Through the ice of sanctions: challenges of Arctic ship repair

The Northern Sea Route and the Arctic ports are increasingly important due to restrictions imposed on Russian ships in foreign waters and also due to the shortage of port infrastructure in the Far East and Southern basins. However, the creation of the Arctic transport fleet faces a number of challenges with the maintenance among them.

The eastward pivot of logistics has led to overloading of transport infrastructure in the Far East and Southern basins. The Northern Sea Route could be a good alternative since it is controlled by Russia and there is no need of obtaining western insurance (which is needed for calling many ports worldwide, even for bunkering purposes) or approvals from foreign states (such as those required for passing the Straits) which is a great problem amid sanctions.

However, large-scale transportation of cargo by the Northern Sea Route is associated with the creation of large ice-class ships and repair facilities for their maintenance. Here come numerous issues.

In brief

Briefly, the market players name the following factors essential for a successful development of sip repair in the Arctic: launching of facilities for assembling ship components in partnership with the companies from friendly countries; improvement of state support measures; construction of more docks to reduce the waiting time for ship repair.

Where can we get software and components?

One of the key issues is the supply of components. It is no secret that the dependence of domestic shipbuilding and ship repair on foreign components, mostly Western ones, has been very high for decades.

The stakeholders of the shipbuilding market in the Arkhangelsk Region discussed this issue at the Arctic-Regions Forum and came to a conclusion that local production of components and equipment should be established together with the partners from the friendly states.

The same approach is to be applied to production of software.

To set up the production of certain components Russia needs numerically controlled machines and things are not that smooth with them today. According to Sergey Malygin, Director of the technical maintenance base of Arkhangelsk Trawl Fleet JSC, the Chinese partners are going to help with numerically controlled machines and something can be produced domestically.

What state assistance is expected by the business?

When it comes to the state measures aimed at supporting of ship repair, the business believes they should be improved by the reduction of the portion of revenues that should be invested by ship repair companies in development to get VAT privileges.

“We have come to understand that some support measures such as zero VAT (draft law – Ed.) requires some adjustment. Yes, an investment agreement is important but I strongly believe that the 20% threshold is too high and it will be too burdensome for ship repair companies, especially small private ones,” — said Sergey Smirnov, Director of Arkhangelsk Region Shipbuilding Cluster association.

Docks are always in demand

The lack of docks is yet another problem of ship repair in the northern region. According to Arkhangelsk Region Governor Aleksandr Tsybulsky, the waiting list for scheduled ship repair at Arkhangelsk shipyards is as long as until the end of 2024 — early 2025.

“We need to expand the capacity of docks. We understand that we need not one or two docks but three or may be more to meet at least some repair requirements,” said Sergey Smirnov.

According to earlier reports, Krasnaya Kuznitsa shipyard was going to build a dock of 5,000 tonnes in capacity. When speaking at the Forum, Mikhail Deryabin, Director of Krasnaya Kuznitsa shipyard (Arkhangelsk branch of Ship Repair Center Zvyozdochka), said that the dock supplier would be selected in the coming months (procurement documents are to be issued in April 2023). According to him, the portfolio of orders for ship repair is full until 2025.

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