On 27 February 2008, 8,000 employees of Bulgaria's largest steel-maker Kremikovtzi launched daily protests over wage arrears. The employees’ protests came amidst rumours of negotiations over the possible sale of the troubled company. A national protest scheduled for 14 March was cancelled after the government and Kremikovtzi management reached an agreement enabling the company to continue operating.
Background
In mid-2005, Global Steel Holding Ltd (GSHL) acquired a 71% stake in Kremikovtzi AD (set up in 1963 under the communist regime) for USD 110 million from the previous, Bulgarian owner. The latter had bought the formerly state-owned debt-ridden steel producer, with all its liabilities, for just USD 1. GSHL is part of Ispat Industries and is owned by Pramod and Vinod Mittal, younger brothers and competitors of steel magnate Lakshmi Mittal.
According to GSHL’s investment programme, over €300 million should be invested in Kremikovtzi over the period 2006-11. A large share was intended to be invested in ecological facilities, which should improve the environment and decrease the pollution emanating from the company’s plant. But nothing has been done so far in this respect and Kremikovtzi’s operations continue to harm the environment around Sofia. The situation has become worse recently, reportedly due to lack of clarity concerning the ownership and future of the factory. There are major concerns that the situation could deteriorate and that Bulgaria might have to pay penalties for not fulfilling its obligations on environmental issues. The problems appear to be piling up - along with a dramatic output decline in the past year, the Kremikovtzi steel mill has accumulated debts of some BGN 317 million. Bulgarian State Railways (BDZ) stopped serving the steel mill because of the debts the plant has accumulated, and electricity and gas suppliers turned off its energy supply for the same reason.
The company has also failed to pay wages due to workers, and on 27 February 2008, the 8,000-strong workforce launched daily protests over their wage arrears. A national protest demonstration was planned for 14 March.
Trade union reactions
Representatives of the CITUB and CL Podkrepa trade union organisations at Kremikovtzi have held negotiations with the management board and talks with the ministers of transport and energy, who have guaranteed that the minimum of work needed to keep the enterprise open will be secured. The unions have claimed that if the government does not prevent Kremikovtzi from shutting down, it will lose office and the entire Bulgarian economy will face major problems.
Meanwhile, there have been rumours that the owners of Kremikovtzi are planning to sell the concern. Unions alleged that while they had been negotiating with management, key assets and land had been sold. The trade unions protested to the economy minister, Petar Dimitrov, demanding that he examine the situation at the company. They provided the minister with all the information about the alleged sale available to them.
Potential investors
Pramod and Vinod Mittal have officially stated at a Kremikovtzi executive board meeting that they intend to ‘attract investors’ and not ‘to sell’, and have confirmed that two investors have expressed interest in the enterprise.
According to the media, a total of four bidders are believed to have declared interest in the sale so far - Konstantin Zhevago, a Ukrainian billionaire, the US Steel Company, Lakshmi Mittal, and Rinat Akhmetov, who is considered to be Ukraine’s richest man.
According to the government, which holds a 25.13% stake in the company, the annual output of 1.5 million tons of steel is ‘too large and important’ to allow a simple closure of the Kremikovtzi mill and the government is therefore focused on pressuring the owners to honour their obligations.
Agreement reached
After weeks of negotiations, it was announced on 13 March 2008 that the management of Kremikovtzi and minister Dimitrov had signed an agreement on the ‘normalisation’ of work and supplies for the company from Bulgargaz, National Electric Company and BDZ.
The planned national protest on 14 March was cancelled, mainly because half of the workers had received their delayed wages and management had promised to pay the remaining sums within a week. Trade unions stated that, according to their information, Minister Dimitrov had sent a letter to the Chief Prosecutor, Boris Velchev, requesting an investigation of Kremikovtzi.
Commentary
Assessing the outcomes of foreign investments is not simple. Very often the consequences are company bankruptcy, closure or relocation (BG0707019I) and, as in the case of Kremikovtzi, this can have a negative effect on stable economical growth and industrial relations.
Snezhanka Dimitrova, Institute for Social and Trade Union Research