Norway Cancels Order With Northern Shipyard

A Russian shipyard lost a lucrative contract for building commercial vessels for a Norwegian company, which said its terms were violated -- a failure some media described Tuesday as a reflection of inefficiencies within the country's heavy industries.

Norway's Odfjell announced last week that it decided to cancel a contract with the Sevmash shipyard 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 Tuesday that the yard would continue building the vessels and try to find another customer. He refused to comment further on the issue.

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 yard. Odfjell said the fixed price for all 12 vessels was about $500 million, but later increased to $544 million.

The contract's cancellation was a new humiliation for Sevmash, which was already under criticism for failing to meet contract terms for upgrading an aircraft carrier for the Indian navy. This is part of a series of disputes with foreign customers that have tarnished Russia's image as a reliable supplier.

"Russia's reputation as a country capable of competing with other countries in the production and export of high-tech equipment has received a new, heavy blow," the daily Nezavisimaya Gazeta said in a commentary.

Kommersant said Tuesday that the yard would find it hard to sell the ships because there is little market demand for that kind of vessel domestically, and it would be hard to sell the overpriced ships to foreign customers.

In a similar conflict, Sevmash has fallen behind schedule on the $1 billion contract to modernize the Soviet-built Admiral Gorshkov aircraft carrier for the Indian navy and demanded more than double the original price. India has complained vociferously, and talks are ongoing. Amid the acrimony over the carrier contract, media reports said Washington could offer New Delhi one of its aircraft carriers, the 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 United States would be a major embarrassment to Moscow.

Sevmash's troubles follow problems faced by other Russian companies.

Russian media has reported that Algeria is considering returning 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 the country's defense industries, whose efficiency has been crippled by the failure to modernize aging Soviet-era equipment and an exodus of qualified personnel.