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