The situation on the Mangalia industrial platform is becoming more and more tense and the future of the shipyard is bleak.
The Dutch Damen group escalated the conflict with the Romanian state, resorting to the International Court of Arbitration in Vienna. The reason: the termination of the 2018 agreement by which Damen became a minority shareholder (49%) in Damen Shipyards Mangalia SA, but with operational control, the Romanian state owning 51% of the shares.
Damen is seeking termination of the agreement and damages of 500 million euros. The Dutch claim that law 187/2023 has repealed the exception to the corporate governance legislation of state-owned companies, introduced specifically to facilitate the partnership since 2018. The Dutch consider the new legal framework to be a violation of the agreed principles and guarantees received, negatively affecting investment and viability the construction site.
The consequences are significant:
- Insolvency risk: Damen Shipyards Mangalia accumulated losses of 338 million lei in the last 3 years. A lack of orders and “huge” debts to creditors, including Damen, magnify the risk.
- 2,000 jobs at risk: Employees signaled an “imminent risk” of business interruption. Damen has already relinquished operational control and contracts, and the Romanian state does not seem ready to take over.
- Complex process: Resolving the dispute will be difficult and lengthy, with major financial implications for both parties.
The future of the Mangalia shipyard is uncertain. The lack of consensus, the lack of funding and the prospect of an expensive trial create a precarious situation for an important economic resource in the region.
The Romanian employees are desperately asking for the Government’s intervention
The alarming situation at Mangalia Naval Shipyard was brought to the public’s attention through an open letter signed by the representatives of the Free Navalist Union. With over 1,500 Romanian employees remaining on the construction site, they are sending a desperate appeal to the Government for the necessary support in protecting jobs and redressing the critical situation they are facing.
In the submitted document, the trade unionists highlight the drastic decrease in the volume of work and the imminent risk of temporary interruption of activity for most employees. Financial problems, including colossal debts to creditors, amplify the risk of insolvency.
Concern over the potential negative consequences for employees given the shareholder dispute is also highlighted. The representatives of the union ask for a meeting with the Government and request information on how to manage the construction site in the event of the withdrawal of the foreign partner.
Mangalia Naval Shipyard represents an important pillar of the local economy, being the main employer in Mangalia municipality. The trade unionists are confident that, with the support of the Government and all parties involved, they will be able to identify and implement the necessary solutions to overcome this difficult period.
Damen Holding abandoned the collaboration with the Romanian state
The Dutch company Damen Holding, a minority shareholder of the Mangalia shipyard, announced in August 2023 that it is giving up managing the business on the seashore. However, the Romanian state does not agree with the decision of the Dutch.
A document signed by the Minister of Economy, Entrepreneurship and Tourism, Radu Oprea, makes it clear that the Romanian state does not want to take over the administration of the Damen Shipyards Mangalia shipyard, even if it owns 51% of the shares, and that it is summoning the Dutch from Damen, who own 49% of the capital, not to leave the management of the unit.
The position of the Romanian state
“In justifying the intention to start proceedings for the termination of the JVA (Association Agreement dated 09.11.2018, concluded between Damen Holding BV private limited company and Shantierul Naval 2 Mai Mangalia SA, no), Damen Holding BV invokes the violation of some of the fundamental principles established at the establishment of the association for the operation of the Damen Shipyards Mangalia shipyard, as well as the commitments assumed by the Romanian State, respectively by its structures, in favor of the Dutch partner, as a result of the adoption of Law no. 187/2023, normative act that eliminates the exceptions to the application of the rules and principles of corporate governance regulated by the provisions of GEO no. 109/2011 on the corporate governance of public enterprises (…) The changes made to the provisions of GEO no. 109/2011 does not affect the continuation of the JVA. However, in the situation where, following the discussions on mutual notifications, the conclusion of an intervention from the Ministry of Economy, Entrepreneurship and Tourism will be reached, it will be established by common agreement with the Dutch partner on appropriate and beneficial actions for the purpose of continuing the partnership. As for the effects of a potential termination of the association agreement, these will be determined in the contractual terms and, in the absence of an agreement between the parties, by the proper judicial bodies“, says the document signed by Minister Oprea.
The company Damen Shipyards Mangalia (DSMa) was established according to the Association Agreement dated 09.11.2018, concluded between Damen Holding BV, a private limited liability company, with its registered office in Gorinchem, the Netherlands – and Şantierul Naval 2 Mai Mangalia SA, a company located under the authority of the Ministry of Economy, Entrepreneurship and Tourism. After the signing of the Association Agreement (JVA), no other changes occurred.
Damen Holding BV notified the Romanian partner of the intention to terminate the JVA and the claims for compensation, in accordance with the contractual clauses. In the current legislative context, the Romanian State, as the majority shareholder, considers that there are no reasons for the termination of the JVA, therefore, the Dutch partner must continue to fulfill its obligations assumed by the association contract.
Economic performance, under the Dutch
In 2018, at the time of the takeover, the site had 1,690 employees, and currently 1,707 positions are approved.
For the period 2020 – 2022, the situation of the turnover value, respectively of the losses recorded by Damen Shipyards Managalia, was as follows:
As can be seen, the business of the yard increased sharply in 2022, but the huge losses remained.
Shortly after taking over the management of the Mangalia shipyard in 2018, the Dutch PR announced that major new contracts had been secured at Damen Shipyards Mangalia which will allow the yard to operate at full capacity as early as this summer. The new contracts were focused on all three business sectors of the Mangalia shipyard: cruise ships, passenger ships and offshore ships. But the numbers were not in favor of the administrators.
What the Dutch invoked
The Dutch company Damen Holding, a minority shareholder of the Mangalia shipyard, announced in August that it was giving up managing the business on the seashore, citing various blockages by the Romanian state, the majority shareholder.
“Damen Holding BV (Damen) is a strategic player in the shipbuilding industry in Romania, owning and investing in the largest shipyards in the country (Galați and Mangalia) and operating the largest naval design company in Romania. At the same time, Damen’s presence ensures over 3,500 jobs locally, over 400 projects have been completed in Romania and over 30 defense and security vessels have been built for 14 navies and coast guards around the world, including NATO and EU countries.
In 2018, Damen decided to invest in Mangalia and agreed to transfer to the Romanian side 2% of the shares of the company that operates the Mangalia Shipyard (allowing the Romanian state to become a majority shareholder in this company, with 51%), in exchange for receiving and keeping operational control and managerial of the shipyard. On the basis of this partnership with the Romanian state, Damen provided financing, know-how, specialized resources, as well as customers and contracts in order to transform the site in Mangalia into a competitive one on the European market. This was possible as a result of the approval of the Government Emergency Ordinance (GEO) 73/2018, which amended GEO 109/2011, for the corporate governance of state-owned companies.
By adopting Law no. 187/2023, the legal framework under which the association between the Romanian state and Damen operated with regard to the Mangalia Shipyard was cancelled. The legal framework that is currently applied violates the conditions offered, agreed and guaranteed in favor of Damen by the Romanian state and its structures in 2018, completely invalidating the principles that were the basis of Damen’s decision to invest in the Mangalia site”, said the Dutch summer.
In addition, this fact comes after more than three years of other blockages in the decision-making process, no other type of help, involvement or financing from the Romanian partner, the Dutch said.
Damen claimed it had repeatedly tried to prevent any negative impact on the shipyard, workforce and customers. For example, the Dutch say that they extensively informed the Romanian authorities and relevant entities about the impact of the new law on this partnership, even before its adoption, and that they requested immediate actions to prevent it. Damen insisted on a genuine dialogue and a quick solution to be implemented before the law comes into force, to minimize any disruption to shipyard activity and resolve the current difficult situation. This did not happen, the Dutch claim.
Following an already difficult collaboration and now facing these unilateral changes, Damen said that it is thus facing not only a breach of contract, but also a breach of trust on the part of the Romanian state.
In this regard, after a previous notice of breach of contract by which Damen expressed for the last time its willingness to find a possibility for the continuation of the association, to which no solution was offered by the Romanian side, Damen had no other option rather than issuing the notice of termination of the Association Agreement concluded in 2018 with the Romanian partner.
By taking this step, provided for in the contractual framework of the association, Damen, as a foreign investor, protects its rights, investments, customers and projects at the Mangalia site,” announced a Damen press release.
What law are the Dutch referring to?
The law referred to – 187/2023 – was adopted by the Romanian Parliament on 10 May 2023 and published in the Official Gazette on 29 June 2023. The allegations are that the law generates a flagrant violation of the commitments undertaken by the Romanian State towards Damen in relation with the strategic investments of Damen Holding BV in the Damen Mangalia shipyard.
The cited source also mentions that in 2018, in the context of the collapse of the shipyard in Mangalia and the decision of the former shareholder (respectively Daewoo Shipbuilding & Marine Engineering Co. Ltd.) to withdraw from the company, the Romanian state agreed to take over to Damen of the Korean shareholding.
In the first stage of the transaction, Damen acquired 51% of DSMa shares from the former shareholder, becoming the company’s majority shareholder. Later, following the negotiations, Damen transferred 2% of the shares to SN 2 Mai SA (which belongs to the Ministry of Economy), thus the state company became the majority shareholder in the Damen Mangalia construction site. The transfer of 2% of Damen’s shares to SN 2 Mai SA took place under the condition that, for the entire duration of the association between Damen and the Romanian State (through SN 2 Mai SA), Damen would have full managerial and operational control over the Damen Mangalia shipyard , thus allowing Damen to manage and develop the business based on a business plan developed by Damen. The company now considers that the association agreement between Damen Holding BV and the Romanian state is violated and conveys that the decision does not affect the Damen Galati Shipyard in any way.
