Leasing for fleet renovation
Russia is in desperate need of comprehensive fleet renewal. RF Government puts out considerable effort through offering subsidies to cover loan interest rates, providing utilization grants, etc. However, new ships will not be built en masse without long-term financing. Here comes the leasing, an instrument acknowledged worldwide and allowing for intense renewal of fleet with application of leasing interest rates subsidies. In his interview with IAA PortNews, Igor Ivashin, head of Sea and River Transport Department at STLC JSC, Russia’s largest leasing company, tells about the efforts in this sphere and about the prospects of establishing a ship leasing company under the auspices of RF Transport Ministry.
- How do you estimate the need for newbuildings in Russia?
- To maintain current cargo traffic Russia should have about 130-140 Volga-Don Max dry bulk carriers, 60-80 dry cargo barges and 20-30 push-tug boats built by 2020-22. Total demand for new tankers of Volga-Don Max class is estimated at 100 units minimum.
- How many vessels ordered by STLC have been laid down in 2017?
- The year of 2017 has seen 31 vessels laid down at Russian shipyards under the order of STLC. That let us ensure almost full load of shipyards in the segment of sea/river going vessels. We expect that with the state support measures the backlog of orders for construction of new Volga-Don Max ships in 2018 will keep the level which comes from the capacity of domestic shipyards. We also expect the construction of new passenger ships, technical and auxiliary vessels.
- You have mentioned state support measures. How efficient are they, in your opinion?
- State measures aimed to support domestic shipbuilding and shipping have let stop aging of the fleet and start decreasing its average age for the first time in the post-soviet period. New, more efficient vessels complying with up-to-date requirements let considerably improve competitiveness of national shipping. However, to solve all the tasks of shipbuilding, large series should be ordered which is not possible without state support. If those measures are cut down, we can see water transport cargo traffic plunging by 2020-22 amid large scale decommissioning of soviet series’ vessels.
- How is the situation with the leasing under the projects on construction of fishing ships?
- The problem here is the following: unified agricultural tax without VAT is applied to many of small fishing companies while VAT is included into leasing payments, hence the barrier for the use of leasing instruments in this segment. The legislation is being improved today, which opens prospects for leasing.
- What measures are needed to secure orders for large scale serial construction of vessels?
- State measures of support available today let stop the fleet aging but to ensure a full-scale renewal of the fleet it is necessary to launch a state programme of leasing support. In our opinion, the best way is to contribute budget funds to the authorized capital of a state leasing company focused on projects in transport industry, which is the specialization of STLC. That will ensure loading of all USC and non-USC shipyards for a maximum renewal of the fleet by the period of maximum decommissioning of vessels expected in early 2020-ies.
- Do you see any prospects of captive leasing companies directly linked to shipbuilders? Is there any reason in narrow focus of leasing companies, for example the one on shipbuilding?
- Captive leasing company is inherently interested in promoting the corporate interests of its parent company. Shipbuilding is not a self-contained sphere. It is closely connected with component and equipment manufactures and design organizations. Therefore, any structure associated with a specific shipbuilder will force the customers work with certain suppliers and designers. That will evidently result in deterioration of the competition and neutralization of other market participants. Finally, that will have a negative impact on the price and quality of the final product and, consequently, result in market monopolization and departure of customers to foreign shipyards. Therefore, we think it is reasonable for the state to direct its efforts to the support of industry-focused leasing companies not linked with any specific manufacturers.
- From 2018, any purchase of vessels costing more than RUB 1 bln by state companies should be approved by the Government. Does STLC plan acquiring foreign vessels?
- We don’t see any reason in buying foreign ships. STLC has traditionally been supporting building of ships at Russian shipyards. Russian companies – USC, Rosneft’s Zvezda, Okskaya Sudoverf – are able to make high quality products at competitive prices.
Interviewed by Vitaly Chernov.