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Wednesday, March 29, 2000
Steel's last stand Some 12,000 jobs hang in the balance as the once-proud Vitkovice steel mills in Ostrava teeter on the brink of bankruptcy after years of government mismanagement By John Poston It was not a casual conquest. The strategically vital north Moravian mills at Ostrava produced the long stretches of girded rail that connected thriving Vienna to the rest of Europe. Then, the Vitkovice steelworks and the city of Ostrava meant one thing alone: hard, fast steel. And steel meant power. More than half a century later, Vitkovice's once-prized steelworks is in economic ruin. Government mismanagement, rampant debt and the global breakdown of the steel era threaten to do what waves of Allied bombers could not: shut down the aging mills and send 12,000 workers packing. Weighed down by losses and bad loans, Vitkovice's debts stand at a staggering 13 billion Kc ($350 million). A model of socialist industry in the Marxist era, Vitkovice is now badly in need of financial and organizational restructuring. But even with help, Ostrava's steel future is dubious. Like other steel cities before it, Pittsburgh and Sheffield foremost among them, this blue-collar city of 320,000 faces the extinction of its livelihood. "Many of my patients come to me crying, because they don't know if they will lose their jobs," says Eliska Bachalova, 57, a doctor who works occasionally for Vitkovice's company hospital. She says she has enough private patients to see her through the crisis at the mill, but the company still owes her 30,000 Kc for work she's done at the hospital. Her son, who has worked at Vitkovice for 13 years, is still waiting for his latest paycheck. "Everyone's nervous," Bachalova adds. "It's horrible." The reprieve The mood of the city, which is feeling the first cheerful hints of spring, remains cautious -- for good reason. Although the Czech state, which remains the majority owner of the mills, recently pledged a multibillion crown bailout package to help salvage the steelworks, the promise was based on support from creditor banks and came as Prague threatened bankruptcy proceedings. Under pressure, the banks finally agreed to cooperate on March 22. Now, the workers must await the outcome of a supervisory board meeting in early April in hopes that the bankers are able to agree on a plan to keep the mill operating. With unemployment in the city already over 16 percent and every Vitkovice job producing two more in the service and support industries, the steelworkers -- and the city of Ostrava -- spent most of the winter wondering about their future until the tentative agreement gave them a ray of hope. But the waiting took its toll. "It's disturbing," one worker in Vitkovice's engineering division says. "The line workers don't know what's happening at the top. There will always be a market for Vitkovice's products, but we don't know if we'll be around to make them." Union foreman Pavel Folta says the workers are so edgy they wish to avoid media coverage. They are, he asserts, under stress and exhausted. The steelworks are now generally off limits to reporters and camera crews. First coal, now steel Ostrava is a city that heavy industry built. A whiff of motor oil and boiler steam occasionally wafts through its streets. At the city center, towering in front of the red-tiled Hotelovy dum Jindrich, stands a 30-meter (100-foot) mining gantry that serves as a memorial to Ostrava's past. Black coal was mined within city limits until 1994. But the city doesn't need monuments to remind itself of the past. At times, it feels as if the 1989 revolution bypassed Ostrava. From atop the lofty Town Hall tower, Petr Vanek, head of the Mayor's Office, points toward the Ostravice River. Behind a hillock of mine tailings so old that trees are growing out of it lies the earliest-known site where primitive people burned coal as fuel over 20,000 years ago. "The development of the city was based on two legs -- coal and steel," says Vanek, who wears a gray suit and speaks with a slightly clipped but well-polished English accent. "We can hardly get rid of this part of our history. The city's development and boom was especially related to this company [Vitkovice]." The massive steel mill near the center of Ostrava is a part of Czech industrial folklore. Founded by an archbishop in 1828, it was owned by the House of Rothschild until World War II. Further up the riverbank, a kilometer from where mammoth hunters burned lignite, Vanek gestures at a tennis court. Here, retired tennis superstar and Ostrava native Ivan Lendl first fired serves at disbelieving opponents. "Vitkovice is realizing, after 10 years of hesitation, that these changes are inevitable," Vanek says of the steel crisis. "But it's easy to talk about it this way now. There's a proverb in the Czech language: After the battle, every soldier is a general. The mixed effects of cuts in mining and the steel industry simultaneously in the '90s could have caused a critical situation." Symptoms of the disease Mining colossus OKD downsized and shifted its mining activities out of the city in the mid-1990s. But the impact on employment was minimal, as the booming service industry, newly born after 1989, soaked up the city's mining unemployed. But Vitkovice's transitional pains have been much more acute. Steelmaking, the city's second pillar, didn't follow mining's lead. Nor did the state advertise Vitkovice's eligibility for privatization. Restructuring was limited to closing a blast furnace inside the city limits and a nominal number of staff reductions. As the world around it changed, the steel goliath remained intact, retaining a bloated, communist-era infrastructure. More than 10 years after the fall of communism, Vitkovice remains in state hands. Privatization was replaced by seemingly endless loans from state-owned banks. Vitkovice is not alone: The company is almost a template for Czech heavy industry in the post-revolution years and might serve as a case study for those interested in tracing the country's economy from the heady days of 1989 to the stagnation that now afflicts it. The pattern of state-owned banks generously flooding state-owned companies with easy loans followed elsewhere. Chemical giant Chemapol is now in bankruptcy, while truck maker Tatra, a division of engineering colossus Skoda Plzen, convalesces in the government's Revitalization Program for firms on the brink of collapse. Meanwhile, heavy-machinery producer CKD is being split up and sold off to foreign investors. Vitkovice was to have been privatized in the "Czech Way," to borrow a term from former Prime Minister Vaclav Klaus. Instead of offering Vitkovice to foreign investors, the Klaus government decided to privatize the company to its management, led by its chief, Vaclav Pastrnak. Pastrnak and his top lieutenants were given 1 percent of the company with an option to increase their stake to 15 percent if specific export targets were met. They weren't, and Pastrnak saw the company fall further into debt. The steel boss resigned from his post last August and returned his 1 percent of Vitkovice to the state. Vitkovice's woes are eerily similar to those of its troubled heavy-industry cousins. At Chemapol, CEO Vaclav Junek was an ill-starred player in the chemical industry's leading "Czech Way" privatization. Skoda Plzen boss Lubomir Soudek was also given first crack at post-communist control. Playing Pittsburgh While bankers and politicians in Prague mull Vitkovice's fate, Ostrava contemplates the day when the smokestacks go cold for good. In addition to heading up the Mayor's Office, Petr Vanek is the city's chief salesman. He knows Ostrava needs an image makeover. He also knows that the steel mills are destined to fail unless steel production is managed more efficiently. "We've learned a lot from our partner cities from around the globe that went through a similar process 20 or 30 years ago," Vanek says, citing steel cities such as England's Coventry and Sheffield, and Pittsburgh in the United States. "These cities are the examples to follow. Sheffield produces more steel today than it did in the '60s with one-fifth the staff." Vanek acknowledges that "Ostrava's reputation in Prague and beyond is black. There is really a lot of work to be done in this area. 'From black to green' is our sort of slogan." While governments in Prague presided over the decline of Czech industry, Vanek says Ostrava pursued hawkish budget goals and obtained resources through privatizing its utilities. The city has held Baa1 rating from Moody's since 1996. To remake its economy based on technology and advanced manufacturing, the city has plowed privatization proceeds and budget surpluses into industrial investment zones. "These industrial zones are the instruments the city can use in partly solving the problems of Vitkovice. This is the way that we're adapting, and this is the way we'll go." John Poston's e-mail address is jposton@praguepost.cz Vitkovice steel at a glance
Majority owner: The National Property Fund (state run). Employees: 12,000 1999 preliminary loss: 8.6 billion Kc ($238 million) Total debts: 13 billion Kc ($350 million) Primary creditors: Konsolidacni banka (state-owned), Investicni a postovni banka, Ceskoslovenska Obchodni banka, Komercni banka (state-owned)
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