Row Over Outsourcing Ship Orders

An Iranian industrialist lamented that there is no trust in domestic shipbuilders.

Talking to reporters, Hamid Rezaeian-Asl, the managing director of Iran Shipbuilding and Offshore Industries Company, criticized shipping companies for outsourcing manufacturing of their needed vessels to foreign companies.

On Friday, Iran's leading ports operator, the Islamic Republic of Iran Shipping Lines signed a contract with the world’s largest ship manufacturer Hyundai Heavy Industries.

As part of the agreement, HHI will build four 14,500 TEU container ships and six 49,000 DWT tankers for IRISL. However, the contract billed as “the first post-sanctions shipbuilding deal” has not gone down well with local shipbuilding companies, including ISOICO.

“Now we have reached a point where we can compete with foreign shipbuilding companies. We are capable of building mega-size cargo ships on a par with those of foreign companies. Local shipping companies have not placed any new order with ISOICO, despite the fact that the shipbuilder has completed all its projects in the past five years,” Rezaeian-Asl says.  

The ISOICO delivered the new Iran-Kashan container ship to the Islamic Republic of Iran Shipping Lines in October. The vessel, which travels at a speed of 21 knots, can carry up to 2,200 containers, according to Abbas Raeisi, the managing director of ISOICO subsidiary, Bahr Gostaresh Hormoz.

“Iran-Kashan container ship, with a length of 158 meters, a beam of 30 meters and a draft of 10 meters, is the third oceangoing vessel project that ISOICO has completed and launched in his shipyard,” he added.

> Cutting Out the Middlemen

“We are not willing to forgo our share of international fleet on the pretext that local producers want to build ships inside the country,” said Ali Akbar Ghanji, the CEO of Khazar Sea Shipping Lines, who also doubles as an advisor to IRISL managing director.

Ghanji believes the middlemen in machinery and tools trade are making bitter criticisms against the deal.

“Now that we can go straight to the manufacturers, why shouldn’t we cut out the middleman?” he asked.

In 2008, IRISL placed an order for 17 vessels with Hyundai and paid around $227 million to HHI and STP shipyards, Ghanji told the Persian daily Shargh.

“Due to the nuclear sanctions, the money was locked up in South Korean banks and the vessels were never built,” he said.

Following the implementation of the nuclear deal in January, IRISL reclaimed its frozen money, but the Koreans blamed the sanctions for the unfulfilled deal. They argued they had incurred losses by purchasing the raw materials for building the ships.

“Had we filed a complaint against Hyundai, we would have been forced to pay damages to the company,” he added.

Ghanji said the vessels ordered then are of no use to Iran’s maritime transport today, therefore talks were held with the Korean powerhouse on unlocking the frozen dollars and not paying any additional money from our side as well.

“Out of $227 million frozen in South Korean banks, $154 million have been put at the disposal of HHI and the rest will be funded by international project financiers such as the Korea Eximbank. Iran’s Bank Mellat is also present as a supervisor to provide bank guarantees, if need be,” he said.

Ghanji stresses the point that IRISL has not paid any money to Hyundai and that the Koreans have abstained from filing any complaint against IRISL for the suspension of the project as a result of anti-Iran sanctions.

“Based on the agreement with Hyundai, the company will deliver the ships by the end of 2017, which is less than a year and a half from now. This comes as IRISL ordered a handful of ships to the local companies in 2001, only to receive them after 11 years, and imperfect,” he said.   

Iranian shipping companies have not modernized their fleets since 2006, when the United Nations imposed wide-ranging sanctions against Tehran over its nuclear program. The sanctions began to be gradually lifted in January after Tehran agreed to limit the scope of its nuclear program.

But the Iranian companies are still struggling with their limited capability to raise financing in US dollars, the main currency in shipping, and have tried to secure financing from Chinese banks by offering Beijing oil in return for loan guarantees.

The IRISL operates about 115 oceangoing vessels, but many of the ships are old, have been deemed unsafe to travel and cannot be insured.