Ships for export: international potential of Russian shipbuilding

Russian shipbuilding is in dire need of orders for large-series production. That will let considerably reduce the cost of construction and the periods of contracts execution. In his interview with IAA PortNews, Maksim Agadzhanov, General Director of Gazprombank Leasing JSC, tells where solvent customers can be found and how international level can be reached.

- Mr Agadzhanov, it is well known that the commercial fleet of Russia is in need of renovation requiring considerable investments. Can domestic shipyards expect foreign customers’ contracts despite the ‘internal’ problems of the industry? 

- I am sure that partnership of domestic shipyards with international customers is a promising activity. Of course, there is a lot to be done in the local market: hundreds of different ships are needed. However, we have few shipping companies able to raise funds and place a large order ensuring a full load of shipyards. The solvent demand for vessels in the internal market is actually very limited. At the same time, there are hundreds of solvent ship owners in the global market with the number of ships ordered by them totaling thousands of units. 

- Is the competition in the global market of commercial shipbuilding tough enough? 

- Certainly. A shipbuilding contract with a foreign customer is only possible for shipyards able to offer and, most importantly, build a ship at a competitive price not changing during the process of construction, in compliance with the construction period and quality guarantees.

- Are Russian shipbuilders ready for that in your opinion?

- The experience of negotiations between Gazprombank Leasing and Russian shipyard is encouraging. An increasingly high number of domestic shipyards take into account the customers’ requirements and understand the need for a systemic reduction of prices and strict compliance with all contract terms.  

- What ships can be offered by Russian shipyards in the international market to be in demand there?

- In my opinion, it is necessary to concentrate initially on a single segment, to stay focused on that. For example, we cannot compete with Chinese shipbuilders in mass production of unsophisticated ships today. Russia is able to compete on equal terms in the niche of innovative and hi-tech shipbuilding.

For instance, that can be hydrofoils that once were in mass production in our country, used to be exported worldwide and earned the trust and acknowledgement of foreign ship owners. The production of hydrofoils ceased in Russia in early 1990s but the recovery of those competences have resumed with new hydrofoil designs developed and first units of the new generation built.

Gazprombank Leasing has already receives the first requests from foreign ship owners for leasing of Russian hydrofoils. The work to prepare the first transactions has begun. It is important to emphasize that none of the countries worldwide was able to repeat the experience of the USSR on mass manufacture of hydrofoils although, in the opinion of foreign ship owners, such ships feature a number of advantages when compared with high-speed catamarans at certain routes.
 
- What is the potential of this segment in the global market?

- According to our estimations based on negotiations with foreign ship owners, the demand for Russian hydrofoils in the global market can be as high as several thousands of units. In monetary terms – that means orders worth billions of USD. As a simple example, I would mention the potential of the Indonesia and the Philippines markets. These two island states in the South-East Asia alone have a joint population of almost 400 million people. Hydrofoils are perfect for that passenger communication in that region to provide links between tens and hundreds of islands. And there are many countries and regions of that kind.

- Are national financial institutions ready to assist Russian shipbuilders when it comes to financing of contracts with foreign customers, through leasing perhaps?

- High quality Russian ship at a competitive price would not suffice for a foreign customer. Apart from a ship, clients normally expect a long-term financing with attractive terms. In this situation, Russian shipyards will need a reliable local financial partner to develop a joint proposal in the form of “ship plus financing” package. Gazprombank Leasing is set to become such a partner for Russian shipyards. As a subsidiary of Gazprombank, we have all the competences and expertize for structuring of complicated and large-scale projects. 

- What are the amounts we can speak about with shipbuilding requiring immense financial resources?

- Admittedly, that is about billions. Leasing financing limit for each client is set in view of its financial status and solvency. The financing schedule can cover a period of more than a decade.

- Will the state take any part in implementation of such transnational projects?

- Of course, it is supposed to. A programme of state subsidies to cover the interest rates of export projects’ financing has been adopted in Russia as well as support instruments through Russian Export Center JSC. As a whole, that lets us offer our foreign clients financing at terms fully competitive in the global market.

The development of hi-tech exports including export of shipbuilding industry products is among the priorities of Russia today with Gazprombank Leasing aspiring to make an essential contribution in this segment. 

- Let’s talk about restrictions. As it is known, IMO’s 0.5% sulphur cap for bunker fuel comes into effect on 1 January 2020. How will it influence the shipbuilding industry? 

- In this situation, liquefied natural gas (LNG) as a clean and efficient fuel is becoming a promising product for the marine bunkering market. Vessels running on LNG will be increasingly popular in 5-10 years. Russia, with its enormous reserves of natural gas can take a lead both as LNG supplier to the global market and as a large-scale manufacturer of LNG-powered sea and river ships of different size and purpose. 

Of course, to operate the fleet running on LNG we will need to create a related infrastructure. In fact, it is a promising sector, the development of which has begun in different countries including Russia. 

Interviewed by Tatyana Vilde.