Bulldozed by Putin

Russian President Vladimir Putin.
Russian President Vladimir Putin.

 

Red lights are flashing at the Yamal LNG carrier (icebreaker) project of Daewoo Shipbuilding & Marine Engineering (DSME). Last July, DSME won a slot reservation agreement (an agreement to reserve shipyards in advance based on a possible shipbuilding order) for building 16 LNG ships from a Russian company. In March this year, DSME concluded a formal contract for just one ship, but there have been no more contracts since then.

The DSME's annual sales target this year is US$14.5 billion (14.8 trillion won), and if it receives all 16 LNG ship orders for the Yamal gas project, it will be able to reach 33 percent of its annual goal, attracting attention from home and aboard. However, the order amount it has received is just US$1.9 billion (1.93 trillion won) obtained from the contract in March, only 13.1 percent of the annual goal.

The DSME expected a formal contract for all 16 ships to be signed by April, but the contract has been postponed several times, putting the DSME as well as local steel suppliers in an awkward position.

The crux of the matter is that Russian President Putin is strongly against placing orders for the Yamal project with foreign shipbuilders. Earlier this month, Putin exerted strong pressure on Russia’s largest private gas company Novatek to build the LNG carriers in Russia. Novatek holds 60 percent of the shares of the massive Yamal project, with Total and China National Petroleum Corp (CNPC) each sitting on 20 percent. Accordingly, the DSME’s expectation of getting all 16 icebreaker orders is likely to go up in smoke.

According to the report on June 5 by TradeWinds, a Norwegian magazine specializing in the marine industry, Russian private news agency Inerfax said that Putin pressured project owner Novatek’s CEO Leonid Mikhelson at a meeting on the previous day.

President Putin said, “You all want to order abroad. If there won’t be orders [in Russia], then there won’t be any development [of shipbuilding in Russia] either. I ask you to work on this properly,” adding, “I ask you to look to a Russian shipbuilder.”

Mikhelson answered that Novatek was trying to order ships in Russia, saying, “But there is no such capacity at present. We’re now working with the management of United Shipholding Corporation (USC) so that these orders could be placed in Russia.”

Putin went on to ask Mikhelson if his company would join the shipbuilding consortium to develop the Zvezda yard in the far east of Russia. But Mikhelson said, “We would prefer to participate in shipyards that the USC has in the north of the European part of Russia.” Putin replied, “This is also possible.”

According to the Norwegian magazine, Sovcomflot, the Russian main contractor to build LNG ships for the Yamal project, ordered the first ship worth US$316 million from the DSME in March. Of the next 15, Sovcomflot has earmarked five for DSME and is set to contract six with Teekay and four with MOL. Sovcomflot will order the second and third in the series.

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