Masters and experts

Russia never stops discussing the ways for the development of domestic shipbuilding. There are certain doubts about the necessity to build new shipyards or ability to compete with South Korea and China as well as about powers which should be delegated to VIOCs. The report of the Expert Board of the Governmental Military-Industrial Commission’s Chairman contains recommendations different from those set forth by the officials or USC.

Asian threat

According to the Strategy of the United Shipbuilding Corporation till 2030, competition with the leading shipbuilding powers, like S. Korea, China and Japan, in building mass segment vessels is a cold prospect.

“It is difficult for the domestic industry to enter the market of the most widespread shipbuilding products (dry cargo carriers and tankers for non-ice navigation or low ice class vessels) due to competition with China, Japan and Korea,” the Strategy says.

The same opinion is expressed by the officials in different regions. As Boris Kabakov, representative of RF Ministry of Industry and Trade, said at the All-Russia Forum “Shipbuilding and Shipping in Russia: new solutions and economic efficiency” Russian shipbuilding has no reason to compete with S. Korea or China in mass segments. Instead, he thinks, Russian shipbuilding should focus on construction of hi-end Arctic vessels.

However, this popular opinion has not been supported by Mikhail Remizov, Chairman of the Presidium of the Military-Industrial Commission’s Expert Board under the Government of the Russian Federation, President of National Strategy Institute. He believes that Russia can’t just concentrate on the segment of hi-end shipbuilding – other countries including S. Korea also enter this segment. The expert thinks there is a buoyant domestic demand for shipbuilding products in Russia. Rosneft alone could require shipbuilding products for RUB 400-500 bln from 2017, it would not be good to spend them for foreign economies.  Therefore, new shipyards should be built in Russia, Mikhail Remizov says. In particular, new shipbuilding facilities should appear in the North West region of Russia.

The project on construction of new shipbuilding facilities in Saint-Petersburg was considered by the previous management of USC. The new shipyard, known as Novoadmiralteyskaya, was supposed to be built on Kotlin island in the Gulf of Finland (linked to the city with a dam). They planned to partly transfer the facilities of the existing Admiralty Shipyards located in the historic part of the city. However, the project was frozen: first of all, because Admiralty Shipyards was busy with implementation of the state defense order; secondly, because the idea to build a new shipyard in Kronshtadt has certain disadvantages.

The Expert Board emphasizes in its report that “new state-of-the-art shipyard would be the breath of life for Russian shipbuilding. New shipyard near Saint-Petersburg is the best decision we can afford as the lion's share of Russia’s shipbuilding potential is accumulated here”.

Besides, the experts express their regret over the “delayed” implementation of plans on construction of Vostok-Raffles and Zvezda-DSME shipyards in the Far East region. Meanwhile, one year ago it was announced by Andrey Dyachkov, former head of USC, that the corporation was developing the programme for their construction, stating that the programme developed earlier “would be transformed and divided into certain phases”. The latest Strategy, however, reveals no signs of such projects.

Awaiting for a miracle

However, USC Strategy pays much attention to the handing over of the assets of the Far Eastern Shipbuilding and Ship Repair Center to consortium of investors representing vertically integrated oil and gas companies of Russia. The consortium is to acquire the complex of large-capacity shipbuilding being built on the basis of shipyard Zvezda as we wrote earlier >>>> .

At the same time, Remizov believes it would not be right to let joint stock companies regulate the shipbuilding industry as such companies follow their corporate interests even if they are owned by the state. 

So, the expert thinks, it is the government to be in charge of regulation the efficiency of which depends on professionalism of the personnel in corresponding authorities. The officials and USC management should be represented by industry experts familiar with the inside of the situation rather than by “cross-functional managers”.

Remizov suggested to carefully look into the “Brazilian shipbuilding miracle”. He thinks that the boost of shipbuilding industry there is driven by the fact that mineral and transport companies are not allowed to place shipbuilding orders with foreign companies (if there is a possibility to have them build within the country) as well as by provision of cheap and “long-term” money and state support. If Russia follows this way, astronomical sums of money which VIOCs are going to spend for shipbuilding will remain in Russian economy (to maximum possible extent).

Meanwhile, Boris Kabakov says the share of Russian enterprises in total volume of shipbuilding orders in Russia is planned to be raised to 50% by 2030, having occupied 2% of the global market in terms of displacement and 10% in terms of costs.

The Brazilian “miracle” is quite attractive but we think a number of issues should be solved in Russia before we try to repeat it. First of all, who is to pay for construction of the new shipyards? If it is the state – the budget is in its hard times. If it is VIOCs – they could easier order a cheaper vessel from China or Korea. Besides, experts are not willing to give complete control to VIOCs. Foreign investors are not very much interested in the development of Russian shipbuilding – why invest into rivals amid excessive tonnage in the global market? There is no “long-term” money in Russia either and it is a problem to raise a foreign loan. Another issue if the government’s political will is strong enough to make VIOCs follow stringent state rules amid commodity-based oligopolic economy. Moreover, if the domestic shipbuilding market is closed it can result in low quality, high costs and delays. 

Vitaly Chernov