Russian Contracts Portfolio of South Korean Shipyards Exceeds $8 Billion

The loss of these contracts may affect the financial position of enterprises

July 26, 2022  

The three largest shipyards in South Korea expect to receive significant profits next year from the execution of shipbuilding contracts with customers from the Russian Federation. Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering (DSME) and Hyundai Samho Heavy Industries received orders worth $5 billion, $2.5 billion and $550 million, respectively, according to Business Korea. However, due to the current economic sanctions against Russia, any delay in the tranche may lead to a shift in the construction schedule.

The construction schedule for 2022 at South Korean shipyards has already been completed by 70%, but, according to the publication, this year the companies will remain in the “red”. This is because shipbuilding projects have been going on for about 10 years, and steel prices are rising rapidly.

The sum of the Hyundai Samho contract for the construction of one LNG tanker for Russian shipowner is less than that of the other two shipbuilders, so it is not so tangible. In addition, in case of termination of the contract, such a vessel can be easily sold to another shipowner.

SHI and DSME have received large orders for the construction of Arc 7 class LNG tankers, and if contracts are terminated, the sale of this class of vessels may be difficult. DSME has already been notified of the cancellation of orders for two vessels.


Editorial Comment: The authors of the article are a little cunning in the last sentence. Not “DSME has already been notified”, but DSME itself has notified the successive termination of contracts with Sovcomflot for two LNG carriers due to delays in the receipt of funds within the contractual terms. However, it is known that the reason for the delay is the accession of South Korea to anti-Russian sanctions in the financial sector, which created technical difficulties with the transfer of money to Korea. Significantly, the decision to join the sanctions was made by outgoing President Moon Jae-in, possibly to harm the opposition leader who won the election. Let us also recall that when a similar problem related to the technique of transferring funds under contracts for payment for Russian gas faced the EU countries, a solution was found quickly. In this particular case, the Republic of Korea will lose a lot, in exchange for receiving, at best, only an encouraging pat on the back from Washington.



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