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Samsung Says Russia’s Zvezda Illegally Terminated $4B Shipbuilding Deal

Samsung shipbuilding
Samsung says Russia's Zvezda illegally terminated two contracts for block production for Arctic tankers (SHI file photo)

Published Jun 13, 2024 2:17 PM by The Maritime Executive

 

U.S. sanctions against Russian interests and specifically the listing of the Zvezda shipbuilding complex in 2024 are being cited as the reason behind the cancelation of a roughly $4 billion shipbuilding deal between Zvezda and Samsung Heavy Industries. The Russians' unilateral decision to pull out of the deal came after nearly two years of increasing sanctions by the U.S. and South Korea and the U.S. move earlier this week that included further targeting of the Arctic oil operations.

"The Russian client unilaterally claimed that the contract was not fulfilled during a negotiation process,” Samsung Heavy Industries wrote in a stock exchange filing. “Since the contract termination notice is illegal, we plan to file a complaint with the Singapore Arbitration Court to dispute the illegality of the contract termination and scope of return, while continuing negotiations.”

Samsung Heavy Industries has a long history of working with Zvezda and between 2019 and 2021 celebrated a series of high-profile shipbuilding agreements for the Koreans to design and deliver blocks for tankers that would be completed at Zvezda. The total contracts called for 22 vessels with a combined value of approximately $5.7 billion. 

Five vessels under the 2019 contract were delivered, but the 2020 and 2021 agreements were hampered by the increasing sanctions. Samsung was designing the vessels when the first sanctions were imposed after the invasion of Ukraine. Competitor Daewoo Shipbuilding canceled three contracts with the Russians in 2022 citing failure to make installment payments while initially, Samsung Heavy Industries sought to continue its projects. 

Samsung Heavy Industries reports in 2022 it invoked Force Majeure, suspending the design work for 10 LNG carriers and seven shuttle tankers. That portion of the contract is reported to be valued between $3.7 billion and $4.2 billion. Samsung reports it discussed future implementation plans for the contract with Zvezda.

When Zvezda was designated by the U.S. in February 2024, Samsung notes it was blocked from working with Zvezda. They said further negotiations were ongoing with the Russian shipowner.

Zvezda filed a notice demanding termination of the contract on June 11. Further, the Russians are demanding the return of $800 million in installment payments already advanced to Samsung Heavy Industries along with interest. 

The notice came as the U.S. earlier this week targeted Russia’s planned LNG projects with new sanctions. They included Zevzda, expanding the listing on three Arctic LNG tankers, and in total targeting seven vessels all tied to the LNG operations.

Samsung Heavy Industries in its stock exchange filing said it plans to dispute the termination notice. They will seek arbitration.