Ship machinery and system production in Russia
A joint venture between a Russian shipyard and a major European marine manufacturer hopes to take advantage of the development of shipping in the Arctic region during the next few years, as Eugene Gerden reports.
United Shipbuilding Corporation (USC), a state-owned Russian corporation, which comprises almost 70% of Russia’s shipbuilding assets, has recently signed an agreement with Finnish engineering company Wärtsilä on the establishment of a joint venture for the production of marine systems. The joint venture is constituted on a parity basis, with initial joint investment estimated to be around €20 million, a figure that may increase in the near future.
The new venture will specialise in production of a range of products, in particular ship gearboxes, shafts, podded propulsion units and rudder-propellers. The partnership plans to start production of electrically-driven azimuthing propulsors, as used in the Mistral class amphibious assault ships ordered for the Russian Navy.
Currently the partners are looking for suitable production facilities for the new venture. According to Roman Trotsenko, head of USC, its is expected that large rudder-propellers may be produced in Arkhangelsk, while machinery manufacture is likely to take place in St Petersburg at the Baltzabod foundry plant (Baltzavod) and the old-established ‘Proletarsky Zavod machine-building business. There is also a possibility that some production will be located at the Red Forge Shipyard in Arkhangelsk and the Zvezdochka repair yard in Severodvinsk.
Zvezdochka already produces rudder propellers for modern ice-class vessels and currently remains one of Russia’s leading manufacturers of large ship propellers, supplying various ship types worldwide, in particular cruise liners. According to Trotsenko, currently around half of all cruise ships afloat are equipped with screws produced by Zvezdochka. Trotsenko added that the partnership plans joint distribution of equipment as well as production.
Trotsenko comments: "We can sell them worldwide through a distribution network. This will not be a complete knock down assembly, but a full-fledged co-operation. This will be very complex equipment, without which all Russia’s plans for the development of the Arctic and the production of hydrocarbon will remain only look good on paper”.
Russian analysts believe that the joint venture will create a healthy demand on the Russian market, with the Russian government plans for development of the Arctic region. The plans include starting construction of icebreakers, special Arctic supply vessels, platforms and other ships.
USC has become involved with other foreign partners besides Wärtsilä, having recently joined with STX of Korea to produce diesel engines for ships of small and medium tonnage. Another foreign USC partners is Saipem, an Italian oil and gas industry contractor. Both companies are considering launching complex marine engineering systems, such as offshore platforms and LNG plant equipment.
The USC joint venture is the second such major project for Wärtsilä, which in May 2010 entered into an agreement with Russian machinery giant Transmashholding to establish a marine diesel engine production joint venture. This venture, known as Wärtsilä TMH Diesel Engine, will have a capacity of 350 units per year, and will be located at Transmashholding’s Penzadizelmash plant, and production is scheduled to begin in 2012. The total investment in the project is estimated at more than 1.8 billion rubles ($54 million).
Wärtsilä says that it has been operating in Russia since 1979. At present the company has offices in St. Petersburg, Moscow, Vladivostok and Murmansk.
IMPETUS FOR INDUSTRY DEVELOPMENT
In the meantime, many Russian analysts believe that the establishment of a joint venture between Wärtsilä and USC will play its part in increased production of shipboard equipment in Russia, and increased competitiveness in the world arena. Russia currently imports much of the ship's equipment and marine engines used in its commercial shipbuilding industry, and with imports attracting 30% customs duties, this has an adverse effect on the cost of Russian-produced ships.
However, ships built for export do not attract import duties on components, and imported ships which are registered on the Russian Maritime Ships Register also escape the duties. There are further disadvantages when it comes to leasing; Russian companies can only obtain finance on Russian-built ships. The import duties effectively limit development of the domestic shipbuilding industry, because the lessee must pay interest on the lease, as well as customs duties on imported components. Shipowners find they can get a better finance deal from foreign banks than from the Russian leasing programme. Conversely, duties on the imports of shipboard equipment in Russia are not large enough to encourage foreign producers to establish production facilities in Russia.
There is a possibility that the leasing problem may be solved in the near future. Currently, USC is negotiating with one of Russia’s largest state banks on the establishment of a major leasing company, which will focus on the provision of leasing services for the Russian shipbuilding and engine production industries.
According to George Taritsy, chief designer of LLC Petrobalt, a leading Russian ship design bureau, currently Russia experiences a lack of domestic marine equipment manufacturing, and what such business exists is not yet stable and predictable.
Establishment of new production facilities requires significant capital investments, which local demand might not be able to meet. In addition, the low demand for the Russian marine equipment could be explained by the lack of promotion and information about their products among customers and shipowners.
However there are some well-known Russian names in navigation and automation systems, including Transas, Navis and Valcom. Other companies such as Rossudprom, Aris and Cesar specialise in ship furniture, shielding plates, doors, sanitary cabins and other accessories.
In addition to the establishment of a new leasing company, among other measures aimed at development of the Russian shipboard equipment industry, is creation of favourable conditions for establishing production facilities in the preferential zones, established under the recent law to support the Russian shipbuilding and shipping industries. The proposal is currently being considerate by the Russian government.
USC is considering the developing small scale production for shipboard equipment such as valves, pumps, motors, gearboxes, deck winches etc. Various design bureaus are involved in these plans, to determine the production range and focus on the development of new models. It is possible that the experiences of Poland, Croatia, and other Central and Eastern European states, which in the late 1980s began to produce marine equipment under license from leading Western European manufacturers, will be considered in the desire to operate competitively in the Russian and global shipboard equipment marketplaces.
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