New rescue hope for Primorje construction company

A decisive step was taken to rescue crisis-hit Slovenian construction company Primorje on 11 January 2012. The company's new CEO Marjana Novak presented trade unions with a new plan for the company and concluded a new collective agreement. The company had been on the verge of bankruptcy on 25 August 2011, but was thrown a lifeline when banks approved a six-month moratorium on Primorje’s debts. It is expected that 178 jobs will be lost when the company is restructured.

History

Primorje was founded in 1946 in order to rebuild and improve transport infrastructure and houses destroyed during the war. In the 1970s Primorje was also involved in intensive building activity in Iraq, Algeria, Libya, Jordan, Bosnia and Herzegovina, Austria, Germany and Croatia. By the end of 1980s Primorje, like many other companies, was in crisis, but recovered when a new phase of the construction of Slovenian motorways began in the second half of the 1990s.

Process of restructuring during the economic crisis

Primorje in crisis

The Slovenian construction industry was badly hit by the global economic crisis (SI1108019I). By 25 August 2011 the company was on the verge of bankruptcy (see ERM factsheet).

Accountancy firm PricewaterhouseCoopers was called in by the banks to examine the company to see if was worth saving. Primorje’s main problem was liquidity, leaving it with no means to buy raw materials and difficulty paying subcontractors.

The company was controlled by Primorje Holding, which was owned and run by Primorje’s CEO Dušan Črnigoj and its management team. When Primorje Holding stopped paying its creditors, the banks decided not to save it and only seized its mortgaged shares. They also decided to defer the obligation of Primorje to repay its loans and interest for some months.

The banks’ view was that in a domestic construction market that was rapidly shrinking, Primorje was too big to succeed in the Slovenian market. The motorway system was complete and, in the wake of the economic crisis, state investment in infrastructure had almost come to a halt. In addition there was the excess supply of apartments and office buildings in the country.

The banks suggested that Primorje could be divided into four smaller companies which would then be sold.

On 15 September 2011, Primorje reached an agreement with its creditors, the banks Nova Ljubljanska Banka, Nova Kreditna Banka Maribor, Abanka and Banka Koper. The banks approved a moratorium on the company’s debt repayment for six months.

Management drew up a plan which was expected to make 150 of the company’s 992 workers redundant. Overall, at least 400 workers, out of the 2,251 workers, were expected to be made redundant.

Construction baron steps down

On 4 October 2011, Primorje’s CEO, Dušan Črnigoj, resigned, saying he wanted to clear the way for new personnel as proposed by the banks. Mr Črnigoj had taken over as CEO in May 2010, adopting a single-tier management system.

New CEO arrives

On 12 October 2011, Marjana Novak became the new CEO of Primorje. She met with Primorje trade unions and presented her vision of the company's future to them. However, until the restructuring programmme for Primorje was finalised, she said she could not confirm the exact number of redundancies.

Redundancies determined

The following month, on 3 November 2011, management announced redundancies for 135 workers with permanent contracts and for 35 workers with fixed-term contracts. Eight workers would be given retirement. Ilija Vukoje, President of the company trade union within Confederation 90 (one of the several trade unions representing the company's workers) said if wages went unpaid again the strike would recommence (there was a strike in Primorje previously because the wages were not paid). During this meeting in November, an agreement on the criteria for the selection of workers for redundancy was concluded. The redundancies would be spread throughout Primorje. Nikola Janev, President of the company trade union of the Association of Free Trade Unions of Slovenia (ZSSS) said that the most important criteria for assessing those who would go were length of service, professional qualification and individual work performance. The redundant workers would have the right to a pay-off, although it was not clear where Primorje would get the money to pay them. Those who were to be made redundant would get their notices at the end of November.

A new company collective agreement concluded

After six months of negotiations between management and trade unions in 10 Primorje subsidiaries, a new company collective agreement was concluded on 11 January 2012 which, said Marjana Novak, gave employees better working conditions than the sectoral collective agreement for construction sector. However, Ms Novak warned that the collective agreement was 'a living document' which must adapt to the economic circumstances and therefore could change.

Damjan Volf, leader of trade union negotiating team, agreed with her that this agreement was an important step towards successful reorganisation of Primorje. He said that the negotiations had been very difficult because management had a lot of problems to deal with. Although similar to the collective agreement that was in force from June 2006 to the 4 January 2011, the new agreement's amendments define all relationships between management and workers more precisely than before.

New problems for Primorje

Slovenia’s Daily Finance newspaper said that the banks had seized all the shares owned by Primorje and Primorje Holding in order not to be overtaken by the company’s desperate unpaid subcontractors (SI1107019I).

According to national broadcaster RTV Slovenia, bankruptcy proceedings were started by the management of Primorje subsidiary Gradbinec GIP in the city of Kranj because of liquidity problems. The Annual Report of the Bank of Slovenia 2010 predicts the continuation of the crisis in the construction sector and, consequently, a worsening situation in the labour market.

Štefan Skledar, Institute of Macroeconomic Analysis and Development