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Rigged Rigs: Caspian Hardware Gets Costlier

This is an abridged version. The full text is avaiable to subscribers to The Russian Energy weekly.

Russia’s United Shipbuilding Corporation (OSK) is preparing to assume control of the Caspian Energy group in Astrakhan. If the new owner goes ahead with taking over a local competitor, the Red Barricades plant, the monopoly will probably raise the prices of vital equipment for offshore projects.

Through the Back Door

Lukoil signed a series of contracts in early November for its Filanovsky project in the northern part of the Caspian Sea. The largest of the contracts, for 14 bln rubles ($450 mln), went to OSK. It will cover the costs of an ice-resistant stationary platform, which is to be installed at the field by 2015.

OSK has no manufacturing facilities in the area and is going to carry out the order at the workshops of Caspian Energy. In August, a subsidiary of OSK, the Khabarovsk Shipbuilding Plant, acquired 40% of the Astrakhan- based group. The corporation admits that the acquisition was an instrument of bidding for Lukoil’s contracts in the Caspian area.

Lukoil worked with Caspian Energy before: it has built a platform for the Korchagin project. According to sources in the company, the client was dissatisfied with the performance of this contractor. The construction lasted 18 month longer than expected and Lukoil had to delay commissioning of the project. The same sources claim that Lukoil would like to award the new contract to another company in Astrakhan, Red Barricades.

Perhaps it will be Hobson’s choice for Lukoil. Having obtained tax benefits from the government for Korchagin and Filanovsky (holidays for the mineral extraction tax and a reduced rate for the export tax on crude oil), the company must oblige the wishes of the government, which evidently sympathizes with OSK. Even though the bid of OSK was costlier than the competitor’s, Lukoil has selected the government-backed corporation. The competitor, by the way, was Lukoil’s ex-subsidiary GlobalStroyEngineering, the builder of the Varandei loading terminal in the Pechora Sea.

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