New reform of USC

Russia has conceived a new reform of shipbuilding industry management but seems to have got tangled: Marine Board has withheld the approval of the draft Strategy for USC development till 2030 with contradictory opinions expressed at its meeting. Some vote for USC dissolution.

Expulsion from the East

Russian Prime Minister Dmitry Medvedev has recently approved the new statute of the Marine Board under the Government of the Russian Federation, having empowered it to coordinate the state shipbuilding policy. The Marine Board Presidium has been established to ensure the Board’s regular activities with the Duma ex-deputy Sergey Shishkarev as the Presidium Chairman and the Deputy Chairman of the Board. 

We have already mentioned that this had decreased the role of the United Shipbuillding Corporation and the Ministry of Industry and trade as USC is owned by the state while the Minister of Industry and Trade is subordinate to the Deputy Prime Minister who is the head of the Marine Board.

The meaning of USC can be lost as the majority of its most important assets in the Far Eastern Shipbuilding and Ship Repair Center  are supposed to be handed over to the consortium of investors representing vertically integrated oil and gas companies of Russia (first of all, Rosneft and Gazprom). Actually, this consortium is going to acquire the complex of large-capacity shipbuilding being built on the basis of the Far Eastern Shipbuilding and Ship Repair Center in Bolshoi Kamen (Primorsk Territory). The complex is to supposed to build vessels supporting the offshore projects. 

The most evident anti-corporation approach was demonstrated by Andrey Shishkin, Vice President of Rosneft (key investor of the above-mentioned consortium). He says the Corporation failed to create any facilities capable of meeting the demand for vessels required for offshore development. According to him, the development of the fields in the Kara Sea alone will require 500 support ships. And they are to be ordered mainly from foreign shipyards. 

According to the RF Ministry of Industry and Trade, total demand of Russia’s major customers numbers 1,200 vessels and marine facilities to be built by 2030.

In this context, the question is: what does USC get except for the military shipbuilding if the civil sector is controlled by the investors –customers of those vessels? 

According to Andrei Dutov, General Director of FSUE Krylov State Research Center and Chairman of the BoD of United Shipbuilding Corporation, the Corporation will still have a number of other shipyards capable of building civil vessels. 

For example, the draft Strategy for USC development till 2030 sets forth the modernization of the Admiralty Shipyards, Baltiysky Zavod, Baltic Shipyard Yantar,  Vyborg Shipyard and Krasnoye Sormovo.

As for the military shipbuilding sector, there is a plan for modernization of Novorrosiysk and Astrakhan shipyards servicing the Black Sea Fleet and the Caspian Flotilla respectively. 

Shifting to indeterminate place

The modernization of the Admiralty Shipyards and Baltiysky Zavod in Saint Petersburg imply their gradual transfer to new territories. According to Vladimir Shmakov, President of the United Shipbuilding Corporation, the project is to be completed by 2024 without any negative impact on implementation of the existing contracts. 

“Further investments into these oldest enterprises of the industry produce no significant effect while their current problems are connected with the location inside the city,” the USC President explained. However he did not specify the place to host the shipyards’ facilities.

This plan was supported by Mikhail Remizov, Chairman of the Presidium of the Military-Industrial Commission under the Government of the Russian Federation.

From centers to divisions

The draft Strategy for USC development till 2030 also sets forth its structural reforming with transition from the territorial principle of organization to the divisional one based on the product lines. This principle is to be applied to the design bureaus as well.
 
However, some of the Board members doubted the reasonability of this system as different ships and vessels can be manufactured by an enterprise and the criteria to refer such a shipyard to this or that division are not clear.

Meanwhile, Dmitry Rogozin believes all marketing functions are to be centralized within USC. 

Innovations and profanations

According to Dmitry Rogozin, Russian shipbuilding has “slept away” a number of technological stages including the 3-D modeling. This opinion was opposed by Aleksey Rakhmanov, Deputy Minister of Industry and Trade. He says such technologies are being introduced into domestic shipbuilding but the issue is in their adequate practical application

As PortNews learnt from Valery Pragin, representative of Dassault Systems (Director of Russian and CIS Partners’ Business Development) which provides 3-D modeling solutions, Russia has obtained a unique chance that could be called the “effect of the East Germany”. The German reunification had lead to introduction of the lasted technologies in different industries of the East Germany. 

Experts say new solutions are being slowly introduced into the global shipbuilding because of the crisis. Russia can take advantage of this pause and introduce the most advanced technologies at its enterprises and to gain the lead while the West is challenged by the problem of “inherited systems” (when the development is hindered with load of the accumulated software being adjusted to new solutions).

Pragin says introduction of such technologies can considerably decrease the cost of shipbuilding products including the construction of warships. As an example, he told about the USA where introduction of new IT-solutions decreased the production cost of Virginia class submarine by almost 50%. 

As it was told by Leksey Lipis, Director General of the Information Technology Center Mőbius, such software make it possible to make a virtual model of a shipyard with the production of required vessels which helps to understand what can/cannot be done. They also allow testing of a lead vessel without building it so that the most efficient solutions could be found in advance. In the sphere of management, such systems help to improve interaction of the multiple suppliers and contractors. All this considerably decreases the term and the cost of construction.

However, if USC is fixed on state defense orders why should it introduce state-of-the-art systems? If it is forced to introduce them, can we be sure it won’t result in new scandals with “unlawful diversion of funds”? There are no innovations without competition. Even if there are innovations, they can easily turn into profanations.

Time for improvement

According to the order of Russian President, the Strategy of USC development till 2030 should be improved by November 1, 2013. As Dmitry Rogozin said at the Marine Board meeting, the draft strategy had been just taken into consideration, but not approved yet. The “roadmap” for acquisition of FESC assets by the consortium of investors is to be discussed now. Besides, a meeting with chief designers will be held, following which the updated strategy will be considered by the USC Presidium and approved by the USC Board of Directors.  

Nevertheless, the government was more consistent in its attitude to the shipbuilding policy before while today we see contradicting messages. USC establishment implied integration of all key shipbuilding assets of the state within the framework of a state corporation, the system which was popular then. But the only result of it was the rescue of several enterprises, like Baltic or Amur shipyards, with the budget money. However, the same could be done without creating USC. 

Now, the largest customers decided not to wait in vain but to buy some USC assets and to ensure their own production of required marine facilities. In the result, we return to the situation we tried to escape – the shipyards will be controlled by the companies, including nonstate ones, though shipbuilding is not their profile.

Amid the deficit of budget money and focus on privatization, USC prospects seem to be shady. 

So, there are two contradicting trends – the strivings to centralize the industry and to put it under government control, on the one hand, and the transfer of the most promising assets to investors, on the other hand. In this situation, USC will keep only construction of warships, fishing vessels and vessles for inland waterways. The rest is a pipe dream so far. Perhaps, it would be reasonable to divide USC not into divisions but into rival corporations with sufficient state control to prevent discreditable practices of unscrupulous parties?

Vitaly Chernov