It should be noted that in no case has the model concluded that any of the contracts examined has been priced at an economically viable level, that is to say covering direct costs, plus an appropriate contribution to overhead costs, plus an appropriate contribution to debt servicing (i.e. repayment of principal plus interest), plus an element of profit. The order for an LNG carrier at Daewoo shows a marginal profit, but only after the massive debt reduction of nearly 80 %, granted to the yard in autumn 2000, was factored in.

　

In most of the contracts investigated, prices have also failed to reach the break-even level (i.e. the normal price excluding profit). On average the losses taken by Korean yards with regard to these orders are ca. l6 % of the actual building costs, when inflation is factored in. Some orders may be close to profitability, but these concern shipyards that have been able to reduce their debts, either through the issuing of new shares (HHI) or through debt restructuring. (deferred repayments, moratoria on interest, write-offs, debt-equity swaps) as it is the case with Daewoo and Halla/Samho. The Commission is examining the compatibility of the new debt situation with WTO provisions in the context of the separate TBR investigation.

　

Losses taken for these newly investigated orders are on average 14 %, as compared to average losses of l6 % for the previously investigated orders. The reasons for this "improvement" are to be found in slightly higher contract prices, in particular for tankers, and, most of al1, in a significant restructuring of the company debts, leading either to lower debt levels or to longer repayment periods, thus stretching the debts over more contracts. As stated in the third report, the recognition of these changes in company debts does not mean that the Commission accepts the new debt situation as such in terms of its compatibility with WTO provisions.

　

Concerning the order for a ferry at Hyundai Heavy Industries (HHI), the cost evaluation concluded that the price had been set below operating cost level. Even without taking inflation into account, the contract would make a considerable loss at the operating level and no provision is included for debt repayment. This is likely to be a significantly loss-making contract for HHI. Stena has in the past been an owner who ordered vessels, including ferries, with a number of yards in the EU and in Far East. Ships similar to the one investigated were in the past ordered by Stena in Korea, in Finland and in Spain. Therefore, and given that at least one EU yard actually tendered for the contract, it can be concluded that this order should have been within reach of EU shipbuilders and it was the very low price which ultimately brought the contract to Korea. Consequently this contract has to be seen as injurious to EU shipyards.

　

For the containership of 7 400 TEU to be built at Samsung Heavy Industries the model calculation concludes that the contract is priced at the operating cost level(including provision for inflation), and makes no contribution to below the line expenses, in particular servicing debt. It should be noted that the amount calculated for servicing debt includes provision for interest payment only and does not provide for the generation of cash to repay principal. It has been assumed that Samsung will continue to refinance (i.e. roll over) debt in this situation, rather than making repayments as planned. It is therefore concluded that the price of the contract does not meet two of the aims of the company, as outlined in Samsung's plans set out in February 2001 in a document from Samsung Securities. Firstly the company forecasts a return to substantial profitability in 2002, following forecast losses in 2001. The price does not support that forecast. Secondly significant reduction of debt is also forecast and again the results do not support that forecast.

　

With regard to the order for six Suezmax tankers at Hyundai Heavy Industries the results of the cost evaluation confirm previous results for HHI, i.e. that the price does not include sufficient provision for inflation and makes no contribution to debt servicing. The implications of this conclusion are that the profitability of the company is likely to continue to decline, rather than recovering as forecast by Hyundai. It is possible that further refinancing may be needed in future if HHI is unable to meet its debt commitments. Seven other orders of this shiptype at around this price were placed at HHI over the first six months of the current monitoring phase.

　

For the containership order at Daedong Shipbuilding Co. Ltd. the cost evaluation concludes that the contract has not been taken on a profitable basis, and may only reach the break-even level. This indicates a slight departure from previous contracts examined at Daedong which were highly loss-making. The shipyard has been specifically helped to achieve this improved result by a number of factors:

　

　

In addition to these specific factors it also has to be said that the price of the ship is relatively good, in particular in relation to the larger container ships being pursued by the larger shipyards. It should also be noted that Daedong, still being under court receivership, is obliged to accept only, as a matter of principle, profitable contracts in order to recover its economic viability.

　

Concerning the order for chemical tankers placed at Hyundai Mipo yard the cost evaluation gave the result that the price covers operating costs and inflation, but will make no contribution to debt servicing. Whilst the level of debt at Hyundai Mipo is lower than the large South Korean shipyards, a considerable debt has been accumulated in developing shipbuilding facilities (the yard has previously been active in ship repair only). At this price level it is likely that re-financing will be required. Future profitability is doubtful, bearing in mind that this result will be typical of the shipyards orderbook and that early contracts in this series were taken at a lower price and are therefore likely to be loss making.

　

With regard to the order for Aframax tankers, placed at Samho Heavy Industries, results of the cost evaluation reveal that the price taken for this ship is better than those previously examined but that it is still below an economically viable level and makes no contribution to servicing Samho's debts. Previous analysis for contracts at Halla/Samho concluded that whilst massive debt restructuring had enabled the shipyard to reduce contract costs by about 6 %, the prices of contracts remained far below an economically viable level. Even given the higher price negotiated by HHI for the two optional contracts (34 Mio. USD), the price falls marginally below the calculated operating cost, and the contract does not appear to include any provision for debt servicing. It should also be noted that no provision is included for management fees for HHI and this will increase the operating loss further.

　

In the case of the Ultra Large Crude Oil Carrier, ordered by Hellespont at Daewoo Shipbuilding and Marine Engineering, the cost evaluation concludes that the price covers operating costs only, without making a significant contribution to debt servicing commitments of the company following restructuring. This confirms previous conclusions for Daewoo that the price of contracts is insufficient to generate an operating profit and to service the company's debt commitments, even after significant restructuring. This is despite assumptions for very high levels of performance at Daewoo.