Shipbuilding

Mykolayiv is the large center of shipbuilding of Ukraine, where the main production, scientific and technical, professional and educational potential of the industry is concentrated. The shipbuilding industry provided about 60 thousand Mykolayiv citizens with work; in any case 60% of city inhabitants were employed there. Notably that the revival of the industry began from shipbuilding exactly; in fact this is one of the priority branches of the regional industry, which have the strategic value for the defence and economy of the country. And today the Mykolayiv shipbuilders make great contribution to development of modern military and civil vessel- and shipbuilding.

Till 1991, shipbuilding industry of the Soviet Union was one of the world leaders. It provided a third in the world warship building, and the country was in the top ten developed states in terms of civil shipbuilding. After the breakdown of the USSR, Ukraine inherited powerful shipbuilding facilities. Most of it was subject to administration by the Ministry of Industrial Policy of Ukraine. These were 11 shipbuilding plants, which used to contribute around 30% to shipbuilding output of the USSR, 7 marine engineering enterprises, 11 companies involved in marine device construction, as well as 27 separate R&D institutes and construction bureaus. Also, Ukraine has a number of shipbuilding plants and docks administered by the Ministry of Transportation and Communication, the Committee of Fishing Business, and the Ministry of Defense.

Most of enterprises and organizations in the industry fall under UkrSudProm Association of Shipbuilders of Ukraine, which was established to represent and protect the interests of its members in state and other bodies. The USSR's collapse put Ukraine's shipbuilding into a long-term decline. It lasted until 1999 and was mostly due to a minimum volume of state shipbuilding orders. In general, between 1992 till 2003, the 11 shipyards of the country produced 237 navigation units for a total value of USD 1.5 bn. At the same time, domestic orders were the smallest - 30 units (USD 75 mn).

The increase in shipbuilding volume was related to the restructuring of enterprises, export re-orientation of their performance, as well as state support measures. Tankers with deadweight up to 100 ths. tons, bulk carriers, refrigerator ships, fishing ships, and well mastered lately ships of industrial fleet are traditional export output for Ukraine.

Growth of production volumes was witnessed at the enterprises of shipbuilding industry over 2000-2006. Rates of growth changed from year to year and sometimes reached record-high figures (specifically, accretion of production amounted to 114% according to the results of 2004). Meanwhile, it used to go down to 20-30%. In 2003-2004 the country's shipbuilding plants engineered and handed to customers some 72 vessels of gross value USD 140.5 mn. Aggregate value of dock services outran UAH 232 mn, while supplies of gas turbine machinery amounted to UAH 1,128 mn. If the year 2004 was a record-high time by growth of production, then certain downfall of growth rates was witnessed in 2005. It should not be misleading, because shipbuilding industry of Ukraine has never achieved such production volumes over the years of independence as in 2004. Ukrainian shipbuilding plants produced the output and provided services for the total value exceeding UAH 2 bn (approximately USD 400 mn) over 12 months of 2005. It was manufactured 27 shipbuilding units for the total amount of USD 117 mn. Ship repairing works for the total UAH 260 mn (USD 52 mn) were also fulfilled.

Specificity of this output makes the basis of ship building dynamics instability: time of one ship building can exceed one year (and in certain cases, like in the period of total non-payments and shortage of financial resources, it can go far beyond one year). Besides, up to now loading of existing facilities in the industry does not surpass 50-60% (in accordance with the estimates of Ministry of industrial policy, it is possible to annually produce the output for USD 400-450 mn at existing production facilities). Therefore, volumes of orders in portfolio can become the main index of the industry potential.

The companies of the industry concluded agreements for construction of ships for the total amount of USD 163 mn in 2005. It exceeded the figure of 2004 by 60%. It should be specifically noted that the share of complete ship building contracts has increased to some extent (it is not a secret that the trend of the last years is to outsource construction of hulls by the leading European producers at Ukrainian yards with further completion in Europe). Traditional for Ukrainian shipbuilding industry partners are the main customers of ships: Norway, Denmark, and the Netherlands. Gross order portfolio for 2006 constituted 49 units of the fleet for the amount of USD 308 mn.

Industry enterprises urgently needed upgrading. The plants are experiencing a serious lack of their own current assets and are strongly dependent on loans, thus, the financial and economic situation in the industry remains unstable. Production facilities are not working near full capacity, and customers are not always timely in paying for services, hence causing losses. It is almost impossible to drive investments for production upgrades in state-owned enterprises. Hence, the Ukrainian government made the strategic decision to privatize them and start looking for investors and owners who will be able to run effective production. This implies first of all a complete loading of facilities and technical refit.

The following objects have undergone privatization: Okean Plant of Nikolayev, Zaliv Plant (Kerch, the Crimea), SevMorZavod (Sevastopol, the Crimea), and Azovskiy Ship Repair Plant of Mariupol. Kherson Shipbuilding Plant underwent corporatization in 2003, and the corporatization at Izmail Ship Repair Plant was held in 2004. Meanwhile, not all these steps can be called a success. For example, Chernomorskiy (Black Sea) Shipbuilding Plant in Nikolayev did not manage to find efficient owners represented by its new holders. Due to this process of the plant return to the state property is under way now. The aim is to transfer the plant to an owner, which would be able to fulfill assumed obligations. Norwegian, Russian, and Saudi Arabian companies are called among interested investors.

The privatization of Okean Shipbuilding Plant (Nikolayev) by the Damen group of companies (the Netherlands) held several years ago was the most successful example. As a result, after standing idle for some five years, the plant not only came back to work, but turned into the leader of the shipbuilding industry in the country. This particular plant is fulfilling the first-ever contracts for the construction of a series of ships upon the request of a domestic shipping company. In September 2005, OJSC Damen Shipyards Okean floated out the second universal cargo vessel - one of a series of ships being built upon the request of JSC UkrRichFlot (Ukrainian River Fleet). A new contract was signed in 2005, which increased the series by five more vessels.

Final privatization of all ship repairing plants of Ukraine was envisaged in draft of the state budget for 2007. The draft Program of marine and river transportation development in Ukraine through 2010 spelled out that 35-40% of the industry's facilities should be oriented toward the local market. The rest may be focused on foreign markets. Meanwhile, practice shows that orders for domestic market were still rare.

State support and the opening of free economic zones, foremost at enterprises based in Nikolayev were of crucial recent developments in Ukraine's shipbuilding industry. 46 top companies in the industry received legal preferences. The country's shipbuilding industry operates under the Law of Ukraine "On state support measures for the shipbuilding industry in Ukraine". By implementation the law's original form, the gross volume of assets left to be administered by the enterprises came close to UAH 270 mn from 2000-2004. This has had a positive effect on growing production by shipbuilding enterprises and their development, as well as higher efficiency of business and the competitiveness of the output.

Regrettably early 2005 brought serious problems with the removal of the preferences that the industry used to have. Sequences of adopting the Law of Ukraine on state budget unexpectedly became a serious problem. It caused canceling of all preferences of the industry. There was a hard fight to return these preferences. Some were given back thanks to the decree of the Cabinet of Ministers of Ukraine No.555 of July 12, 2005 "On approval of the Order of adding shipbuilding enterprises to the list of companies subject to state support of shipbuilding industry of Ukraine" and decree of the Cabinet of Ministers of Ukraine No.111-p of April 20, 2005 "On determining of a period of commodity handling at customs territory of Ukraine needed to fulfill repair and recovery of gas turbine aggregates and their parts". Experiment with preferences canceling in 2005 was recognized unsuccessful. In this respect the issue of restoring benefits for local shipbuilding was raised in August 2006.

Within the Nikolayev Special Economic Zone, enterprises like Damen Shipyards Okean, Chernomorskiy (Black Sea) Shipbuilding Plant, 61 Communards Shipbuilding Plant, as well as the Raduga (Rainbow) paint and insulation enterprise are implementing investment projects targeted to raise efficiency and quality in primarily export-oriented vessel building through production upgrades. Gross investment in these projects comes to USD 15 mn. The fulfillment of the projects will secure higher competitiveness in both construction and product capability, as well as an increase and improvement of production capacity

The industry's plants are commissioning the construction of new vessels. Chernomorskiy (Black Sea) Shipbuilding Plant built five towboats; the Chernomorets Central Construction Bureau commissioned Sevastopol Marine Plant to build a fire boat for Druzhba Oil Mainlines; Damen Shipyards Okean is running the construction of full-set combi-freighters, ocean towboats for foreign clients and has also started the construction of river-sea vessels for UkrRichFlot Company. Meanwhile, the 61 Communards Shipbuilding Plant is finishing the construction of towboats for Delta-Lotsman state enterprise. More FSK OJSC launched the production of Kafa high-speed boats and built modernized Grif-T type boats for Turkmenistan. The Leninskaya Kuznitsa Plant, which handles hi-tech production, launched construction of Gurza armed boats for Uzbekistan. Kiev Ship Building and Repair Plant has been involved as well, and has produced three car ferries for the Republic of Gambia.

Contracts for building of 6,158 ships were registered in the world order portfolio as of August 1, 2006 according to the information of Fairplay Solutions magazine. This list includes 4,938 freight commercial ships with the deadweight 262,659 mn tons. To compare, in summer the portfolio comprised only 4,324 ships with a gross volume more than 160 mn tons, while in 2002 deadweight amounted to merely 75 mn tons. In other words, it is possible to speak about growth of orders by almost 63% in comparison with the last year and it increased 3.5 times against the results of 2002.

The shipbuilding boom gave a chance to European shipbuilders, which used to suffer and are still suffering severe competition from their Asian colleagues. It is particularly an opportunity to improve the situation in Ukrainian shipbuilding. Besides production facilities, Ukraine has notably professional labor and the sizable steel production volumes essential for shipbuilding. And as experience shows, particular success can be reached through joint activities with shipbuilders of Western Europe, which are also looking to survive, but as opposed to Ukraine boast larger financial reserves and state-of-the-art shipbuilding technologies.

Despite substantial potentialities of Ukrainian ship building sector and its capacity to produce and repair ships of almost all classes, Ukrainian shipyards did not receive military orders in 2005-2008. Meanwhile, naval exports during this period can be estimated as worth 300m dollars thanks to the Mykolayiv-based Zorya-Mashproekt state enterprise, a gas turbine building research production complex. Technical maintenance and repair of operable gas turbine units supplied earlier for the naval forces of China, Singapore, USA, Romania and Greece are fulfilled on a permanent basis. Presently, the major naval partners of producers from Mykolayiv in supplying gas turbines for newly built ships are India, Russia and China. The enterprise signed a contract on participation in the development of gas turbine engines for prospective ships with the world's largest ship building company DCNS (France) in 2008. At the same time, Zorya-Mashproekt will supply turbines to a number of modern naval ships which will be exported to foreign customers by the French company DCNS.

The Government will support domestic shipbuilding. This the Prime Minister said on 18 October 2010 in Mykolaiv at a ceremony of commencement works for the new tugboats with factory numbers 184 and 185. «We need the will and desire to put the country in order. This is my aim while visiting the both southern regions. These are the key regions for us first of all as far as the shipbuilding is concerned. We have a program of helping the shipbuilding out of the long lasting crisis of the last 20 years », - Mykola Azarov said and added that Ukraine has to build its own fishing boats.

The Head of Government pointed out, that Ukraine has good transit possibilities for transportation goods via water thoroughfares. According to Mykola Azarov this means of transportation were five times cheaper than the railway. «So, it is necessary to build the ships that can transport goods via our rivers. It is important for the development of the country that enterprises in our country were in operation, shipbuilding included », - said the Prime Minister.

He noted that the Tax Code worked out by the Government, which had been already handed over to the Parliament, stipulates income tax exemption for the shipbuilding industry for the period of 10 years. According to his words, it will give the shipbuilding enterprises the opportunity to increase salary schedule and involve more qualified workers at a better salary as well as re-equip, modernize and reconstruct the whole Ukrainian shipbuilding industry. Mykola Asarov announced also that the Tax Code would give tax exemption to all means that would be used for modernizing the production.