Actual situation of Polish yards

Dear Ladies and Gentlemen,

I would like to thank you for the invitation. I’m honoured to participate in the meeting as a Polish delegate.I’ve been asked for preparing a short presentation about the present situation in the Polish shipbuilding sector.

(Screen no 1 – Actual situation of Polish shipyards)

Thinking of the title of our meeting – the European shipbuilding industry - bright present, anticipating uncertain future - when reflecting an actual position of a few Polish shipyards I would rather say: uncertain present, anticipating challenging future – especially since the European Commission has opened the investigation of conformity of public aid granted to some Polish, state – controlled yards with EU rules. The process is still under way, and the result is impatiently awaited by the representatives of the Polish newbuilding yards. Some opinions say, that the investigation is frightening off private investors. But that fear – as we will see going further - does not affect all Polish shipyards…

(Screen no 2 – list of companies)

In this chart we see a number of the main Polish shipyards and maritime companies. As we can see – most of the biggest and most important shipyards are located in Gdansk and Gdynia – within the so-called - Tri-city- agglomeration. This is the official number reflecting members of the Association of Polish Maritime Industries. There are many other small companies however, sometimes we call them “shipyards”, that specialize in hull assembling for western yards, as well as building pleasure boats and yachts. Thus the real number of all companies involved in the business amountsto hundreds of enterprises.

(Screen no 3 – employment)

Also the total employment in the Polish maritime sector is higher than listed here since there have been plenty of marine equipment suppliers and other institutions with various forms of collaboration with Polish yards, employing from dozens to hundreds of people. So the whole sector is estimated to have about eighty thousand of employees in total.

(Screen no 4 –Evolution of deliveries)

During the last year Polish shipyards completed 30 ships of the value of more than nine hundred and thirty three million USD and thus returned to the main production level of the years precedingthe crises of 2003.This chart shows the evolution of deliveries from Polish yards during almost eight last years.The bars reflect the number of units delivered while the curve showsits tonnage in CGT. Since the collapse in 2003, the number of ships delivered has been dynamically growing up. This is good news. But there is also bad news. The consequences of this crisis are still lasting until today.

(Screen no 5 –Evolution of exchange rate for PLN-USD)

In this chart we see only one, but perhaps the most important factor that caused the crises. When newbuilds were contracted in USD six years ago, prices were extremely low, and the complexity of orders was relatively high. But since then, due to continuedstrengthening of Polish currency (zloty), the real value of those contracts was significantly decreasing.

This excessively high exchange rate of Polish currency paired with growing prices of raw materials and energy caused financial instability of Polish newbuilding yards. Contracts were pending and had to be renegotiated. The Szczecin Porta Holding shipyard went bankrupt, and the Gdynia Shipyard Group lost its financial liquidity, and hasn’t recovered it since then. That was the time of a State-backed rescue and of implementing restructuring programmes for those yards, under control of the IndustrialDevelopment Agency.

(Screen no 6 –New orders placed with Polish yards)

When we look at this chart it seems to be obvious why the amount of new orders last year was so low.On the one hand –that might be a consequence of high ordering activity in 2004 and sufficient backlog of shipyards for the coming years. Alsothe financial difficulties of the Gdynia Shipyard could have prevented the shipyard from taking new orders.

(Screen no 7 – Evolution of the total orderbook of Polish yards 1998 – 2006).

Nevertheless the current orderbook of Polish yards – as we can see in the chart – looks pretty good. Again – the bars illustrate the number of ships while the curve shows their tonnage.At the end of 2005 the orderbook contained 87 units of the value amounting toslightly above three billion of USD. The orderbook consisted mainly of container ships, followed by car – carriers, ro – ro and con – ro vessels.

Now let’s take a closer look at some of the main Polish shipyards and their products.

(Screen no 8 – Orderbook. Szczecin New Shipyard)

We are beginning in the West of Poland where the Szczecin New Shipyard operates. The yard is fully owned by the State. Its restructuring programme has beencompleted.The shipyard regained its financial stability and moved back into profit in 2005. It was achieved by asset sales, though.

The orderbook of the shipyard comprises mainly container ships, chemical tankers with Duplex steel tanks and multi-purpose carriers, but the newestproduct is aninnovative up-to-date con-ro vessel being built for a Dutch shipowner, to be operated by Finnish Transfennica. The first vessel of this kind has already been delivered.

In the following two slides we can see some examples of the ships being built at the yard.

(Screen no 9 – Ships built at Szczecin New Shipyard – mpp cs and box ship)

(Screen no 10 – Ships built at Szczecin New Shipyard – chemical tanker and con-ro)

The last picture at the bottom of the slide shows a modern con-ro ship Timca during her maiden voyage to Antwerp.

(Screen no 11 – Orderbook. Gdynia Shipyard).

In this chart we can see that the orderbook of the Gdynia Shipyard looks not bad… But the present situation of the shipyard is far from normal. The company is directly and indirectly (through the Industrial Development Agency) controlled mostly by the State. Its restructuring programmes, although formally concluded have been recognized as incomplete and implemented with delay. The shipyard has to repay restructured debts and has got problems with retarded deliveries and unbalanced income and expenditure.

The yard is now seeking private investors.

(Screen no 12 - Ships built at Gdynia Shipyard – container ships)

The slide shows container ships being built at the shipyard.In the picture to the left we can see the biggest box ship ever built in Gdynia. But the yard is now concentrating mainly on the production of car carriers for one of its biggest shareholders Rami Ungar.

(Screen no 13 - Ships built at Gdynia Shipyard – car carriers)

In the picture on the left we can see an aerial snapshot of an innovative shortsea car carrier that can be operated as a feeder to deep – sea ships on the Baltic and North Seas or can perform services on her own on deep – sea routes between Europe and Carribean or Far East as well.

(Screen no 14 – Gdansk Shipyard orderbook)

The Gdansk Shipyard was previously operating as a subsidiary of the Gdynia Shipyard. But there was an increasing social tension between both yards that led to demerging in summer this year into two separate companies.Although the shipyard has not been a member of the Gdynia Group any more, it is supposed to built some of the container ships previously contracted by its mother company.

However, the orderbook of the shipyard contains mainly ship sections and partly outfitted hulls. One of such products has already been delivered to the Aker Yards, that is to build a complete ship for a Swedish shipowner. (The vessel is shown in the slide).

(Screen no 17 – Remontowa Group SA)

Lets take a look at the only successful, powerful and profitable shipyard in Poland. Since its privatisation five years ago by management buy-out,and thanks to excellent management Gdansk Shiprepair Yard Remontowa has been increasing its turnover and gain, getting no public or any other kind of financial aid.

For many years the shipyard’s activity has been diversified into three different “legs”: shiprepair, conversion and building of ships. This strategy makes the financial stability of the shipyard more resistant to shifts in market demand for new tonnage.

The shipyard has entered niche markets looking for specialized and more profitable tonnage. The current orderbook of the shipyard – as we can see - contains various kinds of units – from ferries to LNG and multipurpose container carriers. All the ships are being built at Northern Shipyard – the builder subsidiary of the Remontowa Shipyard.

(Screen no 18 – Ships converted at the Remontowa)

In the last year over sixty percent of the total income was covered by both newbuilds and conversions. And what is more – the contract value of the converted shipsnearly reaches the value of a new ship. The most remarkable and profitable conversion as yet has beenthe rebuilding of the Norwegian fallpipe vessel Rocknes – pictured in the slide.There are two tankers now being converted into heavy – lift vessels.

(Screen no 19 – Ships being built at the Remontowa)

In this slide on the left hand side we can also see an example of profitable tonnage – anchor handling towing vessels designed by the shipyard’s design office, and a ro-pax ferry built for a Scottish owner – in the right corner. This vessel has been listed in the prestigious ranking of “Significant small Ships of 2005” published by the royal naval architects from London.

(Screen no 20 – Ships being built at the Remontowa Group).

Other vessels under production at Remontowa – the multifunction buoy tender on the left side and the ice-breaking emergency evacuation vessel designed for emergency transportation of workers operating in the Caspian Sea.

(Screen no 21 – Ships to be built at the Remontowa Group)

I would also like to show some of the most state-of-the-art future projects prepared by the shipyard… The first one – on the left is a multipurpose cargo vessel capable of transporting heavy project cargos on deck around the Baltic Sea. The concept has been made in co-operation with Aker Yards among others. In the second picture we have a passenger shuttle ferry for a Norwegian owner. It looks like a luxury yacht, doesn’t it?

(Screen no 22 – Ships to be built at the Remontowa Group)

And now the most exciting new projects. There isa modern and environmentally friendly LNG/LPG and ethylene gas carrier to be built at the Remontowa for a Dutch owner. This is supposed to be the first vessel of this kind in Poland scheduled for delivery in 2008. Another hot news from the shipyard is related to a universal multipurpose dry cargo and container vessel with unlimited capabilities of performing services from Australian ports to the Great Lakes. Both projects are good examples of seeking present and future market demands by the managers of the shipyard.

At the end of that review of the Polish yards I would like to mention about 2 companies.

(Screen no 23 – Szczecin Shiprepair Yard GRYFIA)

GRYFIA shiprepair yard in Szczecin found last year to be a good one. The shipyard specializes in repair works – although it has five patrol vessels for NorwegianCoast Guardin its orderbook.

(Screen no 24 – Naval Shipyard Gdynia).

The Navy Shipyard located in Gdyniawith its last-year’s activity limited to maintenance and repairs has got an order for 5 patrol crafts. The first has already been delivered to the Indonesian Police.

Now I’m getting to the end of my presentation. The last but not least issue – people migration! This is the most painfull problem affecting Polish yards. Every month welders, pipe and hull fitters, naval architects are escaping from Poland to western yards. How many of them? From dozens and hundreds

Why are they running away?

(Screen no 25 – Average wages at European shipyards)

That’s why… As we can see average earnings at Polish shipyards in 2003 were dramatically low. Well, this chart should actually be turned upside down with Poland near the bottom. Where are the Polish welders, hull and pipe fitters and naval architects migrating to? To the first seven better paying western yards holding the longest bars in the chart. We are looking at the result of the research commissioned by the European Shipbuilding Social Dialogue Committee conducted at the University of Bremena year before Poland’s accession to the European Union. Of course, since then the situation has changed(a newer research hasn’t been conducted yet). Polish yards have been gradually rising up annual salaries which in many cases have now almost reached the European level.

(Screen no 26 – European shipbuilding average labour productivity in 2003).

Better payment must be followed by increased labour productivity. And this is another problem experienced by Polish yards. As we can see – in 2003 productivity of the labour in Polish yards (represented by the bars from the right) was lower than in other European shipyards (yellow bars show productivity expressed in thousands of Euro, blue ones – the same value in terms of CGT, some data is missing).

We can say, that workers’ migration caused by the emergence ofthe open labour market, due to our accession to the European Union, partly helped us in solving the problem of overcapacity.But we still have a problem with low labour productivity that must be solved.

Shipbuilding industry still ranks high in Polish economy exporting more than 90 percent of its production, and holds the second place in Europe and fifth worldwide. But if we want to sustainour positionin the world league, if we want to anticipate uncertain future, we have to change the way of thinking. That crucial time requires an entirely new approach, especially when low labour cost, which has been our existing source of a competitive advantage, seems to disappear. We need skilful management, we need innovation, we need many things. But the most important thing we need is the change of our mentality. The change, which is to occur in our minds. The sooner, the better.

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