. At the best case, assembling plants of foreign enterprises will appear here, Pavel Plavnik believes.

At the same time, Sergei Zimin, Head of the Department of Social-Economic and Financial Monitoring, of the Staff of the plenipotentiary representative of the President of the Russian Federation in the North-West Federal District, thinks that elaboration of a specific federal program for each sub-industry would mean return to a state planning which is impossible in the market situation. Besides, the state cannot participate in market segmentation and to support one segment like diesel production without assisting other ones like production of gasoline engines.

One could agree with both sides’ arguments. The state cannot solve all the problems of shipbuilding but it can create favorable environment for attraction of private investors including foreign ones and to set rules enabling Russian entrepreneurs to get experience and new technologies from their partners as well as to invest in research work. The state is able to invest in fundamental science and personnel training which is something difficult for individual companies.

It should be noted that first steps have been already undertaken in this direction. In particular, a design bureau is to be established within OSK framework to specialize in commercial shipbuilding as it is not a secret that from soviet times scientific research was focused mainly on naval shipbuilding. Moreover, the state corporation is developing programs for training and attraction of skilled personnel.

It makes one hope that the program aimed at the shelf development, for which the above projects are primarily intended, will «bring up» both shipbuilding and related segments to the level of advanced, hi-tech and competitive industry.