SHIPYARD STRUGGLE
The Gdansk Shipyard, the birthplace of the Solidarity revolution that led to the overthrow of communism, filed for bankruptcy last week at the government's urging.
While creditors, government and shipyard officials await a court decision, expected later this summer, the move provides the first bath of fire for the Democratic Left Alliance (SLD) government in dealing with a major Solidarity workforce.
And flames ignited Friday as thousands of Solidarity workers marched in Warsaw to protest potential lay-offs resulting from the government-led bankruptcy plan.
Maintaining the shipyard's present status would require zl. 333 million ($123) to cover debts and give the company enough funds to operate, along with an additional zl. 75 million ($28 million) for equipment upgrades, Privatization Minister Wieslaw Kaczmarek said on Thursday.
Kaczmarek wants to create a new company keeping at least 2,500 workers to finish work now underway. But restructuring the company and its debt needs support from creditors, who also expect guarantees before wading again into Gdansk's famous but murky waters.
Poland's two other large shipyards, in Gdynia and Szczecin, faced down bankruptcy threats after shipyard subsidies ended, found new customers and ways to finance operations. But Gdansk never met this challenge. It's not clear, today, if there's still time to do so.
The pending bankruptcy of the Gdansk Shipyard (Stocznia Gdanska) is rooted in a mix of politics and economics.
There were dramatic rescue attempts that helped the giant yard retool its business from its pre-1990 customers in the Russian military, to Western commercial customers. But fundamental reforms were never made, partly because Gdansk - the birthplace of Solidarity - was too hot to handle, politically.
Former President Lech Walesa gave the shipyard political protection but, in the end, that made it increasingly vulnerable to economic forces. Other large Polish shipyards in Szczecin and Gdynia mastered those forces, especially in finding banks that could syndicate guarantees required for ship buyers to provide financing of construction operations.
Too hot to pay off Not only did that not happen in Gdansk, but contract prices didn't cover operating costs and losses rose more than fivefold in the last three years to reach zl. 231 million ($88 million) on April 30.
The mounting losses prevented the shipyard from covering debts, even though the company's debt to equity ratio has fallen from 8.1 times at the end of 1994 to 2.3 at April 30, 1996.
Solidarity governments in the early transition years pushed changes in Szczecin, not Gdansk, when the Soviet market collapsed and both shipyards faced no buyers for ready-made ships, let alone orders.
While Szczecin and Gdynia went through years of debt-writedown and debt-equity negotiations with their creditors, leading to their ultimate privatizations, Gdansk remained on the state payroll.
The government held a 60% stake, the workers the rest. State-owned banks gave credits or loans and the government continued, through last year, to guarantee much of those, even after overt shipyard subsidies had ended in 1990. For example, the state guaranteed 60% of principal and interest payments on a long-term zl. 210 million ($93 million) loan from Bank Handlowy in October 1994. By the end of that year, debts at Gdansk Shipyard reached zl. 587 million ($259 million).
Even as the debts soared, no suppliers or banks moved against Gdansk "for fear of the consequences," says Edward Szajkiewicz, a former shipyard electrician who is secretary of the Gdansk regional Solidarity operation.
In early 1995, the shipyard's management sought debt restructuring that resulted in a 40% reduction in debts with the payment of the remainder over 20 years. But lack of any significant company restructuring, missed construction deadlines, the failure to work out syndicated financing and hedge foreign currency risk appear to have sealed the shipyard's fate.
New deal As the shipyard has reached a crisis stage in recent weeks, the SLD government itself faces a long-awaited test: to see how it handles the Solidarity workers who played a big role in toppling communism.
Privatization Minister Wieslaw Kaczmarek gave the Gdansk Solidarity protesters some ammunition when he blamed unions for the shipyard's troubles. He then said the Gdansk yard wasn't worth a penny - and confused even his allies by hinting that the Gdynia shipyard might be the next to face bankruptcy.
He backpedaled on that a day later, but not before the Gdansk Solidarity chiefs seized upon his gaffe to say that Kaczmarek had confirmed, in effect, that Gdansk's trauma was not really of its own making and that the government's exchange-rate policies were forcing all shipyards to the wall.
"We're trying to convince investors to invest here and the minister, who is the owner, is saying the shipyard is worth nothing," said Stanislaw Jerzy Borowczak, head of the Gdansk shipyard's Solidarity union, which is cooperating with the ex-communist union in Gdansk on the current crisis.
In early June, they found an ally in longtime Kaczmarek-hater Waldemar Pawlak, head of the Peasants Party (PSL), the only national political leader to say flatly that Gdansk should be bailed out.
The Gdansk unions and government are negotiating a plan for a new "small shipyard." At issue is keeping either 2,500 staff to finish the three ships now under construction or 5,000 workers under a 10-year proposal. The shipyard currently has 7,000 workers, nearly half of whom are over the age of 45.
Jerzy Bielecki, a former chief welding engineer and Solidarity member who was named the shipyard's director general three months ago, would be in charge of the new "small shipyard," if all pieces fall into place with the government and banks.
The work would be restricted to 84 of the yard's 150 hectares, to two of the four slips and there would be two shifts, up from the one-and-a-half shifts of the past. The three banks with much money already invested in the Gdansk ships now under construction - Handlowy, Pekao and the now-private Bank Gdanski - were being approached for more loans, with possible backing by the government, to cover four months of salaries and other costs. Shipowners were also being approached to sign over the contracts to the new company and to help with advance-payments.
Fears, opportunities But not all those pieces were in place late last week. Bielecki still feared that the new shipyard could "remain just on paper;" that Kaczmarek might decide to put the shipyard into receivership with no decision on continuing work and with courts selling the half-built ships for whatever price they could bring. "We are afraid that the owners and the banks will say 'we don't have any interest in continuing work on our ships' or that they could demand a discount, not $40 million, but $30 million."
The Gdansk supervisory board had backed a plan which would create a new shipyard with up to 5,000 workers, to build another 10 ships now under contract.
"But our operating plan showed profits only in 1999 ... Kaczmarek said that was too long a time with those debts," Bielecki said.
Bielecki said the shipyard board's plan envisioned the state transferring assets - buildings and equipment - over to the new company, with an eye to at least 10 years of building ships on the Gdansk site. Kaczmarek wants the assets rented to the new shipyard entity, probably for one year, with no decision made on the future - but with a bankruptcy judge free to sell off the state property once the rental agreement is up.
Ironically, the Gdansk crisis comes at a time of a shipbuilding boom in the world, and at a time when Poland's two other large shipyards are doing well in the world competition. There are not that many world-class shipbuilders. Poland comes on- stream in the world economy at a time of dramatic shipbuilding need.
"The world's fleet is really aging," says shipyard specialist, Jacek Szugajew of Citibank, which did the first bank-guarantee syndication for Gdynia three years ago.
"The Koreans and Japanese estimate that even with the output of 200 to 300 vessels a year, there will be a need for roughly 800 to 1,000 vessels needing to be replaced, worldwide." So there is a surplus, not a shortage, of shipbuilding for Polish ports and Szczecin and Gdynia "believe there is room for a third shipyard in Poland and I think so, too. ... That might change if the Ukrainians and Russians went full speed ahead, but I don't believe that will happen anytime soon."
Profitability is related to productivity, and here Polish shipbuilders lag behind. On an international scale that measures productivity adjusted for different models and tonnage, the Koreans and Japanese have a productivity rating of 50 per capita, per ton, Western Europe 44 and Poland 17.5. The differences are stark within Poland: Szczecin is at 25, Gdynia 20 and Gdansk at 15.
While the government, management and workers at Gdansk hammer out their proposals, at least three potential foreign investors are waiting on the outcome. Former World Bank representative Ian Hume heads one of the consortiums of investors proposing to buy the Gdansk shipyard. Their bid is for "the whole shipyard," including debts.
Hume would not reveal any further details on the bid other than to say he "was invited by the ministry to submit a proposal for negotiation and we did that two months ago. I understand there have been delays due to legal questions about the concept of bankruptcy" which has precluded the ministry moving any further with discussions with potential investors.
"It's a very delicate legal issue, not to say a political one," he added.
- Malgorzata Halaba
contributed to this article.
While creditors, government and shipyard officials await a court decision, expected later this summer, the move provides the first bath of fire for the Democratic Left Alliance (SLD) government in dealing with a major Solidarity workforce.
And flames ignited Friday as thousands of Solidarity workers marched in Warsaw to protest potential lay-offs resulting from the government-led bankruptcy plan.
Maintaining the shipyard's present status would require zl. 333 million ($123) to cover debts and give the company enough funds to operate, along with an additional zl. 75 million ($28 million) for equipment upgrades, Privatization Minister Wieslaw Kaczmarek said on Thursday.
Kaczmarek wants to create a new company keeping at least 2,500 workers to finish work now underway. But restructuring the company and its debt needs support from creditors, who also expect guarantees before wading again into Gdansk's famous but murky waters.
Poland's two other large shipyards, in Gdynia and Szczecin, faced down bankruptcy threats after shipyard subsidies ended, found new customers and ways to finance operations. But Gdansk never met this challenge. It's not clear, today, if there's still time to do so.
The pending bankruptcy of the Gdansk Shipyard (Stocznia Gdanska) is rooted in a mix of politics and economics.
There were dramatic rescue attempts that helped the giant yard retool its business from its pre-1990 customers in the Russian military, to Western commercial customers. But fundamental reforms were never made, partly because Gdansk - the birthplace of Solidarity - was too hot to handle, politically.
Former President Lech Walesa gave the shipyard political protection but, in the end, that made it increasingly vulnerable to economic forces. Other large Polish shipyards in Szczecin and Gdynia mastered those forces, especially in finding banks that could syndicate guarantees required for ship buyers to provide financing of construction operations.
Too hot to pay off Not only did that not happen in Gdansk, but contract prices didn't cover operating costs and losses rose more than fivefold in the last three years to reach zl. 231 million ($88 million) on April 30.
The mounting losses prevented the shipyard from covering debts, even though the company's debt to equity ratio has fallen from 8.1 times at the end of 1994 to 2.3 at April 30, 1996.
Solidarity governments in the early transition years pushed changes in Szczecin, not Gdansk, when the Soviet market collapsed and both shipyards faced no buyers for ready-made ships, let alone orders.
While Szczecin and Gdynia went through years of debt-writedown and debt-equity negotiations with their creditors, leading to their ultimate privatizations, Gdansk remained on the state payroll.
The government held a 60% stake, the workers the rest. State-owned banks gave credits or loans and the government continued, through last year, to guarantee much of those, even after overt shipyard subsidies had ended in 1990. For example, the state guaranteed 60% of principal and interest payments on a long-term zl. 210 million ($93 million) loan from Bank Handlowy in October 1994. By the end of that year, debts at Gdansk Shipyard reached zl. 587 million ($259 million).
Even as the debts soared, no suppliers or banks moved against Gdansk "for fear of the consequences," says Edward Szajkiewicz, a former shipyard electrician who is secretary of the Gdansk regional Solidarity operation.
In early 1995, the shipyard's management sought debt restructuring that resulted in a 40% reduction in debts with the payment of the remainder over 20 years. But lack of any significant company restructuring, missed construction deadlines, the failure to work out syndicated financing and hedge foreign currency risk appear to have sealed the shipyard's fate.
New deal As the shipyard has reached a crisis stage in recent weeks, the SLD government itself faces a long-awaited test: to see how it handles the Solidarity workers who played a big role in toppling communism.
Privatization Minister Wieslaw Kaczmarek gave the Gdansk Solidarity protesters some ammunition when he blamed unions for the shipyard's troubles. He then said the Gdansk yard wasn't worth a penny - and confused even his allies by hinting that the Gdynia shipyard might be the next to face bankruptcy.
He backpedaled on that a day later, but not before the Gdansk Solidarity chiefs seized upon his gaffe to say that Kaczmarek had confirmed, in effect, that Gdansk's trauma was not really of its own making and that the government's exchange-rate policies were forcing all shipyards to the wall.
"We're trying to convince investors to invest here and the minister, who is the owner, is saying the shipyard is worth nothing," said Stanislaw Jerzy Borowczak, head of the Gdansk shipyard's Solidarity union, which is cooperating with the ex-communist union in Gdansk on the current crisis.
In early June, they found an ally in longtime Kaczmarek-hater Waldemar Pawlak, head of the Peasants Party (PSL), the only national political leader to say flatly that Gdansk should be bailed out.
The Gdansk unions and government are negotiating a plan for a new "small shipyard." At issue is keeping either 2,500 staff to finish the three ships now under construction or 5,000 workers under a 10-year proposal. The shipyard currently has 7,000 workers, nearly half of whom are over the age of 45.
Jerzy Bielecki, a former chief welding engineer and Solidarity member who was named the shipyard's director general three months ago, would be in charge of the new "small shipyard," if all pieces fall into place with the government and banks.
The work would be restricted to 84 of the yard's 150 hectares, to two of the four slips and there would be two shifts, up from the one-and-a-half shifts of the past. The three banks with much money already invested in the Gdansk ships now under construction - Handlowy, Pekao and the now-private Bank Gdanski - were being approached for more loans, with possible backing by the government, to cover four months of salaries and other costs. Shipowners were also being approached to sign over the contracts to the new company and to help with advance-payments.
Fears, opportunities But not all those pieces were in place late last week. Bielecki still feared that the new shipyard could "remain just on paper;" that Kaczmarek might decide to put the shipyard into receivership with no decision on continuing work and with courts selling the half-built ships for whatever price they could bring. "We are afraid that the owners and the banks will say 'we don't have any interest in continuing work on our ships' or that they could demand a discount, not $40 million, but $30 million."
The Gdansk supervisory board had backed a plan which would create a new shipyard with up to 5,000 workers, to build another 10 ships now under contract.
"But our operating plan showed profits only in 1999 ... Kaczmarek said that was too long a time with those debts," Bielecki said.
Bielecki said the shipyard board's plan envisioned the state transferring assets - buildings and equipment - over to the new company, with an eye to at least 10 years of building ships on the Gdansk site. Kaczmarek wants the assets rented to the new shipyard entity, probably for one year, with no decision made on the future - but with a bankruptcy judge free to sell off the state property once the rental agreement is up.
Ironically, the Gdansk crisis comes at a time of a shipbuilding boom in the world, and at a time when Poland's two other large shipyards are doing well in the world competition. There are not that many world-class shipbuilders. Poland comes on- stream in the world economy at a time of dramatic shipbuilding need.
"The world's fleet is really aging," says shipyard specialist, Jacek Szugajew of Citibank, which did the first bank-guarantee syndication for Gdynia three years ago.
"The Koreans and Japanese estimate that even with the output of 200 to 300 vessels a year, there will be a need for roughly 800 to 1,000 vessels needing to be replaced, worldwide." So there is a surplus, not a shortage, of shipbuilding for Polish ports and Szczecin and Gdynia "believe there is room for a third shipyard in Poland and I think so, too. ... That might change if the Ukrainians and Russians went full speed ahead, but I don't believe that will happen anytime soon."
Profitability is related to productivity, and here Polish shipbuilders lag behind. On an international scale that measures productivity adjusted for different models and tonnage, the Koreans and Japanese have a productivity rating of 50 per capita, per ton, Western Europe 44 and Poland 17.5. The differences are stark within Poland: Szczecin is at 25, Gdynia 20 and Gdansk at 15.
While the government, management and workers at Gdansk hammer out their proposals, at least three potential foreign investors are waiting on the outcome. Former World Bank representative Ian Hume heads one of the consortiums of investors proposing to buy the Gdansk shipyard. Their bid is for "the whole shipyard," including debts.
Hume would not reveal any further details on the bid other than to say he "was invited by the ministry to submit a proposal for negotiation and we did that two months ago. I understand there have been delays due to legal questions about the concept of bankruptcy" which has precluded the ministry moving any further with discussions with potential investors.
"It's a very delicate legal issue, not to say a political one," he added.
- Malgorzata Halaba
contributed to this article.
