Russian government considers Zvezda revisions

This follows recent criticism of the project and the speed of implementation by Russia’s President Vladimir Putin. Mr Putin said earlier that so far, investors in the project, headed by Rosneft, have not presented a clear portfolio of orders and appear to have no idea regarding project funding.

According to Denis Manturov, Russia’s Minister of Industry and Trade, despite the fact that the order book for building civilian ships at Zvezda was actually opened a year ago, no firm orders have been received – not even from the companies actively involved.

Mr Putin has therefore ordered a revision to the project, shifting from initial plans to build oil tankers and gas carriers to production of drilling platforms, offshore service vessels and military ships.

Mr Manturov says this is a valid decision, as in the current economic environment, there is little profit in building large vessels, even in series production, let alone individual orders. These plans have been confirmed by Alexey Rakhmanov, head of United Shipbuilding Corporation (USC), Russia’s monopoly shipbuilder. USC says it has begun dialogue with investors and potential customers about the change of plans.

According to analysts of the Russian Ministry of Industry and Trade, Mr Putin’s decision to revise the project could result from the change of market environment and suspension of the implementation of many projects in the field of oil and gas exploration, which should have ensured the demand for vessels from Zvezda. One such project involved the development of the large Shtokman field in the Barents Sea; however this was first suspended as far back as 2012.

Another potential customer of Zvezda vessels could be the Yamal LNG project, led by Russian Novatek and other investors, which has so far ordered most of its vessels from the South Korean DSME shipyard.

The resulting shortage of orders could make building the Zvezda yard, at a cost of some RUB 111billion (US$3.5billion), unprofitable. The project is also hit by lack of funding; so far only RUB 18billion (US$500million) of government cash has been provided. It is planned that significant funds will come from Gazprombank, one of Russia’s leading banks and one of the participants in the project. But due to Russia’s current economic decline, this could present serious difficulty.