The recent years have seen a decline of Ukrainian shipbuilding, which used to be so powerful some time ago. In spite of this fact, public joint-stock company Leninskaya Kuznitsa is recovering, though it is located in Kiev city, far from the sea. Productio

YARDS ON THE DNIEPER

The recent years have seen a decline of Ukrainian shipbuilding, which used to be so powerful some time ago. In spite of this fact, public joint-stock company Leninskaya Kuznitsa is recovering, though it is located in Kiev city, far from the sea. Production growth at this, not the largest, Ukrainian shipyard owes to large investment contributed by Ukrprominvest concern. Commercial director of Leninskaya Kuznitsa Valery Shandra speaks on joint activities of the shipyard and the concern, on new schemes of ship construction’s financing, and prospects for development of Ukrainian shipbuilding.

It is well-known that large shipyards executing large-scale state orders were the basis of the Soviet shipbuilding in Ukraine. Upgrades of manufacturing processes were not even the issue on the agenda back then. The collapse of the Soviet financial system deprived shipyards of the source of financing for production.

Worth highlighting is the fact that shipbuilding worldwide only partially finances itself with its own resources. The rest comes from banking loans at a 6% interest on average. Shipbuilding industry does not yield very high returns, although 10-15% profits are believed to be high enough in the Western countries. Contract insurance is a must. A constructed ship pays off at least in 3-5 years on the condition that the vessel is being actively leased or chartered.

Thus, by the mid-1990s Ukrainian shipbuilding was in a critical situation. Shipyards could not fund ship construction and product competitiveness plummeted.

Leninskaya Kuznitsa was in a similar situation. Nobody wanted to cooperate with the shipyard because it was heavily in debts. Production was stalled and high-skilled shipbuilders began leaving the enterprise.

Yet, this did not stop Ukrprominvest concern that already controls four large Ukrainian confectioneries, as well as automotive assemblage enterprises, taxi services, and other businesses. The management of the concern intends to invest in various branches of the Ukrainian economy.

The investor started with finding solutions to management problems. In fact, these are the major menaces of Ukrainian enterprises, more important than shortage of current assets and other troubles.

During 1994-1998 Ukrprominvest put together a significant interest in public joint-stock company Leninskaya Kuznitsa, which allows active participation in management over the enterprise. Managers of the concern were included into corporate management bodies of the joint-stock company, namely into the Board of Directors and the Supervisory Board. A team of young managers came to the shipyard proposing new approaches to tackle the enterprise’s problems.

Debt repayment and improvement of the shipyard’s financial structure began the shipyard’s restructuring.

Later, as the restructuring progressed on, a number of shipyard’s divisions became its affiliates. For example, the casting mill was transformed into an affiliate company currently working on orders of Ukrzaliznytsya (Ukrainian Railway) and thus bringing in small, yet stable profits.

The yard began accepting all kinds of orders. Small-scale orders from many customers furnished enough to reduce shipyard’s outstanding payables threefold. We hope to repay the rest of the debts in the near future.

Attraction of foreign customers was the next step. Comparatively low prices for Ukrainian metal and low (as compared with the European standards) charges for our work were our primary advantages. At the same time, we are obliged to keep the international standard of product quality. This parameter is strictly controlled by such international classification societies as Lloyd’s Register of Shipping, Veritas, and others.

In the past years the shipyard constructed vessels with various finishing and outfitting. Clients can order us only to make a hull and do the finishing work, or a hull with a keel line, or a complete vessel. We also manufacture ship machinery.

It is noteworthy that the shipyard searches for business partners, conducts negotiations, and signs contracts independently. I would say that the current relations between the shipyard and the concern are similar to the former ‘enterprise – ministry’ scheme.

Ukrprominvest, as a serious strategic investor, acted as shipyard’s surety for bank borrowing operations. The shipyard was introduced to the top European banks. Currently, Leninskaya Kuznitsa is the only Ukrainian enterprise enjoying full trust of the European bankers. As regards crediting, the shipyard is capable of constructing any vessel of any cost.

This scheme reduces customer’s risk to the minimum and is typical for global shipbuilding practice.

Since 1998, the shipyard has launched three complete trawlers for Russian fishermen on the Kamchatka, including the lead vessel of the group, costing the total of USD 12.5 million. Experts understand how much effort needs to be applied by a shipyard to do this. Moreover, this group was designed by the shipyard’s Central Design Bureau as far back as in 1989; thus the project required additional upgrade work.

As it is known, the vessels were transferred to Russia as repayment of a portion of Ukraine’s debts for natural gas.

In addition, Leninskaya Kuznitsa has constructed six ship hulls ordered by Dutch companies Robo International and Damen worth USD 700,000 each. These are universal inland water dry-bulk carriers, chemical carriers, and river-to-sea cargo ships.

The shipyard also manufactured various machinery, such as propeller shafts, regulated-interval screw propellers, ship winches, freezers, incinerators, boiler units, equipment for oilfield exploration and railways.

Speaking about the prospects, two hulls for European customers are being prepared. The first one will be launched at the beginning of May and the second one in June. The third one is scheduled to be launched in September. New orders from the same companies are expected to come soon enough. Construction of the trawler series for Russia will be continued. There is great demand for this ship type out there. Preparation of the contract for construction of 4 such vessels for fishing fleet of Murmansk region is currently under way.

We should complete construction of a ship ordered by the Navy of Ukraine in the coming year (as a matter of fact, Leninskaya Kuznitsa has an experience of constructing small warships since the Soviet period).

The shipyard will participate in the tender for construction of ships for joint-stock shipping company Ukrrichflot (Ukrainian River Fleet), the results of which will become public at the end of August.

In one word, Leninskaya Kuznitsa is recovering. As I have mentioned above, new trained personnel comes first. Secondly, shipbuilding requires the corresponding legislative basis. Peter Poroshenko, member of the parliament and honorary president of Ukrprominvest concern, initiated passing of the law of Ukraine "On measures for State support of Ukrainian shipbuilding" in the Ukrainian Parliament. The law entered into force on January 1, 2000. This new law provides that shipyards may open special banking accounts, not subject to control by the state controlling bodies, for up to 5 years. The law also provides for restructuring of shipbuilding enterprises’ debts for the term of up to 5 years. For the law to become effective, it is required that the list of the involved enterprises be compiled and privileged customs tariffs on components for ship construction be approved.

Thirdly, it is necessary to make it possible to issue loans for ship construction. Ukraine has a great demand for new vessels, e.g. the Ukrainian fishing fleet alone needs 350 ships. I believe that the scheme applied at Leninskaya Kuznitsa (when industrial investor guarantees safety of loans) is the only possible efficient way for Ukrainian shipyards. This approach will drive Ukraine back to the status of the leading shipbuilding country.

the Metal