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Violation Terminates Russian Shipyard Contract

Sevmash shipyard lost a lucrative Norwegian contract, a failure some Russian media say reflects inefficiencies within the nation's heavy industries.

MOSCOW (AP) — A Russian shipyard lost a lucrative contract for building commercial vessels for a Norwegian company, which said its terms were violated — a failure some Russian media described Tuesday as a reflection of inefficiencies within the nation's heavy industries.
Norway's Odfjell announced last week that it decided to cancel a contract of Russia's Sevmash plant for up to 12 bulk chemical product carriers because of production delays and demands for price increases.
Sevmash, located in Severodvinsk on the White Sea, denied breaching the contract and accused the Norwegian company of failing to agree on a ''fair price'' for its work.
Sevmash spokesman Mikhail Starozhilov said in a telephone interview Tuesday that the yard would continue building the vessels and try to find another customer. He refused to comment on the details of disagreements with Odfjell.
Odfjell said it would further claim full compensation for its costs and losses caused by what it called ''willful misconduct and massive contract breaches'' by the Russian yard.
Odfjell said fixed total contract price for all 12 vessels was about US$500 million (euro337 million) and later increased to US$544 million (euro367 million).
The contract's cancellation was a new humiliation to Sevmash, which was already under criticism for failing to meet contract terms for upgrading an aircraft carrier for the Indian Navy. There have also been a series of other disputes with foreign customers that have tarnished Russia's image as a reliable supplier.
''Russia's reputation as a country capable to compete with other countries in the production and exports of high-tech equipment has received a new heavy blow,'' the daily Nezavisimaya Gazeta said in a commentary.
The business daily Kommersant said Tuesday that the yard would find it hard to sell the ships because there is little market demand for that kind of ship in Russia and it would be hard to sell the overpriced vessels to foreign customers.
In a similar conflict, Sevmash has fallen behind the schedule on the US$1 billion (euro$670 million) contract to modernize the Soviet-built Admiral Gorshkov aircraft carrier for the Indian Navy and demanded to more than double the price. The Indians have complained vociferously, and the talks are still ongoing.
Amid the acrimony over the carrier contract, media reports said that the U.S. could offer New Delhi one of its aircraft carriers, USS Kitty Hawk, after its expected decommissioning in the near future.
India has been a top customer for Russian weapons since the 1960s, and its shift to the U.S. would be a major embarrassment to Moscow.
The Sevmash's troubles follow problems faced by other Russian companies. Algeria has recently decided to return 15 Russian MiG-29 fighter jets, saying they were of poor quality and contained old parts
Previously, another Russian yard fell behind schedule in building frigates for the Indian navy and Russia failed to meet the contract's term for the delivery of heavy transport and tanker planes to China.
Commentators blame the failures on a steady degradation of Russian defense industries, whose efficiency has been crippled by the failure to modernize aging Soviet-era equipment and an exodus of qualified personnel.
Russian plants have lured foreign customers with low prices for their products and then tried to re-negotiate contracts when they saw rising costs.
''The latest failures stem from inability to make viable economic forecasts,'' Nezavisimaya Gazeta quoted analyst Agvan Mikaelian as saying. ''In the end, prices are higher because of low production efficiency and higher consumption of metals and energy.''
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