Uncertain future of shipyards sparks controversy

With hopes fading of a foreign investor taking over the maritime shipyards in the northern cities of Gdynia and Szczecin, the prospects for the two companies – and for the numerous enterprises cooperating with them – appear to be bleak. The issue of rescuing what remains of the two shipyards is currently the subject of a bitter political battle between the government and the opposition parties, who are blaming each other for the collapse of the shipyards.

Background

In 2005, the European Commission grew impatient with the persistent public financial support channelled to Polish shipyards and initiated an investigation regarding the legality of this state aid. Subsequently, the Commission repeatedly requested the Polish government to draw up a restructuring programme, without noticeable effect. The Commission made clear – from early to mid 2008 – that Poland should not hope for any extension of the imminent deadline for submission of the restructuring programme. Thus, the government twice presented such a programme, with the principal element of each version being based on privatisation of both shipyard companies in the northern city of Gdynia and the northwestern city of Szczecin. Neither of the programmes submitted, however, was positively reviewed by the European Commission. Ultimately, in November 2008, the Commission ruled that the state aid transferred to the Gdynia and Szczecin shipyards was illegal and requested that the beneficiaries repay it (PL0807029I).

Compensation Act

Following the European Commission’s ruling, the shipyards were facing bankruptcy due to the obligation to return the state aid that had been deemed illegal. The government declared its willingness to honour the Commission’s decision; however, it emphasised that it would strive to rescue as much as possible of what would remain of the two companies. In December 2008, a special piece of legislation was adopted regarding the extraordinary situation of the shipyards – the Act on the compensation process in entities of particular importance for the shipbuilding industry.

The act stipulated that so-called compensation processes should be launched in order to prevent the two shipyards from having to file for bankruptcy and to secure repayment or compensation of all financial obligations pending, including the illegal state aid to be returned. The funds would be obtained by auctioning the shipyards’ assets and would provide a safety net for the workers of the two companies in the form of a Voluntary Redundancies Programme and a Monitored Redundancies Programme. The former scheme was addressed to workers who would agree to voluntarily leave their jobs in return for financial compensation, ranging in net terms from PLN 20,000 (€4,896 as at 7 December 2009) to PLN 60,000 (€14,685), depending on the time spent with their respective employers. The latter scheme targeted workers interested in active jobseeking and included instruments such as vocational counselling and training, job search assistance, business consulting and financial aid for business start-ups. Those who decided to take advantage of the Voluntary Redundancies Programme were also eligible for benefits under the Monitored Redundancies Programme.

The European Commission viewed the act positively and subsequently granted Poland the right to proceed with the compensation process and to seek private investors interested in the acquisition of the shipyards’ assets with a further aim of retaining at least some of the jobs in whatever activities would be launched by the prospective buyer using those production assets. The government admitted that it was hoping that institutional investors willing to maintain the shipbuilding activities would become involved.

The compensation process was to be administered by the public Industrial Development Agency (Agencja Rozwoju Przemysłu, ARP) and it duly commenced in January 2009.

Shipyards’ assets on auction

In May 2009, a series of auctions of the two shipyards’ assets took place. As a result, the vast part of the assets offered for sale were acquired for about PLN 380 million (€93 million) by the Stichting Particulier Fonds Greenrights investment fund, representing the Dutch-owned company United International Trust N.V. Rumours soon began to circulate that the client behind the bidder was the sovereign wealth fund of Qatar. However, the buyer failed to meet the deadline of 21 July for payment of the amount due. In these circumstances, ARP decided to prolong the deadline until 17 August. Nevertheless, as the extended deadline approached, no payment arrived, and it became clear that the buyer had abandoned its initial decision and withdrawn from the deal. The Ministry of Treasury (Ministerstwo Skarbu Państwa, MSP) then asked the European Commission for approval of another auction for the shipyards’ assets. In September, the Commission replied favourably, extending the deadline for completion of the asset sales until the end of 2009. The auctions were scheduled for 26 and 27 November for the Gdynia and the Szczecin shipyards respectively.

Good response to redundancy programmes

As their implementation commenced, both the Voluntary and the Monitored Redundancies Programmes were met with a generally positive reception on the part of workers entitled to the benefits offered. Nearly all of the staff from both companies entitled to the voluntary programme decided to participate, which – in real numbers – translates to more than 9,000 people. Regarding the monitored programme, ARP reported that almost 8,000 persons enrolled over the period of January to July 2009.

Political conflict

With hopes diminishing of a large foreign investor emerging to buy the remains of the shipyards, it became evident that the compensation procedure would turn in the direction of selling assets in small portions to a relatively large and dispersed number of buyers. Meanwhile, the issue of the shipyards once again became the subject of a political clash between the ruling government coalition and the parliamentary opposition parties – with previous periods in power – who began accusing each other of indolence, lack of determination to solve the problem and deliberately misinforming the public regarding the real condition of the companies for many years.

The main opposition party – Law and Justice (Prawo i Sprawiedliwość, PiS) – claimed that no real interest by any large institutional investor ever existed and that the government wilfully engineered a hoax solely for publicity purposes before the European Parliament election campaign. The senior partner in the cabinet – the Civic Platform (Platforma Obywatelska, PO) – denied these allegations, countering that PiS, while holding power over the period of 2005–2007, ignored continuous requests by the European Commission for the preparation of a feasible restructuring programme. Furthermore, politicians from the ruling camp pointed out that the other opposition party – the Democratic Left Alliance (Sojusz Lewicy Demokratycznej, SLD) – also bore some responsibility for the collapse of the shipyards, as it was in power over the period of 2004–2005. According to the report of the public auditor, the Superior Chamber of Control (Najwyższa Izba Kontroli, NIK), published in June 2009, all major political forces sitting in parliament share responsibility for the process that eventually led to the current state of the shipyards.

Gloomy prospects for cooperating entities

Soon after the negative ruling of the European Commission regarding the legality of the state aid, a number of concerns were voiced in relation to the future of enterprises cooperating with the shipyards. With shipbuilding operations unlikely to resume at the two sites, the question of what will happen to the remaining links in their respective supply chains became more pressing. Considering the economic recession of late 2008 and 2009, the prospects for these companies appear to be bleak.

In October 2009, Polish public opinion witnessed the first major outburst of discontent among the employees of the endangered enterprises as trade unions of the manufacturing company H. Cegielski – Poznań S.A. (HCP) organised a street protest in the westcentral city of Poznań. HCP is one of the oldest and best-known industrial operations in Poland, with origins tracing back to the 1850s. Manufacturing engines for seagoing ships has been one of its core activities. With the main domestic recipients of its output defunct and the shipbuilding industry in Europe generally declining, the chances of finding an alternative market for HCP’s ship engines appear to be slim. Accordingly, the company found itself on the brink of bankruptcy and, in an attempt to survive, decided to lay off almost 500 employees by the end of 2009 (see European Restructuring Monitor (ERM) factsheet).

It should be noted that workers of the cooperating entities – unlike the staff of the shipyards – lack the protection provided by the act on compensation processes and are not entitled to any special public-funded benefits in the event of job loss. The protesters’ demands were addressed to the government and called for redundancy benefits comparable to those received by the shipyard workers, timely payment of wages to the personnel remaining on the payroll and the preparation of a restructuring programme for HCP.

The protest drew support from various trade unions across the country, as well as being endorsed by the national-level representative trade union confederations. The demonstration attracted more than 3,000 participants.

Commentary

Despite the European Commission’s extension of the deadline for completing the compensation process, the expectations of finding any large institutional investor willing to continue shipbuilding production at the two sites are, realistically speaking, moderate at best. The large protest in Poznań may soon prove to be the first symptom of a wave of unrest as the companies formerly tied to the shipyards begin to fail. While public opinion has grown to accept that the prospects of the maritime shipbuilding industry in Poland are bleak, there is still a widespread popular feeling that the Commission’s approach to the case has been overly strict. The mass media have added to the wave of discontent by highlighting comparisons to certain instances of public aid granted by national governments of some of the 15 older European Union Member States (EU15). It may be a coincidence but 2009 is shaping up to be a year in which Eurosceptic sentiment among the Polish public is becoming increasingly strong.

Jan Czarzasty, Institute of Public Affairs (ISP)

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