Russian shipyard loses contract
A Russian shipyard lost a contract with a Norwegian company worth more than $500 million because of production delays and price increases a situation Russian media described Tuesday as a reflection of inefficiencies in the nation's heavy industries.
Odfjell SE announced last week that it was canceling the contract with the Sevmash plant for up to 12 bulk chemical product carriers, saying its terms were violated. Odfjell also said it would claim full compensation for its costs and losses caused by what it called "willful misconduct and massive contract breaches."
The company said the fixed total contract price for all 12 vessels was about $500 million, but Sevmash later increased that to $544 million.
Sevmash, located in Severodvinsk on the White Sea, denied breaching the contract and accused the Norwegian company of failing to agree on a "fair price" for its work.
Spokesman Mikhail Starozhilov refused to comment further on the dispute, but said Tuesday that the yard would continue building the vessels and try to find another customer.
The contract's cancellation was a new humiliation for Sevmash, which already had been criticized for failing to meet contract terms for upgrading an aircraft carrier for the Indian Navy. A series of other disputes with foreign customers have tarnished Russia's image as a reliable supplier.
"Russia's reputation as a country capable of competing with other countries in the production and exports of high-tech equipment has received a new heavy blow," the Nezavisimaya Gazeta daily said in a commentary.
The business daily Kommersant said Tuesday that the yard would find it hard to sell the ships because there is little market demand for that kind of ship in Russia and it would be hard to sell the overpriced vessels to foreign customers.
In a similar conflict, Sevmash has fallen behind the schedule on the $1 billion contract to modernize the Soviet-built Admiral Gorshkov aircraft carrier for the Indian Navy and demanded to more than double the price. The Indians have complained vociferously, and negotiations are continuing. Sevmash's troubles follow problems faced by other Russian companies.
Algeria recently decided to return 15 Russian MiG-29 fighter jets, saying they were of poor quality and contained old parts. Another Russian yard fell behind schedule in building frigates for the Indian navy, and Russia failed to meet contract terms for delivering heavy transport and tanker planes to China.
Commentators blame the failures on a steady degradation of Russian defense industries, whose efficiency has been crippled by the failure to modernize aging Soviet-era equipment and an exodus of qualified personnel.
Russian plants have lured foreign customers with low prices for their products and then tried to re-negotiate contracts when they saw rising costs.
"The latest failures stem from inability to make viable economic forecasts," Nezavisimaya Gazeta quoted analyst Agvan Mikaelian as saying. "In the end, prices are higher because of low production efficiency and higher consumption of metals and energy."