Russian Civil Shipbuilding Sector

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Interview of the General Director of the United Shipbuilding Corporation to the Kommersant newspaper

December 30th, 3:22
In the newspaper "Kommersant" under the heading " Shipbuilding is not a supermarket." The head of the United Shipbuilding Corporation (USC) Alexei Rakhmanov on the growing costs and new orders ” published an interview with the General Director of PJSC“ United Shipbuilding Corporation ”(USC) Alexei Rakhmanov .

The United Shipbuilding Corporation (USC) handed over the nuclear-powered icebreaker Siberia to Atomflot in 2021 , but the end of the year was darkened by a serious fire on the Provorny corvette . The general director of USC Alexei Rakhmanov told Kommersant whether the corporation will be able to fulfill the plan for revenue and profits, the rise in metal prices and the course of the modernization of Admiral Kuznetsov .

- How will the deadline for the delivery of the "Provorny" corvette , on which there was a fire in December, move ? What losses will USC incur? Will you get insurance?

- The timing, as well as the amount of losses, can be estimated after the completion of the work of the commission, which is formed of representatives of the plant and the USC.

- Will it be possible to fulfill the plan for revenue of 92 billion rubles? for 2021 in civil courts?

- We need to finalize December. There are a few more key developments. First of all, it is the delivery of the nuclear-powered icebreaker Sibir . Overall, we expect to come close to the target of RUB 90 bln.

- What will be the revenue and net profit for the whole year, including military orders?

- Revenue will grow in relation to last year. But we will not get a net profit with a high degree of probability. In particular, this is due to increased costs due to the pandemic: personnel testing, part of employees leaving for quarantine, time delays due to the inability of foreign specialists to come to commissioning, etc. Let's say one of our Turkish ferry contractors (for lines Ust-Luga - Baltiysk. - "Kommersant") generally brought a heap of certificates from the Turkish authorities about force majeure, announced sick suppliers and on this basis even demanded more money.

- What are the other reasons for the increase in costs?

- We are still worried about the large number of alterations associated with the construction of fishing vessels, these are additional costs. Considering that fishing vessels have not been built for several decades, and in terms of saturation are comparable to submarines, it is not easy to fit into five years the production of a series of serious trawlers, such as, for example, for the Russian Fishery Company. Another factor is the transfer of a number of tasks of the state defense order to the right, taking into account either objective circumstances, or simply the wishes of the customer to perform additional work.

- What share of the proceeds will be taken by the civil sector this year?

- In 2020 it was 21%, this year - about 22%. The growth is small, but confident. Its pace could have been higher if a number of state support measures had worked in full. First of all, we are talking about preferential leasing, which continues to significantly affect the sales of civilian equipment.

- How did the rise in metal prices affect you? Did you manage to reach agreements with metallurgists on prices?

- This is an extremely sensitive topic for us. In some cases, it was possible to agree, in some - not yet. The discussion continues. For example, the question remains debatable whether to introduce state regulation of metal prices. An arbiter is needed to determine whether a price increase for a particular type of product is justified, both in relation to what USC produces and what our suppliers are doing. We have been proposing the Ministry of Industry and Trade for this role for a long time.

We are expecting that in the spring the State Duma will finally adopt a bill on endowing the Ministry of Industry and Trade with the rights of an expert in the pricing of courts. He will be able to give an opinion on technologies and project estimates by analogy with Glavgosexpertiza.

We keep forgetting that shipbuilding is not a supermarket. You can't come, choose and receive your order tomorrow. We are responsible not only for the construction of ships itself, but also for the development of entire industries. For example, the icebreaker Arktika was built , which has now returned to work on the Northern Sea Route. But at the same time we, in fact, re-raised the manufacturers of electric propulsion systems, practically got the Kirovsky plant out of oblivion (it produces turbines - "Kommersant").

- Why did USC not participate in any of the latest competitions for the construction of icebreakers? All major contracts went to Turkey.

- Only Pella's order went abroad. And you see what this order brought the company to (FSUE "Rosmorport" signed a contract with "Pella" for the construction of an 18 MW icebreaker, but the Hamburg site of "Pella", Pella Sietas, filed for bankruptcy. - "Kommersant").

The key issue in civil shipbuilding is the issue of pricing. For example, we did not go to the Rosmorport competition, because their price is 10.4 billion rubles. confirmed last year. Over the course of the year, deflators "flew away", metal prices rose: for that kind of money, it is impossible to build an icebreaker at a loss. In addition, a strange situation occurs: first they ordered a series of icebreakers for 16 MW, then they ordered one for 25 MW, and now we need another one - for 18 MW, which our Vyborg plant (VSZ) has undertaken. But all the world's shipbuilders compete with each other in the construction of large series.

The construction of ships of the same type is interesting and profitable. The Krasnoye Sormovo shipyard brilliantly demonstrates this: it builds a series of vessels RSD (a series of dry cargo vessels - "b") and RST (a series of tankers - "b"), which proved to be effective and found their customers. But all other orders are single ships. Often, customized by the customer, we begin construction of the ship before the completion of its detailed design. As a result, we spend a huge amount of money on alterations, production becomes more expensive. In such one-time orders, an arbiter is needed who would give an objective assessment of price changes.

- According to Kommersant's information, the cost of an 18 MW icebreaker of Icebreaker 7 class for the seaports of the North-Western Basin for Rosmorport was estimated at at least 14 billion rubles, and the dates should be shifted to 2026. Why did the Vyborg plant initially take on the project on different terms (10.5 billion rubles with delivery in December 2024)?

- The icebreaker for FSUE "Rosmorport" is supposed to be built according to the modernized project 21900M2 (instead of the original project 21900M). The documentation for the modernized project is currently still under development due to the disrupted timing of the development of the documentation for the lead vessel (which is being built at the Pella Sietas shipyard). The result is the impossibility of determining the final configuration, and hence the cost of the vessel. Vyborg Shipyard used the documentation and proprietary data of the 21900M project.

After the completion of the development of the documentation and determination of the final configuration of the vessel, we plan to carry out a detailed recalculation of the resulting set of materials and equipment. If the competitive price is exceeded, we will raise the issue of increasing the value of the vessel.

- Why did Arktika go on trials for so long?

- Last year, when it gave up, one of the electric motors went out of order, it did not give out full power. We had to change this engine, carry out a unique operation, test many technological production concepts and go back to confirmatory tests. The tests have been successfully completed. Now this icebreaker only has to work and work in the Arctic.

- Why the tests of the icebreaker "Siberia"were carried out in two stages? Were there the same problems with electric propulsion as in the "Arctic" ?

- In addition to tests for speed, draft with full load, with full ballast, and so on, we must also conduct ice tests. The icebreaker is designed to break ice more than three meters thick. Such ice is not everywhere and only at certain times of the year. Therefore, part of the tests takes place, as a rule, in April or early May. These are our obligations and our guarantee: if something happens, we will either deal with the elimination of these comments, or pay a penalty.

- The order for two hulls of floating nuclear power units (FPU) for the Baimsky GOK went to China, although initially the project was positioned as completely domestic. Why didn't you take this order?

- Building the building is not a big trick. We decided that the key changes in the design of floating stations for us is the production of elements of the reactor plant. Plus, according to the slipway schedule, it was not possible to fit the production of these two hulls at the Baltzavod (taking into account the creation of the LK-60 icebreakers). Rosatom received an offer to give the first two hulls to a third-party shipyard, and we agreed with it.

- The Chinese will build two buildings for $ 226 million. Will you ask for more money for the third and fourth?

- I do not think. Here the question is, rather, not prices, but the coordination of schedules for the construction of technologically complex products.

- According to our information, one of the arguments in favor of the PEBs was to ensure the loading of the Baltzavod, which would otherwise face bankruptcy. Are there really such risks?

- Baltzavod, like, for example, Severnaya Verf, went to USC already with a serious load of debts. In 2011–2012, Baltzavod agreed to practically any contract, without bargaining, if only there was a chance to break the deadlock. As a result, we managed to get the plant out of bankruptcy in 2018. Unfortunately, the echo of bygone times can still be heard from time to time. There is no risk of bankruptcy today, but the financial situation needs to be improved.

- Does USC have interests in purchasing shipyards? Especially to Pella OJSC?

- The purchase of assets is possible only after a comprehensive assessment of how the hypothetical acquisition will fit into our business model. At the moment we have no last minute offers, but this does not mean that we do not study the market.

- This year it became known that the commissioning of the cruise liner "Peter the Great"postponed again, now - to the spring of 2022. What is the reason?

- Affected by the fact that in the country more than 50 years, "cruise ships" have not been built - competencies have not even to be restored, but to be acquired anew. And "Peter the Great" turned out to be much more complicated than his sister ship "Mustai Karim". From the outside they look approximately the same, but "Peter the Great" is much richer in terms of electromotion.

The customer, Moscow River Shipping Company (part of Roman Trotsenko's AEON holding - Kommersant), originally wanted a very complex project. The liner uses four engines of approximately equal power instead of large propulsion diesel engines and diesel generators. All four can be propulsed, but one engine can be switched to power the boat if required. Or you can turn off all the engines to save electricity, leave only one diesel, for example, when the liner goes downstream at a speed of 5-10 knots.

Essentially, it's dual redundancy and versatility. However, it played a cruel joke on us - it made it too complicated. For various reasons, this steamer began to be built at the Lotus plant in the Astrakhan region. The guys at the factory did everything they could. Several times I had to change the management team. But, be that as it may, "Peter the Great" is now on sea trials.

- What is the final cost of the liner?

- I will not name the final price. Fortunately, the project has no problems with metallurgists and other suppliers, since all the materials were purchased earlier. It remains to complete the system check, complete the glazing of the case and finish. The Meridian company, which signed up for the finishing of the steamer, is doing a good job so far.

- Will the customer impose penalties for being late?

- We are in dialogue. "Peter the Great" was designed and built with the active participation of the customer, and some changes took place quite late in terms of the general rules for designing ships. Let's see what costs can really be attributed to additional costs and mistakes of our management. I think we'll come to a compromise.

- How is the Astrakhan shipbuilding cluster developing in general?

- We are faced with the task of putting the Astrakhan assets in order, reassembling all the factories under one management: Lotos, Astrakhan Shipbuilding Production Association (ASPO) and Red Barricades. We want to recreate what in the Soviet years was called the Astrakhan shipbuilding and ship repair production association. The plans are to complete the construction of all ships that the enterprises have in debt.

- Will there be new orders?

- Yes. First, ASPO and Red Barricades will actively participate in the USC dock program, that is, make blocks and sections of floating docks. In addition, Lotos will remain a manufacturer of dry cargo ships and other passenger ships.

- At what stage are the negotiations on the construction of new cruise ships? Did you manage to negotiate the price with the customers?

- Negotiations at the stage of preparing contracts. Most likely, there will be two of them - for the construction and reservation of capacities. We would very much like to complete this stage before the end of the year. We have already agreed in principle about the appearance of the steamers and that, most likely, it will be a series of three or four ships. With PV300 ( "Peter the Great" and "Mustai Karim. -" Kommersant "), the series still did not work: the ships are too different.

- When will the modernization of Severnaya Verf be completed? Why does it show losses? And will there be delays in orders?

- This is one of the main investment projects of the USC, because it has already been proven: construction in a covered building gives an increase in labor productivity by 15-25%. Further, at Severnaya Verf, the hull-processing shop, welding equipment and warehouse organization will be modernized.

The backlog of five months occurs on the side of the contractor, who took on increased obligations and did not fulfill them. In addition, the contractor found himself in a situation with growing metal prices: in his opinion, the contract price is too low, and it is necessary to go back to the examination. We will decide what to do next with this contractor.

- The Krasnoye Sormovo plant received another order from STLC for 11 dry cargo vessels. How will you load the shipyard in the future?

- The plant is capable of producing 14 dry cargo vessels a year, so we are thinking about additional loading. Renewal of the civilian fleet is an inevitable thing: more than 1,000 river-sea vessels require “retirement”, because they are 35 years old or more. Therefore, the prospects for "Krasnoe Sormovo" are very clear. We expect that the plant will receive another three or four passenger ships. The company has proven its ability to build technologically sophisticated ships, and Mustai Karim is an example of this.

- In the fall, the tourism committee discussed the possibility of creating a unified shipping company as a construction customer and ship owner. Will you fight for this title?

- So far we are not a shipping, but a shipbuilding company. Of course, we can become a shipping company in the context of the development of the service model of shipbuilding. If we are invited to become a co-shareholder of this unified shipping company, we will be happy to consider, since such a decision will allow us to formulate the terms of reference more correctly and participate in the creation and determination of the appearance of ships. But to become an operator of the passenger fleet is probably not in our hands now: not our competence.

- According to PortNews, STLC plans to consolidate all shipbuilding leasing programs. In your opinion, does Russia need such a large monopoly in the field of financing?

- We believe that our own leasing company is our financial partner in working with customers. It helps to ensure an efficient funding structure, and most importantly, it does not make us extreme in this whole story. For example, if we have any delays in the transfer of the vessel, then the leasing company can become a buffer between the customer and the shipbuilder. But hypothetically, if a leasing company becomes independent and positions itself as a profit center, then all the money in this leasing company will remain. Shipbuilders and shipowners will eat this pie on a leftover basis, if they ever get anything at all. There are great risks inherent in this.