Russian shipyards set to merge as sanctions hit productivity

Negotiations have begun between two major Russian shipyards, to unite their shipbuilding divisions. Rosnett owns the Far-East Zvezda shipyard, and VTB, the Russian state-owned bank, controls the United Shipbuilding Corporation (USC).

The two organisations plan to merge the Zvezda shipbuilding function into USC, which remains Russia’s primary shipbuilder for both its conventional and nuclear-powered fleets.

Both shipyards have been failing to fulfil orders in recent months, adding substantially to production timelines. Zvezda recently announced further delays in the delivery of two ice-capable LNG carriers, both of which were scheduled to launch by the end of 2024, but will now not sail until next year.

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USC has been facing even more insurmountable delays to its orders, with some stretching all the way back to 2027. That has led Russia into agreements with the likes of China and India to expand its construction capacity. Russia has chosen to use two Indian shipyards to build it four non-nuclear icebreakers as a result of the USC delays.

The shipyards have been suffering from the effect of US and international sanctions – both Zvezda and the Russian Arctic LNG 2 programme have been under sanction in the wake of Russia’s invasion of Ukraine.

Sanctions have also made some crucial parts and technologies increasingly difficult for the yards to obtain, such as the membrane used to create LNG holding tanks. That has added to the delays in shipbuilding and to the pressures for Russia to seek outside shipyard facilities.

The merger plan has been approved by Vladimir Putin, according to a joint statement by the shipyard and the bank.

The response to circumvent some of the exigencies of the sanction regime comes as Donald Trump is set to return to the presidency of the US. Trump has been regarded as more friendly to the Putin regime than his predecessor Joe Biden, and there is talk, based on his own announcement that he will end the war, that he will orchestrate a solution to the Ukraine invasion which would allow Russia to retain Ukraine sovereign territory it has conquered.

Whether the sanctions that are currently forcing Russian shipyards into mergers will last long into 2025 remains to be seen.