New plan for Polish Steel this week

The government this week is expected to approve a revised program for restructuring the steel industry that will bow to strapped state finances and huge industry losses by offering less money than originally planned, according to industry officials. The original plan calls for pumping state money into restructuring the four financially troubled steel mills that are to be merged into national conglomerate Polish Steel (PHS). But industry representatives warned that the government's financial problems will hamper it from finding enough cash to properly modernize steel mills Huta Tadeusza Sendzimira (HTS), Huta Katowice (HK), Huta Florian and Huta Cedler, and guarantee the competitiveness of PHS in the long term. "We are concerned that the government will reduce the funds allocated for the restructuring plan passed in September 2001," said Karol Lipowczan, vice president of the Metallurgical Chamber of Industry and Commerce. "These funds are already at the lowest level that would have a chance of lifting the steel industry out of its predicament."

Last year's restructuring program signed by President Aleksander Kwaśniewski called for suspension of the four mills' state debts until 2005, interest free. It also ordered the allocation of money for bonds to be issued by the Industrial Development Agency (ARP) to reduce the mills' bank obligations. According to Lipowczan, these concessions are likely to be curtailed by the Treasury Ministry in the light of the industry's mounting debt. "The four main steel mills that were to be consolidated through the Steel Industry Restructuring Act generated … losses of more than zł. 4.2 billion ($1 billion) in the past six months," said Economy Minister Jacek Piechota in a speech to the Sejm last week. "These are not just liabilities to the state treasury, which could theoretically be written off, but mutual liabilities between different sectors that are in debt to each other."

Creating a steel giant Plans for the creation of PHS required the four mills to submit restructuring plans to the Economy Ministry by April 2002. The management of HK, which ended 2001 with losses of zł. 644 million ($153 million), presented its strategy to the ministry in January. Last month Andrzej Capiga, vice president in charge of strategy at HK, announced that restructuring the mill's workforce would require 300 job cuts over two years. Labor unions at HK have criticized the restructuring plans, condemning the cuts as excessive given the 18% national unemployment rate and casting doubt on the government's political will to turn the mill around. The Solidarity trade union said the program does not go far enough to adjust the mill's production to market conditions. "To achieve sustainable profits the mill needs the technology to produce flat products, which comprise the majority of Polish steel imports," said Lech Majszak, vice president of Solidarity at HK. "The restructuring plan says virtually nothing about this issue." Last month HK's bankers, a consortium of Bank Handlowy, Bank Przemysłowo Handlowy, Powszechny Bank Kredytowy, Kredyt Bank and Bank Pekao froze the mill's accounts for the third time in 10 months. The ARP's negotiations with the consortium have yet to produce any measurable results while the mill's raw material reserves continue to dwindle.

Edward Nowak, vice president of HTS, said last month that the mill would end 2002 with losses of zł. 430 million ($102 million) and that further restructuring - including the loss of 2,600 of the firm's 8,800 workers and a 2.5% increase in sales - would reduce losses to zł. 160 million ($38 million). While HTS posted losses of zł. 405 million ($96.4 million) for last year, its restructuring program assumes that revenue will stabilize by 2003. Also, its long-term growth depends on the government's infrastructure investment plans and increasing exports to 25% of sales by 2005, according to a summary of the management's restructuring program distributed to labor unions last month. To increase exports, a PHS sales network and service center will be developed, focusing on the motor and white goods industries. HTS spokesman Mieczysław Gil declined to provide more details as the restructuring program will not be approved by the mill's board of directors and presented to the government until this later week.