Case Study:LG.Philips Displays Czech Republic

s.r.o.

1. Significant points in the case of the LG.Philips factory in Hranice.2. Legal problems connected with implementing LG.Philips’ investment.3. LG.Philips and CSR obligations.4. Circumstances of the failure of the LG.Philips Displays holding.

Jiří NezhybaProgramme GARDE – Global Alliance for

Responsibility, Democracy and EquityEnvironmental Law Service15. 9. 2006

1. Significant points in the case of the LG.Philips factory in Hranice

➢ LG.Philips is a joint venture of the multinational corporations Royal Philips Electronics and LG Electronics

➢ LG.Philips Displays Czech Republic s.r.o. is owned by: LG.Philips Displays Holding B.V. - 96% share, and LG.Philips Displays Investment B.V. - 4% share.

Milestones in the LG.Philips case:

➢ March 2000 – the Czech Government adopts Decree No. 321 on the awarding of investment incentives and support to Koninklijke Philips Electronics

➢ April - June 2000 EIA proceedings

➢ May - June 2000 zoning proceedings

➢ June - August 2000 construction permit proceedings

1. Significant points in the case of the LG.Philips factory in Hranice

➢ December 2003 – the Board of Works in Hranice extends LG.Philips’ trial operations period.

➢ January 2004 – the Regional Office approves the company’s preventive security programme.

➢ January 2004 – GARDE-EPS files criminal charges against the officials responsible for the LG.Philips permit process.

➢ March 2004 – the Board of Works in Hranice issues a use permit.

➢ May 2004 – GARDE-EPS files suit against the integrated permit.

➢ April 2005 – The Municipal Court in Prague revokes the integrated permit.

➢ July 2005 – The Environment Ministry revokes the integrated permit.

1. Significant points in the case of the LG.Philips factory in Hranice

➢ January 2006 – Parent company – LG.Philips Displays Holding declares bankruptcy.

➢ January 2006 - LG.Philips acknowledges difficulties and stops operations.

➢ February 2006 - LG.Philips renews production and begins looking for a strategic partner.

➢ April 2006 - GARDE-EPS files suit against the new integrated permit.

➢ September 2006 - LG.Philips announces the approval of a 30% settlement with its creditors and a tender for a new owner of the complex.

2. Legal problems connected with implementing LG.Philips’ investment.

➢ In September 2001, LG.Philips initiated trial operations without a preventive security programme, which means the risk of a serious accident was not thoroughly evaluated, nor were the eventual results of such an accident for the surrounding area evaluated. Such a programme was not approved with legal effect until January 2004.

➢ The zoning decision and subsequent building permit issued in the year 2000 were therefore illegal.

➢ LG.Philips furthermore lacked the legally required insurance for damages resulting from a serious accident, which it was obliged by law to negotiate prior to starting trial operations.

2. Legal problems connected with implementing LG.Philips’ investment.

➢ In the proceedings on issuing the integrated permit (IPPC) LG.Philips did not have the technology of its centre evaluated as a whole, but only had one selected varnishing facility evaluated. The permit was subsequently revoked by the court. When requesting the new permit, LG.Philips did not respond to GARDE-EPS’s challenge and refused to have its production complex evaluated as a whole.

➢ After another toluene leak from the factory, the Czech Environmental Inspection (CEI) performed a week-long monitoring of the facility between October and November 2003. On the basis of their results, the CEI initiated proceedings to fine the company for various defects per legislation on the protection of air, of water, and on waste.

2. Legal problems connected with implementing LG.Philips’ investment.

➢ The criminal investigation was thrown out by the Czech Police twice, but on the basis of a complaint by GARDE-EPS, the state prosecutor finally ordered that four bureaucrats be charged, who then in the fall of 2005 had to leave their posts per Section 11 of Law No. 312/2002 Coll., on public officials.

➢ In March 2006, as a result of this outcome, Senator Jílek proposed that Section 11 be removed from the law. The Senate adopted his proposal, as did the Czech Chamber of Deputies.

➢ The investigation ended with the criminal prosecution being halted, so as of the summer of 2006 these bureaucrats are able to return to their jobs.

3. LG.Philips and CSR obligations.

➢ LG.Philips began to publish information about monitoring the environment on its website.

➢ LG.Philips published a declaration on its policy regarding preventing serious accidents on its website, as well as the overall company policy in relation to environmental protections and personal security.

➢ On its international website, LG.Philips Displays International Ltd. has a “Code of Conduct”. However, this is not listed on the website of its Czech branch and there are no links between the parent company’s and subsidiary’s pages.

On the basis of GARDE-EPS’s engagement in the case of LG.Philips, the company responded in the following ways in the CSR area:

4. Circumstances of the failure of the LG.Philips Displays holding.

➢ The entire founding capital, more than CZK 3.5 billion, had been frozen on behalf of the JP Morgan bank in Hong Kong. At that point in time the parent company had to have known about the basic problems with producing and delivering CRT monitors.

➢ LG.Philips Displays needs to sell its Czech branch in Hranice in order to meet its obligations to its creditors.

➢ Instead of trying to preserve its factories for the production of CRT monitors, the parent company Philips and LG massively develop the production of LCD monitors in their LG.Philips LCD division.

➢ Production lines for CRT monitors are not exchanged for lines that can produce LCD monitors even though it was possible to do so. Panasonic, for example, managed such a transformation in its factory in Plsen.

➢ The multinationals Philips and LG build a completely new factory for LCD production in Poland, where they are offered considerable investment incentives.

4. Circumstances of the failure of the LG.Philips Displays holding.

➢ LG.Philips never met the conditions for being awarded an investment incentive, since it did not employ 3 250 workers as promised, but only approximately 1 200. It will return a maximum of 30% of the funds it was awarded to the Czech Republic.

➢ The settlement process involves debts of a total of CZK 7.38 billion owed to 269 entities. The total amount could have been 435 entities seeking CZK 7.47 billion in debts.

➢ According to the plan that has been agreed, LG.Philips is to pay its creditors 30 % of the value of the recognised debts owed by 30. 11. 2007, either in cash, through capitalisation, or a combination of both options.