Thursday, October 24, 2019
DSME Competes with Domestic Shipbuilders to Win Offshore Plant Projects
Breaking Promise
DSME Competes with Domestic Shipbuilders to Win Offshore Plant Projects
  • By Jung Min-hee
  • May 24, 2017, 03:00
Share articles

DSME is now bidding against Hyundai Heavy and Samsung Heavy in order to win floating production storage offloading (FPSO) projects.
DSME is now bidding against Hyundai Heavy and Samsung Heavy in order to win floating production storage offloading (FPSO) projects.

 

Daewoo Shipbuilding & Marine Engineering (DSME) pledged to close down its offshore plant business when the debt ridden company received an additional 2.9 trillion won (US$2.58 billion) in emergency funding from the former Park Geun-hye administration and a state-run bank.

The shipbuilder, however, the is highly likely to break its promise. As expectations are growing that international oil prices, which remained low for a long time, will increase and some companies have begun the process of securing major offshore contractors for offshore plants, DSME is snooping around the market. Accordingly, there are growing concerns that DSME is not only breaking the former government’s pledge to downsize the company but also is able to create the low profitability market environment in where contractors can barely balance the budget.

According to shipbuilding industry sources on May 23, South Korea's "big three" shipbuilders – Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries – participated in the prequalification (PQ) process of the Block B gas development project led by a subsidiary of Vietnam’s state-run PetroVietnam. A PQ is the previous step of official bidding. When shipbuilders passes the PQ process, they submits a bidding proposal to the operator and sign an official agreement after being selected as preferred bidder. The nation’s three largest shipbuilders are seeking to participate in a tender to construct a facility on the top of the central processing platform (CPP) of the Block B project which is worth 1 trillion won (US$887 million).

In addition, DSME is now bidding against Hyundai Heavy and Samsung Heavy as well as foreign shipbuilders in order to win an order to construct a floating production storage offloading (FPSO) commissioned by Norwegian oil firm Statoil. DSME President Chung Sung-rip also took part in the 2016 Offshore Technology Conference (OTC) held in the U.S. last month, continuously involving in offshore plant business activities.

The problem is DSME’s latest move contradicts with the initial plan of the financial authorities which said it would find a new owner after making DSME a small but financially sound company. During a briefing session after the ministers’ meeting to strengthen the industrial competitiveness in March, Financial Services Commission Chairman Lim Jong-ryong said, “We are planning to practically close down DSME’s offshore plant business and reorganize the business structure by focusing on competitive merchant ships and special ships.” He said the authorities will create a new “two big and one mid-size shipbuilder” system by downsizing DSME and seek to sell the company starting from 2018. At that time, the government decided to provide an additional 2.9 trillion won (US$2.58 billion) of money to DSME despite controversy over wasting the taxpayer´s precious money. Lee Dong-geol, chairman of the Korea Development Bank (KDB), the largest shareholder of DSME, also said on the same day, “We will prevent DSME from participating in the offshore plant sector.” However, they don’t fulfill their promises. 

Therefore, there are doubts whether the government can come through its plan to sell DSME after reducing its sales by half to 6 trillion to 7 trillion won (US$5.32 billion to 6.21 billion). The Ministry of Trade, Industry and Energy, which had different ideas with the financial authorities on how to deal with DSME, had a negative outlook on DSME’s move to acquire new offshore plant construction projects in the first place.

An official from the government said, “DSME needs to stop seeking new offshore plant orders in a bid to reduce the size of DSME. If the company doesn’t close down the related business, the government cannot accomplish the “two big and one mid-size shipbuilder” system, which is a transition period of “two big shipbuilders” system.”