Failed privatisation deal ends in mass redundancy

Hundreds of employees at a major Bulgarian manufacturer are to be made redundant after a failed privatisation. A rescue package agreed at VMZ-Sopot will mean 900 workers losing their jobs. Two other options had been discussed. The first, described as the worst-case scenario, was a declaration of insolvency, while the second was a new privatisation strategy drafted by parliament. The company has been in trouble for some time, and recently had not been able to pay workers’ wages.

Background

Bulgarian manufacturer Vazovski Mashinostroitelni Zavodi (VMZ) was founded in 1936 and is located in the town of Sopot. It is the biggest enterprise on the military and industrial complex.

VMZ-Sopot has been in financial trouble for the past few years. In 2007, Bulgaria’s Privatisation Agency (PA) began to sell off some of the plant’s assets in order to cover part of its debts. More assets were also sold at the beginning of 2009.

The parties in the privatisation process also had an impact on the financial condition of the company when they bought separate production units without taking on any of the factory’s liabilities.

On 14 January 2013, PA abandoned its plans for the sale of VMZ Sopot when the sole potential buyer, local company Emko, failed to provide the required bank guarantee of €3 million after presenting its binding offer.

Strike actions

At the end of October 2012, social tensions at the company increased because workers had not been paid. Some had received no wages for four months. A series of strikes and rallies was organised to support workers’ demands that management should secure orders for the military factory and introduce better working conditions.

The leaders of the two biggest unions, Confederation of Labour Podkrepa (CL Podkrepa) and the Confederation of Independent Trade Unions in Bulgaria (CITUB), represented the workers. They negotiated with representatives of the Ministry of Economics, Energy and Tourism (MEET), the Ministry of Labour and Social Policy (MLSP) and PA to lift the freeze on the company’s finances. Lifting the freeze would allow part payment of the BGN 1.7 million (€869,000, as at 21 March 2013) in wages owed to 3,100 employees.

However, by 30 November 2012, workers had still to receive any of the money owed to them, and a series of strikes followed. On 13 December 2012 workers started an indefinite strike. The united strike committee of CITUB and CL Podkrepa insisted the strike would continue until the workers’ demands were met and they received their unpaid wages.

Workers and trade union demands

The workers’ representatives also made other demands:

  • an agreement that if the company was sold without a strategy, the Supervisory Board of the PA should guarantee that the sale would take place in line with proposed social clauses;
  • the faster privatisation of the company;
  • transparent company finances;
  • an initiative to secure more orders.

Measures proposed

On 21 January 2013, the strike was called off after an agreement was signed at a meeting attended by Prime Minister Boyko Borisov with the Chair of CITUB Plamen Dimitrov, and the President of CL Podkrepa, Konstantin Trenchev. The deal struck saw all delayed salaries for October, November and December 2012 paid to the workers.

Three options to deal with the situation had been on the table. Option one, described by Economy, Energy and Tourism Minister Delyan Dobrev as the worst-case scenario, was to declare VMZ-Sopot insolvent. The second option was for a new privatisation strategy to be drafted and launched by parliament. In the end, the third option – a tough recovery plan – was agreed. However, the recovery plan negotiated proposed that 900 employees would be made redundant.

Measures to provide employment to those workers made redundant at VMZ were discussed at an extraordinary tripartite regional council meeting in Plovdiv. The meeting was attended by MLSP Minister Totyu Mladenov.

The local authorities at Sopot and Karlovo have said they could provide work for 500 people under an Employment Support programme. Training and retraining will also be offered to 300 more redundant workers. Private businesses in the district, meanwhile, have made a commitment to conduct a quick survey of the region to see how the Employment Agency can make subsidised work available.

Commentary

The company is now back to normal operations after the industrial action, and according to CITUB’s Plamen Dimitrov, both unions involved are pleased with the outcome. Workers have received the wages they were owed. He said, however, that an investigation was needed to find out who is to blame for the accumulated debts.

Now the government, employers and trade unions have to seek an urgent solution to the company’s problems and plan for the future at VMZ. However, when a company has debts of more than BGN 150 million (€77 million), there is surely no easy and quick answer.

Snezhana Dimitrova, ISTUR

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Lisa kommentaar