History of German chemical industry since the Berlin Wall fell

Correction: In the article headlined “History of German chemical industry since the Berlin Wall fell,” in the 12th paragraph, please read: “In 1992, Hoechst bought three units of the old Lacufa paints and coatings combine (now part of US chemical giant DuPont),” instead of “In 1992, Hoechst (now part of US chemical giant DuPont) bought three units of the old Lacufa paints and coatings combine.” A corrected story follows:

The euphoria surrounding the fall of the Berlin Wall was felt across Europe and the globe. For the chemical sector, though, it marked the start of huge efforts to integrate the East and West

Rex Features

FOR MONTHS, Germany has been celebrating like it’s November 9, 1989 all over again. On that historic date, the German Democratic Republic allowed its citizens to visit the other side of the Berlin Wall, which led to it being demolished.

TV has constantly replayed events leading up to November 9 – East Germans seeking refuge in the West German embassies of Budapest, Hungary, and Prague in the then Czechoslovakia, or demonstrators on the streets of Leipzig, East Germany.

This week, clips of Berliners dancing atop the wall will be voiced over with retold tales of political intrigue and bribery, hunger strikes and even a murder – of the Treuhandanstalt privatization agency’s CEO.

Most of the events of 1989 and the early 1990s were less dramatic. After nearly 45 years apart, the biggest challenge seemed to be how to fulfill former chancellor Willy Brandt’s vision that “what belongs together will now grow together.”

Chemical companies on both sides of the border had stayed in contact over the years, often using the Leipzig fair to hammer out technology or product swaps. Post-unification, many Western managers were wary of engagements in the East, arguing outdated technology and environmental concerns. Besides, overcapacity loomed at home, and Eastern Europe still looked shaky.

It took a political heavyweight – Chancellor Helmut Kohl – to jump-start the dialog. Seeking reelection in 1990, he pledged to save the “chemical triangle,” the new state of Saxony-Anhalt’s most important employer. Kohl also made it clear that West German help would be needed.

Many aging plants, some newer ones, and thousands of jobs, had to go. But in the final tally, the almost €17bn ($25bn) invested in production in the East has made it very resilient, says Matthias Gabriel, managing director of the Bitterfeld-Wolfen chemical park.

“In 1989 and 1990, it was not clear whether the East German chemical industry would survive, as there were many roadblocks on the way to a market economy,” Gabriel remembers. But now he says “our success could be an example for others.”

According to the German Chemical Industry Association (VCI), employment in the former GDR’s chemical-pharmaceutical sector sank from 180,000 in 1989 to 42,800 in 2008. In 1990 alone, 50,000 jobs went. Sales dropped from the equivalent of €10.3bn to only €3.4bn in 1994, but by 2008 had recovered to €15.7bn. This was accompanied by a notable increase in productivity, Eastern managers point out.

STEPPING IN
Despite reservations, a number of German, European and North American players – including Belgium’s Solvay, AkzoNobel, of the Netherlands, Germany’s Domo, Radici, of Italy, EVC (now UK-based INEOS) and Dow Chemical, of the US – eventually bought East German assets. Few transactions fizzled.

Domestic deals struck in 1990 were BASF’s takeover of Synthesewerk Schwarzheide and Henkel’s reacquisition of a detergents subsidiary at Genthin, followed in 1991 by Linde’s re-engagement in technical gases at Leuna. Inaugurating a new plant for waterborne automotive coatings at the newly named in 1993, then chairman Jurgen Strube said BASF was “living reunification.” The East German polyurethanes (PUs) specialist, which had cooperated with Ludwigshafen in the past, received a new lease of life and a broader portfolio.

Then in 1991, the newly incorporated Bayer Bitterfeld set up a greenfield site outside the old Bitterfeld-Wolfen combine. In 1992, Hoechst bought three units of the old Lacufa paints and coatings combine (now part of US chemical giant DuPont), along with fibers manufacturer Chemiefaser Guben. Huls, now part of Evonik Industries, acquired silanes producer Chemiewerk Nunchritz.

After the Wall fell, Huls cooperated loosely with plastics and rubber producer Buna, once its sister firm in the IG Farben trust. However, a takeover was thought to be ill-advised.

The Treuhand’s 1993 sale of East Germany’s Mitteldeutsche Kali to Kali+Satz reunified potash production, but a hunger strike by workers protesting against the closure of an unprofitable mine left a sour taste.

With no takers for the over-dimensioned former combines of Leuna, Buna, Bitterfeld-Wolfen and Zeitz, the Treuhand’s advisers settled on a chemical park concept. Site management would clean the soil, improve infrastructure and seek strategic investors to slot into existing raw material streams.

Key to the East’s future was a switch from carbide to petrochemical feedstocks and Leuna’s viability was tied to plans for a new refinery. Elf Acquitaine, now part of French energy major Total, won the nod for the refinery – with a little help from friends, it was mooted. Several involved in the deal mired in Franco-German politics later were convicted of bribery, including Elf’s former president, Loik Le Floch-Prigent.

Exercising the Treuhand’s mandate to reinvent Leuna as a capitalist enterprise, the former combine’s legal officer, Werner Popp, had hoped to keep the business intact, with as few redundancies as possible. “Unfortunately, this proved illusory,” the manager, who now works for infrastructure firm InfraLeuna, recalls.

More than 9,000 people are now employed in 20 international companies at the revamped Leuna site, which is a base for such forward-looking projects as a hydrogen cluster and a new industrial biology center.

The process of converting Bitterfeld-Wolfen, a chlor-alkali specialist with competence in diverse chemical markets, was lengthy. After an intermezzo under a US firm, management was taken over by German group Preiss-Daimler in 2001. The park is now an important supplier of the regional photovoltaics industry.

A concept for Buna was difficult to craft. Like the other Saxony-Anhalt sites, it was landlocked and not back-integrated. No German firm would touch it. Eyebrows were raised in 1995 when the Treuhand finally presented a buyer – Dow. The US group acquired 80%, and promised to take the remainder in 2000, if both sides were happy with progress.

The Buna privatization was also controversial, as it carried investment subsidies of 10.5bn Deutschmarks. The workforce was unhappy with the number of job cuts agreed, and the EU questioned whether the subsidies were acceptable. Dow committed itself to extensive investment in new facilities.

Making the Bohlen cracker part of the new BSL Olefinverbund (now Dow Olefinverbund), solved the feedstock problem. The Treuhand also promised funding for a pipeline to Bohlen from the Baltic sea at Rostock. Leuna’s polyolefins business also became part of the package.

KEY INVESTOR
The Treuhand needed a chemical group of Dow’s stature to promote investment along the plastics value chain in eastern Germany. On the space not needed for its own production, the group pledged to operate a chemical park dedicated primarily to plastics. The concept it called ValuePark worked so well that Dow applied it to other sites.

Amid all the buying and selling, many feared that the region considered the cradle of German chemical research might become just an extended workbench. There was a danger of “too little innovation, despite the presence of good academic institutions,” says Christoph Muhlhaus, retired CEO of Dow Olefinverbund and now a spokesman for the Chemistry/Plastics Cluster Central Germany.

This cluster, in which firms, industry organizations, universities and other academic groupings in the region share their know-how, seeks to develop new plastics materials or applications for existing materials.

Many companies investing in eastern Germany in the 1990s hoped to benefit from its proximity to Eastern Europe. In a 2003 interview with ICIS Chemical Business, Dow’s then general manager for central Germany, Bart Groot, said financial aid was not the only reason for investing. “We accepted the risk mainly because of the promise of growing markets farther east.”

Before EU expansion, payoffs farther east were minimal. Today, as opportunity knocks, the economics ministry of Saxony-Anhalt is spearheading the EU initiative called ChemLog, dedicated to creating a pipeline network for Central and Eastern Europe similar to those in the West. This “Verbund is essential for the competitiveness of the chemical industry in Eastern and Central Europe,” says economics minister Reiner Haseloff.

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