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By John Helmer in Moscow

The horse has special talents. One is fluency in several languages; another is a knack for stock market investment. In the rarely seen comedy, the hero inherits the horse from his parents, makes some bad acquisitions on the horse’s advice, but gets out of trouble at a horse-race.

Roman Trotsenko’s career has been more successful, and recently he has been seeing a lot of Prime Minister Vladimir Putin. They met on February 18, and then again on May 4.

For what happened at their first meeting, see: http://johnhelmer.net/?p=2919

At this week’s meeting, Trotsenko told Putin what assets he is picking and planning for the United Shipbuilding Corporation (USC) to buy. UMC is the state-controlled holding of shipyards across the country, which have been combined and put under central control in an effort by the government in Moscow to revive shipbuilding and control the flow of state aid into the yards. Trotsenko was engaged as chief executive to replace Alexander Buzakov in controversial circumstances late in 2009. So Trotsenko has been less than half a year on the job. The shipyards he supervises include two naval yard conversions on the fareastern coast of the Sea of Japan. They also include established yards Admiralty, Northern, Sredne-Nevsky — all of St. Petersburg — Red Sormovo of Nizhny Novgorod, and three Kaliningrad yards — Amber, Ayr, and the 33rd Ship-Repair Plant.

When Putin interviewed Trotsenko on Monday, the prime minister said that “work for shipbuilding companies has increased somewhat. It was less than 40% of capacity, and now it’s over 50%. However, that’s not enough. What prospects do you see here?”

Included in Trotsenko’s resume of UMC’s growth prospects, he said this: “As far as our work with Ukraine, we’ve analysed the situation, and Ukraine is one of our major trading partners, supplying components and vessel systems to Russia. We import over 6,000 items of equipment from Ukraine, and some of that equipment is crucial for us or we cannot get it anywhere else. Without Ukraine the Russian shipbuilding industry would have difficulty producing its vessels.

“We’re considering the integration of two large Ukrainian companies into the USC. These are the marine turbine manufacturer Zorya-Mashproekt, which produces gas turbines, and the More plant in Feodosia, a major producer of light metal-alloy, specifically aluminium, vessels. These are Ukrainian state-owned companies that are not producing at capacity. If they are integrated into the USC, we could resolve the issue…” A selection from the More yard’s combat, fast ferry, and pleasure-boat catalogue is illustrated above.
 

Putin’s response was swift and direct. “We agreed with our partners that these issues would be worked out. Please pay close attention to them. Moreover, you should be directly involved in the discussions to merge these companies if both parties show interest.

It is not clear whether Putin’s reference to “our partners” indicates that he has already spoken to Kiev about the deal, and there is agreement in principle for the merger from Prime Minister Victor Yanukovich. Both enterprises, still owned by the Ukrainian state, have suffered from a severe lack of orders and cash. A deal to link them to USC would require an agreement between the two governments.

Since the yards have dual capability to build civil vessels and military ones, a merger with USC would also signal a new level of cooperation between the Russian government and the previously anti-Russian government of Ukraine, the newly elected Yanukovich administration.

The Ukrainians must also decide whether their yards are so desperate for Russian financial support, they cannot survive in privatized form. Privatization had been planned for More last year, with an official valuation of 113 million hryvnas ($14 million). The chief executive and board chairman of More, Vitaly Krivchenko, said publicly in April of 2009 that this had to be abandoned because no investor had been found to buy the 50% (less one share) stake on offer, and because the State Property Fund in Kiev could not decide on a plan for restructuring the company’s debts.

A spokesman for Krivchenko said today that he is travelling, and unable to answer questions about the proposed takeover by UMC.

If the deal goes through, it will the second major Ukrainian takeover by Trotsenko in less than a year. Last June, Trotsenko, who sits on the board of the heavily indebted Moscow real estate developer Mirax, took over its unfinished Kiev city project for his AEON holding company, based in Moscow. Trotsenko’s company is now completing the project, known as Mirax Plaza, which includes the Ukraine’s tallest building. At the time of the purchase, 12 stories had already been built. Trotsenko reportedly paid between $50 million and $100 million.

Until 1991, the Soviet shipbuilding industry was a world leader, turning out roughly one warship in three produced globally, and one civil vessel in ten. After the dissolution of the USSR, the Ukraine inherited 11 main shipyards; they had accounted for about 30% of the Soviet production. In addition, there were 7 marine engineering enterprises, 11 companies involved in marine component construction, several smaller plants and docks servicing the fishing sector.

But the Soviet collapse put Ukraine’s shipbuilding into a tailspin of rising costs, dwindling revenues, and almost no Ukrainian naval demand.

Yards like Zaliv, for example, located in a cove between the Black and Azov Sea, had built and maintained frigates and other naval vessels for the Sevastopol base for the Black Sea Fleet; it had also constructed tankers ranging from double-hulled Panamaxes to Crimea-type vessels of up to 150,000 deadweight tonnage. But when the last state-ordered newbuild rolled down the slips in 1992, there were no orders for Zaliv from the Ukrainian government, except for a floating oil production platform; and nothing at all from Russia, whose territory starts half a kilometre away, across the Kerch strait.

Faced with competition from Polish and Czech yards, and in the Ukraine from Damen Shipyard at Nikolaev (a joint venture of Damern and Aker), two other Nikolaev yards, and the Kherson shipbuilding plant (controlled by a private Ukrainian company), Zaliv began to starve. From mid-1996, the yard was idle, leaving 9,500 workers without jobs. At the end of the year, Zaliv was privatized and taken over by Konstantin Zhivago. He turned the market strategy of the yard around, focusing on foreign vessel or vessel component orders from Norway, the Netherlands, and Spain. Loss-making was sharply reduced from 2005 to 2006; in 2007 there was a modest profit.

Zorya-Mashproekt and More have not been so fortunate. As Krivchenko said a year ago, More was stuck between bailout and turnaround. The question which Trotsenko raised with Putin, and which must now be negotiated with Yanukovich, is whether UMC’s takeover is the solution to the problem.

Trotsenko is a millionaire developer of commercial real estate and airports, and owner of the Moscow River Shipping Company. He took over that company, and entered the Russian shipping sector, according to a Russian maritime source, because of his interests in the real estate on the river bank. A Forbes profile of Trotsenko in 2006 noted that his university training in Japanese brought him in contact with trainees for the Foreign Intelligence Service. “[I was] ready to help the Motherland, but times have changed, [and I] went into business”. That business included the establishment of a Moscow bank called Platinum. It lasted for two years before collapsing in 1996. Forbes reports there were questions at the time about what had happened. From the bank’s asset portfolio, Trotsenko went on to develop riverbank real estate, and with backing from the federal Transport Ministry, take over the Moscow River Shipping Company.

According to the website of Trotsenko’s holding, “During decades of socialism in Russia there have been founded dozens of industrial enterprises, adjusted to another system of management and unclaimed in contemporary economic realities. Our aim is to reconstruct and adjust created manufacturing assets in accordance with market requirements. In practice it means an effective management in respect of a certain manufacture economic potential implementation. We have reached a lot and are not going to stop at that stage.”

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