Bankruptcy of the Szczecin Shipyard

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In June 2002, Poland's Szczecin Shipyard - formerly held up as example of successful privatisation - went into bankruptcy, faced with massive debts and other problems. The future of the company's 6,000 employees is uncertain, and its failure will have knock-on effects throughout the economy.

For years, Szczecin Shipyard SA- the largest holding company in the Szczecin Shipyard Porta Holding (SSPH) - was considered an example of successful privatisation. The company thrived and its prestige increased, while its employees received fair wages and, more importantly, were safe from unemployment. In October 2001, the holding company lost its financial liquidity and was closed by Szczecin Shipyard with the loss of around PLN 90 million. Szczecin Shipyard itself ran into difficulties and, despite several efforts undertaken by the management and discussions with government representatives, the company failed in June 2002 and went into bankruptcy.

This situation was generated by the company's enormous indebtedness. Currently, Szczecin Shipyard, as a holding company, has nearly 250 creditors to whom it owes around PLN 240 million. The holding as a whole is indebted to the tune of over PLN 1.8 billion (including utilised bank credits) to over 700 creditors. Such heavy indebtedness follows from the financial policy adopted by the Shipyard's management with the banks' consent. This policy was based on a technique for financing projects, whereby a large bank or a number of smaller banks allowed a credit for the building of a given ship which thus became a credit guarantee for these banks.

However, currently the Szczecin Shipyard has a number of ships which are at an early stage of construction, although the banks have provided 90% of the whole sum stipulated for in the contract. It turned out that the money lent had been allocated for the building of other ships, the costs of which had drastically increased in the course of construction (for various reasons such as delays and technological errors). On the one hand, this means that the Shipyard's management abused the banks' trust and, on the other, that the banks themselves failed to protect their interests.

However, this is not the only cause of the Shipyard's troubles: the demand for new ships has rapidly dropped, which, together with global recession and growing competition from Chinese and South Korean shipyards, has led the overall situation to deteriorate. Another hindrance has emerged from the complete failure of the restructuring of the whole shipbuilding sector. The management's strategy based on a high USD exchange rate has also failed.

The Shipyard management has tried to convince public opinion that it is the trade unions that are to blame, at least partially, for what had happened. The former president of the Shipyard said that 'an average monthly salary in the Szczecin Shipyard amounts to USD 800 (compared with USD 20- USD 30 in the Chinese shipyards). And although shipyard workers in Germany or in South Korea earn much more than in Poland, their effectiveness is twice as high. We have tried to cut down on the salaries but, unfortunately, part of the trade unions have been more interested in maintaining the status quo, cutting off the branch they have been sitting on themselves.'

The trade unions disagree with these explanations and they blame the management and the banks for the current situation. Over early summer 2002, the unions expressed their protest through numerous street demonstrations in Warsaw and Szczecin. However, these protests met with greater response on the part of the media than on the part of the government or the banks.

The situation of the employees of the Szczecin Shipyard has become increasingly difficult. Since March 2002, around 6,000 employees have been on leave without receiving any pay. Only in June and July did 1,000 workers start to receive a very small part of their wages from the Guarantee Fund for Salaries and Benefits.

The anxieties of the Shipyard workers and unions are continuing to rise, as the future of the bankrupt company is rather uncertain. So far, a newly established limited liability company Szczecin Shipyard Nowa Sp zoo has employed only 1,000 workers to continue with some of the Shipyard's work. The rest of the Shipyard's former employees have to wait for other investments as, in the immediate future, only two ships will be completed.

As the Minister of Industry, Jacek Piechota, has observed, 'the Szczecin Shipyard was not a desert island in the ocean of the economy. The bankruptcy of the Szczecin Shipyard will trigger off the bankruptcy of a number of companies cooperating with the shipbuilding industry.' According to analysts, a similar fate will befall nearly 55,000 jobs across Poland. One of the first companies affected by the Shipyard's troubles was the Cegielski plant in Poznan. Its management decided to reduce its workforce by 300, to which trade unions responded with protests and demonstrations.