A Russian shipyard producing Karakurt-class ships for the country’s Navy is facing potential financial hardship after new lawsuits from the Defence Ministry and a series of creditors.
On Nov. 15, an arbitration court in Moscow held the first preliminary hearing for a lawsuit against Pella Shipyard in which the ministry is seeking 1.4 billion rubles (U.S. $23.1 million) over allegations the company was “failing to fulfill supply contacts.”
No further information was available in court papers, and a court spokesman declined to provide details, citing the pending case. Pella officials declined to comment for this story.
The lawsuit comes three weeks after Pella was part of another legal entanglement. In that one, the company received additional funding from the ministry after defense officials failed to include more money for additional capabilities for the troubled Ladoga vessel. That ship is meant to provide search and rescue operations for the Baltic Fleet.
The Defence Ministry was ordered to pay 2.6 billion rubles to Pella, according to an Oct. 24 post on the Moscow city court’s website.
According to the contract for the Ladoga vessel, which was valued at around 1.5 billion rubles, Pella planned to provide the ship to the ministry by November 2016. The court’s decision noted that the ministry made changes to the design and provided them to Pella company in February 2016.
Those changes, company officials said, increased the price of the vessel to more than 3.2 billion rubles. Due to adjustments to the ship’s size, among other features, the company was unable to deliver the vessel until September 2018.
The Defence Ministry refused to pay additional costs, citing existing governmental provisions that doesn’t require contractual changes for state orders after the original tender.
Pella officials told the court they couldn’t afford the additional cost, as it would bankrupt the company.
The company also provided the court with a protocol of disagreement, signed by Deputy Defence Minister Alexey Krivoruchko, which mentions the new price discussed by the company and defense officials.
The Russian Defence Ministry and the Russian Embassy in Washington did not respond to requests for comment.
A former shipbuilding industry official, speaking to Defense News on the condition of anonymity, described the 2.6 billion ruble payment ordered by the court to be paid to Pella as “rather huge.”
However, he added, the “discipline to fulfill [state] orders has improved in recent years,” and it is common for defense officials to make “additional wishes” that end up increasing costs beyond those laid out in original contacts.
Pella is also fighting with more than a dozen creditors in court, Russian media reported. The majority of the cases were filed by various Russian fishing companies that ordered trawlers from Pella but didn’t receive them on time.
One creditor, the St. Petersburg-based Petrobalt Design Bureau, filled a suit against Pella, claiming the shipyard didn’t honor its contract obligations to design the fishing vessel on time. The sum claimed in the lawsuit is more than 10 million rubles. A hearing is scheduled for Nov. 23.
“It’s all a big bluff,” said Mathieu Boulègue, a consulting fellow with the Russia and Eurasia Program at Chatham House.
“Forget everything you know about procurement, when it comes to Russia,” Boulègue told Defense News. “They [Pella] can fail, they can be turned into martyrs by the state,” but the company won’t go under because the government needs it as a supplier.
Asked about the future of the Karakut program, he said this latest issue is just one of several production problems with the series. If it’s not the shipyard’s financial failings, it’s a problem securing a part or keeping the production line running, he explained.
Founded in the 1950s and based near the Gulf of Finland, Pella specializes in producing small and medium-size vessels for both civilian and military needs. The company’s main beneficiary is Gerbert Tsaturov, who served as its director since the Soviet era.
During a 2016 defense expo in Russia, senior director Andrei Slizkiy told reporters the company signed a contract to produce seven Karakurt-class missile corvettes. The vessels are equipped with Pantsir missile systems and Kalibr missiles. Russia has used the Pantsir family of missiles against Ukraine, which it invaded in February.
Thus far, the company has delivered three, according to media reports, with the last arriving in 2020. That year, the company reported a turnover of more than 10 billion rubles, according to Spark, a database run by the Russian Interfax news organization.