Russian Court Sides with Shipyard Over MoD Claim

MOSCOW, Russia – The Russian Ministry of Defense’s bid to recover funds from Severnaya Verf over a frigate contract has been rejected, Kommersant reported this week. 

Kommersant reported that the Moscow Arbitration Court has rejected the MoD’s claim, which was initially assessed at RUB240 million before being raised to RUB4.2 billion ($43.2 million). The spat is related to a contract dated March 25, 2010, Kommersant reported, for the production of three Project 22350 frigates. 

The contract has fallen behind schedule – Admiral Golovko, laid down in February 2012, launched in May 2020 but has yet to join the fleet. According to Kommersant, the MoD filed a lawsuit against the shipyard after it missed an October 2022 delivery deadline. It entered sea trials in November 2022 and should join the fleet before the end of this year. 

Project 22350 frigates are planned to be one of the Russian Navy’s primary surface combatants in the future, with officials talking at times about interest in ordering dozens of the frigates in either the base model or modernized (22350M) configuration, the latter packing more cruise missile cells onboard. But at present, only two frigates – Admiral Gorshkov and Admiral Kasatonov – are in service, sailing with the Northern Fleet. 

Severnaya Verf told the court that the MoD had underfunded the project, resulting in the delays in delivery to the Navy. According to Kommersant’s report, Admiral Golovko is valued at RUB28.3 billion, but the MoD had not revised its pricing for the order, resulting in a gap in fulfilling the contract. The frigate program was moreover affected by sanctions on the Russian defense industry that cut off its access to systems and components from abroad (namely, the engines) used in the vessels. 

Five other Project 22350 frigates are in various stages of completion at Severnaya Verf in addition to Admiral Golovko. The MoD also signed an order for a pair of frigates at ARMY-2020 that have not been laid down yet at the shipyard. Moreover, Russian state media reported in February that the Ministry of Defense plans to order another six frigates soon, but may sign the contract with Amur Shipyard, located in eastern Russia, as these will supply the Pacific Fleet. 

Disorder in the Russian shipbuilding industry more broadly – delays, cost overruns, and high-profile accidents such as those that have affected the aircraft carrier Admiral Kuznetsov in dock – has prompted the government to step in. In August, President Vladimir Putin announced that United Shipbuilding Corporation, the state-owned parent company of Severnaya Verf and other naval shipyards, would be placed under the control of VTB, a Russian bank, for a five-year period to stabilize the troubled conglomerate. 

Following a tour of some of the conglomerate’s shipyards in St. Petersburg, VTB head Andrei Kostin said that the shipyards were operating in some cases decades-old equipment that needed to be replaced. In September, he spoke to RBC about VTB’s audit of USC, saying, “There are enough problems: corporate governance, a huge financial hole, and a deep technological gap. Especially in the civil shipbuilding area.” 

Kostin added that “almost all” of the contracts the conglomerate has entered into are unprofitable, echoing criticism that President Vladimir Putin voiced to former head Alexei Rakhmanov last year. Revenue declined about 8.7 percent in 2022, to RUB350 billion ($3.7 billion), and some deliveries were late over disruption to component supply. 

Andrei Puchkov, formerly a first deputy at VTB, replaced Rakhmanov in August as part of the shake-up. With the bankers running the show, Putin is hoping to get his naval industry back in order.

About Derek Bisaccio

Military markets analyst, covering Eurasia, Middle East, and Africa.

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