Sea battle strategies

Competition on the range of influence brought two Russian state-controlled giants, Gazprom and Rosneft, to close quarters, having entered the active phase. In April, Rosneft announced its plans to occupy 20% of Russia’s gas market. Within the framework of Investor Day in London, Rosneft head Igor Sechin said that after 2020 Rosneft expects to produce some 100 bln cubic meters of gas annually.  Earlier in February of the current year, Rosneft supported NOVATEC proposal on gas export liberalization. If it happens, Gazprom monopoly for LNG export will become history.

The seriousness of the new national player’s intention is confirmed by its expanded influence on other industries destined to provide it with necessary technical tools.  The events develop rapidly and the competition of the two state monsters leaps out beyond the extractive industry.

Peace and quiet 

Today the excitement covers the conservative and inert shipbuilding industry which has at last seen state orders, for the first time over almost quarter of a century. The abandoned and neglected industry has found itself in demand for over two decades. However, with the omission of several phases of technological reequipment, its fixed assets are worn-out and obsolete, the science and technology of shipbuilding design base is in the same condition, using primarily the soviet achievements so far.

How will the industry develop in this situation, what are the prospects and the way of its development?  It seemed that these issues were solved in December 2012 with the approval of the state programme “Shipbuilding development 2013-2030”. It should be noted that the programme integrates the federal special purpose programme “Development of civil marine and river facilities, 2009-2016, and a package of activities on providing marine facilities for FSPP Development of RF military-industrial complex in 2011-2020”.  The programme wil be implemented in 2013–2030 in three stages and will be supported financially:  over RUB bln will be allocated for its implementation including over RUB 337 bln from federal budget. The volume of their financing in 2013–2015 correspond to the draft federal budget for 2013 and for the planned period of 2014 and 2015.

The situation in the industry is more or less predictable, indeed. The shipyards are booked with state and defense orders. Baltiysky Zavod (United Shipbuilding Corporation, St. Petersburg) has a backlog of orders till 2018”, Aleksandr Voznesensky, Director General of Baltiysky Zavod-Shipbuilding, said at the round table meeting Russian shipbuilding: industry up or down.

The design sector is in the similar situation. According to Vladimir Burov, deputy Director General of Almaz Central Marine Design Bureau, the company has quite a good prospects till 2016 at least, while the company’s development programme covers the period till 2020. “We design almost all types of naval ships excluding aircraft carriers and work 17 shipyards. There is a demand everywhere. 42 units designed by Amaz were under construction in 2012, 21 units were delivered.”  

Stable growth rates are also demonstrated by the companies producing equipment for shipbuilding industry. “The shipbuilding, of course, started to rise, though very hard and from a very low position of 90-ies. Recently, our company has seen annual growth rates of 25%, which means that there are orders, and production volumes should be increased. We are busy with this now. Today, there are no Russian ships without our equipment, we hardly manage to pack devices and it is obvious that till 2016-2018 we’ll be able to maintain the momentum,” says Vladimir Peshekhonov, Director General of the state scientific center of the Russian Federation Concern CSRI Elektropribor, JSC .

If we compare the situation with that of 3 years ago, the picture is more than favorable today. However, it relates to the prospects of the nearest years. “Shipbuilders are booked up with naval orders today, but we are concerned about tomorrow and beyond, as shipyards should work for a long-term perspective - 2020-ies and later,” – believes Vladimir Aleksandrov, President of the St. Petersburg Association of Shipbuilders.  As Voznesensky added, “we can face serious problems (with orders – edit.) after 2018 if no structural changes are introduced into the industry”.

The anxiety about tomorrow is reasonable. According to the estimations of the market players, 70- 80% of all orders secured by national shipyards are state and defense orders, the share of commercial ones is too small. With the renovated RF Navy the shipyards may found themselves on short rations again if a large-scale modernization is not undertaken in the industry and national shipyards don’t start supply the domestic and foreign market with competitive commercial sea facilities.

Rings in the water

The issue concerning the industry retrofit is the key one and the current discussion relates to where the money flows are to be directed. This discussion became urgent after Rosneft announced its demand in marine facilities for the development of off-shore fields and transportation of hydrocarbons, including LNG, to global markets. And this is nothing more or less than 394 units including 15 exploration platforms, 106 production platforms, 16 seismic survey vessels and over 200 of support vessels.

The existing national shipbuilding facilities are loaded with defense orders so in major cases they just don’t have a capacity to implement potential orders. Besides, without amending the technological mode and modernization of the fixed assets technologically complicated vessels cannot be built. What should a focus be placed to overcome the technological gap of the shipbuilding industry?

It appeared that, there are two approaches. One of them, taken as a basis in December 2012 and developed by the Ministry of Industry and Trade with participation of Krylov center, implies the emphasis on the development and creation of scientific and technical backlog and concentration of engineering in RF as well as on implementing Russian projects, partially outside Russia. “If we speak about the construction of large capacity tankers and gas carriers and offshore platforms, new facilities should be created for these tasks.  Returning to the issue of Kotlin shipyard and other projects, their implementation even under private-public partnership principles is impossible without complicated long-term orders from commercial structures, while there are no real orders today.

In this context, the following provision is set forth by the state programme.  Major focus of the commercial shipbuilding should be placed not on implementation of orders but on the creation of scientific and technical backlog and 100-pct engineering concentration in Russia with a possibility to build marine facilities by Russian projects, partially outside Russia,” explained Aleksandr Chemodanov, representative of Krylov State Research Center.

According to him, first steps in this direction have already been made. This concept is friendly with the agreement on cooperation between Krylov center and Nordic Yards owing shipyards in Germany as well as with the deal on the purchase of Helsinki yard shares by the United Shipbuilding Corporation.

However, this approach has opponents and Rosneft is likely to support them.
“We reviewed the strategy of the industry development issued by the Ministry of Industry and Trade in 2007. The programme of 2013-2030 replaced the concepts of the previous one. The first strategy was for creation of a scientific and technical backlog and the modernization was to be commenced from 2010. Unfortunately, the new strategy created with active participation of Krylov Center representatives sets for the creation of a scientific and technical backlog while the modernization scheduled for 2010-2015 is forgotten.  I hope very much that on May 6 (meeting with participation of RF President Vladimir Putin on perspective construction of new shipbuilding facilities. Was initiated by Rosneft head Igor Sechin) the need of modernization will be recalled, otherwise, scientific and technical backlog will have no opportunity to be applied anywhere except for Nordic Yards,” Aleksand Voznesensky says in his turn.

He says it is good that the programme will involve 6,000 designors but we should think also about 80,000 people working for the shipbuilding as a whole. It is the amount of people within the United Shipbuilding Corporation while the entire industry involves some 150,000 people.  “So it is not absolutely correct to speak about building shipyards not for approved orders. Money should be allocated for scientific and technical backlog but not 68% of the FSPP with 7% for shipyards. It is not a correct position. Shipyards should be built for promising projects, not for approved contracts, - Voznesensky opposes.  -  The emphasis of the strategy exclusively on scientific and technical backlog is not very correct”.

Strategic battle

So, in the nearest future we are going to see a battle of programmes and strategies. Its participants will evidently be the United Shipbuilding Corporation supported by Rosneft, on the one hand, and Krylov State Research Center with another strong supporter in the name of the Ministry of Industry and Trade, on the other hand.

The results of the first round ca n become clear after the meeting with Vladimir Putin and Igor Sechin on May 6. The discussion will be dedicated to the USC project on construction of Zvezda shipyard in the Far East and, Voznesensky thinks, the issue of the Kotlin yard (Kronshtadt) may be raised again. The project on the construction of the New-Admiralty Shipyard was suspended due to not clear demand from the state companies.

The next round is likely to touch the very fact of the concept of USC development in 2013-2030. According to Voznesensky, the concept will be discussed in May of the current year and then it will take two-three months to form USC strategy. “United Shipbuilding Corporation never had a specific development strategy. It had different approaches in different periods. I hope the situation will change with the appearance of the strategy,” Voznesensky said. It should be noted that today USC is  being developed within the framework of the general shipbuilding strategy adopted in 2007.  

Anyway, it is possible that with approval of USC strategy and its synchronization with the shipbuilding development programme the latter may be adjusted.   Of course, it is just a scenario, though quite a realistic one.

Tatyana Vilde