Much Room to Breathe
It is expected that the financial sector will make guarantees for advance payments for super large offshore plant contracts amounting to about six trillion won (US$5.3 billion). Although the government considered reducing support for offshore plant projects, the government decided to guarantee them since the government judged that these projects were not low-priced orders.
According to the industrial and financial sectors on November 3, as banks raised a possibility of guarantees for the two large-scale projects pushed ahead by Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME), the shipbuilders will be given some room to breathe.
The Shipbuilding & Marine Business Information Center finished assessing feasibility studies on Samsung Heavy Industries' US$2.5 billion Mozambique Coral Floating Liquefied Natural Gas Plant (FLNG) project and DSME’s US$2.7 billion Tengiz Oil Field project in Kazakhstan and sent the results to the two shipbuilders. If the monetary amounts of the two projects are combined, they will be estimated at six trillion won.
The Maritime Financial Center is a general maritime financial council established jointly by the Korea Development Bank, the Export-Import Bank, and the Korea Trade-Investment Promotion Agency. The Shipbuilding & Marine Business Information Center said that both projects were not low-priced. It is also said that their grades are high.
The Korea Development Bank, the Export-Import Bank, and the Korea Trade-Investment Promotion Agency decide whether or not to issue a refund guarantee (RG) based on such results. An RG is a type of an industrial guarantee that returns an advance payment if a shipbuilder cannot deliver a ship or plant as contracted.
The Shipbuilding & Marine Business Information Center was established in March in order to support government-run financial institutions’ review of the issuance of a performance guarantee by judging whether or not the shipbuilding order is low-priced or the contract has unfair clauses. Low-priced orders and contracts with unfair clauses were problems of the Korean shipbuilding industry.
"We have already signed a contract on the Tengiz, Kazakhstan Oil Field project,” said a representative of DSME. “We will be able to start the project soon after the issuance of an RG.”A consortium led by Samsung Heavy Industries was selected as a preferred bidder for the Mozambique Coral Floating Liquefied Natural Gas (FLNG) Facility project.
“If we sign the main contract and an RG is immediately issued within this year, we will be able to carry the project forward beginning next year,” said a representative of Samsung Heavy Industries. The RGs for both Samsung and Daewoo are expected to reach between US$200 million and US$300 million. In general, the size of an RG for an offshore plant order is slightly smaller than an RG for a shipbuilding order according to the shipbuilding and financial industries.