'Activation package' agreed to accompany iron and steel restructuring

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In September 2003, the sectoral social partners and government agreed an 'activation package' to accompany restructuring in the Polish iron and steel industry in the period up to 2006. The package provides for measures such as training and counselling for redundant workers who are willing to seek work in other sectors. This is the latest stage of restructuring in the iron and steel industry, where 47,000 jobs were lost over 1999 -2001 alone. However, the process has not led to high levels of industrial conflict, which many observers attribute to the industry's well-developed sectoral social dialogue.

The Polish iron and steel/metal-processing industry is currently undergoing a process of restructuring. Prior to the start of this process, it faced a number of problems, notably a deteriorating financial situation, redundant production capacity of inconsistent quality, and excessively high levels of employment.

Progress of restructuring to date

Since the beginning of the 1990s, consecutive governments, deeming the iron and steel industry to be of strategic importance to the national economy, have taken decisions on its restructuring; contained in an assortment of different programmes.

In July 1990, the Minister of Industry and Commerce, working in consultation with the World Bank, stated that an overall concept for restructuring of the iron and steel industry was called for. However, the state remained largely passive in its capacity as owner of the various metal-processing operations during the first stage of restructuring, failing even to monitor the restructuring process. Thus, until 1992, the sector’s restructuring proceeded in stops and starts on the basis of decisions taken by individual operations seeking to adapt to the new market realities. Each of them essentially faced the same alternative: restructuring or liquidation. The industry ceased to function as the cohesive entity it had been in the days of the command economy, with each individual plant now left to fend for itself amidst the crisis which set in from 1990.

The basic question of what must be done to survive was answered by a variety of restructuring programmes drawn up by individual entities within the sector and implemented by them with varying degrees of success. A common denominator in all these programmes was a recognition of social and employment change as the basic premise for the technological, technical and economic restructuring of operations. It was presumed that the introduction of new technologies and the discontinuation of service activities would bring an appreciable reduction in the number of jobs. The fact that these measures, when implemented, would apply to geographical areas particularly threatened by unemployment compounded the attendant problems; accordingly, the issue was widely recognised as a priority and as a deserving target for state as well as international aid.

Activity geared towards the restructuring of the iron and steel industry at the central level was triggered by a sector study prepared by a Canadian consortium. Its results suggested that, following appropriate restructuring measures, the Polish iron and steel stood a chance of successfully competing in the international markets. In 1992, the cabinet approved a sector restructuring programme. Although the main impetus had been provided by the Canadian study, this programme took up very few of the study's proposals. The adoption of this programme, however, was not followed up with any implementing decisions and there was no clear delegation of powers with respect to implementation. Thus, such restructuring as did take place continued to be pursued by each entity working on its own, with no support from the state administration, or out of the national budget.

In June 1998, the Ministry of the Economy (Ministerstwo Gospodarki, Pracy i Polityki Społecznej, MGPiPS) produced another restructuring programme for the sector, covering 1998-2005. This programme obtained favourable reviews from the Polish government and the European Commission, but its implementation failed to bring much in the way of positive effects.

The consistently worsening situation of Poland’s iron and steel industry and the worldwide economic downturn made adjustments to the programme necessary. In 2001, the Polish government adopted an updated version of the restructuring scheme for the iron and steel industry. Working on the basis of analyses set out in this new document, the parliament adopted in August 2001 a legislative Act regarding iron and steel restructuring. A key component of this restructuring programme was the establishment of a holding company grouping four individual steel plants - Polskie Huty Stali SA. The programme also provided for an acceleration of the privatisation process and for the channelling of funds accruing from the issue of Polskie Huty Stali bonds back into the restructuring of the enterprises grouped therein.

As a parallel measure, a steering committee for the steel industry was appointed, involving representatives of the Polish government and of the European Commission. This steering committee became a forum for day-to-day operational consultations during work on further modifications to the restructuring programme required in the context of Poland’s EU accession negotiations - ie the need to bring it into compliance with EU competition and public aid laws. The parties working within the steering committee agreed, among other issues, the maximum amounts of public aid for the sector and the minimum reductions in production capacity (measured in terms of final products) for 2002-6.

In November 2002, the government adopted a modified restructuring programme for iron and steel smelting. This document comprised the outcomes of negotiations with the European Commission, the restructuring strategy proper, and the relevant cabinet decision. The restructuring programme was passed on to the European Commission. It was subsequently adopted as the basis for adjusted programmes for the restructuring of metal smelting operations and for the Polskie Huty Stali SA business plan, as presented to the European Commission in December 2002.

Following assessment of the new programme’s concordance with the pertinent EU provisions (CONF-PL 90/02 - ECUP), the government gave its definite endorsement to the 'Programme for restructuring and development of iron and steel smelting in Poland until 2006' in January 2003. The plan focuses on eight smelting operations which receive public aid. For these eight operations, provisions are made for the extension of public aid, acceleration of the privatisation processes, definition of priority investments, scaling back of production capacity and estimated reductions of employment. The authors of this programme took the position that 'the progress of employment restructuring noted to date has not ensured achievement of optimum productivity standards'. Further redundancies were thus scheduled for the plants covered by the restructuring programme, set to extend to 8,300 employees during the 2003-6 period.

Restructuring of employment

Over 1992 to 2001, restructuring of employment in the iron and steel industry was carried out with reference to the government position formulated in 1992, the June 1998 restructuring programme and agreements drawn up in 1999 between the Ministry of the Economy and the 24 plants operating in the sector. From 1999 onwards, the restructuring of employment was subsidised out of a 'Social package for the metal industry' (Hutniczym Pakietem Socjalnym, HPS), with the use of state budget funds and international aid. Over 1993-2001, employment in the restructured plants was reduced from 123,000 to approximately 36,000 - some 84,000 jobs were thus cut.

The workforce reduction process can be divided into two stages. Over 1992-8, employment in the industry was reduced by some 45,000 jobs to 78,000 employees at the end of 1998. This was achieved principally through 'natural wastage' (employees becoming eligible for retirement or for disability benefits), redundancies on various grounds, transfers of employees to subsidiaries and reduced intake of new workers.

After implementation of the HPS scheme in 1999, the restructuring processes accelerated appreciably. A total of 47,000 workers left the iron and steel plants between 1999 and 2001. Of these, approximately 22,000 were transferred to other companies, 13,700 were made redundant while benefiting from the HPS programme, 2,300 left and began drawing retirement benefits and pensions, and 9,000 were made redundant by various other means.

As mentioned, another 8,000 workers stand to lose their jobs by 2006. Significant reductions of employment, involving 5,600 workers, have been planned for the 2002-4 period. Of these, approximately 3,600 will be taken on by companies newly established in the process of breaking up and divesting the holdings of the existing iron and steel plants. Approximately 4,100 workers will be made redundant by 2006.

Many experts, however, believe that more workforce reductions will be needed to address effectively the problem of over-employment. The shape of future employment policy, meanwhile, will depend largely on the sector’s development and on the economic position of the companies established during the restructuring process. If these companies continue making losses, liquidations and bankruptcies are likely to occur, with the effect that many employees who take up work with the new companies after leaving the old smelting operations will once again find themselves without employment.

Conflicts and social dialogue

The sharp reductions in employment carried out in the iron and steel industry have not produced any major protests. This is not to say that they proceeded under conditions of complete social peace.

In comparison with other 'problem sectors', such as mining (PL0309101F) or the defence industry (PL0309107F), the iron and steel industry has been a remarkably peaceful one. Two basic distinguishing points can be distinguished as far as the iron and steel industry is concerned. First research carried out by the Economic Sociology Faculty at the Warsaw School of Economics (Szkoła Główna Handlowa, SGH) in late 1999 indicated that, over the previous decade, a quarter of iron and steel smelting plants had experienced at least one strike, but that most of these occurred between 1990 and 1995. Thereafter, militancy among union activists fell off, linked with with implementation of the government programme for restructuring of the sector (see above) as well as with the conclusion of a multi-employer collective agreement in the sector in 1996 (see below).

The second point is the separation of the sectoral level from that of individual operations. Much as in other 'waning sectors', the expression of employees' demands in the iron and steel industry is concentrated at the sectoral level. At the level of individual employing operations, meanwhile, the local union branches tend to favour negotiation over confrontation (every iron and steel plant has a collective agreement). Their adoption of such a strategy is informed by two main factors:

• the economic position of the individual plants. Industrial action at the level of individual employers is a very costly exercise. Accordingly, it is difficult to organise a strike in an entity faced with looming bankruptcy, which is the case for most iron and steel plants; and

• a comparatively well-developed social dialogue at sectoral level. The iron and steel industry was one of the first in Poland in which social dialogue institutions emerged. Where difficulties arise, these institutions can step forward and provide a forum in which the various parties concerned can negotiate.

Tripartite sector team

One of the first tripartite sector teams - bodies created to deal with the problems of selected industries facing restructuring, privatisation and reorganisation (PL0308101F) - to be registered with the Ministry of the Economy, Labour, and Social Policy was the 'tripartite team for social conditions of metal industry restructuring'. 'We were the first team to go through the work associated with sector restructuring', according to trade union activists from the sector. The team has been in existence since 1995 and brings together representatives of the government, five trade union organisations and one employers' organisation. Its establishment coincided with the negotiation of a multi-employer collective agreement for the sector, which was signed in March 1996 by the trade unions and employers. When signed, this agreement covered 80,000 employees working at 37 individual employing entities.

The agreement has since undergone numerous amendments, but its core remains essentially unchanged. Along with the HPS scheme of 1999, it remains the basic instrument guaranteeing the social interests of the industry’s employees. Many commentators believe that it is the existence of comprehensive regulations such as these which have made it possible to assuage social unrest generated by restructuring of the iron and steel sector.

Activation package agreed

The Ministry of the Economy, Labour, and Social Policy has recently drawn up an 'Activation package for the metal smelting industry' (Hutniczy Pakiet Aktywizujący, HPA), which was subsequently endorsed by the tripartite team in September 2003.

Until now, the restructuring of employment within the industry has funded largely out of the public coffers. However, from 1 January 2004, state budget subsidies can no longer be granted as public aid to iron and steel smelting operations - in its Accession Treaty signed with the EU, Poland has undertaken to use only active forms of aid after 2003. It is hoped that this problem will be resolved by the HPA, whereby state grants may be earmarked for the financing of labour market activation benefits for employees made redundant for reasons on the part of their employer or as a result of restructuring programmes.

The HPA scheme provides for the following labour market activation measures:

• training contracts;

• vocational counselling and one-off training events;

• a one-off conditional severance payment for those who terminate their training contracts ahead of time;

• conditional severance payments for employees qualifying for retirement benefits or commencing business activity in their own name;

• specialised and general vocational training; and

• partial reimbursement of wages paid out by employers in other sectors which recruit former iron and steel workers.

The HPA packet is targeted at employees leaving the iron and steel industry for work in other branches of the economy. The instruments it contains are geared to increasing these workers' activity levels in the labour market as well as at activating that market. Implementation of the HPA scheme will proceed until 2006.

The social partners made an active commitment to preparation of the HPA. As one representative of the government put it, 'the parties to the agreement have been successful because their arrangements were reached without use of the 'strike gun', and not on the streets. This bodes well for future talks in a similar spirit.'

Commentary

The Polish iron and steel industry has, certainly by Polish standards, a long tradition of social dialogue. The social partners have succeeded in establishing strong institutions responsible for the shaping of employment relations within the sector. Cooperation skills developed by trade unions and employers alike have made it possible to effect painful cuts in employment while keeping social tension at a relatively low level. This notwithstanding, the industry has not reached the end of its road to restructuring, and further redundancies seem certain. The HPA activation package provides much hope in that it suggests that the social partners are truly determined in their quest for consensus. The example of the iron and steel industry also demonstrates that building an industrial relations system based on sectoral dialogue brings many more benefits than beefing up either the workplace level or the national level. (Rafał Towalski, Warsaw School of Economics and Institute of Public Affairs [Instytut Spraw Publicznych, ISP])