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EastRussia Bulletin: Friday exclusive - shipbuilding

The traditional exclusive industry analytical review of the EastRussia bulletin - this time on the Far Eastern shipbuilding: the current state of affairs, the expectations of market players, manufacturers and customers.

In the fall of last year, the head of the Federal Agency for Fishery, I. Shestakov, proposed to allocate additional investment quotas for the construction of fishing vessels, due to the insignificant renewal of vessels in the Far East due to the delay in terms of six months to two years. In general, in the country today, within the framework of state support programs for shipbuilding, the construction of 107 ships has been announced (including 56 ships under investment quotas programs). Out of 107 vessels, 11 were launched, and 4 were handed over to customers. President Vladimir Putin, during a meeting with I. Shestakov in October, promised to work out the issue of allocating additional quotas.

EastRussia Bulletin: Friday exclusive - shipbuilding
Photo: press service of the Amur shipyard

In October, the Ministry of Industry and Trade proposed make adjustments into the rules for the provision of a ship utilization grant, increasing it to 15% for the construction of ships for the needs of northern delivery (such a coefficient, in particular, is already in effect in the passenger fleet) - this applies to the transport, service and technical fleet. At the same time, as a prerequisite, it was proposed to introduce the requirement to build a new vessel only at the shipyards of the Far North and the Far East. The project is currently going through the stage of public discussions. It should be noted that the ship recycling grant was introduced in 2017 and represents a payment to a Russian shipping company for recycling an old fleet and ordering a new ship from a Russian shipyard.[1].

Today the ships used for the northern delivery are largely outdated - on average, their age exceeds 30 years, and their wear is 70%. The Ministry of Industry and Trade insists on the need for state support for the construction of such vessels, arguing for its long payback periods, short navigation times and a shortage of working capital. The department tentatively estimated the need for the construction of ships for northern delivery at 15 units in the coming years, with a further increase - by 2035, the total demand for vessels of this type may be 300 units (which may require up to 15 billion rubles). At the same time, the ministry found it difficult to estimate the number of potential recipients of the subsidy, due to the lack of reliable information about the firm intentions of the shipping companies involved in the northern delivery. The initiative of the Ministry of Industry and Trade was supported by the Ministry for the Development of the Russian Far East, initiating the collection of information on the number of vessels operating today and the needs for updating the fleet.

Recall that in Yakutia last year, the construction of a new Zhatayskaya shipyard (within the framework of the TOP) was launched precisely in order to renew the outdated fleet of the Lena River Shipping Company, which specializes in the delivery of goods to the Arctic regions of the republic. The cost of this project is estimated at 5,8 billion rubles. Completion of the work is scheduled for the end of this year, but the enterprise is expected to be brought to full capacity by the end of 2025. Industry experts also note the need to expand preferential leasing for the construction of river vessels delivering life-supporting cargo to the Far North.

Another measure proposed by the Ministry of Industry and Trade to support domestic shipbuilding is to reimburse part of the cost of paying interest on loans and leasing payments for large vessels with a deadweight of 25 tons or more, built at Russian shipyards. It is proposed to make the appropriate changes to the state program for the development of shipbuilding and technology for the development of the shelf. In November 2020, Deputy Prime Minister Yuri Borisov instructed the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of Economic Development and the Ministry of Transport to consider this initiative and report on the agreed position.

Currently, there is already Resolution No. 383 regarding support for the construction of large-tonnage vessels, but it operates with restrictions - it applies only to vessels of the "river-sea" class worth no more than 1,5 billion rubles (excluding passenger ships). For the implementation of this support measure, the budget provides 10,4 billion rubles (for 2021-23). At the same time, the construction of large-capacity gas carriers for NOVATEK at the Primorsky Zvezda shipyard is already subsidized - 31,6 billion rubles in 2021-23. in order to compensate for the difference in construction costs with the shipyards of South Korea. Proceeding from the fact that the new measure of state support with a high degree of probability will not affect the already subsidized fleet and ships built on budget funds, its main recipients may be commercial customers - for Zvezda these are Rosnefteflot (a structure of Rosneft), Sovcomflot "," Gazprom ".

As for the program of investment quotas for the renewal of the fishing fleet, the first series of vessels being built in the Far East within the framework of the investment quotas program for crab quotas are eight crab fishers with a deadweight of more than 1 tons, laid down at the Nakhodka Shipyard.[2] in the Primorsky Territory (NSRZ) for the Antey group of companies - six directly for Antey and two for Pacific Fish Industry Company LLC (part of the Antey group). The vessels should be launched by the end of 2024. Investments in the construction of these crab catchers are estimated at about 17 billion rubles. Let us also remind that in the spring of last year, two crab catchers 

Meanwhile, JSC "Vostochnaya Verf"[4] (Vladivostok) managed to ensure production with orders from the fish industry after the loss of a part of the state order in military shipbuilding. In December, the company launched the first ship (Okhotsk) from a series of five crab catchers under construction at the shipyard as part of the investment quotas program. Transfer of the vessel to the customer - the group of companies "Sigma Marine Technology"[5], scheduled for September this year. In general, Vostochnaya Verf builds four crab fishing vessels for Sigma Marine Technology (including those belonging to the group of companies, OOO Sever and OOO Far East Coast) and one vessel for OOO Voskhod.[6] (FPV resident in the seaside village of Preobrazhenie). The delivery of the last crab catcher in the series to the customer should take place in 2024.

In addition to construction within the framework of investment quotas, Vostochnaya Verf continues to work within its main specialization (construction of warships, supply vessels for the Pacific Fleet and the FSB)[7] - at the end of last year, the company built the sixth project 21980 anti-sabotage boat (Grachonok) for the Pacific Fleet. In total, six boats of this project were built at the shipyard. In February, metal cutting began for the floating pier of the PM-61M project for the Pacific Fleet. It is planned to commission the berth to the customer in October this year. Last year, three berths of this project were commissioned - two for the Pacific Fleet and one for the coast guard of the FSB border department in the Amur Region. Despite certain successes, there are claims of other industry players against the Vladivostok enterprise - in February it became known about the intention to file a bankruptcy claim against Vostochnaya Verf in the arbitration court by the enterprise Electroradioavtomatika (VP ERA), which is owned by Rosneftegaz-controlled "JSC" Modern technologies of shipbuilding "(76,29%) and V. Pestov (9,69%). Also, the Primorsky Arbitration Court received a statement from LLC Marine Propulsion Systems (St. Petersburg, is engaged in the production of marine engines) to declare Vostochnaya Verf bankrupt.

Meanwhile, problems arise at the Amur shipbuilding plant (ASZ) in Komsomolsk-on-Amur (part of the United Shipbuilding Corporation). Olimp LLC[8] (Vladivostok, is engaged in the supply of consumables for energy companies) intends to bankrupt the enterprise by applying to the arbitration court with a corresponding requirement[9]... At the same time, the company does not disclose the essence of claims against the shipbuilder. In October last year, the Amur Shipyard launched two new vessels at once - an ice-class cargo-passenger road-rail ferry for work on the Vanino - Kholmsk crossing and a multifunctional rescue vessel for the fleet of the Marine Rescue Service FSBI. The Ministry of Defense in December last year, as part of the implementation of the state defense order, signed a contract with the ASZ for the construction of a serial batch of six corvettes (projects 2380 and 2385), which should replenish the Pacific Fleet in 2024-28.

At the same time, the Zvezda shipyard (a consortium of Rosneft, Rosneftegaz and Gazprombank) in the Primorsky Territory is gradually becoming the industry leader not only in the Far Eastern Federal District, but in the country as a whole, which at the end of the year took first place in the rating of shipyards in terms of total tonnage and the second place after USC in terms of the value of delivered vessels. In 2020, the plant in Bolshoy Kamen placed the largest-value orders in the industry - a series of ten LNG carriers for PAO NOVATEK's Arctic LNG-2 project and the leading nuclear icebreaker Leader with a capacity of 120 MW. In November 2020, the construction of a second product tanker with a deadweight of 50 thousand tons (for the transportation of oil products and gas condensate) began at the Zvezda shipyard.[10]running on gas engine fuel. It should be recalled that Zvezda's portfolio of orders currently includes over 50 vessels (53 active orders), including 28 vessels for Rosneft. By the end of the year, a hull production unit, painting booths, an open outfitting berth with a fleet of cranes and a ship-transport system, and a transport-transfer dock were put into operation at the shipbuilding complex. The second stage of the enterprise includes a dry dock, as well as additional full-cycle production shops for the construction of large-tonnage ships and marine equipment. In October, the shipyard began construction of the seventh Aframax-class tanker for Rosneft, and in November, construction began on the first ice-class LNG carrier Arc7 with a capacity of 172,6 thousand cubic meters. m and cutting of steel for the second gas carrier, and in December the laying of the first shuttle tanker of enhanced ice class Arc6 with a deadweight of 69 thousand tons took place. 15 Arc7 gas carriers are to be built for NOVATEK, 5 out of 15 tankers are scheduled to be commissioned in 2023.

It should be noted that due to the pandemic, some customers were revising their plans for placing orders. Thus, FSUE "Rosmorport" signed a contract with "Zvezda" for the construction of two icebreakers, instead of the initially planned four, including due to an increase in price (the price of the first vessel increased from 4,9 to 5,8 billion rubles, the rest - from 4,3 to 5,4 billion rubles). At the same time, Rosmorport does not exclude the possibility of increasing the series in the future. The first icebreaker is due to be commissioned in 2024.

An important issue in the framework of the construction of "Zvezda", once again raised at the end of last year, was the creation of metallurgical production in the Far East for the needs of the shipbuilding complex. The head of Rosneft I. Sechin in November last year informed President V. Putin of the decision to build a metallurgical plant worth $ 2,2 billion in the Primorsky Territory - in the Sukhodol Bay area, near the Bolshoy Kamen Bay, where Zvezda is located. According to preliminary plans, the capacity of the new plant should be 1,5 million tons of steel and pipe products, while for the needs of the shipyard itself, about 330-350 thousand tons are needed. The rest of the products are supposed to be sold to other consumers in the Far Eastern Federal District. This decision was influenced by the remoteness of the shipyard from the main manufacturers of ship sheets and metal profiles, as well as difficulties in organizing rail deliveries.

At the same time, the company expects to provide significant state support for this project - I. Sechin noted the need to create an accompanying infrastructure for the enterprise - additional energy capacities, as well as roads and housing, asking the president for assistance in this matter. At the moment, a feasibility study of the project has been developed with the participation of the Chinese MCC International Incorporation.

At the same time, Russian steel companies that are members of the Russian Steel industry association[11] (brings together the leading metallurgical companies of the Russian Federation), oppose the creation of a new production in Primorye, assessing it as unprofitable, since it will require significant benefits for the transportation of raw materials (iron ore, scrap, coal). The main risks are associated with the fact that there is currently a surplus of steelmaking capacities - steel production in the Russian Federation is almost twice the consumption, and the volume of unclaimed products on the domestic market is estimated at 30 million tons. In the opinion of Russian Steel, in such conditions, a more expedient measure is not the construction of new capacities, but the provision of competitive tariffs for the transportation of metal products for Far Eastern consumers in general or exclusively for the needs of Zvezda. In turn, the Ministry of Industry and Trade, where in 2019 they did not see the need to create large-scale production in the Far East, announced their intentions to study the business plan of the project and only after that to assess its prospects in detail. The department suggests that in order to provide the plant with the necessary number of orders, in addition to the needs of shipbuilding, it must also provide products for enterprises in other industries - mechanical engineering, car building, and manufacture large-diameter pipes.

At the same time, the main problem of all shipbuilding enterprises, including Zvezda, is that, working on foreign projects, they actually assemble new ships entirely from imported components, since the customers first of all expect to receive a vessel similar to that produced in South Korea. In particular, "Zvezda" carries out the construction of large deadweight vessels, including tankers and gas carriers, using the large-block assembly method. Thus, the first tanker Aframax (Vladimir Monomakh) built in Russia with a deadweight of 114 thousand tons and a cost of about 12 billion rubles, delivered by Zvezda to Rosnefteflot in December last year, was built by more than 80% in South Korea - the tasks of the Far Eastern shipyard included welding of the stern and bow parts of the ship. For the customer, replacement with domestic components in projects carries risks of failure to meet deadlines, higher prices, while there are concerns about reliability, while equipment manufacturers insist that large batches and serial orders are needed to reduce the price of new equipment.

[1]           Currently, during the construction of passenger ships 15% of the cost of a new ship is reimbursed, and in the construction of other types of ships - 10%. The subsidy is also allocated within the framework of leasing. In 2017-18. thus, the construction of nine vessels was financed, in 2019 only FSUE “Rosmorport” received a subsidy (34 million rubles), in 2020 the subsidy was received by three companies for the construction of four vessels. The budget provides for 450 million rubles in 2021, and 500 million rubles each in 2022 and 2023. In February 2020, amendments were made to the rules for issuing a ship's salvage grant, implying an obligation to return subsidies in case of a delay in the delivery of the ship. The Ministry of Industry and Trade proposes to soften the penalties (to reduce the minimum fine from 25% to 2,5% of the subsidy amount).

[2]           Belongs to "MP Group" M. Poletaev.

[3]           Belongs to M. Kotov.

[4]           19,55% belongs to G. Lazarev, 5,75% - A. Miroshnichenko.

[5]           The founders are M. Petrushin and S. Popov.

[6]           The founder is the son of the Primorsky Governor N. Kozhemyako.

[7]           Vostochnaya Verf is currently the only enterprise of the military-industrial complex in the Far East - a resident of the FPV.

[8]           Owners - A. Zalevsky, Y. Filippov (35% each), A. Lyvutin (30%).

[9]           In 2020, four applications for bankruptcy of ASZ were noted, but they were returned by the court to creditors.

[10]         The vessels will be operated under long-term time-charter agreements between Sovcomflot and NOVATEK.

[11]         Includes Evraz, Mechel PAO, Magnitogorsk Metallurgical Plant PJSC, Novolipetsk Metallurgical Plant PJSC, Oskol Electrometallurgical Plant JSC, Severstal PJSC, Pipe Metallurgical Company PJSC, PMH Management Company LLC, JSC United Metallurgical Company.

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