Following the Russia-Ukraine war, sanctions against Russia have hurt Samsung Heavy Industries. Sanctions prevented the company from fulfilling an order for 4.85 trillion won (about $3.7 billion) from a Russian client prior to the start of the conflict, and the Russian client unexpectedly terminated the agreement.
Regarding 10 LNG carriers and seven shuttle tankers for the North Sea that were ordered from Russia’s Zvezda Shipyard in 2020 and 2021, Samsung Heavy Industries said in a public disclosure on June 12 that “the Russian client unilaterally claimed that the contract was not fulfilled during a negotiation process.”
“The Russian client informed Samsung Heavy Industries of the contract termination and requested that Samsung Heavy Industries reimburse the Russian client for its US$800 million down payment and interest that was postponed.”
Samsung Heavy Industries continued, “At this time, we are unable to carry out any financial transactions with the Russian client (Zvezda), who has been identified as a specially designated national (SDN).
“We intend to file a claim in the Singapore Arbitration Court to prove the illegality of the termination and the extent of the refund, while continuing negotiations, as we believe that the termination notice is illegal.”
The conflict between the two businesses began in 2019, before to the start of the conflict between Russia and Ukraine. A number of contracts for the construction of 22 ships—15 icebreakers and 7 icebreaking shuttle tankers—between Samsung Heavy Industries and Zvezda were inked in 2019.
With a total contract value of US$5.7 billion, it was a massive deal. After being successfully constructed, five of the ships were handed to the Russian customer.
The remaining seventeen ships were the point of controversy. Samsung Heavy Industries was given a contract by Zvezda in November 2020 to supply the equipment and blocks for ten icebreaking LNG ships. The two businesses agreed to a deal in October 2021 for the supply of equipment and blocks for seven shuttle tankers that shatter ice.
The contract was worth 4,852.5 billion won in total. Zvezda paid $800 million in advance to Samsung Heavy Industries.
But sanctions against Russia were imposed at the same time that Samsung Heavy Industries started designing the ships, following Russia’s invasion of Ukraine. By designating Zvezda as an SDN, the US Treasury Department stopped allowing money to flow into the company.
Only a few of the ships could be designed by Samsung Heavy Industries, which ultimately had to stop production in August and negotiate a renewal of the contract with Zvezda.
But according to Samsung Heavy Industries, Zvezda abruptly informed the company on June 11 that it was ending the 17-ship contract, citing default on the part of Samsung Heavy Industries.
“Due to the US government’s designation of the Russian client as an SDN, transactions with the Russian client were blocked, so Samsung Heavy Industries notified the Russian client of force majeure and conducted negotiations with the Russian client,” the business stated.
Samsung Heavy Industries intends to file a case with the Singapore Arbitration Court in order to pursue legal action against Zvezda.