World » Europe
Author`s name Alex Naumov

Norway tries to build ships with financial aid of foreign governments

By Vitali Bratkov

In the end of February Norwegian "Odfjell" broke the contract with Russian shipyard "Sevmash " (Severodvinsk, Arkhangelsk region) on delivering several tankers. In fact Norwegians accused Russian shipbuilders of not coping with the schedule of construction and unjustly increased costs. Ignorant media, including Russian hurried to call it an international scandal.

However, there is evidence that Norwegians had deliberately planned "grey schemes". In the beginning of 2000 the management of Sevmash had been actively working with other European customers. When «Odfjell» suggested a big order for the construction of a series of large-capacity fully finished vessels, Sevmash started negotiations with the Norwegians. Then administration of Sevmash must have been misled by the well-known name of its would-be customer. For over a hundred years «Odfjell ASA» worked in the market of cargo transportation, it had big fleet, representations in almost 30 countries of the world. The contract for the sum of about 500 million dollars providing for the construction of 12 chemical tankers seemed too temtatious. However it had strange stipulation fixing the prices of the vessels for all the whole period of construction. However, relying on the international practice of implementation of the similar "fixed" contracts, the economists of Sevmash, probably, made a mistake, assuming flexibility of the customer.

It is necessary to note, that this type of tankers is a unique type. Only five shipping companies in the world deal with the transportation of chemical products. The structure of the Russian merchant fleet never had such class and there was no experience of their construction in our country. Therefore with its calculations Sevmash could rely only on the specification of the tankers already known in Russia. This was usual oil tanker. It would be wrong to claim that the foreigners took the advantage of the lack of information in Russia. But newspaper "Kommersant" says that during the coordination of the costs Norwegians referred to the project of the product-carrier tanker, which specifications are less costly. Therefore the price of one vessel was estimated at $40 million, whereas the real price was about 60 million dollars. The managers of «Odfjell ASA», did not deem it necessary to inform their Russian partners of the expected increase of the prices for the ship equipment. Consequently as early as in some months after conclusion of contract Sevmash was forced the purchase accessories at higher prices than those fixed in the contract. It has nothing to do with the normal business ethics.

Although after long and tough negotiation Norwegians agreed to raise the price of the contract up to 544$ million it was clear that «Odfjell ASA» deliberately delayed the process. One should note that the practice of revising fixed prices contracts exists in the international market of mechanical engineering. In 2006 Sevmash was buying turbo generators for the sea platform Prirazlomnaya. Shortly before "Siemens" announced 30 percent higher prices for turbo generators. Russian Gazprom understood the situation and bought the equipment at new prices. Norwegian company «Moss Mosvold Platforms» (the customer) also followed the business ethics and accepted the new delivery terms. Moreover, at the ceremony of delivering «Moss SC-50» the partners assured each other of further cooperation. It seems that «Odfjell ASA» refused from negotiations because it needs scandal more.

On the other hand the reputation of the Norwegian ship owners is not stainless. In 2003 «Odfjell ASA» lost the court trial in the USA. The company was accused of forming cartels and manipulating with the fixed prices for chartering of chemical tankers. According to «Marinlog» Executive Director of «Odfjell ASA» Bjorn Sjastad and Vice-President Eric Nilsen were accused by the court of Philadelphia of violation of the paragraph one of the law of Sherman which provides for imprisonment and large fines. According to the source the fines in 2003 made 42,5 million dollars.

Last year the changes in the tax laws of Norway made «Odfjell ASA» pay additional taxes which caused losses and depreciation of its assets by 25 percent. Actually the company had to pay taxes for 10 years (!) and to finish last year with the loss of 10 million dollars, according to the official site of the company In September the company also officially informed that is was forced to remove 1 billion dollars from the program of updating its fleet.

The president of «Odfjell ASA» in his comment to «Lloyd’s List» informed the agency that his company will try to order the new vessels in South Korea. They will be considerably more expensive than in Russia. Why «Odfjell ASA» refuses from Russian ships? It turned out that in case with Sevmash the mechanism of implementing contracts planned by «Odfjell ASA» for foreign shipyards did not work. Noteworthy, the conflict with the Russian shipyard is not the first in history of the company. Earlier «Odfjell ASA» ordered vessels from Polish Szczecin and Korean «Samsung». The scheme was the same: initially the cost of the contract was fixed below the market level. When problems with financing appeared the governments of the home countries where the shipyards were located had to subside its shipyards. Subsidies in the shipbuilding are wide spread. In Russia the system of subsidies is jut discussed by the government and the shipbuilders, unlike in other countries, cannot rely on somebody’s assistance.

It is worthwhile thinking about the Norwegian partners before the expected joint projects on Shtokman oil field.


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