Larymna, Greece – The final countdown has begun for Larco, the European Union’s only remaining nickel smelter, its 1,260 workers and their families. The Greek state can no longer afford to finance the facility where nickel is extracted from ore. The government has given the facility a final dowry of 35 million euros and a year to find an investor.
“If during this period three-quarters of Larco’s assets haven’t been sold, the company must file for bankruptcy,” finance minister Christos Staikouras told Parliament.
Larco sits at the centre of a $170m economy. In addition to its miners, smelters and office workers, more than 22,000 suppliers and contractors are dependent on it, so shuttering it would entail a high political cost.
But the eight-month-old New Democracy government has its sights fixed on a new age of smaller government, lower taxes, renewable energy and competitive, hi-tech services. The party also appears to be impatient to close the book on an attempt at heavy industry that began in the 1950s and was largely bankrupt 30 years later.
“Should I ignore the fact that Larco owes its suppliers half a billion euros? … each month Larco consumes 5.5 million euros’ worth ($6m) of electricity and recently it hasn’t been paying a cent,” Energy and Environment Minister Kostis Hatzidakis told Parliament last week.
Larco’s head has been on the chopping block since Greece accepted a series of bailout loans from the eurozone in 2010. That is when Greece’s creditors caused a public furore by revealing that the government had agreed to privatise 50 billion euros’ worth ($54bn) of assets, including loss-making state-owned companies like Larco, that were bleeding taxpayers of 30 billion euros ($32.5bn) a year.
But the blade was raised to strike only when the Public Power Corporation, another public company now struggling to balance its books, threatened to throw the power switch on February 17 and silence Larco’s furnaces forever.
Larco is not the only state company in receivership. Hellenic Shipyards, Hellenic Aerospace, the Hellenic Vehicle Company and Hellenic Post eventually have to go. A slew of energy assets, including the Public Gas Corporation, Hellenic Petroleum and the Public Power Corporation are slated for privatisation this year.
“We definitely agree with the government’s handing off management to someone who knows the business,” said Angelos Gionis, a 32-year company veteran and Larco union member. “We’ve had dentists and gynaecologists on the board here in the past … MPs who didn’t get re-elected were ordained CEOs and board members. By the time they were educated in the business, the bird had flown.”
Should I ignore the fact that Larco owes its suppliers half a billion euros?
Gionis still does not trust the government. “When you’re trying to sell a company, you don’t denounce it. You highlight its strengths so you can move forward.”
He is incensed, for example, that the government plans to cut salaries by an average of 25 percent. “Our salaries are 16-17 percent of the operating cost,” said Gionis, adding that 60 percent of pay goes to taxes and social security.
Workers are a relatively easy target, however. Larco’s real problems run much deeper.
“Production cost is $15,000 [a tonne]. While I was there the going price of nickel was $8,000-$10,000, which means Larco was selling below cost,” said Anthimos Xenidis, a professor of metallurgy at the Athens Polytechnic who was Larco’s CEO during 2015-18.
Xenidis cited several reasons, beginning with poor ore quality. “When Larco started the ore was 1.3 percent nickel content. When I was there it was 0.90 percent. So, you worked more than 100 tonnes of ore to get a tonne of nickel. That raises costs enormously.”
Xenidis suggested importing higher-content ore from nearby Turkey to mix with the Greek ore, or even buying a mine outright to secure a steady supply price when markets fluctuate.
Then there is the problem of old infrastructure. Four of Larco’s five furnaces date back to 1969. Each year, they have to stop working for two to four weeks for a thorough overhaul and rebuild.
“The infrastructure has problems,” admitted factory manager Yiorgos Valomenos. “I have to repair the furnaces one by one, as well as the rotary mills, to keep them working.”
The greatest cost of all is electricity. “Larco uses a million megawatt hours a year at full production, which means at current prices it comes at a cost of 50-60 million euros ($54-$65m) a year,” said Xenidis.
The problems arose when Greece began to abandon the quasi-socialist economic model of the Cold War, in which the state controlled 70 percent of the economy and price-controlled utilities.
When Greece began to liberalise its electricity market in 2005, opening the door to independent producers, Larco’s electricity cost tripled to 62 euros ($67) per MWh overnight. The management of the day failed to negotiate a scaled increase. Had it done so, Xenidis says, it could have saved as much as 250 million euros ($272m) over the next decade. Xenidis said he managed to negotiate a rate of 37 euros ($40) per MWh, but as Larco could not pay even that, the Public Power Corporation stopped offering the discount.
Larco also faces high emissions costs because it mixes coal dust and heavy oil into the nickel ore to process it. “You could retool the process to use hydrogen instead of carbon,” said Xenidis. “Then your byproduct would be water vapour instead of CO2.”
Larko has even looked into recycling heat from its waste product and producing its own power building an efficient gas-fired plant on its premises. Aluminium of Greece, the country’s other large power consumer, has done this, and uses combined heat and power (CHP) technology to generate electricity and heat.
The problem with all these solutions is that they require money Larco does not have and cannot raise after the European Court of Justice ordered it to return 135 million euros ($147m) in illegal state aid in February 2018.
“That strangled any development potential Larco had,” said Xenidis. “We would go to the European Investment Bank and elsewhere. All the doors were closed, even for environmental improvements … the only solution was to allow Larco to go bankrupt and take the old debts with it.”
Liquidation appears to be the course the government has chosen. It happened once before, when Hatzidakis, in the guise of transport minister, managed to privatise an even more expensive state enterprise – Olympic Airways.
In 2009, Olympic was losing a million euros a day. Hatzidakis famously announced he would give it away for one euro to whoever would take it on with 700 million euros of illegal state subsidies the European Commission insisted had to be returned.
When Wall Street’s financial crisis hit Europe, Hatzidakis persuaded the Commission to waive its demands and allow the company to be sold free of debt to an investor, saving hundreds of jobs and dozens of flights.
Larco is potentially a prize. The world will likely continue to need stainless steel for the foreseeable future, as it is a durable material with minimal maintenance costs. Nickel and cobalt are metals that have acquired renewed importance as key components in batteries for electric cars. Many of Europe’s major carmakers have announced that they will stop building internal combustion engines after 2025, and electric vehicles appear set to rule the roads.
In order to take advantage of this bonanza, Larco needs a root-and-branch overhaul. There now appears to be a consensus between company, workers and the state that the Greek government should leave it to the private sector.