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 Appledore International Limited 42 Jesmond Road Jesmond Newcastle upon Tyne NE2 4PQ England Tel: +44 (0)191 281 9097 Fax: +44 (0)191 281 9057 E-mail: [email protected] Appledore international Romania Page Number 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$182 million pa (approx.) average (1996-1998) · Sectors : Shipbuilding and Shiprepair (75%/25% by turnover) · Ships Completed : 20.3 pa average (1996-1998) · Hulls Completed : 24 pa average (1996-1998) · CGT Output : 146,500 pa average (1996-1998) BA225A-1001-C i Appledore international Romania In terms of the overall importance of the sector to the Romanian economy, we have considered this in terms of employment and GDP. We have compared the 3 year average figures with the latest available statistics for the country (GDP for 1999 from World Bank Development Indicators and employment figures for 1998 from the ILO database). · Shipyard turnover at US$ 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.