Ship maintenance

Naval maintenance welcomed in Russia

Image source: Nakhodka Ship Repair Yard

As IAA PortNews is informed, the RF Ministry of Finance will assess the proposals of ad hoc ministries on zero-rate VAT for ship repair in Russia by the end of April. The initiative can both reduce the cost of repairs in Russia and redirect Russian ships to domestic repair facilities while helping shipowners avoid problems caused by sanctions. However, experts note the lack of ship repair facilities in Russia and point to the need for additional customs regulations.

In March, the Ministry of Industry and Trade appealed to Prime Minister Mikhail Mishustin to support the civil sector of the ship repair industry despite sanctions by setting zero VAT for the repair of commercial vessels, said the department told IAA PortNews. Relevant changes may be introduced in the Tax Code of the Russian Federation.

“The Ministry of Finance is called upon to analyze the proposal and to state its position on the matter. The response is expected this month,” the press center of the Ministry of Industry and Trade said.

The Ministry of Development of the Russian Far East and Arctic earlier proposed to set a zero TA for all types of ship repair in Far Eastern enterprises. According to the ministry, the move aims to increase industry competitiveness, import substitution and development of ship repair facilities in the Far East region.

The Department of Industry and Trade says the Far East initiative is a pilot project used to estimate the effect of such a measure on the ship repair industry as a whole.

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Both proposals are under consideration, the Department of Finance told IAA PortNews.

Zero-rate VAT has been under discussion since 2019. Market players interviewed by IAA PortNews agree on the need to cancel VAT for the repair of the national fleet in national shipyards as a support measure for the Essential condition for several industries, including commercial and passenger shipping, industrial fishing, shipbuilding and ship repair, and related industries including the production of metals, engines, paint coatings and electronics .

Demand for ship repair services is high – maintenance is needed at least once a year with major repairs carried out once every five years, the business community told IAA PortNews. In Russia, ship repair services are currently offered by 57 organizations, says the Ministry of Industry and Trade. According to the strategy for the development of the shipbuilding industry until 2035, Russia has about 50 large and more than 100 small and medium-sized ship repair enterprises. Most of them are focused on warships.

Commercial ships are often repaired in foreign shipyards: despite apparently high rates of import substitution, the fleet is equipped with equipment of foreign origin. Since 18% VAT is applied to goods delivered to the customs territory of the Russian Federation, the competitiveness of Russian ship repair companies is lower and customers opt for foreign shipyards.

It is not clear to what extent the proposed measure can reduce the cost of repair work in Russia, and its economic viability for companies or shipyards has not been estimated.

The current edition of the strategy adopted by the Ministry of Industry and Trade foresees the doubling of ship repair by 2035. Meanwhile, Denis Manturov, head of the ministry, said that it should be revised to predict fourfold growth.

State authorities do not comment on the capabilities of Russian shipyards to cope with possible orders. In addition to support for ship repair yards, the initiative can be beneficial for industrial and maritime companies, many of which are covered by sanctions against legal and natural persons, the shareholders. This can hamper services in foreign shipyards and settlement payments.

Image source: Rosrybolovstvo

Rosrybolovstvo has already requested information on the repairs planned by fishing companies to develop a panoply of dock repairs in the Far East and the North Basin. As IAA PortNews reported earlier, Norebo can get into ship repair: in March, Norebo Holding was registered as the owner of Pella-Stapel LLC in the Leningrad region.

In 2021, the Far Eastern fishing basin had 930 fishing vessels, the Northern basin – 187 vessels, said German Zverev, chairman of the All-Russian Association of Fishery Enterprises, Entrepreneurs and Exporters (VARPE).

“To date, there are no large civilian ship repair centers in the northern fishing basin. The vessels of the North and West fishing basins are services mainly in Norway, Finland, Poland and the Baltic States, former members of the USSR. Only 20 of the ship repair facilities in the Far East have economic conditions for large-scale activities. 35% of the region’s fishing fleet is serviced and maintained in foreign ports, mainly in South Korea and China,” he pointed out.

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VARPE indicates that in 2018-2021, most large and medium-sized vessels operating in the Far East and North basins (about 400 units) underwent planned and unplanned repairs at foreign facilities. According to the import entries recorded by the Customs Service of the Russian Federation, the statistical value of the repair of 70 ships abroad throughout 2020 amounted to 119.19 million dollars or 8.57 billion rubles (according to the ruble/dollar rate of 2020).

A single measure of state support is not enough for the development of ship repair in Russia and for the loading of domestic facilities. A comprehensive approach is needed, says German Zverev. “In the current situation, VARPE also suggests streamlining the administrative procedures for customs clearance of ship equipment, allowing duty-free import of components necessary for the repair of ships on the territory of the Russian Federation”, summarizes- he.

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