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By John Helmer in Moscow

The Russian state bailout bank, VEB, chaired by Prime Minister Vladimir Putin, has defended the pricing of two Arctic ice-class, Panamax sized tankers ordered by Sovcomflot, which analysts and brokers have criticized as substantially above market price.

The VEB board decided last week to provide €$240M ($293M) in loan finance to St Petersburg’s Admiralty Shipyards for the two 70,000-deadweight tonne vessels, the Mikhail Ulyanov, delivered to Sovcomflot in February 2009, and the Kirill Lavrov, due for commissioning later this year (see right images). The bank said the vessels are to be owned by a leasing affiliate of VEB, and given on a time-charter lease for operation by Sovcomflot, the state-owned tanker company whose board is chaired by Sergei Naryshkin, the head of the presidential administration.

When the vessel order was first devised by Sovcomflot and Gazprom’s oil division in 2005, the plan was to load and transport crude oil from the planned Prirazlomnoye oilfield in the Barents Sea, about 60 kilometres from the shoreline near Varandei. Production at the oilfield – surveyed and valued by BHP’s oil division in the 1990s, but then abandoned — was to be 124,000 barrels per day. But Gazprom has repeatedly delayed the project, and there is no Prirazlomnoye oil for the Ulyanov and Lavrov to load. So the vessels must be reassigned, and VEB was bound to say its financing will enable Sovcomflot to find alternative work for the tankers.

After the VEB board meeting on May 26, bank officials claimed the tankers may carry crude cargoes to China from Murmansk storages that are filled from onshore oilfields linked by rail and pipeline. The polar sea route to China is highly unusual, untested, and costly. It isn’t clear what the cost advantage or profit would be in sending the new tankers churning their way through the polar ice to China, when most tankers already loading oil at Murmansk deliver westwards through warmer waters to Europe; and when the cheapest tanker route for Russian crude to China’s northern ports is the new terminal at Kozmino Bay, on the coast of the Sea of Japan.

Another idea for the unemployed Ulyanov and Lavrov mentioned by VEB last week is that gas condensate shipments by Novatek from its Arctic fields may also be consigned to the new tankers.

So far, Sovcomflot has not issued an announcement on the new financing or the tanker routes. When the Ulyanov’s keel was ceremonially laid in 2007, Sovcomflot’s chief executive Sergei Frank said the unique technologies applied in the construction and operation of the new- generation vessel could be also used for the implementation of offshore projects in the Arctic and the Far East. The deputy prime minister in charge of shipping at the time, Sergei Ivanov, claimed the vessel type was a breakthrough for Russian shipbuilding expertise. “Building such a highly technological ship at the Russian shipyard, on order from the national shipowner, to operate within the Russian oil and gas project vividly indicates that the industrial and transport potential of Russia is reviving,” Ivanov declared.

But at what cost?

The original vessel estimate reported publicly at the end of 2004 was $90 million apiece. Moscow maritime analyst Alexei Bezborodov now says the vessel price accepted by VEB last week is much higher than market prices prevailing during the newbuild period, or now. He appears to have relied on current shipping market sources, who report that comparable vessels averaged $66 million new in 2008, $46 million in 2009, and $44 million now. For heavy ice capability, one source told Fairplay, “you can add 25% to 30% on top”.

A Fairplay database source familiar with the Ulyanov and Lavrov specifications said that the vessel price should have been around $120 million each, acknowledging “the price is higher than average as the vessel type is Super [ice class] 1A, and fully winterised, with specs upgraded, as each vessel is diesel electric, with 2 azimuths, plus two CP thrusters in forward.”

Asked to clarify the remaining gap between market calculations and VEB’s due diligence on the loan amount, a VEB spokesman told Fairplay the base price was $50 million per tanker, but the “creation of fleet to service the Prirazlomnoye field (as well as other deposits on the Arctic shelf) necessitates implementation of constructive solutions which are not specific to the construction of conventional vessels.” These, said VEB, include thick-ice plates, shallow draught at the oilfield, special hull coatings, Azipod propulsion fore and aft, on-board helicopter landing pad, special satellite positioning devices, bow loading equipment, and other extras. “Each tanker,” reports VEB, “is equipped with two propulsion units, plus a spare one was bought in store. The price of each propulsion unit is about $ 10 million.”

According to VEB, it arranged a valuation of the vessel type in March of this year by SSY Valuation Services, which “reported an estimated cost of $150 million”. VEB believes that not a kopek of the loan amount will be surplus to the requirements.

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