Damen reportedly sues Romania over Mangalia shipyard agreement

Damen reportedly sues Romania over Mangalia shipyard agreement

Dutch company Damen “sued Romania” at an international arbitrage court (Vienna International Arbitral Centre according to Europa Libera Romania), asking for the termination of the agreement reached in 2018 over local company Damen Shipyards Mangalia – which operates a shipyard on the Black Sea coast, Profit.ro announced.

However, the essence of the legal action taken by the Dutch company remains unclear.

The defendant (in the litigation at the Vienna International Arbitral Centre) is the Romanian state company Santierul Naval 2 Mai, controlled by the Ministry of Economy, which owns 51% of Damen Shipyards Mangalia, according to Profit.ro, which also speaks of some compensation asked by the Dutch company without however indicating whether the compensation should be paid by Santierul Naval 2 Mai or the Romanian state.

“Damen Group does not have any information to communicate at this moment,” the Dutch company told all Romanian media outlets that contacted it for details on April 24.

Romania’s prime minister Marcel Ciolacu, speaking for Profit.ro, and finance minister Marcel Bolos, answering Europa Libera, confirmed that something is happening about the shipyard, but none provided specific details.

PM Ciolacu vaguely confirmed that something is happening at Mangalia shipyards. His comments point to potential ongoing negotiations about military contracts that Damen and the shipyard might be given to address the conflict. Damen competed for a EUR 1.1 billion military corvette contract given by Romania to the French Naval Group (and eventually scrapped).

“I still believe that Damen should begin negotiations to find the best solutions. I wish that part of the procurement for the Romanian Army would be sourced from local factories. The Damen-controlled shipyard is one option. I am convinced we will hold such discussions in the next period,” said PM Ciolacu after the government meeting.

The termination of the 2018 agreement between Damen and Romania, reportedly required by the Dutch company, generates legal complications. The Romanian authorities, which passed the legislation conflicting with the agreement last year, also failed to address the legal deadlock.

Damen’s intentions, other than pulling out of the business and leaving the shipyard to sink (as implied by the trade unions at the company), are unclear in the given legal context. The EUR 500 million compensation asked by Damen, according to unconfirmed sources, looks unrealistic given the magnitude of the business. Paradoxically, Damen’s intention to give up the shipyard’s management may not be straightforward since the termination of the 2018 agreement would leave it with the majority stake.

In 2023, Damen reportedly notified Romania about plans to terminate the 2018 agreement but failed to explain what this meant legally and reportedly asked for compensation (some EUR 500 million). Damen Shipyards Mangalia, still managed by Damen, has not reported its 2022 financial results, but its turnover was EUR 112 million in 2021 when the company also announced zero profit.

A direct effect of the termination of the 2018 agreement would be that Damen turns back into the majority owner of Damen Shipyards Mangalia (by recovering the 2% stake passed to Romania) and thus maintains the management rights over the shipyard.

A direct effect of the termination of the 2018 agreement would be that Damen turns back into the majority owner of Damen Shipyards Mangalia (by recovering the 2% stake passed to Romania) and thus maintains the management rights over the shipyard. If the 2018 agreement is assumed to include Daewoo, the 51% stake should be passed to the Korean group — which is commercially impossible.

In 2018, Damen took over the majority stake (51%) in Damen Shipyards Mangalia from Daewoo under the condition to pass a 2% stake to the Romanian state (represented by state-owned Santierul Naval 2 Mai company) in exchange for the management right. However, the agreement conflicts with legislation passed by Romania in 2023, under the country’s commitments taken under the National Resilience Facility and as part of the steps taken towards OECD membership.

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(Photo source: Facebook/Damen Shipyards Galati)