Wednesday, November 10, 2010

Shipbuilding heading into $35B storm - USA behind demands - good stimulus projects?

Canada's three largest shipbuilders are fighting for two contracts with a estimated value of $35-billion, or roughly four times the price tag of the F-35 jet fighter contract that's got everybody in a lather. But with one bidder in Quebec and another just down the road from Defence Minister Peter MacKay's home harbour in Nova Scotia, the largest West Coast shipbuilder is wondering if the political fix is in.
The federal government needs frigates, coast guard vessels, Arctic patrol ships, a huge polar icebreaker and supply ships, with maintenance contracts filling in the lag times between building contracts.
Federal officials are now scouting out the eligible shipyards. To the winners will go many years of stable government contracts. To the loser, a prolonged scramble to stay afloat.
Jonathan Whitworth, CEO of Vancouver-based Washington Marine Group, eyes the competition -- Irving Shipbuilding of Halifax and Davie Yards Inc. of Montreal -- and wonders if he'll be a victim of government meddling with business decisions for political purposes.
Whenever Quebec is in a crucial bidding process, the competition tends to get politically dicey. With Atlantic Canada in need of an economic boost, Halifax gets the empathetic edge. That leaves Vancouver as an early underdog at the Cabinet table.
"Have we heard the rumours? Yes. Are we fearful that political answers could sway the opinion? I'll also say yes," admits Mr. Whitworth. "But we're not worrying about other shipyards. We're making sure the federal government knows what we're doing and what we've done for over 50 years. If it's an open, fair and transparent decision, we'll have nothing to worry about."
The clearest hint at the sensitivity of the issue was a privy council decree banning lobbyists from representing the bidding shipyards to politicians or bureaucrats. There's to be no perception of key
ministers being arm-twisted by old friends, even though plenty of background advice is now in circulation out of the lobbyist registrar's sight.
If last week's potash protectionism was a precedent, serious trouble is ahead for a government that continues to value its political payoff above all other considerations. It means Quebec City's NHL hockey arena is all but guaranteed to receive federal funding to save a handful of vulnerable Conservative seats in the region, opening the vault to tax frigates, coast guard vessels, Arctic patrol ships, a huge polar icebreaker and supply ships payer handouts for all manner of professional sports venues. And it suggests the mother of all regional squabbles is in the offing as the federal government pits three electoral battlegrounds against each other in a fierce competition for its massive ship-buying spree.
What would infuriate the West, perhaps with the visceral intensity of reaction to Brian Mulroney shifting the CF-18 maintenance contract from Winnipeg to Montreal, would be to shun the West and sign the biggest contract with Montreal's Davie Yards, a possibility considered likely in B.C., one senior MP confided to me this week.
Davie Yards has received almost $700-million in government loans or loan guarantees in the past two years, most of it from the Export Development Corp. of Canada. That is far greater than the support given to its contract bidding rivals which, in Washington Marine's case, amounts to zero.
Yet despite all the support at extremely favourable terms, Davie languishes in bankruptcy protection and is looking for buyers all around the world.
Daviecommunications vice-president Marie-Christine St-Pierre declined comment on the company's efforts to find a buyer beyond confirming interest from two potential investors she declined to name. But she insists the shipyard is ready and able to deliver any contracts it signs with the federal government.
The stakes go far beyond the health of an individual company. The 28 large ships proposed for construction over the next three decades would create two national shipyards and a sustainable economic base for the selected regions.
So far, nobody's complaining about the preliminary selection process. Requests for proposals will roll out next spring and the contracts likely decided by the federal cabinet in the fall of 2011.
But if selection process is anything but totally shipshape, Western alienation will be back on deck.

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