STEEL STRIKE AVERTED BUT POST-PRIVATIZATION

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 001182 SIPDIS SIPDIS STATE PLEASE PASS USTR E.O. 12958: DECL: 08/21/2017 TAGS: ECON EINV EIND ELAB WTO AG SUBJECT: STEEL STRIKE AVERTED BUT POST-PRIVATIZATION CHALLENGES ENDURE REF: ALGIERS 195 (NOTAL) Classified By: CDA, a.i. Thomas F. Daughton; reasons 1.4 (b),(d). ¶1. (U) Workers at the Al Hadjar steel plant in the eastern Algerian city of Annaba called off plans for an indefinite strike August 20 after reaching an agreement with the plant's management that forestalled layoffs slated for September. Luxembourg-based Arcelor-Mittal, which owns a controlling interest in the facility, had announced July 31 that it planned to shed an additional 1200 jobs by September in what would be the largest mass layoff in the company's six years of management. The company said it would provide a severance package worth approximately USD 8,000 per worker. The interim secretary general of the plant's trade union, Kouadria Smain, threatened August 15 that an indefinite strike was inevitable unless workers received larger severance packages, subsidized medical care and a phased workforce reduction plan. To head off the pending crisis, Arcelor-Mittal senior executive Frank Pannier flew to Algeria from London August 20 to announce a protocol agreement between the company and its workers. Standing alongside Sidi Said, the head of Algeria's largest trade union, UGTA, Pannier announced that the 1200 jobs would be spared, work conditions would improve, and salaries would increase by January 2009. In return, the trade union would allow Arcelor-Mittal to increase working hours and continue its reorganization of the facility to expand capacity and gear production for export. A SOCIALIST-ERA GEM PRIVATIZED... -------------- ¶2. (U) The Arcelor-Mittal plant, located in the Al Hadjar industrial zone of Annaba, is the largest integrated steel facility in the Maghreb, with a capacity of two million tons per year. Like Sonatrach and Air Algerie, it was established by President Boumedienne after Algerian independence to be a parastatal engine of socialist-era, import-substitution-led growth. Production and quality progressively lagged as the plant's workforce bloated to around 14,000 and output sank to about a million tons per year by the 1990s. Not long after President Bouteflika came to office, the plant became one of the first major Algerian industries to be offered to private investors. The Indian firm Ispat, now part of the Arcelor-Mittal conglomerate, purchased a 70-percent share of Al Hadjar in 2001 and later renamed it Mittal Steel Annaba. Reorganization at the facility under foreign management led to the gradual shedding of some 6,000 jobs over six years. ...BUT STILL UNDER POLITICAL SCRUTINY -------------- ¶3. (U) As one of the most prominent industries in Algeria to undergo privatization, the Al Hadjar facility remains a rallying point for privatization advocates and critics alike. After rumors started to circulate that Arcelor-Mittal planned to withdraw from Algeria because the plant had not been as profitable as anticipated, President Bouteflika met in December 2006 with company chairman Lakshmi Mittal. Mittal left the meeting announcing that his company had no intention to leave the Algerian market, although it was widely rumored that Bouteflika had induced him to stay by offering a phosphate development concession in the Western Sahara region around Tindouf. Suspicion of Arcelor-Mittal's intentions has remained high. Parliamentary opposition leader Louisa Hanoune of the Trotskyist Workers' Party reacted to the current call for a strike by denouncing the "exploitation and blackmail" by foreign companies of Algerian workers. Since the Indian firm's first arrival in Algeria, UGTA has continuously fought against any layoffs at the facility. COMMENT -------------- ¶4. (C) Al Hadjar is one of the crown jewels of Boumedienne's legacy and the nominal success story of Algeria's otherwise lackluster privatization efforts. The GoA has expended significant capital in ensuring Arcelor-Mittal's continued operation of the plant, even if it is not clear whether the ALGIERS 00001182 002 OF 002 GoA intervened in this most recent crisis to encourage the firm to stay. Commerce Minister Djaaboub told the Ambassador in February that the GoA could not reduce its steel import tariffs as part of Algeria's bid for WTO accession -- because of the risk to Algerian steel workers (reftel). In spite of the support, things have not been easy for Arcelor-Mittal. That a foreign operator would face such resistance to restructuring six years after assuming control -- and despite high-level political support -- does not augur well for other foreign firms wishing to take over less symbolically important state-run industries. Worse, Arcelor-Mittal and the GoA have not provided training or rehabilitation to any displaced workers since the steel plant began shedding jobs in 2001. That failure to develop a long-term plan to accommodate restructuring is likely to impede other foreign managers seeking to make needed reforms, while bolstering Louisa Hanoune's efforts to grind new privatization to a halt. DAUGHTON