This is the biggest covered workshop of Almaz marine. Photo: Almaz

In the 1990’s, a program was initiated aiming at merging Baltic Shipyard, Northern Shipyard and Admiralty Shipyards into a joint ship assembly complex in the form of a joint-stock industrial corporation.

In late 2003, General Director of the Admiralty Shipyards, Vadim Alexandrov, said he would like to see a united Neva Shipyards in St Petersburg. In the following spring, consultants proposed the merging of Northern Shipyard and the Baltic Shipyard, possibly without nationalisation.

In autumn 2003, the St Petersburg industrial conglomerate IST Group increased its ownership in the Baltic Shipyard to 88.2 per cent, by buying 17.36 per cent of the shares from Karavan Zvezd, head of New Programs and Concepts (NPC), a competing holding company.

In 2000 IST – also engaged in gold mining – had become the majority shareholder of the yard. The Government has remained in the Board with a blocking share. In September 2004, United Industrial Corporation (UIC), a company managing the industrial assets of Mezhprombank, completed the transaction of acquiring a controlling 53.5 per cent stake in Severnaya Verf, buying the shares from NPC.

Coordination of activities
A year ago, in January 2005, Victor Khristenko, the Minister of Industry and Energy, ordered that an Interdepartmental Commission on Shipbuilding should be set up. This Commission is to coordinate the activities of different governmental institutions aimed at supporting shipbuilding activities.

Victor Khristenko said in a press release: “Without a contribution of the Government aimed at creating stable structures, with an understandable and reasonable degree of integration, the shipbuilding industry will not be able to demonstrate a real readiness to meet the demands of the Russian shipowners. Without this process, all other measures will be void. I am assured that we need to accelerate this process. Lower taxes and better credit conditions will create preconditions for competitiveness.”

Political power struggle
In July 2005, Severnaya Verf entered into an agreement with the state company Rosoboronexport providing for their cooperation in the promotion of both military and civilian products made by St Petersburg shipbuilders for the international market. Vladimir Pakhomov, the Rosoboronexport Deputy General Director, became a member in the Severnaya Verf Board of Directors.

In August last year, IST Group sold its 88 per cent stake in Baltic Shipyard to United Industrial Corporation (UIC or OPK), the owner of the competitor Northern Shipyard. UIC/OPK is owned by Mezhprombank, which is controlled by Federation Council member Sergei Pugachyov. This deal was said to have been “below USD 100 million”.

Since 2002, the yards have been in the middle of a political power struggle. A USD 1.4 billion contract to build two destroyers for China was first received by Northern Shipyard, then won in a tender by Baltic Shipyard, but was later, by Mikhail Kasianov, transferred to the Northern Shipyard. The conflict eased only after OPK bought up Northern Shipyard last year from NPC. When the contract was published, the order book of Baltic Shipyard was said to be worth more than 600 MUSD. The merger is exactly in line with the Russian Government’s plans.
The Federal Agency for Industry is planning to concentrate all capacities for building surface ships and submarines into two holdings for security reasons, Izvestia wrote in August last year. The newspaper said that agency head Boris Alyoshin wanted to set up a holding for the construction of submarines around Sevmashpredpriyatiye in the Arkhangelsk region, where the main base for repairing nuclear submarines, Zvezdochka, also is located.

The “submarine” holding could also embrace the Admiralty Shipyards in St Petersburg and a plant in Komsomolsk-on-Amur. Alyoshin is reputed to have said that the new structure might include private enterprises.
According to the official, Baltiysky Zavod and Severnaya Verf, which now are in the process of pooling their resources, would in the beginning consist of two different holdings, which would eventually merge at a later stage.

Development plan

	“Torgovy Bridge” under construction.

According to the Krylov Shipbuilding Research Institute, it had in September last year together with the CNII for Shipbuilding Technologies completed the “concept of the development of Russian shipbuilding for 2006–2010.” This plan was said to still be in the process of being approved by the Government, and would be implemented no earlier than 2006.

The Institute notes that the Russian Agency for Industry confirms the idea of creating 2–3 large holdings of Northern Shipyard, Baltic Shipyard, Severnoe, Nevskoe and Almaz design agencies.

However, Krylov notes, the Mezhprombank, which owns the two shipyards, has not confirmed the future structure of its two yards. It is added that the integration processes goes faster in the scientific sector, where there had been less disorder. It will be based on a federal scientific center created around the Krylov Institute.
It can be noted that the IST Group controlled Central Design Bureau Iceberg and Specialized Boiler Design Bureau were not part of the sales of Baltic Shipyard by IST.

In early November, Sergey Zavyalov, the General Director and owner of OJSC Vyborg Shipyard, was assigned Director of Surface Shipbuilding Project of UIC. He is to create the strategy for the development of the Northern Shipyard and Baltic Shipyard. This move led to immediate speculations that Vyborg Shipyard would also soon be included in the new shipbuilding conglomerate by Zavyalov selling out to Mezhprombank. The inclusion of Vyborg Shipyard in the group is not that interesting, as it builds relatively small non-navy vessels.

According to information from the UIC, the Federal Agency on Industry, Rosprom proposes the creation of a public and a private partnership, based upon FSUE Severnoye PKB (Northern Design and Development Bureau), FSUE CMKB Almaz (Central Marine Design and Development Bureau Almaz) and OJSC Nevskoye PKB as well as the two plants of Mezhprombank.

According to Mr Vladimir Zhelonkin, a UIC Board member, Baltic Shipyard and Northern Shipyard will remain independent corporate bodies. The aggregate order book, which Sergey Zavyalov is going to manage, amounts to approximately USD 3 billion, according to Zhelonkin. Mr Zavyalov will remain a member of the Board of Directors of Vyborg Plant and a shareholder of owner Ako Barss Group, of which he (apparently) owns 60 per cent. In 2004, Vyborg Shipyard had a turnover of RUB 370 million.

Baltic Shipyard will soon be merged with Severnaya Verf. Photo: Juhani Mehto

In an interview last April in Vedomosti, UIC Board chairman Alexander V Gnusarev shed some light on the future of the two yards. He estimated the value of Severnaya Verf to be USD 600 million, and said, looking at the ratio between its capitalization degree and average annual profit level, that the yard can be compared with the largest Western shipyards: Northrop Grumman Ship Systems in the USA and Devonport Royal Dockyards in the UK.

Regarding non-navy shipbuilding at Severnaya Verf, he noted that the yard can incidentally work with small civilian projects, including those of Sovcomflot, which the yard was then trying to win. UIC agreed with the IST Group in April, before buying its shares, that the Baltic Shipyard would give up warship building until 2008.

“It doesn’t make sense to have two plants for naval orders”, Gnusarev said at that time.

A merger likely to come
Based on this, it seems likely that the navy shipbuilding organization of Baltic Shipyard will soon be merged with Severnaya Verf, although bigger ships would still be built at the current location.

It has also been suggested that the Baltic Shipyard’s current shipbuilding facilities would, at some stage, be closed, freeing up valuable land for real estate purposes – another business sector of the UIC. In this scenario, new yard facilities for large-scale shipbuilding would have to be built at the Northern Shipyard site.

73.2 per cent of the Northern Shipyard’s shares are owned by the UIC. Another 21 per cent are held by the Russian Federal Property Management Fund. In 2003 the Northern Shipyard had sales of RUB 1.17 billion, posting a net loss of RUB 254 million, although the production volume reached RUB 17.4 billion, 20 per cent more than in 2002.

In 2004, Baltic Shipyard’s sales amounted to RUB 9.7 billion and the taxable profit was RUB 1.0 billion.

When asked if the UIC would be interested in the Admiralty Shipyards, if it would become a joint stock company and make a holding with the Rubin design office, Gnusarev noted that they already have former Admiralty chief engineer Alexander V Sergeevich Buzakov as director general at Severnaya Verf, and that they intend to concentrate on surface shipbuilding.

Almaz sold
In 2004, OMZ (Uralmash-Izhora Group) announced that the company is going to sell their shipbuilding division to its management for USD 50 million. The shipbuilding branch consisted of Almaz Shipyard, Krasnoe Sormovo, Volgograd Shipyard, III International Shipyard, Nizhegorodsky Teplohod, Pavlovsky Plant, NPO Burovaya Technika (Drilling Machinery), CKB Korall and the American designer of offshore platforms Friede & Goldman.

In August last year, the MNP Onshore & Offshore Group sold its shareholding in Almaz Marine Yard to Leonid Grabovets, yard manager of Almaz.

Meanwhile, the city of St Petersburg helps to finance the training of the 5,000 to 7,000 additional persons required by the shipbuilding industry in the region, in the next couple of years. Some 500 engineers and 2,000 skilled yard workers are estimated to be needed annually, in a program developed for the period 2004–2008 including 17 different training institutions which are to train 2,200 technicians and 2,700 engineers with a total of 60,000 to attend upgrading courses.

//Henrik Segercrantz