Heavy industry suffers agony of restructuring

Date: 15/06/2000

By Chris Johnstone

WHILE some countries waiting to join the EU have almost crossed the finishing line when it comes to industrial restructuring, others have a long way to go.

The central and east European applicants are victims of their recent history. Those which swallowed the Communist doctrine enthusiastically, and went forth to multiply heavy, smoke-stack industries in a bid to boost their proletarian support, are paying the price.

Poland and the Czech Republic fall into this camp, while Hungary and Slovenia have found it relatively easy to redirect their light industries towards western markets. Apart from the odd steel mill, the restructuring process can be said to be all but complete in Hungary. Of the country's four steel plants, two have already been privatised, a third is on the way and plans are being drawn up for the fourth. "It is safe to say that the state sector is much more important in a lot of existing member states than it is now in Hungary," said one Commission official.

Slovenia, which shared Hungary's fortune in eschewing heavy industry and was, like Budapest, already redirecting its trade to the West in the 1970s and 1980s, is almost ready to draw a line under its restructuring process.

But the picture is different in the Czech Republic and Poland, where politicians have often shrunk from taking difficult decisions and have been much less willing to privatise and attract foreign investors.

The problems involved in restructuring the steel industry, closing brown lignite coalmines and restructuring engineering monoliths left over from the Communist era are only now being faced up to by the Czech authorities.

Strategic partners for the countries' two biggest steel companies, Nova Hut and Vitkovice, should be found this year. Vitkovice has been brought into the fold of the administration's Revitalisation Agency, a government quango tasked with bringing new management and state cash to struggling private and public companies. Other firms lined up to join include engineering giant Skoda Plzen, heavy-vehicle producer Tatra, and tractor manufacturer Zetor. Around €400 million has been earmarked to help these companies.

The Czech government insists that the agency is not an emergency ward for dying enterprises, and that its job is to pick potential winners. But the inclusion of Vitkovice and Industry Minister Miroslav Gregr's justification of this on largely social grounds - the plant directly employs around 11,500 in the north-east unemployment black-spot of Ostrava - has raised concerns the agency's mission is being subverted before it is even fully up and running.

Prague has ignored Commission demands for fuller details of its steel sector restructuring plans so they can be vetted for state aid and other competition abuses under the bilateral pre-accession agreement.

The consistent complaint levelled against Poland by the Union in the past is that its policy and practice on industrial restructuring diverged. A lot was promised in bilateral meetings but, on the ground, little was done.

The steel sector has been particularly contentious, with Warsaw reluctant at one point to lower duties on imports to protect its domestic industry. With the remaining duties due to expire soon, the Polish government is now serious about finding strategic investors for its two biggest steel makers, Huta Katowice and Huta Senzimira, with memorandums for the sale of both now prepared.

The coal industry, where EU governments have long complained about Polish dumping, is now undergoing a wholesale restructuring, with the workforce cut and many mines closing ahead of future privatisation.

Across the rest of the Polish economy, around 3,000 businesses are still state-owned. "We are down to the rump," said one Commission official. But finding buyers for these industrial wallflowers will not be easy, with closure the likely outcome in some cases.