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with Ariovaldo Santana de Rocha, President, SINAVAL

31.08.2010 / Energyboardroom

Over the last decade we have seen a revival of the shipbuilding industry in Brazil pushed both by the Lula administration as well as the demand of the offshore market. What role has SINAVAL played in this resurgence?

Brazil was once the second largest naval constructor in the world during the 1970s but over the course of the 1980s and 1990s, the industry was in a depression due to the political measures adopted during the time. Once Luiz Inácio Lula da Silva obtained the presidency in 2002 with Dilma Rousseff as his Chief of Staff they began to look at the shipbuilding industry as one that could play a key role in Brazil. In particular, they saw that the freight account kept rising and would inevitably have a negative impact on the nation’s balance of payments.

In 2003, Petrobras incorporated into its five year plan the idea to build two platforms in the international market. Through SINAVAL’s discussions with the government, we managed to convince Petrobras to place these orders in the domestic shipyards. This also meant taking the step to create a technology policy that would assure that these builds could be done in Brazil. In this respect, SINAVAL closely collaborates with the government to create legislation that promotes building programs in Brazil. For example, when Dilma Rousseff was the Minister of Mines and Energy, she put together a program for training human resources (PROMINP).

As a result, beginning with platforms and offshore vessels, ship owners from around the world began to come to Brazil to build locally and participate in the tenders to serve Petrobras. The first group to utilize this program to build locally was CBO and others followed so that today this has supporting initiative has been on going for a decade.

Importantly, there are no subsidies for the shipbuilding industry in Brazil but rather there are tax incentives. This is a big difference compared to Asian countries who are the leaders of the industry and as a result, many of those competing nations didn’t think that we could position ourselves in this industry. Consequently, the biggest challenge was how to acquire the knowhow and technology from leading shipyards in Asia who didn’t believe in the potential. SINAVAL, working alongside the several government agencies had to attract entrepreneurial companies to come aboard the shipbuilding program. A group comprised of several government agencies including the Ministry of Mines and Energy, Petrobras, the Ministry of Industry as well as the Ministry of Finance put together a package of regulations in order to attract experienced foreign yards to Brazil.

At the beginning of the last decade, the shipbuilding industry generated 1900 jobs, while 10 years later it generates 46,000 positions. Therefore, this industrial policy and the good management of orders from Petrobras have made a market where private initiatives feel comfortable to invest and rebuild the industry. Old yards have been revitalized while new yards have been built such as Atlantico Sul made in partnership with Samsung which is the one of the most modern shipyards in the Southern Hemisphere.

Would you say the revitalization has come as a result of private or public initiative?

These developments have come as a result of movements in both directions; on one hand the private industry has gone to the government saying it can build what needs to be built here in Brazil. On the other hand, the state began to realize it had to queue with everyone else to buy equipment on the international market and that it would make more sense to have local capabilities.

Today, the industrial capacity of Brazil’s shipyards can handle to nearly 600,000 tons of processed steel annually and we have the aim to double this to 1.2 million tons. Nevertheless, the order book on file today in Brazil amounts to a production of 370,000 tons of processed steel so there is still capacity available and more being built to prepare for the road ahead.

On other occasions you’ve referred to the, “days and nights of struggle” from yourself and other members of the industry to turn the industry around. Where did the personal motivation come from to turn around a sector that only had six yards remaining?

The people in this room were a part of this industry 30 years ago and witnessed the industry fall while yards continued to close and file for bankruptcy. Shipbuilding has an interesting characteristic in that the yards remain, regardless of whether they’re operating. Moreover, ships always need repairs so there is some demand to buoy the market. In 1996, my partners and I rented a paralyzed shipyard and built the [Promar I] to conduct repairs while waiting for the opportunity to build the first offshore vessels. This was the beginning of the comeback for our industry.

Those that had the experience of working in our segment and who shared the same vision as us were scattered about in various positions. This initiative attracted them to come back together and reconstruct our industry. SINAVAL waited for the new government to be elected in 2002 before going to them with a proposal showing how our sector can create 40,000 jobs.

Now that you’ve more than accomplished this goal of 40,000 jobs and the industry is up and running again, what is your main objective today?

The agenda is really the same as before. What makes this industry work is the same as it is in any other location in the world: it’s a societal decision. You cannot be competitive in this sector without the firm support of the government providing the necessary laws and clear rules. This is a sector with a long cycle of production so assurance is fundamental for the various players of the industry to feel safe in planning for the future.

We need to keep our financing system – the Marine Merchant Fund (MMF) – as well as maintain our tax exemptions and performance bonds. The latter of which is particularly important because shipyards typically have order books larger than their collateral and the best way to offer coverage is through a performance bond.

The biggest focus now is on the supply chain and the components that go into the shipbuilding process. SINAVAL works on developing relationships with international suppliers and tries to stimulate them to come to Brazil to manufacture and increase the local content capacity. In fact, the IBP there is a supply chain committee led by Franco Papini, our Executive Vice President. Currently, there is a 65-70% local content standard for building new vessels in Brazil that will only increase as the orders continue so there is a clear need to increase the local manufacturing.

Are international companies establishing themselves quick enough to keep up with the rises in local content?

We are at the point where you can build competitively in Brazil but we still have in the range of 30-35% international content to substitute. There are some important challenges left to do locally, for example, large engines for shipping vessels need to be imported as there are only a handful of manufacturers in the world.

SINAVAL is also very concerned with the work safety environment and closely follows and advocates QHSE regulations. For three years now we have had a three way committee incorporating us, the Worker’s Union and the Department of Labor, which works to develop the rules and conditions for the shipyards. This has led to the changing of several regulated norms the government had in place for the sector.

Why would a company choose to build in a Brazilian yard versus a Singaporean one?

The biggest demand in the world’s oil and gas industry is here in Brazil so this is the reason our policies are oriented at bringing the international yards and increasing production capacity locally. We have the opportunity to build a larger industry based on the stimulus of the oil and gas industry.

Currently there are 26 shipyards fiercely competing with one another and there are 17 more being built so we perceive Brazil as a competitive market which is healthy.

If you look at who is here today, you’ll see the South Koreans are here, present through STX who has its own shipyard and Samsung who is partnered with Atlantico Sul. Hyundai has also joined the market recently through a partnership with OSX to build a large yard in Santa Catarina. Singaporeans are also here with Keppelfels’ yard in the south of Rio de Janeiro state and Jurong building their own yard in Espirto Santo which is already building the hull of a platform and they have the intent to do the integration locally. The American company Edison Chouest is here with its own yard – Navship – from where they build vessels for both the Brazilian and US market. In fact, they use Brazilian financing through the MMF because anyone who builds in Brazil is automatically eligible for these incentives.

Examples like these help destroy the myth that our quality isn’t up to par and too expensive for application in other markets.

We’ve signed agreements through the Southern Cone for the joint development of this industry as well as an agreement with Spain and South Korea, the latter of which didn’t believe in Brazil’s naval industry development but is now working with us.

Do you have a final message on behalf of SINAVAL to the industry?

The message we would like to send is that our development is based on our partnerships that bring knowhow and technology in exchange for participation in the Brazilian market. Together, we want to successfully build the industry and extend the development into the rest of the region.



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