[NEWS IN FOCUS] Doosan Heavy finally says uncle

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[NEWS IN FOCUS] Doosan Heavy finally says uncle

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After losing money for six consecutive years, and in light of government efforts to phase out nuclear power, Doosan Heavy Industries & Construction is trying to shed employees.

It is the latest casualty of the Moon Jae-in government’s single-minded embrace of renewables and war on more traditional sources of power.

The company is reducing the head count in as humane a way as possible. It’s offering voluntary early retirement packages. The plan was announced by the plant builder of Wednesday.

For two weeks from Thursday through March 4, Doosan Heavy is offering voluntary retirement to employees aged 45 and above. A total of 2,600, or 39 percent of its employees, fit that description.

Doosan Heavy is offering those who take the deal two years of salary and college tuition for their children on top of severance pay. Another 50 million won ($42,000) is offered to employees who worked for Doosan Heavy for more than 20 years.

It is the first time since 2014 that Doosan Heavy has offered voluntary early retirement to its employees. Back then, around 200 employees aged 52 and above left the company under the program.

From then, the company continued to cut its employee totals as it continued reporting losses. The total number of employees fell from 7,600 in 2017 to 7,300 in 2018 and 6,700 by the end of September.

Doosan Heavy also cut 20 percent of its 65 executives in November after lowering the early retirement age from the original of 56 to 50 in 2018.

While a Doosan Heavy spokesperson said that the latest program does not have a specific head count target, local press reports suggest that about a thousand will accept the offer.

The program comes as Doosan Heavy suffered net losses for six consecutive years since 2014 as the main plant building business struggled despite income from subsidiaries and investments.

Doosan Heavy builds nuclear power plants, thermal power stations and desalination plants and manufactures turbines and generators. For a number of years, the company mainly relied on its nuclear power plant business for profit.

Doosan Heavy’s net loss narrowed to 104.37 billion won last year compared to 421.73 billion won a year earlier, but the improvement was largely due to strong earnings at 36.3 percent-owned Doosan Infracore and Doosan Bobcat, which is 51 percent owned by Doosan Infracore.

“The global plant building market has been struggling for the past several years, and we are not the only ones in the world coming up with such measures,” a Doosan Heavy spokesperson said over the phone, adding low oil prices have reduced the demand for new power plant contracts in the Middle East.

In 2017, Siemens announced it will cut around 6,900 jobs, mainly in its power and gas division, to respond to the rapid growth of renewables. A year later, General Electric cut some 24,000 employees at its troubled power business.

A Doosan Heavy spokesperson said that the company lost some of its credibility in the global market and suffered in exports as it continued to lose money and because of unfavorable policies.

Although the spokesperson declined to point to the local policy changes, Doosan Heavy has been suffering since the Moon Jae-in administration started carrying out its nuclear phase-out measures.

As the Moon administration scrapped plans for six power plant projects in the country since coming to power, Doosan Heavy said it lost around 10 trillion won in possible contracts domestically.

From the cancellation of three nuclear power plant projects, Doosan Heavy lost potential contracts worth between 7 and 8 trillion won, and from the shift of three power plants from coal to liquefied natural gas, the company lost an additional 2 to 3 trillion won in potential contracts.

Further troubles are possible for Doosan Heavy as the government has bold goals for renewables and plans for decreased support of nuclear power.

The Ministry of Trade, Industry and Energy announced last year that the government may raise the production target for renewable energy to 30 to 35 percent of all Korean energy sources by 2040 while dramatically cutting the country’s dependence on nuclear power and fossil fuels.

Under previous energy goals announced in 2013, the government vowed to increase nuclear power production from 26 percent to 29 percent of the total by 2035.

Late last year, the Nuclear Safety and Security Commission approved an application from the Korea Hydro & Nuclear Power to permanently shut Wolsong-1 in Gyeongju, North Gyeongsang, around 18 months before the end of an extension to its original intended lifespan.

As the Moon administration maintains its emphasis on renewable energy sources, the Korea Investors Service (KIS) cut Doosan Heavy’s credit ratings from BBB+ to BBB- in May last year. Last month, the KIS also issued a BBB+ rating for Doosan Corporation, which owns 34.4 percent of Doosan Heavy, citing the weakened credit rating of Doosan Heavy and fiscal pressure for aid to Doosan Heavy’s subsidiaries.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]

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