Controversy over downsizing at steel plant

Hungary’s largest steelmaker, ISD Dunaferr, intends to lay off 1,500 workers in a downsizing programme imposed by its parent company. Although it has been making annual losses since 2008, trade unions oppose the plan, arguing that the job cuts could mean the end of steelmaking in Hungary. The government announced in 2013 that it would seek a buyout, with the aim of establishing a stable company with the possibility of long-term employment. However, no agreement has yet been reached.

Background

Steelmaking has historically been an important sector for the Hungarian economy. Hungary once described itself as the country of steel and iron. Almost 40,000 workers were employed in the sector in locations and factories, and cities to house workers were built close to the factories. In the 1960s and 1970s Hungary’s raw material and energy prices were lower than those in the world market although technical standards were low. Much production has now been exported to the Comecon states.

After the transition to a market economy and democracy in 1990, most steelworking factories were closed and workers were laid off. At the beginning of this century, only Dunaferr remained a significant player in the industry, employing 7,500 people. Many of those who lost their jobs in the sector, especially the poorly qualified, have been unable to find employment elsewhere.

Privatisation and downsizing

At the end of 2002, the government decided to privatise Dunaferr. After lengthy negotiations, the mill was finally taken over by the Ukrainian-based ISD Corporation and the company is now known as ISD Dunaferr Ltd. The new owner has invested in and developed the company, and did not begin downsizing until 2009 when the global financial and economic crisis hit the company harder than expected. Since 2008 the company has made annual losses and its former CEO Valeriy Naumenko has said that Dunaferr experienced its most difficult period ever during the crisis.

Industrial action

2013 began with industrial action at the company by workers calling for wage increases and better working conditions. Zoltán Mucsi, President of the Dunaferr Association of Metalworkers’ Unions (Dunaferr Vasas Szakszervezeti Szövetség) said the unions wanted a 5.2% wage increase. The company increased its initial offer of 2.1% to 3.2 %, and after a week of strikes and negotiations between the social partners, it was agreed that wages would rise by 3.2 % in January 2013 and by a further 1% in July 2013.

In a statement in August 2013, the company announced the loss of 1,500 jobs (20% of the workforce) in a downsizing programme imposed by its parent company. It said this had been made necessary by the delayed impact of the economic crisis and because of the company’s low operating efficiency compared with competitors.

In a letter to employees, ISD Chief Executive Oleg Mkrtchan said the savings from redundancies would be around HUF 5 billion (€17 million as of 7 May 2014) during the first half of 2014. The layoffs were to involve both contracted workers and regularly employed workers at the firm’s subsidiaries, according to the official company statement.

‘Over the past two years, only funding from the parent company has saved the Hungarian subsidiary from collapsing,’ the statement stated, adding that the company’s debt had been steadily increasing.

For the company union, Zoltán Mucsi responded that there had been no preparatory talks about the lay-offs between the social partners and it therefore wasn’t known exactly why or how the 1,500 workers would be laid off. The only information the unions had, he said, was the management’s assertions that the company ‘extremely high personnel costs’. Although production reached record levels last year, the weakening of the euro against the US dollar, combined with high commodity prices, led to a major pre-tax loss. At the end of June 2013, ISD Dunaferr had 7,522 employees, of whom 685 were temporary workers.

Reactions of the government and trade unions

After ISD Dunaferr’s management announced the mass dismissal, the Hungarian government promised support for workers affected by the layoff. The Minister of National Economy, Mihály Varga, said the situation was serious and the government should help the 1,500 families affected.

The opposition party, the Hungarian Socialist Party (MSZP), said it regarded the government’s behaviour as underhand because contradictory facts had been stated earlier. Nándor Gúr, Vice President of MSZP, said it had been clear for some years that there would be an employment crisis at ISD Dunaferr, but the government had done nothing to avert it.

The Together Party for a New Era 2014, a left-wing party coalition, said the government had failed to act on a problem which had been signalled more than a month earlier. Benedek Jávor, Co-Chair of the coalition, added that he had told parliament in July 2013 that ISD Dunaferr was planning layoffs, and he had asked the government to turn to the European globalisation fund for help. Jávor said that the response of the State Secretary, Sándor Czomba, had been that job cuts would be averted by successful government negotiations with the company.

Szilvia Bertha, a parliamentary member representing the radical nationalist Jobbik party, said in a statement that both the government and the MSZP were responsible for the financial difficulties that had triggered the layoff. The government had failed to act and had ignored Jobbik’s proposal that it should review the company’s privatisation contract.

Istvan Gaskó, President of the Democratic League of Independent Trade Unions (LIGA) said that there were no jobs at the company that could be cut without making its Hungary operation unfeasible. He called for cooperation between the government, management and unions to manage the situation.

The Dunaferr Association of Metalworkers’ Unions President Zoltán Mucsi said the management’s decision on layoffs would not be accepted. He stressed that the company management had told unions in June 2013 that it had decided to lay off significant proportion of the workforce, and that 30–40% of the job losses would be among white-collar employees.

Second buyout

In mid-January 2014, Hungary’s Prime Minister Viktor Orbán visited Moscow to secure a deal on the Paks Nuclear Power Plant, Hungary’s sole nuclear power plant. As a result of those talks, the parties agreed that Russia would double capacity at Paks. The issue of ISD Dunaferr was also mentioned because the company is majority-owned by Russia’s state-owned Vnesheconombank.

Gábor Cserna, Mayor of Dunaújváros, the city where Dunaferr has its main production sites, said that the Hungarian Prime Minister had offered Russian President Vladimir Putin a buyout option for the steelworks.

Putin has shown general interest in the issue. Hungary’s National Economy Ministry Deputy State Secretary Péter Benő Banai said, in a news article titled ‘Dunaferr among topics discussed during PM’s Moscow visit’, that talks between the government and the Russian state-owned Vnesheconombank, ISD Dunaferr’s owner, had taken place in February. However, no deal had been reached, but the government and the company’s owners had agreed only a framework for cooperation on development.

Commentary

As a result of negotiations between the company’s management and the government, the 1,500 lay-offs originally announced have been reduced to 400. So far, 100 workers have been dismissed.

Hungary’s State Secretary of Employment, Sándor Czomba, has said that the presence of this industry has strategic importance and the country should have at least one factory producing quality iron and steel products. The government’s aim is to establish a stable company that offers long-term employment possibilities. Clearly this is an aim that the social partners share.

Máté Komiljovics, Solution4.org

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