Samsung Heavy Industries faces contract cancellation due to Russian sanctions

Samsung Heavy Industries' Vasily Dinkov, the world's first bi-directional icebreaking oil tanker, built in 2007 [SAMSUNG HEAVY INDUSTRIES]

Samsung Heavy Industries is facing a potential contract cancellation regarding the construction of icebreaking LNG carriers for Russia, due to sanctions imposed on Russia in response to the Ukraine conflict.

Samsung Heavy's construction of 15 icebreaking LNG carriers as part of Russia's Arctic LNG2 initiative has been impeded, with the progress of 10 vessels being frozen as of August, according to the company Tuesday.

While the first three ships — Aleksey Kosygin, Pyotr Stolypin and Sergei Witt — have already been delivered, and the construction of two more is still in progress, construction of the remaining 10 ship blocks has come to a halt.

The escalation of tensions between Russia and Ukraine has led the international community to impose substantial economic sanctions. Consequently, Russia has been expelled from the Society for Worldwide Interbank Financial Telecommunication (Swift), a move that has disrupted financial transactions and payment processing.

This has, in turn, created complications in the payment process between Samsung Heavy Industries and its Russian counterpart. The recipient of the order is believed to be Sovcomflot, the state-owned Russian shipping company.

Arctic LNG2, led by Russia’s state-run gas producer Novatek, is Russia's major natural gas project. Collaborative efforts involving Novatek, Sovcomflot and the Russian state development corporation VEB.RF led to shipbuilding contracts with Zvezda Shipyard in 2020.

Samsung Heavy Industries is working in partnership with Zvezda to build 15 icebreaking LNG carriers, capitalizing on Samsung's technical prowess.

"The concurrent timing of Russia's sanctions has cast doubt on the progress of the 10 pending vessels," a Samsung Heavy official said.

"Negotiations are ongoing to chart a way forward. Discussions around contract termination are not being considered, taking into account the relationship with the Russian shipowner."

This situation echoes a previous incident involving Hanwha Ocean, which terminated contracts for three icebreaking LNG carriers previously ordered from Sovcomflot during the era of Daewoo Shipbuilding & Marine Engineering due to payment delays totaling $850 million.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]