2 december 2011

Prime Minister Vladimir Putin chairs a meeting on upgrading the Baltiysky Zavod shipyard in St Petersburg

According to the prime minster, the shipyard was going through a difficult period, but one that was generated artificially. It is time to address this situation and all related issues.

Opening remarks by Prime Minister Vladimir Putin:

Vladimir Putin: Good afternoon, colleagues. We are holding our meeting at the Baltiysky Zavod, one of Russia’s oldest shipbuilding enterprises. It is 155 years old.

Remark: 156.

Vladimir Putin: Yes, 156 years old. It provides employment to almost 3,000 people. Of course, the expertise and competence of the plant staff has grown over time, and it is unique in certain areas. As you may recall, the first ever nuclear icebreaker Lenin and nine more ships of this class were built by this shipyard. One of them, named The 50th Anniversary of Victory, is the largest in the world.

However, the enterprise is now in difficult straits, to put it mildly. The situation is very complicated. I believe the situation has been created artificially, though the 2009-2010 crisis has contributed to its aggravation. We are still grappling with the crisis in the shipbuilding industry and at this enterprise in particular. Still, I believe that the deadlock at this enterprise was created artificially. I will not make any further comments or name the people who were responsible, but the facts are out there for anyone to see.

By different estimates, the shipyard’s accounts payable amount to around 12 - 15 billion roubles. This is a huge amount of money that cannot be paid off by the plant – a fact that precludes any possibility of normal work or order placement, since all incoming funds are instantly sent off to lenders’ accounts. Lenders, both Russian and foreign, have filed a bankruptcy suit. Not only Russian, but foreign investors as well have become involved in this process. The situation is extremely complicated. We will need to look into it and address all issues. My first question goes to Dmitry Kozak. It has to do with another enterprise that we visited recently, the Proletarsky plant. I am aware that the situation has been resolved there in general, but I would still like you to tell us what happened there, what was done and if there are any remaining problems there that require our particular attention. Please, go ahead, Mr Kozak.

Dmitry Kozak: Mr Putin, a similar situation arose at the Proletarsky Plant as it was on the verge of bankruptcy. A bankruptcy case was opened, and it was heard in courts, interrupting the plant’s normal operations. This is one of St Petersburg’s oldest plants, specialising in shipbuilding equipment. We had the problem fixed thanks to interventions from City Hall, the mayor of St Petersburg and the mayor’s staff, and then the state bought out the Unified Shipbuilding Corporation’s stock from the owner, and at a rather convenient price, given the plant’s insolvency issues.

On November 25, Proletarsky and the Deposit Insurance Agency, which initiated bankruptcy procedures against the company for its failure to settle a 3.5 billion rouble debt, signed an out-of-court settlement against the Unified Shipbuilding Corporation’s guarantees. And the St Petersburg Court of Arbitration dropped the bankruptcy case that same day.

One concern shared by all the industrialists (St Petersburg’s Association of Industrialists and Entrepreneurs approached me on that matter) was that, with no access to loans, this unique plant could no longer continue normal operations. The problem has been addressed, and now the plant is back on track, working to fulfil both new orders and those placed before the disruption.

Vladimir Putin: These new orders, how much are they worth overall?

Dmitry Kozak: They had 1.9 billion roubles’ worth of contracts when we came to visit. Thanks to assistance from the Unified Shipbuilding Corporation, the plant received several new orders, 1.283 billion roubles’ worth to be exact. So starting on January 1, 2012, the orders will amount to nearly 3.2 billion roubles. This will make it possible for the entire staff to receive a pay raise. The situation at the plant is pretty good at the moment and it is operating without disruptions. So the problem has finally been resolved.

Vladimir Putin: Thank you, Mr Kozak.

Dmitry Kozak: They’ll now be able to celebrate their upcoming anniversary in a festive mood.

Vladimir Putin: Thanks. What do you propose to do about Baltiysky Zavod? When we met up recently, you were going to make specific proposals. I then asked you to work them through with the Unified Shipbuilding Corporation, government agencies, the creditor bank and the trade union. What options do you suggest for getting Baltiysky Zavod out of the current crisis?

Dmitry Kozak: Here, at Baltiysky Zavod, the situation is much more complicated. And we believe it arises from deliberate actions taken by its dishonest owner. This is evident today. But this past summer, the situation at the company reached critical mass. With its three-month wage overdue, the plant was close to shutting down operations. St Petersburg trade unions, Vladimir Derbin and staff members asked the government to help out. Protective measures were then taken because the former owner had been deliberately dragging his feet on court disputes with the Central Bank, in order to keep the plant running, while diverting assets and money (despite the earlier loss of about 3 billion roubles at Mezhprombank following its bankruptcy).

Protective measures were taken in association with the Unified Shipbuilding Corporation, the Central Bank, the Industry and Trade Ministry, and with active participation from St Petersburg trade unions and staff. On October 11 this year, the federal court and the Moscow Court of Arbitration took protective measures in keeping with the law – measures taken to protect the asset held by the Central Bank as collateral. The blocking stake was then transferred to the Central Bank and the Central Bank passed it on to the Unified Shipbuilding Corporation. A new acting CEO, Valery Venkov, was appointed on October 11. And then, together with the Unified Shipbuilding Corporation and the Industry and Trade Ministry, we approved a course of action to revitalise the plant, including compensating workers for overdue wages, ensuring that new wages are paid on time and new orders continue to be placed. This plan is currently being implemented, and we are even going the extra mile on this. Additional contracts will be signed later today, making it possible for the plant’s staff to make ambitious plans for the future.

But the situation here, at Baltiysky Zavod, is not as simple as it was at Proletarsky. To protect Baltiysky Zavod’s staff and production potential, we have to agree on its bankruptcy. To settle its 15 billion rouble debt, we’ll have to yield to the bankruptcy demands from 70-odd Russian and foreign creditors. We’ll probably be able to have the debt slashed somewhat during the bankruptcy procedure. The scheme needed for protecting the staff from stress and allowing it to calmly go about fulfilling the plant’s fresh orders, which amount to 18 billion roubles over the next four years, will involve separating the staff into an independent legal entity.

Such an entity is registered already. And just two days ago, we came to an agreement on this scheme with a trade union committee. With their support, Baltiysky Zavod’s employees are to be transferred into the newly registered entity, the Baltic Shipbuilding Plant, which will be responsible for the implementation of all new orders. Concurrently, we will try to settle things with the creditors, in order to gain back their trust by establishing the truth, thus making it possible for the staff to focus on their job instead of weathering the blows of their company’s numerous creditors. 

* * *

The following documents were signed in the presence of Prime Minister Vladimir Putin, following a meeting:

  • Contract for the construction of an icebreaker with a power output of 25 megawatts, and a completion date of October 2015;
  • Contract for the construction of an icebreaker with a power output of 16 megawatts, and a completion date of May 2015;
  • Contract for the construction of an icebreaker with a power output of 16 megawatts, and a completion date of August 2015;
  • Contract for the construction of an icebreaker with a power output of 16 megawatts, and a completion date of October 2015;
  • Subcontract for the construction of an icebreaker with a power output of 25 megawatts, and a completion date of October 2015;
  • Agreement to plan the construction of a series of 60 megawatt nuclear powered ice-breakers;
  • Agreement to prepare the Baltic Ship Plant to manufacture the hulls for two Mistral-class helicopter carriers.

* * *

Prime Minister Vladimir Putin meets with workers of the Baltiysky Zavod shipyard following the documents signing ceremony

Prime Minister Vladimir Putin informed workers about the results of his meeting, noting that the shipyard’s financial situation is rather complicated.

“The enterprise is burdened with huge debts from 13 to 15 billion roubles. To avoid having the staff bear the burden, a plan has been proposed to transfer all orders and money to a new legal entity that will formally employ the workers. We spoke about how no one should be lost during these strictly legal manoeuvres, no one should go overboard,” the prime minister said.  

“There is also good news,” said Vladimir Putin. “The company’s profitability will increase with its load. Beginning January 1, 2012, it will be possible to increase wages for all categories of employees by at least 25%.”

The workers said that their fixed wages represent just 25% of their total earnings. The remaining 75% depends on their productivity. They asked which part of their wages would increase. The prime minister explained that it would be necessary to sign new labour contracts and resolve this issue with the trade union, on one hand, and with the United Shipbuilding Corporation (USC), on the other. Vladimir Putin also pointed out that the shipyard and the USC will have additional resources to increase wages, and the workers, trade unions and the corporation should agree upon the size of the increase.

During the meeting, the employees also complained about obsolete equipment. According to the prime minister, this problem will be resolved thanks to the contracts signed today.

Responding to the workers’ complain that given the current wages it is impossible to attract young, skilled workers to the plant, Vladimir Putin said: “This issue should be formulated in the following way: wages will now be higher, and orders for the production of modern high-tech equipment will require professional development. Your productivity should also increase. The issue of increasing wages should be resolved through professional development, higher productivity and the shipyard’s profitability.”

“The personnel issue will be addressed in a different way then,” concluded the prime minister.