30 december 2008

Vladimir Putin met with Sovkomflot CEO Sergei Frank

Mr Putin and Mr Frank discussed the implementation of various Sovkomflot projects.

Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon.

Sergei Frank: You have watched the construction of the Vasily Dinkov-class vessel at the Admiralty Shipyard. Her construction is proceeding on schedule. Shipyard workers have launched the vessel ahead of schedule. We hope she will be commissioned in early 2009. Two other sister ships, namely, the Vasily Dinkov and the Captain Gotsky, already operate in the Barents Sea. They regularly transport hydrocarbons from the Varandeisky deposit. Experts rank this vessel among the world's most perfect ships built this year. She embodies numerous technical solutions for enhanced environmental safety and reduced energy consumption.

Vladimir Putin: Do they really turn on a dime?

Sergei Frank: Yes, this dual-purpose tanker has screws in her bow and stern sections. The vessel operates her stern screws in thick ice floes. This provides unique energy-consumption opportunities in clear water. Her captain has all-round visibility.

Three to four shipyards can build such vessels. We are glad that the Admiralty Shipyard has mastered their production.

Vladimir Putin: How many vessels are scheduled to be built?

Sergei Frank: We now operate five vessels in this class. They will be in high demand after this country starts developing its Arctic shelf deposits. The vessels can operate in 1.5-metre thick ice floes, without being escorted by icebreakers. (Hands in working papers) Here you can see the vessel operating in clear water. Naturally, there will be no such clear water during the winter season, and up to 1.5-metre thick ice floes will accumulate. The vessel must be able to navigate all year round in such conditions.

Vladimir Putin: What companies do you cooperate with?

Sergei Frank: Companies of the United Ship-Building Corporation are our main partners today. At the same time, we are placing additional orders at small and medium-sized Russian companies, including private businesses. This is primarily linked with the construction of port vessels, namely, modern tugs and bunkering vessels.

This entire infrastructure is in great demand and has to be overhauled. We are glad that our orders are being placed in Russia.

Vladimir Putin: What is the volume of your 2009 contracts?

Sergei Frank: The board of directors has approved the three-year corporate investment programme worth over $2 billion. We decided not to modify this conservative estimate. Russian shipyards fulfill a considerable share of our contracts. Right now, we are discussing the possibility of expanding this contract. We are focusing on vessels for Russian ports, navigation safety, auxiliary vessels and Russian oil and gas projects on the national Arctic continental shelf.

Vladimir Putin: What is the result of merging your two companies?

Sergei Frank: Our consolidated company, which comprises Sovkomflot and the Novorossiisk Shipping Company, is completing its first fiscal year. There is every reason to say that the Russian leadership had made a timely decision to merge state-owned shipping companies. The consolidated company has much greater financial stability in conditions of a global economic crisis and the aggravated freight-market situation. Moreover, the company has every chance to play an active role during the inevitable consolidation of global shipping markets and companies, as implied by our cautious estimates of the three-year financial plan.

The companies have also contracted $4 billion in profits. We can service this reasonable debt. We have a sound investment potential for buying increasingly cheaper assets. We will focus on high-tech assets that could pay back during future projects on Russia's Arctic continental shelf. This concerns all aspects of offshore drilling operations, including exploratory drilling and commercial drilling rigs on the national Arctic continental shelf. Preliminary estimates show that Sovkomflot and the Novorossiisk Shipping Company have posted record-breaking results in 2008.

This is not just a mechanical merger. Due to synergetic effect we have managed to streamline corporate expenses, to offer much better services to our clients and to swell our potential profits. We hope that corporate profits will reach nearly $500 million.

Vladimir Putin: In 2008?

Sergei Frank: Yes, in 2008. This allows us to be cautiously optimistic about the future. We plan to channel sizeable dividends, namely, $50 million, into the federal treasury next year. This is more than both companies had paid together in 2000-2005.

Vladimir Putin: What are your projected freight-traffic volumes for 2009?

Sergei Frank: Negative economic and global-trade trends have affected the tanker market least of all. On the whole, third-quarter freight rates have plunged by 10-15%. Companies transporting bulk cargo, namely, ores, coal, metals and grain, have suffered most of all and are posting a 70% slump in some cases. Fortunately, we are almost unaffected by such negative trends because the corporate board of directors had focused on the energy sector.

Vladimir Putin: What is the correlation between ageing and relatively new vessels in your company?

Sergei Frank: Mr. Putin, I would like to tell you that Sovkomflot now has 132 operational vessels with a deadweight of almost 10 million tonnes. This matches the tonnage of the entire Russian Federation fleet during the break-up of the Soviet Union. Most importantly, this is the youngest fleet in the world. Our tankers are aged six years, on the average, while the Russian tanker fleet is 12 years old. In this context, we have a large safety margin for subsequent development and possible purchases in conditions of the emerging freight-market situation.

Vladimir Putin: Good.