Glass industry crisis continues

The traditional manufacture of glass and porcelain in the Czech Republic is under serious threat, with companies belonging to the Bohemia Crystalex Trading group recently closing operations. As a result, glassworks in Světlá nad Sázavou, located on the frontier between Bohemia and Moravia, and in Poděbrady in central Bohemia have been closed down and production has been halted. About 2,000 employees did not receive their wages in September 2008.

Company background

Sklo Bohemia in Světlá nad Sázavou in the Vysočina Region of the Czech Republic located on the frontier between Bohemia and Moravia and Sklárny Bohemia in Poděbrady in central Bohemia belong to the glass manufacturing group Bohemia Crystalex Trading. Before 1989, Crystalex organised all of the production of domestic glass in the then Czechoslovakia. After 1989, the company began to split up. The Bohemia glassworks in Poděbrady and some operations in Nový Bor in the Liberec Region of northern Bohemia became independent entities. Eventually, Crystalex was privatised at the end of the 1990s by the Porcela company, and Bohemia Crystalex Trading was established as a result.

Market position deteriorates

Despite the fact that in the 1990s Crystalex was in a good market position on account of the US dollar’s favourable exchange rate against the Czech koruna (CZK), it neglected to exploit this advantage and gradually wasted the favourable position provided by the currency exchange rate. The group also failed to optimise its production portfolio and to divide it into ceramics and domestic glass. Some glassworks that became independent in the 1990s sold their products separately and began competing with each other on foreign markets. Over the course of five years, this situation was exacerbated by the arrival of cheap competition and fake products from Asia. Rising wages and the appreciation of the Czech koruna also meant that the production of glass became increasingly less efficient.

Insolvency proceedings commence

Due to a lack of working capital, numerous companies in the Bohemia Crystalex Trading conglomerate have been in insolvency proceedings since 22 September 2008. The group decided to save Sklárny Kavalier in Sázava in central Bohemia and Crystalex in Nový Bor. Consequently, it requested the announcement of a moratorium for these two companies, which means that they would be able to continue production and their employees would also receive their pay for September 2008 on time. On the other hand, Sklo Bohemia and Sklárny Bohemia glassworks have been in insolvency proceedings since 22 September 2008. Thus, about 2,000 employees did not receive their wages in September. The future of both companies is now uncertain. However, according to the Director of the Business Recovery Services Department at PricewatershouseCoopers, Petr Smutný, several investors have already expressed an interest in saving both companies.

Trade union position

Understandably, the closure of both Sklo Bohemia and Sklárny Bohemia has also had an impact at a social level. For the most part, employees of the two companies have spent their entire professional career in the glassworks and many young employees have taken out mortgages. Failure by the company to pay wages, probable redundancies and the attitude of the state as a majority shareholder led the Trade Union of Workers in the Glass, Ceramics, Glass Jewellery and Porcelain Industry (Odborový svaz zaměstnanců sklářského, keramického, bižuterního průmyslu a porcelánu, OS SKBP) to organise a demonstration outside government offices on 23 October 2008.

According to trade union officials, the banks should refrain from freezing company accounts in order to ensure the necessary financial operation of the group. They are calling on the Ministry of Finance of the Czech Republic (Ministerstvo financí České republiky, MF ČR), as the administrator of the state’s ownership rights, to become actively involved in resolving the situation. The trade union also requests that the ministry negotiates with the owners and banks, as well as doing everything it can to restore operations in the closed plants and to give the group a chance to settle its accounts with creditors and ensure work for existing employees.

Government response

However, the Minister of Finance, Miroslav Kalousek, from the Christian and Democratic Union – Czechoslovak People’s Party (Křesťanská a demokratická unie – Československá strana lidová, KDU–ČSL), has repeatedly ruled out any state intervention because it would be a form of public support. Nevertheless, according to the Vice-Chair of the Office for the Protection of Competition (Úřad pro ochranu hospodářské soutěže, ÚOHS), Kamil Rudolecký, temporarily ensuring the operation of the glassworks plants need not require the approval of the European Commission in the interim. This would only be the case with the publication of a subsequent restructuring plan, which the company would have to formulate after its first receipt of public funds.

So far, the government has decided to release several million koruna to aid the regions affected by the possible closure of the glassworks. According to the Prime Minister, Mirek Topolánek, this assistance would take the form of special subsidies for transport services and the retraining of employees who have been made redundant. The state intends to earmark CZK 4 million (€165,000, as at 5 November 2008) to support an active employment policy, including retraining. However, the prime minister has yet to specify an appropriate sum of money that should help to improve work-related transport for people from the regions affected by the glassworks closures.

This restructuring case has also been reported by Eurofound’s European Restructuring Monitor (ERM) – see relevant factsheets: Sklárny Bohemia Poděbrady and Sklo Bohemia.

Soňa Veverková, Research Institute for Labour and Social Affairs (RILSA)