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By John Helmer in Moscow

Sovcomflot, the Russian state-owned tanker group, reports that, despite rising revenues of $678.6 million in the first six months of this year — up 11% over the same period of 2009 — earnings have fallen 4% to $292.6 million; and net income has dropped 5% to $111.2 million. Revenues rose in part because the company has added 11 vessels to its operating fleet, with a total now of 10.5 million deadweight tonnes, making an increase of 13% in fleet tonnage. The fleet gains include four new Suezmax oil tankers and one ice-class shuttle tanker for operations in the Arctic.

“We were able to demonstrate steady performance across business lines,” announced the chief executive, Sergei Frank (image). But in their public comments, he and chief operating officer Evgeny Ambrosov have not fully explained the rising costs. According to Ambrosov, the reason for the downturn in earnings and income is “continued pricing pressure in the conventional tanker market segments.”

The financial report, approved by the Sovcomflot board yesterday, discloses that “voyage expenses and commissions” jumped 51% to $181.8 million. Vessel running and drydock costs, as well as charter hire payments, grew by 7% to $181.2 million.

Commissions are a sensitive topic at Sovcomflot. The company has spent more than $50 million on legal and investigator expenses suing for commission fraud and other alleged wrongdoing by Frank’s predecessors. The case claim for more than $500 million — the largest ever made by a Russian shipping company in a foreign court — has been in hearings in the UK High Court since October last.

Frank is claiming against former CEO, Dmitry Skarga (right), and former charter partner, Yury Nikitin. If Justice Andrew Smith rules in favour of Skarga and Nikitin, Sovcomflot is likely to be liable for more than $100 million in legal fees and other compensation.

In Sovcomflot’s latest financial report, the company declares that its “general and administrative expenses” for the six-month period came to $42.7 million. This was up 15% over the first half of 2009; but the figure does not appear to reflect fully the expenses of the High Court trial.

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