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Sovkomflot - Sovremenny Commercial Fleet

OAO Sovcomflot (SCF Group - Sovkomflot - Sovremennyy Kommercheskiy Flot) is Russias largest shipping company and a world leader in the maritime transportation of hydrocarbons and the servicing of offshore oil and gas projects. SCF is the largest operator of ice class LNG carriers in the world. The companys fleet (owned and chartered) specialises in hydrocarbon transportation from regions with challenging ice conditions and includes 157 vessels with a combined deadweight of over 12 million tonnes. A third of these vessels have a high ice class. Sovcomflot supports large-scale offshore energy projects in Russia and overseas, including: Sakhalin-I, Sakhalin-II, Varandey, Tangguh, Escobar and Peregrino.

Russia plans to revive a Soviet-era Arctic sea passage to service energy projects and provide a shorter supply route to Asia for carriers such as OAO Sovcomflot. Opening the northern sea route may allow state-owned Sovcomflot to speed natural gas deliveries to China and win cargos between Europe and Asia by offering a quicker alternative to the Suez Canal. "If Russia gives the green light to develop this as a full commercial transit route, it would make Sovcomflot's whole investment case completely different," Chris Weafer, chief strategist at ING Bank NV in Moscow said 20 July 2011. "It would make it more attractive to potential investors."

Sovcomflot was the first Russian shipping company established according to international shipping practices. The basis for Sovcomflot was established on 23 March 1973, when the USSR Council of Ministers decided to implicitly break the monopoly in foreign trade, and give the USSR Ministry of the Maritime Fleet the opportunity to purchase new and second-hand vessels through long-term leasing arrangements, known as bareboat charters. Ownership of the vessels was then transferred once their cost was paid from the charter revenue earned. This innovative approach for the Soviet planned economy, whose introduction was facilitated by the Minister of Maritime Fleet of the USSR - Timofey Guzhenko, made it possible to renew the countrys fleet and implement the most advanced technical, commercial and financial management systems.

Sovcomflot started with the USSR Government's decision to overcome indirectly the state monopoly of the foreign trade by applying of the long-term leasing scheme called "Bare-boat Charter" for purchasing of modern and second-hand vessels. For this reason a special resolution was adopted by the Government of the USSR in 1973 and after having gained some experience a Fund for Commercial Operations within the Ministry of the Merchant Marine of the USSR was established in 1976. This fund was created on the basis of the profit received from bare-boat charter vessels' operation and realization of some commercial transactions. The first ships purchased were two bulk carriers of about 40,000 dwt each "Sovfracht" and "Sovinflot". In the next 15 years more than one hundred vessels of various types were acquired via Bare-boat charter scheme.

Joint-Stock Company "Sovcomflot" dates back to 1988 when it was established on the basis of the Fund of Currency Commercial Transactions of the USSR Ministry of Merchant Marine. Such a status of a shareholding enterprise was unique in those days. The enterprises founders were Minmorflot of the USSR and the countrys maritime shipping companies - Dalnevostochnoye, Chernomorskoye, Novorossiyskoye, Latviyskoye, Baltiyskoye, and Sovetskoye Dunayskoye. Thanks to an intelligently designed development strategy, Sovcomflot was gradually transformed from an unremarkable shipping company into one of the global leaders in maritime energy transportation.

Sovcomflot was set up by the Resolution of the USSR Council of Ministers and was specially authorized to operate in foreign markets. The company was incorporated by the USSR Ministry of Merchant Marine in co-operation with the major shipping companies of Russia acting as founding shareholders. By 1990 the total deadweight of the Company's fleet ammounted to 1.8 million dwt. At this period Sovcomflot was transformed into a Russian joint-stock shareholding company with 100% of its shares being the property of the Russian Federation.

On 20 June 2007 Russian President Vladimir Putin signed the decree merging the state package of Novorossiysk Shipping Company (Novoship) into Sovkomflot's registered capital. A total of 67.1 percent of Novoship shares (owned by the Federal Property Management Agency) will be merged into the registered capital of 100-percent-state-owned Sovkomflot. Thus, a company worth $5 billion and fifth-ranked in the world for its tonnage, was created. About 19.67 percent of Novoship shares belong to Novoship's subsidiaries Intrigue Shipping Inc. and Novoshipinvest.

The newly merged Sovcomflot and Novoship shipping companies operate under their new title "Sovremenny Commercial Fleet". 'Sovremenny' means 'modern' in English and the new combined operation brings together the tanker fleets of the former Sovcomflot, Novoship and Rosnefteflot under one management led by former Minister for Transport, Sergey Frank [who became head of Sovkomflot President and CEO in autumn 2004]. The new company is to operate the most modern tonnage and provide an indispensible link in the transport chain for Russia's future oil and gas development.

Apart from a couple of news releases, there was otherwise no attestation of a "Sovremenny Commercial Fleet". The nomenclature was a bit puzzling, since it replicates the nomenclature of one of the three corporations it was to consolidate, "Sovcomflot" ( which means Modern Commercial Fleet). The regular meeting on 20 September 2007 the Sovcomflot Board of Directors considered a number of operational, financial and procedural issues related to the Group's performance, but made no mention of combined operations.

JSC Sovcomflot is one of the biggest Russian shipping companies owning the fleet of 52 vessels of total 4.1m dwt as of 2007. The company specializes in energy shipping. Out of the total amount, 41 vessels are tankers of total deadweight of more than 3.9m tons. All the tankers are double-hulled with average age being 5.0 years. JSC Novoship is one of the biggest Russian shipping companies owning the fleet of 58 vessels of total 3.55m dwt as of 2007. All the tankers, mostly Aframaxes and product-carriers, are double-hulled with average age being 10.4 years.

JSC Sovcomflot and JSC Novoship successfully participated in a competitive sale process and on 02 August 2007 entered into agreements for the joint (50/50) acquisition of W.W. Marpetrol, S.A. (Marpetrol), a leading Spanish chemical tanker company with its headquarters in Madrid. Marpetrol owns and operates a fleet of 12 modern chemical carriers. The acquisition marks Sovcomflot's and Novoship's expansion into the chemical tanker market and further broadens the range of shipping services the companies offer to their international and Russian clients. This move reflected the Kremlin's desire that Russian companies swallow rather than be swallowed.

On 04 October 2007 presidential aide and Sovkomflot's board chairman Igor Shuvalov said that "All legal procedures relative to the Sovkomflot-Novoship merger are slated for completion by the end of the year" - adding that "a new company will be incorporated that will comprise all shipping facilities in Russia".

The state's stake in Novoship's equity capital was contributed to Sovkomflot's charter capital, which implies legal independence of the companies. State authorities have selected possibly the best merger option for their interests. On the one hand, they could take advantage of all benefits from joint operations in order to boost their own financial indicators. On the other hand, Novoship's minority shareholders will benefit from more clearance around the merger.

By 2008 the Sovcomflot fleet comprised 132 vessels of various types which were built in Russia, Japan, South Korea and Croatia under the supervision and in compliance with the requirements of the Russian Register of Shipping and International classification societies. Highly sophisticated vessels built and operated in compliance with raising international standards of safety and marine environment protection, management of the vessels - both technical and commercial - at a level corresponding to the world freight market requirements contributed a lot to the recognition of Sovcomflot as a safe carrier and reliable partner and strengthened further long-term relationship of the Company within international financial and industrial sphere. New Sovcomflot tankers, which are constructed and operated under supervision of Lloyd's Register, has been assigned the additional class notation "EP" (Environmental Protection), starting from 2005.




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