Foreign ‘insides’ of Russian shipbuilding

Domestic shipbuilding has generally settled for assembling of hulls and installation of foreign equipment. RF Government is set to break the vicious circle of commitment to ship ‘insides’ of foreign origin. State incentive mechanisms are under development to encourage construction of vessels at domestic shipyards. However, some of the proposed measures seem to be controversial and the results achieved are often a fiction.

Insight

Vessel’s ‘insides’ – shipboard equipment and machinery – account for the bulk of a ship cost. This equipment brings the highest added value while Russia generally builds hulls and assembles imported equipment. This situation formed after the collapse of the USSR and was caused by several factors. As Dmitry Rogozin, Deputy Prime Minister of the Russian Federation, said at the meeting of the Marine Board under RF Government held at Admiral Makarov State University of Maritime and Inland Shipping (Saint-Petersburg) on July 2, 2015, this should be attributed to depreciation and obsolescence of the existing shipyards’ facilities and commitment to imported components sown at the earliest phases of contracting.

According to Dmitry Rogozin, depreciation of most production facilities exceeds 70%. Labour/output ratio is 3-5 times as high as in foreign countries, component production is almost 2.5 times longer. Staff scarcity is getting heavier and it influences the quality of production. Finally, shipyards’ facilities are loaded by no more than 25-30%. Read more in Opinions >>>> 

Of course, Russian shipyards are not competitive with such a performance. No wonder that foreign companies are a priori determined as manufacturers of shipboard equipment at the initial phase of contracting. 

Having no orders, Russian companies cannot undertake modernization and upgrading programmes which results in low attractiveness of the related professions. Last decades have seen the development of a ‘vicious circle’ degrading domestic shipbuilding to the status of a ‘screwdriver industry’. 

“The main strategic task is to shift the focus of design bureaus, designers, domestic shipbuilders and customers onto integration into the process of national shipbuilding and marine engineering”, Dmitry Rogozin said at RF Govt’s MB meeting.

In the opinion of Andrei Dutov, Deputy Minister of Industry and Trade, integration low volume of serial production in the sector is among the main challenges. He says integration of different companies’ resources is required as well as more attention to standartization and unification.

For example, by the end of 2015, Russia is going to complete the development of ship engines nomenclature. However, high level of serial production can be ensured, Andrei Dutov says, through establishment of a unified production of standard components and units for all Russian engine manufacturers.

Besides, research and production association “Marine Engineering” is proposed for establishment in Russia. The order to go into the issue has been given at the meeting of RF Government’s Marine Board to the Ministry of Industry and Trade, United Shipbuilding Corporation, federal executive authorities and related organizations.  The results are to be submitted to the Marine Board in quarter IV, 2015. 

The concern is to integrate enterprises and organizations able to ensure production of state-of-the-art competitive equipment. 

USC President Aleksei Rakhmanov, who participated in the meeting, did not support the idea. He says it is not clear which companies and why are to be included into the new concern. According to him, such companies work successfully within USC.

Meanwhile, Andrei Dutov said the Ministry is elaborating the list of equipment and components of Russian origin which should be used by companies applying for participation in state support programmes and get access to state orders.

State support

When speaking about state support we should mention the mechanisms developed by the Ministry of Transport and the Ministry of Industry and Trade in order to encourage construction of vessels at Russian shipyards. The first measure is known as ship utilization grant, which is a lump-sum compensation provided for a company utilizing its old fleet. The grants can be used exclusively for construction of new vessels at domestic shipyards. It can be provided to a shipping company scrapping ships whose age exceeds 30 years and owned by the company for at least 3 years. The compensation is supposed to be provided upon construction and delivery of a new vessel.

SUG calculations will be based on deadweight, cargo and passenger capacity as well as the power of ships. A grant is to make at least 10% of the construction costs.

As Denis Manturov, RF Minister of Industry and Trade, told journalists in Saint-Petersburg, financing of ship utilization grants is supposed to exceed RUB 10 bln in 2017-2030. According to him, mechanism of ship utilization grants is included into the state programme of the Russian Federation “Development of shipbuilding and equipment for offshore fields” from 2017.

Another measure is reduced rates for leasing out of vessels built in Russia. According to Denis Manturov, this mechanism is supposed to be applied through additional capitalization of certain leasing companies (or one selected company). Such companies will order ships from domestic shipyards and lease them out (operating leasing) at reduced rates. The Ministry of Industry and Trade is going to allocate for that purpose some RUB 3.5 bln in 2016.

Though state support is very important for the industry, domestic shipbuilding and related industries should revive not only through administrative and financial interference but also through improving the product quality, reduction of production costs and terms. As RF Navy Commander Admiral Victor Chirkov said at RF Govt’s MB meeting, domestic products are often of poor quality. He especially criticized gas turbine and diesel power plants manufactured in Russia. Victor Chirkov also said that even the mentioned produced is mainly assembled with the use of foreign materials and components while considerable state resources have already been spent for import substitution programmes.

Vitaly Chernov