By John Helmer, Moscow
There have been demonstrations this month in the Romanian town of Campa Turzii against plans by Russian steel maker Mechel to cut its local steelmill’s workforce by up to a thousand jobs, after rolling job cuts have already reduced the plant’s workforce over recent years. The Romanian government responded on Friday by promising a ministerial investigation into how Mechel acquired the plant in a privatization transaction in 2003, and whether it has met the government’s terms for investment and job security since then.
Liviu Pop, the Minister of Social Dialogue, announced after a meeting with steelworkers: “There are some questions about the privatization of Mechel Campia Turzii in 2003. There are signs that this contract was not respected. The Government is obliged to take the first step and we will have a discussion with ministers of Economy, Finance, Environment, and AVAS [state property agency] to see what is the situation of the privatization contract and its consequences. If irregularities are found, the state organs will be notified of the details. If it is unfair competition, abuse of office , misconduct in office, we will consider revocation of this contract”.
At the time Mechel won control of the plant in 2003, the prime minister of the Social Democratic Party (SPD) government was Adrian Nastase; he is in now in jail after being convicted of corruption charges in January. In May the PSD won re-election in a multi-party coalition on a platform of saving jobs and resisting public spending cuts; the current prime minister, Victor Ponta, was close to Nastase.
The government, according to Pop, will now try to add new investors for the Campia Turzii plant and create additional jobs.
Mechel has issued no official statements on the reduction of operations at its Romanian plants. The last company release concerning Campia Turzii was on on February 22, after severe winter storms had earlier disrupted transportation across Romania. Mechel then announced that “Ductil Steel Buzau, Mechel Campia Turzii and Ductil Steel Otelu Rosu, where production had been temporarily halted due to supply problems linked to severe snowstorms, resumed their operations. Three out of four Mechel plants which were halted last week are operating as normal. Mechel Targoviste plant is due to be re-launched on February 27. This interruption will not affect the company’s steel production plans for the year.”
Campia Turzii is principally a producer of wire products, but the company’s periodic reports do not identify the plant’s production, sales or financial results. A wire report from Bucharest on August 28 claimed that in the first six months of this year, Mechel Campia Turzii reported a net loss of 55.1 million lei ($15.5 million), double that of the same period in 2011.
In March 2008, at the inauguration of new equipment at another of Mechel’s Romanian plants, Targoviste, Mechel’s chief financial officer Alexei Ivanushkin was reported as saying in front of then Prime Minister Calin Popescu-Tariceanu: “With the commissioning of the new concaster, Mechel Targoviste becomes one of the most modern European steel producers. The radical reconstruction of steel production at this facility, has allowed the plant to improve its operational and financial performance. Mechel’s management demonstrated again its capability to transform an obsolete, unprofitable production facility and adapt it to a highly competitive market environment. We are proud of the results achieved at Mechel Targoviste, our principal Romanian enterprise, and are currently focused on the financial turnaround of another asset, Mechel Campia Turzii.”
Mechel was asked in Moscow and in Bucharest what has happened in the past four years to this plan. There has been no response.
Romanian media report steel union Metarom sources as saying that parts of the Campia Turzii plant are being dismantled. “What will be left in practice is a small workshop”, Metarom president Mircea Scantei is reported as saying. The union is also claiming that domestic steel production in Romania is now less than the volume of imported steel products. At Campia Turzii, the union says, equipment of the plant is being sold as scrap, eliminating the prospect of revival of the mill. Metarom estimates that there were approximately 200,000 employees in the countrywide steel sector in 1990, and only 31,000 now.
Mechel’s latest Form 20F filing to the US Securities and Exchange Commission (SEC), issued on June 7, acknowledged that last year Campia Turzii operated at about 80% capacity, turning out 189,300 tonnes of rolled products, and 80,300t of wire products. Mechel has also reported that as of December 31, 2011, the workforce at Campia Turzii numbered 1,906,of whom 93% were union members. Altogether, Mechel’s Romanian workforce totalled 6,727 at the start of this year. This was down from 7,272 the year before. Jobs lost at Campia Turzii over that period amounted to 42, according to the SEC report.
In its Form 20F filings to the SEC in 2004, Mechel reported the terms of its takeover of the Campia Turzii plant then known as Industria Sarmei as including a five-year job conservation condition; that appears to have expired in 2009. “We acquired a 73.4% stake in Industria Sarmei from the Romanian government in June 2003. The consideration consisted of $2.8 million in cash and a commitment on our part to invest $19.0 million in the modernization of the plant and upgrade of its capacity over five years, a commitment to spend $3.6 million in environmental protection, as well as a commitment to maintain its workforce level for five years. In connection with the acquisition, certain debt of Industria Sarmei was converted into shares, and we subsequently acquired these shares for $1.3 million, increasing our stake to 79.8%.”