Solidarity may sink Poland shipyard

gdansk, poland -- This weathered, gritty city on the chilly shores of the Baltic Sea prides itself on being the birthplace of the Solidarity trade union movement that helped launch the downfall of communism in Eastern Europe.

But through much of the last 500 years, as kings, communists and free-marketeers have come and gone, this city has simply built ships -- fishing trawlers and bulk carriers, container ships and research vessels. Since 1949, when it became one of the backbones of the Soviet shipbuilding industry, more than 1,000 ships have slipped into the sea from Gdansk.

Now, the very free-market mechanisms that thousands of striking Solidarity unionists helped to bring to Poland are threatening the aging state-owned shipyard, whose slowness to wean itself from state subsidies and job guarantees has put it on a collision course with the European Union.

Poland’s entry into the EU in 2004 means the sprawling, weed-grown shipyard must comply with European competition regulations.

The EU competition commission has advised Gdansk to shut down two of its three remaining slipways or repay millions of dollars in state subsidies. Shipyard officials regard either alternative as a quick trip to bankruptcy and are pleading for more time to modernize and privatize.

“This is the first monument of the epoch of the unification of Germany, which showed how to lead the struggle in a peaceful way into the 21st century,” said Lech Walesa, the former Polish president and Solidarity cofounder who has appealed to EU officials to postpone the requirements in an attempt to save the shipyard.

“Don’t we have any wisdom? I’m accusing myself that I didn’t do anything before now. I counted on the idea that nobody would ever allow this to happen,” he said in a recent interview. “But it turned out not to be true. And I’m appealing, and I’m saying, it cannot be destroyed.”

During its heyday, when it was known as the Lenin shipyards, Gdansk employed more than 17,000 workers on eight slipways. Today, just 3,000 employees remain.

The shipyard’s towering production hall, with 17 acres of assembly cranes and welding stations under its roof, operates nonstop six days a week. Eight vessels are in production in the hall and at the three slipways. The assembly slips are being leased by Gdansk’s management from Dutch investors who now own part of the complex and plan a massive new waterfront retail, residential and commercial complex on former shipyard land opposite the production facilities.

But much of the rest of the shipyard stands in bleak disrepair: empty brick buildings with broken windows and rusty overhead pipes and transport lines. The stately old shipyard headquarters on the other side of the channel is occupied now by the Dutch land development company, which is preparing to raze much of what stands on that side of the water.

Ironically, say some shipping analysts, it is Solidarity’s continued strength that has slowed the facility’s transformation into a modern, efficient -- and less staff-intensive -- profit-making enterprise.

“Solidarity is probably holding them back in terms of preserving the shipyard,” said George Bruce, a professor in the school of marine science at Britain’s Newcastle University.

“Modern equipment is not so important. It’s how many people you employ and how much you pay them,” he added. “In a nutshell, it’s about coming from a situation of having too much employment and not being efficient, and trying to recover from that.”

The international shipbuilding business is booming. While European builders face tough competition from lower-wage yards in Asia, Gdansk and some of its neighbors are attempting to capitalize on their ability to build higher quality, more sophisticated vessels.

But Gdansk, slowed by outdated equipment and a long, expensive transport distance between its building and assembly units, finds itself ill-placed to take advantage of the demand.

The EU’s tough-love formula of shrinking down the old to rebuild on a more competitive footing is likely to be a fatal prescription, warn union leaders, who staged a protest in Brussels in August.

Solidarity has insisted on keeping at least two production slipways open, which will keep both construction and assembly operations running simultaneously, averting the need to lay off half the workforce during part of the year.

“Closing down two out of three of our slipways would mean that we’ll have no means to survive,” said Karol Guzikiewicz, Solidarity’s deputy chairman at Gdansk. “We know this has to be a modern workplace, with modern new technologies, and profits. We agree to all of that. Our only disagreement with the EU is how to reach that stage. We need time, and money.”

Gdansk and Poland’s other two major shipyards privatized early in the post-communist era but hemorrhaged under the new management and limped back into state ownership.

The new management appointed a year ago has managed to turn things around somewhat. After delivering nine ships in 2006 at a net loss of $26.6 million, the shipyard posted a net profit of $4.1 million for the first six months of this year -- by going against conventional wisdom.

“We started restructuring. But . . . we didn’t reduce production. We increased it. We hired more people, and we gave them more money,” said Andrzej Jaworski, a politician from Prime Minister Jaroslav Kaczynski’s Law and Justice Party who was brought in to run the shipyard.

“Thirdly, we stopped listening to what institutions and politicians told us and we started doing our own job,” he said.

But even Jaworski says the shipyard is doomed if it can’t bring in a private buyer to invest $200 million to build a sophisticated new floating construction platform directly adjacent to the massive construction hall -- a project that shipyard officials say would turn Gdansk into a modern, efficient and consistent moneymaking enterprise.

The Ukrainian metallurgical giant Industrial Union of Donbass, which owns a 5% stake in the shipyard, has made a bid to take on an additional $150 million in shares for 75% ownership, an offer that shipyard management and Solidarity are looking at with enthusiasm.

Donbass is said to be willing to upgrade the facility and bring additional large-scale metal construction projects to the site, including making windmill parts. Solidarity leaders would also like to bring in an Italian bidder that hopes to produce gas container ships at Gdansk.

But refurbishing will take time; Polish officials are hoping to persuade the EU competition commission to allow the shipyard to remain at full production until 2014, by which point they pledge to have made the transition to a modern, competitive economic model.

“We will reduce by 20% our costs if we manage to do this project,” Guzikiewicz said. “And we also will diminish the time it takes to build a ship, which is very important.”

EU officials, having already set and let slip an August deadline for Gdansk to either close slipways or pay back $72 million in subsidies, have said they are considering Poland’s proposal.

“The commission has said the government can give aid to Gdansk, but they should do some capacity reductions in order to compensate for this distortive effect,” said Audrey Lemonnier, a commission spokeswoman.

“We are trying to work with them,” she said. “If the commission had wanted Gdansk to close, then the commission would have already required the repayment of subsidies a long time ago.”

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kim.murphy@latimes.com