Colombo Dockyard PLC (DOCK), Sri Lanka’s only player in ship building and heavy engineering industry, is exploring a number of alternative ways to stay afloat, at a time lower oil prices have threatened the existence of shipbuilders who have been catering to the offshore petroleum industry.
The prolonged depression in oil prices have taken a toll on the once thriving global ship building industry, plunging some of the Asian shipping power houses in Korea, Japan and China into deep crises due to heavy financial losses.
As the downturn in the off-shore petroleum industry has erased much of the business of DOCK, the company is now exploring opportunities in building passenger vessels to benefit from Sri Lanka’s promising tourism market with plans to expand to the South and the Far East in the future.
The company is also working on to attract new inquiries for high-spec vessels, river vessels and passenger boats to service the tourism and leisure sector. In addition, DOCK has also commenced servicing wind energy support vessels, a fledgling market, becoming one of the first shipyards in the region to provide such services. “As countries across the globe begin to seek out sustainable solutions to meet their energy requirements, we anticipate that our early steps into this new market will yield strong positive results for the company over the medium to long term,” said DOCK Chief Executive D.V. Abeysinghe in his annual review to the shareholders.
During 2016, the company had only a single ship building project as a result of subdued activity in the offshore petroleum development industry.
Due to the downturn in offshore drilling activities, the company had to cancel some of the contracts that were earlier entered into for 2016 and 2017. It also renegotiated contracts with some of their clients to offer milder terms.
As a result the ship building revenues almost halved from Rs.10 billion in 2015 to Rs.5.4 billion in 2016.
The company made a net loss of Rs.432.1 million for the financial year ended December 31, 2016, down from Rs.708.1 million loss incurred in 2015 largely supported by ship repair volumes, depreciation of the rupee and operational efficiencies. The company handled a total of 147 vessels in dry-dock and afloat in 2016 against 113 in 2015 and expects a gradual improvement in ship repair volumes during 2017 and 2018. The new directions that have also been issued requiring all estimated 60,000 currently active vessels to implement stringent ballast water management systems is also expected to bode well with the ship repair business as vessels will have to comply with this global standard. The global shipbuilders have been in deep trouble since the global financial crisis and particularly after the crude prices plunged to record lows. It was only last week that South Korean Daewoo Shipbuilding & Marine Engineering Co. was offered a US $ 2.6 billion rescue package by the state creditors.
The economic slowdown in China has also made things worse for the world’s three biggest shipyards which are all in South Korea.
Daewoo is the world’s second largest shipbuilder by revenue after Hyundai Heavy Industries Co.
The company lost 2.7 trillion won in 2016 compared to 3.3 trillion loss in 2015.
Abeysinghe said oil prices must recover up to at least between US $ 60 to US $ 80 for a viable offshore oil and gas exploration and extraction. Although the outlook for 2017 is challenging as the global marine sector recession is expected to continue up to 2018, Abeysinghe is hopeful of securing a few shipbuilding projects this year while also strategically diversifying into other types of ships going beyond offshore support vessels market.
As of December 31, 2016, Japan’s Onomichi Dockyard Company Limited held 51.0 percent stake in DOCK while the Employees’ Provident Fund, the state-controlled private sector pension fund held 16.3 percent stake.