Shipyards: Once mighty sector feels a rush along its keel

When asked recently about Brazil’s shipping industry, a Greek engineer working in a South Korean shipyard replied: “I didn’t know they had one.”

This has been a forgivable misconception. Until very recently, the last ship built in Brazil to help meet the sizeable demands of Petrobras, the national oil company, was contracted in 1987.

But it is a perception the country is hoping to change.

On Friday [07/05], the Estaleiro Atlântico Sul shipyard, in Pernambuco, is set to launch an oil tanker for Petrobras at a ceremony to be attended by President Luiz Inácio Lula da Silva.

The vessel, which can transport 1m barrels of oil, is the first of 49 ships to take to the seas for Petrobras as part of Promef, a programme launched by Transpetro, Petrobras’s logistics subsidiary, in 2004 to revitalise the country’s shipyards.

Shortly after taking office, Mr Lula da Silva’s administration gave Petrobras the target of using at least 70 per cent local content for its maritime needs.

For upgrades and expansion, the shipyards, which also build oil platforms for Petrobras, had access to a new Merchant Marine Fund, with contributions from the BNDES, the country’s development bank.

The plan has put the once mighty industry back to work. In the 1970s, Brazil had the second-largest industrial fleet in the world.

By 2000, the entire sector had about 200 workers. Now there are 45,000, according to the government.

“In Brazil, we don’t have the choice of having ships or not. We have the choice as to whether or not they will be ours,” says Sergio Machado, president of Transpetro.

He says part of the reason for the plan is to avoid the so-called “Dutch disease”, named after the resource curse experience of the Netherlands in the 1960s that crippled non-oil related sectors of the industrial economy.

In 2008, Transpetro spent $16bn on maritime investment, and expects the 2009 figure to turn out higher.

Of the 49 ships to be built under the first two phases of Promef, 41 have already been contracted, and eight are still in the final phases of tenders to private companies. The contracts awarded so far total $4.4bn.

In some cases, companies began building the shipyards and the ships at the same time.

But the May 3 launch – and the other 48 ships – are part of plans hatched long before the success of Petrobras’s pre-salt exploration, which promises to make Brazil an important operator among oil-exporting countries.

The revenues that come from oil reserves discovered deep below the ocean’s surface will vastly increase Petrobras’s demand for infrastructure, platforms and transport – regenerating shipyards even more.

Last year, the government put R$15bn into the Merchant Marine Fund to meet the growing demand for financing new ships and the construction of new shipyards.

In April, the fund identified nine new projects totalling R$4bn and the BNDES is studying the real level of long-term demand in the country.

Luis Marcelo Martins, head of the BNDES’s oil and gas department, says he believes Brazil will need two or three new large shipyards (with an area of more than 1m square metres) and three new medium sized ones, in addition to the current 26.

The BNDES study followed increased finance requests for shipyards.

“It’s important to have better planning to avoid the situation in the 1970s and 1980s, with the construction of many shipyards without long-term demand,” he says.

Mr Machado says his goal is not to build ships and platforms in Brazil “at any cost”, but to create an industry which, in the long term, would be globally competitive.

After comparing models, the South Korean industry was selected as the benchmark.

Despite initial scepticism in Asia, Mr Machado says the worthiness of the project was reinforced by Samsung’s decision to invest in Atlântico Sul – the most technologically advanced of Brazil’s shipyards.

“If they are putting money here, we know we have a future,” says Mr Machado.

PdVSA, Venezuela’s state-owned oil company, is now making purchases from Brazil.

Brazilians of Japanese origin have returned after working in Japanese shipyards.

The Korean group STX is planning a new shipyard in the state of Ceará – there is no stipulation the shipyards must be Brazilian-owned, only that they be in Brazil.

Because of pre-salt oil, there should be no shortage of local demand. Petrobras is planning investment totalling more than $200bn, including five new refineries and thousands of kilometres of pipelines.

Mr Machado says Transpetro has plans in the works to add 40 rigs, 146 supply boats, 70 tankers and 10 FPSOs – floating vessels used by the offshore industry for the processing and storage of oil and gas. Brazil now has the world’s fifth-largest order book for tankers.

“Given the amount of revenues likely to come in from pre-salt oil, there’s no reason Brazil’s shipyards couldn’t compete globally,” says Pietro Donatello Pitts, editor of Latin Petroleum magazine.

Transpetro is also launching a barge transport programme, which it hopes will use additional capacity to transform the country’s 42,000km of navigable rivers into important transport routes. | By Vincent Bevins/Financial Times