Document Number BA225A-1001-C European Commission Eastern European Shipbuilding Industry Study for Applicant Countries Contract

Romania

Document Number BA225A-1001-C

European Commission

Eastern European Shipbuilding Industry Study for Applicant Countries Contract No: ETD/99/502270

Romania Final Country Report

November 2000

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Romania

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Contents EXECUTIVE SUMMARY I - IV 1. INTRODUCTION 1001 2. OVERVIEW 1003 2.1 Shipbuilding Sector 1003 2.2 Shiprepair Sector 1004 3. SECTOR COMPOSITION 1006 3.1 Shipyards 1006 4. GEOGRAPHY 1007 5. OWNERSHIP 1008 5.1 Privatisation Programme Details 1008 5.2 Current Ownership Status 1010 6. OUTPUT AND ECONOMIC ACTIVITY DETAILS 1011 6.1 Turnover 1011 6.2 Employment 1013 6.3 Output 1014 6.4 Workload 1015 7. SECTOR DETAILS 1017 7.1 Sector Sub-division 1017 7.2 Yard Capacity 1017 7.3 Deliveries by Vessel Type 1019 8. MARKET AND COMMERCIAL ENVIRONMENT 1020 8.1 Supplier Profiles 1020 8.2 Customer Profiles 1020 8.3 Orderbook 1021 8.4 Ship Prices 1022 9. FINANCIAL PERFORMANCE 1023 9.1 Turnover 1023 9.2 Profitability 1023 9.3 Sources of Funding 1024 9.4 Investment 1025 10. GOVERNMENT SUPPORT 1026 10.1 Operating Subsidy 1026 10.2 Support of Losses 1026 10.3 Debt Rescheduling and Write-off 1027 10.4 Other Support and Use of Aid 1027 10.5 Protected Customer Base 1027 11. COMPETITIVENESS 1028 11.1 Costs 1028 11.2 Technological 1029 11.3 Product related 1031 11.4 Productivity 1032 11.5 Environmental and Health & Safety 1032 BA225A-1001-C Appledore international Romania

12. STRUCTURAL ADJUSTMENTS AND ASSISTANCE INITIATIVES 1033 12.1 EU Accession Requirements 1033 12.2 Assistance Measures 1033 13. NUMERICAL DATA TABLES 1035 13.1 Financial 1035 13.2 Employment 1036 13.3 Shipbuilding Output 1036 13.4 Shiprepair Workload 1039 13.5 Economic Indicators 1039 Romania

EXECUTIVE SUMMARY

APPROACH

Our research for Romania has been based upon a mix of desk research, data collection (utilising information from our own and public sources) and shipyard visits. We have visited nine of the shipyards in the sector and we have also met with various government officials responsible for the sector and for the privatisation programme. Through this combination of sources we have gained up to date knowledge of the sector. In terms of desk research and data sources, we have used the Fairplay WSE proprietary database and other publications to provide additional information regarding on-going deliveries of completed vessels and new orders won. We have also used archive searches on Lloyds List and other internet based sources (Romanian and international) to provide both background and detailed information for the study.

During our visits to the yards we discussed the current situation in each enterprise and in the sector generally, we visited the facilities and we requested information on workload, employment, financial statements and ownership or for corroboration of the information we had already obtained from other sources. We received a high level of co-operation from most shipyards in providing workload, employment and financial information, although in one instance our repeated requests unfortunately only elicited certain details after completion of the analysis. We were unfortunately unable to visit one of the major shipyards, Daewoo Mangali Heavy Industries, as our request for a visit was declined and our subsequent attempts to obtain verification and completion of information have elicited no response. We were also unable to visit the military shipyard as this was not identified prior to our visit tour as it came under the auspices of the defence ministry rather than the industry ministry. The response to our request for written information and verification of other data from this yard, unfortunately arrived after the completion of analysis and the preparation of the draft final report. We have however examined these late returns from this and one other yard and have updated key data, graphs and tables wherever possible. It has not been practicable however to update all the sector analysis. Section 13 identifies the data that has been updated.

SECTOR OVERVIEW

The Romanian shipyard sector is large in European terms and diverse, comprising at least 12 shipyards active at the present time. These enterprises cover a mix of shipbuilding, shiprepair and combined activities for both river and ocean going vessels. Significant progress has been made towards privatisation, with eight yards already privatised and one more currently under offer. Two further yards have been offered, so far unsuccessfully. One yard is under the control of the defence ministry and we are not aware of any privatisation plans for this yard.

For the period under review (1996-1998) the sector is estimated to comprise:

· Yards : 13 (1 now in liquidation) · Employment : 28,500 approx. · Turnover : US$182 million pa (approx.) average (1996-1998) · Sectors : Shipbuilding and Shiprepair (75%/25% by turnover) · Ships Completed : 20.3 pa average (1996-1998) · Hulls Completed : 24 pa average (1996-1998) · CGT Output : 146,500 pa average (1996-1998)

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In terms of the overall importance of the sector to the Romanian economy, we have considered this in terms of employment and GDP. We have compared the 3 year average figures with the latest available statistics for the country (GDP for 1999 from World Bank Development Indicators and employment figures for 1998 from the ILO database).

· Shipyard turnover at US$ 182 million p.a. represents 0.5% of the GDP for 1999 · Shipyard employment at 28,500 represents approximately 2.6% of total employment and 12.3% of manufacturing employment.

It can be seen therefore that the sector is more significant in employment terms than in financial terms and that it represents a significant element of manufacturing industry employment. In geographical terms the industry is distributed around the country in main towns or ports on the River Danube or the Black Sea Coast. As major employers, it is inevitable that the impact of these industries in their various regional economies is significantly greater than in national terms.

Within the sector the activities relate to both shipbuilding and shiprepair for merchant vessels, with no current shipbuilding activity in the military/naval sector. We have found only limited repair activity for military/naval vessels, most of which is undertaken at the Navy Yard which is also involved in commercial vessel repair and shipbuilding. The merchant vessels include a mix of river, river/sea and ocean going vessels up to around 200,000 dwt. Predominantly this comprises the more basic cargo carrying ship types with limited examples of more sophisticated vessel designs - mostly smaller vessels.

The construction of partially outfitted or steel hulls for completion at shipyards in other countries is a major component of the shipbuilding production, accounting for approximately 40% of shipbuilding output by CGT. Our statistics have included this element of work, whereas this is generally not included in other public sources of output volumes. Some of the yards also have a number of unsold hulls from previous production years, some of these have been delivered or sold during the period under review and sometimes following completion or conversion work. This may have artificially inflated the output during the period.

Employment levels dropped gradually over the period under review, however this has accelerated noticeably during 1999 and 2000. In part this is reflecting the progress of privatisation, with most yards showing or planning significant reductions in employment following privatisation. It appears that this is predominantly reducing indirect employment and it is not clear whether this will in part be compensated for by increased direct employment. Certainly within the current employment levels there is scope for significant output increases through productivity improvements within the capacity limitations of the existing physical facilities. It is noticeable in the sector that there is little if any sub- contract employment unlike the Western European yards where significant multiplier effects can be expected

SECTOR COMPETITIVENESS

We have looked at the sector competitiveness in relation to future membership of the EU against a variety of factors in the main body of this report. We have summarised the major points here under the following categories:

· Ownership and Privatisation · Financial Performance and Subsidy · Labour Costs, Productivity and Capacity · Customer Base and Orderbook Romania

· Technological and Product Related · Environmental and Health & Safety

The sector is a mix of private and state ownership, with the intention being for the government to fully privatise the commercial shipyards. Significant progress has been made towards privatisation, with eight yards already privatised and one more currently under offer. Two further yards have been offered, so far unsuccessfully. One yard is under the control of the defence ministry and we are not aware of any privatisation plans for this yard.

For the period under review 6 of the 15 enterprises showed net losses, one of these has subsequently gone into liquidation, another is longer operating in shipbuilding or repair and another has recently been sold to international investors. The other net loss making yards includes the two biggest yards - Constantza and Mangalia – and one very small operation. The Constantza yard is still state owned and has been offered for privatisation once unsuccessfully whilst the Mangalia yard was privatised in 1997 but has failed to record profits under its joint state/private sector ownership as Daewoo Mangalia Heavy Industries. It can been seen that the sector has suffered from poor financial performance and debt problems in some areas but that this has in part been addressed through closure and privatisation. The situation at the two largest yards, must however generate cause for concern.

Labour costs are very low in comparison with Western European yards (and also in relation to some of the neighbouring Eastern and Central European countries) which provides a cost advantage. This is however defrayed in part by higher levels of overhead costs and lower productivity. Shipyard prime labour costs appear to be at the level of US$ 1 – 1.5/hour base on information provided by the shipyards. Shipbuilding productivity has been calculated to be in the range 5 - 10 CGT/employee year although we believe this may be distorted due to incomplete ship delivery information. Whilst this is significantly lower than the average for EU yards, combined with the much lower labour costs, this would still allow the sector to be cost competitive. The overall CGT unit operating costs appear very competitive in the better yards and the market ‘price per kilo’ rate for hull building is highly competitive with other low cost economies. Additionally we believe that productivity at the recently privatised yards is improving as a result of workforce reductions.

Output in the shipbuilding sector is significant in European terms, even though none of the yards are working at full capacity. The output levels are substantially higher than most public data indicates once account is taken of the hulls that are built in the country rather than simply completed ships. Additionally we are aware that our output data is still incomplete and that there are vessels for which there is no CGT value, in particular smaller vessels. Currently, activity in the shiprepair sector is however low in the river shiprepair facilities reflecting the navigational problems on the River Danube. The Black Sea repair yards are fairing better, however they too are working well below capacity. In general terms there is scope for increased output through improved productivity, reduced cycle times or increased employment. In terms of shiprepair capacity there is clearly physical scope for increased throughputs.

The sector has a predominantly international customer base for both shipbuilding and shiprepair and is becoming increasingly international in ownership terms, with significant foreign investment in a number of the yards over the last few years. This appears to be building upon past customer relationships, particularly in terms of hull building. The shipbuilding forward orderbook runs into 2002 for some yards but the situation varies from yard to yard. A number of the yard did not provide us with full details of their forward orderbook and for those that have recently been sold to former customers or other foreign shipyards future workloads may be in part to the parent organisation.

We have assessed shipbuilding technology in terms of facilities, management and organisational aspects to be around Level 3 on the 5 point scale, with the two bigger yards demonstrating a higher

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level than some of the smaller river yards. Shiprepair technology covers a spectrum from Level 1 to 3 with the large Black Sea yards rating highest. The current facilities provide a base on which the yards could develop with priority areas including management and organisational skills to achieve faster turnaround times and to deal with repairs on more complex vessel types and increasing the level and complexity of conversion experience. In terms of shipbuilding products the sector is predominantly in the more basic cargo vessel types and in hull building, although at the smaller end of the size range more sophisticated vessel types are being constructed.

In terms of environmental and health and safety aspects, it is believed that there is room for improvement and that this will be required to meet the existing EU environmental legislation. Some of these reflect common issues with other yard both worldwide and within the EU, however its is believed that the level of both environmental control and health and safety practice is lower than in the larger EU shipyards. It is anticipated that there will however be improvements in the yards now under foreign ownership or management.

In summary we see that the industry has made a significant transition into the market economy and developed a strong international customer base. The sector, however, seems to have suffered significant financial and debt problems over the last few years, with both of the biggest yards currently recording losses and significant losses at the few remaining state owned yards. In part the recent privatisation activity appears to have effected a financial and debt restructuring of much of the sector, such that the yards are now in an environment where they can operate on a commercial basis. The future performance of these yards should therefore reflect this commercial environment however it may be that the losses at the remaining state yards limit further privatisation progress. Technical competence is evidenced by the current activity levels, however the cost and difficulty of obtaining shipbuilding finance may limit the ability of the domestically owned yards to win on-going orders for complete vessels. The upsurge in hull building, we believe, in part reflects this problem.

Assistance with availability of shipbuilding finance at competitive rates would assist these yards in making a successful transition into the market economy, until such time as they have been able to establish their own ‘track record’ with international banks and financing institutions. Additionally some form of assistance may be required to assist with improving and health and safety environments. Romania

1. INTRODUCTION

Our research for Romania has been based upon a mix of desk, data and shipyard visits. We have visited nine of the shipyards, including all the major yards except Daewoo Mangalia, who were not willing to receive us. Through this combination of sources we have a significant knowledge of the shipbuilding and shiprepair sector.

For the period under review (1996-1998) the sector is estimated to comprise:

The construction of partially outfitted or steel hulls for completion at shipyards in other countries is a major component of the shipbuilding production, accounting for approximately 40% of shipbuilding output by CGT. Some of the yards also have a number of unsold hulls from previous production years, some of these have been delivered or sold during the period under review and sometimes following completion or conversion work. This may have artificially inflated the output during the period. We have found little evidence of any naval/military activity, with the exception of the Navy Yard in Mangalia however this is also undertaking shipbuilding and repair work on commercial vessels.

Output in the shipbuilding sector is significant in European terms, even though the none of the yards are working at full capacity. The output levels are substantially higher than most public data once account is taken of the hulls that are built in the country rather than simply completed ships. Additionally, even within our data, there are vessels for which there is no CGT value, in particular smaller vessels. Currently, activity in the shiprepair sector is however low in the river shiprepair facilities reflecting the navigational problems on the River Danube. The Black Sea repair yards are fairing better, however they too are working well below capacity.

We have assessed shipbuilding technology in terms of facilities, management and organisational aspects to be around Level 3 on the 5 point scale, with the two bigger yards demonstrating a higher level than some of the smaller river yards. Shiprepair technology covers a spectrum from Level 1 to 3 with the large Black Sea yards rating highest. The current facilities provide a base on which the yards could develop with priority areas including management and organisational skills to achieve faster

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turnaround times and to deal with repairs on more complex vessel types and increasing the level and complexity of conversion experience.

Labour costs are very low in comparison with Western European yards and also in relation to some of the neighbouring Eastern and Central European countries. This provides the Romanian yards with a significant cost advantage although this is in part defrayed by poor productivity and poor ratio of direct to indirect employees. However the overall CGT unit operating costs appear very competitive in the better yards and the market ‘price per kilo’ rate for hull building is highly competitive with other low cost economies.

The sector however seems to have suffered significant financial and debt problems over the last few years, with both of the biggest yards currently recording losses. Additionally there are significant losses at the few remaining state owned yards. In part the recent privatisation activity appears to have effected a financial and debt restructuring of much of the sector, such that the yards are now in an environment where they can operate on a commercial basis. The future performance of these yards should therefore reflect this commercial environment. Romania

2. OVERVIEW

2.1 SHIPBUILDING SECTOR

Publicly available statistics for shipbuilding output, are available from a variety of sources. In many cases the statistics show different pictures. We have used the following statistics to obtain country and world wide data for this study.

· AWES world shipbuilding statistics (Sources: Lloyd’s Register/EU Commission).

The AWES statistics for world shipbuilding for the period 1996-1998 show the following picture for Romanian shipbuilding output.

Table 2.1 : Shipbuilding Sector – Market Share in CGT Year Romania Romania World Output EU Output % World % EU No of CGT CGT CGT CGT CGT Completions (000) (000) (000) 1996 17 149.3 16,550.4 3,555.4 0.9 4.2 1997 14 94.6 16,936.8 3,225.0 0.6 2.9 1998 21 135.9 18,003.9 3,585.5 0.8 3.8 3 Year Ave 17.3 126.6 17,163.7 3,455.3 0.7 3.7 1996-1998 1999 32 218 17,509 3,363 1.2 6.5 Source: AWES

Based on the information we have collected during this study we have independently assessed the shipbuilding output as shown below. Our analysis has differentiated between deliveries of completed ships and deliveries of partially outfitted hulls.

Table 2.2 : Shipbuilding Sector Size – Ai Analysis Year No of CGT (000) GT (000) CGT (000) GT (000) Completions Ship Hull Ship Hull Ship Hull Total Total 1996 22 32 133.2 47.9 228.5 48.6 181.1 277.1 1997 12 18 50.9 51.7 33.1 63.4 102.7 96.9 1998 27 22 94.7 61.2 80.2 71.4 155.8 151.6 3 Year Ave 20.3 24.0 92.9 53.6 113.9 61.1 146.5 175.2 63% 37% 1999 1 60 31 115.3 71.8 149.2 79.1 187.0 228.3 Note: 1 1999 ship deliveries include 2 vessels where hull manufacture was completed elsewhere & several without CGT values Source: Ai Analysis from Shipyard and public data

In total the output we have identified is higher which, we believe, is due to the fact that public sources do not generally include hull deliveries and that certain smaller vessels are not fully represented in these sources. We believe that the information we have collated is a more representative view of the shipbuilding workload but that it also may be understated due to lack of technical details for the output of some yards. This applies particularly to the workload at the Galatz and Mangalia yards.

The information we have collected has combined both shipyard and public sources. In certain cases this has meant that GT, CGT and deadweight information is not available. We believe therefore that

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the output quantified in these parameters is incomplete and understated. Additionally the percentage of hulls compared to ships may be understated.

It can be seen that the identified workload associated with partially outfitted or steel hulls, represents nearly 40% by CGT of the total workload, based on the general assumption that a hull equates to 60% of the CGT of a full vessel. However there are a significant number of hull deliveries for Galatz in our data for 1996 and 1998 and reported deliveries for Mangalia in 1998 which have no GT or CGT value associated with them which may mean that hull production is in fact higher than this. We also have a number of river vessels in the data for which we do not have GT or CGT figures or estimations.

Additionally, some part of the completions of vessels in the period under consideration, relates to the resale and completion of unsold production from earlier years. In particular, the collapse of the Soviet Union and the political regime in Romania resulted in significant amounts of unsold production.

It should be noted that much of the aforementioned ‘partial hull’ construction is undertaken for clients in Norway, Netherlands and Germany, and the vessels are completed in Shipyards in those countries. The official statistics will, we believe, attribute the whole CGT workload of these vessels to those countries, thereby overstating the production that has taken place in that country. In this fashion the overall shares of world output for Romania and these countries will be distorted and the measure of Romanian output in relation to that of the EU countries will be ‘doubly’ distorted.

We have not received full information from all the individual shipyards, however based on the information collected, we believe the output could be some 10-20% greater in terms of the average CGT.

In conclusion, we believe the output numbers in terms of total deliveries represents a realistic picture of output, but that the CGT, GT and deadweight measures are understated as a result of the lack of technical details. This is due to the incomplete reporting of smaller vessels and misleading categorisation of hull production in the main public data sources. The output over the period does however include some unsold production from previous years. At the time of our visit (February 2000) a number of the yards still had unsold hulls and so this element may continue for some time.

2.2 SHIPREPAIR SECTOR

There are no comprehensive sources of publicly available shiprepair statistics. Official statistics provided to us from the Romanian Ministry of Industry quantify the shiprepair output from the Romanian commercial Shipyards only in terms of export turnover and percentage of overall production. Unfortunately, the latter information has only been provided for 1997 to 1999, however using this information the following shiprepair sector information is calculated.

Table 2.3 : Shiprepair Sector - Size Year % of Turnover Total Production US $ m 19961 - 22.1 1997 29% 40.1 1998 22% 25.7 1999 20% 36.8 Source: Romanian Ministry of Industry and Commerce Notes: 1 1996 turnover comprises export only and does not include domestic workload

During our visits to the individual yards, we requested information to assess the shiprepair output. Based on the information received we have independently estimated the split as detailed in Section 6. Romania

This estimate (which falls within approximately 10% of the above estimates for 1997 and 1998) assesses the full 1996 shiprepair turnover at US $ 43 million.

On this basis we believe that the shiprepair sector in the commercial yards has had an average annual turnover of around US $ 40 million over the three year period. It can be seen therefore that the shiprepair sector is a significant component in turnover terms of the whole Romanian commercial shipyard sector, representing approximately one quarter of the turnover.

Turnover information for the Navy Yard, which was received after the completion of analysis work and the issue of the draft final report, does not provide a breakdown between repair and newbuilding or merchant and naval work. We believe that information from the Ministry for Industry does not include the workload for this yard, which is under the control of the Defence Ministry.

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3. SECTOR COMPOSITION

3.1 SHIPYARDS

Fifteen Shipyards have been identified within Romania during the period and scope covered by this study. These are listed in the following table from which it can be seen that they cover both shipbuilding and shiprepairing activity

Table 3.1 : Shipyards Comprising the Sector Shipyard Company Name Location Ship Ship Reference Building Repair Braila Santierul Naval Braila SA Braila 4 4 Carsinav 1 Carsinav SA Hirsova - - Constantza Santierul Naval Constanta SA Constantza 4 4 Galatz Santierul Naval Damen Galati SA Galatz 4 4 Giurgiu 2 CNF Giurgiu Navol SA Giurgiu 4 4 Mangalia Daewoo Mangalia Heavy Industries Mangalia 4 4 Navy Yard Santierul Naval Mangalia Mangalia 4 4 Oltenita Societatea Comerciala Navol SA Oltenita 4 4 Orsova Santierul Naval Orsova SA Orsova 4 4 Severnav Severnav SA Turnu Severin 4 4 Tulcea Santierul Naval Tulcea SA Tulcea 4 4 Navodari 2 x 1 Holding Cape Midia Shipyard Navodari - 4 Remat Remat SA Sulina - 4 Siaj SC Siaj SA Tulcea - 4 Sorena 3 Sorena SA Constantza 4 4 Notes: 1 Construction of yard incomplete due to lack of funds 2 In liquidation 3 Now provides harbour services only – no current shipbuilding or shiprepair

Two of the above yards are no longer in operation as shipyards. Giurgiu yard went into liquidation during January 1999 and its assets are currently being sold off under the jurisdiction of the courts. Sorena, in Constantza, now operates only as a harbour services company, and does not undertake any repair or new building. One of the yards – Carsinav – is not completed (due to lack of funds) and has not, we are advised, had any shipbuilding or shiprepair output. This leaves twelve shipyard enterprises forming the sector as at February 2000.

Additionally, in terms of research and technical institutions, there is:

· INCEPRONAV Research and Design Institute based in Galatz Romania

4. GEOGRAPHY

The shipyard facilities can be divided into two main categories, namely yards on or immediately adjacent to the Black Sea coast and yards on the upstream reaches of the River Danube as shown below.

Table 4.1 : Shipyard Locations Black Sea Coast River Danube Constantza Braila Mangalia Galatz Navodari Tulcea Navy Yard Giurgiu Sorena Oltenita Orsova Siaj Severnav Remat

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5. OWNERSHIP

Prior to 1997 the Romanian shipyards were all part of the state owned nationalised industry. The shipyards are now joint stock companies. As part of the political changes that took place in 1990, a mass privatisation process resulted in the issue of vouchers to all adult citizens giving them the right of ownership in state owned enterprises either directly or through investment funds. The result of this was that part of the ownership of the previously state owned enterprises effectively transferred to individuals or investment funds in the domestic private sector. The remaining shareholding was held by the State Ownership Fund (SOF).

A major privatisation programme is underway to sell the SOF shareholdings in Shipyard enterprises – details of which are given in the following section. To date eight yards have been ‘privatised’ resulting in a significant transfer of SOF shares to private (i.e., non-state) investors, either domestic and/or foreign. One more is currently under offer and two have been offered unsuccessfully. We are advised that these two yards plus the remaining commercial yard will be offered for privatisation this year. One yard has gone into liquidation during the privatisation programme and its assets are currently being sold by the courts. We are not aware of any plans to privatise the Navy Yard, which falls under the Defence Ministry.

Thus the previously state owned shipyards have already made a significant move into private sector ownership, with further progress to be anticipated.

5.1 PRIVATISATION PROGRAMME DETAILS

The Romanian Government embarked upon a privatisation programme for the shipyards in 1997. To date eight shipyards have successfully been through the privatisation process, resulting in the transfer of either the whole or majority shareholding to the private sector. These privatised yards are listed below and details of the process are provided later in this section.

· Mangalia · Orsova · Galatz · Oltenita · Navodari · Sorena (no longer involved with shipbuilding or repair work) · Braila · Tulcea

One other shipyard, Siaj, is currently under the process of privatisation, having been offered to the market, but as yet without any announcement regarding the outcome or final decision.

The following shipyards have been offered for privatisation unsuccessfully (i.e., no sale completed) on one or more occasions. The privatisation programme for these yards will be relaunched:

· Constantza · Severnav

We have been advised that the Remat Shipyard will be offered for privatisation during 2000. We have however been unable to determine the plans for the incomplete Carsinav Yard. Romania

We are not aware of any privatisation plans for the Navy Yard in Constantza which comes under the jurisdiction of the Ministry of Defence.

The privatisation of the Mangalia yard took place in 1997, with the set-up of a joint venture company with Daewoo Heavy Industries of South Korea. Daewoo HI acquired a 51% shareholding in the joint venture company, known as Daewoo Mangalia Heavy Industries, the remaining shareholding is held by the state and the mass privatisation programme (MPP), through a separate company known as Santierul Naval 2 Mai Mangalia, which also owns the channel and an administrative building. Since privatisation, there has been investment and facilities restructuring at the yard led and financed by the Korean management. At the present time, the joint venture has yet to show a profit, despite increasing turnover in US$ terms. We understand that some financial restructuring is being considered and that the Korean investors may also be looking to sell their stake in the joint venture, however this has not been confirmed. The SOF have, however, confirmed that the shareholding of S.N. 2 Mai Mangalia is split 95% to the SOF and 5% to the MPP and have advised us that this company is currently under restructuring and the SOF shareholding will be offered for privatisation to the market after analysis is complete.

Sorena Shipyard in Constantza was privatised in July 1997, through the sale of the state holding to employees of the company. The enterprise is now a harbour services company, which we are advised is no longer active in either shipbuilding or shiprepair.

Orsova Shipyard was privatised in 1998, through the sale of the state holding to Romanian and Dutch investors. The SOF has no residual shareholding and we understand that the two major shareholders are one of the Romanian Investment Funds and a Dutch shipbroker (Rensen), who has been associated with the Shipyard for some time.

Galatz Shipyard was privatised in March 1999, through the sale of the 70% state shareholding to the Damen Group of the Netherlands. Damen have been involved with the Shipyard for approximately five years, as a customer for existing unsold hulls and new, partially outfitted hulls for completion at their shipyards in the Netherlands. The SOF has no residual shareholding.

Navodari Shipyard was privatised in 1999, through the sale of the state shareholding to a local holding company that has other diverse interests in the Constantza area. The SOF has no residual shareholding.

Oltenita Shipyard was privatised in October 1999, through the sale of the state shareholding to a local investor. We understand, however, that there is an Austrian interest in the yard through the majority shareholder. The SOF has no residual shareholding.

Braila Shipyard was privatised early in 2000, through the sale of the 70% state shareholding to a Norwegian Investor – Scandinor AS. The SOF has no residual shareholding. The investors have a longstanding connection with the yard through Noryard for whom they have built many vessels recently.

Tulcea Shipyard was privatised early in 2000, through the sale of the 70% state shareholding to a Norwegian investor – Aker Brattvaag AS. The investor is a shipyard which is part of the RGI Aker group. The group has other shipyard interests in Europe and had previously been a customer of the Shipyard for partially outfitted steel hulls for completion at the Brattvaag yard.

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5.2 CURRENT OWNERSHIP STATUS

The following table shows the status of ownership of the Romanian Shipyards as at February 2000, showing which have been through the privatisation process and the remaining state ownership.

Table 5.1 : Shipyard Ownership Status Shipyard Offered for Status State Domestic Foreign Privatisation Holding Investor Investor Braila 4 Successful Nil MPP Norway IF Carsinav - - 5% - -

Constantza 4 Unsuccessful 59% IF To be relaunched MPP Other Galatz 4 Successful Nil - Dutch

Giurgiu - Liquidated 70% MPP No IF M/E Mangalia 1 4 Successful 49% - Korean

2 Mai Mangalia 2 - Will be offered 95% IF No after restructuring MPP Navodari 4 Successful Nil Other No

Navy Yard Unknown 100% Min of Defence No

Oltenita 4 Successful Nil IF Austrian MPP Other Orsova 4 Successful Nil IF Dutch MPP M/E Other Remat - To be offered in 99.7% MPP No 2000 Severnav 4 Unsuccessful 70% IF To be relaunched MPP Other Siaj 4 Under Negotiation 95% MPP No M/E Sorena 4 Successful Nil E No MPP IF Tulcea 4 Successful Nil IF Norway MPP Notes: 1 Joint venture co. for operations holding majority of assets of the Shipyard between Daewoo & Romanian State 2 Company owning Romanian holding in Mangalia yard and selected assets (channel & 1 building)

Legend: IF = Investment Fund; MPP = mass privatisation programme; M/E = management/employees; E = employees Romania

6. OUTPUT AND ECONOMIC ACTIVITY DETAILS

6.1 TURNOVER

The turnover of the Romanian Shipyard over the 1996 – 1998 reference period has been estimated to average approximately US$177 million. The breakdown of this by yard is shown in the following graph. Turnover is denoted according to Romanian accounting standards which records income in the year of delivery.

US $ (million) Carsinav Sorena 250 Siaj Navy Yard 200 Remat (Sulina) Giurgiu 150 Navodari Orsova 100 Oltenita Tulcea 50 Severnav Braila 0 Mangalia 1996 1997 1998 3 Yr Galatz Average Constantza

It can be seen that over the three year period, Constantza, Galatz and Mangalia Yards have accounted for approximately 60% of turnover.

Turnover expressed in local currency, the Romanian Lei, shows a different trend of year on year growth. This is predominantly the effect on ongoing inflation together with progressive devaluation of the Lei against the US dollar. The graph below shows turnover in Romanian Lei by yard for the 3 year reference period.

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Romanian Lei (million) Carsinav

1,800,000 Sorena Siaj 1,600,000 Navy Yard 1,400,000 Remat (Sulina) 1,200,000 Giurgiu Navodari 1,000,000 Orsova 800,000 Oltenita 600,000 Tulcea 400,000 Severnav Braila 200,000 Mangalia 0 Galatz 1996 1997 1998 3 Yr Constantza Average

Many of the yards are equipped for both shipbuilding and shiprepair, however in practice the shiprepair activity in a number of yards accounts for only a minority aspect of the business. The following table highlights the importance of shiprepair and conversion to the primary activity of individual shipyards during the period under review.

Table 6.2 : Shiprepair Sub-Sector Shiprepair Shipyard Activity Facilities Braila Minority activity Combined yard Constantza Repair and building Combined yard Galatz Minority activity Combined yard Mangalia Repair and building Combined yard Navodari Repair yard Repair yard Navy Yard Repair and building Combined yard Oltenita Minority activity (10% of turnover) Shipbuilding yard Orsova Minority activity (8% of turnover) Combined yard Remat Repair yard Repair yard Severnav Smaller yard dedicated to repair Separate repair facility Siaj Repair yard Repair yard Tulcea Minority activity (13% by turnover) Combined yard

The yards highlighted in blue bold print in the above table are considered to have shiprepair as either the sole or significant activity whereas the other yards are considered to operate currently as predominantly shipbuilding yards. Romania

6.2 EMPLOYMENT

Shipyard employment averaged approximately 28,500 during the 3 year period from 1996 to 1998, and it is shown in the graph below.

Shipyard Employment

35,000

30,000

25,000

20,000

15,000

Employ ees 10,000

5,000

0 1996 1997 1998 3 year Ave

It can be seen that employment has been dropping slightly year by year, resulting in a 7% reduction over the 3 year period 1996-1998.

Shipyard Employment

6,000 5,000 4,000 3,000 2,000

Employ ees 1,000 0

Braila Carsinav Constantza Galatz Giurgiu Mangalia Navodari Navy Yard Oltenita Orsova Remat Severnav Siaj Sorena Tulcea

Over the three year period, 8 main yards represent approximately 85% of the employment with Galatz being the largest with nearly 6,000 employees. The remaining seven yards account for the other 15%. The employment at the Galatz yard had dropped to approximately 4,200 by the end of 1999 following its privatisation. It is anticipated that further reductions may occur at this yard and at the two other recently privatised yards.

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6.3 OUTPUT

The shipbuilding output of the Romanian Shipyards, in terms of ships delivered/completed during the period 1996-1998, is given in the following table based on the information is available. The element labelled ‘Hulls’ represents partially outfitted vessels or steel hulls constructed at the Shipyards for completion at yards in other countries. It can be seen that this has represented a significant proportion of output throughout the 3 year period. The element labelled ‘Outfits’ is for vessels that have been completed in one yard based upon a hull constructed at another yard.

Shipbuilding Output 1996 - 99

100

80 Outfits 60 Hulls 40 Ships 20 Total Deliveries 0 1996 1997 1998 1999

Shipbuilding Output 1996 - 98

50 45 40 35 30 Hulls 25 20 Ships

Number 15 10 5 0

Braila Galatz Giurgiu Oltenita Orsova Tulcea MangaliaNavy Yard Severnav Constantza

The output from some of the yards over the period has included the sale of previously constructed unsold hulls. We believe that this has significantly inflated the output of some yards, most notably Galatz, and the sector output as a whole. Romania

We have not been able to obtain significant information on the number of vessels repaired during the period 1996-1998. We have requested this information from the main repair yards but it has not been forthcoming. The information that we have been able to compile from various sources is presented in Table 13.9 but it is insufficient to present a picture of the overall activity levels.

6.4 WORKLOAD

The shipbuilding output of the Shipyards, in terms of CGT delivered/completed during the period 1996- 1998, is given in the following table. The column headed ‘Hulls’ represents an assessment of the CGT workload of partially outfitted vessels or steel hulls constructed at the Shipyards for completion at yards in other countries. Total output has averaged 146,500 CGT over the three year period, with hulls representing nearly 40% of the total.

Compensated Gross Tons Delivered

200,000

150,000 Ships 100,000 Hulls Total

CGT (tons) 50,000

0 1996 1997 1998

It can be seen therefore that the production of steel or partially outfitted hulls forms a significant part of the Romanian output.

We believe however that the total output is understated due to the absence of technical details for some of the workload which has meant it was not possible to determine the CGT value for these ships or hull. We believe the workload may therefore be some 10-20% greater than this.

The shipbuilding output of the yards in terms of Gross Tonnage (GT) and deadweight is shown in the graphs below on a similar basis.

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Gross Tons Delivered

300,000 250,000

200,000 Ships 150,000 Hulls 100,000 Total GT (tons) 50,000 0 1996 1997 1998

Deadweight Delivered

500,000

400,000

300,000 Ships Hulls 200,000 Total

Dwt (tonnes) 100,000

0 1996 1997 1998

Output in terms of GT and deadweight may be understated for the reasons previously mentioned, however it should be noted that hulls have been recorded at the full GT or deadweight value of the completed ship. GT and deadweight are measures that relate predominantly to hull volume and cargo carrying capacity and there is therefore no logical basis on which to apportion this for hulls. Romania

7. SECTOR DETAILS

7.1 SECTOR SUB-DIVISION

The Romanian Shipyard sector is predominately concerned with commercial shipbuilding and repair with only one yard in the Military sector, which is currently also undertaking some commercial work. The commercial sector involves river, coastal/short sea and international ocean going vessels, with the River Danube yards being the focus of the river vessel related activities. The table below summarises the activity of the individual yards, however we do not have details about the extent of any current military operations at the Navy Yard in Mangalia. We understand that there has been no military shipbuilding in recent years and that the yard is involved with commercial repair and hull building in addition to the military repair/maintenance activities it undertakes.

Table 7.1 : Shipyard Activity Shipbuilding Shiprepair/Conversion Commercial Commercial Shipyard Military River Ocean Military River Ocean Braila - 4 4 - 4 - Carsinav ¹ ------Constantza - 4 4 - - 4 Galatz - 4 4 - 4 - Giurgiu ² - 4 - - - - Mangalia - 4 4 - - 4 Navodari - - - 4 - 4 Navy Yard 4 - 4 4 - - Oltenita - 4 4 - - - Orsova - 4 4 - - - Remat - - - - 4 - Severnav - 4 4 4 4 - Siaj - 4 - 4 4 - Sorena ³ ------Tulcea - 4 4 - 4 - Notes: 1 Yard incomplete, no known output 2 Yard no longer in operation following liquidation in 1999 3 Yard no longer involved in building or repair

Given the size and nature of the River Danube as a major trading route, the division of commercial vessels between river and ocean going, inevitably, in these circumstances becomes blurred. Many of the vessels built or repaired on the river may have both river and ocean going capabilities although some are clearly intended for river operation.

One simple classification that can be made is by location. With the three main yards on the Black Sea Coast (Constantza, Mangalia and Navodari) representing the main involvement with large ocean going vessels, additionally the Galatz Yard on the river Danube can also handle medium sized ocean going vessels. The remaining Danube yards are predominantly concerned with smaller river or sea-going vessel.

7.2 YARD CAPACITY

The prime shipyard facilities comprise a mix of dry docks, floating docks, shiplifts and sidelaunch mechanical systems. Table 7.2 summarises the available facilities. In total we identified five dry docks seven floating docks and 48 building/repair berths.

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Table 7.2 : Shipyard Capacity Docks /Berths Max Ship Dwt Throughput Shipyard Dry Floating Berths Build Repair Steel CGT Docks Docks tonnes Braila ¹ 12 11,000 11,000 Constantza 2 2 250,000 250,000 65,000 Galatz ¹ 1 3 60,000 60,000 72,000 Mangalia 2+1 250,000 250,000 Navodari 3 - 65,000 Navy Yard ¹ 1 1 1,000 2,500 Oltenita ¹ 6 5,000 18,000 Orsova ¹ 1 3 3,000 3,000 Remat ² Severnav ¹ 10 10,000 2,000 40,000 Siaj ¹ 4 - 500 Tulcea ³ 9 16,000 16,000 Notes: 1 Berths serviced by a mechanical side launch and transfer system 2 Detail of facilities not known 3 Berths serviced by a shiplift 4 Based on dock dimensions-Yard literature quotes 200,000 dwt

The largest size of vessel that can be built or docked in Romania is approximately 250,000 dwt which can be handled in the larger dry docks at the Mangalia and Constantza Yards.

In the Mangalia Yard the larger dock is designated as a repair dock, however in Constantza the larger dock is designated as a shipbuilding dock. In practice there is ability to do both shiprepair and shipbuilding in either if necessary. The sector is therefore able to output both shipbuilding and shiprepair up to VLCC sized vessels.

The sector also supports shipbuilding and shiprepair for medium sized ocean going vessels, based on the dry dock at Galatz, on the river Danube and the floating docks at Navodari and Constantza, on the Black Sea coast.

The remaining facilities in the sector support shipbuilding and repair of the river and small sea-going vessels up to approximately 16,000dwt. The facilities are mainly located on the River Danube and are generally mechanical sidelaunch or shiplift systems which service berths that can be used for either shipbuilding or repair work.

In terms of overall work volumes, the yards do not appear to have been working at full capacity during the 1996-98 period. Specifically, Mangalia yard has had limited shipbuilding output during a period of post-production reorganisation. Additionally significant output increases in the future are possible from the facilities through productivity improvement. Romania

7.3 DELIVERIES BY VESSEL TYPE

Shipbuilding production during the three year reference period has covered a wide range of vessel types, but has included a large number of steel or partially outfitted hulls. The mix of work is shown in the following graph.

Shipbuilding Product Mix 120

100

20 No of Deliveries 96 - 98 0 Tankers Bulk Carriers General Cargo Containers Gas Carriers Ro-Ros Tugs/Pusher Units Dredgers River Sets/Barges Other Ships Unknown Hulls

The greater variety of product mix; such as Ro-Ro and Gas carriers, relates mainly to river or small sea going vessels. Much of the hull building work has also related to smaller vessel types.

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8. MARKET AND COMMERCIAL ENVIRONMENT

8.1 SUPPLIER PROFILES

A majority of the yards source their supplies from the international market, in accordance with the specification requirement of the owners. As can be seen from the comments in the following sections, the customer base is predominantly international or European rather than domestic and this is reflected in the choice of prime mover, main machinery and ship’s equipment.

In the case of partially outfitted vessels hulls, certain of the equipment and machinery comes as customer supply either from the finishing/contracting shipyard or from the eventual owner of the vessel.

In terms of raw materials, the situation is slightly different, particularly for shipbuilding quality steels. Some of the yards predominantly buy their steel supplies from domestic producers, such as Sidex in Galatz. Other yards are buying their steel on the international market, with the Ukraine being the dominant supplier at the time of our visit February 2000. These organisations, found that they could get adequate quality and delivery terms at a better price from the Ukraine, and were therefore doing this as a commercial decision.

In general terms, paint and primer supplies were sourced from international suppliers, in accordance with ship specification requirements, although these may come from licensee suppliers or manufacture plants within Romania.

The yards generally undertake fairly extensive in-house manufacture of components, such as outfit steel, pipework and joinery items and as such they are not purchasing such items either domestically or internationally.

The main exception to this profile, would be the very small enterprises such as Siaj, or the repair yards that have lower requirements, where domestic sourcing of raw and finished materials was more extensive.

8.2 CUSTOMER PROFILES

The customer base for shipbuilding is predominantly international for both ocean going ships and smaller river vessels. The main composition of this over the period 1996-1998 is shown in Table 8.1.

Table 8.1 : Shipbuilding Client Base Country % by CGT Norway 22 Netherlands 17 Germany 13 Romania 12 Belgium 9 China 7 Czech Republic 4 British Virgin Isles 4 Russia 4 Greece 3 Malta 2 Ukraine 2 Romania

It can be seen that domestic customers represent only a small proportion of the customer base and the remainder is fairly diversified, mainly within Europe. The substantial volume of steel or partially outfitted hulls has made Norway, the Netherlands and Germany the biggest customer countries over the three year period from 1996-1998 accounting for over half of the workload. The customer base, particularly for smaller vessels and hulls, may not be fully represented because of low or missing CGT information for such vessels.

We were advised that there has been no construction of military vessels for the Romanian Navy, largely due to state financial/budgetary constraints. The Navy Yard in Mangalia, currently undertakes some shipbuilding work for commercial customers, although we do not have specific details of the activities of this yard.

In terms of shiprepair, we do not have sufficient detailed information to assess the nature of the customer base. In general terms, the level of river based repair work has dropped dramatically since the blockage of the River Danube during the Kosovo conflict. For those enterprises with repair facilities on the River Danube, this has meant that the ‘passing trade’ customer base of Danube traffic has ceased and current activity is largely for local vessels and port traffic. Information supplied by the Ministry of Industry for the sector as a whole indicates that approximately 70% of the repair market is export.

In general terms, the larger Black Sea based repairers, seem to have a mix of domestic and international customers, however there is a desire to increase the level of international work.

We understand that a limited volume of military/naval repair work is undertaken but have not details to support this at the present time.

8.3 ORDERBOOK

The forward orderbook for shipbuilding, varies considerably from yard to yard, with some yards showing workloads into 2002. In general the yards have not provided us with full details of their orderbook, so we have compiled our analysis from public data sources. This may understate the element of work for hulls and smaller vessel, especially from some yards which do not seem to be well documented in public sources. However we believe the following information provides an useful picture of the composition by vessel type.

Table 8.2 : Shipbuilding Orderbook Ship Type No of Vessels General Cargo 21 M/p Dry Cargo 11 Fishing Vessels 4 Bulk Carriers 3 Offshore 2 Ro-Ro 1 Tanker 1 Container 1 LPG 1 Hulls 22 Total 67

It can be seen that Hulls form a significant proportion of this forward orderbook, continuing the trend of past production.

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8.4 SHIP PRICES

Information from public sources on ship prices is available only for occasional vessels, which are unsubstantiated. Certainly the level of price reporting in the public sector is considerably lower (almost non-existent) in comparison with Western European, and Far Eastern countries. During our visits to the Shipyards, we requested this information on ship prices on a confidential basis, however they have universally declined to provide this.

We do not believe however that there is any major distortion to market prices, and we have seen nothing to make us believe that there is an issue regarding injurious pricing. The relatively small size of the domestic market and its predominantly private sector composition does not lead us to believe that there is any subsidy from the domestic market. Romania

9. FINANCIAL PERFORMANCE

The following financial information has been compiled from statutory and other accounts prepared in accordance with Romanian accounting conventions, rather than international accounting standards.

9.1 TURNOVER

The turnover of the Romanian Shipyard sector has been estimated to average around US$ 177 million over the three year reference period. It has not been possible to determine an exact split of this between, shipbuilding, shiprepair and other activities, however the following graph shows the estimated split based on the information available. Over the three year reference period the split between shipbuilding and shiprepair approximates 75/25%. This is broadly consistent with information supplied by the Ministry of Industry.

Turnover

250.0

200.0

150.0 Other Shiprepair 100.0 Shipbuilding

US $ (million) 50.0

0.0 1996 1997 1998 3 Yr Ave

These turnover figures are based on information prepared using Romanian accounting standards, as it has not been possible to establish turnover for all yards based on international accounting standards.

9.2 PROFITABILITY

Shipyard profitability has been highly variable at a sector level over the three year period. Over the whole period the sector has shown net losses in US dollar terms.

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Shipyard Profitability 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0

US $ (million) -20.0 -25.0 -30.0 1996 1997 1998 3 Yr Average

It can be seen that there have been significant profitability problems in the sector. Five yards have recorded net looses in US dollar terms – Constantza, Mangalia, Tulcea, Remat and Giurgiu. The latter yard has gone into liquidation and ceased operation.

Profitability by Yard 1996-98 Average

4.0 Braila Carsinav 3.0 2.0 Constantza Galatz 1.0 0.0 Giurgiu Mangalia -1.0 Navodari Oltenita -2.0

US $ (million) -3.0 Orsova Remat -4.0 -5.0 Severnav Siaj -6.0 Sorena Tulcea

The Constantza and Mangalia Yards have both recorded significant losses. The Mangalia Yard, now under part private ownership, has yet to record profits since its privatisation and is understood to be undergoing financial review at present. The Constantza Yard is state owned and recorded significant losses during 1998. The recently privatised Tulcea Yard recorded minor losses during 1998.

9.3 SOURCES OF FUNDING

The Romanian yards have traditionally obtained their finance from the domestic banking sector, however the cost of finance is very high, sometimes up to 25% we were advised by one of the yards. For the domestic or state owned yards finance from international banks is not readily available and is very expensive. The yards are therefore at a considerable disadvantage in terms of both availability Romania

and cost of finance. This has a major effect on the shipbuilding yards and is one of the reasons why many of the yards have moved part of their workload to hull building where the financing is less onerous or is arranged by the contracting yard.

9.4 INVESTMENT

In general terms the level of investment in the yards has been very limited over the last 10 years due to state budgetary and economic conditions. Many of the yards were either built, re-built or substantially refurbished during the 1970’s and had periodic investment by the state from then during the communist era.

We believe that privatisation agreements with international investors, have included commitments on investment by the international investors, however we do not as yet have any specific details of this. Recent privatisations earlier in 2000 refer to investment commitments by foreign investors. We think it is unlikely that those enterprises sold to employees or domestic investors would have any significant element of such investment.

Significant investment commitments were part of the privatisation agreement for Mangalia and the yard has been undergoing re-organisation and rationalisation over the last two years. We were however not able to gain access to this yard to view the impact of this.

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10. GOVERNMENT SUPPORT

10.1 OPERATING SUBSIDY

The Romanian commercial Shipyards are not in receipt of direct contract subsidies such as those that are currently available at various levels to certain EU countries. The main reasons for this appear to be budgetary, in that the Romanian State does not have the money to offer such subsidies to the Shipyards. Following the completion of the draft final report we have however been advised by the Navy Yard that it benefits from some subsidy, but we have no details of this.

10.2 SUPPORT OF LOSSES

For enterprises under state ownership, government support can exist in the form of supporting loss making industries. It is a difficult area to assess, in so far as losses per se do not indicate government support, if the balance sheet and general commercial status of the enterprise can support these. If however, creditors or banks allow an unprofitable enterprise to continue trading (that otherwise they would not) on the grounds that the state is the owner or majority owner, then it can be construed that the enterprise is being supported by government.

To take a simple perspective on this matter for the Romanian Shipyards, we have looked at the net average profitability of the enterprises over the three year period 1966-1998. To do this, the profitability has been taken from the company accounts that have been prepared in accordance with Romanian accounting practices, in which sales are recorded as turnover in the year of delivery without any matching of costs and income. Whilst this practice will distort the view of profitability, in part this will be offset through taking a 3 year perspective.

Table 10.1 : Loss-Making Shipyards Shipyard Ave Profit/(Loss) 1996-98 Current State Holding Lei (mill) US $ (mill) % Braila 1,289 0.3 - Carsinav 292 0.0 5% Constantza -17,796 -1.6 59% Galatz 16,133 2.8 - Giurgiu -31,836 -3.6 Liquidated Mangalia -43,442 -4.9 49% Navodari 270 0.0 - Navy Yard N/a N/a 100% Oltenita 1,357 0.3 - Orsova 5,293 0.8 - Remat -156 0.0 100% Severnav 2,077 0.8 70% Siaj 41 0.0 95% Sorena -490 -0.1 - Tulcea -3,134 -0.2 -

It can be seen that most of the loss making companies still have a significant state holding, which is not perhaps surprising, in that it is the profitable yards that have largely been successfully privatised. One small yard Giurgiu is already under liquidation following court action by its creditors. Romania

The most extreme cases are the major losses being incurred by the two large yards, Constantza and Daewoo Mangalia. We understand that the Mangalia yard is currently undergoing a financial restructuring. In our discussions with the management of the Constantza yard, they indicated that one of the main causes of their recent losses, was the heavy cost of finance on the substantial debts/borrowings of the shipyard.

10.3 DEBT RESCHEDULING AND WRITE-OFF

We would anticipate that, as part of the privatisation negotiations with investors, there may have been some re-scheduling of debts and/or write-off of debts for the Shipyards already privatised. We have made enquiries and discussed this issue with the State Ownership Fund, who have directed us to the Ministry of Finance regarding this information. We have not been able to get any further details regarding this.

We understand however that in at least one of the two yards privatised early in 2000, the foreign investor has assumed the yard’s debts, which may relate to the relatively low purchase price paid.

10.4 OTHER SUPPORT AND USE OF AID

We have also spoken with government officials in Romania, regarding the use of international and other aid agency funds (eg, Phare programme, EBRD, IMF, etc) to support management or operational restructuring.

Responses seem to indicate that there has been no significant use of such funds for the Romanian Shipyards. There have been some use of funded assistance for business reviews but at a relatively low level.

10.5 PROTECTED CUSTOMER BASE

In view of the lack of military/naval workload and the lack of commercial orders from the national flag carrier Navrom, we do not see any evidence of non-commercial operation or support coming from a protected customer base.

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11. COMPETITIVENESS

11.1 COSTS

The prime labour costs of the shipyards are very low in the range of $1.10– $1.50/ hour including social insurance on-costs in 1998. At this level it is highly cost competitive on a simple time-based comparison with Western European and other developed shipbuilding economies in the Far East.

Average Industrial Wage

3000 2500 2000 1500 1000 500 US $/month 0 Belgium Romania Germany Greece Spain

1995 1996 1997 1998

In general this reflects the lower general level of wages in the country although the wages at the larger shipyards are generally higher than many other industries. To demonstrate the general level of wages we have shown below the average monthly industrial wage (in US$ terms) for Romania in comparison with four other western and southern European countries for the period 1995-1998 (subject to data availability). The shipyard wages appear to be slightly higher than the average industrial wages.

However this prime labour cost advantage is offset by lower productivity in the shipbuilding yards and generally higher indirect/overhead manning ratios. This generates a high overhead labour element in the cost base which impacts adversely on the overall cost effectiveness of the shipyards and burdens the full recovery cost of direct labour.

The remaining non-labour overhead cost base whilst generally benefiting from a lower cost economy, does suffer in certain specific areas such as energy where costs are higher. Additionally, the under- utilised and over equipped production capacity legacy of the former planned economy era inflates overhead costs.

In summary, therefore the prime labour cost is very low and provides a cost advantage to the yards, however this is in part defrayed by high levels of indirect workers and overhead costs, and low productivity (discussed later). The overall costs of production are however still comparatively low, providing adequate workload levels can be maintained. For the yard showing the highest productivity we have calculated total operating costs to be in the range $600-$650 CGT over the three year period. This is highly competitive with market leaders. Romania

11.2 TECHNOLOGICAL

The technology of the shipbuilding yards has been assessed against the Appledore technology audit datum, which is expressed in terms of Shipyard development ‘generations’. This 5 point scale grades yards according to their facilities and management processes and has been widely accepted as a simple measure of technological advancement. The scale comprises:

Table 11.1 : Shipbuilding Technology Level Description 1 Reflects typical practice of the early 1960s – small cranage, multiple open berths, post launch outfitting, little mechanisation. Manual operating systems 2 Reflects yard modernisation of the late 1960s/ early 1970s. Fewer berths or dock, larger cranes, some mechanisation. Some computerised systems 3 Good practice of the late 1970s, new/fully redeveloped yards, large capacity cranes, some weather protection at dock or single construction area. High degree of mechanisation and use of computers. 4 Technology advances of the 1980s. Generally single dock, good weather protection, extensive early outfitting and fully developed operating systems. 5 State of the art of the 1990s, with automation, integration of operating systems by CAD. Computer aided material control and Quality Assurance.

The shipbuilding facilities in Romania are considered to be generally of the Level 3 technology level, consistent with many yards developed during the 1970s and 1980s in terms of physical facilities. This would put them on a par with many yards throughout the developed world. The two larger yards would rate slightly higher than the others and two of the river yards were felt to be less advanced.

The basic facilities however were in most instances felt to provide an adequate base for the yards to develop on, without major capital investment or development. The priority areas are seen as being developments in management and operating systems and in outfitting technology. Clearly those yards privatised to foreign investors have gained access to valuable skills in these areas through their partnerships and a faster rate of development may be expected from these yards. However there have also been interesting examples of European partnerships in the yards under state ownership prior to privatisation.

In terms of shiprepair, no similar widely accepted comparison scale exists, the production, facility and organisational related aspects of shiprepair being less definitive. In facilities terms shiprepair technology tends to be predominantly about the nature of docking facilities, the painting and blasting processes and the diversity of other tasks that the yard is equipped to undertake. In management terms, the technological aspects of shiprepair relate to the scale and complexity of shiprepair tasks that can be undertaken, the contract management and invoicing control and the speed of turn-around achievable.

Table 11.2, summarises the nature of the basic shiprepair facilities at each yard. Whilst this is by no means definitive, it does represent a basic physical production platform against which the repair technology at each yard is developed.

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Table 11.2 : Shiprepair Facilities Shipyard Afloat Floating Dry Dock Covered Dock /Ship Lift Repair Berth Braila 4 4 Constantza 4 4 4 Galatz 4 4 4¹ Mangalia 4 4 Navodari 4 4 Oltenita 4 4 Orsova 4 4 Severnav 4 4 Siaj 4 4 Tulcea 4 4 4¹ Notes: 1 Currently used for shipbuilding

In an attempt to offer a broader assessment of shiprepair technology we have assessed the yards against an equivalent 5 point scale to that used for shipbuilding. This scale is assumed to represent the full spectrum of shiprepair technology and practice, with Level 1 representing basic shiprepair operation and Level 5 representing current best practice. The following table indicates some of the key characteristics of these two extremes.

Table 11.3 : Shiprepair Technology Level Description 1 Typical practice of the early 1960s with limited ship docking or recovery capacity or a yard in which afloat work only is possible. Small capacity craneage and limited supporting workshops and services capability. Limited planning/project management and organisational skills resulting in longer repair durations. Poor general level of supporting industrial infrastructure. Not capable of undertaking more complex repair and conversion projects. 5 Multiple ship docking/recovery capacity with adequate associated wet berths. Modern high performance craneage with good quality workshops and extensive services capability. Advanced planning/project management ability and high organisational and contractual skills resulting in short repair durations. Excellent general level of supporting industrial infrastructure. Capable of undertaking the most complex repair and conversion projects.

The operational technology employed within the Romanian shiprepair is considered to cover a spectrum from Level 1 in some of the smallest facilities up to Level 3 in the two largest yards. Potential for improvement would, in the better yards, be dependent upon strengthening the management and organisational skills and in developing a stronger base in conversion work and substantive repair work on more complex vessel types. It should be noted however, that the management at the Mangalia yard were not willing to receive us and it was therefore, unfortunately, not possible to assess to what, if any, level the yard had improved its shiprepair practices under the present management.

Finally, it should be noted that many of the yards in Romania have been designed to operate as combined yards undertaking both repair and shipbuilding activities, although repair levels at the river yards are generally very low at the present time. The basic characteristics of shiprepair and shipbuilding differ significantly from each other, particularly in terms of response times, lead times, workload definition and planning and customer management. Shipbuilding is a manufacturing industry and shiprepair is a service industry and they require different management and organisational skillsets Romania

as well as a different balance of production facilities. Combining such activities within a single operation is difficult without detriment to both. We believe this may be a barrier to the future improvement of combined yard operations.

11.3 PRODUCT RELATED

In shipbuilding terms the ship types built during recent years has comprised generally the basic cargo carrying vessels such as bulk carriers, general cargo vessels, basic tankers and river or short sea cargo vessels. In terms of repair, a greater diversity of ship types is covered.

For the purpose of summary, ship types have been divided into 4 categories for commercial vessel types reflecting varying levels of product complexity. Additionally naval/military vessels have been classed separately in a single category. The experience base of the Romanian shipyards in terms of vessel complexity and sophistication over recent years is summarised in the following table.

Table 11.4 Product Experience Activity Ship Types Small Basic Cargo Specialist Passenger Military 1 2 Cargo 4 Shipbuilding 4 4 4 Hull building 4 4 4 Conversion 4 4 Repair 4 4 Notes: 1 Fishing vessels, tugs, river barges, dredgers, offshore patrol 2 General cargo, bulk carrier, oil tankers, container 3 Reefer, LNG, LPG, Chemical tankers, Ro-Ro etc 4 Passenger ferries, cruise ships, leisure vessels

Size is a major contributor to complexity, especially in shipbuilding activity, where the hull form and the density of outfit and engineering installation may be significantly increase the complexity of smaller vessels. This has been reflected in the weighting given to the compensation factors used to calculate the CGT work content measure for commercial vessels.

As an additional measure of product related technology, we have calculated the weighted average compensation factor for all rated vessels delivered within the 3 year reference period. The Romanian yard workload average factor is 0.84. This level is consistent with basic small to medium-sized cargo vessels. Comparative factors for various other European shipbuilding countries are shown in the following table, from which it can be seen that Romanian is at the lower complexity level.

Table 11.5 : Shipbuilding Average CGT Compensation Factors Country Ave CGT factor Country Ave CGT factor Latvia 1.84 Italy 0.95 Norway 1.76 United Kingdom 0.94 Slovakia 1.67 Sweden 0.93 Netherlands 1.45 Spain 0.87 Lithuania 1.25 Romania 0.84 France 1.19 Poland 0.82 Finland 1.03 Bulgaria 0.78 Ukraine 0.96 Croatia 0.77 Germany 0.95 Denmark 0.77 Source: Ai collated data for study countries, AWES data for other countries

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11.4 PRODUCTIVITY

Productivity, measured crudely by CGT/employee year, has been calculated for the large Constantza yard and for four of the other yards where shipbuilding has been the primary activity over the three year period from 1996 – 98. This calculation has been based on the estimated shipbuilding employment at the yards on the basis of information gathered. The results fall in to the range of between 5–10 CGT/employee year.

There are however several distortions to this data. Firstly some of the yards have had significant output resulting from the resale of previously constructed hulls and secondly we have no CGT information of details on some of the output during the period. These two factors will have opposite effects on the productivity calculations and we are not able to say how much this has distorted the results.

The productivity levels in the shipbuilding yards are however believed to be generally lower than those of the EU yards, where crude productivity averaged around 50 CGT/employee year. Inevitably these calculations are crude, however it can be assumed that productivity levels are an ‘order of magnitude’ lower in the Romanian yards. However, as identified earlier in this report, the unit labour costs are also substantially lower.

Productivity is extremely difficult to measure in shiprepair and no simple and universally accepted measure exists.

11.5 ENVIRONMENTAL AND HEALTH & SAFETY

Like most shipyards around the world, the Romanian yards will suffer from accumulated contamination of the site due to the industrial processes undertaken over time. In terms of their on-going processes, there are a range of activities in use that are unlikely to comply fully with EU environmental legislation. The situation varies from yard to yard, however it is believed that the general environmental control is lower than in the larger EU shipyards.

The levels of health and safety precautions are visibly lower than in most EU shipyards, with only limited evidence of the use of personal protective equipment by employees and management. The situation was better in one or two of the yards in comparison with the remainder. We were not,, however able to visit the Mangalia Yard which has been under foreign management for three years to see what, if any, impact this may have had.

Details of recent privatisations have included specific commitments for investment to improve environmental control. Romania

12. STRUCTURAL ADJUSTMENTS AND ASSISTANCE INITIATIVES

12.1 EU ACCESSION REQUIREMENTS

Romania does not operate a scheme to provide operational subsidies for shipbuilding and we have not identified any other forms of aid to shipyards over the period of 1996-1998 that conflicts with EU requirements. However, there is evidence of significant losses at yards that are still under full or partial state ownership. The most significant of these are the Constantza, Mangalia and Tulcea yards.

The Tulcea yard has subsequently been privatised to Norwegian investors and the state no longer has any shareholding in this yard. The state however still has significant shareholdings (approximately 50- 60%) in both Mangalia and Constantza yards. Mangalia which was “privatised” to Korean investors in 1997, but where the state still owns 49%, has yet to record profits. We understand that the business is undergoing a financial review prior to the state offering its remaining shareholding for sale. There have also been indications that Daewoo were looking to sell their stake however we have not been able to get any further details of this situation or what the outcome is likely to be.

At the Constantza yard significant losses were incurred in 1998, which according to the yard, relate to the high interest rates that they have to pay on accumulated debt. Half year accounts for 1999 show ongoing losses but we have not been able to obtain finalised accounts for that year.

In terms of environmental and health and safety aspects, we believe there is a need for improvements in both areas in order to satisfy current regulations and standards. The situation does vary at individual yards. Where yards have been privatised to foreign investors, there have generally been a commitment to investment to improve and upgrade the yard including environmental aspects. Additionally there is evidence of improved working practices at the Galatz Yard and further progress can be expected there and at the recently privatised Tulcea and Braila Yards. Assistance with environmental and safety audits would help facilitate and prioritise improvement, particularly at the domestically owned yards.

12.2 ASSISTANCE MEASURES

Those yards in Romania, that are not under foreign ownership, suffer disadvantage and problems with the availability and cost of ship and other finance. We were advised that financing costs of 10-12%, sometimes as high as 25%, are being encountered. These yards seem therefore to operate at a significant disadvantage compared to Western European Yards.

The problem is mainly one of transition, until such time as the yards have been able to establish their own financial ‘track record’ with international banks and until the Romanian banking sector is better able to service the needs of the industry. The long term opportunities for the sector would benefit significantly from a scheme to provide competitively priced shipbuilding finance, working capital and investment capital during an agreed transition period.

Discussions have been taking place with EBRD regarding opportunities to provide contract and other financing to shipyards, within an acceptable role framework for the bank. However it is not clear what the outcome of this will be.

There is a need to improve environmental and health and safety conditions at most of the yards. It is considered that a programme of assistance to yards to audit their current position in relation to EU requirements, would help to clarify the extent and nature of the improvement required and provide a effective basis against which to plan and monitor improvements.

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It is clear that the current situation on the Danube with the physical and ‘bureaucratic’ navigational restrictions at Novi Sad has led to a significant reduction in river traffic. Most of the river yards which are designed to undertake both repair and shipbuilding have reported major reductions in repair workload since 1997 and this has clearly affected both income and employment in this sector. Some concern has been expressed that this is also now affecting the demand for new river tonnage and hence the shipbuilding workloads. We understand that agreement has now been reached on the financing of the debris clearance.

However it should be noted that, based on the experience of the Slovakian shipyards, the restrictions appear to be both physical and bureaucratic. That shipyard is experiencing considerable difficulties with the Yugoslav authorities in obtaining the permission for pontoon bridges to be moved to allow free passage downriver. The resumption of river trade would seem therefore to be dependent upon progress on both of these fronts and the Shipyards will only benefit when this trade resumes. Romania

13. NUMERICAL DATA TABLES

13.1 FINANCIAL

Table 13.1 : Shipyard Turnover 1996 1997 1998 Shipyard Lei ¹US $ Lei ¹US $ Lei ¹US $ mill mill mill mill mill mill Braila 54,515 18.5 103,717 14.5 108,534 12.2 Carsinav 459 0.2 1,430 0.2 3,302 0.4 Constantza ² 162,775 55.3 123,336 17.2 394,163 44.4 Galatz 143,167 48.6 272,401 38.1 259,086 29.2 Giurgiu 12,759 4.3 24,065 3.4 33,855 3.8 Mangalia 3 74,462 25.3 171,846 24.0 243,678 27.4 Navodari 2,697 0.9 7,728 1.1 13,395 1.5 Navy Yard 13,490 4.1 31,944 5.3 41,577 4.3 Oltenita 49,685 16.9 54,898 7.7 132,634 14.9 Orsova 20,737 7.0 59,812 8.4 70,882 8.0 Remat 1,086 0.4 2,418 0.3 3,137 0.4 Severnav 54,764 18.6 107,909 15.1 98,537 11.1 Siaj 3,809 1.3 8,233 1.2 13,914 1.6 Sorena 4,035 1.4 7,761 1.1 9,093 1.0 Tulcea 42,745 14.5 122,004 17.1 119,924 13.5 Total 641,185 217.2 1,099,502 154.7 1,545,711 173.7 Notes: 1 US $ turnover converted at average exchange rate for the year 2 1996 US$ turnover as given in the annual report is lower 3 1996 figures for Mangalia are unconfirmed

Table 13.2 : Shipyard Profitability Shipyard 1996 1997 1998 Lei US $ mill ¹ Lei US $ mill ¹ Lei US $ mill ¹ mill mill mill Braila 2,511 0.85 162 0.02 1,195 0.13 Carsinav 9 0.0 123 0.0 746 0.1 Constantza ² 3,889 1.3 15,088 2.1 -72,366 -8.2 Galatz 11,819 4.0 14,144 2.0 22,437 2.5 Giurgiu 130 0.0 206 0.0 -95,845 -10.8 Mangalia ³ 5,619 1.9 -48,882 -6.8 -87,062 -9.8 Navodari 9 0.0 125 0.0 676 0.1 Navy Yard n/a n/a n/a n/a n/a n/a Oltenita 1,516 0.5 2,686 0.4 -130 0.0 Orsova 2,253 0.8 6,218 0.9 7,407 0.8 Remat 35 0.0 10 0.0 -513 -0.1 Severnav 8,368 2.8 -3,176 -0.4 1,040 0.1 Siaj 177 0.1 145 0.0 -198 0.0 Sorena -17 0.0 -1,197 -0.2 -257 0.0 Tulcea 1,622 0.6 743 0.1 -11,768 -1.3 Total 37,939 12.9 -13,605 -1.8 -234,639 -26.5 Notes: 1 US$ profits converted at average exchange rate for year 2 1996 US$ profit as given in annual report is lower 3 1996 figures for Mangalia are unconfirmed

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13.2 EMPLOYMENT

Table 13.3 : Shipyard Employment 1996 1997 1998 Shipyard Employees Employees Employees Braila 3,847 3,680 3,447 Carsinav - - 45 Constantza 4,322 3,973 3,699 Galatz 5,876 5,882 5,182 Giurgiu 2,152 1,912 1,349 Mangalia 3,466 3,311 3,340 Navodari 49 71 75 Navy Yard 1,331 1,218 1,060 Oltenita 2,122 2,116 1,906 Orsova 730 826 857 Remat 164 173 171 Severnav 2,168 2,381 2,439 Siaj 391 407 385 Sorena 225 202 186 Tulcea 2,698 2,957 2,983 Total 29,541 29,109 27,124

13.3 SHIPBUILDING OUTPUT

Table 13.4 : Shipbuilding Output – Numbers of Vessels 1996 1997 1998 1999 Shipyard Ships Hulls Total Ships Hulls Total Ships Hulls Total Ships Comp Hulls Total Braila 3 2 5 2 4 6 3 5 8 2 - 11 13 Constantza 2 - 2 - - - 1 2 3 17 1 1 19 Galatz 1 7 19 26 4 6 10 4 5 9 21 - 7 28 Giurgiu ------1 - 1 - - - - Mangalia 1 - 1 - - - 14 1 15 9 1 3 13 Navy Yard 2 - 2 1 2 3 - 2 2 1 - - 1 Oltenita - 2 2 2 1 3 1 - 1 2 - 1 3 Orsova - 1 1 - 1 1 - 1 1 - - 1 1 Severnav 2 2 4 1 2 3 3 3 6 3 - 4 7 Tulcea 5 6 11 2 2 4 - 3 3 3 - 3 6 Total 22 32 54 12 18 30 27 22 49 58 2 31 91 Notes: 1 1996 figures and split between ships for all years not confirmed by yard 2 Yards not shown had no shipbuilding output during the period Romania

Table 13.5 : Shipbuilding Output in Compensated Gross Tons 1996 1997 1998 1999 Shipyard Ships Hulls Total Ships Hulls Total Ships Hulls Total Ships Outfits Hulls Total Braila 5,789 5,126 10,915 17,699 7,496 25,195 22,153 8,434 30,587 16,432 - 16,158 32,590 Constantza 26,826 - 26,826 - - - 8,843 8,212 17,055 26,826 3,537 4,052 34,415 Galatz 60,774 12,671 73,445 - 23,726 23,726 26,745 22,221 48,966 - - 16,435 16,435 Giurgiu ------2,072 - 2,072 - - - - Mangalia 20,221 - 20,221 - - - 16,777 2,823 19,600 25,362 2,158 6,708 34,228 Navy Yard n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Oltenita - 4,507 4,507 8,740 2,419 11,159 4,625 - 4,625 9,165 - - 9,165 Orsova - 1,518 1,518 - 1,518 1,518 ------Severnav 9,296 5,471 14,767 2,866 6,126 8,992 13,444 8,920 22,364 14,087 - 13,733 27,820 Tulcea 10,288 18,614 28,902 21,620 10,452 32,072 - 10,565 10,565 17,721 - 14,667 32,388 Total 133,194 47,907 181,101 50,925 51,737 102,662 94,659 61,175 155,834 109,593 5,695 71,754 187,042 Notes: 1 Includes significant number of river vessels in 1996 for which no CGT value is available 2 Galatz data includes 13 vessels/hulls for which there is no CGT value in 1996 3 Data believed to be incomplete 4 No data available at present but aware some output has occurred 5 Yards not shown had no recorded or known shipbuilding output during the period 6 In the absence of specific information hulls have been assumed to represent 60% of total vessel CGT

Table 13.6 : Shipbuilding Output in Gross Tons 1996 1997 1998 1999 Shipyard Ships Hulls Total Ships Hulls Total Ships Hulls Total Ships Outfit Hulls Total Braila 7,092 2,426 9,518 16,870 3,427 20,297 12,000 3,732 15,732 12,870 - 14,993 27,863 Constantza 90,392 - 90,392 - - - 9,826 19,652 29,478 89,420 9,826 3,366 102,612 Galatz 71,104 17,082 88,186 0 35,776 35,776 25,981 32,839 58,820 - - 20,851 20,851 Giurgiu ------1,120 1,120 - - - - Mangalia 50,552 - 50,552 - - - 20,028 941 20,969 14,833 3,996 5,756 24,585 Navy Yard n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Oltenita - 4,867 4,867 4,724 2,986 7,710 2,840 - 2,840 4,474 - 2,986 7,460 Orsova - 1,100 1,100 - 1,100 1,100 - - - 0 - 3,000 3,000 Severnav 6,886 8,008 14,894 1,642 8,008 9,650 8,402 7,643 16,045 8,197 - 18,649 26,846 Tulcea 2,485 15,112 17,597 9,816 12,550 22,366 0 6,559 6,559 5,538 - 9,474 15,012 Total 228,511 48,595 277,106 33,052 63,847 96,899 80,197 71,366 151,563 135,332 13,822 79,075 228,229 Notes: 1 Galatz data includes ? for which there is no GT value in 1996 2 Data believed to be incomplete 3 No data available at present but aware some output has occurred 4 Yards not shown had no recorded or known shipbuilding output during the period 5 Hulls are included at full GT values

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Table 13.7: Shipbuilding Output in Tonnes Deadweight 1996 1997 1998 1999 Shipyard Ships Hulls Total Ships Hulls Total Ships Hulls Total Ships Outfits Hulls Total Braila 1,800 - 1,800 19,634 3,369 23,003 9,415 560 9,975 10,108 - 4,450 14,558 Constantza 172,000 - 172,000 - - - 10,500 21,000 31,500 190,200 10,500 3,650 204,350 Galatz 106,796 24,410 131,206 - 34,597 34,597 33,492 31,675 65,167 - - 34,456 34,456 Giurgiu ------1,250 1,250 - - - - Mangalia 84,750 - 84,750 - - - 32,233 1,800 34,033 23,479 5,428 9,653 38,560 Navy Yard n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Oltenita - 7,450 7,450 6,348 4,834 11,182 3,832 - 3,832 3,580 - 4,830 8,410 Orsova - 3,800 3,800 - 3,440 3,440 - 1,500 1,500 - - - - Severnav 9,800 10,600 20,400 3,050 10,600 13,650 10,194 9,168 19,362 14,247 - 26,298 40,545 Tulcea - 21,374 21,374 11,220 11,500 22,720 - 4,159 4,159 7,500 - 1,700 9,200 Total 375,146 67,634 442,780 40,252 68,340 108,592 100,916 69,862 170,778 249,114 15,928 85,037 350,079

Table 13.8 : Shipbuilding Output by Vessel Type Ship Type 1996 1997 1998 1999 Ships Hulls Ships Hulls Ships Hulls Ships Hulls Tankers - Crude - - - 1 - 1 1 1 Tankers - Products/Chemical 4 1 - 1 - - 1 1 Bulk Carriers 1 - - 2 1 - 1 1 General Cargo 2 3 3 1 3 4 5 4 M/P Dry Cargo 1 2 1 2 3 1 9 5 Container Ships 1 2 2 2 4 2 4 2 Gas Carriers - - - - 2 - 1 1 Ro-Ro Ships - - - 2 1 2 - - Ferries ------Fishing vessels - 4 - 5 - 6 - 11 Offshore vessels - 2 - - - 3 - 5 Tugs ------2 - Pusher units ------2 - Barges 4 - 0 - 1 1 12 - River sets 2 ------Dredgers 1 ------Other 4 1 1 - - - - - Unknown 2 17 5 2 12 2 22 - Total 22 32 12 18 27 22 60 31 Notes: 1 1999Ship deliveries include 2 ships outfitted 2 Output from Galatz includes deliveries for which no vessel details are available 3 Output from Mangalia includes deliveries for which no vessel details are available Romania

13.4 SHIPREPAIR WORKLOAD

Table 13.9 : Shiprepair Workload – Ships Stemmed 1996 1997 1998 Shipyard Ships Ships Ships Braila 13 Constantza 58 Galatz 12 11 13 Giurgiu Mangalia 18 27 Navodari 42 Navy Yard 21 25 13 Oltenita Orsova Remat Severnav Siaj 48 56 53 Sorena Tulcea Total

13.5 ECONOMIC INDICATORS

Table 13.10 : Economic Indicators Indicator 1995 1996 1997 1998 1999 Exchange Rate Lei/$ 2578 4035 8023 10951 18255 Average Industrial Wage $/month 109 105 96 121 135 Unemployment Rate % 9.5 6.6 8.8 10.3 11.5 Wage Inflation % y-o-y 54.1 49 98 70.5 43.1 Consumer Prices %y-o-y 32.2 38.8 154.9 59.3 45.9 Industrial Gross Output %y-o-y 12.1 7.9 -6.8 -18.1 n/a Productivity in Industry %y-o-y 20 7.5 3.2 -15.9 n/a Notes: % y-o-y denotes the percentage yearly change

Note: Information shown in italics in the tables in this section has been updated to reflect late information returns from two shipyards. This data arrived after the completion of analysis and whilst the graphs in the main body of the report have been updated wherever possible, it has not been possible to update the entire sector analysis and graphical output.

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